In this edition of "Rising High," The Fly conducted an exclusive interview with Kyle Detwiler, chief executive officer of Clever Leaves, a multinational cannabis company with an emphasis on large-scale cultivation and pharmaceutical-grade processing. Here are some of the highlights:
BUSINESS COMBINATION LOI: On Monday, Schultze Special Purpose Acquisition Corp. (SAMA) and Clever Leaves announced they entered into a non-binding letter of intent pursuant to which SAMA and the company would enter into a business combination, with the combined company publicly-traded on NASDAQ. The parties intend to execute a definitive agreement in June with a closing expected in the third quarter. Under the terms of the LOI, SAMA and Clever Leaves intend to enter into a definitive agreement to combine, with Clever Leaves’ shareholders owning a majority of the equity in the combined public company. The CEO said there were a couple main motivations for the LOI. “The first is that Clever Leaves is looking to raise a material amount of capital and we think that this transaction provides that,” he said. “The second motivation is it makes Clever Leaves a publicly-traded company so future capital raising should be easier and acquisitions in the future, which have been problematic because we were privately-held, should be easier now.” Detwiler added that Clever Leaves also likes working with the Schultze team. “They’re going to add value and help us digest new growth opportunities either through acquisitions or business development opportunities,” he said. “We look forward to their assistance in Clever Leaves’ growth.”
COMPETITIVE EDGE: Clever Leaves is a global company with cultivation and extraction and processing operations in Colombia and Portugal as well as offices in Canada, Germany and the United States. When asked about the company’s key differentiators, Detwiler said he views Clever Leaves’ cost structure and pharmaceutical grade quality as an edge over competitors. “We generally produce our cannabinoid products at something like an 80%-90% savings compared to being produced in Canada or the United States so that’s the material competitive advantage,” he said. “The second one is that we are truly a pharmaceutical-grade company and we are Latin America’s only GMP certified producer.” The CEO added that the company should have a European certification for GMP within a couple of weeks that will allow Clever Leaves to be one of a handful of cannabis companies in the world that have achieved the certification.
CANOPY GROWTH AGREEMENT: In April, Clever Leaves and Canopy LATAM, a subsidiary of Canopy Growth (CGC), announced they entered into a regional supply agreement, under which Clever Leaves will supply Canopy LATAM with extracted products from its GMP-certified, licensed cannabis processing system and cultivation sites in Colombia. Detwiler said the deal “is really a win-win” for both companies as Canopy tries to pursue a capital light strategy. “I think gone are the days where all companies will build all capacity in every country, that’s just unrealistic in this environment,” he said. “Through long conversations and meetings and site audits, Canopy recognized we could be an effective partner for them, initially in Latin America to have hemp product in country without having expensive cultivation and extraction abilities.” The CEO added the deal also accelerates Canopy’s access to market as Clever Leaves has pharmaceutical validation procedures and certificates in Latin America. Detwiler also said the deal helps illustrate Clever Leaves quality. “In the pharma world, one thing that people say is GMP, getting the certification that’s table stake,” he said. “That’s just to sit down at the poker table, but to survive an audit from a company like Pfizer (PFE) or Merck (MRK), that really shows that you have good, good systems. Because Canopy has trusted us with providing them APIs, they have provided us a nice validation of our quality of business.” Derwiler said he also believes the agreement is a good signal for Colombia as a whole. “The thesis that Colombia could be the bread basket of the cannabis industry is a lot more tangible now,” he said.
EXPANSION: When asked about the company’s expansion plans, the CEO said the company is currently “trying to digest what we built”. He said Clever Leaves is not planning to expand productions beyond Colombia or Portugal but will remain open to distribution investments. “Germany for us is really a distribution hub,” he said. “So far, we’ve been able to sell into countries like Australia, Israel, Brazil and the U.K. without major investments in the region, but I could see some opportunities in the future where we might want to invest in countries that we have advantages on distribution.”
