Colombia Lifts Legal Barriers, Marks Significant Step Forward in Cannabis Growth

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Aug 12, 2021, 08:30 ET

NEW YORK, Aug. 12, 2021 /PRNewswire/ -- In a move that many expect to make a significant impact on the cannabis sector, the Colombian government has approved exports of dried cannabis for medical and other industries; the pivotal move marks another step forward for the country as it develops its marijuana industry. Colombia already has other essential components in place, such as a robust infrastructure, access to skilled agricultural labor and a strong distribution network for its exports of certain cannabis products such as medicinal oils and extracts. The laws forbidding the exports of dried cannabis flower was a barrier to further growth, but that barrier was effectively removed when Colombian President Ivan Duque signed the legislative decree ending its prohibition. The move has ramifications for cannabis companies operating in the country and around the world, including Flora Growth Corp. (NASDAQ: FLGC) (Profile) and its expansive global operations. The broader industry should also benefit from this latest development since most majors, including Aurora Cannabis Inc. (NASDAQ: ACB), Organigram Holdings Inc. (NASDAQ: OGI), Clever Leaves Holdings Inc. (NASDAQ: CLVR) and HEXO Corp. (NYSE: HEXO), support the mainstream worldwide evolution of legal cannabis.

Colombia makes history by revising cannabis laws allowing the industry to flourish, this includes permitting the export of dried cannabis flower and domestic marketing.
Located in Bucaramanga, Colombia, Flora's Cosechemos cultivation facility is situated on a unique land package with fertile soil and an ideal climate for cannabis growth.
Free sunlight and water from natural onsite springs, along with optimized cultivation techniques, results in strong yields per cannabis plant.
Flora leverages its cost-effective cannabis cultivation and processing operations in Colombia to offer flower and its derivatives to clients and partners around the world.
Company offers some 280 products, owns cosmetic and pharmaceutical manufacturing licenses, and enjoys 2,500-plus points of distribution across Latin America and the U.S.

Click here to view the custom infographic of the Flora Growth editorial.

Colombia at the Forefront

Colombia offers near-perfect growing conditions for cannabis. The country's skilled labor and now incredibly friendly regulations have supported Colombia's rise in the legal cannabis space since it initially allowed the production of medical cannabis in 2016. However, while the government decriminalized cannabis, dried cannabis flower, or "buds," could only be permitted for export for very limited purposes (medical research) or had to be processed into a derivative such as an oil; the restrictions were designed to prevent the flowers from finding their way to the black market. Colombia's new law puts the country "at the forefront in terms of regulatory competitiveness," according to President Duque, who also noted that his country could now participate in new markets, including food, beverages, cosmetics, and textiles, in addition to pharmaceuticals.

When he signed the decree, Duque pointed out projections from experts in the space who have projected a $64 billion global legal cannabis market by 2024; he also noted that cannabis could serve as a tool for "economic reactivation" in Colombia post the COVID-19 pandemic. "According to a 2019 study, in Colombia, the cannabis sector generated 17.3 agricultural jobs per hectare," said Colombia's Minister of Justice Wilson Ruiz. The Colombian hierarchy seems determined to catapult the country into global leadership as a legal cannabis exporter in order to boost the economy and create a lot of jobs at home.

This new turn of events looks to provide a significant advantage for Flora Growth Corp. (NASDAQ: FLGC), which operates in the country and is focused on cannabis cultivation and processing in order to supply international markets with its premium brands and products largely focused in traditional consumer packaged goods (CPG) verticals such as pharmaceuticals, natural wellness, cosmetics, food and beverage, and hemp textiles. The new legislation looks to be especially promising for established Colombian licensed producers, particularly when considering the low production costs and that dried cannabis flower revenue potential representing the majority of sales in countries with mature markets, such as the United States, Germany, United Kingdom, and Australia.

Headquartered in Miami, Flora Growth already has established a globally recognized house of brands. Positioning itself to be one of the world's lowest-cost cannabis producers, Flora has strategically positioned itself as a global cannabis CPG company with a vast international distribution platform. Flora offers more than 280 products, owns cosmetic and pharmaceutical manufacturing licenses, and enjoys 2,500-plus points of distribution across Latin America and the United States.

In addition, Flora has two separate LOIs executed for significant acquisitions and is building partnerships designed to expand the breadth of its distribution reach by leveraging networks of others. Flora is against vertical integration and has established itself as a nimble, asset-light operation. This position allows the company to work with the best of the best in their respective channels to bring product to market and capture incremental revenue while at the same time derisking the prospect of entering new jurisdictions and channel segments. With all this in mind, the legislative changes in Colombia could be a significant growth accelerator with the potential to significantly increase revenues. Soaring revenues with high margin product is an attention grabber in Wall Street.

Flora in Position to Capitalize

Industry experts agree that outdoor growing is far less expensive than greenhouse cultivation, and Flora who has taken outdoor growing to the next level in Colombia. To ensure — and prove — product quality, Flora has sent samples to a registered lab for cannabinoid, microbial and pesticide testing; the company has already received back excellent lab results. Free sunlight and water in three pilot plantings on 4.94 acres at Flora's Cosechemos farm created the ideal setting for testing 30 varieties of non-psychoactive (high-cannabidiol or CBD) cannabis and optimization of its growing techniques, which resulted in a cost base of just $0.06 per gram. That compares to $1.89 per gram in North America, calculated through an average of four major North American licensed producers. With the new legislative changes, the Flora cultivation team has now gone into their seed vault of premium, world-class genetics and are excited to start producing high-THC cultivars.

