In a statement, the Florida-based company said the exit will be a complete one as it sells off all its Colombian assets, including its 361-acre Cosechemos farm located in Girón, Santander (near Bucaramanga); processing plants in the country; and many of the company’s assets related domestic food, beverage, and consumer products, 

This sale is expected to give the company around $6.1 million USD in reductions to its annual expenses, as well as $3.4 million USD in “divestiture of the Colombian assets,” said Clifford Starke, chief executive officer of Flora Growth, in a statement.

He added that the sale will help the company focus its attention on the United States market.  “The divestiture of our Colombian assets is part of our plan to concentrate on core business divisions — this being a prominent lifestyle brand in the United States and a player in international pharmaceutical distribution focused on therapeutics, starting with medical cannabis,” said Starke.

The sale comes as the company’s first quarter financial results for 2023 show a net loss of $3.9 million USD, despite increasing revenue to $20.1 million USD in the quarter, something  blamed on the company’s operational expenses and export challenges from its Cosechemos farm. 

“With respect to the challenges in exporting cannabis, we did not have the inventory of premium cannabis material required for the fulfillment of pending purchase orders and purchase intent notices in the first quarter,” said Hussein Rakine, a board member of Flora, in a statement. “In addition, the export process from Colombia has proven to take longer and operate with less consistency than we had anticipated.”

The company reported a net loss last year due to high operating expenses, according to Flora’s statements. Its first quarter financial results for 2022 reported a net loss of $7.6 million USD, and its 2022 year-end report had a net loss of $52.6 million USD despite record fourth quarter revenues. 

After the sale with the private company, which is expected to be finalized today, according to the company, Flora Growth will remain in the Latin American market through its Just Brands’ distributor relationships, which it acquired in February 2022.

Photo: Flora Growth executives ringing the closing bell at the Nasdaq in New York in 2021. (Photo credit: Flora Growth)

Of the appointment, former-Chairman and CEO, Luis Merchan said, “At Flora we have consistently placed human capital as a critical part of our M&A strategy. That’s why today we are honored to have the former founder of a company we acquired last year join the Board and be named as CEO. I believe Hussein’s appointment will ensure continued growth within the company.”

“I am enthusiastic about collaborating with our board of directors, executive team, and all stakeholders to bring Flora’s business plan to fruition,” said Hussein Rakine. “In a nascent industry such as ours, it’s critical to stay nimble– and that is what I intend to do as I lead Flora into the next phase of growth. I would like to express our sincere appreciation to Luis for his unwavering commitment and dedication to the company during his tenure. We wish him all the best in his future endeavors.”

Luis Merchan resigned as Chairman & CEO of Flora Growth.

Merchan stated, “I am grateful to all those who have contributed to Flora’s success and helped establish it as a leading cannabis company. Working with our dedicated investors, board, and talented team over the past four years has been a tremendous honor. Although every journey must ultimately come to a close, I am confident that Flora’s future is bright, and I wish Hussein and the entire team continued success as they pursue the company’s growth and expansion.”

Merchan has pledged to assist the company to ensure a smooth and organized transition.

“We would like to address the current state of the market and emphasize our commitment to long-term success in the industry. With the global policies set to reignite the market, we are confident that there is significant potential for growth in the broader market. We acknowledge that we are still in the early stages of this industry, and we see significant upside potential moving forward. We remain optimistic about the future of this sector and look forward to playing a leading role in its continued growth and success,” said Rakine.

“Through this proposed acquisition, we are connecting our commercial infrastructure and medical cannabis product portfolio to the German and EU medical markets, while gaining direct access to European pharmaceutical distributions,” said Luis Merchan, Chairman and CEO of Flora Growth. “We believe Franchise will significantly increase our commercial international revenue and provide essential distribution to German pharmacies and a growing wholesale market.”

Franchise Global Health reported revenue of approximately $23.4 million USD for the 6 months ended June 30

FGH’s German reportable segment achieved revenues of $30.1 million CAD, gross profit of $2.1 million and net income of $0.4 million in the first half of 2022. FGH’s German businesses operate primarily in the export pharmaceutical and medical cannabis import and distribution markets, servicing 1,200 pharmacies in Germany and providing non-cannabis medical products to 28 additional countries.

