Earlier this month, we highlighted the Israeli cannabis industry as one of the most exciting emerging markets due to the climate being prefect for cultivating cannabis and the export opportunity to the European Union (EU).
We want to briefly talk about the importance of these two factors so our readers can better understand our favorable view on the market. Israeli cannabis producers have been able to grow cannabis for less than $0.40 per gram (all-in costs). In Canada, the all-in cost per gram is closer to $1 and this provides Israeli producers with an economic advantage.
From a geographic standpoint, Israel is located much closer to the EU than Canada. As a result, shipping costs from Israel to the EU are lower than shipping costs from Canada to the EU. This provides Israeli cannabis producers with another important advantage and we are favorable on the impact this has on margins.
Today, we want to highlight two Canadian Licensed Producers (LPs) that recently entered the Israeli cannabis market through strategic supply agreements. We believe this trend is just getting started and expect these operators to report impressive growth from the Israeli market on a going forward basis.
Earlier this week, Aurora Cannabis Inc. (NYSE: ACB) (TSX: ACB) announced a two-year strategic supply agreement with Cantek Holdings which is considered to be a leading Israeli medical cannabis operator. Under the agreement, the Canadian cannabis company will supply Cantek with at least 4,000 kilograms of bulk dried flower per year.
Under the agreement, Cantek has the option to extend the agreement further than two years and we will monitor how both companies benefit from it. The cannabis that is provided to Cantek will be processed and co-branded under the Aurora and Cantek brand names for the Israeli market. The agreement also provides the potential for entering additional international markets and we are bullish on the growth prospects that are associated with this.
Prior to announcing the agreement with Cantek, Aurora Cannabis has been highly focused on the cannabis opportunity in the EU. The work that Aurora Cannabis has previously done will provide the relationship with the infrastructure that is needed to expand into additional markets and are favorable on this aspect of the story.
The relationship provides Aurora Cannabis with a great opportunity to expand its medical cannabis brand and its intellectual property in one of the most attractive international markets. From a credibility standpoint, we believe the relationship is an important development for Aurora Cannabis and will monitor how the brand continues to expand under a new management team.
Cantek has attractive leverage to the entire value chain of Israel’s medical cannabis industry and has formed strategic partnerships with prominent drugstore chains, distribution companies, clinics in Israel.
Following the signing of the agreement, Aurora Cannabis has attractive leverage to two major international markets, Germany and Israel. These countries are two of the largest legal medical cannabis importers in the world and we will monitor how the management team continues to focus on the international side of the industry.
HEXO Corporation (HEXO: NYSE) (HEXO: TSX) is another large-scale Canadian cannabis producer that has attractive leverage to the Israeli cannabis market. A few months ago, the company announced a strategic supply agreement with Breath of Life (BOL) which is also considered to be a leader in the Israeli market.
During the last quarter, HEXO has reported a few substantial developments and we believe the moves that it has made in Israel are going to play an important role in the success of the business over the long-term. Similar to Cantek, BOL has formed strategic distribution network and we are favorable on this aspect of the story.
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 with HEXO.
For HEXO, we believe that the relationship with BOL represents a major growth opportunity and think that it could help turn the operation around. The focus on the international cannabis market is an important aspect of the HEXO story and we will monitor how this side of the business ramps up in 2021 and beyond.
If you are interested in learning more about how Aurora Cannabis and HEXO are positioned to capitalize on the Israeli cannabis market, please send an email to firstname.lastname@example.org with the subject “Israeli Cannabis Companies” to be added to our distribution list.