After the CBD Industry’s Hard Hits, Great Opportunities Await, Says Flora Growth’s CEO

The CBD industry has lately suffered some hard hits — the pandemic, the oversupply of wholesale raw materials (flower, oils, distillates, isolates), the global and regional regulatory patchworks and supply-chain disruptions.

Add in individual brands’ sometimes-inept responses to consumers’ needs, CEO Luis Merchan said at a February 11 webinar, describing CBD’s global markets.

But, to this leader of Flora Growth Corp., a multi-product, public CBD company based in Toronto and Miami with significant cultivation facilities in Columbia, the light at the end of the tunnel is growing brighter.

“Over the short term, you will see a significant focus on the development of brands and product offerings for consumers, both in the recreational market and some in the medicinal market,” Merchan predicted. “In the midterm, we will see that the wholesale supply will stabilize and companies able to fulfill supply and demand on a global scale are going to benefit from both those revenue sources.”

Certainly Flora is scaling globally, forging deals in Mexico, in particular, but also the United States, the U.K., the EU countries Germany, Portugal and Malta; and in Latin American markets, especially Brazil.

Those hard hits? Merchan’s company has taken some itself, plunging from a market cap last June of $156.13 million to $119.91million today – a drop hardly emphasized at the February 11 webinar, geared primarily to investors.

Still, Merchan appeared be positioning Flora as a role model for the CBD industry, given its global base, its dual emphasis on both recreational and medicinal markets and its recent initiatives, which include:

• The first cannabis-based product aimed at preventing Covid-19 infection in Columbia. Flora is seeking emergency use authorization from Columbia for its formula, which has not yet undergone clinical trials. However, a University of Chicago study reported CBD’s ability to prevent viral replication of the virus in the lung cells of humans and mice.
• Clinical trials conducted by the Flora Pharma division, in conjunction with the University of Manchester, to produce a CBD-based treatment for fibromyalgia and related pain, have reached the ethics review stage.
• A strong foothold in Mexico – the world’s 14th largest economy — with Walmart, even as the Mexican government has as of last summer decriminalized recreational cannabis en route to full legalization.
• A deep dive into diverse CBD-infused products such as Flora’s fruit drink Mambe, and coffees scheduled to debut under the luxury brand Lamborghini-Tonino, formerly associated with those well-known sports cars.

Flora’s recent webinar was the first in its “State of Play” series about issues challenging the global market. At this first session, Merchan presented positive data about the global market, such as the steep increase in U.S. CBD sales, from 2019’s $4151 ($U.S. in millions) to an expected $7861(for 2022), to a predicted $15961 for 2026. (Source: Brightfield Group).

So, despite an overall 6.1 percent industry drop in global sales in 2020, Merchan was decidedly bullish about the future. He described an increased demand of 20 percent year-over-year and called 2020 a “supercharged year” in terms of consolidations.

The down sides he acknowledged included, of course, the chaotic regulatory patchwork, both at the national level and, in the U.S, the state level. The solution for each company, according to Merchan would be“a very robust regulatory team that understands the ins and outs of each one of the geographies and municipalities that it operates [in].”

The second problem the CEO described: the disrupted supply chain, which in the post-pandemic era “[will be] a different game.” Flora’s own solution: rejecting vertical integration in favor of “identifying great partners” in geographies where a company wants to operate, thereby benefiting from those partners’ deep knowledge of local culture, logistics and supply chains.

The third problem Merchan listed: the importance of identify the needs of the consumers in each region being served. This requires a broad offering, Merchan said, taking the opportunity to emphasize Flora’s own wide array of product categories, from flower and hemp to beverages, skincare, apparel and pharmaceuticals. Product development, for Flora, has been aided by Columbia’s acceptance of cannabis research, to the point that the government actually supplies raw product to research facilities (a benefit U.S. researchers would love to have).

Then there’s the lack of consumer buy-in in some markets due to quality issues, Merchan said. “Even though consumer sentiment is growing, and there is a positive transition to the adoption of CBD in its multiple categories, there isn’t enough information or quality offerings out there to provide the level of confidence consumers and patients need,” he explained. On top of this, the high level of commoditization means that certificates of quality (such as those the EU has granted to Flora) are in short supply, as are standards. A big finding Merchan cited from one study: fully 64 percent of tinctures and oils studied inaccurately, and thus illegally, described their products’ THC levels.

Yet forward movement continues. The EU now allows CBD in topicals. The U.S. Farm Bill of 2018 legalized hemp (as long as products’ THC level is 0.01 percent or below). And more cannabis categories are less stigmatized as companies expand their use of and research into the CBD molecule for topicals, pharmaceuticals, dietary supplements and food additives.

Then there’s the future. Uses of lesser-known cannabinoids like CBG and CBN are just beginning. “We are just tapping the top of the iceberg when it comes to the benefits of the 120 molecules that have been identified in the cannabis plant,” Merchan said. “As scientific research comes out, and peer-reviewed research comes out, [the industry] will be able to provide the necessary tools and information to regulatory entities so they allow us to utilize it.”