Flora Growth Corp (NASDAQ: FLGC) last month became the first ever cannabis cultivator to list on the NASDAQ stock exchange in the US without using a SPAC (Special Purpose Acquisition Company), reverse merger, or dual listing, and became the first all-outdoor cannabis grower to ever list on NASDAQ.
Cantor Fitzgerald, MKM Partners and Boustead Securities served as bankers, and the company is beyond development mode: Over 250 Flora products are already being distributed across 2,500 distribution points across Latin America.
To better understand the go-to-market strategy of this Toronto-based company with operations in Santander, Colombia, Finance Colombia executive editor Loren Moss sat down for a conversation with Luis Merchan (above), the CEO of Flora Growth.
Finance Colombia: Congratulations, you had an IPO recently, right?
Luis Merchan: Thank you sir, yes, we IPOd last month, it was an incredible milestone for the company, we have been working as you probably know, for several months to get here and very grateful to the efforts of the entire team getting us here.
Finance Colombia: So tell me, cannabis…Colombia is now open for export of cannabis products. Obviously there’s a licensing procedure to go through, several different business models; there are different cannabis producers now with different go-to-market strategies, some companies are working on psychoactive THC cannabis, other companies are focused more on CBD and different products, but if you could give us a summary of a Flora Growth, maybe a little bit about your strategy and what defines you and how you’re different than, or what makes you unique as a company compared to other entries into the sector?
Luis Merchan: Yes, of course Loren. So first let me start by sharing with you a little bit about what Flora Growth is. We are an all-outdoor cannabis cultivation company and that’s top of the list in terms of differentiation, especially when you compare us to North American cannabis companies, and then we have a very diverse portfolio of brands and products across multiple industries.
So you mentioned that some companies are manufacturing or focusing on extraction of CBD versus THC, and we do it all because we have been able to develop a highly efficient cultivation practice that allow us to develop one of the most advantageous economics in terms of cost in the world, with the best quality. So our cost structure is about six cents per gram of dry flower. When you compare that to North American cultivators they are about a dollar and 25 cents per gram of dry flower, so the advantages are significant and our cultivation facility is organic, it’s natural, it’s all outdoors and of course is in Colombia, which you probably know Loren, because you’re located in one of the most beautiful geographies in the world. That is very diverse and we are the number one producer of flowers in the world, and for that reason we have been able to establish this significant economic mode.
Finance Colombia: Great, so where is your cultivation facility? If I remember correctly it’s in Santander.
Luis Merchan: Yes, it’s on the outskirts of Bucaramanga, have you been to Bucaramanga?
Finance Colombia: Yes, I know Bucaramanga, I know the area very well.
Luis Merchan: Okay, so we are located in Girón, that’s exactly where we are, that’s the municipality and it’s about an hour and forty-five-minute drive from Bucaramanga to our farm. It’s a hundred hectares and as you know, some of the best weather anywhere in the world, it is 1,500 meters above sea level. We get constant winds of three miles per hour, very low incidence of pathogens in our plants. Our soil, as I mentioned, is organic which means like the yield on our plants is incredible, like we’re getting on average…our cost structure was published at about 125 grams per plant, we’re getting significantly better returns on our plants because of the geography where we’re planting.
Finance Colombia: That makes sense to me. Now, you have a good cost structure for production, tell me about your commercialization, your go to market strategy. Are you a wholesaler? Are you an agricultural exporter or are you creating value-added products and then selling those? There are other companies down here that have their own chains of clinics and they’re kind of looking at the medical route. Others maybe sell to companies that then produce their own extracts and value-added product. Tell me about where you are on the supply chain. Are you the original agricultural producer, are you marketing end products? Tell me about your whole go-to-market strategy and what the finished product is; and do people look at Flora Growth and do the consumers see Flora Growth or does the consumer see some other kind of end user product derived from the Flora Growth agricultural product?
Luis Merchan: Yes, so, all of the above, this is a very ambitious project. We expect to be the market leader in Colombia in terms of cannabis and clearly by listing on the NASDAQ, we’re showing that that we’re going to lead the industry forward. We clearly believe in Colombia and clearly believe that the government is going to push us forward to ensure that we become a global player and that Colombia becomes a global player in the cannabis industry. But we we’re playing in all of them so let me give you a brief overview of all the places where we’re working.
So we currently have five divisions, the first one is “Cosechemos Ya,” which is our cultivation facility and our extraction facility. The main purpose of that division is to ensure that we distribute wholesale cannabis whether it’s dry flower, which we expect to be able to start exporting at the latter part of this year, crude oil distillates our isolates, so that’s number one is wholesale distribution. Now “Cosechemos Ya” also works as an input to all of our CPG divisions and we have four of those.
