Israeli cannabis cultivation company Cannbit (TASE: CPHO) announced that it will produce NIS 4.8 million worth of cannabis for Tikun Olam, the leading private company in the Israeli cannabis market. The share price of A.L. Capital Holdings (2016) Ltd. (TASE:CPHO.M), into which Cannbit was merged, has risen 42% over the past two days, boosting its market cap to NIS 97 million. Under the agreement, Cannbit will produce one cannabis crop for Tikun Olam for NIS 2.4 million, with an option for another NIS 2.4 million crop.
Tikun Olam produces cannabis at two sites: a farm in Biriya that does not meet the production standards under the new cannabis reform and a farm in Kfar Yehoshua that was designed to meet the standards, but has yet to be approved. Tikun Olam's production in Biriya was recently restricted when the Ministry of Health found alleged health defects on the farm. At this stage, the defects are still being tested. The Ministry of Health is allowing Tikun Olam to make only limited supervised deliveries from Biriya. The result is a cannabis shortage and a loss of customers for Tikun Olam.
The current agreement is not meant to immediately compensate for the potential shortage, because at this stage, Cannbit also does not have approval and is unable to produce medical cannabis. The company said that it hoped to harvest its first cannabis in early 2019. At the same time, Cannbit still requires approval from the Ministry of Health for its facilities in order to do this. It appears that Tikun Olam is preparing a backup in case the Kfar Yehoshua farm is not approved by the Ministry of Health or cannabis production there is inadequate for its needs.
Under the agreement, Cannbit will grow Tikun Olam's two unique cannabis strains on the basis of the growing protocol developed by Tikun Olam. Growth will be up until the wet plant is harvested, while Tikun Olam will be responsible for drying and processing it. If Tikun Olam is unable to use the Kfar Yehoshua farm under the new cannabis regulations, it will also be unable to process the cannabis there and sell cannabis.
Not all of the companies are ready for the reform
The new cannabis reform took effect in April 2018, and is currently being enforced simultaneously with the decade-old previous regulations. Under the new reform, growing licenses and setting up cannabis factories will be granted to dozens of farmers and producers, in contrast to only eight groups under the old regulations.
In order to sell a cannabis product under the new reform, it must be grown on an approved farm, manufactured in an approved factory, transported via an approved distribution company, and sold in an approved pharmacy.
The Ministry of Health recently notified the companies that any party not complying with the reform by March 31, 2019 would not be able to continue selling under the old regulations, even if it did so previously, and is liable to lose its cannabis license completely.
The only veteran companies in the cannabis market with approval to grow cannabis under the reform are Canndoc, Breath of Life (BOL) Pharma, and Seach. BOL also has a production facility, while Seach and Canndoc currently produce through Panaxia. Tikun Olam is currently establishing a farm (but not a factory) at Kfar Yehoshua, and Better Medical Grade Cannabis and Pharmocann, which recently entered the TASE by merging with WhiteSmoke (TASE: WSMK), have not yet received their approval under the new reform.
Together Startup Network Ltd.(TASE:TGTR), Medivie Therapeutic Ltd. (TASE:MDVI), Tefen (TASE: TFN), UNIVO Pharmaceuticals (TASE: UNVO), and Capital Holdings (Cannbit), the new players in the market, plan to operate under the new reform from the start. They have approval in principle for doing so, but not final approval from the Ministry of Health for their active growing sites. The same is true of Cannassure Therapeutics, which merged with Direct Capital Investments (TASE: DCI-M); the company has approval in principle for conversion to a cannabis factory, but still lacks final approval for the produce from it.
Published by Globes, Israel business news - en.globes.co.il - on December 5, 2018
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