When I frequently mention to friends and colleagues that I’ve invested in Israeli companies the response I often receive is either a blank stare or at best a one-word reply, “where?”
When I’m questioned about Israel’s geographical location due to the precarious geopolitical instability in the region and the rise of the Islamic State, my response is that Israel should be thought of as a “nice house on a bad block.”
Despite Israel’s geopolitical challenges, Israel has exhibited consistent economic growth and demonstrated the ability to maintain strong growth despite the significant regional turmoil.
Israel is a high-tech powerhouse and frequently referred to as the “Start-Up Nation.” The country offers the best of two worlds, the superior business management and governance of a developed market, but one that has emerging market growth opportunities. Israel has a unique status for a small country, that of a leader in agro-tech, biotech, and high-tech innovation, and of particular interest to me, medical cannabis.
My first introduction to Israeli companies was over 15 years ago when my firm sponsored several conferences in New York featuring Israeli companies that were traded on the Nasdaq Stock Market. At that time, Israel was number three for the most Nasdaq listings after the United States and the United Kingdom. Today, Israel is still number three, after the U.S. and China, with 89 Israel-based companies on Nasdaq.
Since that time I’ve seen Israel’s high-tech sector prosper and lead to numerous world-class, well-known companies. Israel has the second highest concentration of high-tech companies after the U.S., located in what has become known as Israel’s “Silicon Wadi,’ the center of the country’s tech industry. These include the website development firm Wix.com, the navigation app Waze, which was acquired by Google, and, of course, the pharmaceutical company, Teva Pharmaceuticals, whose roots go back to its establishment in Jerusalem in 1901.
IBM established a presence in Israel in 1949, and General Electric’s Israel operations go back to 1950. Over 250, research and development centers have been established in Israel for leading global companies, including Apple, Amazon, Facebook, AT&T, Google, Deutsche Telekom and Microsoft.
Over the past three decades, Israel’s global status has been reflected in its entrepreneurial and technological revolution, its economic expansion, and the strong performance of its equity markets.
There are numerous events that have contributed to Israel’s attractiveness to global investors. One of the most significant was the country’s obtaining membership in the Organisation for Economic Co-operation and Development or OECD in 2010. The OECD was founded in 1960 by the U.S., Canada, and 18 European countries, and membership is equivalent to a country receiving an international stamp of approval. As an OECD member, Israel joined a community consisting primarily of developed nations that originate global economic standards and seek to improve social and economic welfare globally.
Another key benchmark was achieved in 2010 when Israel graduated from emerging market status to developed market status. The MSCI change of classification for Israel to developed market status changed the place of Israel in many global investors’ portfolios and opened the door for hundreds of additional global investors, including pension funds to invest in the country. MSCI is the financial services industry’s accepted gauge of global stock market activity.
There are numerous factors contributing to Israel’s attractiveness to global investors. At the top of the list is the level of Israeli entrepreneurship. Not only are most Israeli companies very entrepreneurial, but many are also frequently world leaders in technological innovation in the agro-tech, biotech and high-tech sectors.
Israel’s attractiveness for investors is clear when one examines the country’s market for venture capital. Israel, which is one of the smallest countries in the world, receives the third greatest amount of venture capital investment globally. Israel also has been ranked number one in the world based on the number of start-up businesses per capita.
Contributing to Israel’s dynamic entrepreneurial and venture capital environment is the country’s commitment to research and development. Israel spends almost five percent of its gross domestic product (GDP) on research and development, which in percentage terms is greater than almost all other countries.
Not by chance, Israel is one of the world’s leaders in agriculture. The country has created what is referred to as a “miracle in the desert,” applying science and technology to agriculture. This, has led to Israel being the acknowledged world-leader in cannabis plant sciences and is known as the world’s “cannabis superpower.” The country has become the world leader in advanced medical cannabis policy, medical cannabis research, cannabis breeding and plant sciences and medical cannabis delivery systems.
