Israel’s InterCure paving path to big gains

Cannabis analyst Pablo Zuanic sees big upside potential for InterCure Ltd. (NASDAQ: INCR) (TASE: INCR), an Israeli pharmaceutical cannabis company looking to expand its influence in the Middle East and abroad.

In an initiation report published Thursday, Zuanic, director of research firm Zuanic & Associates, initiated coverage of InterCure’s Nasdaq-listed stock with an “overweight” rating. While Zuanic didn’t set a formal price target, he said the shares could rise fivefold under bullish scenarios driven by regulatory changes  in Israel that could boost demand and the company’s potential expansion into Europe.

“In terms of pharmaceutical cannabis sales generated outside North America, InterCure is the largest company in the world,” he wrote.

InterCure was up nearly 2% on Thursday at $3.15 as of press time.

The Gush Etzion-based company was at an annual sales run rate of $110 million before attacks on Oct. 7, 2023, disrupted production at a key southern facility, Zuanic wrote. According Green Market Report earlier this month, InterCure reported losses of around $16.9 million last year due to the disruptions, a sharp swing from a $11.6 million profit in 2022.

However, InterCure is being reimbursed by Israel’s government for the use of its facility, receiving “tens of millions” of shekels in partial advance payments.

Prior to Oct. 7, InterCure appeared on solid footing with 15 straight quarters of profitability and revenue growth through the first half of 2023, GMR reported. The CEO expressed confidence InterCure can get back to business in 2024, projecting double-digit sequential quarterly revenue growth.

InterCure generates 98% of sales from its home market in Israel, where policy changes could dramatically increase the 1.4% of the population currently using prescription cannabis products, according to Zuanic’s 54-page report.

“If we use (Florida and Pennsylvania) penetration metrics, this could be a $1.2 billion market (3.5x),” he wrote.

Zuanic declined to make projections about the potential for adult-use cannabis in Israel, “given the changing political dynamics,” but he said it remains a possibility.

“Given the prevalent use of cannabis (illicit trade, mostly from local production), we believe $400-500 annual per capita spend is a realistic number, which could put Israel at a $5 billion market size someday,” he said.

New Israeli regulations taking effect through 2025 will make it easier for more doctors to prescribe cannabis, add qualifying medical conditions, reduce costs for patients, and potentially allow insurance reimbursement, Zuanic said. He estimates the domestic market could at least double to $700 million in annual sales.

InterCure is also positioned to enter Germany, where cannabis was recently reclassified to allow broader use, “in coming months,” GMR previously reported. Zuanic said the German medical marijuana business could grow tenfold to $1.5 billion in three years under some scenarios.

“Down the road, (InterCure) could also enter the US market if FDA-approved and controlled pharmaceutical cannabis is federally legalized someday,” Zuanic wrote. “Importantly, in a global industry context, InterCure has strategic value.”

While InterCure shares have tripled after the October attacks, the stock still trades at a discounted 1.7 times trailing sales compared with around 2 times for large Canadian licensed producers, the report said. His calculations suggest the company could be worth $6 to $9 per share by the end of 2025, but $10 to $16 isn’t out of the question.