Kanabo CEO interview

Today we've got a first on the Invest Hub - a CEO interview.

We spoke to Kanabo CEO Avihu Tamir last week to learn a bit about the business he founded, the cannabis sector and what the future looks like for the industry.

You can watch a video of the interview below or, if you prefer reading, peruse the transcript beneath that. We've edited the text for brevity and so that it's easier to read.

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David Kimberley:

Hello everyone. And welcome to what I hope will be the first of many CEO interviews here on Freetrade. I'm David Kimberley and I'm part of the editorial team here at Freetrade. 

Before we begin, I want to engage in a little bit of self promotion. If you haven't signed up to Honey, our daily market updates, then do head over to our website. That's freetrade.io/honey, and sign up for those. Hopefully you can also se that link in the video watermark.

We also publish a new piece of analysis, every weekday on the Invest Hub section of our website. So remember to check that out too. 

And with that, I'd like to introduce our guest today, Avihu Tamir, who is the CEO and founder of Kanabo, a CBD and medical cannabis company based in Tel Aviv. As I'm sure many of you are aware, Kanabo held its IPO earlier this month, and it's now trading on the London stock exchange. So Avihu, welcome, thanks very much for joining us.

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Avihu Tamir:

Thank you, David. Great to be here.

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David Kimberley:

So to get started, can you tell me a little bit about both your background and also the company's background? How did you get into the cannabis sector and what is it that Kanabo actually does?

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Avihu Tamir:

That's the question I'm getting a lot. I see it in the UK more than in Israel. Why did you get into cannabis? I want to say that it's already a quite legitimate industry now [in Israel], very similar to the cyber security industry or many others. And that's maybe one of the things that will change now in the UK as well. 

But my historical reason was a personal need for the product. I started as a patient in 2012. Israel had the first federally legal medical program in the world. You had a prescriptions being issued already in 2000 and a very defined medical program was set in 2006. So when I received my medical license, a physician that recommended cannabis for me already had 200 patients being treated. My prescription was for migraines. 

I suffered from migraines since I was a kid. And you know migraines is this type of illness, similar to pain or problems with sleeping, that is not severe enough to deal with it for many years. It's something that people see as a quality of life [problem]. 

And so that's why I got to an older age and actually started to treat it. And when I got my prescription, I discovered that, while the plant is amazing and has a lot of medical benefits, the delivery methods are a bit from the stone age. I found myself sitting with a group of patients and having a nurse teaching us how to a roll cannabis cigarette. And it wasn't my preferred method to consume my medicine. I wasn't a smoker, I never smoked before.

So that was one of the points where I had this 'eureka' moment saying, ‘okay, something can be better here’ and I started this long process, having the first cannabis company in Israel, that was a distribution company of flower based vaporizers, understanding the limitation of the raw material itself, the flower, and then in 2016, starting to work on Kanabo. And the idea is very simple. How do we find a solution to combat smoking as the preferred method for medical cannabis. 

And although it seems like a very easy question, it's quite challenging because the oral consumption of cannabis is a big problem. Oral assumption of cannabis, the preferred methods of physicians and the medical establishment, is far from being the preferred method of cannabis patients.

So imagine this, you have on one side, the medical establishment, seeing this plant, which some physicians believe has a lot of medical benefits, but they know only one delivery method. And that's pills, tinctures, anything that is very, very precise, definitely not smoking or inhalation. And on the other hand you have thousands of patients, and probably hundreds of millions of cannabis users, that prefer inhalation of cannabis because of the many, many challenges of oral consumption of cannabis.

One of them is, it's a bit like rolling the dice. You don't know how quickly cannabis will affect you orally. You don't know for how long [its effects will last], and you don't know what the intensity of the cannabis will be. Now in many other medicines that's okay. But when you're talking about a psychoactive medicine, that could be a challenge, having consumed too much or having consumed too much and only discovering that you consumed too much after two hours. And so that's really why patients prefer smoking. And that's where Kanabo comes in. [We're] coming to try and have a solution that makes everyone happy. Physicians can prescribe a metered dose via inhalation, and patients can actually get a safe method to consume cannabis via inhalation.

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David Kimberley:

Ok, so maybe for people who aren't completely familiar with what it is you guys do, can you explain what the vape pen is that you're selling and why? I think you've touched on a bit why it's needed versus something like droppers. And is it just CBD in the vape pen?

