Together Startup Network to enter medical cannabis business
Tel Aviv Stock Exchange- listed shell company Together Startup Network Ltd. plans to merge with an unnamed cannabis growing and production company that hopes to produce 24,000 kilograms of marijuana a year after it receives a license from the Health Ministry.
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 4.5 hectares and hopes to obtain permission to expand to 10 hectares. The company also plans a facility to produce cannabis-based products such as cannabis oil and cosmetics on a 1,000 square-meter area.
It is the second cannabis company to reach the Tel Aviv Stock Exchange in recent months after MediVie Therapeutic was merged with a kibbutz company. Both deals were mediated Ilan Gerzi of the Pearl Cohen Zedek Latzer Baratz law firm.
The company projects revenue of NIS 50- 100 million in the first year ( 2019); NIS 150m.- 300m. in the second year; and NIS 300m.- 600m. in the third year. Its projected cost of operations is NIS 10m. annually.
The projections are optimistic for a company that has yet to begin operating and does not have any sales, and are reminiscent of those published by MediVie, which Gerzi merged into stock exchange- traded Glycominds, a company that dealt with pain relievers for women giving birth. The merger took place in 2014 after which MediVie’s share price was very volatile. After three years and very little revenue, however, it became a stock- exchange shell itself, into which Gerzi merged cannabis activity several months ago. According to the cannabis. com website, a Health Ministry document obtained by the website states that 243 grams of cannabis can be produced per dunam, or 972 grams per acre, so if the company expands to 100 acres, it will be able to produce 24 million grams, or 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 10 hectares, it will be able to produce cannabis worth NIS 360m. million in Israel in end- consumer terms ( not revenue) or NIS 1.4 billion if it sells its entire crop globally.
A BDO report in 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 would total NIS 190m. annually, divided among all of the increasing number of growers.
The company likely intends to export its produce. Though currently banned, the Knesset is expected to approve cannabis exports from Israel, following recommendations from the finance and health ministries.
Currently, only Chile, Peru, Uruguay, Denmark, Germany and Iran allow cannabis imports. They 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.