In this edition of "Rising High," The Fly conducted an exclusive interview with Oren Shuster, Chief Executive Officer of IM Cannabis (IMCC), an Israeli-based multi-country operator in the medical and adult-use cannabis sector. Here are some highlights:
INTERNATIONAL OPERATIONS: IM Cannabis is an international cannabis company offering premium products to medical patients and recreational consumers globally. The company operates in Israel through its commercial relationship with Focus Medical to cultivate, import and distribute cannabis as well as through its medical cannabis retail pharmacies, online platforms, distribution centers and logistical hubs. IM Cannabis also operates in Europe through Adjupharm, a German-based subsidiary and EU-GMP certified medical cannabis producer, and in Canada through Trichome JWC Acquisition and MYM, where it cultivates and processes cannabis for the adult-use market under the WAGNERS and Highland Grow brands. “IMC is in a bit of a different position because we’re working in three markets,” Shuster said. “Each of our markets is very different. The Canadian market is more mature but still growing, the Israeli market is growing rapidly and the German market will expand very rapidly in the near future.” He added that IMC has a well-balanced portfolio with a handful of revenue growth and margin opportunities in each of the countries, noting WAGNERS and Highland Grow continue to build momentum and market share in Canada. “I can tell you that we’ve become one of the leaders in the ultra-premium segment in Canada,” the CEO said. “We are number two now in the Ontario Cannabis Store and we serve all the provinces.” IMC is also making significant moves in Israel and Germany, he said, which will come to fruition mainly in Q1 and beyond.
Q3 EARNINGS: On November 15, IMC reported third quarter revenue of C$14.4M, a sequential increase of approximately 30% from Q2. The company also reported gross margin of 20%, up from 5.4% in Q2, and Adjusted EBITDA loss of C$7M, inclusive of C$1.6M of non-recurring acquisition-related costs. IMC guided to continued sequential revenue growth in Q4 and into 2022 and anticipated that gross margin will continue to increase as revenue growth offsets fixed operating costs. “The momentum of growth will continue for IMC and we will see an increase in revenues, EBITDA and gross margins in the next quarters,” the CEO said. “We’ve seen growth of about 20% for the last quarter and I think that we will continue to see very similar growth in the next quarter. I am very optimistic about that and most of the growth will come organically and not through M&A.”
ACQUISITIONS: IMC has completed several strategic and accretive acquisitions over the past year, Schuster said, providing the company with premium cultivation capacity, sought after brands and expanded distribution reach. “We have done two acquisitions in Canada, significant acquisitions of premium and ultra-premium companies,” he said. “We’ve also done about five acquisitions in Israel of pharmacies, mainly retail. Now we are focusing mainly on the integration and assimilation of the acquisitions to make sure that the synergies will be well exploited.” IMC will concentrate on the integration of those companies in Q4 and Q1, the CEO said, adding he expects to see improvements in the company’s results due to the synergies. “We will continue with M&A because it’s part of our growth strategy and I strongly believe in that,” he said. “Still we have decided to put the focus on the integration of acquisitions that we’ve done.” When asked about how the company identifies potential takeover targets, Shuster said IMC looks to purchase significant assets with large volume and excellent management. “Management is the key,” he said. “I’m very happy at the acquisitions that we’ve done. We’ve been very selective and the integrations are bringing significant value and it will continue. We will see it in the next quarter as well.” The CEO added in Canada, IMC has focused mainly on the premium and ultra-premium segment as it is well aligned with the company’s operations in Israel and the EU. “We’re serving mainly premium products and getting premium prices for our product,” he said. “That was the main focus of our acquisitions.”
ISRAEL STATE BUDGET: In November, Israel’s Parliament approved the state budget, which included major agricultural reforms for the cannabis sector including the lifting of restrictions on medical cannabis exports and cultivation for those operating legally in the country. “It puts us in an excellent position in the market because we have some of the leading brands in Israel,” the CEO said, noting IMC has operated in the country for about 11 years. “We have a big home delivery service in Israel and part of the regulations support home delivery significantly.” Additionally with the new regulations, the company may even be able to serve products directly from the farm, he said, which will be a significant ramp up for the operation. “Israel is in an excellent position because today the coalition and opposition is supportive of legalization,” he said. “I am very optimistic about the Israeli market and especially about our position in the market.”
