Opinion |

Cannabis Catch-22: Is Medical Marijuana Israel's Next Big Export, or a Pipe Dream?

Israel has the R&D prowess and global demand is growing, but if there’s really gold in them thar spliffs, others will probably get it

David Rosenberg
David Rosenberg
Rolling medical marijuana
Rolling medical marijuanaCredit: Robert F. Bukaty/AP
David Rosenberg
David Rosenberg

It‘s not difficult to understand why someone like Ehud Barak would decide that the next phase of a career that included stints as army chief of staff and prime minister would be to serve as chairman of a medical marijuana company.

The same logic applies to the investors who bid up the share prices of a handful of cannabis companies traded on the Tel Aviv Stock Exchange by hundreds of percent in 2018 (albeit, subsequently most of their gains evaporated).

It’s the same thinking that is inspiring Israeli entrepreneurs to start up medical cannabis companies, and the politicians who approved medical marijuana exports earlier this year, with dreams of generating jobs and tax revenues.

After all, we’re the Startup Nation that’s mastered cybersecurity to self-driving cars! Down on the farm, we’ve been no slouches either, with innovations like drip irrigation and the cherry tomato (sort of). Add Israel’s warm weather and a lengthy history of cannabis research, what’s to stop us from becoming Lightup Nation? One thing comes to mind, but we’ll get to that later.

The emergence of scores of shell companies with big plans but no products or revenues and the recruitment of celebrity executives like Barak could you give the impression that medical marijuana is nothing more than a local version of bitcoin in 2017 or Dutch tulips in 1636.

I would say it’s more akin to the dot.com boom of 2000. Then, too, investors lost all sense of reality about the internet, but behind all the hype there was actually something happening. The tech sector, with the internet at its heart, is the world’s biggest industry and its potential is still a long way from being exhausted.

Marijuana, both for therapeutic and recreational purposes, is already a big market globally and promises to get bigger. The stigma it suffered since the days of Reefer Madness is gradually receding.

That’s important, including for medical usage, because policy makers and regulators, not to mention doctors, patients and business, are less likely to look with horror at marijuana and see its dangers as outweighing its benefits.

In America, for instance, long-standing cannabis-phobia has created a bizarre regulatory environment: more than 30 states have legalized it for medical use and Illinois just became the 11th to do the same for recreational use. But it’s still banned under Federal law and can’t be transported across state lines. Banks can’t lend more to marijuana businesses and scientists have to go through a lot of red tape to conduct research.

Still, it seems the regulatory trend is running in favor of the marijuana industry. What does that add up to? No one really knows and the forecasts are all over the place.

The Bank of Montreal estimates that if the United States and all 28 European Union members all legalize marijuana (and Latin America does for medical purposes only) the global market could reach $194 billion in seven years. Grand View Research sees a $66.3 billion market in 2025 for legal weed, medical marijuana accounting for two thirds. Arcview Market Research and BDS Analytics see just $40 billion in 2024.

Of course, that assumes that medical marijuana has proven therapeutic benefits.

You would think from all the hype around medical cannabis that there is a lot of concrete science about its benefits than there really are. CBD (a key active chemical compound in cannabis) is supposed to alleviate insomnia, anxiety, moderate pain, PTSD and epilepsy, to name a few conditions, but its touted efficacy isn’t based on clinical studies that would meet the standards of pharmaceutical regulators. Marijuana has also long been touted as a safer alternative to opiates, but new research has shown that that’s not true.

Cannabinoid Catch-22

And now we get to Israel’s problem, or rather the Catch-22 of the business of medical marijuana.

If it remains a niche industry because its efficacy remains unproven and/or regulations constrain its use, those cannabis riches won’t come about. But if marijuana proves to be a gold mine, the world’s giant corporations won’t let the opportunity pass them by.

Right now, the barriers are too high, but big business is already putting out feelers. For instance, the drug maker Novartis has teamed up with Tillray, and the tobacco company Altria has acquired 45% of Cronos. The two small companies in these deals are based in Canada, which has emerged as the epicenter of the world cannabis business.

If medical marijuana becomes big business, the market will belong to those with the ability to grow it on a large scale, build a global brand, have the resources to deal with regulators and enjoy big R&D budgets. In many ways, big cannabis will in all likelihood look like big tech or big pharma -- two industries where Israel plays an important role in innovation but isn’t home to big, multinational companies (apart from ailing Teva Pharmaceuticals) because it doesn’t have the size or skills to complete.

Lightup Nation will probably look a lot like Startup Nation: lots of small companies developing innovative new products and then getting swallowed up by the industry giants. It’s not a bad business, but it won’t be on the size and scale of high-tech. In business terms, expect a buzz, but no high.

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