Israelis who accompanied the Danish health minister at the end of 2017 on her visit to the local medical marijuana industry didn’t believe their ears.
Over three days they provided a detailed survey of local developments in hopes of impressing the Danes and turning them into a major consumer of Israeli cannabis. But at the concluding dinner in the King David Hotel in Jerusalem the minister announced that her country now planned to “do exactly the same thing.”
Denmark has “a lot of money” and wants to build an identical medical marijuana industry, she told the shocked organizers. Yuval Landschaft, director of the Medical Cannabis Unit in the Health Ministry (known by its Hebrew acronym, Yakar), couldn’t control himself: “Steal from us?” he asked.
While the minister was wondering how to address the word he threw out, Landschaft stood up, gathered his things and told her: “Madame, I’m very happy you came, and I’m even happier that tomorrow you’re leaving,” and walked out while encouraging the rest of the Israelis attending the event to follow him.
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The large amount of professional knowledge accumulated in Israel on medical marijuana in recent years has attracted not only the Danish minister. While many European countries and the United States backed away from marijuana because it was a “dangerous drug,” Israel undertook a major role in research in the field.
The pioneer was Prof. Raphael Mechoulam, an organic chemist from the Hebrew University of Jerusalem. Fifty years ago he began studying cannabinoids, the active components in the marijuana plant, and their effects on humans.
Prof. Hinanit Koltai of the Agriculture Research Organization, Volcani Center has led the genetic mapping of different cannabis strains in recent years along with the Israel Plant Gene Bank with the goal of characterizing the strains, marking them as “Israeli strains.”
She also founded a national collection to enable the cultivation and improvement of medical marijuana at the same high standards that characterize the pharmaceutical industry.
Science and industry cooperate
Scientists are cooperating in Israel with entrepreneurs in areas such as genetic engineering, growing plants from cultures, studying the plant’s active ingredients and their effect on the body, extracting molecules from the plants and developing for formulations.
Those involved hope that cannabis will receive approval as a pharmaceutical to treat diseases and conditions including Alzheimer’s, cancer, autism and epilepsy in the not-too-distant future.
“In other places around the world they grow recreational marijuana. In Israel, we’re creating a global revolution,” says Landschaft. “Regular cannabis is an agricultural crop that is judged by weight and price. We’re talking about medical-grade marijuana. There is nothing like it in the world.”
Last month’s cabinet resolution, which will allow Israeli companies to begin export medical marijuana soon, makes Israel one of the first countries in the world to establish clear rules on how firms in the market must operate. It divides the supply chain into four parts and assigns labels to the different cannabis strains. The Israel Medical Cannabis standard is supposed to guarantee high quality, on par with other pharmaceuticals.
As part of the new rules, for example, a license to operate is awarded only to those who prove they can meet these very exacting requirements. Growers are required to grow strains with a fixed percentage of active ingredients as they would for any pharmaceutical plant.
Even the requirements for cleanliness, or to be more precise, sterility, are very high — no longer just what comes up but another attempt to copy the pharmaceutical industry, where the focus is on specialization.
The medical cannabis permits (Yakar) are divided into four sections: GAP (good agricultural practice) standard for growing the product; GMP (good manufacturing process) for producing and extracting active ingredients in a proper production facility; GDP (good distribution process); and good security processes (GSP) to prevent the marijuana from reaching the wrong hands.
Starting on April 1, only companies with appropriate licenses can operate in any of the relevant segments of the industry.
The reforms are expected to end the current situation, in which “home growers” sell directly to the 35,000 Israelis who is qualified to obtain and use medical marijuana.
After April 1, the marijuana plants will no longer come from seeds imported in a coat pocket or hidden on someone’s body, no more small capsules containing trimmed cannabis leaves or farmers who provide this specific plant to patients because that is what they have in their inventory.
Because of the new regulations a few players that have been active in the industry until now, and have even led it, have found themselves without a permit to continue to grow the plants. Others invested serious money and received a permit to grow and distribute medical marijuana, but now they are being forced to focus on only one segment of the supply chain. That is because meeting even one of the standards on the level equivalent to that of an international pharmaceutical standard, is not an easy task at all. So now businesses can realistically only operate in only one segment of the industry.
Landschaft says that what interested Israel in reforming the industry was the interest of the patients, but he knows very well that the entire industry was in standstill waiting for the government decision on the matter, so they could begin exporting cannabis products and grabbing a lead in one of the hottest businesses in the world. Landschaft calls it “agromedical high tech,” quoting Anya Eldan from the Innovation Authority in the Economy and Industry Ministry.
The global cannabis market, both medical and recreational, has grown sharply in recent years. In 2015 the medical marijuana market alone was estimated at $11.4 billion. Based on a Bank of America forecast, the American cannabis market alone is expected to exceed $20 billion annually by 2020. Israelis in the industry are hoping Israel will repeat its Startup Nation success for cannabis, too, and become home to billion-dollar companies.
Landschaft says the government is providing its services for free to the industry and expects to earn back its investment from the taxes the companies pay, a figure the government hopes will reach the range of 1 billion to 4 billion shekels ($280 million to $1.1 billion) a year.
High-tech down on the farm
A visit to Israeli farms and manufacturing facilities reveals and established, high-tech business. Farmers in white lab coats working side by side with scientists, pharmaceutical experts, executives and financiers — who swore they smoke their crops and were waiting a long time for the cabinet resolution.
