Tel Aviv Stock Exchange (TASE) shell Together Startup Network Ltd. (TASE:TGTR) today announced its intention to merge into itself the activity of an unnamed cannabis growing and production company. The company's share price soared 57%, raising its market cap to NIS 13 million. The company being merged is the second cannabis company to reach the Tel Aviv Stock Exchange (TASE) in recent months, and both cases were mediated by Advocate Ilan Gerzi from the Pearl Cohen Zedek Latzer Baratz law firm. The earlier company was MediVie Therapeutic, which was merged with a kibbutz company. The merged company is expected to engage in cannabis growing as soon as a license for it is obtained from the Ministry of Health.
The current merger will give the owners of the company being merged into the stock exchange shell 85% of the shares in Together in exchange for the activity. Investors in the private company will also inject NIS 3 million into the merged company at a company value of NIS 70 million.
Together's announcement of the activity to be merged into it is accompanied by an ambitious revenue projection of NIS 50-100 million in the first year (2019), NIS 150-300 million in the second year, and NIS 300-600 million in the third year. The company's projected cost of operations is NIS 10 million a year.
These optimistic projections for a company that has yet to begin operating and does not have any sales yet are reminiscent of the projections published by MediVie, which Gerzi merged into stock exchange Glycominds, a company that dealt with pain relievers for women giving birth. The merger took place in 2014. MediVie's share price was very volatile, but after three years and very little revenue, it became a stock exchange shell itself into which Gerzi merged cannabis activity several months ago.
The company to be merged into Together has one-year permits to grow and distribute medical cannabis in Israel. It also has the right to use two agricultural fields with 45 dunam (11.25 acres), and hopes to obtain permission to expand to 100 dunam (25 acres). The company is also planning a plant for making cannabis-based products (such as cannabis oil and cannabis-based cosmetics) on a 1,000-square meter area. All of this is only a plan.
According to the cannabis.com website, a Ministry of Health document obtained by the website states that 243 grams of cannabis can be produced per dunam (972 grams per acre), so if the company expands to 100 acres, it will be able to produce 24 million grams (24,000 kilograms). Medical cannabis currently costs an average of NIS 10-15 per gram for the end consumer, while the global price translates into NIS 40-60 per gram.
If and when the company expands to 100 dunam, it will be able to produce cannabis worth NIS 360 million in Israel (in end consumer terms, not revenue), or NIS 1.4 billion if it sells its entire crop globally.
Exporting cannabis, however, is banned. It is believed that it will be approved in the near future, but there is no certainty of this. There is also the demand side. A BDO report last October stated that Israel had 30,000 people with licenses to consume medical cannabis, not all of whom were using those licenses. Assuming maximum use of the licenses and an average use of 35 grams per month, the market will total NIS 190 million annually, divided among all of the increasing number of growers.
The company probably intends to export its produce. The Knesset is slated to approve cannabis exports from Israel soon, after the Ministry of Finance and the Ministry of Health recommended it. As of now, however, exports are forbidden, and when final approval will be granted is unknown. Furthermore, only a few countries in the world currently allow cannabis imports (Chile, Peru, Uruguay, Denmark, Germany, and Iran). Imports are illegal in the Czech Republic, Russia, and Spain, and although there is no prosecution in those countries, it is not likely that a commercial company will be able to export to them. Many Israeli growers are interested in the export market, in addition to exporters from Canada and the Netherlands.
Published by Globes [online], Israel Business News - www.globes-online.com - on December 27, 2017
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