This acquisition is expected to accelerate Flora’s expansion into the European cannabis and pharmaceutical markets with prescription medicines and would provide the company with immediate access to intellectual property that FGH has developed, including 41 registered cannabis strains in Colombia and the first registered cannabis seed bank in Copenhagen, Denmark housing 286 strains. The proposed acquisition would further allow Flora to expand its CBD business in Europe by utilizing FGH’s distribution and logistics capabilities.

The combination of Flora and FGH is expected to deliver at least $3 million USD of annualized cost synergies within the first year following the completion of the acquisition, primarily in the areas of reduced corporate administrative expenses.

“Luis and I share the same vision of establishing a leading and sustainable cannabis business. Flora has the right platform to execute on this strategy through M&A and organic growth. We are excited to join forces,” says Clifford Starke, CEO and Executive Chairman of FGH. “Together we have a solid revenue base, a proven consumer packaged goods business that can be replicated in Europe, and a successful distribution network. Over the past few months, we have worked tirelessly to identify synergies, reduce costs, and build an industry-leading team.”

The proposed all-stock acquisition of Franchise Global Health Inc. will result in Flora’s indirect acquisition of its subsidiaries, including the Hilzingen-based Phatebo GmbH, a distributor of export pharmaceuticals and medical cannabis products to the European Union and ACA Müller ADAG Pharma Vertriebs GmbH (“ACA Müller”), which holds the first German medical cannabis import and distribution license, granted in 2017.

“As our global distribution network continues to evolve, adding these three industry-leading countries to our footprint is a major milestone for Flora,” commented CEO and Chairman Luis Merchan. “Our cultivation operation in Colombia, which provides high-quality, high-margin flowers and derivatives, has experienced increasing demand. These exports are a testament to our team’s ability to execute in a very complex global regulatory environment and create new commercial revenue for our company.”

With this news, Flora also launched its online store, where authorized customers may place orders for high-THC and high-CBD dry flowers as well as related items.

Merchan elaborated: “We are very proud of the progress we’ve made at our cultivation and extraction facility in such a short amount of time. We now have the capability to cultivate, harvest, and extract at a single facility and deploy that extract into our owned products or sell on the wholesale market around the world. When you think about the compounding value of owning our own supply chain, this becomes the cornerstone of that formula.”

“We are also proud to help increase access to safe, legal CBD and THC to consumers all over the globe,” Merchan continued. “We look forward to working closely with our partners in Europe and North America to bring high-quality Colombian cannabis products and raw materials to market.”

Alongside these new markets, Flora Growth announced that its Florida-based subsidiary, Just Brands LLC, acquired nearly all the assets related to the brand No Cap Hemp Co. At closure, the company did not pay any compensation for the No Cap assets. Instead, Flora will pay to the sellers 10% of the gross revenue received from the sale of No Cap products up to a maximum of $2 million USD.

“This transaction will allow Flora to immediately benefit from a profitable, cash flow positive and growing business,” said Merchan. “This strategic acquisition demonstrates our disciplined capital allocation approach that is consistent with both short-term needs and long-term vision as a leading global cannabis company. We look forward to increasing our product offering through this transaction while broadening our sales team in the process.”

The No Cap purchase would hasten the addition of premium flowers, pre-rolls, and smokeable to Flora’s expanding product lineup as well as Just Brands’. The No Cap brand will be supplied via Flora’s approximately 14,000 points of sale, and Just Brands would further develop their flower and smokeable portfolio.

The No Cap purchased assets, together with the “No Cap” and “Moonblunt” trademarks, are anticipated to add about 75 SKUs to Flora’s product line. Meanwhile, Flora Labs’ production capacity should be complemented by No Cap’s gas infusion technology.

“No Cap’s unique product offering coupled with JustCBD’s robust distribution positions Flora to be the leader in the alternative cannabinoid segment,” Merchan assured. Flora had completed the acquisition of JustCBD in February, which provided the company with a portfolio of 300 products, a direct-to-consumer business with 300,000 customers, and a network of 14,000 stores in the world.

