After HEXO Corp (HEXO.TO) (HEXO) reported to have launched medical cannabis products in Israel through a 24-month agreement with Breath of Life International Ltd. (BOL), a leading Israeli medical cannabis company, we noticed increased interest in the opportunity, and this is a market that we are excited about.
From a climate standpoint, Israel is one of the best places to cultivate cannabis due to the weather conditions. Early reports from cannabis producers in Israel were positive and these companies were able to grow cannabis for less than $0.40 per gram. When compared to the amount it costs to produce each gram in Canada, the economics that are associated with cultivating in Israel are much more attractive and we find this to be of significance.
Last year, there were a substantial increase in the number of Canadian cannabis companies that became focused on the Israeli cannabis market and this trend caught our attention. After conducting due diligence into the market, we learned that there is no clear leader in the Israeli market and believe that it represented a significant growth opportunity.
When HEXO reported its move into the Israeli market, it announced the completion of the first shipment of 493 kilograms of medical cannabis and we will monitor how the business ramps up from here. Israeli medical cannabis patients can access some of HEXO’s top flower products that are packaged in a 10-gram format and that designed exclusively for the Israeli market.
We consider BOL to be a strategic partner and are bullish on the growth prospects that are associated with the relationship. BOL is a GMP Israeli medical cannabis company that has an established distribution network through pharmacies. BOL works with Super-Pharm, Israel’s largest pharmacy retailer with 258 locations and we are favorable on the amount of distribution that BOL brings to the relationship.
During the last month, HEXO has been under considerable pressure and the market seems to be excited about this development. We continue to believe that the company will be forced to conduct a reverse stock split (like Aurora Cannabis did) in order to remain listed on the New York Stock Exchange (NYSE).
Although HEXO has been slow to execute and has been forced to shut down facilities, the relationship with BOL represents a major growth opportunity for the business and it could help turn the operation around. We will continue to be cautiously optimistic with HEXO and will keep an eye on how the story evolves from here.
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