Flora Growth Closes Investment in Hoshi, Provides Clear Expected Pathway To European Distribution

Rhea-AI Summary

Flora Growth Corp. (NASDAQ: FLGC) has established a strategic partnership with Hoshi International to enhance its European market presence. This collaboration will enable Flora to distribute its cannabis products in Europe, leveraging Hoshi's distribution networks in key countries such as the UK, Germany, and Poland. Flora's investment includes a €2M investment and a securities swap that increases its ownership in Hoshi. Key advantages include a director seat on Hoshi's board and preferential supply agreements for cannabis derivatives, positioning Flora for growth in a burgeoning market.

Positive

• Strategic partnership with Hoshi International, enhancing European distribution opportunities.
• €2M investment increases Flora's ownership stake in Hoshi, strengthening long-term alignment.
• Access to Hoshi's established distribution networks across the European Union, including Germany and the UK.
• Flora appointed a director to Hoshi's board, ensuring influence in the partnership.

Negative

• None.

• Strategic partnership with Hoshi International that holds European assets, providing Flora with a clear expected pathway to European distribution and the introduction of Flora’s products, formulations, and brands
• Alignment between two strong management teams. Hoshi’s management team has extensive entrepreneurial and leadership experience in the global cannabis market
• Processing foothold in the European Union for select Flora technologies, such as the patented hemp cigarette manufacturing line that is expected be acquired through the proposed Koch and Gsell acquisition
• Leveraging Hoshi’s various distribution agreements throughout the European Union, including the United Kingdom, Germany, and Poland, with additional distribution agreements being actively pursued and negotiated

MIAMI & TORONTO--(BUSINESS WIRE)-- Flora Growth Corp. (NASDAQ: FLGC) (“Flora” or the “Company”), an all-outdoor cultivator and manufacturer of global cannabis products and brands, today announced it has closed the previously announced €2M (two-million Euros) investment in Hoshi International Inc. (“Hoshi”) while also increasing its fully-diluted ownership in Hoshi through a securities swap.

Further, Flora Growth and Hoshi have agreed to strengthen the terms underwhich Flora Growth is investing in Hoshi pursuant to a binding memorandum of agreement, including the following terms:

• Flora is entitled to nominate one Director to Hoshi’s Board of Directors, namely Luis Merchan, Flora Growth’s President and CEO
• Flora will be Hoshi’s preferred supplier of genetic material and finished cannabis derivative products at its cultivation and processing facility in Portugal, subject to the parties entering into a definitive agreement by October 1, 2021
• Flora will hold a right of first refusal to supply any cannabis oil or derivative products acquired by Hoshi or any of its affiliates at its processing facility in Malta, subject to the parties entering into a definitive agreement by October 1, 2021
• Hoshi will use commercially reasonable efforts to grant Flora access to its European Union Good Manufacturing Practices (“EU-GMP”) auditors for the purposes of assisting Flora to obtain EU-GMP certification at its Cosechemos cultivation and extraction facility in Colombia

“The Hoshi team has developed a strong presence in Europe, and our high-quality, low-cost, medical-grade cannabis products and well-known global brands give both our companies a competitive advantage in one of the fastest growing cannabis markets in the world. We are excited to increase our alignment with the Hoshi management team and believe the partnership will be much greater in scope than only using their Portugal and Malta facilities as a European importation gateway for our Colombian cannabis flower and derivatives,” said Luis Merchan, President and CEO of Flora. “Regulatory barriers and the technical requirements necessary to successfully navigate the European cannabis market should not be underestimated. We feel extremely pleased with the experience and expertise that the Hoshi team brings in order for us to quickly get our products to market. With the recent rule changes in Colombia allowing the export of THC and CBD flower, we are looking forward to bringing our premium Colombian flower and derivative products to established markets where there is already significant demand, growth, and the opportunity to generate recurring high-margin sales.”

2020 was a significant year for medical cannabis in Europe in terms of patient access and regulatory and commercial progress. According to the Federal Institute for Drugs and Medical Devices, German imports of certified flower for medical purposes in 2020 reached 9,231 kg. Although suppliers did not report the wholesale value of these shipments, New Frontier Data estimated (from aggregate governmental figures) the price to be between €4 and €7 per gram. From January to September 2020, the value of medical cannabis transactions in Germany added up to €111 million, with flower sales specifically comprising €54 million or appx. 48.6% of the market. Prohibition Partners notes that Germany leads the European cannabis market in terms of growth with over a million German patients estimated to have access to medical cannabis by 2024, and predicts the German medical cannabis market alone to be worth €7.7 billion by 2028. The firm also estimates the European cannabis market to be worth €403.4 million by the end of 2021, growing at a compound annual growth rate (CAGR) of 67.4% from 2021 to reach €3.2 billion by 2025.

