In 2020, Canada was the world’s foremost exporter of dried cannabis flower as well as oils and extracts. Today, Colombian producers are now nipping at the heels and poised to surpass their Canadians peers based on recently revised cannabis legislation that positions the country to become the global cannabis leader. Although its sophisticated infrastructure, distribution, and exports of some cannabis goods such as medicinal oils and extracts were well known, Colombia had previously disallowed the export of dried cannabis flower. That changed on July 23rd when Colombian President Ivan Duque signed the decree to end the prohibition on the export of dried cannabis flower, in turn creating a new global opportunity for Colombian producers, especially those who already have an established worldwide distribution platform and currently receive international recognition for their products and brands – enter Flora Growth.
Colombia’s Cannabis Market Is Set To Make Big Global Impact
Since Flora Growth completed its successful IPO on the NASDAQ exchange back in May, the company has
thrust Latin American-grown cannabis into the mainstream. Cultivated on a sprawling 247-acre outdoor farm and grown in the most fertile soil in Colombia, Flora has quickly earned a reputation for its optimized cultivation strategy and traditional consumer packaged goods focused approach. With Colombia poised to become the low-cost leader in global cannabis production, investors continue to recognize Flora Growth for its strategic global growth strategy and market position, leveraging its flagship low-cost cultivation operation to feed into its premium brand portfolio and global distribution channels.
Upon signing the decree, President Duque quoted experts in saying legal cannabis will represent a $64 billion global market by 2024, while noting that cannabis will serve as a tool for “economic reactivation” in Colombia post the COVID-19 pandemic. “According to a 2019 study, in Colombia, the cannabis sector generated 17.3 agricultural jobs per hectare,” said Colombia’s Minister of Justice Wilson Ruiz. The Columbian government seems determined to catapult the country into global leadership as a legal cannabis exporter in order to boost the economy and create many more jobs at home. “We would like to thank the Colombian government and all of the parties involved with passing this legislation,” said Flora Growth President and CEO, Luis Merchan.
The reformed legislation will improve access to cannabis products for Colombians and puts the Central American country in prime position to supply the global cannabis market. “On the ground we take a very rigorous approach to our cultivation efforts, which are rooted in science and extremely data-driven,” Merchan tells Impact Wealth. “What separates us from our competitors is the love that we have for the plant, people, and land. There’s a misconception that cannabis operators are solely focused on overcoming regulation. The entire process begins with the genetics as well as the soil from which the cannabis is grown.”
The flora doesn’t grow itself, though, and Colombian green thumbs have a leg up. Home to one the world’s largest cut-flower industries, the labor force has substantial agricultural knowledge and is able to produce a high-quality cannabis product at an extremely low-cost. “This incredibly experienced and talented team that we’ve built will ensure our success from the ground up,” added Merchan.
Flora also has a home court advantage that ups the abilities of its production activities. Located near the equator, select regions of Colombia have the ideal climate for the cultivation of cannabis. Receiving 12.5 hours of natural sunlight 365 days a year, natural onsite water springs, mountain cover to protect against unwanted pollenization, and the all-outdoor organic acreage, this fortuitous combination cannot be found anywhere else in the world.
Following The Money In Global Cannabis
In tandem with the government changes, Colombia now becomes a major player in the international cannabis market. So much so that the international competition looks pretty faint in Flora’s rear-view, because the company’s high-quality product comes in well below North American prices. Cosechemos, Flora’s Colombian cultivation property, has maximized this cultivation potential by achieving a production cost below $0.06 per gram of dried flower; this figure represents a 60% lower production cost than its closest domestic competitor, and a fraction of what North American cannabis cultivators have acknowledged as their all-in cost – typically well in excess of $1 per gram of dried flower.
New data from Prohibition Partners shows a huge increase in cannabis exports from Canada in 2020, as well as a changing network of countries that are importing from established producers in Canada. Customs data provides a measure of the value of shipments, defined by ‘values declared on export documents which usually reflect the transaction value’. As these values are left largely to the discretion of the exporter, they are not as precise a measure as the weight quantities. The total customs value of medical cannabis exports in Canada in 2020 was US$43 million, which is a considerable 229% increase compared to 2019. Most (83%) of this value originates from dried cannabis flower sales, though more oil sales likely occurred outside of these figures due to inconsistent reporting by exporters. Given that pundits are predicting a $64 billion global market by 2024 and the inherent strategic advantages that Colombian producers have, there is significant upside for them to fill that gap in a significant segment of the global market that was previously inaccessible.
