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spk06: Greetings and welcome to the Flora Growth first half 2021 conference call. At this time, all participants are in a listen-only mode and this conference is being recorded. Following their initial formal remarks, Flora Growth will conduct a question and answer session. Webcast participants can submit a question directly through the webcast. Further instructions will be provided as the Q&A begins. The host of today's call will be Evan Verriard, Flora Growth's Vice President of Investor Relations. On the call with him today with prepared remarks are Louise Marchand, Chief Executive Officer, Jason Warnock, Chief Revenue Officer, Director and Lead Scientific Advisor, Dr. Annabelle Manalo-Morgan, James Williams, VP of Corporate Development, and Lee Lederman, Chief Financial Officer. They will be discussing the results for the first half of fiscal year 2021 and answering related questions. As a reminder, our first half earnings release was issued after market closed today, and a copy of that press release can be found in the Investor Center on FLORA's website and EDGAR. Now, I will turn over the call to our host, Evan Berriard.
spk11: Thank you, Operator. I would like to note that during this call, management's prepared remarks may contain forward-looking statements within the meaning of applicable securities legislation, and management may make additional forward-looking statements during the Q&A session. Forward-looking statements may include, but are not limited to, statements with respect to Florida's financial performance, growth in revenue and earnings, and business prospects and opportunities. Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from the conclusions, forecasts, or projections expressed or implied by such forward-looking statements. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. certain material factors and assumptions have been applied in drawing the conclusions or making forecasts or projections reflected in such forward-looking statements. A description of the factors that could affect and the assumptions underlying Flora's forward-looking statements can be found in the risk factors contained in Flora's fiscal 2021 first half financial results press release and in Flora's filings with the Securities Exchange Commission. Flora undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws. At this time, it is my pleasure to introduce Flora Growth's Chief Executive Officer, Luis Marchand.
spk09: Thank you, Evan. Welcome, everyone, to Flora Growth's first earnings call. Thank you to all of the participants for your interest in Flora. Today, my team and I will comment on the first half 2021 results as well as provide color on second half expectations with a focus on three key components to Flora's strategy. The developments that occurred with our wholesale cannabis operations, our robust M&A strategy, and an outlook on the expansion of our product portfolio. As a foreign private issuer, we are only required to submit financial results on a half-year basis, where we have six months to file the unedited results in order to maintain a high degree of transparency with the investor community, we have chosen to move forward the communication of this information and release results and forward-looking guidance today. Our full financials will be filed with the SEC within the following weeks. As these are our first financial results as a public company, we want to be 100% sure that our financials are in full compliance with all required standards and fairly represent our business the way it functions. To begin, as it is our first earnings call as a public company, it's important to provide some background on Flora Growth. At the beginning of 2020, Flora launched a Regulation A-plus offering, and through the course of the year, we completed a $30 million financing and brought in over 10,000 investors in the process. Across 2020, Flora Growth was largely a pre-revenue company, where we announced a number of important transactions, launched multiple divisions and brands, assembled a key operating team, and built the foundation from which we are growing the business today. Since the beginning of 2021, we've had a very excited year at Flora. On May 11th, we completed our IPO listing on the Nasdaq Exchange, becoming the first cannabis company to complete an IPO on an American exchange without a SPAC, reverse merger, or dual listing. Since then, we have been working diligently to position Flora for growth that aligns with our strategic view of the global cannabis market. Flora's strategy is to leverage our natural outdoor cultivation practices to manufacture cannabis derivatives at a competitive cost structure, to develop a product portfolio across multiple industries that will be disrupted by cannabis, and to seek revenue-generating acquisitions and partnerships that offer an accretive distribution network and complement our human capital. Our Cozichemos cultivation facility in Bucaramanga, Colombia, with 247 acres licensed for cultivation, yields demonstrated production costs below $0.06 per gram of dry flour. which is achieved through a combination of geographic factors, including natural water reserves, organic nutrient-rich soil, and 12.5 hours of sunlight, 365 days per year. From a quality perspective, we are in the process of obtaining a GACP and organic certifications, as well as building a extraction facility to EU GMP standards. These standards will give us access to the wholesale cannabis market across the globe. while our low cultivation costs will ensure we remain highly competitive now and in the future. Further, Flora is building an expansive distribution network for its existing product portfolio of cannabinoid and non-cannabinoid-based products, where we are currently selling in over 10 different countries, including the United States, Costa Rica, and the United Kingdom, to name a few. At this time, Flora is focused on aggressively expanding its distribution network across different markets and categories. where we will then look to leverage those channels with additional product SKUs or brands to amplify revenue growth. A perfect illustration of this strategy is our agreement with Tropi, Colombia's largest food and beverage distributor with over 130,000 distribution points, where our goal is to introduce our entire product portfolio across our network. At this time, I would also like to comment on Flora Growth's adherence to robust corporate governance. Flora's board functions to ensure the correct management team is in place, that the strategic direction is correct, and to provide strict oversight on management's actions and