Growing concerns

Yaron Gisin and Amit Sade

After Ori Yehudai's about face at cannabis company Sade, Amit Sade talks about what happened, and what makes his company different.

Ori Yehudai is not the first celebrity to have climbed on the cannabis bandwagon in recent months. The former Frutarom CEO is only one of many prominent figures - former prime ministers, retired generals, politicians, tycoons, and financiers - enlisting in the local cannabis industry, which is still only a promise without any real business achievements.

Today, now that the Tel Aviv Stock Exchange (TASE) cannabis bubble has been partially deflated, exports face an uncertain future, and the cannabis reform is generating more headlines than sales in pharmacies, Yehudai is not the only one to reconsider his or her involvement.

The platform that Yehudai chose to join in May as a manager and investor is Sade, a private cannabis company that operates a growing facility in the Republic of North Macedonia and a laboratory in Ness Ziona. Before the news hit that Yehudai would be the company's part-time chairman, in addition to his participation in a financing round that was to have amounted to NIS 40 million, Sade stayed under the radar.

It appears that Yehudai was looking for a new pet project at the time, after leading Fruatorm, which produces ingredients and flavors for the food and beverages industry, to a merger with US competitor International Flavors & Fragrances (IFF) in a deal at a company valuation of $7 billion. The deal made Yehudai a very wealthy man with hundreds of millions of dollars in his bank account.

Talking to "Globes" at the beginning of his romance with Sade, Yehudai stated, "It took me time to understand why cannabis companies were pursuing me, before I realized that this is a sector of extracts, strains, and that it also involves flavors." He noted that he was originally concerned about the sector's reputation, but "I was never in an industry that was growing like this. I realized that it was something real."

Yehudai added that he had "fallen in love" with Sade founder and CEO Amit Sade. "I promised to spend one day a week there, and I'm actually spending more time than that. It's a sector that people fall in love with. I was never part of an industry that was in the process of being created. It's possible to build another Frutarom in a relatively short time," he said.

In less than two months, however, the deal fell through with a resounding thud, resulting in a lawsuit by a group of investors, Yehudai among them, led by Pontifax managing partner Ran Nussbaum. The lawsuit revealed for the first time that following Yehudai's resignation as chairman of Sade, the investors were demanding the cancellation of their investment. A text message was reported in which Yehudai wrote, "I saw things that were forbidden," while Yehudai spoke at a conference about "a festival of  tall tales about cannabis."

The parties today reached a compromise in which the Nussbaum and Yehudai investment group will reduce their investment in Sade by an estimated 75% of the original amount, sources inform "Globes." In his first media interview, Sade and chief innovation officer Yaron Gisin talk about their company and what about it attracted Yehudai to it at the beginning, but less about what led him to resign, although they say that this is unrelated to anything that the company did.

"We met Yehudai through the investor group (which filed the lawsuit, G.W.), which we contacted through various connections in the industry. They introduced us to Yehudai, and he did wonderful due diligence work," Sade remembers. "He sat with the team for hour after hour, day after day, for almost a month and half. We learned a lot from his questions, including about ourselves."

As a reason for his resignation, they hint at disagreements between groups of investors in Sade - the "new" one headed by Nussbaum and the old one containing real estate tycoon Yakir Gabay, hotel tycoon Meni Weizman (both active mainly in Germany), and the Israel family (owners of Israel Brothers).

"It was a difficult set of strong groups of investors. "The company fell into this situation, and then, for his own reasons, after giving us much more than we expected from him, Ori decided to resign his position. Something there failed to click for him. Maybe it had to do with the burden on him, and maybe it was what was going on between the investors in the company. That's what we think, because he never complained to us."

In the current compromise agreement, the investors reduced their investment in Sade, although they did it at the same valuation as in their initial investment. "There was no need at all for a lawsuit, and the judge also said that the lawsuit was unfounded and was instituted for the purpose of creating pressure on us, which was totally unnecessary," Sade declares. "We understand completely: if Ori's not there, people want to reduce the risk. We didn't mean to hold any investor at gunpoint."

"Globes": After all this, how can you manage your relationship with the investors?

Sade: "The relationship is good. They stayed in the company and are already helping to raise more money. There was an event that got out of proportion, but it occurred in what was around the company, not inside it. They are a very important factor, not just in money, but because of their reputation and their ability to bring more money and connections. So we did what we could in order to avoid a war."

Do you think that Yehudai is now looking for different cannabis activity to be involved in?