CHALLENGES: When asked about the biggest challenges facing Clever Leaves, the CEO said he believes the implementation of legalization initiatives globally has been the most significant hurdle. “Germany is really the biggest market for federally legal medical cannabis but it’s still very small,” he said. “It’s probably only a EUR150M-EUR200M market this year, I mean it’s growing incredibly fast but it’s still relatively small.” Detwiler added that he thinks every country around the world is being careful about the implementation of rules as they don’t want to screw up cannabis. “We’re getting a good look at that with Brazil,” he said. “Brazil began the legalization process in the last year. They did some unusual things, they ended domestic production for example, everything will be distributed at pharmacies so there’s no dispensaries and everything has to be GMP certified so that restricts a lot of product.” The CEO said the moves are “tremendously great” for a company like Clever Leaves that has those types of certifications but it’s going to make it hard for other companies to compete. “That will just cause things to take a little bit of time to grab hold but you know make no mistake, this a massive market opportunity,” he said. “Governments trying to determine a clear path to bring cannabinoid therapy to their populations, I think it’s taken a lot longer than people expected.”
OPPORTUNITIES: As the cannabis space develops, Detwiler said the opportunities Clever Leaves are excited about include European legalization, the Brazil market and Portugal certifications. “The legalization of Europe is certainly something we’re focused on,” he said. “It takes a long time to get set up over there but once you’re in, you’re part of a small group of companies that can get there.” The CEO added the company is also focused on Brazil. “It’s an early market, it’s going to be very complicated and it’s heavily pharmaceutical, so that will prove its own challenges but opportunities as well.” Detwiler also noted that Clever Leaves does not yet have a fully licensed operation in Portugal so the company can only sell oil extracts. “Once we get Portugal certified that’s going to add a whole new product to our portfolio, which would be dried flower products,” he said. “We actually anticipate being licensed in a few months in Portugal so a lot of attention is being paid internally to making sure that licensing is successful."
CORONAVIRUS: When asked about the impact the coronavirus outbreak has had, the CEO said Clever Leaves hax been affected in two big ways. “Air cargo flights from Colombia to many parts of the world have been suspended,” he said. “We’ve been able to get flights to go from certain countries now with new providers.” Detwiler said Israel was one of the countries with suspended flights but Clever Leaves found a new way to get there, however the company has not yet solved the problem for Australia. “That’s very frustrating. When you’re trading in regulated controlled substances, it’s not as simple as taking an Avianca flight from Bogota to Frankfurt and then changing to Air Canada and going to Australia,” he said. “It has to be a single chain of custody so it’s a bit more tricky.” Additionally, the CEO said the company depends on a number of licenses, permits and quotas from different governments and most governments are focused on fighting the pandemic. “Certain regulatory materials or licenses that we need are not the main priority for some of these health agencies around the world,” he said. “We’re getting what we need, it’s just taking a little bit longer.”
OTHER CANNABIS STOCKS: Other publicly-traded companies in the space include Akerna (KERN), Aleafia (ALEAF), Aphria (APHA), Aurora Cannabis (ACB,) Auxly Cannabis Group (CBWTF), Biome Grow (BIOIF), CannTrust (CTST), Canopy Growth (CGC), Canopy Rivers (CNPOF), Cresco Labs (CRLBF), Cronos Group (CRON), CV Sciences (CVSI), Delta 9 (VRNDF), DionyMed Brands (DYMEF), Elixinol Global (ELLXF), FluroTech (FLURF), General Cannabis, Green Thumb Industries (GTBIF), Greenlane (GNLN), GrowGeneration (GRWG), Harborside (HSDEF), Hemp Inc. (HEMP), HEXO (HEXO), India Globalization Capital (IGC), Indiva (NDVAF), Innovative Industrial Properties (IIPR), ICC International Cannabis (WLDCF), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), MediPharm Labs (MEDIF), MedMen (MMNFF), Mjardin (MJARF), Neptune Wellness Solutions (NEPT), Organigram (OGI), Origin House (ORHOF), Planet 13 (PLNHF), Real Brands (RLBD), Sproutly (SRUTF), Sunniva (SNNVF), Supreme Cannabis (SPRWF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY) Trulieve (TCNNF), Valens (VLNCF), Vireo Health (VREOF), Wayland Group (MRRCF), WeedMD (WDDMF), Westleaf (WSLFF), Wildflower Brands (WLDFF), YSS Corp. (YSSCF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).
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