Flora Growth Buys German Franchise Global Health

The deal will accelerate Flora Growth's expansion into Europe.

Flora Growth Corp. (NASDAQ: FLGC) announced it is buying German-based medical cannabis company Franchise Global Health Inc. (TSXV: FGH) (“FGH”) for an undisclosed amount. However, Flora Growth did note in a statement that FGH’s German reportable segment achieved revenues of C$30.1 million, gross profit of C$2.1 million, and net income of C$0.4 million in the first half of 2022.

The combination of Flora and FGH is expected to deliver at least $3 million of annualized cost synergies within the first year following the completion of the acquisition, primarily in the areas of reduced corporate administrative expenses. Flora Growth stock popped over 5% in early trading on the news and was lately selling at 56 cents per share.

“Through this proposed acquisition, we are connecting our commercial infrastructure and medical cannabis product portfolio to the German and EU medical markets, while gaining direct access to European pharmaceutical distributions,” said Luis Merchan, Chairman and CEO of Flora Growth. “We believe Franchise will significantly increase our commercial international revenue and provide essential distribution to German pharmacies and a growing wholesale market.”

International Moves

FGH’s German businesses operate primarily in the export pharmaceutical and medical cannabis import and distribution markets, servicing 1,200 pharmacies in Germany and providing non-cannabis medical products to 28 additional countries. Flora Growth has set its sights on the European cannabis market. Last month the company said it had completed its first exports of Colombian-grown high-CBD dried cannabis flower to Switzerland and the Czech Republic as well as CBD isolate to the United States. Switzerland recently announced a pilot project to open adult-use cannabis sales this summer in Basel, to test the viability of a fully legal recreational market.

Flora said that the acquisition is expected to accelerate its expansion into the European cannabis and pharmaceutical markets with prescription medicines and would provide the company with immediate access to a wealth of knowledge and intellectual property that FGH has developed, including 41 registered cannabis strains in Colombia and the first registered cannabis seed bank in Copenhagen, Denmark housing 286 strains. The proposed acquisition would further allow Flora to expand its CBD business in Europe by utilizing FGH’s distribution and logistics capabilities.

“Luis and I share the same vision of establishing a leading and sustainable cannabis business. Flora has the right platform to execute on this strategy through M&A and organic growth. We are excited to join forces,” says Clifford Starke, CEO and Executive Chairman of FGH. “Together we have a solid revenue base, a proven consumer packaged goods business that can be replicated in Europe, and a successful distribution network. Over the past few months, we have worked tirelessly to identify synergies, reduce costs, and build an industry-leading team.”

Germany

Last week, a document about German adult-use cannabis legalization (that was supposedly leaked) jump-started attention on the country’s cannabis industry.  If adult-use cannabis is approved in Germany, it would become the largest federally legal cannabis market in the world, with an adult population of nearly 70 million.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.


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