Gisin: "We don't know. It seems to me that he's a little frightened by this sector, which is a little like a startup in character, but I don't want to put words in his mouth."

Patents for plants expressing certain ingredients

Sade, 36, a veteran of the IDF intelligence corps, lives on Moshav Nir Yisrael and studied at the Hebrew University Faculty of Food, Agriculture, and Environment in Rehovot. "I was exposed to cannabis before all of the hype in the sector, and I obtained one of the first growing licenses under the new reform" he says, adding, "After I met all of the legendary growers here in Israel, I concluded that there was no point in starting a farm in Israel and competing with them as a grower. It's better to create an advantage in research and development."

At this stage, Sade met Gisin, who originally comes from design and branding. Before joining Sade, he was an entrepreneur in digital and cleantech companies. "We both invested in a company named Israel Plant Science (IPS) - a holding company with a number of cannabis subsidiaries in the cannabis field that came out of the Agricultural Research Organization of Israel (Volcani Center)," Sade explains. "We have substantial shares there, but we don't control it. When we began developing capabilities in this sector, we realized that it was very hard to develop cannabis products when you don't have access to the plant, so we went to Macedonia."

Sade contacted a group of Swedish entrepreneurs living in Macedonia, who were then (two years ago) beginning to build a covered growing facility in Macedonia, "which was very impressive and aimed at the Canadian market," he says. Regulation and changes in the cannabis market disrupted the plan, however, after they learned that the Canadians were planning to place obstacles in the way of imports in order to protect their local growers. This was a blow to all of the Israeli growers (and potential Israeli growers), who based their business plans on exports to Canada.

"All of a sudden, everyone has to market to the second largest country that allows imports, Germany, but the Germans added three new letters to the equation - GMP - good manufacturing practice standards. Israel requires that GMP standards to be met in order to export, if exports ever happen. But Germany requires exports according to the EU-GMP standard, which is a little different from the Israeli GMP. All of the growers are now making these adjustments. Anyone who doesn't do that won't be in the German market," Sade says.

Sade is also now adapting the facility that it built in Macedonia to the EU-GMP standard, although in principle, Sade and Gisin do not believe that this is necessary. "Growing a plant in sterile conditions is like raising a child in sterile conditions - he'll get an autoimmune disease, because he won't be resistant to the outside," they say. They add, however, that until the world is won over to this view, they will grow cannabis according to the EU-GMP standard. Exports are slated to begin in 2020.

Why is it worthwhile for you to grow in Macedonia and not in Israel?

Sade: "Because Macedonia very much supports exports, although there's no local market there."

Gisin: "It was very important for the Macedonians to take advantage of the export opportunity, so they made sure of it before getting mixed up with local medicalization and legalization, which creates a great deal of noise."

What do you have that the local growers don't?

Sade: "We focus more on clinical research and the connection with diseases. When we grow a plant, we're able to map its entire genome, the way the plant grows (phenotype), and the chemical ingredients in the plant. We're able to map dozens of chemical ingredients."

Gisin: "We work in two ways. One is taking extracts from plants that we know express certain ingredients. In this case, our patent is on the plant. At the same time, we also make extracts that contain only one of the plant's components.

"Such a product still benefits from the entourage effect, in which the activity depends on a combination of several molecules, but it is different from the activity of the complete plant. There are a limited number of receptors in the body for molecules that are similar, so taking some of the molecules from the cannabis plant in order to keep it as effective as possible is likely to improve the effect of the final product on certain diseases. It can still be marketed as a medical cannabis product." The company has an analytic laboratory in Ness Ziona.

For example, at PlantEXT, a company in which Sade invests, Prof. Hinanit Koltai of the Weizmann Institute of Science and Technology, together with Prof. Timna Naftali from Meir Medical Center, discovered a certain composition of active ingredients in the cannabis plant that is especially suitable for treating intestinal inflammation. The company is now nurturing a plant that will contain the maximum possible amount of this combination of ingredients, and is also developing a delivery method by suppository so that it can be brought to the right location. PlantEXT is now planning to merge with a stock exchange shell in Canada.

In the case of PlantEXT, Sade is only an investor in the company, but three other projects of this type are being planned in Sade itself.

Are there other companies in the world working with an approach similar to yours?

Sade: "Columbia Care. We're in constant contact with them. We speak the same language. They're very focused on the patients side, as we are on the plants side, so there's potential for synergy there."

Published by Globes, Israel business news - en.globes.co.il - on July 25, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Yaron Gisin and Amit Sade
Yaron Gisin and Amit Sade
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