IM Cannabis Exits Europe in Deal With CEO-Controlled Buyer, Citing Financial Hardship

By Nicolás Rodríguez, Managing Editor

IM Cannabis has completed the sale of its European-focused operations to a company controlled by its CEO, Oren Shuster. The Nasdaq-listed company expects the transaction to improve shareholders’ equity by approximately C$3 million and will concentrate on its medical cannabis business in Israel.

The September 29 closing transfers I.M.C. Holdings Ltd. to Slil.com Holding Ltd., which IM Cannabis says is beneficially owned and controlled by Shuster. Before the sale, IM Cannabis moved its Israeli operations out of I.M.C. Holdings so it could retain them. The sold company held interests in subsidiaries including Germany’s Adjupharm GmbH.

What the buyer paid—and took on

The consideration included a C$3 million advance payment Slil had already made to IM Cannabis. Slil also acquired I.M.C. Holdings with certain liabilities remaining in that business. The agreement set a C$9.4 million limit on those retained liabilities, subject to adjustment between the parties, but that limit does not cover direct liabilities of the subsidiaries being sold.

IM Cannabis said its projected C$3 million improvement in shareholders’ equity is based on an unaudited pro forma analysis. The final accounting effect could differ and will appear in a subsequent financial report. The company also expects the sale to improve working capital and reduce liabilities on its consolidated balance sheet.

Why shareholders did not vote

Because Shuster controls the buyer and is also IM Cannabis’s CEO, a director, shareholder and debtholder, the company classified the sale as a related-party transaction. It relied on financial-hardship exemptions from requirements for a formal valuation and minority shareholder approval. In its release, IM Cannabis said the basis for those exemptions included that it was in “serious financial difficulty” and that the transaction was designed to improve its financial position.

An independent-director special committee reviewed the deal and recommended its approval. Shuster declared his interest and did not participate in the board’s approval vote. An outside consultant supplied financial analysis, though the company said that analysis was not a formal valuation under the applicable Canadian rule.

For investors, the next check is whether the reported reduction in liabilities and improvement in working capital materialize in IM Cannabis’s financial statements. The company said it will file a material change report with further transaction details.