Intercure (INCR) Risk Analysis

Damage to our reputation can be the result of the actual or perceived occurrence of any number of events, and could include any negative publicity, whether true or not. Cannabis has often been associated with various other narcotics, violence and criminal activities, the risk of which is that our business might attract negative publicity. There is also risk that the action(s) of other participants, companies and service providers in the cannabis industry may negatively affect the reputation of the industry as a whole and thereby negatively impact our reputation. The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easy for individuals and groups to communicate and share opinions and views in regards to issuers and their activities, whether true or not and the cannabis industry in general, whether true or not. Negative posts or comments about us on any social network could damage our reputation. In addition, employees or others might disclose non-public sensitive information related to our business through external media channels. The continuing evolution of social media will present us with new challenges and risks. We do not ultimately have direct control over how we specifically, or the cannabis industry generally, is perceived by others. Reputation loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations and an impediment to our overall ability to advance our business strategy and realize on our growth prospects.

We face the risk of exposure to product liability claims, regulatory action and litigation if our products are alleged to have caused loss or injury. We may be subject to these types of claims due to allegations that our products caused or contributed to injury or illness, failed to include adequate instructions for use or failed to include adequate warnings concerning possible side effects or interactions with other substances. This risk is exacerbated by the fact that cannabis use may increase the risk of developing schizophrenia and other psychoses, symptoms for individuals with bipolar disorder, and other side effects. Previously unknown adverse reactions resulting from human consumption of cannabis-based products alone or in combination with other medications or substances could also occur. In addition, the manufacture and sale of cannabis-based products, like the manufacture and sale of any product, involves a risk of injury to patients due to tampering by unauthorized third parties or product contamination. We may in the future have to recall certain of our pharmaceutical-grade cannabis or cannabis-based products as a result of potential contamination or quality assurance concerns. A product liability claim or regulatory action against us could result in increased costs and could adversely affect our reputation and goodwill with our patients and consumers generally. There can be no assurance that we will be able to maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. Our inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could result in us becoming subject to significant liabilities that are uninsured and could also adversely affect our commercial arrangements with third parties.

We are currently providing our products for use in one active clinical study, and in the future we plan to participate in preclinical studies and clinical trials. However, we are not the sponsor of this active study and our role in this study is limited to providing the pharmaceutical-grade product and supplying information derived from our database. Any intellectual property generated during this study will not belong to us and, other than receiving access to the results of such study, we do not have any proprietary rights in such study. We may not be a sponsor of future studies or trials, and, as such, may not have full control over the design, conduct and terms of such studies or trials. Further, we may only act as the provider of pharmaceutical-grade cannabis for studies and trials that are designed and initiated by independent investigators within hospitals or other healthcare institutions. In such cases, we may not be able to acquire rights to all or any of the intellectual property generated by the studies or trials. For example, ownership of intellectual property that does not relate directly to the pharmaceutical-grade cannabis provided by us is often retained by the institution. As such, we are vulnerable to any dispute among the investigator, the institution and us with respect to classification and therefore ownership of any particular piece of intellectual property generated during the study or trial. Such a dispute may affect our ability to make full use of intellectual property generated by a preclinical study or clinical trial. Where intellectual property generated by a study or trial is owned by the institution, we may be granted a right of first negotiation to obtain an exclusive license to such intellectual property. If we exercise such a right, there is a risk that the parties will fail to come to an agreement on the license, in which case such intellectual property may be licensed to other parties or commercialized by the institution.

Intellectual property generated, or that will be generated, under research and development activities conducted under certain of our joint venture arrangements may be owned by the joint venture entity and not by us. We may not be able to acquire exclusive rights to all such intellectual property, and we may be subject to disputes with our joint venture partners with respect to the ownership, use and exploitation of such intellectual property rights. Such disputes may lead to a breakdown of our relationship with our joint venture partner and termination of the joint venture.

