Clever Leaves CEO talks partnerships, challenges, opportunities and more
In this edition of "Rising High," The Fly conducted an exclusive interview with Kyle Detwiler, chief executive officer of Clever Leaves (CLVR), a multinational cannabis company with an emphasis on large-scale cultivation and pharmaceutical-grade processing. Here are some of the highlights:
COMPETITIVE EDGE: Clever Leaves is a multi-national operator and licensed producer of pharmaceutical-grade cannabinoids with operations in the U.S., Canada, Colombia, Germany and Portugal. When asked about the company’s competitive edge, Detwiler cited Clever Leaves’ cost structure and European GMP certification, which he noted has always been essential to the company’s strategy. “We have a structurally lower cost structure than our peers and we’re able to pass along that savings to our customers,” he said. “That should be the first thing that’s really helping us.” The CEO also said the cannabis industry is taking on a very strong pharmaceutical feel outside of North America, which should be to the company’s advantage. “It’s not a pseudomedical feel like the first medical dispensaries in Colorado, you need drug dossiers, stability tests and European GMP certification if you want to sell in places like Berlin,” he said. “Because Clever Leaves is the only EU GMP certified producer in Latin America, it just opens doors that are hard to get through.” Detwiler added it is also very important to be in place and prepared as the cannabinoid pharmaceutical space emerges. “If you’re at the very beginning, you’re embedded in a customers’ product,” he said. “If you came about a couple years later, it wouldn’t do you much good because when the drug was developed, the Clever Leaves cannabinoid product is a component of that drug.”
ENTOURAGE PHYTOLAB DEAL: Clever Leaves announced in January that it had entered into a three-year “take or pay” partnership agreement with Brazilian cannabis research and development company Entourage Phytolab. Clever Leaves will be paid approximately $11.4M over the term of the agreement to supply finished products for distribution through the pharmaceutical and the compassionate care markets in Brazil. In a second agreement, Clever Leaves will also provide active pharmaceutical ingredients for proprietary formulations of Entourage. “A lot of the newly legal cannabis markets are very, very pharmaceutical and Brazil is a perfect example of that,” Detwiler said. “No cannabis flower products are allowed, it’s all extracts and it all is required to be distributed in a pharmaceutical channel, which means you have to have European GMP certification or ANVISA approval.” He said the company has put in a lot of work to prepare products to get into Brazil, however once they’re in Brazil, Clever Leaves depends on other companies that are more familiar with their local laws to take the finished products and distribute them. “Entourage, as well as our other partner Greencare, those are great examples of very sharp teams,” the CEO said. “They’ve been working around cannabis for many years, they understand how difficult it is and they understand how large the opportunity is.” He said the company saw a like-minded group of people in Entourage with a similar aim. “They were trying to do what we we’re trying to do globally, which is spread the power of cannabinoid-based therapies,” Detwiler said. “They were a perfect partner for us.”
U.S. CBD IMPORTS: In February, the company announced that Herbal Brands, its nutraceutical manufacturer, entered into a strategic partnership with the LooperGroup and TruSource Hemp Group to import the company’s first commercial shipment into the U.S. The first shipment successfully cleared customs in the U.S. in 1Q21. “For multiple years, I’ve been telling people that if the biggest question you have in your mind today is whether or not interstate commerce will occur in the U.S. cannabis industry, I don’t think you’re asking the right question,” he said. “I think the right question for you to ask is what happens to the U.S. cannabis market when legalization occurs nationally and internationally as well.” The CEO noted that the shipment is really the first example he is aware of in which Colombian produced cannabinoids are being imported to the United States legally. “The size of the shipment was of course small because before you send an armada, you want to send your scout in,” he said. “A lot of people have been doubting this would be possible for quite some time but we have proven that not only is it possible, but Clever Leaves could be one of the first companies to do it.”
GW PHARMA TAKEOVER: On February 3, Jazz Pharmaceuticals (JAZZ) announced it would acquire GW Pharmaceuticals (GWPH) for $220.00 per ADS and Detwiler said he believes the move is recognition of the pharmaceutical potential of cannabis. “There are not that many pharmaceutical cannabis companies that are well known,” he said. “GW was probably one of the most recognized, true pharmaceutical businesses.” The CEO noted the company really had only two main drugs, Epidiolex and Sativex, as well as its pipeline. “Jazz Pharmaceutical, which is a great pharmaceutical business, they recognized the value of the pipeline, the team and the industry,” he said. “While a lot people have been focused on who is going to have that hot new dispensary in Los Angeles or whose going to get that new license in Virginia, this is a reminder that the pharmaceutical power of this product is out there.” Detwiler added Clever Leaves is “perfectly built” to supply companies like GW Pharma or others that are trying to develop clinical drugs with extremely high levels of consistency and traceability. “It’s a great sign for the true, true pharmaceutical side of the cannabis industry, which often doesn’t get the headlines that could be captured when you have pop stars and celebrities endorsing recreational products,” he said.
