Stocks in the cannabis sector have shown they have growing power. But, without a doubt, some do better than others. One of those strong performers is Flora Growth Corp. (NASDAQ: FLGC), a publicly traded all-outdoor cultivator and manufacturer of cannabis products and brands that proves excellent companies can come with a small-cap price. However, by small, that's not suggesting FLGC is part of the pennyland crowd. No, this company is the real deal, sporting a market cap of over $108 million in the face of some of the most brutal market conditions in recent quarters. But, there's a bright side to even market weakness - Flora Growth stock price exposes a valuation disconnect too big to ignore. Accordingly, taking advantage of what may be a short-lived gap between share price and intrinsic value may be warranted sooner than later.
Adding fuel to its bullish proposition is that revenues are storming higher. Not only that; they are dropping toward the company's bottom line benefiting from some of the lowest known production costs in the world. Over the past few quarters, results have been so impressive that some analysts in the bullish camp suggest that a more than 5X increase, based on gross profits and revenue run-rates, is in the cards for FLGC stock. That's not an overly ambitious prediction, either. Aggressive estimates call for FLGC to have the revenue-generating juice to re-claim 52-week highs of $21.45 a share, representing a near exponential 1147% surge from its current $1.72 level.
Of course, targeting the right markets matter when turning ambition into revenues. FLGC has that covered as well, working to seize the lion's share of a more than $16.47 billion market opportunity by producing a diversified portfolio of High-T-H-C products and compounds in its EU-GMP compliant Cosechemos facility. And remember, Flora isn't accelerating a purely recreational play. Instead, they also target massive medical cannabis applications to support what they believe will lead to a transformational 2022, and the wheels are well into motion to make that happen.
Soaring Revenues With A Tailwind
Revenue estimates for 2022 have soared to $35 - $45 million, a significant increase over last year. That goal can be expedited by securing $34.5 million in financing, which puts the company in its best position ever to accelerate its intentions of creating shareholder value by putting its ample capital war chest to work. That balance sheet also provides credibility, leading to FLGC inking major distribution deals with global retail giant Walmart (WMT), Macy's (M), and international Columbia-based Tropi.
Furthermore, expect FLGC to do exceptionally well in the cannabis consumer technology sector after acquiring industry-leader Vessel Brand Inc. Trailing 12-month revenues from that company are expected to contribute at least $6.6 million in new revenues heading into 2022. Better still, the deal brings additional momentum to the FLGC equation, with Vessel posting Y-o-Y growth of more than 90% up to the acquisition.
Still, those numbers are now historical references. The intent now is to maximize opportunities and add multiples to each new revenue stream. Noting that the U.S. cannabis industry is growing at a record-setting year-over-year pace, this is a likely scenario. In fact, final 2021 sales are expected to eclipse 2020 sales by more than 41% to reach $31 billion as market penetration and consumer adoption of emerging products continue to earn shelf space away from traditional drug alternatives. And yet, while the boom is apparent for everyone to see, forces were instrumental in taking stocks in the sector lower.
Whether big pharma or traditional drug companies want to slow the growth rate of this transformational industry, one thing is for sure: the sector may be slowed, but it will never be stopped. In addition, allowing more time for companies like Flora Growth to embed its abilities into a more controlled market development plan may generate unintended results. For one, giving FLGC the time to assimilate its mission to make revenues accretive faster, especially with the support of a healthy balance sheet, could have competitors soon shaking hands with a cannabis technology and manufacturing juggernaut.
Listen, that presumption is valid. Sales are up, costs are down. Acquisitions are happening, deals are being made. Thus, considering Flora Growth Corp as anything but a mega-growth stock opportunity unreasonably ignores what's in plain sight.
Lower Prices IS NOT Company Specific
Perhaps the only opposing argument reasonably made against FLGC is that its share price has been lower since 2021. That's a given, but it's not an argument that is stock-specific. FLGC isn't lower because they made transformative acquisitions, entered deals with global business giants, or became one of the lowest-cost cannabis manufacturers. Instead, FLGC has retreated from its high 2021 prices after getting caught in a sector undertow that takes good stocks lower with the bad. That's evident by the Global Cannabis Stock Index down by more than 42% in just the past six months. Of course, that's an average of many stocks. Stocks that trade more actively tend to get the worse end of the losses, which appears to be the case with FLGC.