Because of the nature of, the limited legal channels of distribution for, and the volume of inventory of our products in our facilities, we are subject to the risk of theft of our product as well as other security breaches. In this regard, in December 2020, there was a theft attempt in our Southern Facility. The security systems at the facility worked well and prevented the incident, in addition, nearby forces of the army and the Israeli police arrived at the scene immediately after the incident began. No damage was caused to the Southern Facility in that incident, and nothing was stolen from it. Since October 7, 2023, Israel has been subject to several attacks, heightened hostilities and periodic escalations, including in the Gaza Strip and along Israel's northern border. In October 2023, Hamas terrorists infiltrated Israel's southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets including our Southern Facility, located in Nir Oz that suffered devastating damage. Following these events, the area in and around the Southern Facility was designated by the Israeli authorities as a closed military area and has been used by the IDF, including, among others, the IDF Medical Corps. As of the date of this Annual Report, the Company remains in the process of restoring the Southern Facility, as part of its war recovery plan. The Company is continuing to engage with the Israeli authorities to obtain full compensation for the damages arising from the hostilities while concurrently pursuing the rehabilitation of the site, a process that remains ongoing and essential for its recovery. However, there is no certainty that we will be able to restore our Southern Facility and to obtain any compensation from the Israeli authorities. For additional information, see "Item 3.D - Risk Factors - Risks Related to Our Incorporation and Operations in Israel - Conditions in the Middle East and in Israel may harm our operations". A security breach at one of our facilities could result in a significant loss of available product, expose us to additional liability under applicable regulations and to potentially costly litigation or increase our expenses relating to the resolution and future prevention of similar thefts, any of which could have an adverse effect on our business, financial condition and results of operations.

Our success is largely dependent on the performance of our management team and certain key employees and our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. The loss of the services of any of our key personnel, including Alexander Rabinovich, our Chief Executive Officer and Chairman, or an inability to attract other suitably qualified persons when needed, could prevent us from executing on our business plan and strategy, and we may be unable to find adequate replacements on a timely basis, or at all. We do not currently maintain key-person insurance on the lives of any of our key personnel.

Our business is dependent on a number of key inputs and their related costs, including raw materials, supplies and equipment related to our operations, as well as electricity, water and other utilities. Any significant interruption, price increase or negative change in the availability or economics of the supply chain for key inputs and, in particular, rising or volatile energy costs could curtail or preclude our ability to continue production. In addition, our operations would be significantly affected by any such prolonged interruption. Our ability to compete and produce pharmaceutical-grade cannabis is dependent on us having access, at a reasonable cost and in a timely manner, to skilled labor, equipment, parts and components. No assurances can be given that we will be successful in maintaining our required supply of labor, equipment, parts and components.

