Clever Leaves Holdings Inc. (Nasdaq: CLVR, CLVRW) (“Clever Leaves” or the “Company”), a leading multinational operator and licensed producer of pharmaceutical-grade cannabinoids, is announcing the wind-down of all operations in Portugal as part of its ongoing restructuring initiatives. Under this restructuring plan, the Company expects its Portuguese flower cultivation, post-harvest processes, and manufacturing activities to cease in full by the end of the first quarter of 2023.
“By exclusively cultivating and producing our cannabinoid products in Colombia, we aim to leverage our existing cost efficiencies in the country as we ramp our dry flower offering,” said Andres Fajardo, CEO of Clever Leaves. “We believe this transition will allow us to optimize our production infrastructure and drive increased cost savings, positioning us to compete more effectively in the global medicinal cannabis market. Although our decision was extremely difficult, we believe it is in the best interests of the Company, since it positions us more effectively to satisfy our customers’ requirements. Additionally, we plan to incorporate the substantial learnings from our work in Portugal to enhance the success of our Colombian operations.
“This next phase of our restructuring work builds upon the progress we have made with improving our cost structure and capital efficiency throughout 2022. We look forward to building upon our sustainable competitive advantages in Colombia and progressing further into 2023 as a leaner, more agile multinational operator.”
Colombia Cultivation Transition and Flower Strategy
Clever Leaves is currently winding down its agricultural production in Portugal, with flower cultivation expected to cease in full by the end of the first quarter of 2023. Beginning in the second quarter of 2023, the Company will solely cultivate its flower strains in its Colombian greenhouses, where preparations for dry flower exports have been underway for the past 18 months. Clever Leaves believes it remains on track to commence sales of dry flower from Colombia later this quarter, and it has begun the process of transitioning its flower production to Colombia for current customers.
The Company’s Colombian operations span over 1.8 million square feet of fully built-out cultivation capacity, with EU-GMP certifications for the production of both cannabis extracts and dry flower. The Company believes Colombia’s low labor costs and optimal agricultural climate give Clever Leaves a critically important competitive advantage, which allows the Company to provide its customers cost-efficient, environmentally sustainable production processes.
In addition, the Company’s Colombian operations house a genetic discovery and development platform, comprised of both outside strains from major cannabis brands and in-house developed products. The Company expects that the successful output from this discovery program will expand further as Clever Leaves accelerates its dry flower production.
Fajardo continued: “We believe we are well-positioned to ramp quickly in Colombia to serve our global customer base, while maintaining our focus on growing the most premium and commercially viable flower strains. Our expansive, fully built-out production capacity gives us significant scale to meet customer demand, and our EU-GMP certifications facilitate multiple pathways to our key international markets.
“We are working swiftly to refine and expand our flower portfolio to the specifications of our target markets. We aim to use our learnings from our Portuguese flower cultivation and our existing Colombian production efficiencies to build our flower capabilities and further complement our extract business.”
Restructuring Costs and Expected Savings
On January 17, 2023, Clever Leaves’ board of directors authorized a restructuring plan that is designed to improve operating margin and support the Company’s growth, scale, and profitability objectives. In conjunction with its restructuring plan and wind-down in Portugal, the Company announced a collective dismissal of 63 employees associated with its Portuguese operations. Clever Leaves expects to incur total charges of approximately $19 million to $21 million in the fourth quarter of 2022 related to its operational closure in Portugal, inclusive of the following expenses:
- Approximately $0.7 million to $0.9 million related to severance and employee benefits;
- Approximately $12 million to $13 million related to real estate and equipment exit costs, consisting of lease impairment, as well as property and equipment abandonment charges; and
- Approximately $6 million to $7 million related to the write-off of inventories that will not be sold.
Of the foregoing $19 million to $21 million in estimated charges, approximately $1.5 million to $2.0 million are expected to be cash expenditures with the balance being non-cash write-offs of prior investments. Taken together, the operational transition and workforce reduction initiatives are expected to generate approximately $7 million in savings by year-end 2023, compared to 2022.
Fajardo concluded: “We are grateful for our affected team members and their contributions to Clever Leaves. While the decision to reduce our workforce was a very difficult one, it is an important extension of our ongoing work to align our expense base with our current revenue profile and improve our operating leverage over time. We expect our operational transition to drive significant long-term savings for the benefit of our customers and shareholders as we make progress towards profitability.”
The Company expects to provide its 2023 outlook during its 2022 year-end earnings call in March 2023. The charges that Clever Leaves expects to incur are subject to a number of assumptions, and actual expenses may differ from the estimates disclosed above.
