Private cannabis products company Panaxia is moving towards a merger into Herodium Investments (TASE: HROD), which is raising NIS 17.5 million in a share offering. NIS 11.5 million of this was raised through a shelf prospectus. The financing round was at NIS 4 per share, 10% higher than the Herodium's share price. Herodium's market cap is now NIS 56 million, which represents a valuation of NIS 280 million for the merged company. If Herodium-Panaxia meets certain conditions, additional shares will be allocated that will greatly increase the company's valuation. The investors in the public offering are Canadian fund Murchinson Financial Services; Dana Aviv, daughter of late contractor Moshe Aviv; and a company controlled by Amos Luzon. Real estate tycoon Eli Michel Ruimy is investing NIS 6 million separately. Herodium will have NIS 35 million in cash when the merger is completed.
Panaxia, founded by Dr. Dadi Segal, Dr. Eran Goldberg, and Adv. Assi Rotbart, is one of only three cannabis enterprises in Israel already processing raw material according to the new cannabis standard that became effective in April, and which is gradually replacing the old standard. Panaxia has been active in the sector for a decade, long before the current cannabis reform, and has gained the reputation of an esteemed cannabis pioneer, thanks to the background of its parent company, Tree of Life, in manufacturing pharma and quality-of-life products on the border of medicine (such as products for destroying lice).
Tree of Life manufactures and markets hundreds of pharma and quality-of-life products for both the Israeli market and exports. For example, Tree of Life is one of the leading manufacturers for Super Pharm's Life brand. Panaxia regards itself as ready to export cannabis, because it is already familiar with registration of medical products for marketing in Europe, and already has distribution activity there. At the same time, other enterprises are set to open in the coming year, and competition is liable to erode Panaxia's profits.
Loss doubled by merger
Panaxia reported NIS 5.7 million in revenue in the first half of 2019, compared with NIS 4.1 million in all of 2018. Despite its surging revenue, the company is falling far short of its revenue guidance, due to the gradual introduction of the reform and a lack of raw materials. Panaxia posted a NIS 14.5 million loss in the first half of the year, double its entire loss in 2018. NIS 10 million of this year's loss is attributable to costs of the merger with Herodium. Panaxia's cash flow was minus NIS 2.5 million.
Segal said, "We are delighted with the successful completion of the shelf offering, which guarantees the completion of the merger. Panaxia is the largest and most advanced cannabis producer in Israel. Now, with the completion of the financing round, it possesses the means to duplicate our dominance in Israel for the European market."
Published by Globes, Israel business news - en.globes.co.il - on September 18, 2019
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