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NEW YORK, July 26, 2021 /PRNewswire/ -- Argus Research, an independent investment research firm, has launched Equity Research Report coverage on Flora Growth Corp. (NASDAQ: FLGC)
Click Here to view full Argus Equity Research Report.
COMPANY HIGHLIGHTS: Excerpts (as conveyed by Argus Analyst Steve Silver) include:
FLGC: A Fast-Growing Global Cannabis Cultivator and Brand Builder
Flora Growth leverages cost-effective cannabis cultivation in Colombia to supply cannabis and its derivatives for an expanding range of products, including cosmetics, pharmaceuticals, food and beverages, and hemp-based textiles.
The company's outdoor cultivation operation in Colombia — along the equator and at an altitude of 1500 meters above sea level — benefits from favorable weather that allows for year-round organic growing. Flora's production costs are also significantly lower than those of its Colombian peers, at less than $0.06 per gram.
To complement its cultivation capabilities, Flora is building an extraction and processing facility in Colombia. It is also developing a wholesale cannabis distribution business, and is expanding internationally through acquisitions and partnerships.
In our view, Flora Growth is well capitalized, with $30 million in proceeds from a December 2020 private financing, $16.6 million in IPO proceeds, and the expected infusion of more than $20 million from the exercise of warrants.
We believe that Flora is attractively valued relative to peers based on its low cost structure, strong brand portfolio, and expanding global distribution. Based on our EV/revenue analysis, our fair value estimate for FLGC is $7.50 per share, more than two-times current levels.
INVESTMENT THESIS excerpts (Click Here to view full Argus Equity Research Report):
Founded in 2019, Flora Growth leverages cost-effective cannabis cultivation in Colombia to supply cannabis and its derivatives for an expanding range of products, including cosmetics, pharmaceuticals, food and beverages, and hemp-based textiles.
In our view, Flora Growth is well positioned to participate in a global cannabis market that BDS Analytics projects will reach $56 billion by 2026, up from $21 billion in 2020. The company's outdoor cultivation operation in Colombia — along the equator and at an altitude of 1500 meters above sea level — benefits from favorable weather that allows for year-round organic growing, and is expected to yield three annual crop cycles, compared with 1-2 cycles in other regions. These operations also have low water and electricity costs. Due to the open-air cultivation, its crop has shown more-robust growth yields over greenhouse cultivated crops, and a richer terpene profile, which enhances the flower's aroma. Flora's operations also benefit from a highly skilled agricultural workforce, with labor costs that are approximately 10% of those for comparable operations in the United States.
As a result, Flora is able to produce dry flower at a significantly lower cost than most growers. Its production cost of approximately $0.06 per gram compares with costs that can exceed $1.00 per gram in certain parts of North America. Its costs are also lower than those of its Colombian peers, with its closest peer currently producing at $0.15 per gram. Management estimates that Flora's all-in costs, including packaging and transportation, are closer to peer average costs for cultivation alone, and significantly lower than the all-in costs of growers in other regions.
In our view, Flora is well positioned relative to rival growers in Colombia. While the Colombian government has issued approximately 700 cannabis cultivation licenses, less than 10% are being actively used for growing operations. Moreover, only three companies in Colombia have the capabilities and infrastructure to support a growing export market. Internationally, Colombia competes with Canada and Portugal in the export market, though Canadian and Portuguese producers face higher costs. Colombian cannabis exports are currently subject to quotas, though we expect an open market system to develop over time.
We believe that Flora's cultivation and manufacturing capabilities provide barriers to entry for potential competitors. The company complies with rigorous certification and regulatory requirements, including GACP for cultivation and GMP for manufacturing; tracks cannabis genetics from the source flower; and provides a certificate of analysis for all products and derivatives in order to provide end-users with a consistent product. Flora estimates that it is approximately 90% through its organic certification process. Flora also seeks supply-chain partners around the world with the same commitment to quality control, this in order to penetrate the global markets more rapidly.
Flora Growth completed its initial public offering and began trading on the Nasdaq in May 2021. Supported by capital from a Regulation A+ financing in late 2020, proceeds from the IPO, and additional capital expected from the exercise of "in-the-money" warrants, Flora is executing on three key initiatives: first, to develop a global supply chain that will allow it to move cultivated product around the world; second, to further expand its brand portfolio; and third, to attract talented employees that will lead the company through its next stage of growth.
Flora Growth has established itself as an environmentally conscious company, and announced a commitment to environmental sustainability in June 2021. Its organic cultivation practices help to prevent the loss of topsoil, toxic runoff, water pollution, and soil contamination. In addition, as noted above, Flora uses the entire cannabis plant to create textiles, such as those used in its new Stardog Loungewear brand. This use of the entire plant supports a high ROIC and has helped to attract interest from sustainability-focused investors. The company has also focused on biodegradable packaging and the use of recycled materials. Its Mind Naturals Extra Hydrating Cream with cannabidiol (CBD) is sold in a 100% biodegradable container, and its KASA Wholefoods division uses recyclable glass bottles for beverages.
About Flora Growth Corp. (NASDAQ: FLGC)
Founded in 2019, Flora Growth Corp. manages a portfolio of international consumer brands supported by low cost, organic cannabis and cannabis derivatives that are used in a wide range of products, including cosmetics, pharmaceuticals, hemp textiles, and food and beverages. The company operates one of the largest outdoor cultivation facilities in Colombia, benefits from below-industry-average production costs, and prioritizes organic inputs and value-chain sustainability across its portfolio. Flora is also expanding internationally and growing its business through partnerships and acquisitions.
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Argus Research Co. has received a flat fee from the company discussed in this report as part of a Sponsored Research agreement between Argus and the company. No part of Argus Research's compensation is directly or indirectly related to the content of this assessment or to other opinions expressed in this report. Please refer to the full Argus report and the disclaimer for complete disclosures.
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