Among entrepreneurs and investors in Israel, the hottest topic today is cannabis. Some call it the “new blockchain.” As the world’s openness increases regarding production and marketing of medical and recreational cannabis, Israel too is undergoing a significant change in that respect, taking the form of legalization and regulation. Israel’s medical cannabis reform, which has rendered the entire industry more professional, lays the foundations that will enable the Israeli industry to export overseas as well.
Israel is positioned as a central, leading global player in the cannabis arena, and it enjoys a favorable image in the world’s cannabis sector. The primary reasons are these:
─ Innovative research being carried out at Israel’s leading academic institutions, with a high potential for spawning start-ups and innovative technologies. The institutions include the Hebrew University, the Technion, Ben-Gurion University, the Volcani Institute, and more.
─ A varied and extensive startup industry in agriculture and in pharmaceuticals, with innovative technologies never seen before.
─ Worldwide recognition of Israel as a research and science center and a leader in medical cannabis, thanks to Prof. Raphael Mechoulam who identified the THC component in the cannabis plant.
─ Encouragement from the Israeli Ministry of Health for scientific research into the cannabis plant, providing fertile ground for trail-blazing studies in the field.
─ A culture of mature entrepreneurship and flexible thinking.
─ Flexibility for a business as it makes the transition from traditional medicine, by way of the necessary adjustments, to the medical cannabis sector.
Companies in the medical cannabis sector are burgeoning as some develop new products unique to the cannabis sector and others adapt existing products to the sector. In the last two years, a number of traditional companies have experienced their most significant uptick in business after entering the cannabis market. Other companies that have announced their intention to enter the sector have enjoyed generous investments, a rise in their value on the stock exchange, and in some cases an actual presence in the sector.
So it is clear that the phenomenon arouses great public interest, but it must be borne in mind that in order for the company or product to succeed, expertise and much sophisticated multidisciplinary experience are required.
The regulatory process, alongside the worldwide changes in the industry, is arousing curiosity from many investors in Israel and around the world. Naturally, the great interest directed at the green species also raises many questions and there is fear of investing in a sector that many consider mysterious.
The cannabis market is changing. Standards that were acceptable in the past are no longer sufficient. Cannabis companies are facing a huge challenge in planning their development projects while constantly looking to the ever-changing regulations. Start-ups must resist the temptation to reach the market hastily with quick and dirty development; instead, they must adapt themselves to the customary development quality of the biomedical industry.
According to Abraham Dreazen, CEO of Nextage – an incubator for cannabis companies, sponsored by Nextar – “The key to success is creating projects in cooperation. The cannabis companies have to understand what the pharmaceutical industry has long understood: you can’t do everything alone. For every company, it’s important to find partners for the journey who will complement the company’s own abilities and thus construct a business with staying power.”
An in-depth survey, conducted for Cann10 among investors in the sector by the Deloitte consulting and accounting company, indicates that the areas attracting the greatest interest from investors in the Israeli cannabis industry are these:
─ Means and tools for agricultural cultivation
─ Analysis technologies for cannabis, its components, and its properties
─ Genetics: Nurture, growing, editing, and adjustment
─ Supplementary cannabis products (inhalers, tablets, suppositories)
The Israeli cannabis industry is dealing with complex challenges: the prohibition of exports from Israel on the one hand, and on the other hand the rise in imports of cannabis products by other countries, the non-recognition by the US federal authorities of cannabis treatments as evidence-based medicine, and the hesitant entry of international pharmaceutical companies into the sector as investors in scientific research.
According to Nadav Gil, Canna-Tech National Leader at Deloitte Israel, “The cannabis sector was, and still is, an evolving sector with more unknowns than knowns. Nonetheless, today we see a change in all its aspects – the regulations, the image, the growth of the market, the public opinion, the accumulated knowledge in the sector – which has brought significant investment growth in the sector over recent years.
However, those investments are led not by traditional venture capital funds but by private investment houses or by organizations and individuals who believe in the plant and in its qualities. In Israel we see a lack of investment, principally because Israel is not yet able to export. That inability deters many investors from participating in the sector.
In addition, political instability is no spur to the investors’ motivation. We expect that at this stage, investor organizations and individual investors will accumulate further knowledge; but then they will focus on Israel because beyond a doubt the strengths available are in the intellectual property created, in technologies, in R&D centers, and in Israeli creativity.”
Heli Dangur, Business Development Manager at Cann10, adds: “Many startups focus on developing medical devices related to cannabis, a product they are exposed to, but there are so many other challenges in the chain of production – from the stage of cultivation in hothouses through the production at medicinal factories and the systems of the physicians and pharmacies – which require solutions and advances and which the entrepreneurs have not been exposed to. Currently we are working toward a solution to that issue, in hopes of forming connections among all the elements in the ecosystem and thus contributing to the development of a significant breakthrough in the sector.”
1, The cannabis sector is “under the radar.” For a hundred years, the knowledge of the people in the sector was based primarily on independent development work. The lack of legal activity burdened the sector with a severe lack of knowledge, experience, professional literature, and relevant technologies. However, now an opportunity has arisen for new players entering a relatively unpopulated market.
2, The dynamic nature of the cannabis market requires thorough, comprehensive market research, covering the regulations, the existing players, the challenges of growing cannabis, and the characteristics of cannabis as a therapeutic plant.
3, Even after entering the industry, it is necessary to stay up to date on all the components surrounding the green species, by means of the leading magazines worldwide, international conferences, courses, and more.
Summary and recommendation: If you are entrepreneurs and you have an experienced, expert interdisciplinary team, this is the right time to enter the sector.