Best of 2019: How Israel Became a Medical Cannabis Leader

[April 29, 2019]

Opening the CannaTech conference earlier this month, former Israeli prime minister Ehud Barak quipped that Israel is now the “land of milk, honey and cannabis.” Given the recent performance of the cannabis-related stocks traded on the Tel-Aviv stock exchange (Barak is Chairman of InterCure whose stock appreciated 1000% in 2018), are investors getting high on nothing more than a buzz bubble?

Behind the buzz about “marijuana millionaires,” Yuge market potential, and volatile stocks (InterCure’s stock nearly tripled earlier this year but is now 25% off its peak), is a serious 55-year-old Israeli enterprise of pioneering interdisciplinary research into the medical benefits of cannabis. Supported by a perfect climate for growing cannabis, it has led to a very supportive climate—academic, regulatory, and entrepreneurial—for developing botanical-sourced pharmaceutical-grade products. Like the rest of the world, Israel has considered cannabis (and still does) to be a “dangerous drug,” but unlike the rest of the world, it has not let the stigma deter its insatiable curiosity about cannabis’s therapeutic potential.

The entrepreneurial poster child for this long-held belief in the efficacy of medical marijuana is Breath of life (BOL) Pharma. Founded in 2008, today it is “the only company in Israel that is fully integrated throughout the value chain,” says its CEO, Tamir Gedo.

This means BOL Pharma is compliant with the GAP and GMP standards of the global pharmaceutical industry, governing all stages of production and distribution, from cultivation to processing to marketing of finished products such as tablets, capsules, inhalers, creams and oils. This unique competitive advantage is buttressed by BOL’s R&D function, currently involved with 32 Phase 2 clinical trials, and a 65,000 square feet production plant and one million square feet of cultivation facilities.

“You don’t see this kind of consistency in products around the world,” says Gedo. “Flowers are not consistent and if you don’t have consistency, you run the risk of having side effects at different times.” The need to overcome the challenge of developing medicine from an inconsistent botanical source is why 60% of BOL’s 200 employees have worked before in the pharmaceutical industry and why Gedo insists on staying focused on the company’s medical cannabis vision and not developing products for recreational use. “Our advantage is time,” says Gedo, “we’ve been doing it for many years.”

This time- and experience-based competitive advantage applies to the Israeli cannabis ecosystem as a whole. In the early 1960s, looking to make his mark in the academic world, Israeli chemist Raphael Mechoulam decided to focus on cannabis research because “in a small country like Israel, if you want to do significant work, you should try to do something novel.” Moreover, “a scientist should find topics of importance,” he says in the documentary The Scientist. “Cannabis had been used for thousands of years both as a drug [and] as a recreational agent, but surprisingly, the active compound was never isolated in pure form.”

Mechoulam and his colleagues isolated the chemical compounds of cannabis (which he called “cannabinoids”), specifically CBD (the main non-psychoactive component) and THC (the psychoactive component). In the early 1990s, they discovered the endocannabinoid system in the human body which is involved in regulating a variety of physiological and cognitive processes (including mood and memory), and in mediating the pharmacological effects of cannabis.

These discoveries have led to a vast body of research conducted in Israel and around the world on various aspects, medical and otherwise, of cannabinoids (see here, for example). With government support, both in terms of funding and regulation, Israel has become a center for medical cannabis R&D, with many academic institutions and companies “offshoring” research and clinical trials to Israel, having been prevented from doing it in the US and elsewhere.

Gedo calls this R&D-and-clinical-trials-as-a-service “open innovation,” providing the research and regulatory infrastructure for others to innovate and produce their own IP. But the infrastructure and accumulated experience and expertise also help BOL Pharma and other Israeli companies develop their own unique cannabis-related IP. For example, BOL has been working on unique new formulations which make the medical cannabis more effective by increasing its “bio-availability” (rate of absorption in the body), thus reducing the cost to the consumer and potential side effects.

When BOL entered the medical cannabis market a decade ago it did not have a lot of local (or global, for that matter) competition. Today, according to a recent survey published in Israeli business publication Globes, there are more than 100 Israeli companies contributing to the “current boiling point” of this market. These include companies growing and processing cannabis, or running pharma production facilities, or exporting Israeli know-how, or developing drug delivery mechanisms.

These companies are going after a worldwide medical cannabis market estimated to grow rapidly to $100.03 billion in 2025, according to Grand View Research. Most are private companies, but some may test the public markets before long—BOL Pharma may list on the Canadian stock exchange or in the US and Canndoc, another pharma-grade medical cannabis pioneer (acquired last year by InterCure), has recently submitted a confidential prospectus for a Nasdaq IPO.

The ever-growing market size estimates and increased activity in the public markets have drawn the attention of venture capital firms. Funding for cannabis startups in the US more than doubled from 2017 to 2018, reaching more than $1.3 billion, according to Crunchbase. The first quarter of 2019 saw funding more than double year-over-year, and earlier this month, Pax Labs (vaporization technologies and devices) raised $420 million at a valuation of $1.7 billion.

The most recent funding data for cannabis-related Israeli startups shows  that only $76 million have been raised from 2013 to 2017, according to IVC Research. That number has probably increased considerably by now as just one cannabis-related startup, Syqe Medical (inhalers), has raised $50 million in its second round of funding at the end of 2018.

And there’s more to come, including Israel-US collaborations. OurCrowd, Israel’s most active venture investor (including in Syqe Medical), announced in January that it will partner with Colorado-based 7thirty to create a new $30 million fund focused on emerging cannabis technology companies in Israel, Canada and the United States.

At its annual conference last month, OurCrowd awarded 88-year-old Professor Raphael Mechoulam its Maimonides Lifetime Achievement award (the other winner was 100-year-old Professor Avraham Baniel, the inventor and co-founder of DouxMatok). In accepting the award, Mechoulam talked about his current work, predicting that “within the next decade, maybe less, we shall have drugs for a variety of diseases based on the compounds, the constituents of the [cannabis] plant and the constituents of our own body, the endogenous cannabinoids, and compounds that we make, that will be effective for a large number of diseases.”

Originally published on Forbes.com