LEGALIZATION: When asked about the potential federal legalization of cannabis in the U.S., Detwiler said while the law hasn’t changed, he feels the American psychology around cannabis has definitely shifted. “Four years ago people were nervous about investing in multi-state operators because they would violate U.S. federal law,” he said. “We’re seeing now U.S. institutions investing $100M into a MSO called GTI. I think outside the federal law, people are just kind of assuming this is happening.” The CEO added he expects significant improvement in legislation in the next year or two. “Potentially you will see U.S. operators allowed to list on exchanges like the Nasdaq or the New York Stock Exchange, you will see advances in safe forms of banking and you may even see the federal government announce a federally permanent way to provide medical cannabis,” he said. “That would be the best case scenario for a company like Clever Leaves because we have a pharmaceutical grade product and we only do business in countries where we can abide by state, local and federal laws.” Detwiler said if the U.S. government made medical cannabis legal, then Clever Leaves’ product from Colombia and Portugal could very well help patients. “Even beyond the U.S. though, I think it’s important to realize that one of the first things that happened after Biden was declared the presumptive winner of the electoral college was that Israel began to announce its plans for its own recreational market within a year,” he said. “It’s a signal with Trump out of the White House and President Biden in, other countries are going to be more progressive about their legalization efforts and that will help accelerate the whole industry.”
INTERSTATE COMMERCE: As speculation about U.S. legalization has risen, questions regarding interstate commerce have emerged and Detwiler said he believes there is a chance it could happen immediately following legalization. “If it’s a federally legal activity, I think you’re going to have to face the facts that somebody in California or Oregon is going to ship product to Massachusetts and Florida,” he said. “Maybe that will not be permitted by what the legacy state laws are, but what is a state agency going to do if somebody is following the U.S. constitution.” The CEO said he thinks the issue might quickly get elevated to the Supreme Court as it can be controversial. “Just because its cannabis doesn’t mean that it should be treated differently than any other federally legal activity,” he said, “I could see that being a hiccup though. It might take the government a year or two to think that through and that could be one of the big reasons that cannabis legalization is delayed.” Detwiler added he believes similar questions will arise on imports. “Should they be allowed and can they be prohibited even, which is a much more important question,” he said. “Why should they be prohibited is an even better one, if you have my type of social perspective. Those are the types of questions that people need to start answering soon.”
CHALLENGES: When asked about the biggest challenges facing the industry, the CEO pointed to the rapid changes and reinterpretation of regulation surrounding the space. “Just having the regulatory clarity around what’s going to happen would save all of the cannabis companies a great deal of time and energy trying to guess,” he said. “All the industry is asking for is visibility.” Detwiler added if a clear set of rules are established, companies will comply and abide with them as well as help the government determine good regulations. “I think it is the flip-flopping or sort of the reinterpretation of law that can really set an industry back,” he said. The CEO noted the UK, which has been emerging as a fairly large CBD market, imposed new regulations that create significant constraints on the ability to bring in CBD products. “It’s not a problem for a company like Clever Leaves because of our manufacturing capabilities, but to get something in there that is compliant with that regulation may throw other suppliers a wrench,” he said. “That’s probably the most difficult thing the industry is facing today.”
OPPORTUNITIES: As the cannabis space develops, Detwiler said he believes the opportunities lie in the massive international markets. “We are a cannabis company that focuses on things that most U.S. cannabis companies don’t focus on,” he said. “You hear me talking a lot about Brazil and we spend a lot of our time thinking about Israel, Australia and Germany.” The CEO said adding the populations of Brazil and parts of Europe, which are likely to have legal cannabis or already do, results in a population bigger than the United States. “There are thousands of cannabis companies in the United States but there are really a couple of dozen that I could name off the top of my head focused on Brazil and Europe,” he said “The prize is so much bigger so that’s where we are going to focus. We focus on highly-regulated markets, we have a demonstrated right to win, what we’re doing is not easy and it also means it’ll be more profitable in the long run.” The CEO also noted that roughly six months ago, Clever Leaves was a private cannabis company and in December, it completed its IPO and is now publicly-traded on the Nasdaq. “We have about $80M in cash on our books and we have a very liquid stock which is going to create lots of opportunities,” he said. “To be the first true low-cost producer with its core operations in places like Colombia and Portugal, I think Clever Leaves has a really fascinating future ahead of itself.”
CANNABIS STOCKS: Other publicly-traded companies in the space include Acreage (ACRGF), Akerna (KERN), Aleafia (ALEAF), Aphria (APHA), Aurora Cannabis (ACB), Auxly Cannabis (CBWTF), CannTrust (CTST), Canopy Growth (CGC), Canopy Rivers (CNPOF), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), CV Sciences (CVSI), CURE Pharmaceutical (CURR), Delta 9 (VRNDF), Emerald Health (EMHTF), FluroTech (FLURF), General Cannabis (CANN), Greenlane (GNLN), Green Thumb Industries (GTBIF), GrowGeneration (GRWG), Harborside (HBORF), Hemp (HEMP), HEXO (HEXO), IM Cannabis (IMCC), India Globalization Capital (IGC), Indiva (NDVAF), Indus Holdings (INDXF), Inner Spirit (INSHF), Innovative Industrial Properties (IIPR), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), MediPharm Labs (MEDIF), MedMen Enterprises (MMNFF), MJardin Group (MJARF), Neptune Wellness (NEPT), Omnicanna (ENDO), Organigram (OGI), Planet 13 (PLNHF), Sproutly (SRUTF), Stem Holdings (STMH), Sunniva (SNNVF), Supreme Cannabis (SPRWF), Valens (VLNCF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Village Farms (VFF), Vireo Health (VREOF), WeedMD (WDDMF), Wildflower Brands (WLDFF), YSS Corp. (YSSCF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).