In this edition of "Rising High," The Fly conducted an exclusive interview with Luis Merchan, president and chief executive officer at Flora Growth Corp. (FLGC), a cultivator and processor of cannabis products and premium brands with a global distribution platform. Here are some highlights:
LOW-COST CULTIVATION: Flora Growth is an internationally focused cannabis company that leverages natural low-cost cultivation practices to supply cannabis flower and derivatives to its diverse business divisions. The company operates one of the largest outdoor cultivation facilities in Colombia and creates products to positively impact the health and wellness of consumers. “From a cultivation standpoint, our focus is to grow the lowest production cost, premium organic cannabis in the world,” Merchan said. “We have been able to prove that we can deliver on that promise as we’re currently cultivating at a cost of 6c per gram of dried flower. When you compare that to North American cultivators, they are typically north of $1.25 per gram of dried flower.” Merchan said the company is able to produce at such a low cost due to the geographical advantages of Colombia and the know-how of Flora Growth’s team in terms of floriculture and agriculture. “From a brand and product perspective, our priority is to ensure that we’re delivering products that resonate with consumers and patients,” he said. “Products that can have a large market contribution and ensure that we not only have meaningful revenues for the company, but also have solid profit margins for our investors.”
COMPETITIVE EDGE: When asked about rising competition in the cannabis space, the CEO noted there are a lot of restrictions in terms of barriers to entry into the industry, particularly to be a successful cannabis CPG company. “Growers are able to take advantage of the fact that they don’t have to experience a lot of competition,” he said. “Companies like Flora Growth that are cultivating and processing, building premium brands, and executing sales and distribution on an international scale are able to meet consumer demand worldwide and are able to compete not only in terms of cost, but also in terms of quality and inherent brand equity.” Merchan added that cost and distribution are the company’s biggest competitive advantages and will help ensure that Flora Growth can grow its market share rapidly. “It’s also important to highlight that even though regulations are changing rapidly, very few companies are able to deliver the level of structure and discipline to ensure that they have the standard operating procedures and the licenses to meet regulations across global jurisdictions,” he said. “That will ensure that companies like Flora Growth will not only gain market share, but will also retain it for a long period of time.”
PARTNERSHIPS: In July, Flora Growth announced it entered a non-binding letter of intent with Evergreen Pharmacare, a licensed Australian importer and distributor of medical cannabis products. Under the agreement, Flora Growth will supply premium dried flower and derivative products to Evergreen. The LOI is the second the company has signed since the Colombian government revised its cannabis laws aimed at improving access to cannabis products. “That is significant,” the CEO said. “Friday, July 23rd, was a very meaningful day for the cannabis industry as a whole and it positioned Colombia as a global player in the cannabis space. Flora Growth is one of the first in terms of developing innovative cannabis consumer packaged goods and building a global distribution platform in order to supply the worldwide demand for our high-quality cannabis products and brands. We have been in talks with multiple clients across multiple markets that are very eager to receive the new products that we’re now permitted to ship internationally.” Merchan said the Australian announcement is just one of many that will come to fruition over the upcoming months. “The signature of the law will allow us to now export dried flower, manufacture cannabis-infused food and beverage products, and prepare custom formulas - all within Colombia - and export them in order to maximize our utility of the plant for its many industrial uses,” he said. “The Australian deal is just the first step that highlights how the change in the law will allow us to now monetize our investment in the infrastructure of product development that we have made over the last couple of years.”
CORONAVIRUS: The coronavirus pandemic has impacted many companies globally in the cannabis space and Merchan said he believes companies that have been able to become fiscally responsible with spend and more effective 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. “Obviously, we have adapted as many other companies have in terms of working remotely and being flexible with our workspaces.” The CEO said Flora Growth established very strict health and safety protocols across its cultivation site, laboratories, manufacturing facilities, and offices to ensure the company keeps employees and customers safe and healthy. “I do believe the pandemic has allowed us to build a sense of resiliency and a sense of ability to withstand challenging environments that will help us be more successful in the future,” he said. “With regards to the Delta variant, we’re going to continue to monitor and follow the guidance of the CDC in the United States and from the health organizations in the countries in which we operate.” Merchan said the company has also prepared for potential impacts to its supply chain after learning lessons over the last year and a half in order to fulfill commitments to clients over the short and long term. The CEO also pointed to the growth of cannabis consumption in the U.S. during the pandemic based on a combination of increased cannabis consumption by established users and the onboarding of new cannabis consumers. “That trend will continue as more science-based research is published and consumers feel more comfortable with the idea of using cannabis products,” he said. “There is going to be a shift not only from a medical standpoint from traditional pharmaceuticals to cannabinoids, which are far safer and healthier for many indications which patients are commonly prescribed narcotics, but also from a recreational standpoint as destigmatization, accessibility, and innovative consumption methods allow cannabis to become more mainstream. That will continue to translate across geographies worldwide.”
