Our Portfolio NewsMarch 23, 2019by Pavel0GemmaCert to raise $5m-6m Series B by 3Q for marketing & product development


Israeli GemmaCert, whose technology optically measures the potency of cannabis flowers, will raise a USD 5m-USD 6m Series B shortly, closing the round in the second quarter of this year, CEO Guy Setton said. 

While he declined to reveal a target valuation, Setton said that the figure must take into account that GemmaCert is selling its product and holds proprietary software and hardware. As the company does not directly work with the cannabis plant or its biproducts, it is therefore not vulnerable to regulatory hurdles facing other companies operating in this space, he added.

Management will seek a strong VC from one of its target markets – the US, Canada and Europe – to act as a lead investor, he said. Ideally, the investor will have previous experience in the cannabis or analytical sectors, or will be a life-sciences focussed group wishing to enter the cannabis industry, he said. While receptive to family offices and high-net-worth individuals, GemmaCert is primarily interested in bringing in additional VCs, from within Israel and from its target markets, he said. Strategics from the cannabis sector and analytical companies are also relevant, he added.
> Capital from the Series B will be invested in sales and marketing expenditure and will boost the size of GemmaCert’s team, Setton said. It will also be used for product development: to add new features to the existing device, and to build a next-generation model for use in the same vertical, he said. 

During previous raises, GemmaCert mandated the life-sciences focussed Horn & Co. for legal advice and will likely do so again during the Series B, Setton said. The company is unlikely to hire a financial advisor, he noted.

The Series B raise is likely to be GemmaCert’s last private equity raise, and will be followed by a strategic move – possibly in the form of a sale, or an IPO in Toronto or the US, no earlier than 2020, he said.

In the last 12 months GemmaCert has been approached by several listed companies interested in acquiring the firm and conducting a reverse merger on the Tel Aviv stock exchange, Setton said. It rejected these deals as they did not serve the company’s or its shareholders’ long-term goals, would have left the acquiring company with little capital, and were too early in GemmaCert’s life-cycle, he said. The rejected deals were worth double-digit-million US dollars, he said, noting that another offer from a listed Australian firm was for USD 28m-USD 35m.

To date, GemmaCert has raised a total of USD 5.25m from VCs and angel investors in a seed round and a Series A, Setton said.

Bulgaria-based early-stage investor NEO Ventures, Californian strategic cannabinoid investor Applied BioSciences [OTCQB:APPB] (previously known as Stony Hill), Israeli Arba Finance, and Agrinnovation, a fund affiliated with Jerusalem’s Hebrew University, took part in GemmaCert’s USD 2.3m raise in 1Q18, it was reported .

The company commercialized in 4Q18 and ships five to ten units a week, primarily to customers in North America and Europe, Setton said. It supplies coffee shops in the Netherlands, pharmacies in Germany, cannabis clubs in Barcelona, and academics in Australia, New Zealand and Colombia, he noted.

Based on a business model utilising a one-time sale and a monthly subscription for access to the company’s cloud service, GemmaCert is expecting to generate USD 2m-USD 2.5m revenue in 2019, he said, and is likely to become profitable in 2020.

Established in 2015 in collaboration with the Hebrew University, GemmaCert’s technology is a non-destructive way of testing the strength of individual cannabis flowers. The core IP involves optics, artificial intelligence analysis and a large database of spectral readings of cannabis flowers, enabling greater accuracy, Setton said.

Source: Robert Swift and Otto van Reijendam


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