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Earlier this month, we started to follow Flora Growth Corp. (NASDAQ: FLGC) after it completed a go-public transaction on the Nasdaq. The company is an all-outdoor cultivator and manufacturer of cannabis-derived products and brands and is focused on capitalizing on burgeoning international cannabis markets.
Flora is focused on using natural, cost-effective cultivation practices to supply cannabis derivatives to its diverse business units of cosmetics, hemp textiles, and food and beverage. The company operates one of the largest outdoor cultivation facilities and we are favorable on the economics that are associated with cultivating in Colombia.
The climate in Colombia is ideal for cultivating cannabis. Several operators in the region have been able to produce each gram for less than $0.10 each and we find this to be a key aspect of the story. We believe that Flora is in the early innings of a multinational growth strategy and are favorable on how the business has advanced so far this year.
With 5 divisions and more than 280 products, Flora has an attractive operating structure and we are favorable on the verticals that it is focused on. Currently, the business has more than 2,500 distribution points in Latin America and in the US. Over the next year, we expect this number to increase and believe that it will support the growth of the business.
Operating a Large-Scale Property in Colombia
Flora’s main cultivation property is the Cosechemos farm which is 247 acres and is located in Bucaramanga, Colombia. The facility is fully licensed and has completed three successful pilot crop plantings on almost 5 acres. The production cost came in at $0.06 per gram and we find this to be a key pillar of the story.
Currently, Flora is working on the completion of an extraction facility on the Cosechemos farm and we expect this development to serve as a major growth driver. The facility will be constructed to EU good manufacturing practice (EU GMP) standards and is expected to be complete by the third quarter of 2021.
The benefits that are associated with an EU GMP facility are substantial and we consider this to be a key value driver of the story. The company has already tested 30 varieties of CBD cannabis flower and reported impressive data points from these tests. Each plant is yielding more than 125 grams per plant and we are bullish on this.
Expands into the EU and Latin America
Last week, Flora announced a major milestone and reported to have expanded into the United Kingdom (UK) and Costa Rica. Initially, the company will fulfill initial orders from two new distributors and we will monitor how the business grows in these markets.
Flora’s Kasa Wholefoods division fulfilled an initial shipment of Mambe juices to a distributor for the Central American food and beverage market. In the UK, initial shipment of Almost Virgin, Mind Naturals and Mambe products was fulfilled and we are favorable on the growth prospects that are associated with these markets.
We are especially excited about Flora’s leverage to the UK since it provides the business with a launch pad to enter additional markets in Europe. The order is the company’s first shipment of cannabidiol (CBD) products in Europe and we consider this to be a transformational development for the business. Going forward, Flora intends to expand on its relationship in the UK by bringing its entire product portfolio into the market and by expanding into adjacent markets throughout Europe.
Focused on Executing on a Low Cost Growth Strategy
A few years ago, there was a significant spike in interest in the Latin American cannabis market and this is a trend that slowed down after several Canadian Licensed Producers (LPs) were unable to execute on markets in the region.
Last month, Flora’s Kasa Wholefoods division signed a distribution agreement with GMD Latinoamérica, a Costa Rica-based distributor for the Central American food and beverage market. Initially, exports will commence in Puerto Limon, Costa Rica while Kasa starts to register additional products in Central American and Caribbean markets.
Flora is led by a management team that is laser focused on creating a global cannabis platform. The company’s move into the UK and Central America aligns perfectly with its aggressive expansion strategy as it works to capture market share and create awareness for its premium product portfolio.
An International Execution Story to be Aware of
Over the next quarter, we expect Flora to expand into additional strategic international markets in the EU and Latin America. By focusing on the sale of CBD CPG products as well as wholesale CBD and THC cannabis flower and derivatives, the company will own strategic infrastructure assets in emerging international markets and we are favorable on the potential revenue streams that are associated with the strategy over the long-term.
We are favorable on how Flora’s business is structured and believe that it will be able to find significant synergies between its divisions. By operating several divisions that are focused on creating premium CBD products, the company should be able to utilize strategic distribution networks to grow each vertical of the business.
