Israel’s Approach to Importing Cannabis Stirs Growth, Uncertainty

By Noah Tomares, Research Analyst, New Frontier Data

In January, Israel received its first-ever import of medical cannabis: 250 kilograms of dry cannabis flower from Tilray’s production plant in Portugal. Fast-forward a few months, and Israel has become the global leader in medical cannabis imports, even surpassing Germany—which has nearly 10x more people, and where medical cannabis for now is obtained entirely through imports. From January to July, Israel imported more than 6,000 kilograms (13,227 pounds) of cannabis flower; last year Germany imported approximately 6,714 kilograms (14,802 pounds) in total­. So how did a nation of fewer than 9 million go from importing no medical cannabis to importing more than any other?

Israel legally classifies cannabis as a narcotic drug. Its use is governed by the international Single Convention on Narcotic Drugs of 1961 and the Israeli Dangerous Drug Ordinance of 1973, respectively. At the same time, however, Israel’s Ministry of Health acknowledges that it can be beneficial in treating some medical conditions. Thus, despite its narcotic designation, cannabis is often treated in a similar fashion to medications and medicinal products, and the Israeli Medical Cannabis Agency (IMCA) serves to control and regulate its use for research and medical treatment.

IMCA’s Good Practices Procedures impose rigorous quality-control standards on the entire domestic supply chain, from raw plant material to the final product. The IMCA’s medical grade standards for procedures detailed in its Canakopia (produced with assistance from the organic chemist Professor Rafael Mechoulam) cover those pertaining to growers, product manufacturers, distributors, and pharmacies, security, and good clinical practices.

Unfortunately, regulatory reform led to shortages for patients who were used to purchasing directly from licensed growers but unable to find their preferred products at pharmacies. Quality issues and insufficient domestic production of high-THC flower left many of Israel’s 60,000 medical patients without their medications.

To help meet demand, Israel opened its doors to imports. To the chagrin of domestic producers, the relative standards for importing medical flower are lax. Farms meeting a basic Good Agricultural Practices (GAP) standard can import to Israeli cannabis plants if the raw material meets a cleaning test. CBD products can be imported regardless of GAP standards so long as the importer holds a dietary supplement approval.

For international producers who either fail to meet or prefer not to contend with Germany’s stringent importing standards, Israel’s relaxed position is welcome. Though Israel’s domestic producers are inclined to object, customers among the 27% of Israelis who report having consumed cannabis in the past year are less likely to complain.

While some contend that it will be complex and unprofitable to import medical cannabis goods into Israel, others see the potential for imports to substantially drive down the cost of medical cannabis.

Last year, medical cannabis was one of the fastest-growing sectors of the Tel Aviv Stock Exchange. At the time, the exchange’s 26 listed companies had a combined value equivalent to $952 million. Additionally, the Knesset recently advanced a preliminary reading of two bills to legalize cannabis, suggesting more opportunity and uncertainty for its market.

Europe would be advised to take note of Israel’s evolving cannabis market. While Germany has relied exclusively on imports, it expects its first domestic harvest this fall. International exporters and new domestic producers should pay close attention and consider the ramifications of market shocks such as the introduction of new competition. If Germany can maintain regulatory standards between domestic production and international imports, they may be able smooth the transition from an import only market.

In New Frontier Data’s Global Cannabis Report: 2019 Industry Outlook, Germany’s estimated demand for cannabis was valued at over $9.5 billion, with Israel’s at nearly $1.7 billion. The fact that Israel — with its 8.7 million residents compared to Germany’s 83.8 million —could become the largest global importer of medicinal cannabis in less than a year is indicative of a relatively young global market with plenty of room for development.