Still controversial in the US, Israel is leading the way to develop the next generation of Medical Cannabis

Medical Cannabis (MC) is fast moving from the underground of niche research to a vibrant sector that is attracting significant attention across the globe. Interestingly, Israel has become recognised internationally as a leader in the MC field, taking charge of much of the research that is laying the ground for the next generation of development. Since 1964, when Dr. Raphael Mechoulam first identified THC as the main psychoactive component of cannabis, the country has been at the forefront of MC research, and today research is carried out at Hebrew University, the Technion, the Volcani Center, and Ariel University.

Unsurprisingly, 2016 has been a particularly big year for MC in Israel. Two international MC events, the CannaTechinnovation summit in March, and the Cann10 conference in September have brought investors, entrepreneurs, and even faces from the pharmaceutical industry to explore the scene here.

In between these two events, the MC regulatory system underwent a seemingly significant change. MC has been legal in Israel since the 1990s, and there are currently about 26,000 patients with a license for its use, but a policy passed in June set the stage for even more dramatic reform. iCAN, the organisation behind CannaTech,summarised the changes as:

1. Cannabis-based medications will be sold and distributed in pharmacies

2. Calls to increase the number of physicians able to prescribe medical cannabis

3. Standard physician prescriptions will be used for patients to acquire medical cannabis from a pharmacy

4. Opening up the market of approved grow operations in Israel

Beyond research and regulation, industry has also flourished. Ofer Spottheim, General Manager of MC incubator Cann10, told Geektime about the success of the Cann10 conference. “We had more than 625 people, and about 100 overseas guests from 20 countries.”

He described the rich ecosystem of research and industry here in Israel, explaining that, “there are also a lot of startups in the field. Some were created specifically for MC, and some were already in the agricultural field and are now making a spin-off towards MC.”

Just last month, Yissum (the technology transfer company of the Hebrew University) announced that Agrinnovation, its investment fund focused on agricultural innovation, has entered into an investment agreement with MC company Cannabi-Tech. In a company announcement, Agrinnovation General Manager Dr. Ido Schechter said that, “As the MC industry expands worldwide, there will be a significant rise in regulatory oversight, increased quality assurance and quality control testing, while growing market demand will need to be fulfilled by mass production.”

Making sense of the regulatory reform

It is undoubtedly an exciting time for MC in Israel, but that is not to say that it is smooth sailing from here on out, with Spottheim pointing out that the new regulations are “tentative.” Dr. Dan Dvoskin is a senior agricultural economist, specialising in international agricultural development and new crops. He told Geektime that the current status of the MC industry in Israel is “waiting.” He believes that the new reform is more style over substance, and that it “doesn’t really change much.”

He explains that whilst the reform will improve accessibility for patients requiring MC, the proposed changes to the supply-side (like opening up the market for new suppliers) are “a waste of time.” This is because the issue is that the supply is (and will be even more so) greater than the demand here in Israel, meaning that new potential suppliers will have no one to sell their products to. “The industry has no place to go” whilst the government refuses to allow the exporting of MC, that would enable supply to be met by demand.

What is the reason the government isn’t permitting exportation of MC?

Dr. Dvoskin believes it’s that the government doesn’t want Israel to be perceived as a “drug nation.” He points out that there is a big contradiction here: “Israel is a major exporter of weapons and ammunition. That doesn’t help the health of the people.” However MC, a product proven to improve people’s lives, is discriminated against because of “misconceptions.”

Looking more closely at the policy reforms, there are issues related to the proposed supply-chain that should raise some red flags. Currently, growers and patients can be in direct contact. Under the new reform, there would be five stages before the patient receives the cannabis: nursery, growing, processing, trade house, and then pharmacy. Dr. Dvoskin estimates that under this framework the price per gram of MC in Israel to the user would increase from about $3 to $16.

As for the growers, there is a lot of uncertainty. Spottheim tells Geektime that he often asks, “is it worth it? It’s an expensive business.” He points out that most farms growing MC rely on other products to make profit: it would be “dangerous” otherwise. Dr. Dvoskin adds that when people ask him if they should get into the growing business, he tells them, “don’t bother, it’s a waste of money, no one’s going to buy it”.

Saul Kaye, CEO of iCAN, is a little more optimistic in this respect, noting that since the reform was passed a few companies have already received provisional licenses for growing and researching cannabis: it’s a “strong indicator” that there is not only verbal reform, but “on-the-ground action as well.” As part of the new policy, there are going to be 100 new doctors who will be able to prescribe MC, and this should allow for between “20,000-30,000 new patients” receiving MC prescriptions in the new year.

