The Flowr Corporation (TSXV: FLWR; OTC: FLWPF) (“Flowr” or the
“Company”) herein announces its financial and operational results
for the quarter ended June 30, 2019.
Select highlights from the second
quarter of 2019 include:
- The Company generated gross revenue
of approximately $2.8 million and net revenue of approximately $2.2
million, which excludes approximately $358,000 of design and
construction fees from Hawthorne Canada Limited in relation to the
construction of the R&D facility on the Kelowna Campus;
- Preparation of Flowr Forest, the
Company’s outdoor and greenhouse grow area, was completed during
the quarter and subsequent to quarter-end, planting of an initial
crop was completed after Health Canada licensing was received on
July 12, 2019;
- 61% increase in grams sold compared
to the first quarter of 2019, driven by expanded distribution and
increased production as cultivation activities ramp up in tandem
with construction;
- Late in the quarter, Flowr entered
into a supply agreement with Alberta Gaming, Liquor & Cannabis;
and
- Construction of Kelowna 1, Flowr’s
purpose-built, indoor cultivation facility, is expected to be fully
operational in the fourth quarter of 2019.
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The following table summarizes the Company’s key financial
and operational results: |
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In thousands of Canadian
dollars, |
Three months ended |
Six months ended |
(except per share and grams
metrics) |
June 30 |
June 30 |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Grams produced* |
459,956 |
|
136,294 |
|
739,716 |
|
136,294 |
|
Grams sold |
339,624 |
|
- |
|
550,819 |
|
- |
|
Average net realized price per
gram |
6.41 |
|
- |
|
6.91 |
|
- |
|
Net revenue |
2,184 |
|
- |
|
3,810 |
|
- |
|
Gross profit (loss) before
fair value adjustments |
70 |
|
(245 |
) |
184 |
|
(901 |
) |
Selling, General and
Administrative expense |
5,268 |
|
1,521 |
|
8,969 |
|
2,735 |
|
Share-based compensation |
3,491 |
|
1,087 |
|
5,594 |
|
1,473 |
|
Net income/(loss)** |
11,010 |
|
(3,632 |
) |
5,161 |
|
(6,214 |
) |
Basic earnings/(loss) per
share |
0.13 |
|
(0.04 |
) |
0.08 |
|
(0.07 |
) |
Diluted earnings/(loss) per
share |
0.08 |
|
- |
|
0.05 |
|
- |
|
Cash used in investing
activities |
(14,195 |
) |
(1,924 |
) |
(26,840 |
) |
(7,023 |
) |
Cash from financing
activities |
16,288 |
|
11,302 |
|
18,397 |
|
12,085 |
|
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|
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|
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*Grams produced refers to the grams of dried cannabis harvested
from plants in the period. The Company calculates grams produced
based on the final recorded weight of dried harvested buds that
have completed the drying stage net of any weight loss during the
drying process for the period. |
** Includes an approximate $18.8 million gain on investment in
Holigen Holding Limited. |
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Management Commentary
“In the second quarter, our team continued to
concurrently ramp up production and advance development at our
flagship Kelowna campus. We delivered an increase in
production as we continue to optimize our operational grow rooms
and were able to translate the production increase into a similar
percentage increase in sales volumes. Revenues and average
selling prices in the quarter were impacted by our product mix,
predominantly as we sold fewer pre-rolls than in the prior
quarter,” commented Vinay Tolia, Flowr’s Chief Executive Officer.
“We also advanced our outdoor and greenhouse grow, of which we
completed initial planting, and are well-positioned for an initial
harvest later this year to support the roll-out of new form
factors. Taken together, we are executing our plan to build a
single operational base from which we will service the Canadian
market and once fully operational, drive significant financial
performance.”
Operational Results for the Three Months
Ended June 30, 2019
Kelowna 1
The Company produced approximately 460 kilograms
of cannabis in the second quarter, compared to 280 kilograms in the
first quarter of 2019, representing an approximate 61%
increase.