When asked about the coronavirus pandemic and its impact on global cannabis companies, Merchan said he believes those that have been able to become more efficient with spend and more cautious with maximizing their infrastructure will be the ones to succeed. “Companies that have been focusing on delivering revenues and improving their fundamentals are the ones that are going to survive long-term,” he said. The CEO said Flora Growth established very strict health and safety protocols across cultivation, laboratories, and offices to ensure the company keeps its employees, partners, and consumers safe and healthy.
Marketing Opportunity For New Products
Back inside their own borders, a key impediment has been removed on the local level. Cannabis production will no longer face the legislative limits of previous cannabis marketing restrictions. Flora will be able to increase awareness across its portfolio of products, and its vast network of 1,500+ distribution points within Colombia should see a significant boost.
The legislative advantages don’t end there either. The sale and distribution of psychoactive (high-THC) dried cannabis flower now falls under the legal umbrella, which accounts for over 50% of international sales demand. Thus, Colombian cultivators like Flora have now gained access to this massive segment of the global market that was previously inaccessible.
Therefore, as an immediate impact, Flora rapidly executed a Letter of Intent (“LOI”) with an international medical cannabis company with operations in Portugal and Malta and supply agreements in the EU to supply its dried flower and derivatives. The company expects to ship its premium cannabis products upon completion of its first commercial harvest and the acquisition of necessary import licenses.
Of course, the worldwide interest and medicinally proven benefits of cannabis are also covered in the legal shift. In turn, Flora is again positioned to establish another foothold in a crucial consumer segment both within Colombia and abroad.
Custom formulas are pharmaceutical products prescribed and prepared by pharmacists to meet the unique needs of patients. Intended to complement medical prescriptions, Flora is way ahead of the game and holds licenses to produce these unique products for mass consumption through its Flora Lab division. “We’re also very pleased to now be able to bring new and existing wellness products to market. We have a loyal and passionate following and are very eager to meet the demand that we have long been receiving,” said Merchan. Already having existing relationships with drugstore chains throughout Colombia will allow Flora to maximize this opportunity.
In order to rapidly take advantage of that new category, Flora formed a joint venture with Canadian based Avaria Inc, the manufacturer and owner of KaLaya – an award-winning pain cream distributed nation-wide across Canada. Flora will be responsible for managing the registration, sales, and distribution of KaLaya products in Colombia, Mexico, and other LATAM countries, while Avaria will supply finished products. Further, Flora Lab will work to produce KaLaya’s CBD-infused products using cannabis from Flora’s cultivation facility. These products are expected to be distributed across LATAM using Flora Lab’s established distribution channels, with the aim of exporting to the U.S. market, where Avaria is currently launching the KaLaya brand.
Flora’s also recently announced an international sales agreement to enter the Australian medical cannabis and over-the-counter cannabidiol (CBD) market importantly coincides with the Australian government’s downgrade of CBD from Schedule 4 to Schedule 3 and clears the way for consumers to purchase CBD products over-the-counter.
The forecast is more than promising. The Australian medical cannabis market is expected to surpass AU$200 million in 2021 and notes strong patient growth metrics by a factor of 15 times over the past two years, according to the data firm FreshLeaf Analytics. Even more promising, Prohibition Partners, estimates that the Australian medical cannabis market could reach US$1.5 billion by 2025.
However, the jump off down under already goes beyond a simple sales agreement. Flora has signed a Letter of Intent (“LOI”) with Evergreen Pharmacare Pty Ltd – a licensed Australian importer and distributor of medical cannabis products. Born out of a necessity for its patients to have quicker access to premium, affordable, AUGMP-certified medication, Evergreen has the roots required to success, and Flora can’t wait to help escalate its growth spurt. “The agreement with Evergreen will allow us to establish a local partner in Australia, while generating incremental revenue from our Colombian cannabis facility as legislation evolves within Australia,” said Jason Warnock, Chief Revenue Officer of Flora Growth. “This agreement also provides significant potential upside by allowing us to work with Australian regulators directly and bring our premium brands and established product formulations to the over-the-counter CBD market. Down-scheduling CBD fits well with Flora’s long term consumer product strategy of providing proven cannabinoid wellness and beauty products to consumers around the world and we are excited to work with our partners on this new opportunity.”
Well entrenched, Evergreen works closely with qualified healthcare practitioners – who are primarily physicians and pharmacists – to provide medical cannabis products to patients, while educating them about the authorization and use of medical cannabis. All that awaits the transpacific collaboration is the commercial harvest and first shipment of medical-grade cannabis products by Flora, and Warnock sees nothing but success.
Running the other way, the feeling is mutual. “We are absolutely thrilled to enter into this agreement with Flora and to provide Australian cannabis patients with access to premium medical-grade cannabis products at a more affordable price point than ever before due to Flora’s strategic low-cost cultivation and processing operations, as well as their global logistics expertise,” said Tristan Hyodo, Chairman of Evergreen.