performance. We feel confident that we have the correct board in place and the correct controls to ensure effective oversight. Our board is led by Bernie Wilson, a former vice chairman of PWC and current chairman of the Founders Board of the Institute of Corporate Directors. and our board is comprised of four independent directors with relevant backgrounds in medical cannabis, CPG, and corporate governance. With Bernie's guidance, we have formed a number of committees, including an audit committee, a compensation committee, and a nomination and corporate governance committee, which ensure Flora Growth operates in a responsible and efficient manner and in accordance with our various corporate policies. Investors can find Flora Growth's corporate documents, including code of conduct, whistleblower policy, trading policies, and anti-bribery and anti-corruption policy under the Investor Center on our website. Later on this call, our CFO will be sharing some insight into our financial performance over the course of the first half of the year. However, I am encouraged to share some of the results for the period, as well as provide revenue guidance to our shareholders for the first time. While we are only halfway through our first revenue generating year, I am pleased to report that our unaudited net revenues exceeded our original internal estimates at the start of 2021. We have already surpassed the 2 million mark as compared to approximately 100,000 for the entire year of 2020. This is complemented by a strong gross margin of approximately 60%, a mark we're proud of as an early stage company. To put this into perspective, our recently completed sales agreement from Tropy totaled approximately $1.1 million for the first order alone, giving us confidence that we can achieve strong growth moving forward. These first half results were driven largely by the growth of our operating divisions in Colombia and the US, and achieved in the face of major headwinds in Colombia from the COVID-19 pandemic. As it relates to the COVID-19 pandemic, we continue to monitor the situation closely in Colombia and the other countries in which we operate. Although it remains a risk that all companies must manage through, We have put in place safety measures to protect our employees and have plans in place to support the continuity of our operation if greater challenges do arise. We currently expect our annual revenues for the year 2021 to total between $11 and $13 million. Additional to this organic growth would be the proposed acquisitions for Coke and G-Cell and Bessel Brands, which combined have trailing 12-month revenues of over $14 million. This revenue growth is expected to be supported by the changes in the Colombian cannabis law, which now allow for the export of dry flour and represent a major opportunity for flora. Details on the changes will be discussed later in the call. At this time, I would like to invite our Chief Revenue Officer, Jason Warnock, to join me in discussing the first key point we will be sharing on this call, our growth initiatives.
spk07: Thank you, Luis. As the Chief Revenue Officer, my responsibility is to ensure Flora is focused on expanding global sales opportunities, responsibly entering new legal markets with our cannabis and CPG portfolio, and to broaden the scope of our product categories in both cannabis products and derivatives. As many of you know, there's been a significant legislative change in Colombia, which has created the opportunity for Colombia to position itself as the world's premier cannabis provider. The key points of this legislative change that will impact flora directly include, number one, the export of dry cannabis flower. Where dry cannabis flower continues to account for an estimated 50% of the demand in major international markets, including the U.S., Germany, and Australia, this represents a major revenue growth sector for flora based on our own production costs alone. Number two, the allowance for the manufacturing and exporting of cannabinoid ingestible products. With Flora's strong portfolio of in-market food and beverages, this change represents a significant amount of our internal and international sales focus. Number three, substantial marketing restrictions on cannabis products within Columbia have been removed. This allows Flora's consumer products in the health, beauty, wellness categories the opportunity for stronger brand penetration and the sales in the domestic market. Number four, the sale of cannabinoid medical products through drugstores as custom formulas is now permitted. Custom formulas are pharmaceutical products prescribed by doctors and prepared by chemists to meet the unique needs of a patient and are intended to complement medical prescriptions. And finally, number five, the industrial use of cannabis is also permitted now in the use of textile, plastic, paper, and construction materials. This provides immediate opportunities for our textile division and the Stardog branded line of loungewear and clothing. This change has allowed Flora to immediately begin the process of export and import licensing in multiple legal jurisdictions. At present, Flora has announced two LOIs for wholesale distribution to have our dried cannabis products into Australia and South Africa. Although exporting dried flour out of Columbia is a new process, the strong support of the Colombian government has shown we believe will be attained by Flora in this calendar year 2021. Further, the team is actively engaged on signing additional cannabis export agreements around the world. In May, Flora provided an update on our cultivation facility and construction of our extraction laboratory. I'm pleased to report now that the construction for our onsite drying, curing, and extraction facility is on pace to be completed on schedule in Q3 of this year and fully operational by Q4. We have increased the size of the facility by 33% to nearly 11,000 square feet or 1,000 square meters to account for our EU GMP requirements and expanded capacity given the recent regulatory changes. At present, we have registered 12 strains and are harvesting our first high CBD commercial strains in September of this year with our high THC strains to be ready for sale in Q4. Now on to an update on the status of the regulatory licensing and certifications at the Costa Chemos Farm. Right now, we have the ongoing review of our USDA organic and EU organic certification bodies and fully expect both of these to be complete in 2022. Costa Chemos is also completing the final elements of our Good Agricultural and Collection Process, or GACP, with audits and subsequent certification to align with our September commercial