Israel's Marijuana Bubble Bursts: Tel Aviv Stock Exchange Eliminates TA-Cannabis Index, Ending Three-Year High

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It was just three years ago that a broad swath of Israeli society, including former prime ministers, defense bigwigs and celebrities seemed to be enamored by the country’s up-and-coming cannabis industry. 

Former Prime Minister Ehud Barak was appointed CEO of InterCure (NASDAQ:INCR), which then began trading on the NASDAQ. Ehud Olmert, also a former PM who served time for massive financial corruption, invested in Univo pharmaceuticals, a medical marijuana company…and so went numerous other Israeli pols and entrepreneurs who jumped onto the green rush train. 
Even more investors joined in when several companies listed on the Tel Aviv Stock Exchange (TASE) or went public through the backdoor process of merging with publicly traded shell companies. In December 2020, the TASE launched a TA-Cannabis index, “whose utility was doubtful from day one,” according to Israeli daily Haaretz, although others jumped for joy.
But, Alas The Cannabis Bubble Has Fizzled 

The index dropped 70 percent and the TASE announced that the TA-Cannabis index will be eliminated as of August 4.
Yaniv Pagot, head of trading indexes and derivatives at the TASE, denied that the exchange got swept up in the irrational exuberance produced by cannabis investments even as the industry was touted as the next big boom for the country. “We didn’t get swept up in it, and we serviced the market with a product that reflected correctly the state of the cannabis industry.”
Throughout the index’s 18-month lifespan, the combined market value of its component companies was too small for any fund to track it. It began with nine companies with a combined value of 1.7 billion shekels ($490 million), but a large part of that was due to one company, InterCure, which recently released positive preliminary financial results for the second quarter of 2022.  

Why Now?

“Until now, the decision had been to try and preserve the index for a bit longer, under the assumption that the cost of doing so was not too dramatic because there are no products tracking it,” Pagot said, meaning mutual funds or exchange-traded funds.
“Once you have an index that includes one stock worth 70 percent of the total, like InterCure on the TA-Cannabis, it becomes irrelevant – the index can’t serve as a benchmark. This doesn’t happen anywhere, not on the moon or anywhere else,” Pagot said per Haaretz.

What Message Does Delisting The Cannabis Index Send To Investors?

“That today, unfortunately, the industry is not diverse enough and lacks companies with an appropriate volume of economic activity— one that respects the investors and the value of the index,” Pagot said.

Photo courtesy TASE