That said, Flora Growth isn’t stuck in a southeastern corner of the Earth when it comes to CBD. Another Letter of Intent from a South African firm called Kiricann was signed which brings more opportunities into the fold. With operations in South Africa and distribution agreements in Germany and the EU, Kiricann imports and distributes medical CBD products, while working with patients and numerous wellness practitioners to educate about the authorization and benefits of medical cannabis.
Global Cannabis CPG: The Dawn Of A New Era
Finally, the new Colombian regulations allow cannabinoid-infused food and beverage, which opens the door for developing new products as well as introducing products already available in Flora’s Kasa Wholefoods food and beverage unit. Incidentally, the new Colombian laws coincide with the recent signing of a distribution agreement between Kasa and Importaciones y Asesorias Tropi S.A.S., Colombia’s largest CPG distributor; that agreement is expected to generate $10 million in annual revenue for Flora by delivering premium and sustainable canned products to Colombians, with the opportunity to expand the product line in the future.
The menu also includes combustible cannabis products, and as the world continues to appreciate the low-cost, high-quality products coming out of Cosechemos, Merchan is confident the synergies won’t slow down. This includes the pending acquisition of Koch & Gsell and its market-leading cannabis pre-roll brand (Heimat), which generated over US$7.6M in trailing twelve-month revenue. “The proposed acquisition of Koch & Gsell is a testament to our growth strategy. We are looking for partners that complement our distribution, enhance our supply chain and generate meaningful revenues in core markets that complement our existing portfolio of products and our premium cannabis inputs,” said Merchan. “Not only are we attracted to Koch & Gsell’s exceptional penetration in brick-and-mortar grocery stores, but also their proprietary technology to create authentic pure hemp and hemp & tobacco/herbal cigarettes at an industrial scale, which we believe will be a major product category for the global cannabis space in the years to come.”
Either way, Flora’s 2,500 distribution points across Latin America still figure prominently, and the company is further strengthened by a robust portfolio of in-house brands and logistical expertise. With divisions encompassing pharmaceuticals, natural wellness, cosmetics, hemp textiles, and food and beverage, the company is well-positioned to lead the way in cannabis-based derivatives domestically, regionally, and internationally.
Flora has also established itself as an environmentally conscious company, and announced a commitment to environmental sustainability this past June. Its organic cultivation practices help to prevent the loss of topsoil, toxic runoff, water pollution, and soil contamination. The new reforms also now allow Flora to use the entire cannabis plant to create cannabis products including textiles, such as those used in its Stardog Loungewear brand. This use of the entire plant supports a high return on investment and has helped to attract interest from sustainability-focused investors. The company has also focused on biodegradable packaging and the use of recycled materials. Its Mind Naturals Extra Hydrating Cream with CBD is sold in a 100% biodegradable container, and its KASA Wholefoods division uses recyclable glass bottles for beverages. Even the animals have found a home and special sanctuary on Flora’s Cosechemos farm.
Cannabis Industry Primed For Another Growth Spurt
The global cannabis market is turning from one of pure speculation to one underpinned by solid fundamentals and real investment opportunities. Consistent revenue growth, high-margin products, and growing brand recognition are strong indicators of potential future success in any almost sector. Combine these attributes with the burgeoning Colombian cannabis market and operators that have a history of executing – like the Flora Growth management team – and it might just deliver some eye-popping results; move over Canada, because Flora is built to grow!
During the second half of the year, the Flora team will be working hard to leverage its existing product portfolio and distribution channels to quickly deliver its cannabis products to Colombians and international partners, especially the new products that it’s now permitted to manufacture and sell as a result of the cannabis legislative changes within Colombia. “Over the coming weeks, we’ll be working hard to ramp up activities at our Cosechemos facility and Flora Lab, completing more revenue-generating sales and distribution agreements, research and development projects to produce innovative cannabis products, and additional activity regarding strategic investment and partnerships,” said Merchan.
Earlier this year, Fortune Business Insights noted that it foresees the global cannabis market reaching $97.35 billion by 2026 with 32.9% compound annual growth. Certainly, the legal cannabis market appears destined for impressive growth, which breeds bullishness in major players throughout the world.
Once the final regulatory hurdles are cleared, Flora will serve as a pipeline connecting the emerging US, EU, Australian, and Latin American markets. “We choose where and with whom we do business very carefully,” explains Luis. “In addition to our Latin American infrastructure, we have partnered or are in discussions with several major U.S. distributors and retailers and are in the process of moving our headquarters to Miami.”
North or south, east or west, none of that matters as much as the pride, commitment, and care that will allow Flora Growth to reach the world with its premium cannabis products and dynamic brands.