Looking for a fund of funds in Medicinal Cannabis? Then look into Fastforward Innovations and get all this and more.
“…FastForward’s intriguing set of holdings opens a door for private investors into the somewhat exclusive early stage cannabis and biotechnology sectors…”
As we noted in our feature last month, there has been a surge of interest in the medicinal cannabis sector this year as a cluster of ambitious companies take advantage of new London Stock Exchange rules to go public. But it’s still not clear just how private investors should best position themselves to share in the potential gains. Investment fund FastForward Innovations (AIM:FFWD) may offer one way in.
FastForward focuses on high growth life sciences and technology businesses, particularly within the medical cannabis sector. The fund’s portfolio seeks a balance between early stage companies, those preparing for listing, and those already public, which it aims to hold for 2-4 years, 6-24 months, and up to 12 months respectively. Some 15pc of capital is apportioned to ‘opportunistic investments’ in pursuit of a ready return, typically IPOs or fundraisings by public companies.
Led by CEO Ed McDermott, a former investment banker with a record of financing growth companies, and a director of medical cannabis company EMMAC Life Sciences, FastForward offers retail investors access to early stage investments often reserved for private venture capital firms.
The floodgates (partially) open
The company has been highly active in the medicinal cannabis space this year: indeed it is currently the only AIM investment fund offering significant exposure to the sector. Increasing recognition of the benefits of cannabis extracts – which offer pain relief and treat conditions such as insomnia, anxiety, epilepsy, skin irritations, and stress disorders – and a change in UK stock market regulations, have generated a surge of interest in marijuana stocks.
Several companies have listed or applied to list after the Financial Conduct Authority gave the green light last autumn for UK-based medicinal cannabis companies to list on the London Stock Exchange. Private investors have poured more than £300m into cannabis stocks since companies began to list in February, joining a European market that may be be worth more than €13bn within the next five years. The US market, where legal cannabis sales reached $17.5bn last year, 46pc up from 2019, is expected to grow rapidly under the Biden administration, which has promised to legalise medicinal cannabis at federal level: Vice President Kamala Harris herself sponsored a 2019 bill that sought to end federal prohibition of marijuana. Cannabis companies raised nearly $4.3bn in debt and equity in the first quarter of 2021, compared with $1.6bn in the same period last year. Backed by a growing consumer base, increasing recognition from financial regulators and governments – medicinal cannabis is now legal in more than 40 countries – the sector is on a strong upwards trajectory.
And yet it’s far from clear how private investors can best get exposure to it. None of the major investment houses yet offer a cannabis fund. Compliance teams at large asset managers are still wary of the sector: investing in a medical cannabis company that also works with recreational cannabis elsewhere in the world would be a breach of UK law, and due diligence on medical cannabis companies is currently capital and labour intensive. And the market cap of recently listed medical marijuana companies in the UK is too small for them to take notice. Money has flowed into international cannabis-tracking ETFs, but there are still so few investment-grade cannabis companies that cannabis ETF holdings have significant overlaps, and their indices are diluted by the inclusion a large percentage of companies specialising in sectors such as property or fertiliser. Investors can of course buy newly listed companies directly, but prices have been extremely volatile. FastForward presents an alternative option, a curated portfolio of medicinal cannabis start-ups, some newly listed, others still private.
A developing medicinal cannabis portfolio
The company’s largest holding accounting for 13.63pc of its Net Asset Value (NAV), is Yooma Wellness (CNSX:YOOM), an emerging global marketer and distributor of cannabinoid and hemp-derived wellness products, headquartered in Toronto with offices in Shanghai, Tokyo, UK, France and Los Angeles. In February Yooma completed its reverse take-over of software company Globalive Technology, and is now trading on the Canadian Securities Exchange. Following the merger, which is waiting Canadian regulatory approval, FastForward will hold 8.95pc of the new company’s share capital, a stake worth £3,274,566. Yooma increased its UK exposure last month, launching its plant nutrition brand in more than 200 Holland & Barrett stores.
FastForward has taken interests in two other medicinal cannabis companies this year. In February it invested £563,000 in Little Green Pharma (ASX:LGP), a supplier of medical-grade cannabis products to Australian and international markets. Little Green is developing its indoor cultivation facility and manufacturing facility in Western Australia to produce its own-branded range of medicinal cannabis products, and has made progress in developing offshore distribution channels to the UK, Germany, and New Zealand.
