Shares in medical cannabis company MMJ Phytotech Ltd (ASX: MMJ) surged 18.6% following news that Canada-based Harvest One Capital Corp has increased its private placement due to strong investor demand. Harvest One is to acquire the main operating subsidiaries of MMJ which owns established cannabis growing facilities in Canada including a license to cultivate medical marijuana.
The deal values MMJ at C$42 million and is made up of C$2 million cash plus shares equivalent to 60% of the combined entity on completion. The separate private placement will raise a further C$25 million to be used for commercialisation. MMJ's market capitalisation is just over $50 million following today's rise.
The rationale behind the deal is that Harvest One will use MMJ's existing Canadian medical license to access the recreational market following expected legalisation in Spring this year. Recreational legalisation would open a market worth an estimated C$8 billion to C$9 billion by 2024.
Late last year MMJ Managing Director Andreas Gedeon said,
"There has also been strong investor demand for new cannabis related TSX-V listings, with International Cannabis Corp (CVE: ICC) listing in November, and recording a 300% share price increase on its first day of trading."
Whether an opening day rise of 300% is a good thing for long term shareholders is debatable, but it certainly sounds like owners of MMJ are in for a wild trip in the months ahead.
