1. Glittering and intoxicating names
A lawsuit filed last Thursday at the Tel Aviv District Court exposes cracks in the warm embrace between the cannabis sector and military, defense, and business celebrities. These celebrities can be seen daily in the media, each promoting his or her cannabis company, and are sometimes the only thing that distinguishes one company from another for the public. It sometimes seems that some of these celebrities jump headfirst into their public relations functions, and only afterwards bother to check exactly what is being sold to the public in their name.
The romance of Ori Yehudai, ex-CEO of Frutarom, sold last year for over $7 billion, with cannabis company Sade, ended in the short space of just two months. The announcement that he was leaving his position came in the form of a lawsuit by investors, who alleged that they had invested in the company because of his illustrious name, and expected their money back, now that he was withdrawing from it. The investors involved were experienced investors (Ran Nussbaum from Pontifax, the BH Ventures fund), so they probably examined the company directly and did not rely only on Yehudai's reputation. Nevertheless, they say that Yehudai's presence in the company and his resignation from it were of major significance to them. They may have counted on his managing the company, or they may have regarded him as a factor that would attract additional investors.
Every public company now has to take into account that investors are liable to perceive a lack of commitment on the part of its chosen celebrity as deception, or as least as damage to the company's credibility.
2. How proper was the disclosure?
Sade is a company founded by CEO Amit Sade, a former defense establishment employee with a BA in agriculture from the Hebrew University of Jerusalem and no experience in founding companies. Sade has licenses to establish cannabis activity in Israel, but is not well known in the local cannabis sector. The delays in obtaining approval for cannabis exports from Israel led Sade to establish activity in Macedonia, where its activity is currently in the initial growing stage, and its annual production capacity is 3.5 tons.
It can be assumed that the fact that overseas activity exists and there are sprouts in the ground attracted Yehudai's attention, who claimed that he chose Sade out of 15 companies that contacted him in order to recruit him. Yehudai told "Globes" that harvesting the crop began already in 2017, and that 2019 would be the turning point for the company, which would post substantial revenue in 2020.
In the correspondence between Yehudai and Sade, however, which was cited as part of the lawsuit, Yehudai alleged, "I saw things that were forbidden, and I won't take responsibility for them." What did Yehudai see? There is concern that it involved problems in growing cannabis, but market sources say that what he saw may have been an improper representation of the state of the company's activity. In other words, it is possible that Sade made a presentation that made it appear as if it were further along in cannabis production and obtaining marketing approvals than was really the case. The company made no response to this.
The obvious question is why Yehudai took upon himself a position described as chairman, and reported his appointment to the media, before realizing exactly what did and did not exist in the company, and before devising with Sade a strategy for proper presentation of matters. It appears that in assigning his good name to the cannabis company, he was a lot less cautious than in the acquisitions he made for Frutarom.
3. They want a bit of space cookie
When he was appointed chairman of Sade, Yehudai told "Globes," "It took me time to understand why cannabis companies were pursuing me, before I realized that this is a sector of extracts, strains, and also a matter of flavors." He noted that he was originally concerned about the sector's reputation, but "I was never in an industry that grew like this. I realized that it was real." He added that he had fallen in love with Amit Sade. "I promised to spend one day a week, and I'm actually spending more time than that. It's a sector that people fall in love with. I was never part of a sector in the process of being created. It's possible to build another Frutarom in a relatively short time."
What is so attractive about cannabis to industry leaders? In contrast to some of the glittering appointments, Yehudai has no need for the healthy salaries offered in the industry, nor is he looking for a job following a career in another sector that came to an end. He has more than enough to keep him busy. It appears that the prospect of working in a rapidly growing field, which is an opportunity today and will conquer the world tomorrow, was enough to entice even somebody to whom all of the options were available.
Published by Globes, Israel business news - en.globes.co.il - on July 8, 2019
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