harvest As I mentioned previously, our on-site extraction facility has been designed to meet EU GMP standards, and we continue to work with our auditors, our strategic partners, and our customers in the EU to expedite this process when at all possible. Regarding expanding our distribution of cannabis and CPG products, the Castle Whole Foods Division is working to expand sales through Tropy's extensive distribution network. after signing of the new cannabis law. Flora will look to generate sales of additional products from the Flora consumer goods portfolio, including those health and beauty brands containing CBD. While we are waiting for the final processes to be developed for the new legislation for the registration of processes for food and beverage products, as well as the specific allowances for marketing and the sales of custom formulas. However, these are expected in the short term and Flora will be well positioned to capitalize where we expect the sales from Propia Loan to reach nearly $2 million per month within this next year. As it was reported in July, Flora signed a letter of intent with Averia Inc. to form a joint venture for the sale of its award-winning Kalea brand across Latin America. Utilizing Flora's existing GMP production facility in Bogota and Flora Labs' 2,500-plus Colombian distribution outlets, this joint venture will create additional revenue from the pain relief category, not currently included in Flora's consumer goods offering. For background, Kalea is an established brand that has sold over 5 million units and is currently distributed via major Canadian retailers, including Loblaws, Walmart, and London Drugs, holding the number one customer retention rate in Loblaws pain cream category. Further, the VariaJB agreement will also support the development and production of Kalea CBD-containing pain cream formulations produced in Colombia, but for the global market, with an immediate focus on the import into the United States. Working with cannabis, however, is not without challenges. With the positive financial start and the Colombian regulations moving in our favor, we cannot discount that this industry, by its very nature, is a very strong uphill battle. Regulation and legislation of cannabinoids like CBD, are still constantly in flux, straddling the middle ground between a novel food, a nutraceutical, or in numerous jurisdictions, an illegal substance. Operating within the global cannabis sales strategy requires a strict adherence to the changing nature of regulation and patience to follow rigorous guidelines to design new products to enter new markets. As the world begins to open up from COVID, we see both the opportunities but also the challenges of bringing new consumer products to markets where the information and science regarding cannabinoids is only started and counterfeits, and the legacy markets still dominate. At Flora, we are dedicated to building the right long-term growth strategy. We understand that the world markets will eventually see the need for these high-quality, properly produced products, but as a newly exporting cannabis business, legacy markets and marks will always present a major risk to our anticipated timelines and revenue projections. The final point I'd like to touch on today is our dedication to scientific research in the therapeutic application of cannabinoids. As it was reported on June 17th, Flora has appointed Dr. Annabelle Manoa Morgan as our lead scientific advisor to further research and the development of unique product formulations and to build education for individuals and organizations on the benefits of cannabinoid plant-based medicine. Flora has already begun to further expand our advisory and scientific panels. to work with universities in the United Kingdom, the United States, and Columbia to begin clinical trials on human pain utilizing novel CBD oil formulations. On this note, I'd like to pass it over to FLORA director and lead scientific advisor, Dr. Annabel, to provide more color on FLORA's direction in this regard.
spk01: Thank you, Jason. Today, I would like to provide you with a brief overview of my background, seeing that I'm new. and highlight the direction flora growth will take as it relates to scientific research and medical cannabis as a whole. My work as a doctorate is in neuroscience and cardio-oncology as a cell and developmental biologist at Vanderbilt University in Nashville, Tennessee. My shift in interest in cannabis came about in 2016 when my third child had a stroke at birth and uncontrollable seizures which had resulted from that. After five weeks, we had 38% of his brain removed and a prognosis of paralysis on the right side of his body and immense developmental challenges. When he turned six months old, I created a cannabinoid medicine to replace all of his seven current medicines and began administration of it through his G-tube when he turned seven months old. My son, Macario, is now five. and he attends kindergarten as a normal boy. So because of that, I immediately began educating myself on the state of the cannabis industry by sharing my story at conferences all around the world, meeting scientists, doctors who are active in the space, and I even served as a chief scientific officer for Tikkun Olam in Israel. And through this journey, just realized there are large fundamental gaps in the scientific angle of the cannabis industry that are not being addressed. I decided to join Flora because their vision is perfectly aligned with mine. The Flora team is led by visionaries that want to see more stories like my son come to life. Not only is the climatic growing foundation that Flora has built superb, but the infrastructure was done the right way. will cover all of the appropriate certifications for quality, including pharmaceutical development. Together, we are creating active collaborations at the academia and government level to contribute science to the industry that will essentially form the standards of how to define medical cannabis. In addition to the clinical trials, studies, et cetera, we will ensure that our products launched on the global market will have claims backed by scientific research. This is a big task ahead of us, but an exciting one. And this will be the true differentiator for us amongst the cannabis, nutraceutical, and pharmaceutical spaces worldwide. More information on our clinical trials and the larger scientific advisory board will be released in the next coming weeks. I would like to now pass it over to our Vice President of Corporate Development, James Williams, to discuss our ongoing M&A activity and investments.
spk04: Thank you.
spk05: James, are you there?
spk04: Sorry.