So the first one of them is Flora Beauty, which is incredibly exciting, it is our skincare and topicals division. It was founded by Paulina Vega, you probably have heard of her being in Colombia. She’s a former Miss Universe, she’s a brand ambassador for brands such as Tag Heuer, Adidas, Pantene and of course Falabella, and she’s the founder of our brand. We’ve developed two brands with her and our products are being distributed all over Colombia already. We’re in Falabella stores, so if you go to Falabella today you’re going to see our products in the stores, and we’re also distributing all over Central America. We just started shipping to the UK, there was a press release around that today, we’re distributing of course all over North America, so Paulina Vega is a founder and we have incredible skincare products there, the two brands are called My Naturals.
And all our next division is “Kasa Wholefoods”, and it’s our food and beverage division and here once again we have an incredible founder, Laura Londoño. Laura…have you by the way Loren have you been watching Cafe or not?
Finance Colombia: No, I know that’s the new series that someone—My wife said it was on a couple nights ago but I know it’s the new soap opera that’s big down here that you’re talking about.
Luis Merchan: That’s right, so it premiered with incredible ratings and Laura is of course the main star of that soap opera, and she’s the founder of our food and beverage division along with her with her husband. They’ve just done an incredible job at building a brand with no preservatives, no plastics, very sustainable and you’ll see that one of the values of our company is sustainability and it permeates across all divisions. We do not use any materials that would be harmful for the environment. Everything is certified, we do not do any animal testing and that extends of course into our food and beverage division. Our next division is Flora Lab, which is our proprietary laboratory out of Bogota, it’s in Toberin, if you’re familiar with that area it’s like calle 160, around there.
Finance Colombia: Way up north.
Luis Merchan: Yes, it’s way up north. We got it because it’s a great location of course and we can take our customers there and that was important to us. 60,000 square feet, four stories, multiple GMP certifications, we can manufacture cosmetics phytotherapeutics, dietary supplements and we can export anywhere in the world. So that division takes the input from “Cosechemos Ya” and manufactures the topicals and many other formulations with cannabinoids.
Then our last division is called Hemp Textiles, which is our industrial hemp division, so when you submit the cannabis plant to the extraction process, you only utilize 20% to 40% percent of the plant. The balance of it goes to waste and of course we don’t want to do that, and so we founded this division under the idea of finding revenue sources where that waste can be utilized. Some of the industries which we are developing right now are bioplastics, paper and of course textiles, textile fibers.
“Our company is focused on the fundamentals, we have built a great leadership team, we have a great strategy, we have incredible product, an economic mode that will disrupt the industry and those things investors will take notice over the long term.”
The first project out of this division is called Startup Loungewear it’s a clothing line made out of hemp textile fiber. We launched that in Q4 of 2020. We have three brick and mortar locations in Colombia already, all of them in Bogota, and we’re opening our first flagship in Miami over the next 90 days. So very exciting, but as I mentioned Loren, it is very ambitious and we’re playing in all fields because the only way you can become a global player in this industry is to ensure that you’re playing in all those sectors in which cannabis is going to generate a disruption and that’s why we have taken this route.
Finance Colombia: Okay, so you have your own laboratories, you also have retail brands and ventures that you’re doing with people like Paulina Vega. You know, I think if I remember correctly, I think she’s from a medical family I think her father is a prominent doctor in Cartagena or Barranquilla, I forget; up on the coast if I’m not mistaken. I could be wrong, but it seems that I remember some people…
Luis Merchan: You’re absolutely right, they’re an incredible family. Her father is a very prominent doctor and her mother is actually her manager, but she’s a very accomplished businesswoman. She actually was head of finance at Cerrejon, you know the biggest mine in Colombia and almost all of south America. She was the head of finance and she left that that role to support her daughter as her manager because of course Paulina has become such an incredible success internationally. She needs support but it’s a beautiful family and they’re just doing a great job with us.
Finance Colombia: Yes, absolutely, I remember meeting her once and it was actually at a technology event and what people don’t realize unless they have the chance to meet her is that she’s very intelligent, it’s not just like a typical model but she’s somebody who obviously has a lot of charisma and a lot of brains as well.
Luis Merchan: A hundred percent Loren, when I when I choose our partners, I want to make sure that we are building long-term relationships with people that can advance not only the brand but also generate value added in terms of revenue, in terms of just growth for our investors and that’s what Paulina has brought to the table. But that’s also what Laura has brought to the table. She’s a very accomplished woman, she has a lot of intuition; both of them, they just they just know about business and that’s why we brought them into the fold and we’ll continue to do that multiple times over.