The Company continued to advance construction at
Kelowna 1 and is expected to be completed early in the fourth
quarter of 2019. Currently, the Company has a total of 10 grow
rooms propagated with plants. During the quarter, a portion
of the indoor operating facilities were utilized for clone
production that ultimately supported the successful first planting
of a crop at Flowr Forest, the Company’s outdoor and greenhouse
grow areas.
Upon completion of construction, a total of 20
grow rooms will become available for operating activities beginning
in the fourth quarter of 2019.
The Company spent approximately $7.2 million on
the development of Kelowna 1 during the second quarter. The
total budget for the Kelowna 1 project is $36.3 million, of which
$9.2 million is expected to be spent in the second half of
2019.
Flowr Forest
On July 15, 2019, the Company announced receipt
of a second site cultivation license from Health Canada for its
Flowr Forest project, consisting of an outdoor cultivation area of
150,000 square feet plus 189,000 square feet across 42
greenhouses. Subsequently, the Company completed planting of
its initial grow for Flowr Forest which is expected to be harvested
in the second half of 2019.
The Company expects 2019 production from Flowr
Forest to be approximately 5,000 kilograms of dried cannabis that
is expected to support the planned roll-out of new form factors in
early-2020.
The anticipated capital spending on Flowr Forest
is $9.5 million in 2019, of which $7.2 million was spent
year-to-date 2019.
Research and Development (“R&D”)
Facility
Together with Hawthorne Canada Limited
(“Hawthorne), Flowr is creating a cannabis cultivation R&D
facility, which is located adjacent to Kelowna 1.
Construction advanced according to plan during the quarter
and the project remains on track for completion in the second half
of 2019.
Financial Results for the Three Months
Ended June 30, 2019
Net income in the second quarter of 2019
totalled $11,010 which was $14,642 higher than the net loss in the
second quarter of 2018. The increase is mainly driven by gain on
investment in Holigen Holding Limited (“Holigen”) and sales in the
second quarter of 2019 partially offset by the ramp-up of the
activities of the Company in 2019. Excluding the non-cash
valuation of investments, key costs contributing to a higher loss
in the second quarter of 2019 were general and administrative
expenses, share-based compensation and cost of sales partially
offset by unrealized gains on changes in fair value of biological
assets.
Cost of sales for the second quarter of 2019 was
$2.1 million compared to $245,000 in the second quarter of 2018.
The increase in cost of sales is largely attributable to the
expensing of capitalized inventory costs, as product was sold in
the second quarter of 2019. In the second quarter of 2018,
start-up costs were expensed directly to cost of sales.
Selling, general and administrative
expenditures, consisting primarily of salaries and professional
fees, were $5.3 million in the second quarter of 2019 compared to
$1.5 million in the second quarter of 2018. Share-based
compensation was $3.5 million in the second quarter of 2019
compared to $1.1 million in the second quarter of 2018.
Adjusted EBITDA (Non-IFRS Measure)
Adjusted EBITDA is defined as net loss, plus
(minus) income taxes (recovery), plus (minus) interest income
(expense), net, plus depreciation and amortization, plus
share-based compensation, plus (minus) non-cash fair value
adjustments on biological assets and inventory sold, plus listing
expense costs and plus (minus) loss (gain) on investments.
Management believes this measure provides useful information as it
is a commonly used measure in the capital markets and as it is a
close proxy for repeatable cash used by operations.