Mind Naturals is the inaugural brand from Flora’s Beauty division. The all-inclusive brand uses premium CBD and ingredients to craft an assortment of natural skincare products. The brand consists of 11 unique products and caters to the mass-market and is sold across e-commerce channels in Colombia and the US.
Mind Naturals’ products are also being distributed by the largest Latin American retailer, Falabella at 15 of the highest-traffic retail centers in Colombia. The brand has the opportunity to expand across Falabella’s 111-store portfolio and we are favorable on the amount of revenue that can be generated through this retail outlet. The products are also available on Falabella’s e-retailer Linio, which attracts more than 290 million visitors per year, and on Falabella.com.
Mind Naturals was developed by Paulina Vega, a renowned figure in the fashion and beauty industry. She is a former Miss Universe and Miss Colombia and will help drive sales through e-commerce channels. We are favorable on the amount of awareness that she brings to the brand and expect her relationships to open new retail outlets for the brand over the long-term.
Mambe is the primary brand behind Flora’s Kasa Wholefoods division. Mambe’s products are made in Colombia and have over 980 distribution points in the country. By the end of 2021, the company expects the brand to be offered at more than 1,200 locations and this could prove to be a significant growth driver for the business.
Mambe’s largest customer is Tostao’ Café & Pan, which is considered to be the Colombian equivalent of Starbucks. The brand contains both CBD and non-CBD products and was founded by Laura Londoño, an award-winning Latin-American actress with more than 1.3 million Instagram followers. We are favorable on the strategy to focus on brands that are founded by Latin America celebrities and expect the brand to benefit from the built-in awareness that they have.
The second most important brand in Flora’s Kasa Wholefoods division is Almost Virgin. The brand’s collection of botanical sexual wellness products is designed to enhance sexual experiences and relieve stress. The Almost Virgin brand is available for sale through e-commerce channels in the US and Colombia and we are favorable on this product category.
Strengthening of the Balance Sheet is Expected to Support Growth
Earlier this month, Flora completed its initial public offering (IPO) of 3,333,333 of its common shares. The offering was priced at the high-end of the proposed price range and was sold for US$5 each for US$16,666,665 of gross proceeds. We expect the company to use the proceeds to increase production capacity and further expand in strategic markets in the EU and Latin America.
One of the reasons we are favorable on the structure of the business is related to the low-cost nature of it. The company is focused on regions where it does not need to construct state-of-the-art facilities to combat volatile weather conditions and we are favorable on the economics that are associated with the current footprint.
With more than 10 million square feet contracted for cultivation, Flora could be one of the largest cannabis producers in Latin America and we are favorable on the scale of the property. By focusing on exporting both high-CBD and high-THC cannabis products, the company can benefit from major tailwinds in the global political landscape.
A Global Growth Story that is Flying Under the Radar
During the last year, several countries in the EU and Latin America have legalized some form of cannabis and this is a trend that we expect to become more significant on a going forward basis. By focusing on EU-GMP infrastructure, Flora will be able to export cannabis products to several burgeoning international markets and we will monitor how this aspect of the story advances.
Over the long-term, Flora expects to scale production and supply cannabis derivative products to the global market. Due to the scale and the diversity of the business, the company should see margin appreciation as it continues to grow. Based on this structure, the management team is inclined to quickly grow the business and capture additional market share.
Flora is led by a management team that has a proven track record of execution and we consider this to be one of the most important aspects of the story. Collectively, the management team has raised more than $3 billion of capital and listed more than 50 public companies. The management team has experience in highly regulated industries and we are favorable on the expertise that is associated with the team.
Pursuant to an agreement between StoneBridge Partners LLC and Flora Growth Corp. (FLGC) we have been hired for a period of 180 days beginning May 13, 2021 and ending November 13, 2021 to publicly disseminate information about (FLGC) including on the Website and other media including Facebook and Twitter. We are being paid $6,000 per month (FLGC) and were not issued any shares of restricted common shares. We own zero shares of (FLGC), which we purchased in the open market. We plan to sell the “ZERO” shares of (FLGC) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (FLGC) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.
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