These recent acquisitions have helped Flora Growth in securing the Best M&A Deal award at Benzinga’s 2022 Cannabis Capital Conference in Chicago, on September 13. According to Merchan, this prize “recognizes our strategic M&A objectives including acquiring products, expertise, expanding distribution, and customers.”

Recent financial figures for the first quarter of 2022 from Flora Growth showed a rise in sales to $15 million USD, up 604% from the first quarter of 2021 and 117% from the second quarter of 2021. As for the CBD market worldwide, the industry is anticipated to grow from $4.9 billion USD in 2021 to $47 billion USD by 2028.

Luis Merchan, the CEO of Flora Growth.

Photos courtesy Flora Growth

Flora Growth (NASDAQ: FLGC) is one of the companies at the vanguard of formulating new products, but the company has also been financially innovative, listing on NASDAQ in the US rather than following most other sector companies with operations based in Colombia that list on Canada’s TSX.

With legal headquarters in Fort Lauderdale and almost 500 acres for cannabis cultivation in Colombia, Flora Growth’s business model spans consumer goods and medical formulations. Finance Colombia’s Executive Editor Loren Moss caught up with Flora Growth CEO Luis Merchan to discuss some recent developments with the company, and the significance of the decision by Colombia’s health ministry to Flora Growth, and to the sector more broadly.

Finance Colombia: One of the things I wanted to start with is that I noticed that you signed a distribution agreement for some of your products, is that correct?

Luis Merchan: That is correct. There are several of them that have been signed over the last couple of months. My team continues to expand not only on the wholesale side of our operations but also on the CPG side of the operation in terms of distribution and revenues.

“The change by the Secretary of Health, by the Ministry of Health, puts Colombia at the vanguard in terms of regulatory and legal framework for medicinal cannabis in the world. “

Finance Colombia: Can you tell me a little bit about the distribution deals? I think I saw that some of your products are going to go into Mexico and some other markets.

Luis Merchan: Yes, as you know Loren, Mexico is a very active cannabis market. There’s a new law that is being evaluated as of today that would allow several categories of products with less than one percent THC to be sold as normal, non-regulated CPG products, which would be an incredible step towards the distribution of wellness products in the country. Our agreement was for distribution initially of our floral beauty products. Those products are actually being sold already in major retailers in Mexico like Walmart.com and Coppel, which is a massive store chain with over 300 distribution points across the entire country, so clearly we continue to make inroads, not only from a distribution and sales standpoint but also from the regulatory standpoint.

Finance Colombia: I saw that the stock took a nice bump when that news was announced. Now, here in Colombia, we recently published an article and we see where the Ministry of Health, they issued a…in the US, we call it something like a pharmacopeia, but they issued updated guidelines for what medicines and treatments are covered by the EPS, by Colombia’s publicly supported health insurance providers or healthcare providers that are known here locally as EPS (Entidad proveedor de salúd, or Healthcare provider entity), and it’s interesting because one of the things that caught our attention was that they added cannabis, both CBD and also THC products to their list of medicines that insurance companies not only can cover but actually must cover. So I wanted to get your input on how impactful that is and what that means for the industry, specifically for patients, but then also specifically for Flora Growth.

Luis Merchan: Yes, Loren. It’s a significant change. I think there’s three major topics to cover here. First, the change by the Secretary of Health, by the Ministry of Health, puts Colombia at the vanguard in terms of regulatory and legal framework for medicinal cannabis in the world. This move is very meaningful; it allows patients that are suffering from major ailments such as anxiety, depression, pain, insomnia, all these ailments, they have access now to cannabis molecules. The doctors also now have the ability to prescribe such cannabis formulations, which is a very meaningful step, and also of course puts Colombia in a very strong position in terms of how to approach the medicinal regulatory environment.

For the patients, it’s significant, and obviously patients today have for long talked about the empirical benefits of cannabis and they secure most of their cannabis formulations from the black market today, and they do it because they have to. And of course what happens with those types of formulations is that they do not have the quality standards that medical formulations should have, so they inadvertently are putting themselves at risk. Now they are not going to have to do that, they can go to their doctor, they can ask for the formulation and the doctor can give them a prescription, and so it makes it safer for patients to have access to medicinal cannabis.

