Canada-Israel Weed Nirvana
One Small Puff For A Man, One Giant Leap For Cross-Border Entrepreneurship
Background
According to Government of Canada official website:
On October 17, 2018, the Cannabis Act came into force. It puts in place a new, strict framework for controlling the production, distribution, sale and possession of cannabis in Canada.
The purpose of the Cannabis Act is to:
· prevent youth from accessing cannabis
· displace the illegal cannabis market
Protecting the health and safety of youth is a top priority. The Cannabis Act establishes serious criminal penalties for those who sell or provide cannabis to youth. It also establishes a new offence and strict penalties for those who use youth to commit a cannabis offence.
In addition, the Act prohibits:
· products that are appealing to youth
· packaging or labeling cannabis in a way that makes it appealing to youth
· selling cannabis through self-service displays or vending machines
· promoting cannabis that could entice young people to use cannabis, except in narrow circumstances where it will not be seen by a young person
Under the Act, the legal sale of edible cannabis, cannabis extracts and cannabis topicals will be permitted no later than October 17, 2019. The expert Task Force on Cannabis Legalization and Regulation recommended that the Government of Canada permit the legal sale of these products once regulatory controls are put in place. Giving adults legal access to cannabis products will help to achieve the Government’s objective of displacing the illegal market and keeping profits out of the hands of criminals and organized crime”
Cannabis in Canada is now legal for both: recreational and medicinal purposes. As of October 2018, Canada became the second country in the world, after Uruguay, to formally legalize the cultivation, possession, acquisition and consumption of cannabis and its by-products — and the first G7 and G20 nation to do so.
In the United States …..it’s complicated:
· The use and possession of cannabis is illegal under federal law for any purpose, by way of the Controlled Substances Act of 1970
· Under the CSA, cannabis is classified as a Schedule I substance, determined to have a high potential for abuse and no accepted medical use — thereby prohibiting even medical use of the drug
· At the state level, however, policies regarding the medical and recreational use of cannabis vary greatly, and in many states conflict significantly with federal law
· The medical use of cannabis is legal (with a doctor’s recommendation) in 33 states, plus the District of Columbia, and the territories of Guam, Puerto Rico, the Northern Mariana Islands, and the U.S. Virgin Islands
· Fourteen other states have laws that limit THC content, for the purpose of allowing access to products that are rich in cannabidiol (CBD), a non-psychoactive component of cannabis
· Although cannabis remains a Schedule I drug, the Rohrabacher–Farr amendment prohibits federal prosecution of individuals complying with state medical cannabis laws
· The recreational use of cannabis is legal in 10 states (Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington), the District of Columbia, and the Northern Mariana Islands. Another 13 states plus the U.S. Virgin Islands have decriminalized the recreational use of cannabis
· Commercial distribution of cannabis is allowed in all jurisdictions where cannabis has been legalized, except Vermont and the District of Columbia
· Although the use of cannabis remains federally illegal, some of its derivative compounds have been approved by the Food and Drug Administration for prescription use
· Cannabinoid drugs are sold by numerous online retailers who claim their products are derived from industrial hemp and therefore legal
Confused? Don’t be … Despite all of the above, US cannabis industry is expected to grow at unprecedented rate. The Canadian market is expected to reach $4.5 billion by 2021, which pales in comparison to $20.9 billion market predictions for the US. Such growth, to a large degree — is attributed to the state of California, which legalized recreational cannabis in 2017.
Recently, Sen. Cory Booker of New Jersey introduced a bill to legalize marijuana nationwide as part of his 2020 presidential campaign. Co-sponsors include fellow 2020 Democratic contenders Sens. Elizabeth Warren, Bernie Sanders, Kamala Harris and Kirsten Gillibrand.
In Israel: “On Jan. 27, 2019, the government approved the export of medical marijuana, and on April 1, 2019, two additional reforms go into effect:
· 100 specially trained physicians will be able to write prescriptions allowing patients to purchase the drug at pharmacies
· In a move toward decriminalization, the current law mandating up to three years in prison for marijuana use will be overturned and users would be required to pay a fine, instead
Many Israeli companies — benefiting from a favourable climate and expertise in medical and agricultural technologies — are among the world’s biggest producers of medical cannabis. They are now allowed to export medical cannabis to countries that permit its use.
Presently there are only eight firms cultivating cannabis for medical purposes in Israel, with over 70 more waiting in queue for authorization to begin work in this industry.
Problem
A quick look at The Canadian Marijuana Index demonstrates a phenomenal success of the leading cannabis stocks operating in Canada:
And yet, shortly after Canada legalized recreational cannabis, most Canadian provinces have reported experiencing significant cannabis supply shortages. Simply put, licensed cannabis producers and distributors have struggled to keep up with the high demand for commercial cannabis products:
“C.D. Howe Institute, a public policy think tank, suggested that Canada’s cannabis suppliers would only be able to fulfill between 30 and 60 percent of the anticipated demand for products based on reported production levels.
Industry insiders have indicated that the shortages in Canada could potentially continue for several years if no drastic action is taken by industry leaders or regulators and demand continues at these levels.
One of the main motivators for legalizing cannabis is to try to end the cannabis black market by providing cannabis users with an alternative that is proven to be safe. With cannabis supply problems now blighting the Canadian cannabis industry, there is a significant concern that pre-existing cannabis users may choose to not transition into the legal market. This would effectively see the government lose out on hundreds of millions of dollars in potential revenue to the black market, as well as leave users exposed to untested cannabis products obtained through black market channels”
Solution
One should not be surprised that many Canadian weed companies are looking favorably to benefit from Israeli cannabis exports. Examples:
· Cronos Israel Greenhouse — will be located at Kibbutz Gan Shmuel, near Hadera, Israel. Its 45,000 sq ft facility will offer production of 5,000 kg/yr
· Namaste Technologies — has a stake in Cannbit, one of the few publicly licensed marijuana operations in Israel
· Israel’s Together — signed a binding two-year deal worth at least $300 million to supply cannabis products to an unnamed Canadian company
· WeedMD — is forging ties with Israel’s Pharmocann, a pharma-agricultural medical marijuana producer. And so much more….
