The Israeli medical cannabis market, characterised in recent years by rapid patient growth and bold regulatory reforms, now faces significant challenges due to a situation of oversupply, allegedly caused by cheap imports from Canada.
Following an investigation that revealed substantial dumping rates, the Israeli Commissioner on Trade Leavies has recommended to impose tariffs on Canadian cannabis aimed at protecting local producers.
This article explores the Israeli medical cannabis market, the details of the investigation, and the economic and strategic implications of potential tariffs. It also analyses supply-demand dynamics, market data, and the future of the global cannabis trade in Israel’s context.
Table of Contents
Medical Cannabis in Israel: Regulatory Reforms Fuel Patient Growth
The Israeli medical cannabis market has experienced significant growth in the last few years, driven by liberal regulatory reforms and increasing patient acceptance. Israel was one of the first countries in the world to develop a domestic medical cannabis market, albeit relatively small and constrained until 2019. From January 2019 to January 2024, however, patient numbers soared from approximately 32,000 to over 140,000.
This impressive market development was prompted by reforms enacted in 2019 which liberalised the market, allowing patients to access products at the pharmacy instead of directly from the producers as the system was set up before, as well as simplifying the process for obtaining medical cannabis for a wide range of qualifying conditions. This resulted in a surge in patient enrolment, making medical cannabis more accessible through the healthcare system.
The reforms also allowed free floating prices and enabled international trade, seeking to boost the domestic sector by exporting cannabis to international demand markets of the likes of Germany. However, long coveted hopes of seeing Israel as a global cannabis export powerhouse did not materialise, as only two exporters (Panaxia and BOL Pharma) traded a limited amount of products to Australia, Germany and France.
Medical cannabis export volumes from Israel in the last few years were as follows:
- 2020: 177kg
- 2021: 664kg
- 2022: 662kg
- 2023: 525kg
Instead, Israel import sector quickly grew as the country became the largest medical cannabis importer in the world in 2020, overcoming Germany. Despite the abundance of domestic supply, international producers were attracted to the Israeli market thanks to its conducive standards regime, with the domestic IMC-GAP certification accepting the validity of not only the more stringent EU-GMP, but also allowing global suppliers to ship products with easier to obtain, third-party certifying body standards such as CUMCS-GAP (awarded by Control Union) and ICANN-GAP (awarded by IQC).
This made the entry into Israel more feasible for international suppliers compared to other global jurisdictions that require EU-GMP or its equivalent to place products on the market, often requiring the manufacturer to conduct an audit by an official inspector from a European Union country, as well as being stricter in terms of manufacturing standards and microbial limits.
During most of 2023 the influx of new patients stabilised, but in the aftermath of the October 7 attack there was an influx of patients dealing with PTSD symptoms due to the hostilities, which also saw some relaxation of rules to deal with the influx of displaced people from areas near the conflict zone. Patient numbers surged to the maximum historical record of 140,412 patients in January 2024. However, reforms introduced in April 2024, which included a switch from a patient license to a prescription model for certain conditions, saw patient figures receding, and as of June 2024 sit at around 128,000 active patients.
Patient trends of Medical Cannabis in Israel
The Investigation: Uncovering Price Dumping Allegations against Canadian Companies
The investigation by Israeli officials was triggered by complaints from local producers about the influx of low-priced Canadian cannabis, which they claimed was being sold below production costs and flooded the local market. Israeli producers complained in particular about consignment sales, allowing importers to receive products in bulk and pay only for those that they managed to sell.
According to the local companies that requested the launch of the investigation, the impact of Canadian competition on local players included a collapse in wholesale and retail prices, local distributors scaling down deals with Israeli producers (preferring international supply deals instead), as well as manufacturers shifting business models to favour importation.
In the decision to launch the investigation, Danny Tal, the Israeli Commissioner on Trade Levies, part of the Ministry of Economy, cited data to justify the need to further research the allegations of price dumping:
- According to the Commissioner, Canadian wholesale transactions to Israel were conducted at prices between $1 to $3 per gram (at an average of $2.1/g in 2023).
- This figure is significantly lower than a quoted Canadian spot price index of $3.75/g maintained by US brokerage firm Cannabis Benchmarks.
- However, this Canadian price index does not represent bulk transactions, but rather what Canadian retailers pay for packaged goods to the provincial distributors.
While the Commissioner suggested that this pricing gap means that Canadian producers were engaging in price dumping, it revealed a flaw that persevered in the rest of the investigation: comparing packaged goods into retail in Canada to bulk goods into distribution in Israel to assess price disparities.
This led to finding greater price differences than those actually existing. After all, Canadian producers are attracted to international trade because of the superior margins they can secure compared to their local market, which has been flooded by excess capacity for years. If anything, Canadian companies have flooded their own market first and foremost, and exportation represents an opportunity to secure better prices in less developed markets.
Despite the demand expansion in the Israeli market, with a dramatic influx in new patients during the last 5 years, the combined domestic oversupply and influx of importation generated a severe supply-demand imbalance, leading to overcapacity issues and financial distress among local producers. While other factors can be identified, it is undeniable that imports, primarily from Canada, contributed to driving down prices and increasing competition.