CORONAVIRUS: Coronavirus has impacted many companies in the cannabis industry globally and Shuster said the main issues created by the pandemic have been in the supply chain. “We don’t feel that there is any effect on the demand,” he said. “We do feel that slowness in the supply chain and I think that without the pandemic, we would have done much better up until now.” The coronavirus is no longer impacting daily life, the CEO said, as the company and customers have learned to operate within the situation. “There will be no effect with that in the near future, especially that we’re now in the winter,” he said. “In Israel and Germany, we are diversified, and I think that this is one of our advantages especially in this damaging time for all the countries.”
LEGALIZATION: When asked about the potential impact of the Biden-Harris administration and the introduction of The States Reform Act by U.S. Republicans on the cannabis space, the CEO said he strongly believes cannabis should be legalized but it will take a long process to do so. “You have to be realistic,” he said. “It’s not something that will happen overnight, so we still have to wait and see.” IMC will remain focused on its current operations in Canada, Israel and the EU as of now, Shuster said, as well as other countries that are operative. “Canada is legalized, Israel is on the path of being legalized and Germany as well,” he said. “We are all focused on our current operations, and we are working to see what will happen in the U.S.”
CHALLENGES: When looking at the largest hurdles facing the cannabis industry, Shuster pointed to the issues with regulations surrounding the space. “The demand for cannabis is always there,” he said. “It’s about the regulations and I think it is the main challenge that you see in each of the markets that you are working in. Especially in regard to export and import because in each of the countries where we work, we are working independently.” However, the CEO noted IMC has built an operation that is sustainable regardless to changes in regulations. “Any change in the regulations will help us definitely, but we’re not dependent on that and this is what we have done for the past years,” he said.
OPPORTUNITIES: As the cannabis sector develops, the CEO said he sees opportunities in the rapid growth of the Israeli market and the processes of legalization in the country. “The advantage in Israel is both the coalition and opposition are very supportive of legalization so I believe we will see it in the future,” he said. “I don’t know how long it will take but definitely it’s a good sign for the industry.” Shuster also cited the new government in Germany and the support of all three parties for legalization. “It’s a good sign for us and even though it will take some time, we will gain significant market share,” he said. “Germany is more than double California and in Canada, obviously we’re growing and we’re growing significantly. Looking ahead, I’m very optimistic.”
OTHER CANNABIS/PSYCHEDELIC STOCKS: Other publicly-traded companies in the space include Acreage (ACRHF), Akerna (KERN), Aleafia (ALEAF), Atai Life Sciences (ATAI), Awakn Life Sciences (AWKNF), Ayr Wellness (AYRWF), Audacious (AUSAF), Aurora Cannabis (ACB), BC Craft (CRFTF), Body and Mind (BMMJ), CanaFarma (CNFHF), Canopy Growth (CGC), RIV Capital (CNPOF), Clever Leaves (CLVR), Columbia Care (CCHWF), Compass Pathways (CMPS), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos (CRON), CV Sciences (CVSI), Curaleaf (CURLF), CURE Pharmaceutical (CURR), Delic Holdings (DELCF), Delta 9 (DLTNF), Emerald Health (EMHTF), Fire & Flower (FFLWF), Flora Growth (FLGC), FluroTech (FLURF), Gage Growth (GAEGF), General Cannabis (CANN), Goodness Growth (GDNSF), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Harborside (HBORF), Hemp (HEMP), HEXO (HEXO), High Tide (HITI), IM Cannabis (IMCC), India Globalization Capital (IGC), Indiva (NDVAF), Inner Spirit (INSHF), Innovative Industrial Properties (IIPR), InterCure (INCR), Khiron Life Sciences (KHRNF), Lowell Farms (LOWLF), Lotus Ventures (LTTSF), MediPharm Labs (MEDIF), MedMen Enterprises (MMNFF), MJardin Group (MJARF), Neptune Wellness (NEPT), Thermic Science (ENDO), Organigram (OGI), Planet 13 (PLNHF), Relmada Therapeutics (RLMD), RYAH Group (RYAHF), Skye Bioscience (SKYE), SLANG Worldwide (SLGWF), Sproutly (SRUTF), Stem Holdings (STMH), Sundial Growers (SNDL), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Valens (VLNCF), Village Farms (VFF), WeedMD (WDDMF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).
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