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SPAC Week II: Canndoc And The Parent Company (Podcast)

Feb. 17, 2021 8:00 AM ET
Seeking Alpha
Subversive Real Estate Acquisition REIT LP (SBVRF), GRAMFAPHA, CNBS, CWBHF...

Summary

Michael Auerbach returns to discuss Subversive's recent deal with leading Israeli cannabis company, InterCure, and gives an update on The Parent Company.

https://seekingalpha.com/article/4406585-spac-week-ii-canndoc-and-the-parent-company?mail_subject=the-cannabis-investing-podcast-spac-week-ii-canndoc-and-the-parent-company&utm_campaign=rta-author-article&utm_content=link-1&utm_medium=email&utm_source=seeking_alpha

Why Subversive pivoted from a REIT to a SPAC.

Canndoc's compelling financials, brands and trading on Nasdaq.

Opportunity in GRAMF and other US players still trading at a discount.
Listen on the go! Subscribe to The Cannabis Investing Podcast on Apple Podcasts, Google Podcasts, Spotify, and Stitcher.

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Michael Auerbach, Founder and Chairman of Subversive Capital and The Parent Company (OTCQX:GRAMF) came on the show for our first SPAC Week and returns to discuss Subversive Real Estate's (OTCPK:SBVRF) recent deal with future Nasdaq entrant InterCure/Canndoc (a wholly owned subsidiary of InterCure), the biggest cannabis company in Israel. He also catches us up on The Parent Company and where investors should be focused.

Topics include:

Subversive was initially launched as a REIT, as a competitor to IIPR, but it didn't work - a few technical reasons why. Spent time regrouping, trying to launch The Parent Company and looking for another target. Looked broadly at cannabis and non-cannabis. Nothing else in the US looked compelling, especially with Israel looking to go adult-use, has ties to Israel, called CEO of Canndoc/InterCure. Within 24-48 hours they had a signed letter of intent. Was concerned about announcing a deal so soon after The Parent Company, so waited on announcing that.

Subversive structured as an LP not a Corp, and not a REIT - that will convert on closing of transaction. Lesson learned - don't put it in the title in case the deal doesn't go through. SBVRF or SBX.U is best way to play it now, on closing it will be on Nasdaq and on Tel Aviv Stock Exchange.

GRAMF ticker change didn't go as smoothly as they had planned - was still trading under Subversive ticker because it was a holiday weekend with Dr. Martin Luther King Jr. Day. Different names floating around confusing to investors, and frustrating, but it will be cleaned up.

InterCure deal - had a deal with Charlotte's Web (OTCQX:CWBHF), Tilray (NASDAQ:TLRY) and Aphria (NASDAQ:APHA). Had been looking for opportunity in cannabis in Israel and Former Prime Minister Ehud Barak brought the company to his attention, CEO Alex Rabinovitch has invested $25 million of his own capital and has been CEO for the past 5 years. Israeli market having 13 limited license holders and with the market growing, Canndoc seemed the best choice for commanding market share and handling balance sheet.

Similarity with adult-use barriers between California and Tel Aviv - legal growers doing backdoor deals with illicit market. Adult-use still possible this year in Israel - more likely in Q1 or Q2 of next year. But still a bipartisan issue there.

Plan to have north of $200 million on balance sheet at closing - there won't be a competitor to Canndoc and that will push thesis of growing the Israeli market. $225 million in trust is a combination of institutional, hedge fund, 60% US, 30% Canada and 10% global - have raised $65 million PIPE, met all conditions of closing, no way it doesn't close. Plus access to US capital markets with the Nasdaq listing. Canndoc is the only profitable cannabis company outside of North America and has doubled revenue sequentially 4 out of the past 5 quarters and has been cash flow positive since Q3 2020.

Consolidating and dominating the market is the thesis both with Canndoc and The Parent Company. US companies will dominate this industry, especially being on the cusp of the end of prohibition and US brands will dominate the market, even globally. The Parent Company is perfectly positioned for that. With Israel, will be interesting to see what adult-use looks like, but that aside, Israelis love US brands - why Canndoc did a deal with Cookies, and they're perfectly positioned to capture similar market share in Israel. Exporting to Europe.

Future of brands in cannabis, what's in a company's name. Corporate names are less interesting than the brands.

The Parent Company - with the end of prohibition in the US imminent, there's a real opportunity to buy into US cannabis operators listed on senior exchanges in Canada. Still trading at a discount to peers, when stocks uplist to US exchanges they rerate. For instance, OTCQX:GTBIF just filed as a US registrant and raised $100 million.

Outside of the US, Canndoc and Israel is one of, if not the most, compelling opportunities. Similar to Trulieve (OTCQX:TCNNF) in 2016 when it went from 15% market share to over 50% - strategic, strong balance sheet and management. And Israel doesn't suffer from issues like 280E, so potential is formidable.