Israel’s Medical Marijuana Stock Bubble Is Starting to Deflate

Industry faces delay in amended export regulations ■ FDA sounds skeptical note on CBDs

A medical marijuana farm and lab in Givat Hen, April 21, 2019.
\ Eyal Toueg

The air has been rushing out of Israel’s medical marijuana stock bubble since the middle of February, and things only grew worse on Sunday after the industry suffered two major setbacks at the end of last week.

One occurred at home in Israel, after the Knesset called new elections, pushing back the formation of the next government till late in 2019. The other unfolded in the United States – a major potential market for Israeli companies with export hopes – where Food and Drug Administration regulators cast cold water on the industry’s immediate prospects.

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Among the hardest hit shares on the Tel Aviv Stock Exchange was InterCure, which had once boasted a market capitalization of 1.2 billion shekels ($330 million at current exchange rates) after former Prime Minister Ehud Barak was named chairman last year. On Sunday, InterCure plunged 10.6% to close at 6.40 shekels, capping a 55% decline since its February peak and leaving its market cap at 674 million shekels.

Herodium, which owns the Panaxia factory in Lod for manufacturing marijuana-based medical products, dropped 10.3% to end at 3.93 shekels. The stock is down 70% since its February high.

Cannbit plummeted 12% to 7 shekels even after the company said it had found a solution to last month’s decision by Israel’s Health Ministry to deny controlling shareholder Barak Rosen an export license. Its shares are down nearly 75% from their peak in mid-March.

Cannbit also learned on Sunday that Ayelet Shaked, who was fired as justice minister the same day, had turned down an offer to serve as its chairwoman.

Israel’s cabinet approved medical marijuana exports in principle last January, opening the door to the giant markets on the U.S. and Europe to an industry that until now has been confined to serving a few tens of thousands of Israeli users.

The promise of exports, as well as a flurry of mergers and acquisitions deals and the hiring of celebrity executives like Barak, set off a boom in medical-marijuana shares on the TASE last year.

The government has yet to amend export regulations, which the industry had been counting on to be in place by the end of the year after a new government was formed. But Prime Minister Benjamin Netanyahu failed to do that and the Knesset voted Wednesday to dissolve itself.

With elections set for September 17, a new government is unlikely to be formed before November. As a result, approval of the amendments is being pushed back as well, giving non-Israeli rivals more time to build their businesses overseas.

Last Thursday, the first ever hearing by the FDA to assess the safety and efficacy of cannabidiol (CBD) products showed how skeptical officials are about them.

In opening remarks, Dr. Ned Sharpless, the FDA’s acting commissioner, said that despite their widespread use “critical questions remain about the safety” of the products.

“While we have seen an explosion of interest in products containing CBD, there is still much that we don’t know,” Sharpless was quoted as saying by CNN.

CBD is the ingredient in marijuana and hemp touted to have medicinal benefits without the psychoactive properties of tetrahydrocannabinol or THC.

Sharpless pointed out that prior to the passage of last year’s farm bill, which made hemp no longer a controlled substance, much of the research into cannabis looked at the plant as a whole, rather than components like CBD.

A year ago, the FDA for the first and so far only time approved a cannabis plant-derived, CBD-based drug, Epidiolex, to treat two severe and rare forms of epilepsy called Dravet Syndrome and Lennox-Gastaut syndrome.

The FDA will require companies seeking approval for CBD products to show clinical research that demonstrates its efficacy for specific maladies and wants evidence that it doesn’t cause users any harm.

The result will be longer times to market and higher costs for companies seeking its approval.