From The Earth, a Los Angeles-based retailer of cannabis and cannabis products, is seeking to trade on the Tel Aviv Stock Exchange through a merger with a shell company and to raise $100 million from local investors to finance its U.S. business.
The Israel Securities Authority and Justice Ministry haven’t yet announced whether they will allow a foreign company with no Israeli business to trade on the TASE. But if they do, FTE will merge into a listed shell company called KMN Capital in a deal that values the U.S. company at 160 million shekels ($46 million).
The TASE is home to a handful of Israeli medical marijuana companies but the merger would bring the first U.S. company to get a listing.
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On Tuesday, local investors were give a presentation that highlighted the growth potential for FTE in the U.S. market, Its home base of California accounts for 61.5% of the legal market in the United States for recreational marijuana. In 2018, sales of cannabis products reached $2.5 billion and they are expected to reach $7.7 billion this year.
FTE is a small business right now: It counts two dispensaries with revenues running at an annual run rate of $18.5 million and an oil extraction facility that started in September, but it plans more outlets inside and outside of California with the aim of becoming a “seed to sale” operation, according to the presentation.
Yuval Barak, a partner in Radhan, the firm that is advising FTE and KMN on the merger, said FTE’s shareholders and managers bring a lot of experience to the business. “They’ve been in the field already a decade,” he said.
“The partners in the past sold lighting to the cannabis industry and their involvement in the business led them to apply for a license five years ago, when the market was still in its infancy. They have a great deal of retail experience, so they managed to make $1 million a month in sales from a recreational cannabis store.”
FTE’s shareholders include Israeli-born Dan Zaharoni, a real estate lawyer who was born in Israel but immigrated to the U.S. as a child with his father. He doesn’t speak Hebrew, so Tuesday’s presentation was conducted by Barak and other involved in the merger.
Under the terms of the merger, he and FTE’s other shareholders would get 80% of the combined business, with an option to get another 10% if they succeed in boosting sales to a run rate of $50 million annually within three months.