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Avihu Tamir:

So today the product that's being released to the market is a wellness product that has not only CBD, but it doesn't have the psychoactive ingredient, THC. So it has more cannabinoids, more active ingredients than just CBD. CBD is the main one, but it has others and it's being sold as an over the counter wellness product.

But in addition, the company has developed medical cannabis with THC in different levels for the medicinal market. And we have signed a distribution agreement with five groups, for bringing this product to the medical market in the UK, and we're planning to bring it to the German medical market too, and we're launching in Israel later. And moving ahead, [we see ourselves] really taking control of the inhalation of medical cannabis across Europe.

I can show you the product here. The product is very small and slim and quite easy to use. And it's mainly two pieces. One piece is the hardware and the hardware is rechargeable. One of the benefits of this is that, although it's a medical device and the barrier to entry for patients is very low, the price point of the hardware is around 50 to 60 pounds, it's not something that is really a barrier to entry.

But I would say the brain is in the cartridges. The cartridges are sterile cartridges that are being injected with the formula. Each formula will be different. We have formulas with different ratios of cannabinoids. Some for pain, others will be beneficial for sleep or for mental health. One of the things we're researching today is for post-traumatic stress and the great thing is that all of the temperature and the coding is happening in the cartridge. So once a patient receives a cartridge, he drops it into the device and the device is already loaded. One inhalation will give you exactly one milligram of material. So it's a metered dose. It's a very simple device, but a smart device. And one of the benefits is that anyone can use it, there's no buttons. You don't play with the temperature. Everything is coded inside the cartridge itself.

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David Kimberley:

Something you did just touch on there briefly is you're targeting people in the UK and Germany at the moment [and] Israel in the future too. But I think that's a bit unusual in the cannabis sector because, so far, it seems like the US is first of all, just a big market, but also one that's been much more welcoming to cannabis businesses. 

From my point of view, it seems like the UK is still quite tentative in allowing cannabis companies to set up shop and do business. I think GW pharma was one of the only companies really active here for a long time. So my question is why did you choose the UK to do business and not just go for the US market?

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Avihu Tamir:

I think that we have a built in advantage in becoming a major player in Europe. Having come from a scientific background company that has a research and development center in Israel. Being based on preclinical trials and soon clinical trials as well. And having a medical device. All these things perhaps will be appreciated in the US market, but the US market has already become a very recreational market.

I think that this year, recreational sales are going to exceed medical sales and even the medical sales are very recreational oriented. With the recreational market, there's no real process of receiving a medical license. And so while going to the US or Canada could perhaps be a mid-term strategy or long-term strategy, there's a lot of competition and it doesn't have the unique selling point of being in Europe.

And it's not only that we have a unique selling point. There is a major barrier to entry to any US company or Canadian company for them to pass the regulation that is needed for a medical device. And for extracts and formulations that are EU GMP manufactured with the right preclinical studies, it's probably a two year-long barrier to entry. And that's really the core of Kanabo, we want to be leading medical CBD, medical cannabis or THC, [company] in this region. And by being first, having a barrier to entry and really opening a big gap from other — and they probably will come to this region — North American companies.

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David Kimberley:

Very interesting. So when you were going through the money raising process pre-IPO, looking for investors, that sort of stuff, what was the reception like? I'm guessing the people who funded you are based here in the UK, but was there, as you said at the beginning, a bit of cautiousness, as this is something new and maybe a bit risky to be involved in or was that not the case?

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Avihu Tamir:

So I think we were, I would say lucky or unlucky, to be in quite a long process. Because being the first, you're a bit of a trailblazer. You know, your, your path is not defined yet. We started the [IPO] process in March 2019. We set terms with Spinnaker Opportunity, the cash shell, in March 2019 and we had a long process. And when I started, before even signing the agreement with the shell, we had a type of mini roadshow with UK bankers, some very big ones as well. And let's say that at the end of 2018, the beginning of 2019, the financial environment wasn't so supportive of listing a cannabis company. For them, it was like I landed from outer space, not from Tel Aviv. And they were like, "you know, you're crazy. [London] is not the place where cannabis companies are gonna excel and succeed."

I can tell you that at a road show we did in January of this year, it was a totally different story. We had a very, very high over subscription and most of the complaints we got were that we're not raising enough money. We should take more money because there's a lot of interest and more investors that were complaining that they were scaled back. And that's good. That means first of all, there was a shift of minds from the financial industry in the UK and that's key. I think it's beyond that as well. I think what we're seeing now, and that's something that we don't see yet, but we're going to see very soon in the national media too, is a shift of minds in the regulators and decision-makers as well. 

