In this edition of "Rising High," The Fly conducted an exclusive interview with Oren Shuster, chief executive officer of IM Cannabis (IMCC), a multi-country operator in the medical and adult-use cannabis sector. Here are some of the highlights:
MYM ACQUISTION: IM Cannabis is an Israeli-based company in the medical and recreational cannabis sector. The company operates in Europe through Adjupharm, a German-based subsidiary and EU-GMP certified medical cannabis producer, and in Canada following its acquisition of Trichome, a specialty finance company offering capital solutions to the legal cannabis market, and its subsidiary, JWC, a licensed producer of cannabis. On April 1, the company announced it had entered into an agreement to acquire MYM Nutraceuticals (MYMMF) and its licensed producer subsidiary Highland Grow. Under terms of the transaction, which is expected to close before the end of 2H21, shareholders of MYM will receive 0.022 common shares of IMC for each common share of MYM.
Shuster said IMC made the acquisition as part of its focus on working in premium markets. “When I say premium markets, I mean the pricing of our products,” he said. “We’ve started in Israel and in Israel, the prices in the market are premium because the black market is more expensive than the legal market so there is no compression of the prices to go down. The German market and the EU market is definitely very high-priced…and the EU market will continue to be a premium market because it is only starting.” The CEO said he expects demand in the EU market will grow, especially for high-quality product, causing the price to stay high for those products. “What we have seen in more mature markets is that the premium products have started high and went down,” he said, “But when the consumers understood better what they were looking for, we’ve seen an increase in the premium segments. The premium products in the mature markets are now at a higher pricing than it was in the beginning.” Shuster said he believes the category is very strong and the acquisition provides IMC with the ability to produce premium products from Canadian indoor facilities for its other markets. “Today it’s easier, safer and even cheaper to buy an existing facility where you can see the product, you have employees and you have already ongoing operations,” he said. “For us it makes sense to buy assets with the capacity to grow premium product but the best is to buy it with a team and with the execution. That’s the logic and reasoning behind the acquisition in Canada and Highland is definitely in the segment of premium and ultra-premium in Canada, so this is exactly what we’re looking for.”
ACQUISITION BENEFITS: IMC looked at a few companies for potential acquisitions, according to the CEO, but settled on MYM and Highland Grow due to its familiarity with the company. “We have people internally that work with them very closely and are familiar with the people,” he said. “Their chairman is part of the group that has done the restructuring in JWC after the company had been acquired.” Shuster added that the acquisition decision was easy due to the connections and the view that the integration process for MYM would be uncomplicated. “The integration is super important because it is a risk factor,” he said. “Many acquisitions are not successful, but we understand the company perfectly, we know exactly how to integrate the companies and the groups together and it gives us a lot of comfort in this transaction.” The acquisition will also bolster IMC’s distribution capabilities and support its entry into new markets, the CEO said. “One of the biggest benefits in the Canadian market is the distribution that Highland has,” he said. “We can definitely leverage our brands through their distribution network. More than that, I think the fact that we have a few brands in the premium segment will also leverage our capacity from our current facility.” The transaction is also expected to drive significant incremental revenue and EBITDA growth and be immediately accretive to IMC’s 2021 financial results. “It makes our position stronger in the premium segment in the Canadian market, we can come with more brands into the segment and we can definitely take product out of Canada to our other markets in Europe and Israel,” Shuster said.
EXPANSION STRATEGY: In March, the company announced it had closed its acquisition of Trichome Financial in exchange for consideration of 0.24525 of a common share of IMC for each Trichome share. The completion marked IMC’s entrance into the Canadian recreational cannabis market and the launch of its North American expansion strategy. “Today we are focusing on the premium market in Canada,” the CEO said. “As of now we don’t have a plan to go into the value segment because I feel like it is a race to the bottom. There will always be someone that will offer a product cheaper than you and I’m not going to compete for who will lose more.” IMC will continue to focus on the premium and ultra premium segments for the local market, he said, as well as capacity able to export to the company’s other markets. Along with the completion of the acquisition, the company said it was planning to roll-out JWC products in Israel this year. When asked about an updated timeline for the rollout, Shuster said he did not have enough visibility on how long it could take. “Everything has to be within regulation and the regulators take longer especially in this industry,” he said. “It’s more difficult to import to Israel today than it was last year, the regulators changed the conditions of it. I’m still optimistic that we will do it and it will happen this year.”
