With the passing of major cannabis legislation in Colombia, we expect increasing interest in companies that are levered to it. From having a larger total addressable market in Colombia to being able to export raw cannabis materials (dried cannabis flower to be specific) to strategic international markets, we believe the Colombian cannabis industry is reaching an inflection point and our readers need to be aware of this trend.
A few months ago, Flora Growth Corp. (Nasdaq: FLGC) completed a go-public transaction on the Nasdaq and became one of the first Latin American focused cannabis companies to be approved to trade on the exchange. We expect Flora to be a major beneficiary of the changing legal cannabis landscape in Colombia and this is a trend that we are closely following.
The change in regulation better positions Colombian cannabis cultivators to supply the global cannabis market and we are bullish on the impact this will have on the size of Colombia’s market. One of the reasons we are bullish on this development for Flora is related to how it will allow for the manufacturing, sale, and export of ingestible cannabinoid products in Colombia. This development improves visibility for Flora and provides the potential for strong near-term revenue growth for the company’s Kasa Wholefoods division.
According to Grandview Industry Analysis (Legal Marijuana Market Size, Share & Trends Analysis Report), dried cannabis flower accounts for almost 50% of demand in burgeoning international cannabis markets like the United States (US), Germany, and Australia. We believe Flora is well-positioned to capitalize on this trend and believe the market is discounting the growth prospects associated with the business.
When the change in legislation was reported, Flora concurrently announced a major milestone and reported to have signed a supply agreement with an international distributor in South Africa to supply its dried cannabis flower as well as derivative cannabis products. Later in the week, Flora also announced that it had executed another international sales agreement to enter the Australian medical cannabis and over-the-counter cannabidiol (CBD) market. Once the company completes its first commercial harvest and obtains the necessary import licenses, it will ship premium cannabis products to be distributed by Kiricann (South Africa) and Evergreen (Australia).
A Strategic Operator with a Global Footprint
With operations in South Africa and distribution agreements in Germany as well as the European Union (EU), Kiricann imports and distributes medical CBD and represents a strategic partner for Flora. Evergreen works with patients and healthcare practitioners, primarily physicians and pharmacists, to provide medical cannabis products and to educate about the authorization and use of medical cannabis. In the near future, the company expects to announce additional supply agreements of low-cost, premium cannabis products.
The export opportunity is expected to become more significant for Flora once it completes the acquisition of Koch & Gsell. The company is expected to benefit from selling Koch & Gsell’s pre-roll cannabis brand (Heimat), which generated over US$7.6M in trailing twelve-month revenue.
The legislation is expected to be immediately for Flora as it accelerates its ability to generate revenue through the sale of cannabis flower to international markets. Going forward, the management team is looking forward to leveraging its existing product portfolio and distribution channels to quickly deliver these new products to domestically and abroad.
Another reason for our bullish view on Flora is related to the economics that are associated with its Cosechemos cultivation facility. According to the company, the team in Colombia has maximized cultivation potential by producing cannabis for less than $0.06 per gram of dried flower. Based on Flora’s investor presentation, this price point is approx. 60% lower than its closest competitor and we find this to be significant.
With a production cost that is substantially lower than its North American peers, Flora can market premium cannabis products at prices that are much more attractive than Canadian and US operators. The legislation change is expected to play a key role in how Flora can bring new and existing wellness products to market, and we find this to be significant.
The new regulations are expected to allow Flora to increase near-term and long-term revenue, optimize its global supply chain of premium brands and products, and maximize economics both domestically and abroad. We believe that Flora is uniquely positioned to capitalize on several attractive aspects of the cannabis value chain because of the change in legislation and will monitor how the story advances from here.
A Multi-Faceted Growth Story
When we started to cover Flora, we were immediately excited about the opportunity due to the structure of the business. By having leverage to attractive verticals of the cannabis industry, the company is well-positioned to capitalize on emerging trends and the new legislation emphasizes the significance of this.
By allowing for the manufacturing, selling, and exporting of cannabinoid ingestible products, Kasa Wholefoods is expected to report ramping revenues and plans to leverage existing relationships to distribute CBD products.
Flora recently announced US$10 million distribution agreement with Tropi, Colombia’s largest food and beverage distributor with 130,000 points of distribution across the country, and we expect to see more agreements like this soon. Going forward, Flora expects to capture additional market share in Colombia by generating additional awareness and selling more products at its 1,500+ points of distribution in the country.
Another attractive division of the business is Flora Lab, and we are favorable on how this vertical will benefit from the change in legislation. The division owns licenses to produce custom formulas and has existing relationships with drugstore chains throughout Colombia. Going forward, we expect Flora Lab’s pharmaceutical products and custom formulas to meet the unique needs of a patient and are intended to complement medical prescriptions.
Trading for a Discount on a Comparative Basis
Flora is a cannabis company that leverages natural, cost-effective cultivation practices to supply cannabis derivatives to its diverse business divisions of cosmetics, hemp textiles, food, and beverages. As the operator of one of the largest outdoor cultivation facilities, the company is working to become a provider of low-cost premium products.
At current levels, we believe that Flora has a compelling valuation and a favorable risk-reward profile. We believe the business has reached an inflection point and are of the opinion that the market is discounting the growth prospects that are associated with the business.
We consider Flora to be a multi-faceted growth opportunity that is in the early innings of a major growth cycle. If you are interested in learning more about how Flora Growth, please send an email to email@example.com with the subject “Flora Growth” to be added to our distribution list.
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