Israel Will Be One Of The Cannabis Sectors Major International Growth Markets To Watch In 2021

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Earlier this month, we highlighted the Israeli cannabis industry as one of the most exciting emerging markets due to the climate being prefect for cultivating cannabis and the export opportunity to the European Union (EU).

We want to briefly talk about the importance of these two factors so our readers can better understand our favorable view on the market. Israeli cannabis producers have been able to grow cannabis for less than $0.40 per gram (all-in costs). In Canada, the all-in cost per gram is closer to $1 and this provides Israeli producers with an economic advantage.

From a geographic standpoint, Israel is located much closer to the EU than Canada. As a result, shipping costs from Israel to the EU are lower than shipping costs from Canada to the EU. This provides Israeli cannabis producers with another important advantage and we are favorable on the impact this has on margins.

Today, we want to highlight two Canadian Licensed Producers (LPs) that recently entered the Israeli cannabis market through strategic supply agreements. We believe this trend is just getting started and expect these operators to report impressive growth from the Israeli market on a going forward basis.

Earlier this week, Aurora Cannabis Inc. (NYSE: ACB) (TSX: ACB) announced a two-year strategic supply agreement with Cantek Holdings which is considered to be a leading Israeli medical cannabis operator. Under the agreement, the Canadian cannabis company will supply Cantek with at least 4,000 kilograms of bulk dried flower per year.

Under the agreement, Cantek has the option to extend the agreement further than two years and we will monitor how both companies benefit from it. The cannabis that is provided to Cantek will be processed and co-branded under the Aurora and Cantek brand names for the Israeli market. The agreement also provides the potential for entering additional international markets and we are bullish on the growth prospects that are associated with this.

Prior to announcing the agreement with Cantek, Aurora Cannabis has been highly focused on the cannabis opportunity in the EU. The work that Aurora Cannabis has previously done will provide the relationship with the infrastructure that is needed to expand into additional markets and are favorable on this aspect of the story.

HEXO Corporation (HEXO: NYSE) (HEXO: TSX) is another large-scale Canadian cannabis producer that has attractive leverage to the Israeli cannabis market. A few months ago, the company announced a strategic supply agreement with Breath of Life (BOL) which is also considered to be a leader in the Israeli market.

During the last quarter, HEXO has reported a few substantial developments and we believe the moves that it has made in Israel are going to play an important role in the success of the business over the long-term. Similar to Cantek, BOL has formed strategic distribution network and we are favorable on this aspect of the story.

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