spk12: Thank you, Dr. Annabelle. May I say we are very happy to have you as our newest director. As you can all see, the organic growth at Liquiflora is very strong. That said, it is important to highlight the M&A strategy that we believe will support our growth in the future. Since our IPO in May, only four months ago, we have already executed on the majority of what we call phase one of our M&A strategy. This has included our proposed acquisitions of Hymat and Bessel, the JV partnership with Kalea Brand, and their strategic investment to Hoshi International. To provide some context, at Flora we believe that any strategic investment should come with three key benefits to us. The addition of key geographical distribution channels, adding new novel products where cannabis will see outsized growth in traditional retail, and adding experienced human capital to our team. The first tenet is our focus on acquiring and partnering with companies with established distribution channels. With dozens of countries introducing and updating their cannabis laws, We look for capital-efficient ways to build distribution channels in global emerging markets. This may refer to an established traditional cannabis wholesale channel, or more broadly, may refer to a network of retail channels that allow us to move an array of products into this market. It is our belief that cannabis products, especially CBD, will continue to cannibalize traditional retailer shelf space, whether that is grocery, pharmacy, or convenience. So by offering both CBD and non-CBD products to our retailers, We assist them in offering their customers both the present and the future. One illustration of this approach is our proposed acquisition of Hymat. We currently have an executed letter of intent with a Swiss company who owns a very sticky distribution network of over 2,500 domestic stores where it sells hemp and tobacco smokable products. With over $8 million USD in trailing 12-month unaudited revenues and now greater financial support and guidance from the Flora team, we are expecting strong organic growth for the Hymat brand around the world. Furthermore, these restrictions on Colombian exports will allow us to explore exporting our cannabis CBD flower to Switzerland and explore bringing their patented pre-roll technology to many more countries around the world. Another important tenet we focused on in our main strategy is the consideration for human capital. From a proven labor force to an experienced C-suite, we are always looking to add the best people in this very fast-moving, challenging industry. We have already built a strong team that is generating positive results, but as we grow the company, our need to develop Our need to grow talent will grow concurrently. Flora believes this is one of the key differentiators. We are not a company looking to buy and pillage SG&A and its people. We're looking to grow revenue, grow profits, and deliver synergies. Flora grows strategic investment to Hoshi International as another key transaction I want to highlight. Hoshi's infrastructure will serve as a gateway for the distribution of Flora's Colombian cannabis and branded products into the European Union. Flora's initial investment of €2 million will also accelerate Hoshi's expansion into two crucial EU markets, Portugal and Malta. We will also be working with the Hoshi team to leverage our EU GMP know-how, while Flora offers its new excited technologies and products to their sites. Flora has started the discussions on the best means to develop the supply chain to bring Colombian flour and derivatives through their facilities and into EU markets. Lastly, I want to discuss the proposed acquisition of Vessel, a company that produces luxury accessories, including high-end vape pens, dry herb devices, and cannabis accessories. The category is interesting us as the hardware market has a greater customer loyalty than traditional THC. They have access to a large MSO network, and it does not conflict with NASDAQ's rules around distribution of THC products. However, beyond their exceptional products is an even more impressive operating team with one of the best branding and e-commerce skill sets in the entire industry. With revenues growing over 100% in 2020 and targeting another 100% in 2021, the Vessel brand will represent a substantive addition to the floor growth brand portfolio. Vessel's 2020 unaided revenues represent $4.5 million and a 52% gross margin, while trailing 12-month revenues are already at $6.2 million. This transaction is expected to close within the next 45 days. We're excited to have the Vessel team join us and help build a greater global e-commerce strategy of brands across the world. Looking forward, Flora will leverage Vessel's in-house design, sales, and marketing expertise to enhance Flora's existing global brand and product portfolio. As part of this process, the team will develop a strategic plan to maximize consumer experience and resonance, increase market share and positioning, and reinvigorate the Flora brand portfolio for the global consumer while staying true to its roots and values in order to make every consumer experience more expressive and personal. As I mentioned earlier, moving forward, Flora will work to wrap up phase one of our M&A strategy by closing the pending transactions. From there, we continue to assess potential targets that fit with the key tenets of our M&A strategy while staying diligently within the confines of our cash position. On that note, I'd like to hand it back over to Luis for an overview of our existing brands and our CPG strategy.