A large part of our cultivation facilities, pharmacies, research and development facilities, offices and treated patients are located in Israel. All of our officers and directors are residents of Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries, and between Israel and the Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon). In particular, in October 2023, Hamas terrorists infiltrated Israel's southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on the Israeli population and industrial centers located along Israel's border with the Gaza Strip and in other areas within the State of Israel. These attacks resulted in thousands of deaths and injuries, and Hamas additionally kidnapped many Israeli civilians and soldiers. In particular, our Southern Facility, one of Israel's largest and most advanced medical cannabis cultivation sites, located adjacent to Nir Oz, sustained severe damage during the terrorist attack of October 7, 2023. Approximately 500 Hamas terrorists infiltrated Nir Oz and its surroundings, executing a sustained campaign of murder, destruction, and looting over a period of several hours, without immediate intervention by Israeli military forces. Members of the kibbutz's emergency response team fought bravely against overwhelming odds until exhausting their ammunition, and many were murdered or taken hostage. The attack resulted in the killing of 47 kibbutz residents and 76 hostages - more than a quarter of the kibbutz's population - including several partners and employees who were integral to the construction and operation of our Southern Facility. Among them were Aviv Atsili, a metalwork expert and key contributor to the facility's construction, who fought as a member of the emergency response team and whose body remains were held in Gaza, and our employees Ilana Grichevsky and Matan Tsangawker, who were taken hostage. The attack specifically targeted critical infrastructures, including the kibbutz's dining hall, agricultural enterprises, industrial facilities, and our Southern Facility. The Southern Facility was subjected to extensive destruction, resulting in the near-total devastation of its cultivation areas, greenhouses, irrigation systems, electrical infrastructure, security systems and water supply. The facility was rendered completely inoperative and uninhabitable. Following the arrival of the IDF and before full clearance of terrorist threats, a rescue operation was conducted to extract survivors, including two of our employees who hid in a secure room for many hours. Subsequently, under special authorization from IMCA, a highly complex and dangerous mission was conducted to salvage what remained of our proprietary genetic bank, a unique and irreplaceable asset developed over years of research and cultivation, under hostile conditions and continuing security threats, with the support of elite IDF units. As a result of the events of October 7, 2023, on October 8, 2023, the Security Cabinet of the State of Israel declared war on Hamas and a military campaign ensued, then Hamas and other armed groups have continued to conduct attacks, including rocket, missile and drone attacks and other hostile activity, from multiple fronts. As a result, the Israeli government declared that the country was at a state of war and the Israeli military began to call-up reservists for active duty. In the period that followed, the Southern Facility was requisitioned by the IDF and temporarily converted into a military base supporting operations in southern Gaza. In March 2024, following the IDF's withdrawal from the area, we commenced an extensive and challenging process of restoration and restructuring. Since the beginning of the war, during October 2023, we have been impacted by absence of personnel in Israel. However, as of the date of this Annual Report, except for the personnel employed at our Southern Facility in Nir Oz, all of our personnel and the personnel at our service providers or counterparties located in Israel have returned to full capacity, and we are not currently impacted by any absences of personnel for active reserve duty service or other wise. Military service call-ups that result in absences of personnel from us for an extended period of time may materially and adversely affect our business, prospects, financial condition and results of operations. Since October 7, 2023, the Southern Facility in Nir Oz was initially designated by the Israeli authorities as a closed military area. As of the date of this Annual Report, the Southern Facility is no longer a closed military area, and the Company continues its process of its restoration as part of its war recovery plan. The rehabilitation efforts are progressing according to the Company's plans and remain an essential part of its recovery. According to Israeli law, due to the location of the Company's Southern Facility, the Company is entitled to receive from Israeli authorities' full compensation for all the direct and indirect damages caused to the Southern Facility by the terrorist attack and the war in Gaza. Our management and advisers are working diligently with the Israeli authorities to obtain this full compensation. To date, the Company has already received tens of millions of shekels as advance payments from the Israeli authorities in relation to such compensation. Further, in February 2025, we announced the completion of our recent financing, securing NIS 66 million (approximately $18.2 million) to support the recovery of the Southern Facility. The financing also included the issuance of warrants which may further increase the proceeds up to a total of approximately NIS 107 million (approximately $29.8 million) if fully exercised, to support the post-war expansion of the facility, expected to take place in collaboration with the "Tkumah" administration. The completion of the financing included the receipt of funds under a loan agreement from a leading Israeli bank. However, there can be no assurance that the conflict will not continue, widen, or re-escalate, or that additional security restrictions, logistical disruptions, damage to facilities, interruptions to utilities or transportation, or further mobilizations will not occur. Any such developments could delay our restoration and expansion plans, increase costs, disrupt supply chains and distribution, adversely affect demand, and materially and adversely affect our business, financial condition and results of operations. As of the date of this Annual Report, a ceasefire