Israeli Medical Cannabis Firm Plans Wall Street IPO

Canndoc, whose parent company is chaired by former Prime Minister Ehud Barak, plans to trade on the Nasdaq

Former Israeli Prime Minister Ehud Barak at a defense establishment press conference on the submarines affair, March 4, 2019
Moti Milrod

Israel’s medical marijuana industry is getting its first toehold on Wall Street: InterCure, the holding company chaired by former Israeli Prime Minister Ehud Barak, announced on Monday that its medical-cannabis unit Canndoc had filed for an initial public offering.

The confidential filing with the U.S. Securities and Exchange Commission means no details about the move were made public, but sources said management was optimistic that Canndoc could reach the same $5.1 billion market capitalization as the Canadian medical marijuana company Tilray has.

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That would means a big boost to InterCure, which is traded on the Tel Aviv Stock Exchange at a market cap of just 1.1 billion shekels ($310 million) even after its shares jumped 7.7% to 11.40 shekels on Monday on news of the IPO.

InterCure, whose management has already begun a U.S. roadshow to interest potential investors in the IPO, said Canndoc’s shares would be traded on the Nasdaq.

A holding company of small medical firms led by CEO Alex Rabinovitch, InterCure bought medical-cannabis company Canndoc last September for just 18.9 million shekels and shortly afterward appointed Barak, a former Israel Defense Forces chief of staff, as chairman.

InterCure has the highest profile among a clutch of medical marijuana companies in Israel, many of them traded on the TASE, that are hoping to leverage the country's long experience in cannabis research and development to reach the global market now that the government has approved exports.

Canndoc has been growing and marketing medical cannabis for the Israeli market for 11 years and along the way has acquired considerable knowledge. It has R&D tie-ups with the Technion-Israel Institute of Technology in Haifa, the government’s Volcani agricultural research center and one other institution the company doesn’t want to publicize.

The company spends about $350,000 annually in R&D but plans to expand spending considerably from funds raised from the IPO.

In addition, it has an inventory of 1,000 kilograms of patient-ready cannabis that meets the international Good Agricultural Practice standard – a stockpile Canndoc claims is the biggest GAP-standard inventory in the world.

Against all those assets, Canndoc only operates in the tiny local market because it has not yet received an export license from Israel’s Health Ministry. As a result, the company had revenues of just 6.95 million shekels last year and a net profit of 719,000 shekels.

Canndoc plans to expand rapidly overseas, according to its financial reports, but much of its plans remains a work in progress.

The company is developing farms in 10 other countries in Europe, in addition to the five dunams (1.25 acres) of hothouses it operates to serve some 2,500 patients in Israel. However, memorandums of understanding it has signed with companies in Canada and Germany have not yet led to final contracts.

In addition, Canndoc has no production facility. If it fails to buy one that meets the EU-GMP standard for medical cannabis production, the company will have to build one from scratch and then wait at least two years to obtain EU-GM status.

It’s not clear how fast Canndoc will succeed in meeting its targets and justifying the valuation that management talks. Countries have differing regulations relating to medical cannabis that will complicate creation of an integrated structure, and many forecasters say the price of medical marijuana could fall between 50% and 70% in the years ahead as the global industry takes off.

In response, InterCure management say Canndoc’s clinical data acquired from years in the business will give it a competitive advantage over rivals that will have to spend heavily to conduct trials and research.