Clever Leaves Holdings Inc. (NASDAQ:CLVR) is a multi-national operator in the botanical cannabinoid and nutraceutical industries, with operations and investments in Colombia, Germany, the United States, and Canada. The company is working to develop one of the industry's leading, low-cost global supply chains with the goal of providing high quality, pharmaceutical grade cannabis and wellness products to customers and patients at competitive prices produced in a sustainable and environmentally friendly manner.

Business Overview

Clever Leaves' customers consist of retail distributors and pharmaceutical and cannabis companies, and pharmacies. The company has invested in ecologically sustainable, large-scale, cultivation and processing, as the cornerstone of its medical cannabinoid business, and it seeks to continue to develop strategic distribution channels and brands. Clever Leaves currently owns approximately 1.8 million square feet of greenhouse cultivation capacity in Colombia. In addition, its pharmaceutical-grade extraction facility is capable of processing 108,000 kilograms of dry flower per year.

In July 2020, Clever Leaves became one of a small number of vertically integrated cannabis companies in the world to receive European Union Good Manufacturing Practices ("EU GMP") certification for its Colombian operations. The company believes this certification will provide it with one of the largest quality-certified licensed capacities for cannabis cultivation and cannabinoid extraction globally, while its strategically located operations allow it to produce its products at a fraction of the average cost of production incurred by its peers in Canada and the United States.

In addition to the cannabinoid business, Clever Leaves is also engaged in the non-cannabinoid business of formulating, manufacturing, marketing, selling, distributing, and otherwise commercializing nutraceutical and other natural remedies, and wellness products to more than 20,000 retail locations across the United States, through its wholly owned subsidiary Herbal Brands, Inc. Herbal Brands has an Arizona based GMP-compliant, FDA registered facility and is a national distributor of nutraceutical products.

Clever Leaves' business model is focused on partnering with leading and emerging cannabis and pharmaceutical businesses by providing them with lower cost product, variable cost structures, reliable supply throughout the year, and accelerated speed to market. The company believes this is achievable due to its production locations, capacity, product registrations and various product certifications.

Business Segments

Clever Leaves manages its business in two segments: the Cannabinoid and Non-Cannabinoid segments. The Cannabinoid operating segment is comprised of the company's cultivation, extraction, manufacturing, commercialization, and distribution of cannabinoid products. This operating segment is in the early stages of commercializing cannabinoid products internationally subject to applicable international and state laws and regulations. The company's customers and sales for its cannabinoid segment products are mostly outside of the U.S.

The Non-Cannabinoid operating segment is comprised of the brands and manufacturing assets acquired as part of the company's acquisition of Herbal Brands. This segment is engaged in the business of formulating, manufacturing, marketing, selling, distributing, and otherwise commercializing wellness products and nutraceutical, excluding cannabinoid products. Clever Leaves' principal customers for the Herbal Brands products include specialty and health retailers, mass retailers and specialty and health stores in the United States.

Financials

For the full year 2022, Clever Leaves reported annual revenue of $17,417,000, a decrease from the prior year. The company's annual net income was -$15,037,000, and its annual operating cash flow and free cash flow were -$11,508,000 and -$11,539,000, respectively.

In the third quarter of 2023, Clever Leaves reported revenue of $3,820,000, an increase from $2,867,000 in the prior year period. The company's net loss for the quarter was $5,138,000, compared to a net loss of $20,163,000 in the prior year period. Clever Leaves' operating cash flow and free cash flow for the quarter were -$3,321,000 and -$3,322,000, respectively.

The increase in third quarter revenue was driven by an increase in the Cannabinoid segment, which saw revenue grow to $1,442,000 from $613,000 in the prior year period. This was partially offset by a slight decrease in the Non-Cannabinoid segment, which saw revenue decline to $2,378,000 from $2,254,000 in the prior year period. The improvement in the Cannabinoid segment was primarily due to ongoing sales strength for the company's extract products, particularly in Brazil and Australia.

Geographically, Clever Leaves' revenue in the third quarter was primarily derived from the United States, which accounted for $2,378,000 or 62% of total revenue. Other key markets included Australia, which contributed $685,000 or 18% of revenue, and Brazil, which contributed $507,000 or 13% of revenue.

Outlook

Looking ahead, Clever Leaves is focused on continuing to expand its global footprint and drive growth in its Cannabinoid segment. The company is working to leverage its EU GMP certification and low-cost production capabilities to secure additional international distribution partnerships and supply agreements.

Risks and Challenges

However, the company faces several challenges, including the ongoing regulatory uncertainty in key markets, competition from larger, well-capitalized players, and the need to continue investing in its production and processing infrastructure to meet growing demand. Clever Leaves is also working to address a material weakness in its internal controls over financial reporting, which it expects to remediate during 2023.

Conclusion

Despite these challenges, Clever Leaves remains optimistic about its long-term prospects. The company believes its unique positioning as a low-cost, sustainable producer of high-quality cannabinoid products, combined with its growing international distribution network, will allow it to capitalize on the continued global expansion of the medical cannabis and hemp industries.

Investors should closely monitor Clever Leaves' progress in executing its strategic initiatives, as well as its ability to navigate the regulatory and competitive landscape. While the company faces near-term headwinds, its focus on cost-effective production, international expansion, and product innovation could position it for long-term success in the rapidly evolving global cannabinoid market.