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In thousands of CAD
dollars |
Three months ended |
Six months ended |
|
June 30 |
June 30 |
|
2019 |
2018 |
2019 |
2018 |
|
|
|
|
|
|
|
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|
Net income/(loss) |
11,010 |
|
(3,632 |
) |
5,161 |
|
(6,214 |
) |
Depreciation and
amortization |
664 |
|
175 |
|
1,133 |
|
205 |
|
Unrealized (gains) losses on
fair value adjustments of biological assets |
(1,497 |
) |
210 |
|
(1,703 |
) |
847 |
|
Fair value adjustments on
inventory sold |
211 |
|
- |
|
169 |
|
- |
|
Share-based compensation |
3,491 |
|
386 |
|
5,594 |
|
1,473 |
|
Unrealized loss on valuation
of warrant investment |
20 |
|
27 |
|
371 |
|
59 |
|
Gain on acquisition of
investment in Holigen |
(18,750 |
) |
- |
|
(18,750 |
) |
- |
|
Interest expense (income) |
156 |
|
(2 |
) |
196 |
|
- |
|
Adjusted EBITDA |
(4,695 |
) |
(1,848 |
) |
(7,829 |
) |
(3,630 |
) |
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Adjusted EBITDA losses were higher for the three
and six months ended June 30, 2019, compared to the same periods of
2018 due to the ramp-up of construction, cultivation and operating
activities in 2019.
For a full discussion of Flowr’s operational and
financial results for the three and six months ended June 30, 2019,
please refer to the Company’s second quarter 2019 Management’s
Discussion & Analysis and Financial Statements, which have been
filed on SEDAR.
Corporate Updates
Holigen Holdings Limited
During the second quarter, the Company announced
that it had entered into a share purchase agreement to acquire the
remaining 80.2% interest in Holigen. Subject to regulatory
approval, the Company expects the acquisition to be completed
within the third quarter of 2019.
On July 31, 2019, the Company announced that it
had received a Health Canada export permit that allowed it to make
an initial shipment of clones from its Kelowna Campus to
Portugal. The Company leveraged its proprietary clean stock
protocol and carried out an intensive, nine-week integrated pest
management program that led to the receipt of the required
phytosanitary certification to ship the clones. Flowr also
utilized innovations to packaging to ensure the clones arrived
healthy and ready for operations in Portugal. Holigen now has
a mother room planted with these clones in its Sintra indoor
facility.
NASDAQ Listing
During the second quarter, Flowr received
approval from Nasdaq to list its commons shares on the Nasdaq
Capital Market (“Nasdaq”). The Company has since decided to
defer listing its common shares on the Nasdaq . Nasdaq listing
approval does not expire and the Company intends to list at a
future date, subject to any applicable listing conditions.
The Company is focused on investments that have
the highest probability of generating near term cash flow. In
evaluating the use of proceeds from its recently closed $43.5
million bought deal equity offering, the Company has decided that
the costs associated with the listing, including Directors and
Officers Insurance, are not expected to generate returns comparable
to using funds to expand its operational capacities.
Conference Call and Webcast
Flowr will host a conference call and webcast
today at 5:30 p.m. Eastern Time.
Conference call
and webcast details are as follows: |
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Toll Free: 1-877-705-6003 |
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Toll/International:
1-201-493-6725 |
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Webcast:
flowr.ca/investors |
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Conference call
replay details are as follows: |
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Toll Free: 1-844-512-2921 |
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Toll/International:
1-412-317-6671 |
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Passcode: 13693091 |
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Webcast:
flowr.ca/investors |
The replay of the conference call will be
available through midnight on Thursday, August 29, 2019.
About The Flowr Corporation
Flowr, through its subsidiaries, holds a
cannabis production and sales license granted by Health Canada.
With a head office in Toronto and a production facility in Kelowna,
BC, Flowr builds and operates large-scale, GMP-designed cultivation
facilities utilizing its own growing systems. Flowr’s investment in
research and development along with its sense of craftsmanship and
a spirit of innovation is expected to enable it to provide
premium-quality cannabis that appeals to the adult-use recreational
market and addresses specific patient needs in the medicinal
market.
For more information, visit flowr.ca. Follow
Flowr on Twitter: @FlowrCanada; Facebook: Flowr Canada; Instagram:
@flowrcanada; and LinkedIn: The Flowr Corporation.