arrangement with Hamas has been reached in the southern front, and the overall level of hostilities has decreased. However, the broader regional instability are difficult to predict, as are its economic implications on the Company's business and operations and on Israel's economy in general. Since the October 2023 attacks and the ensuing hostilities, the conflict involved active military operations and heightened security conditions, including tensions and periodic exchanges of fire along Israel's northern border with Lebanon (including Hezbollah), continued volatility involving Iranian-backed groups in the region, and disruptions to regional trade and transportation routes, including in the Red Sea. If the conflict resumes, persists for a prolonged period or escalates further, our operations may be adversely affected. Since the commencement of these events, there have also been hostilities along Israel's northern border with Lebanon (with the Hezbollah) and on other fronts from various extremist groups in the region, such as the Houthis in Yemen and various rebel militia groups in Syria and Iraq and Palestinian groups in the West Bank. The conflict has involved attacks and attempted attacks involving rockets, missiles, drones and other weapons, and intermittent disruptions to civilian and commercial activity. In addition, Iran has launched direct attacks on Israel involving drones and missiles, has threatened to continue to attack Israel and is the subject of international concern regarding its nuclear program. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and the Houthi movement in Yemen and various rebel militia groups in Iraq. On June 13, 2025, Israel launched a strike against Iran, aimed to disrupt Iran's capacity to coordinate or launch hostilities against Israel. Iran has retaliated in response, firing missiles and drones at Israeli military and civilian infrastructure. As of the date of this Annual Report, a ceasefire agreement has been reached also with Lebanon (with respect Hezbollah), and with Iran; however, there is no assurance that such agreements will be upheld and military activity and hostilities may continue to exist at varying levels of intensity. The continuation of the conflict has led to heightened security concerns, potential disruptions to business operations, supply chains and logistics, and economic instability. Further military actions, restrictions, or government-imposed measures could adversely affect our operations, supply chains, and financial condition. At this time, although hostilities have decreased, it remains difficult to predict whether and to what extent hostilities may resume or escalate, or to predict how this conflict will ultimately affect Israel's economy in general, including the potential for further credit rating actions, changes in foreign investment, currency volatility, inflationary pressures, or reduced economic activity. Credit rating agencies have previously taken actions with respect to Israel's credit rating and outlook, and additional actions or continued negative outlooks could further increase borrowing costs and contribute to market volatility. We continue to monitor the situation closely and examine the potential disruptions that could adversely affect our operations. These situations remain volatile and could escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements, when necessary, in order to meet our business partners face to face. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. In recent years, the hostilities involved missile strikes against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel. Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. However, under Israeli Law, the Company is entitled to full compensation from the Israeli governmental authorities for all direct and indirect damages suffered to the Company's southern site. To date, we already received tens of millions of shekels as partial advanced payments from the Israeli authorities. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations. Finally, political conditions within Israel may affect our operations. We have operations and personnel in Israel, and a portion of our business activities, including certain key functions, are conducted there. In recent years, Israel has experienced periods of political uncertainty, including multiple election cycles, as well as significant public debate and protests relating to proposed changes to Israel's judicial system, some of which have been delayed or placed on hold. Actual or perceived political instability, changes in governmental policy or priorities, legislative or regulatory changes, civil unrest, or other adverse political developments could negatively affect the Israeli economy, investor and consumer confidence, and the general business environment and could disrupt our ability to operate effectively in Israel, including through delays in decision-making, increased costs, or reduced productivity. Any of these developments, individually or in the aggregate, could adversely affect our business, financial condition, results of operations and growth prospects.

We currently breed, cultivate and process pharmaceutical-grade cannabis for medical use at our facilities in southern and northern Israel. Our business is subject to the risks inherent to the agricultural business, including the risks of crop failure presented by weather, insects, plant diseases and similar agricultural factors. There can be no assurance that natural elements, such as insects and plant diseases, will not interrupt our production activities or have an adverse effect on our business. If such disruption of operations at our facilities should occur, it could significantly interfere with our ability to continue our development and production activities. Additionally, generally, our dried inflorescences final products have a shelf life of 12 months, and our pharmaceutical-grade cannabis oil products have a shelf life of approximately one to two years. Supply chain disruptions or limited sales may lead to product spoilage or could impair our ability to meet future demand, which may cause harm to the reputation of our brand and our business.

As foreign exchange rates fluctuate, our financial results may be impacted as a material amount of our revenue is generated in NIS. However, since the Company engages in both purchases and sales in foreign currencies, we are unable to predict the net impact of exchange rate fluctuations on our financial statements.