I think that they are starting to understand how big an opportunity this is, specifically for the UK. Now being post-Brexit, the UK can move faster, not being tied to this big bureaucratic, on the regulation side, [organisation], like the European Union, and being maybe the first to lead this market. That's what we saw in Canada. Canada basically has had their golden age suddenly because of cannabis. And so there's a huge opportunity.

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David Kimberley:

I think it's interesting that you mentioned [regulation] because at the moment it seems like the sorts of products that you guys are selling, CBD, vape pens and so on. If I go to the corner shop now, or to a health food store where you can buy supplements and stuff like that, it's very easy to buy CBD, right? It seems almost totally unregulated and it's just sold as a kind of food supplement. Is that something you see changing and, if it does change, do you think that would be to your benefit or work against you? What would happen?

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Avihu Tamir:

So I do believe that CBD should be accessible to everyone and it should stay accessible to everyone. At the same time, it should be regulated from the point of view that it should not mislead customers by putting products there that sometimes do not have any CBD at all or not the right percentage. And from a safety point to have products that don't have some some levels of THC in them — safety measures as any other food ingredient. And so I think that regulation that is coming now, it's definitely beneficial for the whole industry. For Kanabo as a medical company, a medical cannabis company, it's obvious that having a higher barrier compared to what you have today, is good for a company that is already operating at a medical standard. And so I'm welcoming both for the industry and for the shareholders of Kanabo.

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David Kimberley:

Okay. That sounds good but do you have any idea what that regulation would look like? I mean, you said you wouldn't want people to be restricted from accessing those sorts of products, but do you think [CBD] would end up where it would be the kind of thing you need a prescription for, or do you think it will stay as an over-the-counter product?

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Avihu Tamir:

For CBD in the UK, it seems like the path is going to be novel food. So that means safety. That means stability. It's just more of a robust regulation on the production and development of these products, but not limiting who can buy them. 

So that's where I see this heading and that's already happening. Medical cannabis, on the other hand, I believe that the process should be in the other direction. Medical cannabis should be more accessible. I believe that it should be beyond just private clinics. 

Private clinics are doing a good job, but making cannabis accessible in a country like the UK, similar to Israel, it's not the US — there is a health system that is a national health system. And cannabis, [which at private clinics] is replacing many of the drugs that are now being prescribed by the NHS, should be under the same system. There's no reason why cannabis, that might perhaps replace an opiate, [should be] something that physicians can't prescribe.

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David Kimberley:

Can you talk about that a little bit? There's some knowledge in the public domain about how medical cannabis is regulated at the moment. My understanding is there has been a trickle of legalization, but it's not really been passed on to customers or consumers, whatever you want to call them. And even though it does seem to be legal here in the UK, there's only a very small number of patients who've actually been able to access it. So, I mean, first of all, can you talk a little bit about what the regulatory environment is like now for prescription medication here and also what changes you see happening, either positive or negative?

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Avihu Tamir:

Yeah, so right now the regulation is that medical cannabis is falling under a category that's called unlicensed medicine. That means that you can import the product based on a prescription. And that makes it a bit more challenging. Logistics wise, there's some creative things that the [private] clinics are doing, but at the end of the day, it doesn't make a lot of sense.

It does give a path to market, but not a very easy logistic path. So let's say a clinic or a pharmacy that has a bunch of prescriptions then they're doing a bulk import and prescribing these medicines. From the patient's perspective, he needs to go to a private clinic for an interview and get a private prescription for cannabis.

I think the benefit of what's happening in the UK is that it's not the first time that a country is moving to a more organized medical cannabis program, we saw this in Germany, in Canada, and in Israel. So there are models out there that we can look at. And one of the things that is happening is that in most of these countries, there's a cannabis unit, like a ‘cannabis czar’ that is leading this because they understand that cannabis is not one medicine, it's basically a whole cabinet of medicines. And then setting some methods and rules and to be able to prescribe it as a type of herbal medicine.

I hope that cannabis will be able to be prescribed by GPs. That's what's happening in Germany. You go to your doctor that knows you, that has your background and can understand your medical file and it's quite accessible. And that's where I see that the market can really evolve. And in that market, the potential is taking 2% sometimes 4% of population that can enjoy, I would say, relief with cannabis, which gives you a bit of perspective on the size of the medical market, just in the UK.

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David Kimberley:

So thus far we've really focused on the UK. You touched a bit on Germany, where you're obviously going to be working as well. Can you talk a little bit about that? Is there any difference in what you have planned for the UK versus what you have planned for Germany?