Flora's cost is 60% lower than the next closest Colombian peer. Immediately following the announcement of Colombia's updated laws, Flora signed a letter of intent with an international distributor to supply dried flower and derivatives from its first commercial harvest and after the company receives all requisite import licenses. In addition, Flora also expects to start supplying Australian markets with medical cannabis, as well as over-the-counter CBD products via its already existing partnership with Evergreen Pharmacare.

Production of high-CBD strains of cannabis are well underway at Flora Growth's Cosechemos facility. The company is undergoing prep work to propagate strains high in THC, the psychoactive component in cannabis. Additionally, the company is constructing an extraction lab at the facility; the lab will meet all requisite standards and is expected to be completed this quarter. After completion, the company will immediately seek EU-GMP certification. As soon as Flora receives approval to export its cannabis products, the company will be positioned to immediately capitalize on the massive global dried cannabis flower market segment that was previously unavailable.

Ideal Cultivation Combination

Colombia's climate is ideal for the cultivation of cannabis all year long, and Flora owns and grows on some of the country's best farming acreage. Flora's Cosechemos farm in Bucaramanga, Colombia, covers 247 acres (10.8 million square feet). Flora also holds the rights to another 5,268 acres (230 million square feet) licensed in Puerto Boyacá, Santander, about 170 miles southwest of Bucaramanga.

Situated on the equator, Flora's licensed land coupled with Colombia's climate is ideal for year-round cannabis cultivation. The property receives 12.8 hours of sunshine 365 days per year. Its extremely fertile soil and optimal wind conditions (3 mph average) help reduce risks of contamination from other plants. The land also hosts six natural spring water deposits, resulting in no water costs for Flora.

Colombia is the cut-flower capital of the world, and a top producer of coffee, bananas and more, resulting in a highly skilled agricultural labor force that work for roughly one-tenth of comparable peers in the United States. The combination of these factors facilitates a minimum of three harvests per year, which is up to three times that of its North American peers cultivating outdoors.

Door Opens for New Opportunities

Another positive move is Colombia's removal of marketing restrictions on its domestic cannabis products. This allows Flora to advertise across its portfolio of products to drive sales at its more than 1,500 points of distribution throughout Colombia. Marketing could also be beneficial as it relates to an LOI with Avaria for Flora to introduce Avaria's KaLaya, an award-winning pain cream distributed across Canada to Colombia and the Americas.

Finally, the new Colombian regulations allow cannabinoid-infused food and beverage, which opens the door for developing new products as well as introducing products already available in Flora's Kasa Wholefoods food and beverage unit. Incidentally, the new Colombian laws coincide with the recent signing of a distribution agreement between Kasa and Importaciones y Asesorias Tropi S.A.S., Colombia's largest CPG distributor; that agreement is expected to generate $10 million in annual revenue for Flora by delivering premium and sustainable canned products to Colombians, with the opportunity to expand the product line in the future.

Destined for Growth

The $64 billion market by 2024 that Duque referenced seems in line with other forecasts. Earlier this year, Fortune Business Insights noted that it foresees the global cannabis market reaching $97.35 billion by 2026 with 32.9% compound annual growth. Certainly, the legal cannabis market appears destined for impressive growth, which breeds bullishness in major players throughout the world.

Aurora Cannabis Inc. (NASDAQ: ACB) recently shipped its first European-produced shipment of medical cannabis to the German market. According to the company, the first batch of dried flower medical cannabis comes from Aurora Nordic, a subsidiary. The high-quality product is being shipped to German pharmacies and is a significant milestone for the company and its expanded supply solution for the European market, which is experiencing significant growth. The subsidiary has more than 9,200 m production space and can produce an estimated 10,000 kg of medical cannabis a year, making it ideally suited to serve the European and other international markets.

Earlier this year, Organigram Holdings Inc. (NASDAQ: OGI) unveiled its newest dried flower offering: Big Bag o' Buds. This lineup of products features a roster of well-known genetics and an exciting rotation of one-time offerings in a 28g format. "Customers across the country continue to express the importance of large formats and new genetic offerings at an appealing price point," says Organigram senior vice president of sales and commercial operations Tim Emberg."Without a doubt, Big Bag o' Buds delivers on all of those points but also offers Canadian consumers a continuous pipeline of new cultivars reflecting our team's ongoing search for and development of new terpene profiles and phenotypic expressions."

Clever Leaves Holdings Inc. (NASDAQ: CLVR) is also well positioned to take advantage of the changes in Colombian law and the opportunity to commercially produce and export dried cannabis flower. The company is planning to leverage its Colombian-based 1.8 million-square-foot CUMCS GACP-certified cultivation facility, along with its EUGMP Part II certification covering the production of dry flower. Following Duque's announcement, the company noted that Colombian flower complements its already-strong Portuguese flower production, providing opportunities for Clever Leaves to present a comprehensive portfolio, covering different strains and growing conditions, that will suit ever-evolving patient needs.

HEXO Corp. (NYSE: HEXO) is an award-winning licensed producer of innovative products for the global cannabis market and, with its most recent acquisition, is strengthening its foothold in the United States. The company recently closed on the purchase of its first US production facility through a wholly owned US subsidiary. The 50,000- square-foot facility in Fort Collins, Colorado, will provide US CPG companies and consumers access to HEXO's proprietary technology and products. "The Colorado facility will allow us to successfully execute on our US strategy, which includes supplying high-quality Powered by HEXO(R) technology and leveraging our intellectual property portfolio across the United States," said HEXO Corp CEO and co-founder Sebastien St-Louis.

The cannabis market around the world seems headed for notable growth as the industry changes from one of pure speculation to one strengthened by solid fundamentals and real investment opportunities. Mounting revenues and high margins are strong indicators of eye-catching success moving forward.

For more information about Flora Growth Corp. (NASDAQ: FLGC), please visit Flora Growth Corp. (NASDAQ: FLGC).

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