Earlier this month FastForward invested £600,000 in Jersey based medical cannabis cultivator Northern Leaf Limited, as part of a pre-IPO funding round that raised some £14m. Northern Leaf, the first company to be awarded a UK licence to grow medicinal cannabis in 22 years, has a channel islands operational facility where the favourable climate and sunshine hours contribute to a comparably lower cultivation cost. Northern Leaf will grow commercial quantities of medical cannabis for the rapidly growing European market, including the key markets of the UK, Germany, and Israel.
While taking those new holdings FastForward sold its significant stake in EMMAC Life Sciences, Europe’s largest independent cannabis company (and in which, as noted, Ed McDermott has a management role) for £5,036,459, as part of the company’s sale to Massachusetts-based Curaleaf Holdings. Stakes in two other newly listed cannabis companies, Kanabo Group and Cellular Goods, were also sold, for £194,414.39, an increase on initial investments of 223pc and 315pc respectively.
FastForward has a longer term interest in South West Brands, a London-based group seeking to establish itself as a multi-brand consumer goods group developed specifically for the cannaboid industry: South West is led by Rebekah Hall, a well known figure in the European consumer cannabis market.
The company continues to seek new opportunities in the sector. Earlier this month it appointed Alfredo Pascual, a former analyst at the Marijuana Business Daily, a US-based business news and information resource, as Vice President of Investment Analysis, with a focus on sourcing and evaluating investment opportunities in the European marijuana space.
Elsewhere, FastForward has two significant investments in emerging biotechnology companies.
Juvenescence, in which the company holds 16.21pc of its NAV, is a biopharmaceutical company developing therapies to modify ageing and increase healthy human longevity. The latest of its joint ventures is with G3 Therapeutics, a biotechnology company leveraging big data from biological research to develop nutraceuticals and medicines to combat ageing-related diseases related to the musculoskeletal system. Juvenescence, which comprises more than 13 subsidiary companies, is aiming to go public this year.
Portage Biotech (CNSX:PBT.U), in which FastForward has a stake worth 5.37pc of its NAV, develops treatments for various cancers, eye disease and acute kidney injuries. Portage had a strong start to 2021, advancing three of its pipeline assets through to clinical trials. One of its subsidiary companies, Intensity Therapeutics, which is pioneering a new immune-based approach to treat solid cancer tumours, has entered into a clinical trial collaboration agreement with New York Stock Exchange listed Bristol Myers Squibb Company, with tests so far indicating up to 80pc survival probability for certain cases. Portage recently raised more than $6.9m to carry its work forward, and in February announced it had received approval to list on the NASDAQ exchange. As at 23 February 2021 FastForward’s holding in Portage was worth £1,703,892.
The company’s major interest beyond advanced medicines is Leap Gaming, a B2B developer of high-end virtual reality gaming applications, which accounts 49.05pc of NAV. Leap grew significantly through the pandemic lockdowns, delivering a 95pc year-on-year increase in revenues in the first five months of 2020.
Through its partnership with software developer IMG Arena it has recently released a virtual tennis product sponsored by the ATP1000 Tour, a virtual sports betting product for the NASCAR US stock car racing series, and EuroLeague Legends, launched in partnership with EuroLeague Basketball. Leap also releases titles through the 888casino franchise, and last month rolled out EuroLeague Legends across the major gaming sites of Kaizen Gaming, one of Europe’s fastest-growing games companies. In November FastForward CEO Ed McDermott joined Leap’s board as a Non-Executive Director.
The company’s other interests include Vemo Education, which designs, implements, and manages income share agreement programmes allowing students to defer some of their educational costs in exchange for a fixed percentage of their post-graduation income for a fixed period. Vemo doubled its ISA volume in 2020 and increased the number of colleges and universities using its products by around 17pc.
Opening the door
FastForward has raised £4m over the past year, the most recent fundraise in January bringing in £2.1m. Interim results to 30 September 2020 published in December recorded net assets of £15,224,000 (31 March 2020: £14,238,000), and an investment gain and for 1 April to 30 September 2020 of £1,460,000 (1 April to 30 September 2019: £1,742,000). The company had cash of more than £6.5m, ‘which we aim to invest in new exciting opportunities, principally within the highly active medical cannabis, cannabinoid wellness and life sciences sectors.’
FastForward’s intriguing set of holdings opens a door for private investors into the somewhat exclusive early stage cannabis and biotechnology sectors, with Leap Gaming offering diversification through exposure to the continually growing games industry. The company’s share price spiked at 14.75p when interest in cannabis was at its height earlier this year. Now below 9p, we think FastForward is worth considering as an alternative way of participating in the gains from emerging sectors that can seem frustratingly out of reach.