Merger factors to demise of Israel’s best-known hashish model

Final week, Tikun Olam-Cannbit Prescription drugs (TASE: TKUN) launched an announcement that heralds the tip of the corporate as a pure hashish participant, and maybe the tip of the street in Israel for what till not way back was thought of the nation’s main hashish model. The corporate, at present managed by the household of actual property developer Barak Rosen (Israel Canada), introduced an settlement whereby a number of conventional industrial companies managed by Ronen Elad shall be merged into it, towards an allocation of 60% of its shares.

The companies being transferred, mainly Elad’s holdings in energy cables firm Synergy Cables and meals packaging supplies firm Plastopil Hazorea (TASE: PPIL), shall be run alongside Tikun Olam-Cannbit’s fading hashish enterprise (“after a restructuring of this exercise”), and Elad will change into the controlling shareholder within the merged firm. All of Tikun Olam-Cannbit’s present firm officers will depart (together with CEO Ifat Kariv and chairperson Eitan Ben-Eliahu), to get replaced by Elad’s appointees.

At present, when Tikun Olam-Cannbit is traded on the derisory market cap of NIS 25 million ($7 million), it’s arduous to consider that lower than 4 years in the past it was supplied on the market at $100 million. Since then, nevertheless, there have been dramatic adjustments for the more serious within the firm itself and within the medical hashish market as an entire. The story of Tikun Olam-Cannbit represents an additional instance of the chaos out there, which has by no means managed to develop in the way in which predicted for it when it was at its peak, in 2019.

Tikun Olam was a pioneer of medical hashish in Israel when it began up in 2005. At the moment, the enterprise was nonetheless thought of doubtful, the vegetation grew in pots, and clients acquired remedy on the dwelling of the corporate’s proprietor on the time, Tzachi Cohen. The corporate went on to develop quickly. It developed hashish strains that gained a worldwide fame, carried out pioneering scientific trials, and offered the rights to a few of its strains to Canadian firm MedRelief, in a deal that was extremely remunerative for the homeowners.

The corporate continued to develop within the US, Europe and Australia as nicely, however following allegations by the police that Cohen had connections with some problematic figures (allegations that even with out being proved in a courtroom of regulation had been adequate for his license to carry a hashish to be withdrawn), he was pressured to promote its hashish exercise in Israel. Cohen put Tikun Olam up on the market for $100 million, reflecting the hype round hashish shares at the moment, however ultimately needed to comply with a a lot lower cost.

The winner within the public sale that Cohen held for the acquisition of Tikun Olam was younger hashish firm Cannbit, led, as talked about, by Barak Rosen (whose shares within the firm are held via his son). After Cannbit had supplied $42 million for the corporate in September 2019, with conditional add-ons, ultimately the enterprise was purchased for simply $23 million, plus $18 million in conditional funds that ultimately weren’t made.

At the moment, a extreme scarcity of medical hashish arose within the native market, partly due to the closure of Tikun Olam’s massive farm in northern Israel (following claims of high quality issues), and the Ministry of Well being determined to open the market to imports. This led to the Israeli market being flooded with imported hashish, which ultimately brought about the collapse of Tikun Olam-Cannbit’s enterprise, and made it not possible for it to take advantage of the potential of its model. The adjustments within the construction of the market, along with the blow to Tikun Olam’s picture from the closure of the farm and its late entry into exercise below the brand new hashish rules, led to a pointy decline in its enterprise and a 95% drop in its share worth from the 2019 peak.

The corporate did file income of NIS 49 million in 2022, 32% greater than within the pervious yr, however it additionally posted a lack of NIS 48 million. In 2019-2022, the corporate misplaced a complete of NIS 110 million.

Tikun Olam’s auditors appended a going concern warning to their report, and the corporate has lately introduced the closure of two hashish rising farms and the layoffs of dozens of staff, leaving it with a manufacturing facility within the Tziporit industrial zone, a pharmacy, and distinctive hashish manufacturers. An try at a merger with one other struggling hashish firm, BOL, didn’t succeed.

The deliberate merger relies upon amongst different issues on the Ministry of Well being approving Ronen Gilad because the proprietor of a hashish firm, however this exercise will change into minor in relation to the companies that Tikun Olam will soak up within the merger, principally held in Migvan Applied sciences & Engineering Ltd, by which Elad holds 65%.

Elad purchased his holding in Synergy Cables from personal fairness agency Fortissimo in 2021 in change for 12.5% of Migvan. The corporate sells energy cables in Israel and abroad and is a crucial provider to Israel Electrical Company. In accordance with Tikun Olam-Cannbit’s announcement, it had income of NIS 434 million in 2022 and posted a web revenue of NIS 38 million. Plastopil Hazorea, by which Elad has a direct holding of 18.6% and which he controls along with Kibbutz Hazorea, has a market cap of NIS 15 million. Tikun Olam-Cannbit will even soak up Migvan’s holdings in Waisbord and Ronen Wolf, which distribute electrical and lighting parts.

Printed by Globes, Israel enterprise information – en.globes.co.il – on June 15, 2023.

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