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:
LOW-COST PRODUCTION: Clever Leaves is a multinational cannabis operator and licensed producer with operations in Colombia. The company produces cannabinoid active pharmaceutical ingredients and finished products in flower and extract form for a growing base of B2B customers around the globe.
“From the beginning we’ve had a clear strategy, which is the notion that we should produce cannabis where it should be produced and then sell it where it should be sold,” Fajardo said. “This simple notion sets us apart from the MSOs who produce where they have to but not necessarily where they want to.” He added Clever Leaves is currently producing high THC smokable flower and extracted products with EU-GMP quality characteristics in the company’s Colombian facility. “We have access to very low-cost production, we have access to scale, and we have the ability to introduce the highest quality products into market swiftly and efficiently,” the CEO said. “Additionally, we are building a commercial network throughout different countries.”
The company has been focused on Germany, Australia, Israel and Brazil, he said, and has built a commercial set of partners around countries where cannabis has been legalized for medical use. “Clever Leaves’ low-cost, large-scale and high-quality production is coupled with our commercial presence in key medical cannabis markets globally,” Fajardo said. “That sets us apart from companies that do not have infrastructure set up in the global cannabis world.”
PORTUGAL WIND DOWN: Clever Leaves announced in January the wind down of all operations in Portugal as part of its ongoing restructuring initiatives. Under this restructuring plan, the company ceased all Portuguese flower cultivation, post-harvest processes and manufacturing activities.
“We really started with extract production in Colombia because Colombia’s regulatory framework only allowed for producing extracts at the time,” the CEO said. “When we were assessing our growth strategy in the medical cannabis market, we realized very quickly that a focus on extracts was not going to be enough, given that a large part of the medical market was flower.”
Clever Leaves began to evaluate other jurisdictions to produce flower within the legal framework to serve medical cannabis partners across the globe, he said. “We decided on Portugal given its location, relative low-cost production compared to other European countries, weather conditions and agricultural processes that made it a suitable place to grow cannabis flower within the Continent,” Fajardo said. “As time passed, we learned the hard way that growing flower for extraction is much different than growing high THC smokable flower.”
During that time, Colombia experienced a regulatory shift, he said, allowing for the cultivation and exportation of flower for medical uses. “Now we had the opportunity to export flower from Colombia and we were asked, ‘Well why are you keeping your Portuguese facilities?’” the CEO said. “Our argument was that we were ahead on the learning curve, had established our premium product and believed we were going to have higher quality product in Portugal than Colombia.” However, as time passed the Colombian product became as good, if not better than the Portuguese product, and the cost base was significantly lower, he said. “It made more sense to consolidate our operations in Colombia where we have the cost, product, and scale to produce and bring on new strains with high frequency,” Fajardo said. “With this ability, we’re more nimble as an organization in managing operations and cash flow, which will strongly benefit Clever Leaves in turn.”
GERMAN CANNABIS MARKET: Germany is expected to introduce a bill in the coming weeks, which if passed, would allow for the consumption and sale of cannabis. “Clever Leaves is well-positioned in the German market for a variety of reasons,” the CEO said. “We have our own distributor and importer in Germany and have launched a brand that patients already know called IQANNA.” The company has been active in the German market, knows how the space operates and is aware of consumer trends there, he added.
“Being recognized as one of the players in the market is going to be significant when the German adult-use market opens up,” Fajardo said. “We also have agreements with many different parties in the cannabis world within Germany and have been shipping products to them. Those partnerships will prove very fruitful.” He noted, Clever Leaves would further be strongly positioned if international legislation allows for the international trade of adult-use cannabis. “We will have a significant number of strains, a low-cost position and high-quality products, which would be very interesting for the adult-use market in Germany,” the CEO said. “However, it’s going to take time. For me, adult-use legalization of cannabis is more of a matter of when than a matter of if, but we must be patient and cautious. It is going to take some time for that materialize.”
INDUSTRY COST CUTS: A number of multi-state operators have recently announced cost-cutting initiatives including reduced footprints and headcounts and Fajardo noted Clever Leaves took very significant steps to restructure during 2022.
“We went through a leadership change back in March of 2022 and have been reducing our expenses across the company through real cost transformation and footprint optimization,” he said. “The decision to wind down our Portugal operations was a major factor in this initiative. We believe companies in cannabis have to be nimble, agile and very efficient and that’s something we consistently work towards.”
When asked about how industry cost cuts might impact the landscape for consolidation in 2023, the CEO said he still sees space for consolidation. “Many small operators will either consolidate with others or are going to go out of business,” he said. “The larger companies like us are striving to keep pushing ahead, focusing on the core and looking for cash flow positivity, so I think there’s real space for consolidation.” The only question lies in capital availability, Fajardo said, as it has been limited across the industry. “One could argue that lower capital availability could result in lower consolidation activities, so there’s a little bit of a wait-and-see,” he said. “I think it’s going to be a year of both efficiencies and consolidation.”