LEGALIZATION: When asked about the potential impact of the Biden-Harris administration on the industry, the CEO said he had hoped federal legalization of cannabis in the U.S. would move quicker but said the space is taking steps in the right direction. “We believe that will be a significant trigger worldwide,” he said. “Flora Growth is a global company, which means we’re able to take advantage of the international marketplace.” Merchan noted there are over 13 countries that allow the company to sell its entire product portfolio currently and Flora Growth is going to continue to pursue additional distribution channels in the future. “With regards to the democrats and the changes they’ve made, I think the two major advances with the SAFE Banking Act and the MORE Act have the potential to be extremely impactful,” he said. “First of all, the SAFE Banking Act would allow us to have access like any other company in other industries to basic financing and banking needs that our industry desperately needs. Secondly, the MORE Act will ensure that states can reap the benefits of this booming industry in terms of tax revenues.” Merchan also pointed to the significant social aspects of the MORE Act, which allows people who have been marginalized by cannabis use to be able to have their convictions either expunged or reviewed. “That is a great step in the right direction,” he said. “We certainly are waiting for further developments and are looking forward to the day when federal legalization does happen and we’re able to freely trade cannabis across the United States.”
DELIVERY METHODS: As technology advances and delivery systems for cannabinoids become more diverse, Merchan said Flora Growth is consistently evaluating various forms of delivery and working on product innovation. “My team is constantly pursuing what are the best methods to ensure that consumers and patients have effective delivery systems and also methods that are efficacious and without stigma,” he said. “A lot of consumers would like to experience the benefits of cannabinoids without say, smoking, so we’re going to continue to evaluate transdermal patches and many other methods that are not only more traditionally acceptable, but also more bioavailable with rapid onset and offset periods.” The CEO added he believes delivery systems based on scientific research will be the most successful over time. “Research that is published by governments and other entities will allow healthcare practitioners, patients, and insurance companies to understand the benefits better,” he said. “Consumers will be more open to trying dried flower, ingestibles, patches, and many other methods of delivery that will not only help them enjoy great products, but also enjoy the benefits of cannabis for both medicinal and recreational use without any unwanted side effects.”
CHALLENGES: When asked about the largest hurdles facing the industry, the CEO pointed to the high barriers of entry for the space but noted it will serve as one of the biggest competitive advantages for companies that are still operating in the next three to five years. “This industry has very significant barriers of entry from a regulatory standpoint, from a financial standpoint, and from a sales and distribution standpoint,” he said. “Clearly, it makes it a very difficult environment to operate and do business in. However, the companies that are able to overcome all of those obstacles are going to develop a moat around them.” Very few cannabis companies will be able to survive the heightened level of scrutiny in the future, Merchan said, and eventually, the space will go through a period of consolidation. “The companies that are on the other side of the tunnel when all this consolidation happens are going to be global leaders in the cannabis industry,” he said. “We certainly expect to be one of those companies.”
OPPORTUNITIES: As the cannabis space develops, Merchan said Flora Growth is excited about the change in Colombia's cannabis laws allowing the company to export dried flower. “Prior, we were not able to export dried flower which accounts for over 50% of the global cannabis marketplace,” he said. “Our ability to now export dried flower from Colombia and knowing that we have one of the lowest production costs in the world is going to set us up to grab a significant portion of the global market share. It will ensure that we start to develop a stronger supply chain and stronger business relationships with markets in Europe, Asia, and the Americas.” From a brand and product perspective, the CEO said he believes those backed by science will continue to see a higher rate of adoption from consumers. “The growth rate of consumption in the U.S. alone at 56% highlights that there’s a strong appetite not only for dried flower but also for products that are utilizing cannabinoids in traditional consumer packaged goods,” he said. “We’re extremely well-positioned and poised to benefit as we continue building and executing upon our global distribution platform and logistical expertise.”
OTHER CANNABIS/PSYCHEDELIC STOCKS: Other publicly-traded companies in the space include Acreage (ACRHF), Akerna (KERN), Aleafia (ALEAF), Aurora Cannabis (ACB), Ayr Wellness (AYRWF), Body and Mind (BMMJ), CanaFarma (CNFHF), Canopy Growth (CGC), RIV Capital (CNPOF), Clever Leaves (CLVR), Columbia Care (CCHWF), Compass Pathways (CMPS), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos (CRON), CV Sciences (CVSI), Curaleaf (CURLF), CURE Pharmaceutical (CURR), Delta 9 (DLTNF), Emerald Health (EMHTF), Fire & Flower (FFLWF), FluroTech (FLURF), Gage Growth (GAEGF), General Cannabis (CANN), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Harborside (HBORF), Hemp (HEMP), HEXO (HEXO), High Tide (HITI), IM Cannabis (IMCC), India Globalization Capital (IGC), Indiva (NDVAF), Inner Spirit (INSHF), Innovative Industrial Properties (IIPR), Khiron Life Sciences (KHRNF), Lowell Farms (LOWLF), Lotus Ventures (LTTSF), MediPharm Labs (MEDIF), MedMen Enterprises (MMNFF), MJardin Group (MJARF), Neptune Wellness (NEPT), Thermic Science (ENDO), Organigram (OGI), Planet 13 (PLNHF), Skye Bioscience (SKYE), SLANG Worldwide (SLGWF), Sproutly (SRUTF), Stem Holdings (STMH), Sundial Growers (SNDL), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Valens (VLNCF), Village Farms (VFF), Goodness Growth (GDNSF), WeedMD (WDDMF) Zynerba (ZYNE) and 4Front Ventures (FFNTF).