Finance Colombia: Now let me ask you: the company like a lot of companies in the agricultural sector, you guys are also product developers. A lot of companies in Colombia in the energy and mining sector have operations in Colombia but they might have a legal headquarters in Canada. If I remember correctly, you guys have headquarters in Toronto, but you did something very interesting. A lot of cannabis companies—and I’m not an expert on the field—but a lot of the companies have had IPOs or raise money on either the TSX or the TSXV in Canada, and I think that part of that is Canada has been more progressive. The US is following but Canada has been more aggressive with the legal aspects of the cannabis industry. The US now seems to be following along, but you guys made the strategic decision to have your IPO on NASDAQ rather than what a lot of other companies have done and gone to either TSX or TSXV.
Now maybe you already do have an offering in Canada, but if you could talk about your strategy and if you look at how we have the BVC down here in Colombia or the TSX in Canada, you also have had some private offerings I think beforehand, it looks like you already have a lot of shares outstanding in the first series of fundraising that you’ve done but now you’ve had an IPO. Tell me about how the decision was made to go to NASDAQ and what you guys expected and what went into that decision process.
Luis Merchan: Of course Loren, so the first thing I want to tell you is that it was not an easy road, right? We picked probably the most difficult mission to make, so clearly we’re the first all outdoor cannabis cultivation company to be listed on NASDAQ and we wanted to be able to say that to the public. And how did we get come to this decision? the first one is you just mentioned it: We raised $30 million dollars last year on a pre-IPO equity rate, and when we finished that race, 85% of our investor base was in the United States, so that immediately let us know that the American consumer, the American investor is ready to bet on a company that is cultivating cannabis outdoors in Colombia.
So we started to look for the American exchanges and then the choice was clear that NASDAQ is the is the second largest market cap exchange in the world, it has the best reputation and that clearly signaled to us that it was the best way to go and that’s the reason why we made the decision.
And of course we wanted to make sure that we did a second round of capital raise because that would allow us to expand our reach, our infrastructure globally expand our portfolio of products and our brands and of course amplify the brands of people like Paulina and like Laura all over the world. So we raised $15 million dollars, it was a very sought after IPO. We priced between four and five dollars and we end up pricing right at five dollars, which was the top end of the range and that just signaled that the investors are ready for companies like ours because they understand the potential that cannabis has not only in the United States but also globally.
Finance Colombia: What are the ingredients that go into the stock performance in this very tiny time frame? Maybe it was a weird coincidence as to when you guys went public, but if you could maybe just talk a little bit about what you’ve seen the past weeks and what are the ingredients that you think have gone into to where things are right now with the stock?
Luis Merchan: Loren you said it well so like the first comment that I like to make is that our company is focused on the fundamentals, we have built a great leadership team, we have a great strategy, we have incredible product, an economic mode that will disrupt the industry and those things investors will take notice over the long term. I think what you’ve seen over the last few days are short-term consequences of market volatility, so we IPOd on a day where the NASDAQ had its worst performance over the last six months, right? Concerns about inflation, the strikes in Colombia and all those reasons added a level of uncertainty over the first few days, but as you’ve mentioned the stock is trading in a stable way. Clearly when our investors learn more about a strategy, about a revenue growth, about our expansion plans, there’s going to be a lot of eyeballs around the stock, and the stock price will reach the volume and the price that we feel is fair. So, I think it’s a tremendous opportunity for investors today, but clearly it’s a short-term consequence of external factors that you just mentioned. But we have a great strategy and we’re going to execute on it, that’s our main focus.
Finance Colombia: I think another thing too that people would need to keep in mind is that even though there are some macroeconomic and some fiscal challenges that Colombia is facing, those things putting a downward pressure over made perhaps the next two months—and that’s me forecasting, you know—so people can’t hold you liable, but that can actually benefit exporters like you right? Because if there’s a weak peso it makes your products even more price competitive when we look at export markets whether that’s Europe or North America.
Luis Merchan: You’re a hundred percent correct, and it works both ways right? Like we’re also able to…every dollar that we’re sending into Colombia goes a long way, which means we’re able to expand our infrastructure, we’re able to hire more people, we’re able to bring more dollars into the Colombian economy and make the industry and the sector more robust. In the same way we’re able to offer better economics, which we already have some of the best cost structures in the world as I’ve mentioned, but we’re able to offer better economics when you complete the supply chain to companies that are where we are exporting to.
Finance Colombia: So if the basic strategy of the company is to produce the cannabis product and then take it to the market through finished goods whether they’re health-oriented products consumer products, does that go to primary markets or is there also a wholesale kind of a supplier to maybe other product developers to export, the raw ingredients to those that then…I don’t know, I know in some places in the US and in in Canada it’s the actual raw product, the agricultural product is used before it’s refined or put into any kind of a value-added product, how much I guess is that an aggregate but it’s a product operation?
