Two Israeli medical cannabis companies are merging. Cannbit (TASE: CNBT) has signed a memorandum of principles to buy Tikun Olam for $42 million. If Cannbit's market cap reaches $1 billion within five years, it will pay a further $18 million. Cannbit is financing the acquisition mainly through a public offering. It warns that there is no certainty that a final agreement to acquire Tikun Olam will be reached.
At the start of negotiations, Tikun Olam owner Yitzhak (Tzachi) Cohen sought a price of $100 million for his company plus a percentage of its income. Cohen was forced to sell Tikun Olam because of claims by the police that he was not legally fit to hold more than 5% of a cannabis company because of alleged connections with criminal organizations. The police have still not proved these claims, but following intelligence received from the police, the Ministry of Health restricted Tikun Olam's activity considerably, and the company lost its standing as a market leader.
Today, Tikun Olam sells medical cannabis to 2,000-3,000 patients monthly, which compares with 10,000 or more at its peak. As far as physical assets are concerned, the company has a small growing facility at Bet Yehoshua that meets the standards of the Ministry of Health's new regulations, and a cannabis processing facility under construction at Tsiporit, planned to be the largest of its kind in Israel. Its intangible assets consist of a strong brand - both the "Tikun Olam" brand and the brand names of specific cannabis strains - and a large database containing information on tens of thousands of meetings with patients and on clinical trials of its products.
A market source estimates that the company's most important asset is the processing facility, which could have products on the market within six months, but which he believes needs investment of a further NIS 15 million. The same source says that whoever buys Tikun Olam will have to invest NIS 30-40 million over and above the acquisition price to strengthen the company for substantial activity in the market.
Tikun Olam's overseas activity includes cannabis growing and processing in the US, activity in Australia which is now becoming commercial, and activity that is getting underway in Greece, from where the company plans to export to all of Europe. Tikun Olam has distribution activity in several European countries that awaits permits to import from Greece, and Cohen has about $200 million that he received from the sale of his shares in Aurora, into which was merged Canadian company Medreleaf that was founded in partnership with Tikun Olam.
Cannbit CEO Ifat Kariv told "Globes": "The deal positions Cannbit as a genuine leading company active along the whole value chain. This deal will enable Cannnbit to position itself in advance of an offering overseas on the basis of Tikun Olam's strong brand. Its facility will be one of the largest of its kind in the world."
Presumption of innocence: Yitzhak Cohen is only a suspect in the matters mentioned in this article. Cohen has not been convicted of any crime, and is entitled to the presumption of innocence.
Published by Globes, Israel business news - en.globes.co.il - on September 16, 2019
© Copyright of Globes Publisher Itonut (1983) Ltd. 2019