spk09: Thank you, James. Now I'd like to take a moment to highlight one final aspect of the Flora Growth Strategy and value proposition. a robust consumer product portfolio. While we will offer wholesale medical and wellness cannabis products, our diversified CPG approach allows us to offer cannabis-containing products in less common categories, such as food, cosmetics, and clothing, among others. To provide some background, as a former consumer products executive at Macy's, my prior experience has helped Flora as we expand into retail sales for our entire product portfolio. At Macy's, I managed the enterprise multibillion P&L expense line for the 540-store portfolio and led various sales and marketing initiatives, including B2B corporate sales that was responsible for sales of $160 million annually. With Flora, I have been leveraging this experience to build a foundation for our growth. Since the beginning of the year, our CPG divisions have experienced solid growth. especially given how the majority of the CPG brands are less than one year in market. In July of 2021, we launched a premium all-brand by our Flora Beauty division. This brand is designed and marketed by our founding partner and global beauty influencer, Paulina Vega, and is targeting sales in brick-and-mortar stores in Q4 2021. We also have a robust product pipeline that we're set to roll out throughout the rest of the year, including CBD pain and athletic creams, wellness products, textiles, and other beauty product lines. At our Casa Whole Foods division, with the recent Colombian law change, we're also aggressively pursuing the registration and sale of ingestible products from the existing MAMBE portfolio. Along with these new cannabinoid versions of existing products, including both CBD and also rare premium cannabinoids like CBG and CBN, Casa is well-positioned to launch a wide variety of new product offers. Further, under the Heimat brand, there are many new cannabinoid-based products, including steep teas and iced teas that are expected to be launched in the upcoming weeks and months. Looking forward, we expect our impressive roster of brand ambassadors to continue to grow. To date, our existing brand ambassadors have been invaluable in creating awareness for the brands and generating meaningful sales. This includes two strong female entrepreneurs in Paulina Vega and Laura Londones. Both of these women add a tremendous value to our team and boast an impressive reach on social media. These partnerships have helped Flora expand our brands from an organic growth perspective and create new opportunities for additional partnerships. We expect the addition of the vessel team will solidify Flora's e-commerce strategy, particularly across the United States. With our competitively positioned product portfolio, we are confident that we will see continued organic growth across all of our CPG divisions. I will now pass it over to our CFO, Lee Lederman, to provide the financial overview for the first half of the year.
spk08: Thank you, Luis. Let me start the financial portion of our call with a bold statement. We have an extremely strong balance sheet, one which is capable of supporting all of the initiatives described by Luis, Jason, Annabel, and James earlier on the call. As of June 30th, 2021, we had almost $19 million in our bank account with minimal debt commitments. In addition to that, subsequent to June 30th, we have started to see substantial cash inflow from the exercise of the warrants sold as a part of the regulation AO3. To date, we have received commitments in excess of $10 million with over $7.2 million being already collected and additional $1 million pending clearing. We expect to see this amount continue to grow over the following weeks. From a P&L perspective, we are growing revenue on a weekly basis. In the first six months of the year, our revenue surpassed $2 million and continued to grow. Our gross margin was almost 60%. All divisions contributed to the growth of the business, The primary contribution came from floral lab division, followed by Casa Whole Foods, and then floral beauty and hemp textiles. I expect this number to increase at least five-fold by the year end. Our expenses for the first six months were approximately $6 million. However, we need to remember that during that time, the company went through an IPO process, which added one-time expenses of almost $3 million, which is the part of the six which I mentioned. The net loss for the period was close to $4 million and was positively affected by earnings from other non-recurring sources. Over the first half of 21, we have dedicated a lot of effort to building a robust organization which we believe has the resources and team required to deliver strong growth for years to come. Our full financials will be filed with the SEC within the following weeks. As these are the first financial results as public, fully consolidated company, we want to ensure our financials are in full compliance with all the required standards and fairly represent our business the way it functions. And now I will turn the call back over to Luis for closing remarks.
spk09: Thank you very much, Lee, for that information. As we stated at the beginning of the call, 2021 has been our first year as a revenue generating company, and we are very excited by the results. We believe we have built a strong foundation to grow with respect to our three key pillars, our wholesale cannabis operation, our robust M&A strategy, and our product portfolio. A major component of our strategy is centered around becoming a leading international supplier of cannabis derivatives. We believe we are well positioned in the global cannabis market with our low-cost premium cannabis flower and derivatives that will allow us to expand distribution, form relationships, and become the leader globally with margins much greater than those of our competition. This opportunity is only heightened by the recent passage of the new cannabis law in Colombia. We also have a robust M&A strategy and have already made meaningful progress in the first half of 2021. with the announcements of the Hoshi investment and the Heimat and Bessel transactions. In the second half of 2021, the Flora team will be working to complete the announced transactions and ensure their subsequent integration into the Flora operations. We aim for a smooth process that maximizes synergies while also being cautious of the many difficulties that can come with meaningful M&A activities. We also continue working to identify new and attractive M&A prospects. Flora has also started building the foundation of a strong brand portfolio. In the first half, we were able to add a new brand, launch new brand SKUs, and sign agreements with major distribution partners. Through our latest transaction in vessel, we now have an excellent team to lead our branding and e-commerce strategy. As Lee shared, we are well capitalized and ready to execute on our mission of building a profitable and sustainable business. From inception, Profitability has been a cornerstone of our strategy and achieving it is at the core of every decision we make. We believe in building long-term shareholder value through realization of our vision and doing so in both a socially and environmentally responsible way. I want to share a special thanks to all of our team members worldwide. We would not be here without your hard work and dedication. To our advisory board members and to our customers and clients, and of course, to our valued shareholders, Thank you for your continued support. The future of Flora is brighter than ever, and we plan to make that future a reality. Thank you all for sharing into our incredible vision. Before I turn it over to our operator for questions, I would like to share that we're making every effort to be as transparent and communicative with the investment community as possible. As such, we're hosting a monthly fireside chat where our team discusses our company and the industry as a whole. Our next fireside chat will be on September 23rd at 1 p.m. Eastern, and we highly encourage our followers to stay up to date with our email updates as well as these very informative and quite fun broadcasts. With that, I will turn it over back to our operator for questions.
