In a bold move that goes against the grain of typical cannabis operations, Flora Growth has gone public on the Nasdaq with their new approach to cannabis business. While the company’s headquarters are in Toronto, Canada, the operation itself is taking place in Colombia in an outdoor growing facility.
How Flora Leverages its South American Status to Compete in the Global Arena
Most cannabis corporations who list stocks in the US operate indoor grow facilities, mostly in nearby Canadian properties. The decision for Flora Growth to set up this particular operation was made with one intent in mind: to save cash.
Flora Growth can cultivate outdoor buds, at a cost of $.06 per gram of dry flower for medicinal grade cannabis in Colombia, compared to $1.25 per gram indoors in North America, CEO Luis Merchan told CNN Business before the IPO.
The website for the company states, “Flora Growth is a global cannabis company that leverages natural, cost-effective cultivation practices to supply cannabis derivatives to its diverse business divisions of pharmaceuticals, cosmetics, hemp textiles, and food and beverage. As the operator of one of the world’s largest outdoor cultivation facilities, Flora strives to market a higher-quality premium product at below-market prices. By prioritizing natural ingredients and value-chain sustainability across its portfolio, Flora creates premium products that help consumers restore and thrive.”
Flora Anticipates Massive Gains as a Result of Recent Offering
Hinging on savings from the ease of an outdoor grow vs. indoor grow, Flora Growth said in a press statement, that it anticipates grossing about $16.7M from the offering. The firm said in its F-1 that it intends to use the funds for working capital, operating capacity, general corporate purposes and capital expenditures like construction of a planned research and processing center.
Flora Grow expects to have some 42 million shares outstanding after the IPO, which values the company at about $210 million.
The company CEO told CNN Business that other groups aren’t taking advantage of their same methods for a few different reasons. First, it can be time-consuming to get approval from the Colombian government to get licensed and registered to set up cannabis facilities. Second, most companies prefer to have their products grown closer to home.
Unfortunately, Flora Growth had some unsavory backlash, with shares falling as much as 4%. The initial buy-in was $5 per share, the high end of an expected $4-$5 price range.
The corporation is still relatively small in the cannabis world, generating just over $100,000 in revenue in 2020, and the company has yet to turn a profit. Merchan told CNN Business that at a time when many private companies have chosen to go public via mergers with blank check special purpose acquisition companies (SPACs), Flora did a traditional initial public offering.
Cannabis stocks are experiencing a surge in early 2021, with a newly Democratic-controlled Congress and White House. However, shares have not trended upward throughout the year.
What Can We Expect From Flora in the Months to Come?
Flora CEO also told CNN that he is confident the company will eventually make money as a low-cost producer of cannabis-related products—even in an increasingly crowded market. Instead of offering products geared towards adult-use marijuana use, like pre-rolled and vape products, Flora is focusing on things like cannabis-infused chocolate and other candy, as well as personal care products.
The company has a partnership with Pauline Vega (Miss Colombia, 2014 Miss Universe) to promote infused skin care products. These products are focused on CBD, the non-psychoactive ingredient in cannabis.
Merchan explained to CNN Business that they filed for an IPO to show investors that they could accommodate the additional scrutiny involved in filing paperwork with the Securities and Exchange Commission.
“We have robust cultivation facilities and we intend to use capital from the stock sale to expand our operations in the US, infrastructure in Colombia and sales team worldwide,” Merchan said.
It will be an interesting story to follow, as Flora Growth continues on the path less traveled in cannabis business. Marijuana enthusiasts will be waiting to see if their bold moves pay off going forward.
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