In greenhouses and in factories, you can see how the difference between agriculture, high-tech and the pharmaceutical industry have shrunk. Companies such as Ilan Bio now specialize in tissue culture technology to create commercial quantities of uniform seedlings.
“The Israeli cannabis industry can reach the scope of the pharmaceutical industry in Israel,” says Dr. Tamir Gedo, the CEO and part-owner of Breath of Life Pharma. Israel can hold a 15% to 20% share of the international market, he says. Breath of Life is the only Israeli company that holds all the necessary permits from the Health Ministry.
Gedo is confident that even though his firm only serviced about 10% of medical marijuana patients in Israel under the old arrangements, it will soon become one of the largest in the global industry.
The company recently raised over $100 million, partly to finance the purchase of advanced equipment capable of producing what is currently the entire yearly output in Israel — about 20 tons — in only one day. Gedo declines to reveal his sales agreements with foreign firms, but points to the company’s 100 dunams (25 acres) of greenhouses near Kibbutz Revadim, in southern Israel.
Gedo doesn’t hide his criticism of some of the new players in the market — above all, former Prime Minister Ehud Barak and his company, InterCure, which he says is hitching a ride on the new regulation.
“They have only three dunams for growing. Barak told [everyone] they have a permit to manufacture cannabis and extract the active ingredients in it in its factory — but they don’t have a factory. They don’t manufacture anything. Anyone with a pulse can receive a temporary permit to grow, or manufacture. This boasting is fictitious. A permanent permit is a different story. It’s not a coincidence that there are a number of participants who are trying time after time to receive it but are turned down,” says Gedo.
50% dreamers, 50% liars, 50% potheads
With a smile, he tells about the insight he acquired back at the beginning of his career in marijuana. “In this industry, 50% are dreamers, 50% are liars and 50% are potheads — and there is overlap between the groups.” He refuses to say which group he belongs to.
InterCure says it was ready to be a serious player in the industry. Canndoc, a medical cannabis developer it acquired in September, has all the tools, capabilities and knowledge needed to carry out its strategic plan and is moving quickly to reach its goal of producing 100 tons a year and launch operations in 10 different regions around the world.
Moreover, says InterCure, it is the first and only publicly traded company in Israel to meet all the strict regulatory requirements and was prepared to export. The company says it is even examining a dual listing and raising funds on the Nasdaq.
Seach Medical Cannabis, a company founded and owned by brothers Yogev Sarid and Shay Avraham Sarid, has also obtained all of the required Yakar approvals. The Sarids entered the industry in 2002, when their father was diagnosed with cancer and they learned the benefits of medical marijuana. They got a license to grow it three years later and turned over the family’s greenhouses that had been used to grow other crops to cannabis cultivation.
“Until 2010, it was really just philanthropy. You weren’t allow to be paid,” recalls Shay Avraham Sarid, who says that until three years ago they were losing money on their marijuana business.
“Over the last three years the market has opened up more. There are more patients with prescriptions and anyone who operates efficiently can make money,” adds Yogev Sarid.
“But it still is no bonanza. The market here isn’t like Canada or the United States. If you’re thinking about getting into the market today and building something from the ground up, you can only succeed if you have very deep pockets,” he warns.
Yogev Sarid estimates the brothers invested 17 million shekels in the business over the years and whatever profits they earned were plowed back into it. “Like every part of the agricultural industry, you have difficulties. A grower who isn’t efficient can’t survive,” adds Shay Avraham Sarid.
Smaller players in the market struggle to make profits at all. Economies of scale make it a different story for bigger growers. Oren Shuster, CEO of IMC, one of the first eight growers to get all of the Yakar approvals, sees big potential for the industry now that exports can begin, although it will also mean more competition. IMC has 16 dunams under cultivation and expects to expand its acreage now that exports are permitted.
“Right now, there is a lot of hype in the industry. A lot of people are investing money. It will take them a lot of time to get established — it took us three years. All that time you’re spending money and nothing it coming in,” he says. “The market is taking shape and those who succeed will succeed big. There will also be big tough competition and in the end a bloodbath,” Shuster says.
Seach received permits for two of the four supply chain segments — growing and processing — but lost its distribution permit. “Until now, the grower would sell it to the end user. The reform has added links to the chain and has erected a wall between the different segments,” says Yogev Sarid.
“No doubt the entry of more growers into the industry will bring more professionalism, but we need to be careful about creating an oversupply that will cause bankruptcies. That will hurt grower profits and eventually lead to higher prices for the consumer.”
Landschaft insists otherwise. “We examined it. Prices won’t rise and will remain at 100 to 120 shekels for 10 grams,” he predicts.
Israel’s advantage is in R&D
Yogev Sarid is also cautious about Israel’s prospects in export markets. Israel’s competitive advantage is not so much in growing as it is in research and development.
“When Eastern European and African countries begin growing, global prices will fall and the attractiveness of medical marijuana exports from Israel will decline,” he warns. Marijuana cultivation is relatively labor intensive, which puts low-cost countries at an advantage.
Breath of Life CEO Gedo thinks otherwise. From meetings he has had with health ministry officials around the world, he has concluded that regulators won’t allow imports of products like medical marijuana from developing countries.
Eran Tor, CEO and owner of ICD Pharma, which is developing cannabis-based medicines, also is dubious about the future for medical marijuana even with export approvals.
“The market here is small. There’s a lot of noise and a lot of names being thrown around, but the big market is in the United States and Canada. Israel has an impressive knowledge base, but the market itself isn’t interesting. We’re conducting clinical trials here, but we’re not selling or growing here,” he says.