spk06: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please note, we ask that you please limit yourselves to one question and one follow-up per person. One moment please while we poll for questions. Our first question is from William Kirk of MKM Partners. Please state your question.
spk10: Hey, everybody. Thanks for the update. I wanted to talk about the timing of some of the things not currently in the second half guidance. So I guess it's two parts. First, when do you expect Hymat and Vessel, those deals, to close and begin contributing? And I guess, what do their forward revenues look like? You gave the trailing numbers, but are they similar to, is that expectation similar to the trailing? And then second, When do the dried flower deals, I believe there's two of them, when do they start shipping, and what is the gross margin on that type of business? Thanks.
spk12: I can start off for that, Bill. It's James here. Thank you for the question. So talking about the acquisitions, We are expecting to close very shortly. Obviously, coming through the summer, getting lawyers to put pen to paper and do some work is always a challenge. But we're on a very short timeline with the vessel deal. We're looking to close that within the next 45 days and obviously being contributing at least by Q4. And Hymat is on a similar path. So kind of expect that timeline for both of them. In regards to your question on gross margins in the flour business and when that will start contributing, our plan is that at least by Q4 on the CBD side and certainly the latest early 2021 for THC. Again, we have a six cent grow, even putting a good amount of extra cost in for shipping. The current market sits at around $900 to $1,500 per per kilo for strong THC flour, and we're expecting to be able to hit that. So doing the math, the margins are quite juicy for what we're looking at currently.
spk09: I'll compliment that, Bill, as well. We expect a regulatory checklist for the export of dry flour to come in over the next 90 days, which would put us in a position to export dry flour in Q4.
spk07: This is Jason Warnock. Sorry, Bill, just to echo that, so the CBD, high-potency CBD strains, commercialized strains will be ready in September, and we're looking to the first ones to go into Australia on those high-CBD strains. The high-THC ones are a little bit behind that because they're completing the analysis of it. But as soon as we have both the export quota and the COAs aligned with our import licensing, it's actually a fairly quicker process than you'd expect. But we look to be exporting by Q3, Q4 this year on multiple fronts.
spk10: Excellent. Thank you. And as a follow-up, you know, there's partnerships and prospects in a lot of different regions. And I guess sometimes I personally maybe lose focus on what's already happening in the U.S. So can you help us with some milestones or some goals that you have for the U.S. with maybe Florida Beauty's direct-to-consumer business? or even potential partnerships that you could find on the traditional department store type of business?
spk09: I'll take that question, Bill. You're absolutely right. That is something that we're currently working on. We're distributing floral beauty products in 45 out of 50 states, those that allow for the distribution of skincare topical products with their in-state laws. but we're actively pursuing distribution in traditional brick-and-mortar retail. Once our negotiations are finalized, we'll announce to the public, but it's certainly a milestone that we look to achieve before the end of 2021.
spk07: And if I could just tag on the back of that, beyond the skincare and beauty, we're actively looking for opportunities to bring our other divisions in, including doing, even if we're doing contract manufacturing in the U.S., in the short term, so that includes the CASA Whole Foods Division as well, and we're looking at ingestibles as well as skincare and beauty across all the legalized states.
spk04: Perfect. Thank you, everyone.
spk05: Our next question is from Scott Fortune of Ross Capital Partners.
spk06: Please state your question.
spk02: Good afternoon, and thank you for the questions. Congratulations on executing all the different plans going forward. Can you provide a little update or color on the cultivation side, the quantity, type of yields you're obtaining compared to the average yields of about 125 gram per se around the world? And then just quantify the plantings as you look forward to end of 2021 going into 2022. And with that, a little more color on the export opportunity and the potential quotas and such moving forward into 2022, timing around that.
spk09: I think that question should go to Jason. Jason?
spk07: Yeah, I was just going to jump in there. So we expect an imminent close on our export quota, which is the quota that allows us to export THC flour. We currently are on a perpetual harvest, and by that I mean we're constantly doing plantings and rooting and propagation and then harvesting every week. Our initial estimates we based on 125 grams just to be conservative. Our actual estimates are upwards of getting closer to 200. It does depend on the strain. As I mentioned, we have 12 strains currently registered, some high CBD, obviously some high THC. So we actually feel like we'll be able to beat the estimates that we provided earlier on the grams per flower or per harvest. But we still look to your bigger question. There's a process ongoing where we're recertifying our cultivars at altitude. The Coastal Chambers Farm is actually a little higher in altitude. We have to make sure that the COAs are consistent with our growth. So that's what we're looking at right now on our THC production. That's why I say we'll have that by Q4 completed. The September launch of our high CBD strains is in conjunction with our GACP certification, which we've been going through the auditing process for some time on. So those are the two triggers that would allow us to begin export. As I mentioned earlier, the Australian market is already set up with partnerships, so we can look at the export of high CBD. The further on with the export of THC would come past that. I think James mentioned as well, obviously we're lining up with our partners in the EU to make sure that we can begin to align with their import requirements in both Portugal and Malta. And that's what we'll be looking at more detailed in Q4 for further partnerships. So long answer to your question, Scott, higher yields than expected at present, on pace for September commercialization of CBD and export, Q4 for THC.