Research in Israel into the biochemistry of biologically active compounds in cannabis has a long history. CNN medical correspondent Dr. Sanjay Gupta described Israel as “the medical marijuana research capital” in his documentary “Weed,” and dedicated a portion of the CNN program to Israel’s advances in cannabis research. Gupta was amazed to see how seamlessly Israel had integrated cannabis into its health-care system.
Israel’s role today as the world leader in cannabis research started with the research done by Professor Raphael Mechoulam, a chemist at the Hebrew University of Jerusalem, who is widely-acknowledged as the father of cannabinoid research. Professor Mechoulam conducted studies that established the foundation for the entire field of cannabis research. In 1963, Professor Mechoulam isolated CBD, the ingredient that many believe is the key to the medical properties of cannabis. A year later, Mechoulam was the first scientist to isolate tetrahydrocannabinol (THC), the main physiologically active compound in cannabis, which is responsible for the plant’s consciousness-altering effects.
Thirty years later, Professor Mechoulam again played a critical role in cannabis research, discovering what became known as the human endocannabinoid system. This discovery created a scientific revolution, as it completely changed the scientific perception of the relationship between cannabis and the human body. The discovery of endocannabinoids − neuroreceptors that the body produces autonomously and naturally − and of special cannabinoid receptors in the brain provided the basis for the conclusion that cannabinoids could have an important medical role.
In Israel today there are over 25,000 patients, supplied by eight government approved growers, utilizing medical cannabis for a variety of medical conditions.
Describing the country’s role in medical cannabis, Dr. Tamir Gedo of Breath of Life, one of the country’s eight growers, stated, “Israel is 10 years ahead of Europe and the US in medical research, as its quite easy for companies to run clinical trials and research on cannabis.”
Israeli startups are at the forefront of medical and technological cannabis advancements, including numerous companies that are on the frontlines of cannabis plant sciences and genetics, and cannabis-based medicine based on real science, instead of just anecdotal evidence.
Indicative of the stature of Israel’s cannabis was the January 19th announcement by the global cigarette giant, Philip Morris International, which indicated that it would invest around $20 million in an Israeli-startup, Syqe Medical, that has developed a metered-dose vaporizer. Syqe Medical’
s technology allows medical cannabis to be delivered in a safe and precise manner. This investment by Philip Morris is a reminder that Israel is the world leader in cannabis plant sciences and medical cannabis research.
Also, this month, Eybna, an Israeli cannabis startup announced that it has developed natural terpene-based cannabis flavors, free of illegal compounds, including the psychoactive cannabinoid THC. Terpenes are the aromatic and flavor compounds found within cannabis that are responsible for the multitude of cannabis strains, all of which exhibit differences in smell and flavor.
In conclusion, all investors active in global investing should consider investments in Israeli companies, whether they are privately-held, listed on the Tel Aviv Stock Exchange, or on stock exchanges in North America or Europe, and should pay particular notice to companies in Israel’s cannabis industry.
Despite geopolitical risks, Israel’s economy and its stock market have consistently weathered the storms of war and economic volatility to deliver robust growth and strong long-term returns. Investors who ignore this opportunity will likely miss out on not only superior returns but also exposure to companies that are at the forefront of agro-tech, biotech, and high-tech innovation.
Author: Jeffrey Friedland (Email: firstname.lastname@example.org, Tel. +1-646-450-8909)
Jeffrey Friedland is the author of two books, “All Roads Lead to China: An Investor Road Map to the World’s Fastest Growing Economy,” and “Marijuana: The World’s Most Misunderstood Plant.” Both books are available from Amazon.
He is also the CEO of the investment banking firm, Friedland Global Capital, the CEO of INTIVA Inc., a firm pursuing opportunities in the global cannabis industry, a director of Israel Plant Sciences Ltd., and an advisor to the U.S. private equity fund, First Harvest Financial, which is focused on the cannabis industry.