11-Dec-2020 By MICHAEL BERGER
Israel has quickly become one of the most significant markets in the cannabis industry and we have been following the advancement of the industry since we entered the sector in 2014.
Israel has the perfect climate for cultivating cannabis and we find the economics to be much more attractive than they are in Canada. So far this year, we have seen a few large scale Canadian Licensed Producers (LPs) enter the Israeli market and this is a trend that is expected to become more significant in 2021.
When it comes to the international cannabis opportunity, 2020 has been a banner year for Aleafia Health Inc. (TSX: AH) (OTC: ALEAF) and we are favorable on how it has increased its footprint in strategic international markets.
Most recently, Aleafia Health announced that it will start to export cannabis to the Israeli medical cannabis market and signed a binding letter of intent (LOI) with Equinox International Ltd., a licensed British medical cannabis company with operations in the Israeli market.
We consider Israel to be one of the most attractive international cannabis markets and are favorable on the leverage that Aleafia Health has to it. Earlier this year, Israel overtook Germany as the largest medical cannabis importer in the world and we are bullish on this trend.
Under the LOI, Equinox has committed to purchasing approximately 1,400 kilograms of dried flower in 2021. The first shipment is expected to happen in the first quarter of 2021, pending the receipt of necessary import and export permits and the completion of Aleafia Health’s cultivation cycle.
The agreement with Equinox is for three-years and we expect to see the business ramp up during this time. Equinox is working to execute on a strategy to become a leading global cannabis supplier and we believe the relationship with Aleafia Health will help it accomplish its goals. Equinox International, in partnership with Aleafia Health, will establish an Israeli Land-to-Brand ecosystem that covers supply, distribution, marketing, and retail.
Aleafia Health has already submitted the necessary permit applications and we are favorable on the markets that the management team is focused on. Once the company receives the necessary permits, it will complete the first export of EU GACP-compliant dried flower that was grown at Aleafia Health’s Niagara Greenhouse facility.
The shipment to Israel will mark the fourth country that Aleafia Health exports cannabis to. We consider this to be a major accomplishment and are favorable on the growth potential that is associated with the international markets that Aleafia Health is levered to.
We expect 2021 to be a banner year for Aleafia Health’s international business and are bullish on the markets that it is focused on. Through strategic agreements with companies like Equinox, Aleafia Health is well positioned to record strong growth on a quarter-over-quarter basis.
The next steps for the partnership will be the negotiation of a definitive agreement that is focused on suppling dried cannabis flower to Israel over a three-year term. The companies have agreed to negotiate the definitive agreement on an exclusive basis for a period of 45 days. Some of the topics that will need to be discussed are the minimum purchase commitments for the second and third year of the contract. For the duration of the definitive agreement and in respect of the Israeli market, Aleafia shall be Equinox’s sole supplier of cannabis products and Equinox shall be Aleafia’s sole purchaser of cannabis products.
Prior to Aleafia Health announcing the strategic agreement with Equinox, we have seen increased interest in the Israeli cannabis market. Companies like HEXO Corporation (HEXO.TO) (HEXO) are highly focused on the Israeli cannabis market and we expect to see additional cannabis brands enter the market in 2021.
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