Last year, Israel overtook Germany as the largest importer of medical cannabis, and this is a market that we are bullish on.
One of the reasons we are excited about the Israeli cannabis market is related to the economics that are associated with the cultivation process. In Israel, the cost per gram of cannabis is considerably lower than Canada. The reason why it costs less to cultivate cannabis in Israel than Canada is related to the climate, and we consider this to be an important aspect of the market.
During the last few years, we have seen an uptick in the number of Canadian Licensed Producers (LPs) that are levered to the Israeli cannabis market. This trend has played an important role in how the Israeli cannabis market has grown and we expect to see total production capacity to steadily increase on year-over-year basis.
Today, we want to highlight 5 companies that are focused on the Israeli cannabis market and believe that our readers should be aware of these operators.
Aurora Cannabis: Forms Strategic Partnership to Capitalize on Israel
In late 2020, Aurora Cannabis Inc. (ACB.TO) (ACB) entered the Israeli cannabis market via a two-year strategic supply agreement with Cantek Holdings, which is a leading Israeli medical cannabis operator. The relationship provides the Canadian cannabis producer with a great opportunity to expand its medical cannabis brand as well as its intellectual property portfolio and we will monitor how this relationship serves as a catalyst for growth.
The strategic partnership was one of the first transactions that was completed by Aurora Cannabis’ new management team, and we are favorable on this aspect of the story. We consider Israel to be a strategic market opportunity for Aurora and will monitor how the international side of the business evolves from here.
In future quarterly earnings reports, we expect Aurora to report revenues from the Israeli cannabis market and believe that it will benefit from having exposure to this region. The market could serve as a launch pad for Aurora to enter additional markets in the European Union (EU) and we believe the market does not fully appreciate this aspect of the business.
During the last month, Aurora has come under pressure, and this is a trend that we are following. A few months ago, the company reported quarterly financial results that missed expectations and we believe the focus on strategic international markets will be core focus for the business on a going forward basis.
HEXO: Executing on a Startegic Partnership with a Israeli Operator
HEXO Corporation (HEXO: NYSE) (HEXO: TSX) is viewed as an early mover on the Israeli cannabis market and was one of the first large-scale Canadian Licensed Producers (LPs) to focus on the emerging market.
In July 2020, HEXO announced a strategic supply agreement with Breath of Life (BOL), which works with Super-Pharm (Israel’s largest pharmacy retailer with 258 locations) and we are favorable on this relationship. We believe that BOL provides the Canadian LP with attractive leverage to the Israeli market and will monitor how it benefits from the amount of distribution that BOL has.
Last year, HEXO started to benefit from its joint venture partnership that it has with Molson Coors (TAP.CN) (TAP). This relationship is focused on the cannabis beverage vertical and would not be surprised if the companies bring cannabis beverages to the Israeli market in the coming years. So far this year, we have seen increased interest in cannabis beverages and expect HEXO to benefit from this trend.
Cronos: Benefiting From Being a First Mover on the Israeli Market
Although HEXO is considered to be an early mover on the Israeli cannabis market, Cronos Group Inc. (Nasdaq: CRON) (TSX: CRON) was the first large-scale Canadian LP to enter the market. A few years ago, the Canadian LP received a large investment for Altria Inc. (MO) and we expect the relationship to support the growth of the business over the long-term.
Earlier this year, the Canadian LP expanded the Peace Naturals™ brand into the pre-roll category in Israel and we are favorable on the amount of value that can be created in this market. The launch follows the successful launch of dried flower and oils in Israel’s medical cannabis market in 2020 and we will monitor how the new product performs.
Going forward, we believe the market will be highly focused on how Cronos benefits from its leverage to strategic international markets. We expect Israel to play an important role in the growth of Cronos’ international business and is an operator that we are highly focused on.
Aleafia Heath: An International Expansion Story
We consider Aleafia Health Inc. (AH.TO) (ALEAF) to be a Canadian LP that is flying under the radar and have been impressed with how it has executed on a multi-national growth strategy. The Canadian LP is levered to several attractive verticals of the cannabis industry and we believe the business is trading at a significant discount when compared to its peers.
Aleafia Health is a vertically integrated Canadian LP that sells cannabis health and wellness services and products in Canada and in international markets. The company represents a multi-faceted growth opportunity and is comprised of medical clinics, education centers, and facilities for the production and sale of cannabis. We believe the company has an attractive operating structure and we are bullish on the amount of synergies it can find between its divisions.
In late 2020, Aleafia Health announced a major milestone on the international side of the industry and reported to have binding letter of intent (LOI) with Equinox International Ltd., a licensed British medical cannabis company with operations in the Israeli market. Through the agreement, the company would start to export cannabis to Israel and we will monitor how the relationship serves as a catalyst for growth.
Under the agreement, Equinox has committed to purchasing approximately 1,400 kilograms of dried flower in 2021. The companies plan to initially establish an Israeli Land-to-Brand ecosystem that covers supply, distribution, marketing and retail, and we will monitor how the relationship evolves in the back half of the year.
The shipment to Israel will mark the fourth country that Aleafia Health exports cannabis to. We consider this to be a major accomplishment and are favorable on the growth potential that is associated with the international markets that Aleafia Health is levered to. We believe the market is discounting the growth prospects that are associated with the Israeli cannabis market and will be monitoring how the story advances from here.
CNBX Continues To Execute On Major Biotech Initiatives
Israel is well known for being home to some of the world’s most advanced biotech companies and we believe this theme remains true for the cannabis industry. Cannabics Pharmaceuticals Inc. (OTCQB: CNBX) is a biotech cannabis company that is working to execute on a strategy to become a global leader in the development of cancer related cannabinoid-based medicine.
One of the reasons we are excited about Cannabics is related to the number of initiatives in its drug development pipeline. The company has four cancer treatment drug development projects, one pre-cancer antitumor drug development project, one palliative drug development project for the treatment of Cancer related Anorexia Cachexia Syndrome (CACS), and two early-stage drug discovery projects that target neurodegenerative and mental health diseases.
Earlier this month, Cannabics expanded its research program with new drug development projects that target prostate cancer, neurodegenerative, and mental health diseases. The announcement comes after the company released promising initial pre-clinical data from its in-house drug discovery facility and we are closely following how these therapies advance in future studies.
The expansion comes after Cannabics’ published promising animal model study results for its proprietary colorectal cancer treatment drug candidate RCC-33. The company recently announced plans to enter the melanoma and breast cancer markets with new drug development projects and we are favorable on these indications from a total addressable market (TAM) standpoint. The management team said that Cannabics has established a drug development pipeline that is focused on indications that are a $78.1 billion market in aggregate and we will monitor how it is able to bring therapies to market.
At current levels, we believe the market is discounting the growth prospects that are associated with these indications. Going forward, the name of the game for Cannabics is execution and will monitor how the management team is able to drive the story forward.
If you want to learn more about the companies that have leverage to Israel, please send an email to email@example.com with the subject “Israeli Cannabis Companies” to be added to our distribution list.
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