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InterCure Continues Record Run But Faces Looming Supply Issues In Home Market

INTERCURE has continued its run of record results, seeing both revenues and profits skyrocket year-on-year during the second quarter of 2022, marking its tenth consecutive quarter of profitable growth. 

While the Israeli cannabis giant has seen its best half-year ever so far in 2022, its success comes amid a backdrop of growing pressures in its home market. 

Not only has patient growth been almost non-existent for the first half of the year, but also ongoing regulatory constrictions continue to make importing cannabis into the country incredibly difficult, with supply shortages expected in the near future and companies such as Tilray turning away from the market. 

After scaling up its cultivation operations in Israel and opening its first flagship Cookies store in Vienna, Austria, during the quarter, the company remains confident in its ability to weather the oncoming headwinds. 

Q2 Results 

On August 15, InterCure released its financial results for its most recent quarter, beating analysts’ expectations on earnings but falling C$2m shy of revenue expectations, seeing its stock price dip over 4% on the Tel Aviv Stock Exchange in the following days. 

In the three months to June 30, 2022, Intercure posted revenues of C$37.5, up just under 10% on its previous quarter, but more than 110% on the C$17.8m it made in the same period in 2021. 

While this marked the tenth consecutive quarter of positive growth and eighth consecutive quarter of cash flow positivity, it just missed average analyst estimates of C$39m. 

During an investor conference call on Tuesday, InterCure’s CEO, Alexander Rabinovich, said that revenues were ‘roughly’ split evenly between own-brand retail sales and wholesale sales, though he noted these figures could change as the company ramps up production. 

Meanwhile, gross profits came in at C$16.3m, representing a margin of 44%, up on the 41% from the previous quarter and just above the 43% seen in Q2 2021. 

Adjusted EBITDA followed a similar trend, coming in at C$8.7m for the period, representing 23% of revenues, its lowest EBITDA profit margin (other than another 23% in Q3 2021) since Q3 2020.

Net income for the period rose 160% year-on-year to C$6m, representing an EPS gain of C$0.34, above both the C$0.12 gain made in the previous quarter and average analyst expectations. 

During the period, InterCure launched a new flagship Cookies pharmacy in Southern Israel’s largest city Be’er Sheva, which Mr Rabinovich believes is the ‘largest dedicated medical cannabis pharmacy in the world’.

Alongside the launch of another new pharmacy in the northern city of Nahariya, InterCure says it now operates 24 retail locations, not including its new international store in Austria, 16 of which are actively dispensing cannabis. 

The company also added 12 new ‘highly demanded’ strains into its cultivation operation, which it also reportedly ‘scaled up’ during the period to ‘solidify’ its position as the largest cultivator inside Israel. 

Thanks to these efforts, Mr Rabinovich says he expects ‘growth to continue’ throughout the coming quarter. 

The Israeli Market

While Mr Rabinovich was cautious of providing any prospective figures to investors regarding InterCure’s share of the Israeli market, the company remains the dominant player in the space by some margin. 

As its international operations remain nascent, having only announced plans to launch outside of Israel in December 2021, issues within its native market stand to potentially have a major impact on its operations. 

For the first six months of 2022, over which time InterCure saw revenues rise 130% year-on-year to C$72m, patient numbers in Israel remained largely flat. 

According to the latest figures, just 4,000 new cannabis licence holders (patients) were added by the end of June, equating to an annual rate of 8,000, 70% less than the 28,000 new patients seen in 2021. 

While this stagnation is showing promising signs of fading, seeing 2,500 new patients added in July, doubt remains over whether the rapid level of market growth can continue. 

Mr Rabinovich, who told investors these latest results ‘are especially impressive when you take into account the slowdown of patient growth’, explained the stagnation was mainly due to the Ministry of Health preventing physicians, usually responsible for 20,000 prescriptions, from prescribing medical cannabis. 

He believes the levels of ‘growth we’ve been accustomed to in the past three years’ will soon return, adding that ‘the drop in patient numbers doesn’t come from the demand side, but the regulatory side’. 

Looming Shortages

Israel, currently the world’s largest importer of medical cannabis, is also facing major new barriers to importation amid changes to the ‘109 Protocol’

These are already impacting companies’ willingness to attempt exporting to Israel, with InterCure’s partner Tilray stating in a recent earnings call that it ‘made the conscious decision’ not to repeat shipments to Israel ‘due to the severe deterioration of market conditions with medical cannabis sales and pricing declining’.

While InterCure says its relationship with all suppliers, which include Tilray and now also Clever Leaves, remains solid, it says the import blockade could soon lead to shortages. 

Mr Rabinovich told investors: “There is no official data regarding total inventory in Israel. I would say there is no shortage of inventory on the low and medium quality. But if the new regulation continues to keep importation out, we will be missing high quality products shortly in Israel.”

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