Medical cannabis is one of the more exciting areas of growth investing and a newly rebranded Seed Innovations (SEED) is set to take full advantage of a boom in this space.
But competition is fierce and not everyone can be a winner.
Seed Innovations, listed on the AIM market, helps provide access to mostly unquoted small and medium sized companies in the cannabis and life sciences sector, that typically would be difficult for retail investors to invest in otherwise. The company looks to take anything from minority positions to full ownership stakes in companies with less than £100 million in valuations.
The company was renamed in July this year from FastForward Innovations, which was previously known as Kuala Innovations. The latest change in the name came as the company repositions itself from a generalist technology fund to one investing in disruptive technologies, with a particular focus on the medical cannabis sector and health and wellness.
Seed Innovations wants to invest 80% in cannabis companies
According to chief executive Ed McDermott, the fund aims to have 80% of its portfolio in cannabis companies by the end of 2022. Currently, portfolio companies in the sector include Yooma, Little Green Pharma and Northern Leaf.
In a recent presentation, he pointed out that the company had historically made mistakes by being just a passive investor, but says that he is looking to be a more active owner of businesses. He also reiterated the goal of reaching £50 million in market cap.
The repositioning of the fund comes at a time that has been particularly exciting for the cannabis sector.
As of June, investment into the European cannabis sector had reached €1.2bn, according to a report released by First Wednesdays, a network for entrepreneurs and investors in the sector. The first six months of the year saw a 130% increase in private fundraising for the sector and a 50% increase in public market opportunities, compared to 2020.
The boom in investment has even seen Snoop Dog’s investment company plough €13 million into Portugal-based medical cannabis firm AceCann.
SEED scored a profit on sale of EMMAC
So far, Seed’s focus on cannabis seems to be paying off. In April 2021, European medical cannabis company EMMAC, a holding of Seed’s, was sold to Curaleaf Holdings in the US, with Seed scoring a profit of approximately £1.9 million to deliver a return of 1.86 times its investment.
The fund also took a stake in Kanabo Group ahead of its London Stock Exchange listing in February 2021. Seed was able to quickly realise most of the investment making a profit of nearly £137,000, more than twice the amount that was invested.
According to its full year results to the end of March, the company had net assets of £24.94 million, up from £14.24 million the year before, and made a profit of £6.5 million, up from a loss of £5 million year-on-year.
Early stage investor has been depressing the SEED share price
Despite some successful investments, Seed’s share price has continued to suffer. It’s to be seen whether the renewed focus on cannabis and health and wellness companies and the resulting rebrand will help to reverse the slump. Over three months the share price is down 7.41% and over the last 12 months, the share price is down 10.72%.
But there has been one shareholder in particular who has been selling off her position – the mother of the group’s former chairman, who was gifted the stock. In an interview on media platform Total Market Solutions, CEO McDermott said it hasn’t helped to have a persistent seller of the stock, who held a large amount of shares, but now that it’s been sold ‘the handbrake’ has been released.
The fund is trading at a 36% discount to net asset value, according to AJ Bell You Invest.