Flora Growth’s Alliance With Macy’s Highlights Brand Sustainability That Big Box Retailers Covet
Although the cannabis sector may be down, the prospects for Flora Growth (NASDAQ:FLGC) are looking up. Operator of one of the world’s largest cannabis farms, and endowed with a diverse product line, the company is increasing its retail alliances at a steady rate. Flora can now count Big Box retail giant Macy’s among its tier-1 list of vendors.
Beginning last week, Macy’s (NYSE:M) began selling shoes from its Stardog Loungewear line on macy.com and in physical locations, which helps expand Macy’s commitment to source products made from sustainable materials. Macy’s is Flora Growth’s largest retail partner to date, currently with a $10.46 billion market capitalization and trading on a major U.S. exchange.
This Stardog brand caters to consumers looking for comfortable loungewear made from natural, organic materials. Its sustainable sneakers are made from 100% hemp fiber. Macy’s will launch the collection with the Startonic House Shoe and Expedition Sneaker with plans to expand into additional products in the future. Stardog Loungewear also includes comfortable loungewear such as robes, joggers and hoodies made from natural materials and hand-made in Columbia.
What makes industrial hemp such an attractive, sustainable alternative is its multiple environmental benefits. For example, hemp uses about 50% less water than cotton per planting season and is naturally resistant to disease and pests, which generally require less pesticide application per harvest..
These products are the type of environmentally-friendly goods that Big Box retailers such as Macy’s are gravitating towards as it realigns its product mix towards the more environmentally conscious Gen-Z and millennial demographic.
According to Macy’s 2020 Sustainability Report, the company has developed “Sustainable Stewardship Goals” to align and advance its corporate strategy and to create shared value for the company and stakeholders. This includes offering “Private Brand products made with preferred sustainable fibers” and “adding an additional 5,000 product pages to the macys.com sustainability sitelet.” Flora Growth products fit precisely this modus operandi.
Macy’s sustainability goals were echoed in an October discussion on RetailWire, where industry experts opined on the issue. According to Paula Rosenblum, a Managing Partner at retail analysis firm RSR Research, “Sustainability in apparel is only going to grow in importance and will be table stakes within five years. This will happen to the detriment of fast fashion and to the benefit of the resale industry.”
Aside from the Stardog Loungewear line, Flora Growth branded portfolio includes additional products that align with shifting retailer objectives. The company’s wholefoods division, Mambe, offers bars and juices using sustainable methods from responsibly-sourced exotic Amazonian fruits. Flora’s skincare division, Mind Naturals, offers products made with plant or sugar-based materials that are recyclable, ensuring a minimal carbon footprint.
The fact that Macy’s is selling Flora Growth branded products is a great sign for the company. Given the way that Big Box retailers are increasingly focusing offerings towards a younger demographic with increasing purchasing power, product mix realignments towards environmentally sustainable products is a good bet. Flora Growth has a diverse brand portfolio which is geared towards this shift.
We are on the lookout for additional Big Box store alliances in 2022.
MKM Partners Reiterates “Buy” Rating and Price Target On Flora Growth
Despite recent equity price softness in the U.S. cannabis sector, Flora Growth received a boost of confidence from MKM Partners, an institutional equity research firm based in Samford, Connecticut.
The company reiterated their “Buy” rating [alternate link of you can’t directly like to MKM Partners research] and $11.50 price target, citing several catalysts including:
- Pending German federal legalization of cannabis, which may impact Columbian cannabis imports through Flora Growth’s partnership with Hoshi International
- Farm Bill allowance for Flora to import low-THC cannabis into the United States
- Improving financial performance led by acceleration in the Kasa Wholefoods,Tropi and Flora Lab/Flora Beauty product lines
- Low cost of growing cannabis in Columbia in an environment where international barriers are coming down. With one of the world’s largest outdoor operations, Flora should be able to grow for as little as $0.20/gramand sell at $1.00/gram, representing 80% expected margin as cannabis exports pick up
Flora’s Latin American grow operation is underpinned by its wholly-owned growth facility in Bucaramanga, Colombia. The location includes 247 acres of prime arable land for cultivation, with consistent half-day sunlight and six natural water springs. The facility is among the world’s largest outdoor cannabis grow sites in a country that offers among the most optimum growing conditions in the world.
MKM Partners $11.50 price target is based on a discounted cash flow model derived based on: 1) net sales reaching $69.4mn in 2023; 2) adjusted EBITDA of $25mn (35% margin); 3) strong double-digit growth through 2028; 4) 3% terminal growth; and 5) 8% weighted average cost of capital.