Flora Growth’s Strategic Future

Departments - The Last Word

CEO Luis Merchan considers human capital, distribution, and revenue when targeting deals, says political reform will accelerate plans.

Photo courtesy of Flora Growth

When Flora Growth debuted on the Nasdaq in May 2021, the Toronto-based company publicized the U.S.-based initial public offering (IPO) as the first known cannabis cultivator to list without using a special purpose acquisition company (SPAC), reverse merger, or dual listing.

Since then, the globally motivated company, with a roughly 250-acre cultivation operation in Colombia, has been full steam ahead on executing its strategic plans, including a headquarters transition to Miami. Over the past six months, Flora Growth has acquired California-based Vessel Brand Inc.; made a preferred supplier investment into a Hoshi International subsidiary in Portugal; and secured a licensing agreement to enter the cannabis beverage market under the Tonino Lamborghini brand.

These moves are the first of many synergistic steps intended by Flora Growth to launch its 300-plus products across the world, President and CEO Luis Merchan tells Cannabis Business Times.

Tony Lange: What are some of the main principles of Flora Growth’s M&A strategies?

Luis Merchan: We have three fundamental strategic priorities when we are considering an M&A target. The first one is human capital. We wanted to make sure that we only work [with] and acquire companies that have exceptional talent on all levels that can complement the skill set of our company. … We are not looking to find synergies to reduce human capital and then reduce the SG&A [selling, general, and administrative expenses] line.

Second is distribution. We expect that cannabis will become a global trade over the upcoming decade, and we want to make sure that we set up the distribution pipeline for all of the product categories we’re playing in.

And then, third, revenue-producing companies. We want to make sure that we only acquire companies that are generating revenues and have a path to profitability over the short term.

TL: When you’re a global company on the international market, what factors do you have to consider about possible M&A deals that perhaps a U.S.-only company wouldn’t necessarily worry about?

LM: All the macro variables are dramatically important: geopolitical situation of the country, how the government feels about the industry, their regulatory environment across every single one of the industries in which cannabis can be disruptive. The supply-chain considerations and the cultural considerations have been a big factor for us with regard to how do we take [our] company that is mostly North American and mostly South American, and then blend it in other cultures and schedules in other geographies of the world? You have to consider all those variables.

TL: What do you think the M&A landscape will look like if the SAFE Banking Act gets passed, or if a broader cannabis reform effort gains traction?

LM: I certainly believe that we are at the inception years of cannabis legalization and that the growth curve of this industry is just at its early stages. The SAFE Banking Act is the first truly meaningful step toward opening up the economy. … I think if the SAFE Banking Act gets fully passed, you’re going to see an acceleration of those M&A transactions. And you’re probably going to see a path toward broader reform. I think that’s going to be incredibly meaningful in terms of growth for this industry.

Tony Lange is associate editor of Cannabis Business Times and Hemp Grower. Read the full interview.