Demand / Supply balance of medical cannabis in Israel
Interim Investigation Findings: Israeli Companies Faced Unfair Competition
The preliminary findings of the investigation published in July 2024 confirmed the suspicions of the Commissioner, finding dumping rates of Canadian exports to Israel ranging from 63% to 369%, depending on the company. The investigation delved into the financial accounts of Canadian companies to highlight significant disparities between production costs and selling prices of Canadian products in their domestic market compared to Israel.
- The Commissioner found a factory gate price in Canada of CAD$7.86/g ($5.8), while comparable products were sold in Israel for CAD$2.1/g ($1.5) or less.
- Some Israeli producers were forced to sell flower at prices as low as $1.4/g, well below production costs, leading to significant unsold inventories. Other growers were unable to sell their production as flower, and had to dispatch it as biomass for extraction instead, for $0.8/g or less.
- Retail prices in Israel fell below NIS 40 ($11/g), with aggressive promotions such as “buy 1, get 1 free” driving a general trend of price compression in the market.
These disparities contributed to significant market disruptions, financial distress for local producers, and an overall economic downturn in the sector. The Commissioner found that Canadian producers’ market share of Israeli imports increased from 58% in 2020 to 85% in 2023, contributing to plummeting prices and financial distress among local producers, which faced severe financial distress due to the price collapse.
In 2022, the total supply of cannabis in the market was 97 tonnes (including inventories and destruction), including 68 tonnes produced in Israel or imported during the year, while patient licenses awarded a maximum consumption volume of 53 tonnes to Israeli patients, resulting in a significant surplus.
The supply-demand imbalance created an unsustainable market environment for local producers, which led them to ask the Commissioner to impose provisional measures in order to stop the alleged dumping from Canada. Companies
- Green Fields: Provided information to the investigation, including cost breakdowns showing price undercutting by Canadian producers of 0-40%.
- Bazelet Group: As one of Israel’s leading medical cannabis companies, Bazelet Group has struggled with overcapacity and financial distress due to low prices and surplus inventory. It provided data to the investigation showing a 40% price drop between 2021 and 2023
- Cronos
- Together, IMC, Intercure and Seach stopped working with local producers: the market share of domestic produce fell to under 40% of demand.
- Cann4life: Similarly, Cann4life has faced challenges in competing with low-priced imports, affecting its financial stability and market position.
- Evergreen Pharma: Despite its significant production capacity, Evergreen Pharma has been impacted by the price dumping, leading to financial difficulties and unsold inventory.
- CannArava
- CannEden: These companies have also experienced financial strain and market pressure due to the influx of low-priced Canadian cannabis, affecting their operations and market share.
- Other companies that have suffered insolvency in the last few years include BOL pharma, Pharmocann, Tikun Olam, IMC, Panaxia, Cannassure, Intelicanna, Univo, Cannomed.
Data from 2020 to 2022 highlights significant trends and challenges in the Israeli market. In 2020, the supply of cannabis (89,400 kg) far exceeded demand (66,324 kg), leading to an oversupply. This trend continued in 2021, with supply (97,591 kg) surpassing demand (68,029 kg). The surplus contributed to reduced prices and financial challenges for local producers.
The market has seen significant shifts, including:
- Overcapacity: Companies have had to operate below capacity, halt expansion, and struggle to secure capital. Inventories soared from 1.2 tonnes in 2020 to 18.7 tonnes in 2022, with destruction increasing by 65% to 11.5 tonnes.
- Unfair Competition: Consignment sales allowed importers to pay only for sold products, flooding the market. Manufacturers pivoted to focus on importation, while distributors scaled down deals with domestic producers.
- Economic Downturn: Sales declines and margin squeezes pushed many companies into severe financial distress, causing job losses and stalling further investment in the sector. Hard to raise capital, banks unwilling to provide financing, investors avoid investing. Payment terms of 90-180 days create cashflow issues, buyers postpone paymnets.
Demand / Supply Balance of the Israeli Market
Canadian Companies to Navigate Trade Protectionism
The investigation identified significant dumping rates for specific Canadian companies:
- Decibel: Given a loss rate of 1% in 2023, an acceptable selling price of CAD$5-10/g, plus CAD$0-2/g for domestic packaging and CAD$0-2/g for shipping, thus 10-20NIS/g as an acceptable price (CAD$3.72-7.45). Unique expenses for the Israeli market (CUMCS compliance) led to actual export prices of CAD$2-6/g, resulting in the dumping rate of 63%.
- Organigram: Claims Canadian bulk products are comparable to those exported to Israel. Given a loss rate of 108% in 2023, the Commissioner calculates the fair price based on estimating production costs. Commissioner assumes losses reflect selling price below production cost, defining an acceptable selling price of CAD$0-10 per gram, plus CAD$0-2/g for domestic packaging and CAD $0-2/g for shipping, thus 10-20NIS/g as an acceptable price (CAD$3.72-7.45). Transport, insurance, compliance, packaging. Export price of CAD$2-5/g, NIS 5-14/g. Therefore, dumping rate of 112%.
