Clever Leaves: Own a Leading Global Cannabis Producer with a Colombian Edge – IPO Edge
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Clever Leaves: Own a Leading Global Cannabis Producer with a Colombian Edge
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Clever Leaves: Own a Leading Global Cannabis Producer with a Colombian Edge

  • Clever Leaves to go public via merger with Schultze Special Purpose Acquisition Corp.
  • Clever Leaves Colombian cannabis assets produce at 1/10 the cost of many Canadian farms
  • Total production of 1.9 million square feet, comparable to largest global players
  • Company recently secured key European Union Good Manufacturing Practices (EU GMP) certification
  • CEO Kyle Detwiler brings experience from KKR & Co. Inc. and The Blackstone Group L.P.
  • Company trades at just 5.4x 2022 Ebitda, a fraction of other major listed players

By John Jannarone

From Saudi oil to Chinese manufacturing, world commerce inevitably gravitates toward low-cost, high volume production. Can investors bet on the same of cannabis?

In recent years, cannabis investors have witnessed the challenge faced by big producers such as Canopy Growth Corporation, Aphria Inc., and Tilray Inc., all of which share the common burden of expensive production facilities in countries like Canada. Imagine instead the opportunity to own a leading global company that produces top-notch cannabis at a small fraction of the price.

Meet Clever Leaves, a vertically integrated multinational cannabis company that plans to list on Nasdaq after merging with Schultze Special Purpose Acquisition Corp. (ticker: SAMA), a blank check company or SPAC that raised money to find a target. The newly-formed company will trade under the ticker “CLVR” after the deal closes, but investors can purchase SAMA shares now and let them automatically convert to Clever Leaves shares.

The first advantage to note about Clever Leaves is its Colombian production assets. “Annual cannabis exports from the country are expected to grow >20x to $2.3 billion in a decade,” Peter Wright of research firm Intro-Blue, LLC wrote in a recent client note. “Colombia’s location near the equator provides an even 12-hour day and night cycle, quality soil, abundant water, and warm weather. This allows for year-round cultivation without the need for light supplementation while high elevation leads to improved pest mitigation, resulting in better quality supply.”

Those conditions allow Clever Leaves to produce at a cost of just $0.20 per gram in very large volume. That’s around 1/10 the cost of major production facilities in Canada.

Indeed, a look at recent filings from major Canada-focused producers shows even the largest and most efficient producers struggle to bring costs below $1 per gram. Tilray’s most recent production cost was $3.97 per gram, while Aphria’s most recent reported cost was $0.88 per gram.

Of course, investors may wonder if Colombian cannabis meets the same quality standards as plants grown in tightly-controlled Canadian greenhouses.  But Clever Leaves has continued to obtain key certifications allowing it to produce pharmaceutical-grade products – much like an innovative biotech company.

Most recently in July, Clever Leaves became a rare international cannabis company to attain European Union Good Manufacturing Practices (EU GMP) certification. That allows its post-harvest facility to produce Active Pharmaceutical Ingredients (API), semi-finished and finished cannabis products for medical purposes. “This will establish Clever Leaves as one of only three cannabis extract producers with an EU GMP certification,” Mr. Wright said in his note.

Also important is the production scale Clever Leaves has already attained – positioning it to meet surging global demand for cannabis. The company has 1.9 million square feet of cultivation capacity, far more than most players and not far from Aphria, which has a total of 2.445 million square feet.

Clever Leaves also has a potential to expand through a 73 million square foot outdoor cultivation site. That creates an opportunity to generate five times the total production of all the major Canadian producers combined, the company says in its investor presentation.

The company’s vertical integration – running all the way from genetics to distribution and branding – also gives it an advantage in a highly-fragmented market full of small players. At the distribution end, key assets include Germany-based IQANNA (100{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} owned) and Cansativa (17{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} owned), which deal in pharmaceutical cannabis.

That European positioning is also important because cannabis is far more expensive at the retail level across the region than other markets. In Germany, for instance, retail cannabis flower averages $22 a gram versus $5.10 a gram in the U.S., Clever Leaves points out (the company sells legal CBD products in the U.S. but not THC).

Elsewhere around the world, major partnerships demonstrate the demand for Clever Leaves’s product. The company recently signed a deal with Canopy Growth Corporation to supply a steady stream of cannabis extract products for distribution in Latin America.

Investors should also take comfort in an experienced leader with white shoe credentials. CEO Kyle Detwiler brings many years of experience including senior roles at Blackstone and KKR following his education at Harvard and Princeton.

Finally, the terms of the transaction put Clever Leaves on firm financial footing. The company expects to have $111 million of cash and just $37 million of debt, giving it plenty of room to expand the business organically or via M&A.

And the company, whose revenue is expected to grow at an annualized 162{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208}, between 2019 and 2022, is priced much cheaper than other major players. At roughly $10 per share, the company has an enterprise value of 5.4 times 2022 forecast Ebitda. By comparison, Tilray trades at a multiple of 17 times, Aphria at 10.8 times, and Aurora at 22 times, according to Sentieo, an AI-enabled research platform.

With so many clear advantages and an unbeatable price, investors should take a look at Clever Leaves shares while the deal is still fresh.


John Jannarone, Editor-in-Chief

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