Not only Israel is considered to have a climate that is especially good for producing cannabis — it’s also considered a global leader in medical cannabis research and innovation. This makes Israel one of three countries in the world where cannabis research is sponsored by the government.
After all, Israel’s agricultural sector is characterized by an intensive system of production stemming from the need to overcome the scarcity in natural resource, particularly water and arable land — in a country where more than half of its area is desert.
So, it’s no surprise, that cannabis growers in Israel benefit from extensive heritage of “technologies to ensure a constant, year-round supply of high-quality produce, while overcoming the obstacles posed by adverse climatic conditions, and water and land shortages”
Some of such agriculture technologies include computerized greenhouse climate control, greenhouse shading, irrigation, fertigation, greenhouse water recycling and biological control of plant disease and insects — which allow farmers to control most production parameters.
But it’s a two-way street. To Canadian cannabis companies, the benefits include:
· Access to high-quality medical cannabis
· Access to agricultural expertise and proven R&D track record
· Access to numerous supply chain technologies, such as:
- Advanced weighing and filling systems for containers and jars
- Vacuum packaging
- High-speed wrapping
- Capsule filling
- Pressing, etc., etc.
To Israeli companies, it’s mainly:
· Access to North American capital
· Proximity to Canada — the largest medical cannabis market in the world, and the largest cannabis companies operating in such markets
· Proximity to US markets and ability to benefit from dual-listing: TSX/CES and Nasdaq/NYSE
· Inexpensive IPOs — in particular, Capital Pool Company (CPC) Program — a unique listing vehicle offered exclusively by TSX Venture Exchange.
Why is it unique? “It provides an alternative to the capital markets. Unlike a traditional IPO, the CPC program enables seasoned directors and officers to form a “Capital Pool Company” with no assets other than cash and no commercial operations, list it on TSX Venture Exchange, and raise a pool of capital.
The CPC then uses these funds to seek out an investment opportunity in a growing business. Once the CPC has completed its “qualifying transaction” and acquired an operating company that meets Exchange listing requirements, its shares continue trading as a regular listing on TSX Venture Exchange”
And CPC Program offers plenty of choices, too. I counted 78 Capital Pool Companies that have not announced their Qualifying Transaction yet, as of January 31, 2019. All CPCs are sitting on a cash-pile of between $3,000,000 to $300,000.
It’s worth noting that many CPC deals often include a private placement — coinciding with closing of the Qualifying Transaction. One frequently sees additional capital being raised of $10MM, or $20MM — in addition to the cash already raised by CPCs.
With the amount of risk significantly reduced, CPC offers an inexpensive alternative to realize the benefits of going public, such as: greater visibility, stock options and M&A currency for future acquisitions via share issuance.
In Conclusion
There is a growing number of Israeli medical cannabis companies, such as PlantEXT — listing on TSX. Many more are in the process of evaluating going public, or dual-listings — including: Seach Medical Cannabis Group, Ilan Bio, InterCure (through its acquisition of Canndoc), and more …
However, the exponential growth of Canadian, US and Israeli cannabis producers, and the maturation of the entire marijuana market segment — will bring a new set of challenges, that shouldn’t be taken lightly.
Online fraud is already the biggest problem facing credit card industries and I wrote about it in my post, entitled: How To Eliminate Billions In Credit Card Fraud By Lifting An Index Finger — No AI Necessary!
Since many cannabis purchases are executed online — the regulatory compliance rules of KYC will be hard to impose.
Risk mitigation is to become a major challenge for Boards of Directors at cannabis industry, worldwide. Bank regulations aimed at anti-money laundering will be imposed on financial institutions offering growth capital to such industry, too. In addition, BOD’s fiduciary duty will be scrutinized — while fighting counterfeit products in a heavily regulated medical products industry.
I therefore envision that blockchain and distributed ledger technologies will play a key role in creating a secure foundation for a burgeoning weed industry. The ability to verify identity, location, state, and status of supply chain partners — offers increased security at low cost.
Moreover, by combining blockchain with additional technologies such as Artificial Intelligence and cybersecurity — the companies will add an extra layer of protection in analyzing, predicting and forecasting abuse patterns.
So, to all Canadian, US and Israeli cannabis juggernauts — I can’t emphasize enough the importance of building OUTSTANDING Advisory Boards. My message is equally important to CEOs and to their financial backers:
· BOD members are not your friends — they are your investors!
The only impartial advice to CEOs and VCs may come from … the Advisers they choose! Please see my comments in:
· If I could only offer a single advice to a progressive CEO — this would be it!
Oleg Feldgajer is President & CEO of Canada Green ESCO Inc. Oleg is positioning the company to become a leader in financing AI enhanced green energy projects and ventures. CGE’s mission is to guide DISRUPTIVE businesses in ENERGY & TRANSPORTATION toward profitable business models. Oleg is passionate about such mission, and firmly believes that without AI based innovation, we will all prematurely choke on polluted air and dirty water. CGE delivers 100% financing (levered and unlevered) to its clients — and utilizes large equity pools, and non-recourse debt. Oleg offers creative, fresh ideas to open-minded businesses — that embrace both: logic AND opportunistic intuition. CGE stands against mediocrity & its modus operandi is quite simple: If CGE is not invited to join your BOD, or Advisory Board — we failed!
