Israel’s Public Companies: An Overlooked Opportunity?
This article is based on an interview conducted by Laura Herschlag, partner in Teqa Capital
The first commercial medical cannabis cultivator was established in Israel in 2005 as a nonprofit organization. By 2016, eight licensed cultivators had been established to provide products to several thousand patients. Five years later, over 50 producers, and counting, serve close to 100,000 licensed patients.
In addition to cultivation, Israel’s cannabis ecosystem includes companies developing phytocannabinoid drugs, processes for lab based cannabinoid production, breeding platforms, and many other innovations implementing technologies such as AI, robotics, and computerized vision. However, only a handful of these companies have become public and most did so through reverse mergers on the Tel Aviv Stock Exchange (TASE). Currently 11 pure cannabis play companies are traded on the TASE: Intercure, Together, Panaxia, Univo, Intelicanna, Pharmocann, Tikun Olam Cannbit, Seach Medical, Medivie, and Cannassure. Other public companies, such as Evogene, are involved in the cannabis space in addition to their key businesses.
Israeli companies are increasingly eyeing overseas markets. In February 2021, Kanabo became the first medical cannabis company to be listed on the London Stock Exchange. IM Cannabis is double listed on the CSE and on NASDAQ. Intercure listed on the TSX through a SPAC and is preparing to list on NASDAQ. How do Israeli companies compare with their overseas counterparts as an investment opportunity? Shiry Eden, CEO and Founder of cannabis strategy and analysis firm NISHOT, believes investors may be missing out on a good deal. According to Eden, Israel’s public companies are undervalued compared to their overseas counterparts.
A comparison of revenue multiples reveals that Israeli companies with similar revenues as non-Israeli companies have significantly lower revenue multiples. For instance, Seach’s 2020 revenue ($11.4) was similar to Curaleaf’s ($12M) but the company is traded at only one fifth Curaleaf’s market cap. Intercure, with a bit less than half the 2020 revenue of Cronos ($20), has a revenue multiple of 13.8 compared to Cronos’ revenue multiple of 58.5.
Eden points to this discrepancy as an indication of the potential opportunity. She asserts that the following market trends will drive growth of Israeli companies in the near future:
1. Increasing revenue and profitability: Aggregate revenues of Israeli public companies grew 125% in the past year, mostly due to a doubling of the number of medical cannabis patients. Israeli companies, in general, have a positive EBITDA and net profit.
2. Israel’s medical market is growing: Currently serving 100,000 patients the Israeli medical cannabis market is expected to be twice as large within the next year or two.
3. A recreational market is imminent: Three parties in the new Israeli government coalition have included some form of legalization for cannabis in their platforms. The previous government had already moved to de-schedule CBD and the incoming government is expected to continue the process. Israeli companies are gearing up for this change. For example, Canndoc has signed an agreement with Charlotte’s Web to supply CBD products to the Israeli market.
4. Easing of export regulations: Recent updates to cannabis export regulations will facilitate an export market which, until now, has been highly restricted.
5. Industry consolidation: As the industry matures, Israeli companies will become attractive M&A targets for overseas players.
6. The emerging psychedelics market: Israeli cannabis companies, like their overseas counterparts, have already begun exploring the nascent psychedelic medicinals market as a potential for expanding their revenue streams.
Eden attributes the dearth of foreign investment in Israel’s public cannabis companies to a lack of awareness. She points out the decades of accumulated experience in medical cannabis that provides a unique capability to address the needs of patients. Israeli cultivation is known for its consistency in providing active ingredients that are associated with specific indications, such as CBD for children with autism. She believes that as exposure to Israel’s cannabis companies and ecosystem increases, Israel’s public cannabis companies will attract a growing number of investors seeking unique opportunities.
About Shiry Eden, CEO & Founder, NISHOT
NISHOT is a strategy and analysis firm focused on the global cannabis industry, serving as an advisor to Sela Cannabis, an Israeli global oriented mutual fund. Eden has over 20 years’ experience as an economist and strategic advisor for medium to large scale corporations in Israel with expertise in the capital markets. Eden holds an MBA from Tel Aviv University and a BA in Economics and Communications Hebrew University.
About Teqa Capital
Teqa Capital is a Swiss-Israel boutique consultancy that brings Israeli innovation to Swiss investors and business people. More information on Teqa Capital can be found via their website: www.teqacapital.com