Israeli medical cannabis company Globus Pharma, controlled by Together Startup Network Ltd. (TASE:TGTR), has announced the signing of an agreement to supply cannabis to a Canadian company whose name was not disclosed. The company announced last April that it had signed memorandum of understanding for this agreement, which has now become a binding agreement.
The agreement contains a commitment to buy a minimum quantity of five tons of cannabis inflorescence or 500 kilograms of cannabis oil from Together during 2019 and 20 tons of cannabis inflorescence or two tons of cannabis oil in 2020. According to the minimum prices set, ($3 per gram of inflorescence and $30 per gram of oil), Together's minimum revenue from the agreement will be $15 million in 2019 and $60 million in 2020 and every subsequent year until 2023.
The contract contains a mechanism for linking the price per gram to the Canadian company's volume of revenue. Globus Pharma believes that it will be able to sell the Canadian company larger quantities than the minimum at higher than the minimum price, resulting in higher revenue. In its announcement, Globus Pharma said that the maximum revenue from the agreement would be $150 million for each year of activity.
The Canadian company has a license to import cannabis into Canada and also imports and exports cannabis in its own right. It is likely that its interest in Israel is due to the relatively low price at which Globus Pharma is agreeing to supply the cannabis and the wish to ensure a supply of raw material in case of a shortage.
There is currently no authorization for exporting cannabis from Israel. Globus Pharma said it was likely to produce its product in Africa, where it is in the midst of establishing a farm and greenhouses. Early this week, the company said that it had hired a professional consultant with experience in cannabis growing in Israel who had given it advice about growing high-quality and low-cost cannabis in this hothouse and managing the local workers. Together CEO Nissim Bracha said the company would be able to export cannabis from Africa in the first quarter of 2019.
Still risky
Together did not report today with whom it had signed the agreement, the suspending conditions in it, or whether the customer would pay a fine for not buying the minimum quantities in addition to cancelation of the agreement. This is the first time in modern history that large quantities of cannabis are legally passing between different countries and being sold legally in the target country. It is therefore difficult to predict the dynamics of the market in advance.
Completion of the contract according to the disclosed terms depends at a minimum on Together completing construction of the cannabis growing and production facility in the African country and successfully processing the cannabis at a reasonable quality, something that has never been done before. The cannabis market is also subject to rapid regulatory changes; the company is hoping that the Canadian regulator will not enforce new and more stringent quality standards before the company reaches the market. The higher the standards are, the more expensive cannabis production will be, and under such conditions, it possible that the company will have difficulty supplying the cannabis at the low price it promised for the customer.
Using cannabis is legal in Canada only by medical prescription. The Canadian Senate has just passed a law legalizing cannabis, but this law has not yet been finally approved because the government must approve several controversial clauses in the law. The consensus is that the law will be approved by the end of the year, but just as in the case of cannabis exports from Israel, nothing is certain before final approval.
If the law is approved, analysts predict that the Canadian marijuana market will grow to 400-800 tons a year. Such demand seemingly will enable Globus Pharma's Canadian customer to easily market the produce it has undertaken to order, but it should be taken into account that many manufacturers in Canada and elsewhere are awaiting this decision and preparing to compete for the market, including those who are already active in the medical cannabis market in the country and those using it as a basis for exports to other countries that are already importing Cannabis. Globus Pharma is not even the only Israeli competitor in the Canadian market; Medivie Therapeutic Ltd. (TASE:MDVI), for example, has already signed initial agreement for marketing its produce to the country.
Published by Globes [online], Israel business news - www.globes-online.com - on June 14, 2018
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