First, Last and Always: Cannabis Innovation Never Ends in Israel
Ash Stringer
July 25th, 2019
App, Exclusive, News, Top News
When the word “cannabis” is heard, “Israel” probably isn’t one of the first things that jumps to mind. But, for investors it should be. For that matter, so should EuroMed Therapeutics, an upstart heading toward the public domain. Here’s why.
Top Notch R&D, Perfect Weather and Locale
First, simply consider the overall startup picture and the fact that the tiny country of about 8 million people has become globally recognized as a tech innovation hub, startup nation and accelerator. OurCrowd founder and CEO Jon Medved estimated that $6.5 billion went into Israeli startups in 2018 when telling Bloomberg to expect more Israeli unicorns coming down the pipeline.
Now consider Israel’s pioneering place in the cannabis space. In the 1960’s, the Godfather of cannabis medicine, Dr. Raphael Mechoulam, was the first to isolate, analyze and synthesize cannabinoids in cannabis. Dr. Mechoulam began his lifetime of cannabis work at Israel’s Weizmann Institute before moving on to the Hebrew University of Jerusalem.
The country simply has a long lineage of superior R&D in the cannabis sector, research that for years has enjoyed financial support from the U.S. National Institute of Health. Decades of research further lends to expertise in medical and agricultural technology, comprehensive infrastructure, regulations and plenty of skilled labor. In fact, Max Stern Yezreel Valley College outside of Nazareth will soon be offering a degree in medical cannabis.
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On that point, innovation never ends in the country. In a recent study, Israeli researchers discovered that medical cannabis therapy improved pain intensity and symptom of fibromyalgia, one of the most common and misunderstood chronic pain conditions in the world.
With the passage of legislation earlier this year, Israel became only the third country in the world (along with Canada and the Netherlands) to allow cannabis exports. Cannabis exports are forecast to reach between $1 billion and $4 billion in the next decade.
On a per capita basis, Israel is a top cannabis consumer, with nearly 30% of the country trying marijuana in 2017. Currently, there are about 30,000 medical marijuana patients consuming about 14 tons of cannabis annually, numbers that are expected to soon rise to 120,000-170,000 patients and 60-90 tons of cannabis.
The climate is ideal for four harvests during year-round cannabis cultivation in low-cost greenhouses. Furthermore, the country is ideally located to send its cannabis exports any direction, including the burgeoning European cannabis markets that are expected to reach $66 billion in the next decade as more and more countries exit the days of prohibition.
Unique Opportunity with EuroMed
EuroMed, who is joining the public markets through a reverse merger with RewardStream Solutions Inc. (TSX-V: REW), is a holder of one of only nine cultivation licenses for export in Israel. It bears repeating that EuroMed has a maximum of eight competitors as things currently stand. Compare that to Canada (likely a country that springs to mind upon hearing the word cannabis), which has issued about 165 licenses.
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EuroMed is a ground floor opportunity. Literally. Working with the greenhouse engineering and construction experts at Eisenberg Agri Company (Israel) Limited, the company is laying down the foundation for a 100,000 square foot, modular-design greenhouse located 45 minutes outside of Jerusalem, with expectations for completion during the fourth quarter. Phase 1 of construction includes 22,000 square feet of operational greenhouse by the end of Q1 2020 with the cultivation process launched during Q2.
The state-of-the-art design of the greenhouse will allow for the addition of 11,000 square feet greenhouse every 30 days. Other benefits include the greenhouse being fully customizable to achieve the ideal micro-climate, which yields up to 20% higher output.
As for costs, start-up expenses are shaved in half compared to conventional greenhouses, after which operating costs are expected to be only about 5% of typical buildings.
Low Cost = Big Margin
Add these factors up and the sum is a premium cannabis product produced at approximately just $0.30 cents per gram. EuroMed says it will leverage domestic distribution agreements for Israel and that it also plans to export product to Europe, where retail prices range as high as $18 per gram. The company is already in discussions for off-take and joint venture distribution partners to further accelerate penetrating the European markets.
Management expects to harvest 5,500 kilograms of medicinal grade cannabis in the first 12 months of operations, which will translate to $22.0 million based on conservative pricing of $4 per gram.
EuroMed isn’t flying blind here. The lean, but highly seasoned team, which includes Dr. David Dalton, former EVP of Rite Aid (NYSE: RAD) and current director of Pennsylvania-licensed cannabis producer and processor AGRiMED, as a director, has some good comps to base their projections upon. For instance, fellow Israeli cannabis company InterCure is able to produce 10,000 kilograms annually on their 54,450 square foot property.
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The Israeli-benefit abounds on this front too when considering that Canadian greenhouse cannabis cultivator Tantalus Labs is able to produce only 10,000 kilograms annually from its 120,000 square foot facility.
Lab Too
The company also intends to have an extraction lab to cater to an extracts market expected to be worth $130 billion globally by 2029. There are many benefits to this type of vertical integration, including better yields by using every part of the plant and increasing shelf life without fear of loss of raw material. Canada is trying to iron out laws about edibles, as are other parts of the world, making this a market segment than cannot be overlooked, albeit for pharmaceuticals or an additive for an infused sports drink.
To keep developments moving along, EuroMed is looking to raise between $2.5 million and $5.0 million via subscription receipts, with the largest portion of the raise being earmarked for completion of the greenhouse, which will set the company on its way towards it domestic and international supply targets.
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