ECONOMIC CONCERNS: When asked about how rising concerns around inflation and recession will impact the space, the CEO said different industries across the board will be affected. “There may be some pricing pressure from the consumer end and for the patients with out-of-pocket expenses for medical cannabis,” he said. “In addition, particularly for countries where operating is expensive, inflation and incremental power costs are going to affect those companies very significantly.”
Fajardo said Clever Leaves is in a good position as factor costs in Colombia are still very low and the company uses very minimal energy. “Our cost structure is much less exposed to inflation,” he said. “At the same time, bringing a product that structurally has lower costs allows us and our partners to leverage that affordability and supply the market, especially in these times of uncertainty for patients.”
LEGALIZATION: Following the mid-term elections, Republicans won control of the House of Representatives while Democrats retained control of the Senate and the CEO said he expects federal legalization to take some time.
“In the U.S., it’s going to be a matter of when and not if, but it’s very hard to issue an opinion,” he said. “The more recent FDA decision on CBD is proof of that, but It’s going to take some time for adult use legalization to happen at the federal level.” Fajardo added there could be some movement on SAFE banking in the short-term, which would have a significant effect on cannabis globally. “SAFE is a little less political than the U.S. legalizing recreational cannabis and would be of benefit to the industry, for sure,” he said. “Transaction costs are very expensive and the fact that money cannot flow in the United States banking system is actually a big problem for international wire transfers, etc.”
Additionally, SAFE would give assurance to investors that have been sidelined in the space until now, the CEO said. “The dynamics of the industry will dramatically change with SAFE because it will bring new money, new investors, new ideas and can open up a whole new set of possibilities for the industry,” he said.
CHALLENGES: When asked about the largest hurdles facing the cannabis space, Fajardo pointed to the speed of regulation as one of the greatest challenges from an international standpoint.
“We have been expecting a much faster pace for regulation to happen in the different countries, so that I would say is number one,” he said. “Number two, there are countries where physicians who are gatekeepers into medical cannabis have been more open to prescribing and others where they haven’t. While we are making progress, it’s still a hurdle." Those two factors combined led to slower revenues than companies envisioned at the beginning of the industry, the CEO said.
“Another challenge is that cannabis companies grew fast a few years back and now, with lower revenues than imagined, we all have had to adjust our cost and operating structures,” he said. Fajardo also cited capital availability as another issue industry operators have to face. “There used to be a lot of capital in the industry available, you’d raise your hand and you would get capital,” he said. “Now it’s getting a lot harder as the market becomes more saturated. Microcaps are starving for capital, particularly those companies that are still in the investment phase. Limited capital is a hurdle for survival, expansion, and growth.”
OPPORTUNITIES: As the cannabis sector develops, the CEO said Clever Leaves is most excited about participating in the many different markets opening around the world.
“Last year we had a focus on new countries like Australia, Israel, Brazil and Germany and this year we’re expanding that to the United Kingdom,” he said. “There are also other markets we’re working on, including Panama and Ecuador.”
The company is also working on producing more clinical data on its products, Fajardo said. “Clinical data is a cornerstone to us as a company in the medical cannabis industry for the longer-term,” he said. “And we’re monitoring very closely the opening up of adult-use markets because Clever Leaves would be well-positioned in capturing those opportunities, particularly, if there is international trade.”
CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Acreage Holdings (ACRHF), Aleafia Health (ALEAF), Atai Life Sciences (ATAI), Audacious (AUSAF), Aurora Cannabis (ACB), Avant Brands (AVTBF), Awakn Life Sciences (AWKNF), Ayr Wellness (AYRWF), Body and Mind (BMMJ), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clever Leaves (CLVR), Columbia Care (CCHWF), Compass Pathways (CMPS), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos (CRON), Curaleaf (CURLF), CURE Pharmaceutical (CURR), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Fire & Flower (FFLWF), Flora Growth (FLGC), Flowr Corporation (FLWPF), General Cannabis (CANN), BZAM (BZAMF),Greenlane (GNLN), Green Thumb (GTBIF), Goodness Growth (GDNSF), GrowGeneration (GRWG), 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), MediPharm Labs (MEDIF), MedMen (MMNFF), NewLake Capital (NLCP), Organigram (OGI), Planet 13 (PLNHF), Reunion Neuroscience (REUN), Revitalist (RVLWF), RIV Capital (CNPOF), Relmada (RLMD), RYAH Group (RYAHF), Safe Harbor (SHFS), SLANG Worldwide (SLGWF), Small Pharma (DMTTF), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Tryp Therapeutics (TRYPF), Trulieve (TCNNF), Verano (VRNOF), Village Farms (VFF), Wesana Health (WSNAF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).
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