The Land Of Milk And Honey...And Cannabis?

Israel, known as The Land of Milk and Honey, may soon be the “land of milk, honey and cannabis,” according to former Prime Minister Ehud Barak.

Barak made the comment at a cannabis conference in April. Hyperbole aside, it’s not hard to see where that enthusiasm comes from.

Though Israel’s decriminalization of recreational cannabis only went into effect in April, the country has spent years investing heavily in medical cannabis, which was legalized in Israel in 1973. The major catalyst—and the reason for Barak’s enthusiasm— came in January, when the Israeli cabinet approved medical cannabis exports. The move is estimated to bring in as much as 1 billion shekels ($273 million) in tax revenue per year.

With the legislative hurdles out of the way, the next biggest challenge for Israel’s cannabis market is growth.

“There are thousands of companies that are looking for investments and looking at taking the next step,” said Chris King, senior vice president, international corporate services at OTC Markets Group.

A Breeding Ground For Innovation

King was recently in Israel for OTC Markets’ Cannabis Global Capital & Commercialization Conference. According to OTC Markets Group Executive Vice President of Corporate Services Jason Paltrowitz, who also attended, Israel’s heavy investment in cannabis is the result of the country’s landscape: both agriculturally and geo-politically.

“A large part of the agricultural economy of Israel is now gone,” he said, noting that farmers are cultivating cannabis. “For a large percentage of the kibbutzim, they used to grow tomatoes and cucumbers and produce to feed the country. They are now just growing cannabis because it is cheaper and it requires less water.”

While Israel’s background as a farming nation gives it the infrastructure to grow cannabis on a large scale, its delicate geopolitical standing has indirectly lead to a heavy emphasis on innovation and entrepreneurship.

“The intellectual capital intrinsic to Israel is probably greater than almost anywhere on earth,” said Paltrowitz. “I think a big part of that comes from its military. Almost everyone has to join the military. As a result of Israel's security situation, it causes the population to become really smart about really interesting things.”

This has led to Israel being, in the words of Paltrowitz, “leaps and bounds ahead when it comes to life sciences and other cannabis-related businesses.” He mentioned a company called Nanomedic that has created a spray compound that can be used to treat burn wounds as an alternative to skin grafts. The company found that by adding CBD to the compound, it speeds up the recovery time while also acting as a pain reliever.

“The innovation is really in the biotech life science field, and cannabis is kind of integrating into that as an added benefit,” he said. “There are some really interesting innovations taking place, and I think cannabis is helping to push that a bit further.”

The Need For Capital

There are approximately 30 cannabis-related companies that trade on the Tel Aviv Stock Exchange. But, despite the country’s rich history in both the cannabis and pharmaceutical industries, there isn’t enough investor capital to satisfy demand. And because the majority of Israeli cannabis companies are early stage and not yet profitable, there’s an outsized reliance on investor capital for growth. This is forcing many cannabis executives to look outside the country for investors.

“I don't think there are enough Israeli investors to meet the need,” Paltrowitz said. “People want access to the Israeli mind, the company, the innovation, the technology, but they don't seem to be willing to do that through investing directly in Israel. They want the companies to emerge, and are much more comfortable with the companies that access the U.S.

“Whether it's [through] Canada or our market, you're seeing companies raise [capital] in places like Australia—Israel itself can't seem to support the early stage growth capital market ecosystem in a way that meets the needs.”

Paltrowitz is hoping that these companies will look to OTC Markets. In addition to the over 225 cannabis-related companies that trade on the OTCQX and OTCQB markets—including companies like Green Thumb Industries Inc. GTBIF, Medicine Man Technologies Inc. MDCL, and CannaRoyalty Corp. ORHOF—OTC Markets Group is hosting its inaugural Cannabis Investor Day on Oct. 30 in partnership with the Canadian Securities Exchange.

“A significant number of early stage growth and developing companies are in need of raising capital or are looking to go public, and are looking to access the U.S. capital markets,” he said. “They're very excited about their technology and their products…and they're very excited about going to market and raising capital and demonstrating what they can do.”

OTC Markets is a content partner of Benzinga