spk02: Perfect. I appreciate that color. And then just maybe to expand on the EU channel, the opportunity there, you know, we see you acquiring Hymet, which is great there, but kind of the cost side as in Colombia, you see a lot of others setting up into Portugal to address the tariff cost side of things. But Can I step us through the Hoshi, that deal, and the opportunity to move into EU and moving your brands going forward and supply, wholesale supply into the EU from a timing standpoint going forward here? Let me give that one to James.
spk12: Yeah, sure. Happy to. Thank you, Scott, for that. So obviously, our partnership with Hoshi is very fortuitous and timing well. Both the Portuguese and Maltese markets are certainly heating up. But obviously, having navigators with the team at Hoshi who are very experienced in this and been doing it for a good amount of time, they're certainly fast tracking and doing all the right things to move us into there in round Q1. I think a different part of our strategy that you see versus other straight wholesalers, we look at ourselves as both suppliers, but also customers on the back end. When we're moving our product, whether that be flour, distillate, isolate, we have the products in the brand portfolio to also be purchasers. So working with the Hoshi team, they pretty much have an open template and we'll be working together to figure out what the best products to move through there. And certainly with, you know, acquisitions like Hymat, groups like Kalea and a number of other things that, you know, our investors will see very shortcoming. We'll have new technologies that are perfect for that market and especially the EU under the Novel Food and Drug Act. So our intent. is to move our biomass and our input material through there into Q1, but also have another back-channeled product to offer to the international EU market. And certainly Switzerland is going to play a key role in how we develop and test products going into the EU in the future as well.
spk07: And just one last quick point on that. It's important to note Malta doesn't have cultivation. Portugal is a cultivation setting, and there's a lot of groups that are moving cultivation there or supporting their own cultivation. Malta does not have any cultivation, so it's a primary input for us in getting products into the EU, because obviously we have very large, high-margin cultivation to provide them.
spk04: I appreciate it. Thanks for the comment, and congrats again on execution. Thank you, Scott.
spk05: Our next question is from Pablo Zuanek of Cantor Fitzgerald.
spk06: Please state your question.
spk03: Thank you. Can I ask two questions? One, in terms of where are you in terms of EU GMP certification on the export of flour? And by the same token, just give us a reminder of the supply landscape in Colombia. I know there's a lot of companies that have licenses, but in practice very few of them have built out yet, right? So we seem to be worried about an oversupply situation in the long term. But maybe that doesn't pan out because not everybody is building and executing on those licenses. So just give us some color on that, please. Thank you.
spk07: Let me address the first part of that question on the EU GMP. So it's important to note that when you actually grow, like we do in an outdoor cannabis facility, there's a little bit of misnomer that it has to be EU and GMP. Technically, you can only have an EU GMP process when you actually do something to the material. So what you're typically looking for is that other one, the GACP, which is the Good Agriculture and Collection Process. So most markets will allow for GACP flower exports or imports, including Australia and many others, but they require, if you're doing a technical input or an API for a medical product, it has to be under EU GMP standards. In order to expedite the EU GMP process, which can take some time and we are considering everything. This was another key component of our transaction with Hoshi is that you typically need a certifying body or a customer, more importantly, on the other side of the transaction that could support your certification. GMP, of course, is just doing good management practices and have a number of characteristics you have to meet in compliance and design and so forth. But in order to be certified, you need to have a customer and an audit and everything else connected. So The Hoshi deal is more than just an opportunity to pathway. It's an opportunity to accelerate our EU GMP certifications with a customer built into our construction process. As I mentioned earlier, we're completing the facility's construction in Q3. We expect to do all the testing and operations and all the different things in Q4, and then we can really begin to accelerate that process. It may take some time. I mean, COVID has slowed things down in the past. but our strategic partnership with Hoshi was also very key to accelerating the EU GMP certification. But even without that, export of dry flour is still permitted under GACP to most jurisdictions around the world.
spk09: And I'll comment on the second part of that question, Pablo, with regards to licenses. You're absolutely right. There's been over 700 licenses that have been granted by the Colombian government. We assess that about 10% are actually active today. and only a handful actually have the know-how and the infrastructure to be licensed to export. I think to highlight the position at which Flora is today, the strength of our balance sheet and our cash position puts us in a great position to execute on our ability to export and complement the supply chain globally. And I think that's where you're going to see only a handful of players out of Colombia be able to fulfill demand.
spk03: And just maybe a quick follow-up there, and maybe this is quite a few years out, but as you build your distribution overseas and your brand equity, do you see a scenario where you're not in cultivation in Colombia and you're just buying from local farmers and being able to put it through your distribution chain, or that would never make any sense?