But, by no means would that suggest that investors cut and run. On the contrary, at about $1.72 a share*, the possibility of prices staying this low for much longer is more of a long shot compared to how soon FLGC could return to the $6.00 level. Thus, while currently painful to those buying at higher levels, they have an opportunity to average down significantly. Moreover, new investors may be getting bargain-basement prices in an industry company with enormous leadership potential. In either case, the stage is set for investors to do exceptionally well by investing ahead of expected announcements. Remember, when FLGC talks, market investors tend to react quickly. And, with positive updates likely in the queue, the path of least resistance for FLGC is decidedly to the upside. (* share price on 2/4/22, 11:03am est, Yahoo! Finance)
By the way, the intention to move higher isn't a coincidence of fate; it's a planned strategy. Flora Growth has engineered its development of a unique company that targets a broad and potentially lucrative range of revenue-generating opportunities. Even better, its strategy to earn business is a departure from the "file and pray" approach used by many companies victim to the lengthy and burdensome approval processes in Canada and the United States. Flora is different. In fact, part of its business plan is to ensure diversification in the global marketplace – a strategy that is quickly leading to an expansion of sales and marketed-to regions.
Multiple Market Interests, Major Markets
For example, Flora Growth is driving revenues higher through consistent orders for its Mind Naturals and Awe C-B-D skincare brands for the Spanish and Mexican markets. Keep in mind, getting to those shelves takes hard work and great products. However, FLGC investors can bank on the company's abilities to make major agreements with Walmart.com and Copel, Mexico's largest department store - after all, they already have.
The better news is that its achievements made in 2020-2022 are likely the precursor of much bigger things to come. Having its foot in the door of big-box retail certainly helps, and for those keeping track, Flora Growth is maximizing, even at an early stage, its big-box opportunities.
To date, Flora's accomplishments can be summed up in a single word - phenomenal. Deals within the two retail giants previously noted immediately put the Mexican market in play, opening FLGC to benefit from a market opportunity reported to be worth $1.8 and $2 billion U.S. Dollars. Hence, the dots for how revenues are expected to surge in 2022 just got easier to connect and calculate. The result: potentially exponential increases.
For those that think that's too aggressive a projection, keep in mind there's absolutely no question the continued trend of medical and adult-use cannabis legalization rapidly sweeping across the globe will lead CBD-based products to become a Main Street offering. And, in that respect, Flora Growth is ideally positioned to take maximum advantage.
There's More To Like
If you liked Flora Growth, the manufacturer, you will love what's next. According to the FLGC CEO, Flora is committed to creating and leveraging a proprietary drug development platform collaborating with an artificial intelligence and machine learning group. The goal is to identify new bioactive compounds within the cannabis plant that interact with certain gene targets responsible for specific disease states and conditions. Long story short - this is next-gen cannabis industry stuff, and FLGC is putting itself out front.
The better news is that they have already started the mission by launching a study on the use of cannabinoids in patients suffering from fibromyalgia or chronic pain. The primary research sites are located in the United States and the United Kingdom, which could play a role in securing partnerships later on. Expect developments on the scientific front soon, and like several other ongoing initiatives, they could become revenue-generating game-changers for FLGC sooner than later.
Argus Proposes Massive Upside Price Target
While what's noted may be enough to justify an investment into any company, big or small, a December report by Argus Research suggests there's much more to like. Foremost, they point to Flora Growth being well-capitalized, with ample cash subsequently bolstered by $31.5 million in net proceeds raised from a secondary offering completed in November 2021. In addition, they expect FLGC to book another roughly $40 million from the exercise of warrants that would position Flora to more quickly execute its strategic plan. Part of that plan is to expand distribution to the U.S. over time, as well as the continuation of Flora signing revenue-generating supply agreements as its commercial harvest and export infrastructure takes hold.
Investors can keep track of performance through what Argus refers to as FLGC's three-part initiative: first, to develop a global supply chain that will allow it to move cultivated products 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.
Here's the best part of their report from an investor's perspective. Argus suggested that Flora is attractively valued relative to peers based on its low-cost structure, strong brand portfolio, and expanding global distribution. Here's the punchline: based on Argus' EV/revenue analysis, they provide a fair value estimate for FLGC at $9 per share.
A Valuation Disconnect Too Big To Ignore
Look, there's a lot to like, and links are provided to evaluate the volumes of reasons to want FLGC stock at these levels. Frankly, a doubling of current share prices would still present a more than attractive near and long-term investment proposition. And, considering deals made with global retailers, studies in the clinic, and some movement into Columbia to squeeze every ounce of profit into its business plan, even a doubling of a doubling in price may not do justice to fairly-value FLGC stock.
In addition, FLGC 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, indicating that share prices nearer to its $20.24 level may be more appropriate.
Don't forget, Flora Growth isn't a one-dimensional company. They have positioned themselves perfectly to maximize supply chain variables, continue to enhance its infrastructure, and create efficient channels to serve the cannabis and hemp, food and beverage, skincare and cosmetics, and lifestyle and apparel brand markets.
Thus, for all intents and purposes, and from any valuation metric, Flora Growth is better positioned than ever to re-claim its all-time highs. If so, which is arguably well-deserved, Flora Growth Corp. and its investors may be in for a heck of a bullish ride in 2022.
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