“We are excited to begin working alongside the Flora team and sharing our understanding of the European market while working together to bring to market finished product formats from Flora’s brand portfolio that are suitable for European medical consumers,” said John Aird, CEO of Hoshi. “Not only has Flora made an investment into Hoshi, but through our securities swap, the Hoshi management team also has a vested interest in the success of Flora Growth and our long-term working relationship.”

Flora will receive 2,000,000 warrants from Hoshi management to acquire 2,000,000 common shares of Hoshi in exchange for 225,000 Flora common shares. This exchange will strengthen the long-term strategic alignment between Hoshi management and Flora Growth as well as increasing Flora’s stake in Hoshi. As a component of the securities swap, Hoshi management will be subject to a share lock-up. The lock-up period will be the lesser of 9 months or a the listing of Hoshi’s shares on a stock exchange.

About Hoshi International Inc.

Hoshi is a European focused, fully integrated medical cannabis company led by a team of renowned cannabis entrepreneurs. Hoshi is focused on developing and operationalizing assets across the global cannabis industry with an emphasis on cultivating, manufacturing, and distributing cannabis products throughout the EU. Hoshi is uniquely positioned to become a leading provider of cannabis and derivative products for the emerging European market.

About Flora Growth Corp.

Flora is a cannabis company that leverages natural, cost-effective cultivation practices to supply cannabis derivatives to its diverse business divisions of cosmetics, hemp textiles, and food and beverage. As the operator of one of the largest outdoor cultivation facilities, Flora strives to market a higher-quality premium product at below market prices. By prioritizing natural ingredients and value-chain sustainability across its portfolio, Flora creates premium products that help consumers restore and thrive. Visit www.floragrowth.ca or follow @floragrowthcorp on social for more information.

Cautionary Statement Concerning Forward-Looking Statements

This document contains forward-looking statements. In addition, from time to time, we or our representatives may make forward-looking statements orally or in writing. We base these forward-looking statements on our expectations and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance, including: the impact of Flora’s investment in Hoshi; the Company’s ability to enter into commercial agreements with Hoshi and the impact thereof; Hoshi’s performance and projections including obtaining a public listing; our financial performance and projections; our growth in revenue and earnings; and our business prospects and opportunities. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential,” or “hopes” or the negative of these or similar terms. In evaluating these forward-looking statements, you should consider various factors, including: our ability to change the direction of the Company; our ability to keep pace with new technology and changing market needs; and the competitive environment of our business. These and other factors may cause our actual results to differ materially from any forward-looking statement. Forward-looking statements are only predictions. The forward-looking events discussed in this document and other statements made from time to time by us or our representatives may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of uncertainties and assumptions, or the forward-looking events discussed in this document and other statements made from time to time by us or our representatives not occurring, except as may be required by applicable law.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210824005529/en/

Investor Relations:

Evan Veryard

evan.veryard@floragrowth.ca

Public Relations:

Cassandra Dowell

+1 (858) 264-6600

flora@cmwmedia.com

Source: Flora Growth Corp.

FAQ

What is the significance of Flora Growth's partnership with Hoshi International for FLGC investors?

The partnership provides FLGC investors with improved access to the European cannabis market through Hoshi's distribution networks.

How will Flora Growth benefit from its €2M investment in Hoshi International?

The investment will increase Flora's ownership stake in Hoshi, enhancing its strategic position in Europe.

Which European countries will Flora Growth distribute its products through Hoshi International?

Flora will leverage Hoshi's distribution agreements in key markets like the United Kingdom, Germany, and Poland.

What unique advantages does Flora Growth gain from its partnership with Hoshi International?

Flora gains preferential supply agreements for cannabis derivatives and a director seat on Hoshi's board.

What market growth is expected for the European cannabis market that involves FLGC?

The European cannabis market is projected to grow significantly, potentially reaching €3.2 billion by 2025.