However this too raises its own questions: “Who are these doctors? How long will the process take? Who will pay for it?”

The root to success

Whilst there is uncertainty with regards to the regulatory environment and how the future of MC growth is going to look in Israel, there are many exciting developments in other aspects of the MC space. Kaye told Geektime that at iCAN, “there’s definitely been an upswing of new companies on our radar that have popped up in the last year… There’s a lot happening, I’m quite surprised by how much.” One company he thinks particularly noteworthy is Therapix Biosciences, who are developing cannabinoid technologies to treat central nervous system disorders.

For larger companies with a lot of capital, the risk regarding little Israel’s regulatory framework are minimal. Spottheim told Geektime how tobacco companies have started taking an interest in the market, notably with Phillip Morrisinvesting $20 million into Syqe, who have produced a cannabis inhaler for use by MC patients.

Dr. Guy Setton, CEO of Yissum-invested Cannabi-Tech, explained to Geektime that they “were able to reach this point because they are operating in the Israeli system.” The company was founded in 2015 based on research performed in the Hebrew University laboratory of Prof. Oded Shoseyov, Cannabi-Tech’s CSO. They identified that one of the key issues faced by the MC market was the inability to deliver a consistent dose on a regular basis, as each cannabis flower has a different potency profile. In order to determine this profile each flower must be tested, but every previous method of doing so destroyed the flower. Cannabi-Tech have developed a patented system that carries out a “non-destructive profiling test” in a couple of seconds, so “each and every flower can be tested before it goes to market.”

Dr. Setton talks of Israel’s “comfortable environment” for MC research, as well as the support and backing that they get from the Ministry of Health, and the fact that they are seeking funding from the Israeli Chief Scientist’s Office. “There is institutional government support to conduct pioneering research in this field,” and as such, business here is booming.

While Dr. Dan Dvoskin appreciates that the Israeli industry around MC is flourishing with the selling of products and patents, he told Geektime that this is “very minor development” compared to what would be possible with the authorisation of MC exports. The importance of this point clearly cannot be underestimated, however Dr. Setton reiterates that “when you want to export, you need to have someone willing to import,” and most other countries are not, at least currently, that “open.”

Beyond the borders

Israel’s leadership in the MC space isn’t limited to institutional research and its high-quality cannabis plants. As an agricultural nation, there is invaluable system-wide wisdom and expertise ingrained in the process, and this knowledge is an export in itself. Spottheim told Geektime that Israeli experts are acting as advisors to farms overseas, but he is quick to point out that while this makes business sense, it is not good for Israel in the long-term. When the day comes that MC exports are permitted, “we’ll be competing with countries who have cheaper land, labour and water,” – and they’ll be in on the growing secrets. “Think about the oranges!”

A key advantage that Israel has in breaking into the US and European markets over growers from other countries is that their human trials – a crucial element in reaching approval but is nearly non-existent in the US – are far more likely to be recognized by the FDA. Clearly the Israeli MC sector’s thinking is similar to that of the rest of the startup industry in understanding that they must look to the foreign markets, with a focus on the US, if they hope to scale up.

Saul Kaye thinks that “within two years” Israel could be exporting MC. “There are enough voices in the Knesset that understand the economic ramifications.” However he argues that we aren’t talking about the raw cannabis flower, but rather “finished cannabis products.” The reason for this is simple: it is a lot easier for a regulator to see an approved and neatly packaged drug and say “this can be exported.”

Beyond the sale of MC products on their own, Kaye has spoken with Geektime in the past about the importance of delivery systems like nasal sprays and inhalers that are being developed in Israel as a part of the innovation in this space.

Another prediction for the two year mark: Spottheim’s belief that by then cannabis will be legalised all over the US. There is however a distinct difference between the medical and recreational cannabis businesses, and Kaye notes that in California MC has been “almost forgotten” due to the fact that recreational cannabis will be on the ballot this November. Unlike in Israel where there’s a focus on MC, there they have significantly “slowed down” in terms of MC innovation.

Everyone recognises the dangers here. Dr. Guy Setton notes that Israel’s “leading advantage” won’t last “as other countries close the gap.” So at least to some extent, future Israeli success in this field will simply (or not so simply) be a matter of whose governments and industries can innovate quicker.