“Israeli companies in the medical cannabis sector with the right approach — a combination of strategy, proof of concept, protection of intellectual property, and investment in branding as well — will be progressing very quickly and attracting great attention", asserts Nadav Gil CPA, a partner at Deloitte who is Head of Incentives Services and Canna-Tech National Leader. Thus begins our conversation.
"Only in Israel, at this point, can you see an industry of startups in the sector. The same with the unique R&D capabilities that exist here. Because of the situation in the USA, Israel is creating a huge advantage for itself wherever innovation is concerned".
“There’s a window of opportunity here", adds Dr. Hadassa Waterman, a patent attorney and head of the Biotech Department at Ehrlich & Fenster."In all aspects of medical cannabis, the world is divided in two. On the one hand there are the countries that know how to do clinical tests and know how to develop products but have the sector outlawed within their borders — like the USA, where federal law forbids investment in the sector.
"On the other hand there are the countries where medical cannabis is legal, such as Germany and Holland, but they don’t have the startup mentality that the USA has. Israel is outside those two groups. On the one hand we certainly do have the technological startup mentality, and on the other hand R&D is permitted in the sector. We can take advantage of that in order to create new technologies, and our window of opportunity is brief because the USA is moving toward legalization and the Europeans will be closing the technological gap".
In their remarks the two both sought to move attention from the matter of exporting medical cannabis to the element of innovation, research, and development ."Israeli companies that can boast agreements with companies in Canada and elsewhere will be exporting from the moment they receive approval, and subject to the regulations of the importing country", says Gil.
"We know there is a big shortage in Canada in 2019, and Israel can make up for part of that shortage. There are Israeli companies manufacturing stockpiles of dry cannabis, which can last up to a year, because they believe the approval is coming. It will enable veteran companies in the sector to log very large sums of revenue. However, Israel’s survival in the sector rests not on its ability to export agricultural output but on its innovativeness.
“Israel is the only country that has produced young companies in the various subsectors touching on cannabis. In the cyber area, you can see many Silicon Valley companies active there. Since federal law doesn’t permit public money to be invested in the sector, Israel has become a place of pilgrimage for anyone seeking innovation in medical cannabis. When inflorescences and oils become ordinary consumer items, the innovative solutions that Israel has developed will take on very great value".
Thus Dr. Waterman and Mr. Gil wish to position medical cannabis technology and its entrepreneurship together with all the other, traditional technology whether in pharmaceuticals or in hi-tech. And thus the same tools that serve for traditional development should apply in the medical cannabis sector as well.
As a country abounding in innovation, Israel requires careful protection of its companies’ intellectual property — by patents, for example. "The meaning of protecting intellectual property", explains Dr. Waterman", is that except by agreement with me, no other company can exploit what I have developed". In other words, I hold a monopoly in the subsector where I work. That fact is very important. Introducing a new product into the maize market, for example, is known to take 8 to 12 years, and the process involves large outlays of money for development, branding, and marketing.
"In the cannabis sector, it will be even harder because of the existing regulations. Therefore it makes no sense that a company should invest time and money without having its intellectual property protected. Today most companies are interested in going public, and underwriters give consideration to the companies’ patents and trademarks, so that this protection is also fulfilling a business need. And in fact, the continuing presence of cannabis on the list of illegal substances in the USA does not prevent patents in the sector from being registered".
The matter of protecting intellectual property is complex because some development work is not capable of being patented in certain companies, such as Canada: a new strain of cannabis developed to match certain parameters, for example. But it is always possible, and vital, to receive patent protection and other protections for products manufactured from the plant, such as extracts and oils.
Dr. Waterman explains that "there is the option of protection under breeder’s rights, and in most cases that is sufficient. But it is possible, and advisable, to strengthen the protection with further tools that intellectual property law provides for. The USA is in that respect a ‘light unto the nations’ because it is very accommodating regarding patent protection for plants, including cannabis", she says.
Trademark registration, another example, is a form of protection that should be handled as early as the branding stage. "Trademarks are good protection and they have no time limit, but there are countries where such protection for cannabis is a problem", Dr. Waterman says, emphasizing the complexity of the matter. "In the USA for example, much creativity is required, and so is trademarking at the state level, if the cannabis product’s trademark is to be protected, because at the federal level cannabis is on the list of substances forbidden for use".
The decision on a form of protection must be determined first of all according to the direction the company’s operations will pursue, Gil adds. He observes that there are companies that can adjust their existing products to suit consumers in the emerging market sector of cannabis, and newer companies whose operations are focused totally on that sector.
"That is to say, Israel has a very large competitive advantage. Assuming that companies develop relevant technologies, make the necessary adjustments, find a way to preserve their intellectual property, and locate customers, they will later achieve a very high value.
"In this situation the international companies have great importance. The large corporations ensure overseas customers for the Israeli companies. The local market is limited, and if you have an overseas customer committed to buying merchandise, you receive considerable security.
"Moreover, the large corporations are entering wherever in the world the sector s legalized. They want to guarantee that they will be able to purchase the materials in those places, because they understand that the world will experience a shortage in the coming years. Those corporations also are able to experiment with innovative technologies in Israel, providing Israeli companies with the opportunity to reach many places around the world".
Israeli innovation in the sector has resonated greatly, and rightly so. Dr. Waterman mentions inventions and developments in a range of areas. One is honey produced by bees that eat cannabis flower extract. Another is extraction and isolation of specific components that can target various medical problems for treatment. There are methods of cultivation, new strains, and various devices for consuming cannabis and its extracts, and there is the use of genetic engineering technology to improve the characteristics of cannabis strains.
Investors, says Gil, are looking for Israeli companies with the entire chain of necessary licenses, and with manufacturing at the highest level. And for companies doing unique and original things. "The Israeli companies are known as originators in technology, in plant strains, and in R&D", he emphasizes. "Many investors and companies are looking to set up an R&D arm, and Israel is the place where they are looking to do it".