Most cannabis companies that list their stocks in the United States grow their products in indoor greenhouses, often in Canada.
But a company named Flora Growth that went public on the Nasdaq on Tuesday is taking a different approach. Although headquartered in Toronto, its agricultural operations are in Colombia. And it cultivates cannabis the old-fashioned way: outdoors.
Why? It’s a lot cheaper.
It costs Flora Growth just 6 cents to cultivate a gram of dry flower for medicinal grade cannabis in Colombia, compared to about $1.25 a gram indoors in North America, CEO Luis Merchan said in an interview with CNN Business before the IPO.
Yet other companies aren’t racing to South America, he said, because it takes time for companies to get approval from the Colombian government for licenses and registration to set up cannabis facilities.
Major firms selling in the US and Canada also usually prefer to have their products grown closer to home. For example, Canopy Growth (CGC), a leading Canadian cannabis company whose major investor is Corona-owner Constellation Brands (STZ), announced last year it was ending cultivation operations in Colombia in order to focus more on local suppliers around the globe.
Flora shares fall in IPO
But investors didn’t seem too impressed with Flora Growth, which makes cannabis-based food and beauty products. Shares fell more than 4%. The company priced its offering at the high end of its proposed range.
Flora Growth is still tiny compared to larger cannabis firms like Canopy, Altria (MO)-backed Cronos (CRON) and Tilray (TLRY), which recently merged with Aphria to create the world’s largest pot company.
Flora generated just $106,000 in revenue last year as it started to ramp up production, and the company is not yet profitable. But Merchan pointed out that at a time when many private companies have chosen to go public via mergers with blank check special purpose acquisition companies (SPACs), Flora did a traditional initial public offering.
Major cannabis stocks surged at the start of 2021 -— in part due to more states legalizing marijuana and the fact that Democrats now control Congress and the White House. But shares have since pulled back sharply from their highs
But Merchan is confident the company will eventually make money as a low-cost producer of cannabis-related products — even in an increasingly crowded market.
He added that selling recreational cannabis, i.e. pre-rolled joints or other products that consumers can smoke or vape, is not a high priority right now. Instead, Flora Growth is focusing on things like cannabis-infused chocolate and other candy, as well as personal care products.
Flora has a partnership with Paulina Vega, 2014’s Miss Universe and a former Miss Colombia, to sell CBD-infused skin care products. CBD, or cannabidiol, is a non-psychoactive component derived from cannabis and hemp plants.
Merchan said Flora decided to file for an IPO was to prove to investors that it can handle the increased scrutiny that comes with filing paperwork with the Securities and Exchange Commission.
He added that he believes the legal cannabis and CBD markets, which are growing rapidly as more states and countries legalize the sale of recreational and medicinal marijuana, can accommodate many players.
“We have robust cultivation facilities and we intend to use capital from the stock sale to expand our operations in the US, infrastructure in Colombia and sales team worldwide,” Merchan said.