- Flora Growth Corp recently received coverage from Argus Research, which gives the company’s stock a fair value estimate of $7.50 against the $3.24 recorded July 20
- Argus also projects that Flora’s revenue would increase to $9 million in 2021 and $31 million in 2022, up from $0.1 million reported in 2020
- Flora received a boost in its operations when Colombia’s president accepted and signed reforms to the existing cannabis legislation
- The updated law allows for the manufacture, sale and export of psychoactive (high-THC) cannabinoid ingestible and medical products and removes marketing limitations on cannabis products in Colombia
- Flora is also planning to relocate its headquarters to Miami by Q1 2022
Founded in 2019 and leveraging low-cost cannabis cultivation, an expansive brand and product portfolio, and a strategic global distribution platform, Flora Growth Corp. (NASDAQ: FLGC), an internationally focused cannabis consumer packaged goods company, was featured in a recently released equity research report by Argus Research Company (https://ibn.fm/5mNd1).
Argus believes Flora is attractively valued relative to its peers based on its low-cost structure, robust brand portfolio and growing worldwide distribution. It further offers its stock a fair value estimate of $7.50 per share, more than 100% above the $3.24 recorded on July 20. The valuation, calculated using the EV/revenue analysis based on the Argus’ projection of Flora’s 2022 revenue of $32 million — up from a reported 0.1 million in 2020 and an estimated $9 million in 2021 — and an assumption that the company will have $30 million in cash, indicates that FLGC is seen as a worthy stock to follow and perhaps invest in.
In its earnings and growth analysis, Argus notes that its revenue forecasts for both 2021 and 2022 exclude the impact of recently announced transactions, suggesting that FLGC’s share price could exceed the $7.50 per share fair value estimate. The transactions Argus was alluding to are a signed letter of intent (“LOI”) to acquire 100% of Koch & Gsell, a leading natural Swiss hemp product manufacturer and owner of hemp brand Heimat, for a stock-based consideration of about $22.2 million, and another LOI for an initial equity investment of approximately $2.4 million (€2 million) into Hoshi International, a vertically integrated medical cannabis company.
Kock & Gsell boasts a retail network of more than 2,500 stores in Switzerland and can produce more than 40,000 packs of hemp and hemp-tobacco-blended cigarettes per day. Flora views this acquisition as an opportunity to enter the Swiss market and to leverage their proprietary technology by bringing it to other international markets, while Argus believes this transaction will potentially expand FLGC’s revenue.
The equity investment in Hoshi aims to strengthen Flora’s European supply chain and offer access to the rapidly growing EU market. Hoshi, which has a finished products facility in Malta and a wholesale processing facility in Portugal, already has distribution agreements in Poland and Germany, while in other European countries the negotiations are still ongoing. “The investment will establish Flora as a preferred strategic supplier for Hoshi and provide it with a European manufacturing presence and the ability to import Colombian-grown flower and derivatives into Europe,” reads the report (https://ibn.fm/oaMml).
Notably, the equity investment comes as the Colombian government, through the president, accepted and signed into effect reformed cannabis legislation aimed at augmenting access to cannabis products for Colombians. The revision also allows for the manufacture, sale and export of psychoactive (high-THC) cannabinoid ingestible products, removes marketing limitations on cannabis products in Colombia, and legalizes the sale of CBD medical products (https://ibn.fm/q44v1).
For Flora’s Kasa Wholefoods, a company that produces food and beverages, the change is welcome news. With a distribution agreement to supply food products to Tropi, Colombia’s largest food distributor boasting a distribution network of more than 130,000 points across 38 cities, already announced, the legislative update is expected to increase revenue growth and generate even greater sales of its hemp and CBD products than initially anticipated. Moreover, the change bodes well for Flora Lab, FLGC’s derivative manufacturing and R&D center.
The revised law also positions Colombia as the leader to supply the international cannabis market, leveraging its favorable climate for cannabis cultivation and its low production cost in certain regions of the country. Flora immediately reacted to the legislative update by signing an LOI with Kiricann, a South Africa-based international distributor with distribution agreements in the EU and Germany, to supply raw cannabis materials (dried flower) and its derivatives. Flora expects to sign more of these agreements in the near future as the global cannabis market starts taking note of Colombia’s high-quality cannabis and low-cost production.
Located near the equator, Flora’s Cosechemos cultivation facility enjoys 12.8 hours of daily sunlight throughout the year, translating to an average daily temperature of 65°F. Additionally, the Bucaramanga region experiences consistent three mph wind that reduces instances of harmful, wind-borne pathogens and pollens. Additionally, the region’s organic nutrient-rich soil permits high-density planting and is some of the most fertile soil in the world. Flora also has access to highly skilled and affordable labor at only 10% of the cost of hiring such a workforce in the United States.
Flora’s cultivation property combines all these advantages with additional benefits exclusive to its expansive farm — Cosechemos is licensed to grow cannabis on 247 acres. These unique benefits include the presence of six natural spring water deposits within the sizeable facility, as well as a $10/acre long-term monthly lease. The overall result is the ability to cultivate both high-THC and high-CBD cannabis at a production cost of $0.06 per gram, which is 60% lower than its closest Colombian competitor’s reported cost of $0.15. In comparison, North America-based cannabis producers average a production cost of $1.89 per gram (https://ibn.fm/F0Ri).
Elsewhere, Flora also announced its plans to relocate its headquarters to Miami, specifically in Florida’s Brickell financial district, by Q1 2022 (https://ibn.fm/ZnjnE). This announcement follows an exhaustive review process guided by the company’s focus on creating global growth opportunities. According to Flora Growth President and CEO Luis Merchan, Miami satisfied the following requirements: travel & logistics (including time zone), business climate (state corporate tax rate and receptiveness to the cannabis industry), and personal life factors (including talent pool and cost-of leaving).
For more information, visit the company’s website at www.FloraGrowth.ca.
NOTE TO INVESTORS: The latest news and updates relating to FLGC are available in the company’s newsroom at https://ibn.fm/FLGC
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