Israel’s Infant Cannabis Industry at Risk as Government Waffles on Allowing Exports

Businesses say they will set up shop elsewhere if they can’t sell their product in Israel

Hagai Amit
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Hagai Amit

Attorney Hagit Weinstock sits in her Tel Aviv office amid piles of documents that have been a source of persistent frustration for her and her clients.

“Here is a letter from the president of Uganda saying he wants to enter into a cooperative agreement with us. Here’s a letter from an American company that wants to invest with us,” she said.

The source of her frustration is the feeling that the entire world cannabis industry is knocking on her door with an open wallet and the only reason she can’t answer is that Israel’s government has been unable to make a decision on whether to permit exports of medical marijuana.

Weinstock, who specializes in connecting overseas investors with Israel’s cannabis industry, is working with the Canadian cannabis holding company Cronus Group, which is investing tens of millions of dollars in a project to grow marijuana at Kibbutz Gan Shmuel and export to the German market.

Another client is the U.S. company Giving Tree, which is investing in another kibbutz, and a third is an unnamed Dutch company investing into a local farm. A publicly traded German company is ready to buy 15 tons of cannabis a year at $4 a gram.

“These companies are investing here because we have a good product and no restrictions on growing areas,” she said. “These companies are saying, ‘Right now we can’t export, but eventually it will happen.’”

The countries that want to invest in the Israeli industry lack the local rules that enforce international standards for quality control in growing medical marijuana or distributing it.

Weinstock points to a Danish investor that has already built its plant to produce marijuana-based treatments and new raw material. “He’s afraid of losing the global-demand momentum. He is ready to sign an agreement tomorrow to buy cannabis at $2 to $4 a gram,” Weinstock said.

She estimated that there are export deals valued at between $250 million and $300 million a year waiting to be signed. Her office alone has unsigned contracts worth $195 million.

The reason for all this tentative business is that under the rules that will go into effect, if and when Israel clears the way for exports, growers will have to show they have signed contracts with buyers using the cannabis explicitly for medical purposes.

The budding exporters come from two places. Some are farmers who see medical marijuana as a more profitable way to use their cropland than anything else. Others are entrepreneurs that look at it like any other business: If they can’t grow their product in Israel, they’ll grow it elsewhere.

“In the end there will be exports, but the timing is critical,” said Weinstock. “Israeli entrepreneurs are simply setting up production facilities in other places. Together [a publicly traded medical-cannabis company] is developing a project in Africa. Another Israeli company is in Macedonia.”

She warns that if the government doesn’t decide on the export issue by September to October, many of these export contracts will be honored by moving production to a third country.

Nissim Bracha, Together’s CEO, said he was already exploring places to grow marijuana abroad because of the government’s waffling on the export issue.

“We would be happy to set up our production here – it’s the most comfortable and closest place, and we have the right labor force in terms of technology,” he said. “We’ve already retained all the professionals we need. If we don’t use them here we’ll fly those we need overseas to where can set up facilities.”

It’s been two years since the Health Ministry undertook an overhaul of the Israeli medical-marijuana industry, which included issuing an unlimited number of licenses to grow weed. Today more than 200 entrepreneurs have gotten licenses.

The local market isn’t anywhere near large enough to support more than a handful of growers. Nearly all of them are waiting for exports to be approved, which they assumed wouldn’t take long.

Except that it has. The prime minister as well as the agriculture, justice and health ministers all support exports. Even Public Security Minister Gilad Erdan has come onboard – in exchange for extra policing resources. But the final decision that was supposed to be taken two months ago has been delayed because Erdan is demanding that the number of licensed exporters be limited to 50. The Justice Ministry says a ceiling like that would be illegal.

Michael Gorenstein, Cronus’ CEO, told TheMarker that there is a global shortage of medical marijuana. More and more countries are legalizing it but it takes time for the infrastructure to grow, process and market it to develop, which will open up local markets to imports.

At the same time, many countries, especially in Europe, aren’t interested in becoming growers, Gorenstein said, attributing that to the stigma marijuana still carries. In Israel, the weather is suited to cultivating cannabis and labor costs are low.

Israeli scientists have been conducting cannabis research for many years and have discovered the optimum ways of growing the plant and breeding it to produce plants with the characteristics best suited for medical application, he said. That is what’s drawn him to Israel. In Canada, the scientific basis isn’t as developed.

Gorenstein doesn’t dismiss the possibility of employing Israel’s cannabis knowledge in other countries, if the government doesn’t approve exports. Cronus has licenses to grow it in Australia and Canada.

Eric Paul, CEO of licensed producer CannTrust Holdings, said Israel’s big export market will be Europe because it is close by and few countries there grow marijuana. The market is huge – in Germany alone there are one million medical-cannabis users, each of whom uses 300 grams a year on average.

An employee sorts freshly harvested cannabis buds at a medical marijuana plantation in northern Israel, March 21, 2017.Credit: Nir Elias, Reuters