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Avihu Tamir:

Germany is a more established market and the biggest market in Europe. And now even surpassed Israel, even though Israel's program started before. Their market is based really on GPs prescribing. So you have more availability to get the prescription. 

The market is right now, like many of the other markets, is heavily leaning to flowers. So you would see 70% of the market are cannabis flowers and 30% are these tinctures and oils. And Kanabo will really be the first time or the first player that will have this capability to transition smokers or patients that are smoking their medicine, to a non-smoking method. You basically see in the US, in North America, that the segment of vaporization of extract, and these pods, is the fastest growing segment in one of the fastest growing industries. And that's because it's the only real alternative for patients that are smoking today.

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David Kimberley:

Something you touched on at the beginning of the interview, when you were talking about the US market, is the blurring of the lines over there between medical and recreational cannabis. Assuming that one day there is legalization for recreational use here in the UK or in Germany or wherever else you're active, is it possible for you to then branch out into that market or do you see yourselves purely focused on the medical side of things? I know it's a big hypothetical, but I'm just interested to understand if that's something that is possible down the line.

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Avihu Tamir:

At this point, we are focusing on the medicinal side. We're focusing on the medicinal side, not only because that's what's available in the market, but because we believe this is more defendable, it has a higher barrier to entry. You invest a lot of money in regulation, in the clinical trials, in the medical device, in order to have this benefit of being behind the protection of an invisible wall, I would say.

Now, having said that, it's still easier for a medical company to have, let's call it a premium recreational brand, than it is for a US recreational company to try to maybe move into the medical market. So we will have maybe a potential for doing that once the market evolves to that point. But we will never give up on the medical, pharmaceutical line of business. We'll see it more as maybe more of an extension of our CBD wellness line of business. 

That's definitely a possibility. I agree with you that it's probably now not a question of if it will happen, it's more a question of when it's happening and maybe what territories in Europe will see the first recreational markets. And it's exciting. It's exciting because if we would have had this discussion probably three years ago, everyone would think it's insane to talk about the recreational market, even a discussion or debate around that, but here it's something that is happening already.

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David Kimberley:

Yeah, it is crazy. It's remarkable how much has changed even in the past five years, definitely here in the UK, but also I know in Israel as well. To go back to Germany versus the UK, what sort of split in terms of your revenue do you envisage. Where do you see your sales coming from? What split would you say you see between your UK and German business, and I guess down the line, Israel as well?

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Avihu Tamir:

I’d put another split between the medical and the CBD [businesses], because I believe that in the first year and a half, the majority of our sales will be from the CBD business line, and that's obviously a [market with a] lower barrier to entry, a market that is more mature. 

In the CBD line, the UK will be a major player. And right now the UK is the second biggest CBD market. Germany is growing quickly, but the UK is leading. On the medical cannabis side, Israel and Germany will be bigger markets in probably the first two years. I do believe that the medical market in the UK will grow quite fast and will surprise many, many people. In two years from today, the numbers can be similar to the size of the Israeli market today.

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David Kimberley:

How big is that market today?

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Avihu Tamir:

In sales, there is revenue of around €100m to €150m. So it's already a significant market, especially if you're a unique player in the market that is providing the only medical vaporizer.

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David Kimberley:

That makes sense. So to finish off, you've just raised quite a lot of money. What are you planning on doing with it? What are your plans for this year in terms of expansion, growth and all those sorts of things?

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Avihu Tamir:

The first challenge is to grow quickly the wellness side of the business, both in the UK and Germany. Establishing a stronger sales team in the relevant territories and markets. We're coming with the medical device very soon and it's got the medical CE Mark, launching, as we announced in the UK. And later in the year, Germany.

In the medical side, preclinical studies that already passed will move to clinical study. So for the first time, I would say, in the world, there will be a clinical study for this type of technology. That means for the first time, physicians will be able to see a bioavailability in PK graphs and compare it to the smoking or oral consumption of cannabis. And that will be quite interesting for many physicians and the medical establishment around the world. And looking beyond that as well, looking into having our own distribution channels, moving from a company that's doing product development and commercialization today, to a company that controls its own distribution channels.

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David Kimberley:

Great. Well, that is about all we have time for. So thanks very much for joining us Avihu and thanks to everyone who's watched as well. Remember to visit the Invest Hub on free trade.io for more information on Kanabo and to keep up with all our latest articles as well. So thanks again to our guest Avihu and hopefully we'll have more videos like this in the future.

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