On behalf of The Flowr Corporation:Vinay
ToliaCEO and Director
CONTACT INFORMATION:
MEDIA: Sean GriffinVice President, Communications & Public
Relations(877) 356-9726 ext. 1526sean.griffin@flowr.ca
INVESTORS:Thierry ElmalehHead of Capital Markets(877) 356-9726
ext. 1528thierry@flowr.ca
Non-IFRS Financial Measures
This press release makes reference to certain
measures that are not recognized measures under International
Financial Reporting Standards (“IFRS”). These non-IFRS
measures are not recognized measures under IFRS and do not have a
standardized meaning prescribed by IFRS, and are therefore unlikely
to be comparable to similar measures presented by other
companies. When used, these measures are defined in such
terms as to allow the reconciliation to the closest IFRS
measure. These measures are provided as additional
information to complement those IFRS measures by providing further
understanding of the Company’s results of operations from
management’s perspective. Accordingly, they should not be
considered in isolation nor as a substitute to the Company’s
financial information reported under IFRS. Management uses
non‐IFRS measures such as Adjusted EBITDA to provide investors with
supplemental information of the Company’s operating performance and
thus highlight trends in the Company’s core business that may not
otherwise be apparent when relying solely on IFRS financial
measures. Management believes that securities analysts,
investors and other interested parties frequently use non‐IFRS
measures in the evaluation of issuers. Management also uses
non‐IFRS measures in order to facilitate operating performance
comparisons from period to period, prepare annual operating
budgets, to assess its ability to meet future debt service
requirements, in making capital expenditures, and to consider the
business’s working capital requirements. Readers are cautioned that
the non‐IFRS measures contained herein may not be appropriate for
any other purpose.
Forward-Looking Information and
Statements
This press release includes forward-looking
information within the meaning of Canadian securities laws
regarding Flowr and its business, which may include, but are not
limited to: statements with respect to the release date of Flowr's
financial results, Kelowna 1 being on track to be fully operational
by year end, the Company continuing to optimize operational grow
rooms, Flowr Forest delivering an initial harvest in 2019 and
supporting the rollout of new form factors, the Company’s executing
its plan to build a single operation base to service the Canadian
market, the Company’s fully operational Kelowna facility driving
significant financial performance, construction of Kelowna 1
progressing and the Company’s expectation that it will be completed
in the third quarter of 2019, the Company having 20 grow rooms
available in the fourth quarter of 2019, the Company’s expectations
for capital expenditures with respect to Kelowna 1 and Flowr Forest
in the second half of 2019, the Company’s expectations for
production from Flowr Forest in 2019, the expected size of Flowr
Forest, including the cultivation and greenhouse areas, the
Company’s plans to roll-out new form factors in late 2019 and early
2020, the R&D facility being on track for completion in the
second half of 2019, the Company’s ongoing expansion efforts in
support of its increased production platform, the expected
completion of the Holigen acquisition in the third quarter of 2019,
the Company’s continued evaluation of a listing on Nasdaq and the
timing thereof, the Company’s intention to list on the Nasdaq at a
future date, the Company focusing on investments that have the
highest probability of generating near term cash flow,
Flowr’s investment in research and development along with its sense
of craftsmanship and a spirit of innovation enabling it to provide
premium-quality cannabis that appeals to the adult-use recreational
market and address specific patient needs in the medicinal
market and other factors. Often, but not always,
forward-looking information can be identified by the use of words
such as “plans”, “is expected”, “expects”, “scheduled”, “intends”,
“contemplates”, “anticipates”, “believes”, “proposes” or variations
(including negative and grammatical variations) of such words and
phrases, or state that certain actions, events or results “may”,
“could”, “would”, “might” or “will” be taken, occur or be achieved.
