Intercure Ltd. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021; filed April 28, 2022. This is an annual report, not a standalone Q4 filing. The company reports under IFRS in New Israeli shekels (NIS); amounts below are NIS unless stated otherwise. It operates mainly in Israeli medical cannabis, alongside a small legacy biomed investment segment. Financial statements received an unqualified audit opinion.
Financial and operating results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | NIS 219.7 million | NIS 65.0 million |
| Gross income before biological fair-value adjustments | NIS 96.0 million | NIS 30.4 million |
| Gross income | NIS 91.1 million | NIS 32.0 million |
| Operating profit (loss) | NIS 28.2 million | NIS (38.4) million |
| Profit (loss) for the year | NIS 7.3 million | NIS (36.0) million |
| Profit (loss) attributable to company shareholders | NIS 4.7 million | NIS (37.2) million |
| EBITDA (non-IFRS) | NIS 35.6 million | NIS (35.1) million |
| Adjusted EBITDA (non-IFRS) | NIS 51.7 million | NIS 15.0 million |
| Net cash from operating activities | NIS 25.0 million | NIS 7.8 million |
| Cash and cash equivalents at year-end | NIS 196.2 million | NIS 37.9 million |
Revenue rose 238% year over year. Management attributed growth to demand and market-share gains, pharmacy and distribution expansion, and acquisitions; acquired Pharmazone was consolidated from May 2021. Gross margin before fair-value adjustments was about 44%, versus 47% in 2020, which management linked partly to consolidation of lower-margin trading houses. Adjusted EBITDA margin was approximately 23.5%; this non-IFRS measure is company-defined and should not be treated as a substitute for IFRS results.
Q4 2021 revenue was NIS 79.7 million, versus NIS 27.1 million in Q4 2020. Q4 gross income was NIS 36.6 million and adjusted EBITDA was NIS 19.4 million. Q4 basic loss per share was NIS 0.07; quarterly results were unaudited.
Liquidity, debt, and cash flow
At December 31, 2021, current assets were NIS 336.2 million and current liabilities NIS 193.6 million, implying working capital of about NIS 142.6 million. Cash and cash equivalents were NIS 196.2 million; a further NIS 21.1 million was reported as restricted cash. Bank borrowings were NIS 82.4 million in total, including NIS 70.6 million classified as current and NIS 11.9 million as long-term. Total liabilities were NIS 227.1 million. The filing states that the company was in compliance with required financial covenants.
Operating cash flow improved to NIS 25.0 million. Financing provided NIS 203.1 million, principally reflecting the SPAC transaction and share issuance; investing used NIS 65.2 million, including facility investment and acquisitions. Management said it did not expect to need additional funding, based on projected positive operating cash flow. Planned 2022 capital commitments were NIS 17 million. The filing also lists NIS 176.3 million of contractual obligations due within one year, including bank credit and trade and other payables.
Material changes and business developments
- Operating profit shifted from a NIS 38.4 million loss to NIS 28.2 million profit; full-year net profit was NIS 7.3 million after a NIS 36.0 million loss in 2020.
- Cash increased by NIS 158.3 million year over year, primarily reflecting the SPAC transaction and operating cash generation. The company reported approximately US$56 million of SPAC proceeds after redemptions and the concurrent private placement, excluding transaction costs.
- Acquisitions expanded the Israeli pharmacy and wholesale footprint. The company reported 20 pharmacies, 14 licensed to dispense medical cannabis, and acquired or consolidated trading-house operations during the year.
- Shares began trading on Nasdaq in September 2021, in addition to the TSX and TASE. Year-end ordinary shares outstanding were 45,133,945.
- International partnerships and capacity plans remained dependent on permits and local regulation. The company said its products had not yet been distributed through most international partnerships; German product registrations were obtained, but commercial sales under those arrangements had not commenced.
Outlook, risks, contingencies, and unusual items
- Outlook: The filing provides no quantified revenue or earnings guidance. Management’s plans include expanding production and distribution, but expansion is conditional on demand, export and import approvals, and other regulatory requirements. The Southern Israel facility was producing at an initial phase of up to 7 tons annually; its stated 88-ton potential assumes full development and approvals. Current operating capacity was described as up to 10 tons annually.
- Regulatory and execution exposure: Cannabis production, sales, imports and exports depend on renewable licenses and evolving rules. Israeli export regulations and several foreign-market approvals remained unresolved or incomplete; international partnerships could therefore fail to generate expected revenue.
- Legal matters: A proposed cannabis-industry class action alleges labeling and related violations and claims approximately NIS 686 million for the class. The company said the outcome could not be assessed at this early stage and recorded no provision. Other disclosed proceedings include a securities-related proposed class action concerning Regenera disclosures and a NIS 2.27 million contractual claim against Canndoc. The company also disputed Tilray Portugal’s alleged sale of 500 kilograms to another Israeli company, asserting breach of exclusivity; remedies were still being assessed.
- Clinical research and COVID-19: Clinical studies were delayed by the pandemic, including a Phase 3 autism study. The filing says the company had not completed clinical trials using its products, although it had feasibility approval for nine studies and had commenced one Phase 3 trial.
- Unusual financial items: 2021 results included NIS 6.5 million in share-based payment expense, NIS 9.5 million in net financing costs, and NIS 11.4 million in income tax expense. Fair-value changes in financial assets were a NIS 1.9 million loss in 2021, compared with a NIS 37.2 million loss in 2020. Biological-asset valuation depends on management estimates, including expected selling prices and yields.
- Reporting and controls: Management concluded disclosure controls were effective at year-end. The filing notes that acquisition activity and limited finance resources delayed preparation of audited statements for a Canadian reporting deadline; strengthening resources was identified as a remediation priority. No management ICFR assessment or auditor attestation was included under the newly public company transition period.
- Other risks: The company cites agricultural and crop risks, competition, FX exposure, reliance on partners, Israeli political and security conditions, COVID-19, and potential market disruption from the Russia-Ukraine conflict. It reported no operations or direct reliance on revenue or raw materials from Russia or Ukraine.
Important facts for investors to verify
- Reconcile the reported NIS 51.7 million adjusted EBITDA to IFRS earnings and assess the effect of fair-value adjustments, acquisitions, and share-based compensation.
- Check unrestricted versus restricted cash, near-term debt maturities, covenant terms, and whether operating cash flow supports planned spending and contractual obligations.
- Track cannabis export and import permits, pharmacy licenses, and the start of commercial sales through international partnerships; verify capacity claims against actual production and demand.
- Review acquisition purchase-price allocations, provisional goodwill and contingent consideration, and the expected dilution from share-funded transactions, including the proposed Better acquisition.
- Follow the material litigation, particularly the proposed class actions and Tilray exclusivity dispute, and assess any change in exposure or provisioning.
- Confirm the status of the proposed Israeli CBD rule change and required legislative approval, and monitor clinical-trial timelines and outcomes.