- Pure Sunfarms: Activities are profitable, so the Commissioner accepts the actual sales prices to determine the acceptable price. Average price of CAD$3-$8/g. Plus packaging expenses of $0-2/g, the accepted price for the company was set at NIS 5-15/G (CAD$1.86-5.58). Compliance expenses of CAD$100-900k in 2023 (audits, laboratory tests, shipping). Export price of CAD$1-4/g (NIS 3-12/g). Therefore, dumping rate of 74%.
- Other Canadian companies, such as Cronos, Tilray, Hexo, SNDL, Canopy, and Auxly, did not cooperate fully with the investigation. The Commissioner relied on data from the Canadian Cannabis Survey and a Deloitte study to determine average prices for these companies. The average price of dried flower was CAD$8.14/g, but the Commissioner assumed an acceptable factory gate price of CAD$7.86/g (NIS 21.46). Products exported to Israel were considered premium, and sales on consignment allowed importers to pay only for sold products, exacerbating market flooding. For these companies, the dumping rate was calculated at 369%
Shortcomings of the Investigation
While the investigation provided critical insights into the pricing practices of Canadian producers, it also had limitations. The focus on price dumping did not fully address the broader supply-demand imbalances in the market. Additionally, the investigation’s reliance on pricing data from a few years may not reflect current market conditions, leading to potential discrepancies in the findings.
the investigation suffered from multiple biases:
· Insisting on comparing bulk wholesale prices into Israel with packaged sales to Canadian retail. The assumption is that LP margins account for 75% of the retail price — however, LPs receive no more than 1/3 of what consumers pay.
· Canadian producers actually trade at a premium in the Israeli market: as indicated by the CCX spot price, 2023 bulk transactions in Canada averaged CAD 0.96/g, compared to CAD 2.1/g for Canadian products into Israel.
· Oversupply in the country has broader causes: in 2022, Canada imported 20 tonnes (30% of supply), while local LPs produced 43 tonnes. Inventories surged to 19 tonnes, with 12 tonnes of product destroyed.
· Israeli patients appear to prefer premium imported products, as evidenced by the higher prices of Canadian products compared to local ones.
Despite all indications pointing to a flawed investigation, no evidence of creative accounting by the investigators is likely to alter a decision that has already been made. Adapting to the new reality is now paramount.
Strategic Responses by Canadian Producers
Canadian producers face new trade barriers and must adapt strategically. Possible responses include:
- Absorbing Tariffs: Some companies may absorb tariffs within their margins to remain competitive.
- Shifting Focus to Other Markets: Redirecting efforts towards markets like Australia, Germany, Brazil, Poland, and the UK.
- Nearshoring: Partnering with processors in unaffected countries, like Portugal, to circumvent tariffs, despite higher fulfilment costs.
These strategies are crucial for Canadian companies to navigate the challenges posed by protectionism and maintain their competitive edge.
Imports to Israel by Source Country
Imports by Country of Origin (2020-2023)
The import data reveals a shift in the sources of medical cannabis entering Israel. In 2020, most imports came from Canada (8,614 kg), followed by Portugal (3,551 kg), Uruguay (1,915 kg), and Uganda (499 kg). By 2023, Canadian imports had increased significantly to 14,778 kg, representing 93% of total imports. This dominance of Canadian products contributed to the price dumping concerns and subsequent tariffs. 2023 import drop due to large surpluses in the years 2021-2022 plus unable to sell local produce.
Strategic Responses by International Producers
International producers, such as those from Portugal,
Uruguay, and Uganda, may benefit from the new market opportunities created by
the tariffs on Canadian imports. These producers can fill the gap left by
reduced Canadian imports, potentially increasing their market share and
revenue.
Market Dynamics and Future Outlook
The Israeli medical cannabis market is at a crossroads, with the imposition of tariffs on Canadian imports representing a significant shift towards protectionism. This move aims to protect local producers from unfair competition and stabilize the market. However, the long-term impact on local producers and overall market stability remains uncertain. The market may continue to experience volatility as it adjusts to the new trade barriers and shifts in supply-demand dynamics.
The Israeli medical cannabis market has undergone
significant changes due to allegations of price dumping by Canadian producers
and the subsequent imposition of tariffs. The investigation revealed
substantial dumping rates, leading to financial distress for local producers
and significant market disruptions. The imposition of tariffs aims to protect
local producers and stabilize the market, but the long-term impact remains
uncertain. As the market adjusts to the new trade barriers, local and
international producers must adapt strategically to navigate the challenges
posed by protectionism and maintain their competitive edge.
Overall, the Israeli medical cannabis market continues to
evolve, with ongoing regulatory reforms, market shifts, and strategic responses
by industry players shaping its future. The imposition of tariffs represents a
significant shift towards protectionism, with potential implications for the
global cannabis trade. The market will continue to experience volatility as it
adjusts to the new trade barriers and shifts in supply-demand dynamics, and the
long-term impact on local producers and overall market stability remains
uncertain.