The World
Jun 9, 2021
Last month, we initiated coverage on Flora Growth Corporation (Nasdaq: FLGC) and published an article on the outdoor cultivator and manufacturer of cannabis products and brands for the global market.
Earlier this week, Flora announced a significant development and reported a letter of intent (LOI) to invest €2M investment in Hoshi International Inc., a European cannabis company. The transaction was Flora’s initial investment in the European cannabis company and we are favorable on how the deal advances its global growth strategy.
The strategic investment is expected to further enhance Flora’s ability to capitalize on burgeoning European cannabis markets and to provide additional distribution opportunities for its proprietary portfolio of internationally registered and recognized cannabis-based products.
Going forward, Flora plans to leverage Hoshi’s experienced leadership team and deep understanding of global medical and recreational markets to analyze additional markets and to expand production and distribution capabilities. Hoshi’s infrastructure is expected to serve as a springboard for the distribution of Flora’s Colombian cannabis and product portfolio into the European Union (EU).
For several years, we have been bullish on the long-term growth prospects that are associated with the cannabis opportunity in the EU. We believe the experience of the management team will serve as a catalyst for revenue growth for Flora’s operating divisions and will monitor how the story advances from here.
Investment is Expected to Enhance Overall Growth Prospects
Flora’s proposed investment into Hoshi will establish Flora as a preferred strategic supplier to Hoshi’s two EU processing facilities which are located in Portugal and Malta. We consider these markets to provide attractive avenues for growth in the EU and will monitor how these regions start to generate revenue for the business.
The investment supports the company’s plan to launch Flora-branded products in burgeoning cannabis markets across the world. The combination of Hoshi’s expertise and network with Flora’s low-cost production model that is centered around selling high-potency products and establishing high-profile cannabis brands.
We believe Flora is executing on a strategy that is focused on creating synergistic relationships where its core competencies have minimal overlap. The relationship could provide both operators with a competitive edge to capitalize on the EU cannabis market which has been growing at a rapid rate.
Hoshi’s wholly-owned subsidiary has a letter of intent with Malta Enterprise, the economic development agency for the Republic of Malta (a member of the EU) to import, process, produce and distribute finished cannabis and cannabis derivatives products. The final license is expected to be issued by the Maltese Medicines Authority upon inspection and completion of the EU-GMP compliant cannabis processing facility.
Hoshi has also been awarded a conditional license for cultivation and processing in Portugal for both greenhouse and outdoor production. We expect the strategic partnership to provide Flora with a manufacturing footprint in the EU that allows us to build and distribute branded products to new customers.
Hoshi has strategic distribution agreements in the United Kingdom, Germany, and Poland. The company is actively pursuing and negotiating additional distribution agreements in other strategic markets and we are favorable on the potential growth prospects that are associated with its expansion strategy.
Has an Attractive Business Model and is Proving to be an Execution Story
We are favorable on the verticals that Flora’s management team have identified as attractive growth markets as well as the structure of the business. With 5 divisions and more than 280 products, the business has more than 2,500 distribution points in Latin America and in the US. Over the next year, we expect this number to increase and believe the focus on the EU will support the growth of the business.
Another reason for our favorable view on Flora is related to how Colombia’a climate is ideal for cultivating cannabis. Several operators in the region have reported all-in cannabis production costs that are less than $0.10 each, while Flora has reported all-in costs of $0.06 per gram and we find this to be a key aspect of the story.
Last month, Flora announced a major milestone and reported to have expanded into the UK and Costa Rica. Initially, the company will fulfill initial orders from two new distributors and we will monitor how the business grows in these markets. We believe that Flora is in the early innings of a multi-national growth strategy and are favorable on how the business has advanced so far this year.
Over the long-term, Flora expects to scale production and supply cannabis derivative products to the global market. Due to the scale and the diversity of the business, the company should see margin appreciation as it continues to grow. We believe that Flora is in the early innings of a major growth cycle and will continue to closely follow the story.
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