Intended to Usher in the New Age of Medical Cannabis, Israel’s Reform Puts the Brakes on Everything

A reform spearheaded by the Israeli Ministry of Health in 2016, intended to regulate the entire production and supply chain of medical cannabis in Israel, has been wreaking havoc in the country since it came into effect three months ago.

Since pharmacists were added as middlemen, medical cannabis prices have rocketed, leading patients to appeal to the Israel Supreme Court to put a stop to the new regulations. The health ministry, on its end, has asked that a price cap for medical cannabis be put in place, meeting resistance from the Ministry of Finance. Israel’s medical cannabis manufacturers are also against the price cap, already seeing their revenues diminish now that pharmacists are taking a cut of the pie. Israel’s veteran cannabis growers, on their end, just want the go-ahead to start exporting come September—a process headed by the finance ministry that could net Israel as much as $1 billion a year. Meeting that export date depends on the health ministry, which is conditioning its approval on the requested price cap.

Until the reform came into effect earlier this year, patients with a medical cannabis license in Israel bought cannabis directly from the growers, paying NIS 370 ($105) a month, plus NIS 100 ($28.4) in delivery costs, regardless of the amount they used. The demand to make all transactions through pharmacies is intended to add a quality control layer, but it has also caused a change in prices. Now cannabis is priced at NIS 180 ($51.1) per 10 grams, meaning anyone buying over 30 grams a month has seen their medical expenses increase following the reform. Of Israel’s 46,225 medical cannabis licensed users, 64% are over that threshold.

The group that has seen its monthly expenses increase includes 31% of cancer patients that are receiving medical cannabis during their chemotherapy, and 41% of cancer patients that are receiving it to treat active symptoms. It also includes 51% of those who receive medical cannabis for psychiatric reasons.

The cap the health ministry is demanding will see 91% of all medical cannabis patients pay up to NIS 591 ($167.8) a month, compared to the NIS 470 ($133.5) set price of the old system. The ministry also wants to put a maximum cap, at NIS 984 ($280) for 120 gram, compared to the NIS 2,160 ($613.3) it costs now post-reform. Under the new cap, cancer patients and children who are treated with medical cannabis will also receive a 45% discount.

During the current transition period, 60% of patients still receive their medical cannabis from growers and pay a set price of NIS 470, while the rest buy it from pharmacies. That means that patients who buy 50 grams of cannabis are paying almost twice for the same amount if they are getting their product from pharmacies, and the larger the dose, the larger the discrepancy.

The big question is whether the profit margins of all the players in the supply chain are big enough to handle regulated prices, or whether, as some of them claim, a price cap means some of them will be selling at a loss. If it is not financially viable, then another question arises: why is the state not subsidizing medical cannabis? Regardless, it is clear that the current regulatory standstill is mainly hurting the patients.

The new regulation mean the profits are split in the following manner: first, Israel takes its cut in the form of 17% value-added tax. Of the remaining sum, pharmacies take 40% as brokerage fees, but that percentage is set to go up in the future. Distributors take 6%. Cannabis manufacturers, which turn the product into oil or cigarettes, take 10%-30%. The growers get to pocket the rest. It costs around NIS 3.5 ($1) per gram on average to grow medical cannabis in Israel, with a slight variance depending strain and method of growth.

The health ministry has marked the growers as the most profitable players, and is estimating their profit margins will increase even more after they have made the switch to the GMP (Good Manufacturing Practices) standard.

Israel has eight veteran medical cannabis growers and a ninth grower that joined the ranks earlier this year. Until March, Tikun Olam Ltd. held a third of the market. Breath of Life International Ltd. (BOL Pharma) became the largest supplier after Tikun Olam had to cease supplying buds to 8,000 of its patients due to the reform, which now only enables the company to supply CBD oil. 51 additional growers have applied for cannabis growing licenses following the 2016 reform but it is not yet known how many of them will receive permits, or when. It is estimated that once approved, most of the future production will go towards export. Growers are objecting to the price cap, saying that with the new regulations ordering the use of cleanrooms, production would become so costly as to leave them with little to no profit.

There are currently three medical cannabis manufacturing facilities in Israel. Bazelet Pharma’s is the largest; BOL operates its own in-house facility that manufactures exclusively for the company; and the third is Panaxia Pharmaceutical Industries Ltd., which manufactures for most of the market. Univo Pharmaceuticals Ltd. has a facility that is currently in the process of receiving approval. People in the industry estimate that around 10 new facilities will be established in the next two years, increasing competition for raw product and causing manufacturers to worry that their profits will diminish even more, especially if export is delayed.

Pricing regulation at the level the health ministry is looking to implement is “suicide” for the sector, Meir Ariel, Bazelet’s CEO, told Calcalist. “There is no profitability in the prices stipulated, and we could not endure it.”

Other industry people who spoke with Calcalist said that if a price cap is implemented, growers will slash their payments to factories even more in order to keep their profit levels. Some of the growers are already in the process of establishing facilities to compete with existing manufacturers. Still, some manufacturers say that they could have managed the added competition if only export was underway.

As cannabis growers are blaming pharmacies for the recent increase in prices, the pharmacists are hitting back. “Those companies had a NIS 200 million ($56.79 million) a year market that was suddenly taken from them,” David Papo, chairman of the Pharmaceutical Association of Israel, told Calcalist.

Hagai Shor, owner and CEO of pharmacy chain Shor Tabachnik, told Calcalist that until now, growers produced their product at low costs and distributed to patients with no regulation. “The new reform forces them to pass rigid tests that forbid the use of pesticides, require the identification of contamination such as mold, and more,” he said. When the growers cannot meet the standards they are forced to destroy their product, leading to shortages in the market, he added. “I have a feeling that the growers have an interest in the existence of shortages in the market, maybe out of a delusion that the old regulation will be reinstated.”

While the reform is intended to benefit patients, some of them are less than enthused. On Thursday, Israeli organization Medical Cannabis Association filed a petition to the Israel Supreme Court, asking for an interim injunction against the reform. Dana Bar-On, the association’s founder and CEO, told Calcalist that the association has received dozens of reports from doctors and their patients who came to harm due to unsuitable products. Over 4,000 people were left with no medicine due to acute shortages, she said, while others paid exorbitant prices for their medication.

“It is not a medical reform but one that benefits the manufacturers, and harms Israel’s sickest people for the sake of money,” Bar-On said. “It must be stopped before it is too late.”