Solbar medical cannabis spinoff lists on TASE via merger

Solbar Photo: PR

CannAssure, founded by Solbar owners Nir Peles and Shimon Barkama, will be merged into Direct Capital.

Direct Capital announced last Thursday that medical cannabis company CannAssure, which is scheduled to be merged into it, had signed an agreement to market its products in Israel under Hadassah Medical Center's Hadassah Medical brand. Hadassah Medical Center will receive 7.5% of the revenue from the product for the use of its brand.

In addition, CannAssure will be able to sell its products at Hadassah Medical's sales points in return for usage fees that have yet to be determined. Hadassah Medical also received an eight-year option to acquire up to 7.5% of CannAssure's shares for $750,000, reflecting a $10 million company value.

Crisis, FIMI, and the exit

Direct Capital's market cap is NIS 20 million. As part of the merger deal, CannAssure will receive 75% of Direct Capital's shares and add NIS 9 million of its own as a loan. Direct Capital has real estate business that it intends to sell simultaneously with its entry into the cannabis field. As of the date of its most recent quarterly reports, Direct Capital had NIS 8.5 million in cash, which will also be used for the medical cannabis business.

CannAssure owners Nir Peles and Shimon Barkama are also the owners of Solbar, founded by Kibbutz Hatzor, which specializes of the production of proteins, pulp, and soybean oil. Following a crisis in the middle of the previous decade, control of Solbar was acquired by FIMI Opportunity Funds, which sold the company in 2011 for $133 million to US company CHS.

During the ensuing two and a half years, the acquiring company had to write off $75 million, the majority of its investment in Solbar, and dramatically cut back activity in Israel following a steep decline in revenue caused by a huge recall of merchandise sold to Solbar customers. The measure was designed to preserve the good name of the CHS cooperative, but in retrospect, this eliminated the most profitable activity of Solbar (or CHS Israel, as it is called now) - production of soy protein for the food and meat industry, mainly for overseas markets. CHS sold the activity in Israel to Peles and Barkama in 2016.

Growing and profitable

Peles and Barkama says that the company currently has a sales turnover of more than $100 million a year, and is growing and making profits. Solbar specializes in production of pulp for the animal market and soybean oil for the large food companies. Peles and Barkama decided to spin off CannAssure as a company separate from the soy activity under the same ownership.

The Solbar plant will now also handle cannabis products already meets the cleanliness and security standards of a food plant; in the past, it was used to produce raw materials for the pharma industry. Production of cannabis oils at the plant is scheduled to begin in the first half of 2019 at an investment of several million dollars (compared with an estimate of tens of millions of dollars for building a new plant or converting a plant that has not yet met standard of a clean industry like the food industry).

Peles estimates the Israeli market's potential at NIS 115-130 million annually. Like all the other Israeli companies in this sector, however, CannAssure is aiming at the global market. "We are aiming first of all at the market of products containing active ingredient CBD without the intoxicating component THC. It is still forbidden to export them from Israel, but elsewhere in the world, for example in the UK, they can be imported as a food supplement." Peles says that CBD-based products have a stability problem that Solbar can solve. There is also a problem of uniformity, but Solbar is able to sample the extract in its laboratory and detect what other materials are present besides CBD and their precise quantities. "Solbar is already playing the game of uniform and well-monitored plant extract in soya. We plan to apply these capabilities in the cannabis sector."

Published by Globes [online], Israel business news - www.globes-online.com - on June 4, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Solbar Photo: PR
Solbar Photo: PR
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