Israel’s IMC looks to spin out, sell cannabis unit in pivot to biotech sector

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IM Cannabis Corp. (IMC) is proposing a reverse merger with Israeli biotechnology firm Kadimastem in which it would spin out – and potentially sell – its existing medical marijuana operations in Israel and Germany.

IMC, also headquartered in Israeli, said in a news release it entered into a nonbinding reverse merger and loan agreement with Kadimastem in which IMC shareholders would own 12% of a newly created subsidiary of IMC, while Kadimastem shareholders would hold 88%.

The new company that will exist upon completion of the proposed transaction will change its business from medical cannabis to biotechnology, according to the release.

Kadimastem is a clinical-stage cell therapy company, which recently reported U.S. Food and Drug Administration approval for a Phase 2A multisite clinical trial for the treatment of Lou Gehrig’s disease (ALS).

The deal envisions IMC’s existing medical cannabis operations in Israel and Germany being restructured, or spun out, as a contingent value right (CVR).

IMC said the CVR will entitle the holders to receive cash, equity or other value upon the sale of the legacy cannabis business.

A special committee of IMC’s board was formed, in collaboration with legal and financial advisers, to facilitate a sale of the cannabis business.

The spun-out cannabis business will be made available for potential sale to a third party for a period of up to 12 months from the closing date.

The proceeds from the sale of the cannabis business will be utilized to settle debts and distribute the remaining balance, if any, to CVR holders, the companies said.

IM Cannabis shares currently trade as IMCC on the Nasdaq and Canadian Securities Exchange; Kadimastem’s shares trade as KDST on the Tel Aviv Stock Exchange.

Ronen Twito, executive chair of Kadimastem’s board, said the company’s strategic decision to pursue a Nasdaq listing underscores its commitment to maximizing the potential of its diabetes and amyotrophic lateral sclerosis product candidates.

Also, as part of the deal, Kadimastem is providing a loan of up to $650,000 to IMC, which will be funded in two installlments: $300,000 upon signing the loan agreement in late February, and another $350,000 upon the execution of a definitive agreement.

The loan accrues interest at a rate of 9% per year, compounding annually.

IMC said it will call a shareholder meeting to approve:

  • The proposed transaction with Kadimastem.
  • The spinout of the cannabis business.
  • Changing the name of the company.
  • Revamping the company’s board.

The completion of the proposed transaction is subject to a number of conditions, including:

  • The execution of a definitive agreement.
  • Completion of due diligence.
  • Completion of a share consolidation.
  • Receipt of all required regulatory, corporate and third-party signoffs, including approvals by regulatory bodies, shareholders of IMC and Kadimastem, Israeli government authorities and the fulfilment of all applicable regulatory requirements.

Last year, IMC exited the hypercompetitive Canadian cannabis market to focus on opportunities in Israel and Europe – in particular, Germany.