spk09: Well, it makes sense. It's important to achieve a GACP certification. There has to be a tremendous amount of support. that needs to be given to small cultivators. It is our intent to provide that type of support and know-how to small cultivators in Colombia. It will further economic growth in the country, which is an important tenet for us, but it will also allow us to aggregate possible demand to supply worldwide. So that's something that we're going to continue to explore and consider over the midterm.
spk04: Thank you. Thank you, Pablo.
spk06: We have reached the end of the audio portion of the question and answer session. I will now turn the call over to Evan Berriard, who will address questions submitted on the webcast.
spk11: Thank you, operator. So we have a number of questions that were submitted for the webcast. We'll go through as many as we can, keeping in mind the time. First question, Louise, perhaps this is for you. Can you provide more color on where Flora expects the revenue growth in the second half of the year to come from?
spk09: Yes, absolutely. The contribution will be similar to that of the first half of 2021. Our biggest contributor in terms of revenues is FloraLab as of today. Of course, we announced a significant deal with Tropy, and our second revenue-generating and contributor will be Casa Whole Foods, followed by FloraLab, the activation of our Costa Chemos farm, and then Hemp Textiles. But we fully expect to meet our revenue guidance of $11 to $13 million of organic growth in 2021. Now, of course, pending the transactions of both Vessel and Hymat, they will become strong contributors to our revenue in the upcoming months once we close those two transactions.
spk11: Great. Thank you. Next question, James, perhaps for you. Regarding the Vessel brand acquisition, can you provide more color on the ultimate value this adds to flora growth? Is this a revenue play, a technology play, or something else? Yeah, thanks for that, Evan.
spk12: It's all of the above. I think it goes to, again, the tenants that we're looking for, new products, new distribution channels, and great people. Vessel hits all of those directly on the nose. Not only are they having a material contribution to our revenue line and expecting to continue to grow parabolically, the product format that they offer is something that allows both investors interesting marketing opportunities as most people who follow the cannabis market know THC and even CBD are very hard to market whether that's in the US or Canada when it's a hardware and technology they don't have the same constraints and then just speaking to the team James Cho and his team have done a fantastic job of building what they see as a proper route to commercialization and ingraining them into our e-commerce skill set will be fantastic in regards to how the rest of our brands go directly to consumer, which we're already doing, but we view it as something to juice the numbers for us going forward. And of course, we'll be looking for them to help us continue to build more brands and fund growth into future new categories.
spk09: And I would like to add a comment with regards to vessel as the cannabis industry continues to go mainstream and consumers and patients become more comfortable with cannabis, delivery methods become a very important part of the strategy. And Vessel manufactures sophisticated devices that are highly sophisticated, great technology that consumers and patients will be very comfortable in utilizing.
spk11: Excellent. Thank you. Luis? Next question, perhaps for you as well, Luis. Can management comment on the recent movement in the share price and how it affects the business?
spk09: Absolutely. It has been our strategic priority to ensure that we deliver long-term value to our shareholders. And short-term movements on our stock price certainly will not sway us from executing a long-term strategy. We're focused on becoming sustainable. A global leader in the cannabis industry on growing our wholesale cannabis operation while developing a robust brand and product portfolio backed by scientific research. Those are our values and we're going to continue to execute. We're thankful for the attention that our share price is receiving and know that today, up to date, our return from the IPO has been over 80% year to date. We'll continue to deliver and execute on our strategy and expect that we will be rewarded and so will our investors.
spk11: Thank you, Luis. Final question for you, James. Regarding the Kalea JV, could you provide more information on the timelines in which it's expected to form, get product in the market, and again, elaborate more on the value to Flora? Is this a brand play or is there something larger here? 100%. Thank you, Evan.
spk12: So Kalea is an interesting deal, especially coming from the Canadian landscape where I am. So not only is Kalea, you know, a $5 million generating revenue line domestically in Canada for a baseline pain cream without CBD or THC in it, directly hitting major retailers and proving a real efficacy in the pain category. It's well known that Canadian CBD products cannot move down south. So not only will we really bring the Kalea brand to the Colombian market in its base form, we will also have the pleasure of putting CBD into that product and then moving it back into the US. So this is just the first of many interesting deals where we're leveraging really established brands who are forced, given their geographical region, to be unable to potentially innovate and move into the cannabis industry. Given the favorable conditions of Columbia and our track record of already doing so with our floral beauty products, we already have the supply chains built out to help these brands lever their products further. Obviously, with the JV mechanism, there's also a number of efficiencies that we drive, not having necessarily to fund a lot of the capital and ROI to get the brand off and rolling. From a timing perspective, We're moving very, very quickly with this one. We've already gone through product registration and are moving towards getting everything into Spanish and Colombian languages and are already targeting new countries. So it's our expectation that this will start contributing to us Q3 or latest Q4.
spk11: Excellent. Thank you, James. That wraps up the webcast Q&A. Luis, back to you for any final comments.
spk09: Once again, I'd like to thank to all the members of the audience, our investors, our shareholders, and more importantly, the hundreds of employees at Flora Growth that have helped us bring our company's vision and making it a reality. We continue to execute and we'll continue to deliver value to our investors. And once again, look forward to have you all join our next Fireside Chat on September 23rd. Thank you all.
spk06: This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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