Rising High: Exclusive talk with medical cannabis company Clever Leaves

In this edition of “Rising High,” The Fly conducted an exclusive interview with Andres Fajardo, chief executive officer of Clever Leaves Holdings (CLVR), a licensed producer of pharmaceutical-grade cannabinoids. Here are some highlights:

INDUSTRIAL-SCALE, LOW-COST PRODUCTION: Clever Leaves is a global medicinal cannabis company with operations in Colombia that produce cannabinoid active pharmaceutical ingredients and finished products in flower and extract form for a growing base of B2B customers. “There is competition and we think it is mounting,” Fajardo said. “However, there is also a trend of a little bit less consolidation and a little bit more of companies leaving the sector. What we have seen in the different markets is a lot of flower companies have been suddenly moving back as they are unable to meet the standards and/or make money.” Clever Leaves has set itself apart from competitors through the company’s certifications and scale, he said. “We have quality certifications that not many people have,” the CEO said. “It makes us a very good partner for companies that really want to ensure their product meets the market requirements across the globe. We also have scale that ensures us as a company.”

He noted branding has reemerged as a significant factor in the industry continuing the need for supply. “Many companies enter the market, they import some flower here and there and sell it,” Fajardo said. “Then when they are going to import more flower, their suppliers have a niche, but they don’t have the scale. That’s where our scale comes in because we can ensure that our production for our extracts and our flower is consistent.”

Clever Leaves’ low-cost production methods also serve as a key differentiator for the company, he said. “Globally, I think we have one of the best cost structures for both flower and extract, which allows us to be competitive even in times of augmented supply,” the CEO said. “We do think that pricing trends are going to reverse with the lowered price going a little higher, but even then, we are competitive based on our structure.” He also pointed to the company’s regulatory experience and quality product as factors that make it stand out. “People think you can ship products around the globe easily, but it’s a big conquest that changes with time,” Fajardo said. “We built the regulatory capabilities after having shipped to different countries and consistently doing so, which allows us to manage that very ability amid regulatory changes much better. But ultimately, it all comes down to the product and we have been working really hard on getting our flower to the bar that the market needs.”

He added the last flower production from the company’s Colombia operations led to a super premium type of product with very high THC levels and Clever Leaves is growing a number of strains. “We have the product, the consistence of supply, the cost, the certifications and not only that, but we are doing it all in a sustainable way,” the CEO said. “We have our carbon neutral certification, which we believe no other vertically integrated cannabis company globally has and that is important.”

CARBON NEUTRALITY: In August, Clever Leaves announced it was awarded the International Declaration of Carbon Neutrality by 100% Carbon Neutral Program for its active commitment to environmental sustainability and climate change mitigation. “In the general industry, we have to strive not only for profitability but also for sustainability,” Fajardo said. “We view sustainability in a broader way than just environmental, we also have a social part of it. We are good neighbors, we have very good relationships with the communities where we operate and we want to bring well-being to those communities.”

He said Clever Leaves was established not only to bring the benefits of medical cannabis to the world, but also to benefit the communities where it is located. “This is exactly that,” the CEO said. “We have been declared carbon neutral for our flower. To give you an idea, we generate around 16 kilograms of CO2 in our grow per kilogram of dried flower, that is compared to typical indoor cultivation that would generate up to 2,300 to 5,200 kilograms of CO2 per that same kilogram of dried flower. The difference is astonishing.”

Looking at the industry over the long-term, he said supply, quality of product and cost are going to be important, but sustainability is going to be a requirement. “Part of the reason we started the company in Colombia was to use the natural resources,” Fajardo said. “Using the sun as opposed to artificial lighting and using rainwater as opposed to underground sources to be able to produce in a low-cost and sustainable way. It’s always been a part of why we started the company. Also, commercially and from a business perspective, we believe patients, physicians and our own clients are very interested in this topic.”

The declaration gives Clever Leaves a unique selling proposition and a differentiating factor to produce high quality, high THC products, he said. “We think there is a big trend in consumers globally interested in sustainability, that will probably allow us to increase market share as well as the willingness to pay for a product,” the CEO said. “It is the right thing to do, it’s what companies should do and it is important for us as part of our purpose. It also has a very positive impact on our business by potentially allowing us to grow further, differentiate ourselves and eventually have a product that highly resonates with consumers.”

Q2 EARNINGS: Additionally in August, Clever Leaves reported second quarter loss per share of 8c on a revenue of $4.98M, which compared to a loss per share of 3c on a revenue of $4.1M for the same period last year. The company also reaffirmed its 2023 revenue view of $19M-$22M, with an adjusted gross margin of 58%-63%. “It’s important that companies do what they say they’re going to do,” Fajardo said. “We established the guidance from early in the year and it is important for our investor base to see that we are striving to get there, managing the variability and all the topics that arise in day-to-day operations.”

He said Clever Leaves has decided to leverage client contracts in order to grow and is planning to introduce more products into market to expand revenues. “We have the scale, the quality and the cost and we’re at a point where we have been able to leverage those capabilities to be able to reach the results that we promise,” the CEO said. “We’re going to be able to grow this year.”

AUSTRALIA PLANS: In July, the company announced the availability of its Colombian flower to patients in Australia through its partnership with Australian Natural Therapeutics Group. The products are available under ANTG’s “Global Selects” brand portfolio. “Australia is one of our key target markets,” Fajardo said. “We have a very good presence on the API side of business and we started with ANTG, which has been a partner of us for some time, with the launch of our flower. It’s selling well and it’s been well-received by physicians and by patients.”

