Flora Growth is a Canadian company headquartered in Toronto that went public on the Nasdaq yesterday. It cultivates cannabis the old-fashioned way: outdoors. This allows them to cultivate grams of dry cannabis flower for medicinal use at just 6 cents a gram—compared to $1.25 per gram to grow indoor in North America, these are impressive savings! But investors aren’t happy with this, as shown by how the company’s shares dropped by 4%.
Is the company cutting corners to deliver a cheaper product?
Some might think so. But who’s to say that this isn’t the right move to dominate the market with affordable products?
Investors aren’t thrilled with the announcement, which becomes obvious with the 4% decrease in Flora Growth’s share value. New Cannabis Ventures reported that the stock is to be offered at US$5.00 per share to the public, which would gross the company US$16,666,665 in proceeds.
But other canna-companies aren’t taking the plunge to cultivate in South America. The CEO of Flora Growth, Luis Merchan, discussed the situation.
Merchan says that the Columbia government doesn’t just give the approval to get licenses and register for cannabis facilities; it’s a time-intensive process. Despite the cheaper production, many companies prefer to make their purchases locally.
Canopy Growth (CGC) used to grow its products in Columbia. But after last year’s announcement that it would no longer grow there, instead, preferring local suppliers distributed globally.
Also important to note is Flora Growth’s size. Unlike Canopy, Altria (MO)-backed Cronos (CRON) and Tilray (TLRY), which recently merged to form the largest operation on the planet, Flora Growth is small.
In 2020, Flora earned only $106,000 in revenue. While it was just ramping up its product line, the company still isn’t profitable. But Merchan explained that even though many private companies are going public using mergers with black check special purpose acquisition companies (SPACs), Flora chose to go with a traditional initial public offering.
In January, significant cannabis stocks were soaring sky-high. This movement resulted from the states that legalized and the shift in the White House and Congress to Democratic control.
However, Merchan thinks that low-cost production for cannabis-related products can bring the company to a state of profitability, despite the competition entering the space.
He also noted that Flora Growth isn’t focusing its efforts on recreational products. Cannabis-infused candy and personal care products will lead its product line.
Partnering with Paulina Vega, 2014’s Miss Universe and a former Miss Columbia, Flora Growth is promoting its CBD-infused skincare products, too.
The decision for Flora to file for an IPO came with the idea that investors would see the company’s ability to handle the scrutiny that came with filing paperwork with the Securities and Exchange Commission.
Equally important to consider is Merchan’s idea that the legal cannabis and CBD markets can support the competition. As more states legalize adult-use and medical marijuana sales, this is proving to be true.
CNN Business reports Merchan as saying, “We have robust cultivation facilities, and we intend to use capital from the stock sale to expand our operations in the US, infrastructure in Columbia, and sales team worldwide.”
