Israel’s publicly traded medical-cannabis companies may have few if any sales, but they have already generated millions of dollars in profits for insider shareholders, most famously former Prime Minister Ehud Barak.
Appointed last September as chairman of InterCure – a holding company with a portfolio of small medical firms, including medical cannabis developer Canndoc – Barak is collecting a $10,000 a month salary. More importantly, he has InterCure stock options worth more than 45 million shekels ($12.3 million), although they have yet to vest.
Barak isn’t the only one who has profited from InterCure. Alex Rabinovich, who owns 38.55% of InterCure, owns stock that is worth about 300 million shekels. Ran Belinkis, a cofounder of the AM:PM grocery chain, is another marijuana millionaire: He spent 6 million shekels buying a 3% stake in the company that today is worth 27 million shekels.
No wonder: In the last 12 months InterCure’s share price has risen more than 2,400%, with Barak’s joining the company and the media storm that followed giving the stock a major boost. Today the company has a market capitalization of 895 million shekels, the biggest on the Tel Aviv Stock Exchange for the emerging marijuana sector. Unlike Israel’s tiny market for medical cannabis products, exports could generate billions of dollars in sales. Israel has the right climate and the agriculture and medical expertise to stake out a place in the global market. But the industry only got the critical news it needed for business to really begin earlier this week when the cabinet finally approved exports after months of indecision.
Long before that, the stock exchange was experiencing its own kind of reefer madness. Over the course of 2018, investors trading up the shares of a handful of companies that in many cases started out as no more than shell companies (publicly listed but with no business operations) with market caps in the single millions of shekels.
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The first company to ride the cannabis wave was Together, which announced it was entering the business at the end of 2017. The shares peaked in April 2018 and have since fallen 65% from that peak, leaving a lot of investors with big losses. Even so Together shares are up 162% from 12 months ago and the company has a 297 million shekel market cap.
As a result, its biggest shareholder, the 27% stake controlled by Guy Attia, who had previously been in the security business, is worth 80 million shekels. Nir Sosinsky, a former head of a human resources firm, has 20% worth 59 million and the company’s CEO Nissim Bracha has 24% worth 71 million.
Another firm, Medivie Therapeutic, has been a shell company with no operations of any kind for an extended period. Two business deals to enter the cannabis business collapsed, but it still enjoys a market cap of 100 million shekels. That gives CEO Menachem Cohen, with his 50% stake, a 50 million shekel holding.
On Wednesday, Medivie said it had signed an agreement to buy 51% of an unnamed company operated by two Israelis that has rights to grow and export medical marijuana in Macedonia. Oddly enough, the shares were down 3% at 44.37 shekels for the day.
Even a company like Cannbit, which is listed on the TASE’s maintenance list for companies with tiny market caps or insufficient public holdings, has risen almost seven-fold in the last 12 months. Cannbit shares jumped 56% on Wednesday to close at 13.86 shekels, giving it an approximately 81 million shekel market cap.
That leaves iCannbit’s three controlling shareholders – Ami Sessler, Sharon Adivand Yaron Razon, each with a 22.8% stake -- with stock worth 18.5 million shekels each.
The catch for Israel’s newly minted marijuana millionaires is that they can’t easily cash in on their profits. Because no company has come close to justifying its market value in actual sales and profits, a controlling shareholder selling their stock would send a very negative message to the investing public and cause the stock price to fall.
Israeli institutional investors have generally steered clear of cannabis stocks because of their speculative nature.
One that did test the waters was the Altshuler Shaham investment house, which invested 3.9 million shekels in InterCure in November 2016, giving it a 10% stake in the company. It made a tidy profit selling half the stake last October for 12.5 million shekels, shortly after Barak’s appointment lifted the shares and generated enough trading volume to comfortably sell off such a big block of stock.
It sold the rest of the shares in November but didn’t report the price, which appears to have been twice the level of the first sale, or 25 million shekels. If so, its total proceeds were about 38 million, or a return of 770%.