Luis Merchan: Well, it varies by country and I almost feel like you’re reading our playbook because you’re 100% aligned with our strategy. In those countries where barriers of entry are not high, our number one priority is to export finish goods from Colombia. It provides us the better margins it allows us to control the supply chain and that’s our number one priority, but there are some countries and some geographies in which you cannot do that as of today, so when we find those countries what we do is find processors or structures, we lend them the IP and then we manufacture inside the country and distribute from within. So that’s the best way for us to have a global reach, and in terms of wholesale as I mentioned our foundation, our company’s foundation is “Cosechemos Ya,” which is our cultivation facility and our extraction lab, and wholesale will continue to be a pivotal point in our strategy because of our cost structure, because of the quality of our flower, because of the quality of our oils, we will continue to expand our wholesale division of flower when we’re able to export it, but crude distillates and isolates into markets that are going to take it as the market globally continues to open up.
Finance Colombia: Okay, you’ve been very generous with your time so far, the symbol is FLGC on NASDAQ. If you could Luis, tell me about the history of the company, how the company came to exist, and if you could give me a little bit of background on yourself how you came to lead the company. I don’t know if you’re a founder or if you were bought in but if you can tell me a little bit about your background and also just briefly the story behind Flora Growth, how the company was born, how it was conceived and how you’ve gotten to where you are now, maybe how old the company is too as well.
Luis Merchan: Of course, so Flora was founded by a Merchant Bank in Canada, the founder is Stan Bharti. He founded the company after learning the mistakes of the of the North American cannabis companies. He knew that he wanted to find or build a cannabis company that would generate revenues early on at the time. Now like I’m sharing with you both sides of the story, at the time I had a major role in as a corporate executive at Macy’s. I had multiple roles in Macy’s; I ran the beauty sales division for them, responsible for $3.6 billion dollars in revenue and of course responsible for the sales organization across the entire United States, 540 stores, 20.000 people. At the time when Stan reached out to me, I was responsible for customer experience and workforce management, which meant that I was responsible for the payroll line of the company which was about $2.6 billion in payroll responsibility.
He reached out to me trying to understand how do we develop a brand or products that are cannabis infused and sell them to the American consumer. So we met and I joined the company on July 1st as president of consumer goods, developing brands and products for the company, and I took on the CEO role on December of 2020 to lead not only the brand and portfolio development but also the entire operations of the company.
I think in terms of my exposure to the company, if you ask me unofficially, I am one of the founders, however the founder is Stan Bharti. But I come with a with a very robust background in terms of my education my experience in the United States, and of course the fact that I’m a dual citizen both Colombian and American, this this was just the right fit for me and for the company I believe.
Finance Colombia: Great I’m familiar with Mr. Bharti and Forbes & Manhattan, I know that we have some of their directors on our subscriber list, that’s a very interesting kind of a banking and investment firm up in Canada, so I’m aware of those guys, I have seen some of their videos and have been very impressed with them as well. So it’s been a great half hour, I really appreciate your time and best of not luck but success.
It’s really interesting I think, that over there in Bucaramanga and in that area, Santander is a beautiful part of Colombia. I spent a month once there working on a project and got to really know that area very well and the weather there I think is just amazing for this and I think that now as things begin to liberalize here in Colombia, but also in export markets like the US, and Canada is already leading the way, and even now in Europe we’re starting to see that.
I think that it’s amazing because this field is not to the point yet where companies are competing with each other for market share because it’s wide open, it’s like the wild west: go out there and capture as much of the market—you’re making the market, it’s not like you’re taking it from another company. So I think that we’re in a really unique time right now in this industry. I’m not an expert in the cannabis business, I’m not an expert in cannabis, but I really think that looking at the potential that it has, in looking at the legal progression of things. New York just legalized it, in Florida, and of course in the US it’s complicated because every state kind of does its own thing, but I think that it’s an amazing time.
If you look at all the health studies and the research that’s being done on potential medical and health benefits, but then even like you mentioned with hemp, that used to be a legal product and then for a long time it wasn’t, and now it is again. In World War II, they encouraged people to grow it because they needed the fiber for the war effort and from what I understand it’s an amazing fiber. I was at the tailor yesterday and we were going over the different types of fiber and fabric, from linen and cotton and now maybe we’re going to see more and more with hemp and so that’s really amazing to use all the plant and it’s just an amazing and fascinating field, especially for me as somebody who every time I have a conversation like this I’m learning. So I really want to thank you very much for your time and hope to see more of, and to follow you guys more closely and to see the success that you guys have in the coming months.
Luis Merchan: Thank you Loren, that means a lot to me. I appreciate the time and likewise next time I come to Colombia I’ll make sure to reach out, we’d love to bring you to Santander, so you can see the project first hand. It’s a beautiful project. I would say separate from the incredible product that we’re developing and the incredible brands and the portfolio of products that we have across multiple industries, that my team is the number one asset that we have. I would love to show off some of them, perhaps you can meet Paulina and Laura once more since you’ve met them before, but just they’re just incredible assets and our company once again is focused on the long term, we’re going to set the standard for cannabis in not only Colombia but in the world, I appreciate the time, Loren.