ACQUISITION STRATEGY: The Trichome team has experience in acquisitions, restructurings and operations and IMC plans to leverage that skillset to accelerate its North American growth strategy via strategic acquisition activity. When evaluating companies for a potential transaction, the CEO said the IMC looks at how a company will fit within its corporate strategy as well as its execution. “First of all, it has to be company that fits our corporate values, strategy and beliefs,” he said. “That’s the baseline. That’s one of the main reasons behind the acquisition of Trichome.” Shuster said the Trichome acquisition was an excellent decision and the fruits of that can be seen by the acquisition of MYM. “The team has done that deal and executed that,” he said. “Our strategy was to buy Trichome as our M&A arm in Canada. We are starting to execute on our strategy in the North American market for acquisitions and we can see that the decision was the right one.” The CEO added other factors in reviewing possible takeovers focus more on the actual business and operation. “We’re looking for companies that can generate money,” he said. “It’s very simple at the end of the day because we need good quality product and quality people but in order for a company to be sustainable it has to make profits. We are looking for companies that we know will make profits either directly or through the added value that we have as a group.
GERMAN MARKET: Market research firm BDSA recently forecast international sales, outside the U.S. and Canada, to exceed $8.3B in 2026 with the bulk of spending driven by Mexico and Germany. As a company with German operations, Shuster said IMC believes that the market will grow significantly in the coming years. “We will see some changes in the regulations, and it will be much easier to be in cannabis,” he said. “Today one of the barriers is the reimbursement process which is very complicated relatively. Most of the product being sold today in Germany is being reimbursed because of its very high pricing.” The CEO said he expects to see compression on the prices in the market following regulatory changes allowing many people to purchase cannabis much easier than they can currently. “Secondly, I think that what we will see is more acceptance of the insurance companies to reimburse the product,” he said. “In order to get reimbursement for cannabis in Germany today, the doctor has to go through a process with the insurance company. It’s the only product in the pharmaceutical market today that has to go through this process.” Shuster noted there is movement in Germany to put cannabis in the same category as other drugs to enable immediate reimbursement. “Once that will happen it will be a huge change in market.”
EU EXPOSURE: As the cannabis space develops and opportunities increase, the CEO said he is very excited about IMC’s markets as they are dynamic and growing. “We see that the Israeli market is growing very nicely with nice numbers and we see in almost any country in Europe, there is some kind of process about cannabis,” he said. “We’re starting to see it everywhere. Those pilots in the coming years will be major markets. I’m very excited because its unique markets, the barriers of entry to those markets are very high and IMC is well-positioned in those territories to take a leading position in these markets.” Shuster added he believes IMC offers the best exposure to the EU market, which he expects to explode in the coming years. “That’s going to be the biggest market because it’s the biggest by volume,” he said. “IMC is the best-positioned to get exposure to this market as a company that specializes in the international market. We are here today on NASDAQ, the company is very easy to trade, so I invite everybody who wants exposure to the EU market to invest in IMC.”
OTHER CANNABIS STOCKS: Other publicly-traded companies in the space include Acreage (ACRHF), Akerna (KERN), Aleafia (ALEAF), Aphria (APHA), Aurora Cannabis (ACB), Auxly Cannabis (CBWTF), CannTrust (CTST), Canopy Growth (CGC), Canopy Rivers (CNPOF), Clever Leaves (CLVR), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), CV Sciences (CVSI), CURE Pharmaceutical (CURR), Delta 9 (VRNDF), Emerald Health (EMHTF), Fire & Flower (FFLWF), FluroTech (FLURF), General Cannabis (CANN), Greenlane (GNLN), Green Thumb Industries (GTBIF), GrowGeneration (GRWG), Harborside (HBORF), Hemp (HEMP), HempFusion (CBDHF), HEXO (HEXO), India Globalization Capital (IGC), Indiva (NDVAF), Inner Spirit (INSHF), Innovative Industrial Properties (IIPR), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), Lowell Farms (LOWLF), MediPharm Labs (MEDIF), MedMen Enterprises (MMNFF), MJardin Group (MJARF), Neptune Wellness (NEPT), Omnicanna (ENDO), Organigram (OGI), Planet 13 (PLNHF), Skye Biosciences (SKYE), Sproutly (SRUTF), Stem Holdings (STMH), Sunniva (SNNVF), Supreme Cannabis (SPRWF), Valens (VLNCF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Village Farms (VFF), Vireo Health (VREOF), WeedMD (WDDMF), Wildflower Brands (WLDFF), YSS Corp. (YSSCF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).
