Last month cannabis became completely legal throughout Canada for both medical and leisure purposes. However, although the Canadian market represents a larger than ever opportunity for Israeli companies, the Canadians have already given up somewhat on working with Israel, explains DLA Piper Canada Partner Adv. Noam Goodman, who specializes in cannabis regulation.
"Israeli companies are seeking capital investments from Canadian enterprises but they are disappointed that exports from Israel have not been approved and are beginning to lose faith in it ever happening, because they are continually being told that approval of exports is just around the corner," Goodman said. "Consequently, Canadian companies are currently less interested in speaking with cannabis growers but rather with those who are developing cannabis related technologies such as special inhalers, software and sensors for controlling agricultural cultivation, innovative irrigation solutions and the like. However, there are not so many Israeli technologies targeting the cannabis market despite the apparent Israeli expertise in the field."
Goodman recently took part in the "Canada, Cannabis and Law" conference held in Israel by DLA Piper Canada in partnership with Israeli law firm Meitar Liquornik Geva Leshem Tal and Israel Advanced Technology Industries (IATI).
Unique in this market is Israeli company "Tikun Olam," which is pioneering and prominent among the eight companies that were marketing medical cannabis directly to Israeli consumers even before the cannabis reform that was introduced in April 2018. Tikun Olam has already been a partner in setting up the Canadian company MedReleaf, to which it transferred rights for the special strains that it has developed. MedReleaf has built up these strains in Canada while using the Tikun Olam brand. On this basis, among other things, MedReleaf was acquired by Canadian company Aurora Cannabis for $2.51 billion last May. Even before the sale, Tikun Olam had sold MedReleaf shares for $22 million, and kept a 9% stake in the company before the sale (that were worth about $180 million at the time of the sale). Consequently, Tikun Olam is likely the richest cannabis company in Israel. According to other reports, the company sold the balance of its shares during the sale of MedReleaf to Aurora and completed an exit worth $250 million.
Tikun Olam is a private company and has not disclosed the structure of the agreement with MedReleaf that became part of Aurora following its sale, although it has earned additional revenue beyond the shares, without actually exporting cannabis plants from Israel but just the knowhow.
Tikun Olam is also the only Israeli company that has conducted clinical trials on specific cannabis strains on patients with various diseases and published the trials in scientific periodicals.
In the same way that Tikun Olam set up its activities in Canada, it also set up the Tikun Olam brand in the US a year ago, a cooperative endeavor already operating in eight US states. In 2017, Tikun Olam established activities in Australia under the name of Medifarm and in 2018, it also established activities in the UK.
"The Canadians still want to import the plants themselves from Israel due to price considerations," says Goodman. "In Canada, by law, the plant has to be cultivated in a closed greenhouse while continually monitoring the temperature and levels of light. Israel can produce cannabis in external greenhouses at a cheap price and not only that, but supply on the Canadian market is not sufficient at the moment to meet the demand. So according to estimates, it will have to import. However, Canadian companies, as previously stated, are fed up with hearing unfulfilled statements that exports are near at hand, even though they want agreements with Israeli growers. They are also fed up with the subject and don't want to invest their time in it. Even the CEO of Tilray, Canada's cannabis market leader, is on record as saying that it seems that it is not happening. When approval is received then we'll speak to you."
Are the agreements that cannabis growers are presenting the Israeli market genuine agreements that will be realized the day after exports are permitted?
Goodman: "Those are memorandums of understanding and I wouldn't see them as actual agreements. If approval for exports is not given quickly, those Canadian companies will supply this demand from another source."
Will every Canadian company be able to import from Israel when exports are permitted?
Goodman "Each one will have to receive approval to import from Israel but it doesn't seem like there will be any major obstacle."
Is there is any significance in Canada to marketing of a certain cannabis strain that has undergone clinical trials in order to prove that its quality is suited to a particular strain of a disease?,/i>
Goodman: 'Today it is possible, as we've said, to purchase cannabis in Canada for treatment of every disease as well as for purposes that are not medical. However, if you want to declare that your cannabis is a treatment, you have to undergo all the clinical trials like any treatment. There are no intermediary tracks at the moment."
"In any event, Canadian companies can and are interested in financing cannabis research in Israel. In Israel, there are also the required regulations and there is the required knowhow for conducting research while the Canadian companies have the money. The types of trials that they are interested in financing are the genetics of the plant and every unique technology connected to the way it is taken."
"Australia is the key to the east
Another person who can provide a view from outside the Israeli cannabis market is Saul Kaye, an investor in the sector and former pharmacist. He has founded the Cannatech conference and the Israel Cannabis Industries Association (iCANN). He said, "Israeli companies ought to check out the Australian market. That country has approved exports but has no domestic market at all. That is to say there are no growers and no trials for treating patients - but of course there will be these. Eleven companies, agricultural and factory owners, are traded on the Canadian stock exchange and of those, two have already reaped the plants - that's to say in certain things they are more advanced than us."
"In Australia there are 22 million people, in other words not that many less than Canada, which has 36 million people. Not only is it going to be a prosperous market, it is also the key to all of the east."
As said, Tikun Olam has already identified the opportunity and begun operating in this market.
Yet it is still forbidden to import and there is also no regulation.
Kaye: That's right. No major Asian country has yet to allow imports. In Thailand and Sri Lanka, it is permitted to use cannabis for medical purposes and in China it is allowed for CBD. In all these countries, there is demand but no supply." "That's also the case in Germany , which has begun importing cannabis from the Netherlands while domestic companies are being built."
Does an Israeli who wants to cultivate in Malta and sell to Germany have any advantage over local producers?
"He has to work fast."
It seem like the absence of supply will continue for several years, after which will there be imports?
"The price will ultimately fall. In Africa and part of South America, it's possible to cultivate cannabis in a couple of tents, compared with the cost of NIS 1.5 million in Israel and NIS 1.9 million in Canada. I believe that there will be a surplus in supply within a year. Although Israel has built up its knowhow, it can't export the knowhow itself until exports are permitted and afterwards it will have an advantage in knowhow, even if the market will be flooded with cannabis at low prices. The large opportunity is not only Canada but also Germany with 80 million people, where cannabis is already indemnified by government insurance, or a state like California with 100 million people. Israel is already exporting its knowhow to there."
Published by Globes, Israel business news - en.globes.co.il - on November 7, 2018
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