He added Clever Leaves hopes to grow its relationship with ANTG for further collaboration and product launches. “We believe in what they have and we believe in their strategy,” the CEO said. “They believe in us too, so it is a very strong partnership that allows us to grow in Australia.”

Beyond ANTG, the company has another series of clients in the country, which it serves on the extract side, he said. “We hope to start serving them on the flower side in the coming months by increasing our number of strains,” Fajardo said. “Australia is a market that continues to grow, it’s a market that suits our product very well and it’s a market where we have the regulatory element required to be able to play there.”

PORTUGAL ASSET SALE: In July, Clever Leaves completed the sale of its Portuguese processing assets to Terra Verde, an affiliate of Curaleaf Holdings (CURLF). Proceeds from the sale amounted to $2.7M. “Our three objectives have been focusing our commercial efforts, getting our flower where it needs to be and expanding it and ensuring we have enough cash runway as a company to grow,” the CEO said. “The sale of the assets basically ensured that we have a greater cash balance so that we can continue to invest and manage the variability of the market.”

He added the company is continuing to look for any opportunity to sell non-core assets. “We continue to be in the process of selling other assets in Portugal and we will definitely provide an update when there is any news,” Fajardo said.

SCHEDULING: In August, the U.S. Department of Health and Human Services made a recommendation to the Drug Enforcement Agency that cannabis be moved from Schedule I to Schedule III under the Controlled Substances Act. “Any change in the U.S. is positive for the cannabis industry in general,” the CEO said. “The U.S. has the stage for many of these changes globally so making these changes is good.”

He said he believes the recommendation is a good initial action in ensuring that medical cannabis become federally legal. “It will allow orders to open up for international trade of medical cannabis,” Fajardo said. “This is the first step in that path and we think that it is a good step. Having the U.S. as a federally legal market is very important for the industry.”

He added it is also important to Clever Leaves as a company that is uniquely positioned to serve the states. “Our cut flower used to be produced in the U.S. and now 70% of that is produced in Colombia, so we are very well positioned to serve the U.S.,” the CEO said. “Having said that, we don’t count on legalization in our business or sustainability plans. It is a process that is going to take time.”

The recommendation also serves as a catalyst for the capital markets, he said. “It allows people to see this as potential source of growth of something exciting and it brings people back to the capital markets for cannabis, which had some very rough days,” Fajardo said.

CHALLENGES: When asked about the largest hurdles facing the cannabis space, Fajardo pointed to the regulatory environment as one of the biggest challenges from an international standpoint. “It is still hard to send products across borders,” he said. “Some countries are legalizing medical cannabis, but it is still taking time and rules are not clear. That is still one of the greatest challenges in my mind.”

Limited capital availability in the industry and supply issues are also large obstacles facing the space, the CEO said. “In the current macroeconomic environment, it’s hard for investors to invest in cannabis as an industry, particularly with what has happened in the past two years,” he said. “And over the short-term there are supply concerns, which basically hurt pricing and profitability meaning a lot of companies might go out of business. It’s a time of recomposing the industry so it’s a bit of a challenging environment.”

OPPORTUNITIES: As the cannabis sector develops, Fajardo said he sees the biggest opportunities within the significant amount of countries that could come on line. “We’re talking about France, we’re talking about Mexico and we’re talking about these changes in the U.S.,” he said. “Those are tailwinds to the industry.”

For Clever Leaves specifically, the CEO said he sees opportunity in the continued improvement of the company’s product. “We have been doing very well on the extract side, so expanding the flower with the quality of product that we have been able to obtain in the last few grows is very, very valuable and a very good driver of growth,” he said. “Seeing how the industry shapes up, seeing what happens when the dust settles, is going to be very interesting. We strongly believe companies with the right capabilities will get through this tough time and we believe very strongly that we are one of those companies.”

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Aleafia Health (ALEAF), Acreage (ACRHF), Atai Life Science (ATAI), Audacious (AUSAF), Aurora Cannabis (ACB), Avant Brands (AVTBF), Awakn Life Sciences (AWKNF), Ayr Wellness (AYRWF), Body and Mind (BMMJ), BZAM (BZAMF), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clearmind (CMND), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), Columbia Care (CCHWF), Compass Pathways (CMPS), CURE Pharmaceutical (CURR), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Enveric Biosciences (ENVB), Fire & Flower (FFLWF), Flora Growth (FLGC), General Cannabis (CANN), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Goodness Growth (GDNSF), Hemp (HEMP), HEXO (HEXO), High Tide (HITI), India Globalization Capital (IGC), Indiva (NDVAF), Innovative Industrial Properties (IIPR), InterCure (INCR), IM Cannabis (IMCC), Wellbeing Digital (KONEF), Khiron Life Sciences (KHRNF), Lowell Farms (LOWLF), Lotus Ventures (LTTSF), Lucy Scientific Discovery (LSDI)m MediPharm Labs (MEDIF), MedMen (MMNFF), MindMed (MNMD), NewLake Capital (NLCP), Numinus Wellness (NUMIF), Organigram (OGI), Planet 13 (PLNHF), Reunion Neuroscience (REUN), Revitalist (RVLWF), RIV Capital (CNPOF), Relmada (RLMD), RYAH Group (RYAHF), Safe Harbor (SHFS), Small Pharma (DMTTF), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Tryp Therapeutics (TRYPF), Verano (VRNOF), Village Farms (VFF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).