With legalization on the horizon, Israeli cannabis firms start thinking big

After a rough patch, Israel’s cannabis business is looking good again, with prospects emerging for medical-marijuana exports and a new local market for recreational use.

The Tel Aviv Stock Exchange has recognized that: In the last two weeks, shares of medical-marijuana company Intelicanna have jumped 24% while Seah Medical Group and Tikkun Olam have powered ahead 20%. Amir Marketing Investments, which controls the company BOL, has climbed 18%.

Pharmocann and Pannaxia Labs have risen 16% and 14%, respectively. InterCure, the biggest of them all, has risen just 4.5%, but tiny Medivie Therapeutics has soared no less than 40%.

Medical marijuana stocks were a big hit on the bourse back in 2018 as a swarm of new companies listed for trading and celebrities, such as former prime minister Ehud Barak, joined their boards of directors. Share prices soared.

Then the market got real about the medical-marijuana companies’ business prospects and the fact that their shares had become grossly overpriced. In the winter of 2019, prices plunged and many investors took big losses.

Now the business is looking better. Seah and Pannaxia have gotten approvals to export their products to Germany and Italy, spurring hopes that licenses for other companies will come soon.

Then, last Thursday Justice Minister Avi Nissenkorn announced plans to seek legislation to legalize recreational marijuana in Israel. The law has supporters in the government and the opposition as well as from the Justice and Health ministries.

• ‘The Time Has Come’: Israel Announces Plan to Legalize Recreational Cannabis Use
• Drone Drops Hundreds of Bags of Marijuana Over Tel Aviv
• LISTEN: High Priests, Holy Smoke and Cannabis in the Temple

Based on an inter-ministerial committee’s recommendations that uses a Canadian law as a model. It seeks to strike a balance between freedom and safety, among other ways, by banning sales to minors, limits on advertising and marketing, health warnings on packages and a public information campaign.

There is also an economic dimension to the proposed reform, namely that a legalized-marijuana industry will pay taxes and provide jobs, especially for the young.

Nissenkorn plans to submit in the coming month a draft version of the law with the aim of winning cabinet approval within nine months.

The cannabis industry, which is hoping the government won’t fall beforehand, expects to be the beneficiaries of legalization.

“In Canada, they [the government] will grant licenses for recreational marijuana companies that already have licenses to grow and produce medical marijuana. The same will happen in Israel,” said one industry executive, who asked not to be named.

As a result, he said, “the war for the market has begun. The ones who are ready with branded products and production facilities will win the biggest market share.”

The executive said he expected that production standards will be less strict for recreational than medical marijuana, more akin to the food industry than the pharmaceutical industry.

Even as their share prices slumped, Israel’s cannabis industry was maturing and getting ready for business opportunities. Until a year ago, they were focused on developing farms and processing facilities for medical cannabis. Since then, they have taken a leap forward. Today they are selling cannabis in greater volumes and some are about to begin exports.

Stock market investors have also matured. They are more skeptical about the rosy business outlooks the companies used to offer.

Until now, the 14 cannabis companies traded on the TASE, with a combined market capitalization of 2.5 billion shekels, were limited to the Israeli medical-marijuana market. That comprises about 70,000 authorized users who spend about 750 million shekels ($223 million).

Legalization promises to create a domestic market many times that size. Even just half of the one million recreational users in Israel today decide to buy licensed weed rather than in the black market. The market could reach 4 billion to 5 billion shekels annually, not counting foreign tourists.

The cannabis companies are already thinking up creative ways to sell marijuana other than as a product to be smoked. Tikkun Olam, for example, on Monday said it signed a memorandum of understanding with Carmit Confectionery Industries to manufacture pastries with cannabis. Companies are also expected to open their own retail outlets with branded products.

“We’ve started planning for legislation. I believe that we’ll hear in the coming weeks about other cooperative agreements. We’re examining now cannabis being consumed in drinks, candies and chewing gum,” said Avinoam Sapir, Tikkun Olam’s CEO.

He said the day after recreational marijuana is legalized, the Israeli market could grow to far beyond the 1 million users today.

“The minute that recreational marijuana becomes more accessible, the market will really open up. Patients will be able to choose between buying cannabis without a prescription, just like they buy [the pain reliever] Acamol at the pharmacy. We’ve started preparing for a big increase in output and we’ve tripled the size of our farm in the north,” said Sapir.

InterCure is also getting ready for legalization. Several months ago it paid 18 million shekels for 50% of Can Olam, a company that has exclusive rights to import and distribute Cookies branded cannabis products, made in California. Can Olam also has a chain of medical-marijuana pharmacies.

“Right now it looks like regulators are going to adopt the Canadian regulation, which doesn’t allow for coffee shops [marijuana cafes] but for specialized stores in which adult customers can buy a range of cannabis products that aren’t sold in the pharmacies,” said Asaf Ohayan, Can Olam’s founder.

He added that it was likely cannabis usage in public places would be restricted, just as smoking is.

Legalization may also give cannabis stocks a technical boost. That’s because until only a handful of institutional investors – Psagot, Phoenix Insurance, Meitav Dash and Mor – have invested in them. Legalization is expected to bring other institutions in and with it large amounts of capital