Investors like the merger between the cannabis business of Cannbit Pharmaceuticals Ltd. (TASE: CNBT) and Tikun Olam Israel. Yesterday's public offering, one day after the merger was completed, was slightly oversubscribed, and Cannbit expanded its offering to NIS 26.4 million. The offering took place at a predetermined share price of NIS 8.50. Yesterday, when the auction took place, the company's share price dropped 6% to NIS 8.70, still 3% higher than the price in the offering.
Cannbit raised NIS 69 million in recent weeks from the public; private investors, including parties at interest in the company; and two investment institutions. Cannbit raised a total of NIS 131 million last year, more than all of the other Tel Aviv Stock Exchange-listed cannabis companies combined. Participants in the company's public offering last April have lost 50% of their investment, in line with the general trend in the medical cannabis industry.
Cannbit will use the proceeds from the current offering to repay debt, complete the expansion of its cannabis growing farm and Tikun Olam's cannabis processing plant in the Tsiporit Industrial Zone, and for overseas activity, if and when cannabis exports are permitted. The acquisition of Tikun Olam's activity in Israel cost $23 million and 5% of Cannabit's shares, plus additional payment based on subsequent success. Cannabit is managed by CEO Ifat Kariv and controlled by Barak Rosen, whose shares are held in trust by Yaron Naor. Cannbit's chairman is Maj. Gen. (res.) Eitan Ben-Eliyahu.
Cannbit now faces several challenges. The first is getting Tikun Olam's products back into the Israeli market and regaining the customers who abandoned it after a suspension imposed by the Ministry of Health due to legal problems involving previous owner Yitzhak Cohen.
Patients under the old regulations were assigned to one grower. In order to resume purchase of Tikun Olam's products, they must undergo a bureaucratic process of transferring the license back to the company. This will happen only when Cannabit produces enough merchandise at Tikun Olam's facilities to supply all those who want it.
A second challenge is to launch Cannbit's independent product, which is suitable for the new regulations (currently one third of the patients). Even if Cannbit succeeds in these two tasks, however, it will not justify the acquisition price unless the company operates overseas. If no export permit is obtained in the coming year, Cannbit will try to buy cannabis overseas for overseas markets.
Cannbit projects NIS 140 million in revenue in 2020, 60% of which consists of exports. In 2024, the last year for which the company published a projection, it expects NIS 319 million in revenue, 75% of which consists of exports.
Published by Globes, Israel business news - en.globes.co.il - on January 2, 2020
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