'Irrelevant': Tel Aviv Stock Exchange to Drop Cannabis Index

Three years ago, everyone at the Tel-Aviv Stock Exchange was busy with cannabis business. Now the hype and the celebrities have evaporated

איתי פת-יה
Itay Patya
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A worker inspects a plant at an Israeli cannabis greenhouse.
A worker inspects a plant at an Israeli cannabis greenhouse.Credit: Nimrod Aronov
איתי פת-יה
Itay Patya

Only three years ago former defense establishment figures and celebrities were being courted by Israeli cannabis companies almost as much as they were by political parties.

Ehud Barak was appointed CEO of InterCure and got stock options; Ehud Olmert invested in Univo and retained as a consultant; Yohanan Danino, a former police chief who had worried about crmiminal elements getting into the legal marijuana business, was suddenly appointed as CEO of Together; former air force commander Ido Nehoshtan was appointed as CEO of Cannasure; and Intelicanna brought on singer Aviv Geffen as a consultant – to name a few.

Cannabis was touted everywhere as Israel’s next big industry, and eventually investors bought the story. Company after company was listed on the Tel Aviv Stock Exchange or went public through the backdoor process of merging with a publicly traded shell company. Pricesd for cannabis shares soared, and the stock exchange soon launched a TA-Cannabis index, whose utility was doubtful from day one.

A marijuana greenhouse in Israel.Credit: Canndoc

Soon enough, however, the cannabis bubble burst and the index dropped 70 percent. Over the weekend, the TASE announced that the TA-Cannabis index would be elminated as of August 4.

Yaniv Pagot, head of trading, indexes and derivatives at the TASE, denied that the exchange got swept up in the irrational exurbernace about cannabis investments. “We provided the market with a product that correctly reflected the state of the cannabis industry,” he said.

Throughout the index’s 18-month lifespan, the combined market value of its component companies was too small for any fund to track it. It began with nine companies with a combined value of 1.7 billion shekels ($490 million), but a large part of that was due to one company, InterCure.

Today, the index counts eight companies, with a combined market cap of 1.4 billion shekels. However, had the TASE decided to continue with it, the index the number of companies meeting the standards for inclusion would have been cut to five with a combined value of 1.3 billion shekels, too few to justify continuing with the index.

Former Israeli Prime Minister Ehud Barak.Credit: RONEN ZVULUN/REUTERS

“Until now, the decision had been to try and preserve the index for a bit longer, under the assumption that the cost of doing so was not too dramatic because there are no products tracking it,” Pagot said, meaning mutual funds or exchange traded funds.

“Once you have an index that includes one stock worth 70 percent of the total, like InterCure on the TA-Cannabis, it becomes irrelevant – the index can’t serve as a benchmark. This doesn’t happen anywhere, not on the moon or anywhere else,” Pagot said. “Was there an internal logic to this methodology?”

On the day the index was launched, it included between two and four companies that were trading at valutations of between 200 million and 400 million shekels, following the limit of a maximum of 15 percent holding of the aggregate value. So there was an internal logic to this methodology,” Pagot added.

'The [cannbis] industry is not diverse enough and lacks companies with an appropriate volume of economic activity'Credit: Canndoc

Back when the cannabis craze began, companies were restricted by law to the tiny domestic market, and the assumption was that The hope was that the number of companies would increase, and the centralization would decrease, just like what happened with the TA-Cleantech index which started off as very centralized.

“TA Cleantech was initially listed at 32 billion shekels, above the 5 billion threshold which permits the activity of a rival fund. Shouldn’t we leave market speculation to investors, and let the stock exchange list indexes only for mature and stable industries?”

Pagot: “There are a few reasons for this, and one of them is to provide active funds with investment in the cannabis industry with a benchmark. There are thousands of indexes around the world whose purpose is not to provide a benchmark or serve as monitoring index.”

You didn’t list a food-tech index or an AI and automation one, even though it could be said this would have helped the active fund managers to have a benchmark. One could argue that you got swept up in the cannabis trend.

“We didn’t get swept up in it, and we serviced the market with a product that reflected correctly the state of the cannabis industry.”

“What message does delisting the index send to investors?

“That today, unfortunately, the industry is not diverse enough and lacks companies with an appropriate volume of economic activity— one that respects the investors and the value of the index.



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