Medical marijuana company Cannabit is slated to buy out competitor Tikun Olam, after the two firms signed principles of agreement, which were revealed on Monday. Cannabit saw its valuation jump 13%, to 271 million shekels ($76.4 million), on the news.
Cannabit is currently considered a virtual company, as it has no revenues or profits. The company also lacks all the Health Ministry permits it would need to sell cannabis in Israel.
Tikun Olam, in comparison, is one of Israel’s biggest, most respected medical marijuana companies, with some 15,000 customers and a well-regarded product. Patients view Tikun Olam’s cannabis strains as particularly high quality, according to interviews.
Buyers started pursuing Tikun Olam when it emerged that the Israel Police and the Health Ministry would not let the company’s founder, Tzachi Cohen, to continue working in Israel’s medical marijuana industry after a police probe raised suspicions that Cohen had underworld ties, although the information was kept confidential and even Cohen has not been apprised of it.
Prime Minister Benjamin Netanyahu told Channel 13 in an interview that his government had halted cannabis exports because “we feared that criminal elements would take over the medical marijuana field.”
As uncertainty rose regarding Tikun Olam, several prospective buyers submitted offers. Three companies reached the final stage – Intercure, whose chairman is former Prime Minister Ehud Barak, now one of the leaders of the Democratic Union party, and which has farms in northern and southern Israel; privately held Bazelet Pharma, which has a processing plant and a cannabis farm at Sdot Yam; and Cannabit, led by chairman Eitan Ben Eliyahu, which has a farm near the Dead Sea.
Barak Rozen, who controls Cannabit indirectly, went to Los Angeles to meet Cohen. Rozen spent several days trying to convince him to sell; Cohen asked for $100 million. Ultimately, on September 12, the two signed principles of agreement that called for $10 million to be paid immediately, $32 million to be paid once the deal closes, and another $18 million to be paid should Cannabit’s valuation top 1 billion shekels within five years. Cohen will also receive 4.99% of Cannabit’s shares and 5% of Tikun Olam’s future sales.
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In exchange, Cannabit is receiving the company’s Israeli operations and a permit to use Tikun Olam’s intellectual property. Cohen himself is keeping the company’s medical marijuana varieties, which limits Cannabit’s ability to export Tikun Olam products.
Cannabit has only about $16 million in cash, and will need to issue bonds in order to make the payment.
A source close to another potential buyer stated that Cannabit had offered significantly more than the others, but questioned whether it was a good deal for the company to have bought what was essentially 5% of Tikun Olam’s global operations.
“Cohen saw that there was a buyer who would pay full price and leave most of the operations in his hands, so he cut a deal with Cannabit,” said the source.
A source close to Cannabit countered that the company saw the deal as the acquisition of a major brand such as Nike or Coca-Cola. The source added that the company plans to keep most Tikun Olam employees, and to go on selling Tikun Olam’s marijuana varieties under Health Ministry supervision.