Such statements are based on the current expectations of Flowr’s
management and are based on assumptions and subject to risks and
uncertainties. Although Flowr’s management believes that the
assumptions underlying these statements are reasonable, they may
prove to be incorrect. The forward-looking events and circumstances
discussed in this press release may not occur by certain specified
dates or at all and could differ materially as a result of known
and unknown risk factors and uncertainties affecting Flowr,
including risks associated with a delay in releasing Flowr’s
financial statements (which could result in a violation of
applicable laws), Kelowna 1 not being fully operational by year
end, Flowr’s inability to optimize operational grow rooms, Flowr
Forest not delivering an initial harvest in 2019 and not being able
to support the rollout of new form factors, Flowr’s inability to
execute its plan to build a single operational base to service the
Canadian market, Flowr’s facilities not being fully operational
and/or not driving significant financial performance, Kelowna 1 not
being completed by the end of the third quarter of 2019, Flowr not
having 20 grow rooms available in the fourth quarter of 2019, Flowr
being unable to make the capital expenditures expected in the
second half of 2019 with respect to Kelowna 1 and Flowr Forest,
Flowr Forest not producing the expected number of kilograms of
material in 2019, the Company failing to cultivate the area of
Flowr Forest described herein or all greenhouses included in the
Flowr Forest, which could delay other form factor sales and/or
materially impact sales, Flowr not being able to complete its
planned rollout of new form factors in late 2019 and early 2020 or
at all, the R&D facility not being completed in the second half
of 2019, Flowr failing to complete the Nasdaq listing for any
reason, including due to the costs associated therewith or failure
to meet the Nasdaq listing conditions at the time of listing,
Flowr’s inability to continue expansion efforts in support of its
increased production platform, the acquisition of Holigen not being
completed in the third quarter of 2019 or at all, the Company not
being able to select and pursue investments that have the highest
probability of generating near term cash flow, Flowr not
being able to sustain its competitive advantage in cultivation and
being unable to remain at the forefront of industry innovation,
whether as a result of failed construction of the facilities or
otherwise, Flowr not being able to meet demand or fulfill purchase
orders, which could materially impact revenues and its
relationships with purchasers, Flowr requiring additional financing
from time to time in order to continue its operations and such
financing may not be available when needed or on terms and
conditions acceptable to the Company, new laws or regulations
adversely affecting the Company’s business and results of
operations, results of operation activities and development of
projects, project cost overruns or unanticipated costs and
expenses, the inability of Flowr’s products to be high quality, the
inability of Flowr’s products to appeal to the adult-use
recreational market and address specific patient needs in the
medicinal market, the inability of Flowr to produce and distribute
premium, high quality products, the inability to supply products or
any delay in such supply, Flowr’s securities, the inability to
generate cash flows, revenues and/or stable margins, the inability
to grow organically, risks associated with the geographic markets
in which Flowr operates and/or distributes its products, risks
associated with fluctuations in exchange rates (including, without
limitation, fluctuations in currencies), risks associated with the
use of Flowr’s products to treat certain conditions, the cannabis
industry and the regulation thereof, the failure to comply with
applicable laws, risks relating to partnership arrangements,
possible failure to realize the anticipated benefits of partnership
arrangements, product launches (including, without limitation,
unsuccessful product launches), the inability to launch products,
the failure to obtain regulatory approvals, economic factors,
market conditions, risks associated with the acquisition and/or
launch of products, the equity and debt markets generally, risks
associated with growth and competition (including, without
limitation, with respect to Flowr’s products), general economic and
stock market conditions, risks and uncertainties detailed from time
to time in Flowr’s filings with the Canadian Securities
Administrators and many other factors beyond the control of
Flowr. Although Flowr has attempted to identify important
factors that could cause actual actions, events or results to
differ materially from those described in forward-looking
information, there may be other factors that cause actions, events
or results to differ from those anticipated, estimated or intended.
No forward-looking information can be guaranteed. Except as
required by applicable securities laws, forward-looking information
speaks only as of the date on which it is made and Flowr undertakes
no obligation to publicly update or revise any forward-looking
information, whether as a result of new information, future events,
or otherwise.
Neither the TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the TSX Venture Exchange) accepts responsibility for
the adequacy or accuracy of this press release.
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