Intercure(INCR) - 2023 Q4 - Annual Report

Regulatory Compliance and Approvals - The company holds licenses for breeding and cultivating pharmaceutical-grade cannabis in Israel, with compliance to IMC-GAP and IMC-GSP standards[43] - Regulatory approvals are critical for the company's ability to produce, import, and distribute pharmaceutical-grade cannabis products, with ongoing compliance requirements[43] - The company has received IMCA feasibility approval to initiate nine clinical trials, with one phase 3 clinical trial commenced[54] - The company competes in a highly regulated medical-use cannabis industry, which may impact its market share and operational capabilities[38] - The company has strategic partnerships with leading brands, which depend on obtaining necessary import/export permits for cannabis products[49] - The company is subject to various laws and regulations regarding money laundering, which could disrupt operations and incur significant costs if violated[83] - The company’s licenses for cannabis-related activities may be suspended or revoked if any person acquires control of 5% or more of its outstanding shares without prior approval from the IMCA[205][206] - The company has implemented measures to ensure that no person can acquire more than 4.99% of its outstanding Ordinary Shares without prior approval from the IMCA, to mitigate risks related to its IMCA Licenses[207] Operational Challenges - The company is currently facing operational challenges due to the State of War in Israel, limiting access to the Southern Facility[53] - Since October 7, 2023, the company has limited access to its Southern Facility due to the ongoing State of War in Israel, impacting operations[113] - The Southern Facility has been designated as a closed military area, with limited access and parts of the site being used by the IDF[181] - The company has been impacted by personnel absences due to the ongoing conflict in Israel, particularly affecting the Southern Facility in Nir Oz[180] - The company may face disruptions in operations due to military service obligations of Israeli citizens, potentially affecting key employees and suppliers[188][189] - Hostilities in the region, including missile strikes against civilian targets, have negatively affected business conditions in Israel[185] - The intensity and duration of the current war against Hamas are unpredictable, which may adversely affect the company's operations and financial condition[182] Financial Performance and Risks - The company reported negative cash flow from operating activities for the year ended December 31, 2023, primarily due to the impacts of the War in Gaza, contrasting with positive cash flow in 2022 and 2021[91] - The resurgence of COVID-19 may materially affect the company's economic performance, leading to significant disruptions in global financial markets and impacting liquidity[59] - Future developments regarding COVID-19 are highly uncertain and could adversely impact the company's operations, financial performance, and ability to raise capital[60] - Economic conditions, including inflation and interest rate increases, may negatively affect sales cycles, technology adoption, and market share[62] - Increased inflation raises costs for commodities, labor, and materials, potentially impacting the company's financial condition[63] - Recent bank closures have created liquidity risks that may impair the company's ability to access working capital and could lead to market uncertainty[64] - Future revenues are difficult to forecast due to the underdeveloped medical-use cannabis market, which may lead to unanticipated reductions in revenue[90] - The company may incur increased costs due to operating as a public company in the U.S.[38] - Additional financing will be required for continued business development, and there is no assurance that such financing will be available on favorable terms[128] Market and Competitive Landscape - The company faces competition from established firms with greater resources and experience in the medical-use cannabis industry[72] - The medical-use cannabis market may not develop as anticipated, affecting the company's ability to attract and retain patients[69] - The company is exposed to currency fluctuation risks as a portion of operational expenses is incurred in currencies other than NIS[200] - The market price of the company's shares may be volatile, influenced by factors such as trading volume of comparable companies and market analyst expectations[152] - The company may face challenges in executing strategic alliances or acquisitions, which could divert management focus and incur additional costs[141] Production Capacity and Future Plans - The company aims to produce approximately 88 tons of pharmaceutical-grade cannabis annually once its Southern Facility is fully operational and all regulatory approvals are obtained[231] - The Southern Facility currently operates at a capacity of 7 tons of cannabis annually, utilizing 300,000 square feet of its 1.7 million square feet gross area[228] - The company is currently in the initial stages of plans to expand its production capacity at the Southern Facility[231] - The company does not plan to produce or distribute cannabis in the United States due to federal regulations, despite many U.S. states permitting medical use[225] Governance and Management - The CEO, Alexander Rabinovich, holds 26.6% of the company's voting power, while insiders collectively hold approximately 29% of the outstanding Ordinary Shares, indicating a high concentration of ownership[210] - The company is classified as an emerging growth company and may rely on exemptions from certain disclosure requirements for up to five years or until total annual gross revenue exceeds $1.235 billion[135] - The company is permitted to follow home country corporate governance practices, which may provide less protection to investors compared to U.S. domestic issuers[138] - Changing laws and regulations regarding corporate governance may increase compliance costs and divert management's focus from revenue-generating activities[133] - The company may incur higher costs for director and officer liability insurance due to being listed on a U.S. national securities exchange[134] Risks and Liabilities - The company may face significant liabilities from product recalls or liability claims, which could adversely affect its reputation and financial position[102] - The company is exposed to risks from fraudulent or illegal activities by employees and third parties, which could lead to significant financial penalties and reputational damage[108] - There is a risk of security breaches at facilities, which could result in product loss and increased operational costs[111] - The company faces risks inherent to agricultural businesses, including crop failure due to weather and pests, which could significantly disrupt production[87] - The shelf life of dried inflorescences is 12 months, while pharmaceutical-grade cannabis oil products last approximately one to two years, posing risks of spoilage and supply chain disruptions[88] Strategic Expansion - The company plans to expand operations in the European Union, but may face import restrictions that could require establishing local production facilities[81] - The company has experienced revenue growth in recent years, but sustaining this growth will depend on various factors, including capital availability and competition[126] - The ongoing conflict in Ukraine and related sanctions may adversely affect the company's operations and sales, although it does not rely on raw materials or revenue from that region[219]