The Flowr Corporation (TSX.V: FLWR; OTC: FLWPF) (“Flowr” or the
“Company”) herein announces its financial and operational results
for the first quarter ended March 31, 2020.
Key financial and operating highlights in the
first quarter of 2020:
- The Company generated gross revenue of approximately $1 million
in the first quarter.
- Average price per gram in the first quarter was $6.93,
reflecting the Company’s positioning in the premium segment.
- 123 kgs of sales in the quarter was entirely of its flagship
strain BC Pink Kush. The Company did not have enough finished
product to meet demand in the quarter. Product availability
has since substantially improved in the second quarter.
- The Company harvested a total of 262kg of BC Pink Kush in the
first quarter (with a large portion being harvested late in
quarter). Flowr’s BC Pink Kush has not been irradiated since
January 2019, a testament to the ability to produce high-quality
product in a controlled indoor environment.
- In February, the Company received Health Canada approval to
double capacity at its flagship Kelowna 1 Facility enabling it to
become fully operational. The newly licensed area includes the
Company’s automated packaging equipment which is expected to drive
productivity efficiencies going forward.
- In March, the Company restructured 25% of its global workforce,
saving approximately $6 million annually.
- In late March, the Company announced that its European
subsidiary Holigen received its EU-GMP certification at its
facility in Sintra Portugal, putting the Company on a short list of
cannabis companies with this license in Europe.
- During the quarter, the Company launched a new and revitalized
Flowr recreational brand initiative which included a full brand
redesign, including new logo, new consumer facing website
(flowr.ca) and various digital marketing initiatives.
- During the quarter, Irina Hossu joined the Company as Chief
Financial Officer to help lead the Company for its next stage of
global growth. Irina brings over 15 year of experience in
progressively senior finance leadership roles across a variety of
global industries including consumer-packaged goods, beverage and
alcohol, and financial technology.
Subsequent financial and operational highlights
post end of the first quarter
- The Company strengthened its financial position with the
closing of an aggregate non-brokered $21.5 million secured
subordinated convertible debenture unit private placement in two
tranches, the first on April 27, 2020 and second on June 3, 2020,
which were led by Flowr’s Chairman and CEO who committed in excess
of $11 million.
- Insiders representing approximately 60% of total sharecount
have signed a voluntary 1 year lockup, in addition to any lock-ups
they have currently entered into, and have not sold a share since
the Company’s inception.
- On May 14, 2020, the Company announced that it has entered into
an Equity Line and Profit Sharing Agreement (the “Partnership”)
with Terrace Global Inc. (TSX-V: TRCE) (“Terrace Global”) to fund
the development and operations of Holigen, with both parties
expecting Terrace Global to fund at least $3 million over the
course of the Partnership.
- The Company shipped approximately 14,000 clones to Portugal to
support the planting of Aljustrel for the 2020 season. Terrace has
contributed 30,000 seeds to the Partnership, including 8 different
high THC strains. The two companies have successfully planted
the seeds and clones together in an area totaling approximately 1
million square feet of the Aljustrel Facility. The Company
believes this project to be one of the largest outdoor THC growing
operation in Europe to date.
- The Company made its first dried flower sales in the Australian
market through its Australian subsidiary Holigen Australia, selling
Pink Kush and Sensi Star to medical patients.
- All 20 grow rooms at the Kelowna 1 Facility are currently
propagated with plants and the Company expects the vast majority of
2020 production to be premium dried flower in excess of 20%
THC.
- Flowr’ BC Pink Kush was recently highlighted by the OCS ahead
of 4/20 as their bestselling premium pink kush strain. A recent
publication by the OCS, cited Flowr branded pre-rolls as the #1
selling brand of pre-rolls on OCS.ca for the period April 1, 2019
to March 31, 2020.
- Over 500 kg of BC Pink Kush was harvested in April & May.
The Company believes it will see a continued substantial increase
in production and sales throughout the remainder of the year given
the full operation of the Kelowna 1 Facility and production of
primarily high THC strains.
- Net revenues in Q2 2020 are expected to be in excess of $2
million with Q3 expected to be substantially greater than Q2.
The Company re-iterates its objective of becoming cash flow
positive in H2 2020 even with the uncertainty around
COVID-19.
MANAGEMENT COMMENTARY
“As previously mentioned, we believe Q1 was the
bottom for us in the Canadian recreational market and that we will
see a step function change in our operating and financial results
going forward. Our flagship purpose-built indoor facility in
Canada is finally fully operational and licensed. We are producing
only high quality and high THC strains out of it, which we know
consumers demand and are willing to pay a premium for. Sales
trends and demand for our BC Pink Kush strain remain very
encouraging. Our foundational thesis that growing high
quality cannabis at scale is difficult and only a few companies are
both focused and able to do so is playing out in our view. In
Europe, we are extremely excited by our Partnership with Terrace
Global after having recently joined a short list of companies with
EU-GMP certification. We expect Holigen to contribute more
meaningfully to our results beginning in 2021. Our conviction
in our strategic direction is further validated by management
recently leading yet another round of financing in a very
challenging capital markets environment.” said Vinay Tolia, Flowr’s
Chief Executive Officer.
