The company grows outdoors in Colombia, has strong, scalable margins, and a host of premium products
Flora Growth Corp. (NASDAQ:FLGC) is aiming to build a global cannabis juggernaut using its low-cost growing strategy at a time when this budding industry is becoming increasingly ‘mainstream’.
The company grows outdoors in Colombia, has strong, scalable margins, a host of premium products, and has already thrown down markers signaling its intent to be running well ahead of the pack.
The first was its recent initial public offering (IPO) on the Nasdaq, the world’s second-largest exchange by market cap, and the natural home for new industries and technologies, where it raised US$16.6 million.
Flora is the first cannabis company to list on this American exchange through a traditional IPO – ie. not via a reverse takeover, or similar. The decision to choose the Nasdaq came after the company raised US$30 million from a pre-IPO equity round last year.
From that, the company added over 10,000 new investors and noticed that 85% of them hailed from the US, indicating the appetite for the Flora story there.
“This was important to us because we wanted to signal, to not only the investor community, but the cannabis industry, that Nasdaq and investors should start to feel very comfortable about investing in this industry that is quickly going mainstream,” Flora Growth CEO Luis Merchan explained to Proactive.
The company CEO, a merchandising and branding expert, who previously was president of workforce strategy and operations at prominent retailer Macy’s Inc, also pointed to the massive potential of the US cannabis market.
Within a global cannabis market estimated to be worth US$250 billion (including the black market), the US accounts for around US$170bn of this, and the legal portion of that grew at around 46% last year alone, he noted.
This was because cannabis use increased, but also because people who already bought cannabis products, purchased more of it.
Against this backdrop, Merchan and others are convinced that the wider Federal decriminalization of cannabis in the US (rather than the current state patchwork frame) is only a matter of time, especially now that the Democrats are in power, and see the clear benefits of tax revenue going to the government.
“Clearly, it’s in everyone’s best interests to find a way to legalize cannabis, to find a way to ease regulations, and of course, to ensure quality standards are met. This will be beneficial to my company and the whole industry,” said Merchan.
Flora Growth, a new player on the cannabis block, is differentiated from others in the sector, because it grows an organic product at one of the largest outdoor farms in the world (100 hectares) in Bucaramanga, Colombia, at a cost of US$0.06 per gram of dried flower, compared to around US$1.86/gram for growers in North America.
“The problem with North American cultivation is that you require a lot of infrastructure. It’s very expensive,” explained Merchan.
“The majority of it has to be done indoors and the cost of cultivation is very high. Our idea was to learn from the mistakes of the early adopters and create a company that would grow in the best geography and the best conditions on earth. For that reason, we selected Colombia.”
Readers may not know, but Colombia is the number one producer of flowers in the world, and the second-biggest exporter after the Netherlands. Around 70% of all cut flowers coming into the USA hail from the South American country.
Labour costs are also more than eight times cheaper than in the US, while water costs at the company’s farm are almost zero due to natural springs, and electricity costs for Flora are around just US$300 a month.
The high nutrient soil in Colombia also means up to 12,000 plants per hectare can be sown, rather than around 7,000, and yields are up to 185 grams per plant, compared to around 120/125 grams in North America, said Merchan.
The farm is licensed to grow and process non-psychoactive (high-CBD) and psychoactive (high-THC) cannabis and the company is currently around nine weeks into its high-CBD crop, while aiming to start its high-THC grow in the first half of June.
As well as cultivating, Flora has also already developed more than 300 products across seven brands, with several in the pipeline set to emerge in the coming months. These range from topicals and creams for skincare, food and beverage items, a textile and clothing line using hemp, and also sexual wellness products.
Depending on the varying barriers to entry, different products are sold in varying global locations.
Its Mind Naturals skincare range, for example, is already being sold in 45 of the 50 US states, along with Mexico, UK, Costa Rica and South America. Across the group’s entire range, Merchan said its products are distributed in eight countries in the Americas, mostly in Colombia.
Significantly, its newly established GMP certified Flora Labs division is underpinned by a modern 16,000 square foot (sq ft) facility and is comprised of the recently acquired Quipropharma Lab and two medical-focused companies. From here, 190 products are sold across 1,500 distribution channels. The premises can manufacture branded and white label products as well as cannabinoid containing products.
Merchan said this new facility will allow Flora to increase revenues “in the near term” and mean “significant cost efficiencies through synergies and economies of scale” for the group.
A huge market
Notably, Flora Growth has also recently expanded into the UK, completing an initial shipment of its Mind Naturals (skin), Almost Virgin (sexual wellness), and Mambe (foodstuffs) brands.
This was significant because it was the first shipment of CBD-containing products into Europe – clearly a huge market that the company is keen to tap into next.
It is also worth mentioning that, as well as a very strong management team, which combined have raised over $3 billion in public financings, Flora Growth has some note-worthy development partners, which add weight, and not a little glamour, to the story.
Its CBD beauty and cosmetics business was founded by former Miss Universe (2014) Paulina Vega, who is very well known in Latin America and has over 5 million Instagram followers.
Mambe, the company’s food and beverage line, which is expected to grow having over 1,200 distribution points this year, has actress Laura Londono as its brand ambassador, who also has a huge online following.
Another huge potential growth driver for the company is the fact the Colombian government is passing a bill, which would allow it to both sell and export dried cannabis flower globally (i.e. before it is processed) and also to manufacture and export cannabinoid infused food and beverage products.
“This is a game-changer, because the single biggest source of revenue for cannabis companies today is dried flower. This change, alongside the quality associated with planting and growing flowers in Colombia, is going to be a market disruptor,” said Merchan.
Although Flora Growth is at the early stages of its production capacity, its current crop being grown will be one of the largest outdoor CBD-rich crops at such scale in the world, and will create a multitude of derivatives for its many products sold internationally.
Add to that, the potential for selling its dried flower directly, as rule changes in Colombia allow, and regulation changes on the psychoactive product front, and this emerging cannabis company could take a big leap forward in relatively short order.
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