Canadian cannabis operator Flora Growth Corp. (FLGC) cultivates and supplies cannabis products to medical dispensaries and pharmacies under Mind Naturals, Flora Lab, Mambe, and other brands worldwide. The Toronto-based company went public on the Nasdaq on May 11. But its shares slipped more than 4% on their first trading day.

However, investors’ bullish sentiment surrounding the Columbian government’s revision of cannabis laws to allow access to cannabis products by Colombians has driven FLGC’s shares to a 278.1% gain over the past month. Global cannabis supplier FLGC is uniquely positioned to benefit from this legislative change.

But the company has yet to announce its earnings since going public. Furthermore, it is not yet profitable in a competitive cannabis landscape. Although a strategic partnership with Avaria and its plans to move its corporate headquarters to Miami from Toronto could bode well for the stock, uncertainty about its growth prospects could unnerve investors.

Click here to check out our Cannabis Industry Report for 2021

Here is what we think could influence FLGC’s performance in the coming months:

Columbian Legislative Update Bodes Well

Last month, Columbian President Ivan Duque signed a legislative decree to lift the ban on exports of dried cannabis flowers and allow the expansion of cannabis-based medicine sales in Columbia. This legislative update  should  enable cannabis cultivators to supply ingestible cannabinoid products and strengthen their position in  major international markets. FLGC’s Colombian cultivation facility is well-positioned to capitalize on the rule change. Also, the manufacturing and sale of cannabis products in Columbia should increase the near-term revenue-generating prospects of the company’s Kasa Wholefoods division.

Strategic Joint Venture

On July 27, FLGC announced that it had signed a letter of intent with Ajaria Inc. to form a joint venture to manage the sale and distribution of Avaria’s KaLaya products across Latin America. The award-winning brand will be sold across FLGC’s 2,500-plus Colombian distribution channels. Furthermore, the company plans to work with Avaria to develop CBD-infused versions of KaLaya products for import into the United States and distribution across Latin America.

Inadequate Financials

FLGC’s trailing-12-month revenue stood at $106,000. Its trailing-12-month operating loss came in at $12.39 million, while its trailing-12-month net loss amounted to $14.17 million. The company’s trailing-12-month net interest income was negative $30,000, while its EBITDA came in at negative $14.19 million. Also,  FLGC’s trailing-12-month operating cash flow and free cash flow stood at negative $8.42 million and $8.66 million, respectively.

Bleak Profit Margin

Its 0.01% trailing-12-month asset turnover ratio is 98.8% lower than the 0.8% industry average. Moreover, FLGC’s ROE, ROA, and ROTC are negative 188.1%, 72.9%, and 91.6%, respectively. And its 220.8% trailing-12-month CAPEX/Sales ratio is significantly higher than the 3% industry average.

POWR Ratings Reflect Uncertainty

FLGC has an overall C rating, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. FLGC has a D grade for Quality. The stock’s poor profitability is in sync with this grade.

The  company has a Growth grade of C, which is consistent with its bleak financials and uncertain growth prospects.

In terms of Stability Grade, FLGC has a C. This indicates that the stock is more volatile than its peers.

In addition to the grades we’ve highlighted, one can check out additional FLGC ratings for Momentum, Sentiment, and Value here. The stock is ranked #22 of 32 stocks in the D-rated Agriculture industry.

Click here to view the top-rated stocks in the Agriculture industry.

Bottom Line

The positive legislative change in Columbia and a strategic partnership with Avaria have bolstered FLGC’s shares significantly over the past month. However, investors remain skeptical about the cannabis operator due  to its uncertain growth potential and negative profit margin. Therefore, we think investors should wait for its finances to stabilize before investing in the stock.

Click here to check out our Cannabis Industry Report for 2021

FLGC shares were trading at $12.60 per share on Thursday morning, down $0.52 (-3.96%). Year-to-date, FLGC has gained 163.05%, versus a 19.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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