And for companies such as mine, it’s a major step towards not only broadly distributing products and formulations that are already in existence, but also a significant economic revenue that can be guaranteed, almost guaranteed in an environment like Colombia where you can actually bill public entities for the formulations that are being given to patients.

Finance Colombia: I know that there are all kinds of different treatment options. There are traditional hospitals, there are doctors that are private practitioners, there are clinics that are also known as IPS down here, which are obviously different than the EPS, which are more of like what we would call a PPO back in the States. But then I see that there have also been, on a limited basis, treatment clinics that have opened up, kind of for palliative care and for treating other different things. Now, one of the interesting things about Flora, about your company, is that you guys have a really interesting distribution model because you have cannabis derived products, you have things like cosmetics, you have health foods, you have hemp textiles. One of the things I don’t remember us talking about is pharmaceutical products or medicines. How are you involved in this space when it comes to healthcare or prescription medication?

Luis Merchan: Actually, our laboratory has the ability to manufacture a wide array of products including phytotherapeutics, dietary supplements and capsules. We today manufacture skincare solutions for almost a thousand doctors that develop custom formulations for their patients and distribute them on a one-to-one prescription basis, so for us it’s a plug-and-play move. We are going to now be able to manufacture our cannabis formulations, what in Colombia’s called magistral custom formulas, and be able to plug in to that network of doctors that is already in existence. So, that would be the easier shorter route to gain access, to give access to patients and doctors to our products and formulations.

Luis Merchan, the CEO of Flora Growth.

But as you mentioned, I think the bigger play here is to plug into the broader EPS network; educate doctors on the benefits of each one of the formulators that we have available so then they are comfortable prescribing patients when they’re coming, to treat a number of ailments. So, this is going to be a campaign that is going to take some time, but our intent is to educate the medical community in Colombia with the many partnerships that we have, and we actually have developed this very robust cannabis education programs for doctors and ensure that then they in turn start prescribing these safe formulations for the treatment of the many elements that patients are looking for today.

Finance Colombia: Like you mentioned, you have your laboratory. You guys have your INVIMA registration…INVIMA, for those who don’t know, is kind of like the Colombian version of the FDA, the Food and Drug Administration back in the States. You mentioned the magistral, the custom formulas. Now, I noticed that you have on your website, which is floralgrowth.com, where it talks about the laboratory, there’s a place for people that are interested in becoming Flora Lab distributors. What kind of companies are the good candidates for distribution? Pharmacies? CPG (Consumer Packaged Goods)? Are there maybe other companies that use the ingredients? How does your distribution model work in that respect?

Luis Merchan: When it comes to Flora Lab, we offer a broad array of products. There are branded products, over 65 of them that are INVIMA registered that we distribute worldwide, and any company that is a major distributor, that has access to points of sales in Latin America, in Central America, or all over the world can reach out to us and can become a distributor for those products. But there are other categories of products that are manufactured and sold at Flora. One of those is, of course, a prescription medication. We have a number of molecules that we plug into pharmacies and drug stores. We have, as I mentioned, phytotherapeutics, which is a very specialized area of therapy and treatment, and doctors and pharmaceutical distributors can reach out to us to plug into those categories of products. And then, lastly, we also have wholesale ingredients that we sell, and distributors that are interested in the wholesale side of distribution can also reach out to us and can become a part of the Flora distribution network.

“In North America we’re selling some of our products in 48 out of the 50 states, in Mexico, in Costa Rica. We are already selling some products into Canada. When you’re in Europe our footprint expands into Portugal, Malta, England…”

Finance Colombia: What markets, what countries have you guys expanded to so far? Where do you have a presence? I know you have different brands in different locations, but obviously you’re here in Colombia. But what other countries, obviously I think Mexico, I think Spain, but let me understand now what countries have Flora Growth products across your CPG and the pharmaceutical brands. Where can your products be found?

