Biotech company Creso Pharma (ASX: CPH) is looking to continue its progress towards commercialising medicinal cannabis on a global scale, by signing a binding joint-venture agreement with Cohen Propagation Nurseries, an established agribusiness with 60 years’ market experience.
The agreement aims to marry Cohen’s growing experience with Creso’s pharmaceutical expertise and “methodological rigour” including the ability to commercialise medical cannabis products via global distribution channels.
The deal is also expected to serve as a catalyst for Creso’s Israeli market aspirations, considered to be one of the most lucrative anywhere in the world given the disproportionate cannabis legislation amongst different countries around the world.
The deal means Creso will enter the “strategic” Israeli medical cannabis market alongside a company that’s currently applying for an IMC-GAP licence to grow cannabis for medical purposes.
If Cohen obtains regulatory approval to grow and cultivate medical cannabis, Creso and Cohen will form a new joint-venture company with Creso owning a 74% stake. Given current estimates, Creso says this approval should take approximately 2 months.
Following approval Cohen and Creso expect construction of their state-of-the-art growing facility to commence soon after and take approximately “4 to 5 months”.
Once the facility is at full capacity, Creso estimates annual production of up to 2,500 kilograms of high-quality cannabis per year. This is a conservative estimate based on Cohen having access to around 8,000 square metres of greenhouse space producing approximately 320kg of dried flower per every thousand metres.
As a rough calculation, Cohen could potentially generate well in excess of US$50 million per year given the rapid increase of high purity medical cannabis extracts on world markets.
The emerging medical cannabis producer hopes to grow a range of high-margin strains including both tetrahydrocannabinol (THC) and cannabidiol (CBD), to produce a broad range of high-grade pure cannabinoids as active pharmaceutical ingredients (API).
Such extracts are currently considered high-margin in the rapidly evolving medical cannabis industry and commanding prices in excess of US$30,000 per kilogram according to research obtained from Research and Markets.
According to the World Health Organisation (WHO), active pharmaceutical ingredients were barely worth US$1,000/kg merely 8 years ago.
Cannabis grown at Cohen’s potential facility will be available for sale in the Israeli domestic market and is likely to be made available for export overseas.
“This is an important milestone for Creso as it provides us with a strategic foothold and frontline exposure to one of the worlds most developed medical cannabis countries,” said Dr Miri Halperin Wernli, CEO of Creso Pharma.
“Israel’s medical cannabis industry is considered a world leader,” added Dr Wernli.
To date, Israel’s medical cannabis industry has provided medical cannabis products to Israeli patients for over a decade with legislation gradually softening towards greater freedoms for companies in the private sector (much like other countries around the globe including the US, Canada and Australia). There are currently 30,000 Israeli patients receiving medical cannabis treatments and growing rapidly year on year.
Creso’s joint venture with Cohen is expected to slash 8 months of “establishment and construction time” thereby cutting down Creso’s market entry time in Israel significantly. Creso is also likely to save on substantial capital expenditure costs, compared to if the company were to enter the Israeli market on its own, without Cohen’s assistance.
In addition to favourable commercial terms, Creso will also obtain the services of Team 3, a highly specialised security firm authorised by the Israeli government.
According to current Israeli legislation put forth by the Ministry of Public Security and Ministry of Health, all medical cannabis cultivators based in the country must secure security services from licensed security companies such as Team 3.
Forming a joint-venture with Cohen allows Creso to bypass such regulatory hurdles and remain focused on the corporate aspects with technical and security concerns being looked after by Cohen.
“The joint-venture will expose Creso to leading cannabis research and innovation and will allow us to cultivate a high-quality crop at a very competitive cost. It’s a key step for Creso’s further vertical integration within our own ecosystem,” said Dr Wernli.