Israeli Supermarket Giant to Sell Low-cost Medical Cannabis

Rami Levy's pact with grower Together comes as Israeli marijuana market poised for takeoff

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Greenhouses for growing medical cannabis in Givat Hen, January 30, 2019
Greenhouses for growing medical cannabis in Givat Hen, January 30, 2019Credit: Eyal Toueg

Israel’s discount supermarket king Rami Levy is planning to do for medical marijuana what he did for fresh chicken and, in the future, add cannabis as a consumer product too.

Under a memorandum of understanding signed this week with the cannabis company Together, his Good Pharm chain of 28 drug stores will begin selling medical marijuana at discounted prices. In an interview with TheMarker, Good Pharm’s co-founder Adam Friedler and Together CEO Nissim Bracha promised a price revolution ahead for the more than 74,000 Israelis with doctors’ approval to use cannabis.

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But that’s just the beginning. Friedler said Good Pharm was looking ahead to the day when cannabis becomes another consumer product.

“I think that the minute the cannabis market is open to recreational use and no longer limited to those with approvals, it will turn into a really big market and there will be big demand in city centers, where our stores are located. Cannabis products will become commodity products and price will be an important factor for consumers, as has happened with basic consumer goods,” said Friedler.

The move comes as the Health Ministry seeks to cut the cost of medical marijuana through a pilot program that grants Israeli companies export licenses in exchange for discounting prices in the domestic market. For many, it’s a worthwhile trade-off: The Israeli medical-marijuana market is worth about 750 million shekels ($233 million) annually, but export markets could potentially be worth many times that.

Under the pilot, due to end in another two weeks, local prices range from 140 to 220 shekels for 10 kilograms, compared with the normal range of 200 to 300 shekels. However, two thirds of marijuana products in the market aren’t in the pilot, including what critics say are the most popular ones.

“We’ll offer three varieties exclusive to the pharmacies in Good Pharm and they’ll sell them for 100 to 120 shekels per 10 grams – half the price of similar products in the market today,” said Bracha. “We’re committed to offering the lowest prices in Israel even if at some point prices rise.”

Bracha said he would be able to sell medical marijuana at much lower prices because Together controls the entire supply chain. “We don’t need to buy plants. We have a factory, packing house and now we’ll have pharmacies,” he explains.

The cost of growing a cannabis plant accounts for 3.30 shekels per gram and packing adds another 2.70. Processing and quality control cost another shekel and distribution and other costs amount to 1.50 shekels, bringing the total to just 10 shekels a gram for medical marijuana. Pharmacy chains have their overhead costs and minimum profit margins as well, which adds to the final price.

Together operates 20 dunams (five acres) of cannabis hothouses in Israel and another 32 in Uganda. Its Globus Pharma unit operates a processing plant that meets the IMC-GMP standards. This week, the company said it reached a 20 million shekel loan agreement with Mizrahi Tefahot Bank, some of which can be converted into shares.

Good Pharm will be selling exclusively two varieties of T20 medical marijuana, which Bracha termed “popular” in the Israeli market because of its high rate of THC – cannabis’ main psychoactive compound. It will also sell T10, which is used by the elderly and other people seeking to maintain their level of function.

When a final agreement is signed, the first phase, due to get underway in the second quarter of next year, the products will be sold at two or three Good Pharms where the two sides will open dedicated cannabis pharmacies inside the store (despite its name, Good Pharm does not sell prescription drugs). After that, they will open one new pharmacy a month.

The government has said it intends to exclude CBD, a non-psychoactive cannabis ingredient, from the Dangerous Drugs Ordinance, allowing it to be used in products like food, beverages and cosmetics. The Israeli CBD-product market could reach sales of $300 million to $475 million within five years, and the global market could be worth $30 billion, according to the consulting and accounting firm Deloitte Israel.

“There’s going to be a complete industry in Israel around cannabis products and it will be much easier for a druggist to recommend and sell them if they are available on store shelves,” said Friedler.

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