Luis Merchan: The list is exceptional, continues to grow, Loren, from a CPG perspective. We’re in the majority of Latin America as of today and at least the markets that are the most meaningful. I think the one market that is not there…It’s probably easier to tell you what market that we haven’t penetrated yet but we’re looking to, in South America is Brazil, because of the strict rules that they have in terms of distribution, but for the rest, in North America we’re selling some of our products in 48 out of the 50 states, in Mexico, in Costa Rica. We are already selling some products into Canada. When you’re in Europe our footprint expands into Portugal, Malta, England. We have now activated these distribution agreements in several countries across the globe, like Israel, like South Africa, Germany and Australia. Those contracts will activate this year so that the flag has been planted but the revenue generation will not start until 2022, and the good news here is that our team is a global team in terms of distribution, sales and regulatory, so we’ll continue to evaluate which opportunities are opening up in terms of the regulatory framework and when those do, then we are ready to very quickly enter the market, and that’s what happened for example in Mexico, and that’s what will probably continue to happen in other countries around the world, so look forward to more countries being added to this list.

Finance Colombia: That’s great to hear. Obviously, we want you to keep us posted as we continue to cover, not just obviously the stock from a financial perspective, but also your growth as a company and your product line. It’s really good to see Colombian companies becoming true multinationals and becoming companies that are expanding into markets, not just here in Latin America, but in North America and in Europe and beyond, so it’s really impressive what you’ve been able to do in such a short time.

According to Flora, the company seeks to establish a partnership with the Artos team to expand their offering of cannabis products for the Israeli market to also include oils and, when regulations permit, finished THC and CBD consumer products. The export of the high-THC product is pending the dried-flower checklist from the Colombian government from the 2021 update to the cannabis law.

“As Cosechemos continues to reach full-scale commercial production, our team remains focused on increasing our presence in international cannabis markets through distribution agreements that will serve as a gateway into the markets,” said Luís Merchan, CEO of Flora Growth. “With Artos’ extensive distribution network, this agreement will ensure that safe, high-quality cannabis products are provided to the Israeli cannabis market and offer a valuable source of health and wellness products to the country.”

Flora Growth CEO Luis Merchan told Finance Colombia: “Our revenue growth quarter-over-quarter is indicative of the momentum that we’ve been building in our business, particularly in our food and beverage division where the appeal for our organic and exotic juices, chocolates, and premium canned products has never been higher. With the recent news from the Colombian government now permitting us to produce, market, and export a number of new cannabis products, we believe that Flora is poised for a breakout as we remain highly focused on the delivery of our expanding premium product portfolio to consumers around the world.”

During the webcast, management will deliver financial results, operational updates, and provide comments on recent growth and M&A initiatives announced in the period since the company listed its shares on the NASDAQ stock exchange on May 11^th, 2021. Following the presentation, Flora will offer analysts, media, and investors the opportunity to ask questions in a question-and-answer session.

“With our world-class, low-cost cannabis cultivation and processing operation in Colombia now permitted to fully fuel our global cannabis CPG strategy, we’re going to focus our attention on ramping up its operations, as well as continuing to establish new domestic and international partnerships in order to capture long-lasting opportunities that will help achieve further cost improvement, margin expansion, and drive incremental revenue growth across our brands and international distribution channels. We expect continued revenue growth going forward as we introduce new brands and products. Be sure to join our earnings call on Thursday, August 19^th at 4:30PM ET to hear about all the first half of our year and guidance looking ahead,” continued Merchan. 

Live Audio Webcast Details:

Date: Thursday, August 19^th, 2021

Time: 4:30 p.m. Eastern Daylight Time

Online Participant Link:
https://public.viavid.com/index.php?id=146246

Reply Dial-in:
Canada/USA: 1-844-512-2921
International Toll: 1-412-317-6671
Replay Access Code: 13722364

Available after 7:30 p.m. Eastern Daylight Time, until September 3^rd, 2021.

The live webcast will be available online through the above participant link and will be archived and available on the Company’s website within approximately 24 hours. If any member of the investment community needs access to a phone dial-in, please email flora@cmwmedia.com and one will be provided.

Flora Growth’s latest investor presentation and corporate deck can be found here.