Leading Israeli cannabis companies are competing for the acquisition of Tikun Olam's operations in Israel. Bidders include Cannbit Pharmaceuticals, InterCure subsidiary Canndoc, Univo Pharmaceuticals, and Bazelet Group. "All of the companies in Israel are interested in the acquisition," a source told "Globes." "Tzachi (Yitzhak) Cohen mentioned $100 million, and he might just get it."
"It's very hard to understand the process," another source said. "The potential buyers are working with lawyers, but it's not clear whether this is really an organized auction." The second source says that Cohen will not be able to get his asking price.
Cohen is being forced to sell the company following complaints by Israel Police that he is unfit to own more than 5% of a cannabis company because of his alleged links with organized crime. The police have not yet proven their assertions (legal proceedings are taking place), but following intelligence information obtained by the police, the Ministry of Health made several decisions about Tikun Olam that have greatly reduced the company's activity in Israel. The court is now requiring Cohen to sell his stake in the company within a limited time; otherwise, the company's activities will be terminated.
Sources close to the sector initially predicted that Cohen, who operates in the cannabis sector all over the world and does not live in Israel, but who is emotionally connected to Israel, would sell his holding to an intermediary who would allow him to continue his involvement in the company or reacquire it at some point. If Cohen sells Tikun Olam to one of its competitors, however, he will have to genuinely sell his share in the company's controlling interest.
"It appears that Tzachi has realized that until he manages to convince Yuval Landschaft (Ministry of Health medical cannabis unit director, G.W.) that he really no longer has any connection to Tikun Olam's activities in Israel, Yuval will go on persecuting the company and causing big problems for both Tzachi and the patients. What does he need this for? Why isn't overseas activity enough for him?" one market source said today. The market, however, still regards a scenario in which the company is eventually sold to an associate of Cohen as possible.
If Tikun Olam is really sold for $100 million, or even for half that amount, the question arises where the acquiring companies will get the money for it. None of them has the necessary cash on hand, and the deal, if it goes through, will either have to be leveraged or in partnership with a number of concerns, or will require a special round to raise capital from the public. Israeli investment institutions are still hesitant to finance cannabis deals.
Tikun Olam is a veteran company that dominated the market in 2008-2018. Its operations were reined in by the Ministry of Health - first for reasons of quality and failing to meet the new cannabis standard, and later because of questions about Cohen's legal fitness to hold a cannabis company. At its peak, Tikun Olam sold cannabis to 10,000 patients.
Tikun Olam currently markets medical cannabis to 2,000-3,000 patients a month. The company's activity in Israel includes an approved cannabis growing facility in Beit Yehoshua covering about an acre, a cannabis processing plant under construction in the Tsiporit Industrial Zone that is largest of its kind in Israel, and a strong brand - both the brand and the specific strains developed by the company, for example Avidekel, are highly esteemed. Tikun Olam has a database that it has collected during a decade of work with a large number of patients, clinics of nurses trained in instructing patients, information from clinical trials conducted on its products, sales points in Tel Aviv and Tzfat, and a pharmacy in Tel Aviv that can be used for cannabis activity.
A market source said that the company's most important asset is its factory, which can bring produce to market within six months. The source adds, however, that the plant needs a NIS 15 million investment on top of the acquisition price, and says that a NIS 30-40 million investment is required in order to make Tikun Olam a significant player in the market again. "The company is in tatters because of what the Ministry of Health did. They had to lay off a lot of employees, and the rest worked under conditions of uncertainty for two months," the source remarked.
Tikun Olam's overseas activities, which are not involved in the current offer for acquisition, could explain why Cohen can afford to give up the activity in Israel. This includes a 10% holding in Aurora Cannabis (worth $600 million on paper), cannabis growing and processing in the US, activity in Australia which is just now becoming commercial, and the beginnings of activity in Greece, from where the company plans to export all over Europe.
Published by Globes, Israel business news - en.globes.co.il - on September 15, 2019
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