Israel Backs Exports of Medical Marijuana, Sending Shares Higher

Securities regulator issues warning on investing in speculative shares

Marijuana plants at a medical cannabis plantation, northern Israel, March 9, 2016.
AFP

The Knesset gave its final approval to a long-awaited, controversial law to allow the export of medical marijuana, sending shares of local cannabis companies soaring despite a warning from regulators about investing in them.

Just before they were due to disperse ahead of elections, lawmakers voted 21-0 late on Tuesday in favor of the bill, which still needs approval from the cabinet and Prime Minister Benjamin Netanyahu. The bill imposes tough regulations on exporters and threatens jail terms and hefty fines for violations.

A day later the Israel Securities Authority said in a rare direct appeal to investors that they should be careful before putting money into the sector’s handful of publicly traded companies.

“As of now, only some of these companies have made deals aimed at generating real business activity in the field of medical cannabis,” the ISA warned. The warning was similar to one the ISA issued a year ago about crypto-currency companies.

The step forward in long-waited exports approval, though, outweighed the ISA’s warnings. Shares of Together rose 15% to 5 shekels ($1.33) and Medivie 7.6% to 45.20 in late trading. InterCure, whose controlling shareholder told Reuters earlier this month that the company plans a Nasdaq listing by mid-2019, was just 3.5% higher at 4.96 shekels.

In the past year the shares have in some cases risen hundreds of percent and then crashed amid sudden surges of trading volume

Early elections, which were declared on Monday, had raised doubts about whether the Knesset would approve the law before dispersing. If it had failed to so, it would have delayed export approval until long after the April 9 elections.

Even in a transitional government, cabinet approval of the export law is possible but not certain. Netanyahu hasn’t publicly expressed his view on exports and may opt not to make a decision on such a controversial issue during the campaign.

Because the Israeli market is so small, exports are the key to the companies’ business plans, but the ISA noted that exports had received final cabinet approval and exporters faced other regulatory issues.

“Even if medical cannabis exports are allowed, there can be no certainty that all of these publicly traded companies will get a license,” the ISA said, adding that in regard to export markets, “The regulatory arrangements in those countries and the ability of the companies to operate under the relevant regulatory frameworks should be detailed in depth.”

Benefiting from a favorable climate and expertise in medical and agricultural technologies, Israeli companies are among the world’s biggest producers of medical marijuana. The finance and health ministries estimate exports could raise tax income by 1 billion shekels ($265 million) a year.

There are eight cultivating companies in Israel, many of which have resorted to opening farms abroad to access the global market. The Knesset said in a statement that there have been dozens of requests from business owners awaiting authorization.

Licenses to produce medical marijuana will be subject to approval from the Health Ministry and police. However, in a concession to the Public Security Ministry’s concerns over abuse, the law was amended so that if police object to a particular company being granted a license, an expert committee will decide.