FIRST QUARTER 2020 RESULTS
The following table summarizes the
Company’s key financial and operational results:
In thousands of Canadian dollars,
(except per share and grams metrics) |
Three months endedMarch 31 |
|
2020 |
2019 |
Grams Harvested – K1 |
490,101 |
279,760 |
Grams Sold |
122,514 |
211,195 |
Average Net Realized Price per
Gram |
6.93 |
7.70 |
Gross Revenue |
1,012 |
1,812 |
Net revenue |
776 |
1,626 |
Gross profit (loss) before fair
value adjustments |
(1,623) |
114 |
Selling, General and
Administrative expense |
6,019 |
3,701 |
Share-based compensation |
857 |
2,103 |
Net income/(loss) |
(12,492) |
(5,850) |
Basic earnings/(loss) per
share |
(0.09) |
(0.06) |
Diluted earnings/(loss) per
share |
(0.09) |
(0.06) |
Cash used in investing
activities |
(4,023) |
(12,645) |
Cash from financing
activities |
3,576 |
2,110 |
- 100% of sales and of first quarter production were attributed
to BC Pink Kush.
- Average selling price per gram was $6.93 reflecting the
Company’s positioning in the premium segment.
- Kilograms sold of 123 was down 46% over the fourth quarter as
the Company worked through the last of legacy strain mix
headwinds.
- Gross revenues were approximately $1 million in the
quarter. Returns and price concessions were $73k in the
quarter. Inventory impairment was $666k in the quarter on
legacy strains which the Company is no longer producing.
The following table summarizes the
Company’s financial results for the three months ended March 31,
2020:
In thousands of CAD dollars |
Three months ended March 31 |
|
2020 |
2019 |
|
|
(Loss)/Income before taxes |
(12,778) |
(5,998) |
Depreciation and
amortization |
1,240 |
469 |
Unrealized (gains) losses on fair
value adjustments of biological assets |
2,628 |
(206) |
Fair value adjustments on
inventory sold |
(158) |
(42) |
Inventory Impairment |
666 |
— |
Share-based compensation |
892 |
2,103 |
Restructuring costs |
737 |
— |
Unrealized losses on fair value
of investments held in shares |
(2) |
148 |
Unrealized loss on valuation of
warrant investment |
39 |
351 |
Loss (gain) on acquisition of
investment in Holigen |
— |
— |
Finance costs |
498 |
— |
Interest expense |
(24) |
40 |
Adjusted EBITDA |
(6,262) |
(3,135) |
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, plus (minus) loss (gain) on investments and plus
inventory impairments. 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.
For a full discussion of Flowr’s operational and
financial results for the three months ended March 31, 2020, please
refer to the Company’s first quarter 2020 Management’s Discussion
& Analysis and Financial Statements, which have been filed on
SEDAR.
CONFERENCE CALL AND WEBCAST
The Company will host a conference call and
webcast to review these results today at 5:30 p.m. Eastern
Time.
Conference call and webcast details are
as follows:
Toll Free: 1-833-227-5845Toll/International:
1-647-689-4072Passcode: 8781563Webcast: flowrcorp.com/investors
Conference call replay details are as
follows:
Toll Free: 1-800-585-8367Toll/International:
1-416-621-4642Passcode: 8781563Webcast: flowrcorp.com/investors
The replay of the conference call will be
available through midnight on Thursday, July 9th, 2020.
BOARD CHANGES
The Company also announced today that Dr. J.
André De Barros Teixeira has stepped down from his position on the
Board of Directors of the Company.
“I would like to thank André for his dedication
and service to the Company,” stated Vinay Tolia, Chief Executive
Officer of Flowr. “In particular, I would like to thank Andre for
his leadership in assisting with the integration of Holigen and
Flowr.”
In his place, the Company is pleased to announce
that Thomas Flow has been appointed to the Board to fill the
vacancy created by Dr. Teixeira stepping down. Along with his
director role, Tom will continue in his role managing the Kelowna
based operations, as Managing Partner.
“We are excited to have Tom back on the Board,
given his tremendous experience and industry insight”, said Mr.
Tolia. “I look forward to continuing to work with Tom and the
entire Board on executing the Company’s near and long-term
strategic goals.”
Mr. Flow is globally recognized for his cannabis
thought leadership and is an expert at building and operating
cannabis cultivation facilities. Mr. Flow was previously co-founder
and Chief Operating Officer at MedReleaf, and currently sits on the
board and advisory committees of several cannabis-related
companies.
In addition, Flowr also announced today that
100,000 restricted share units (the “RSUs”) have been granted to an
officer of the Company. The RSUs will vest in equal tranches of
fifty percent at three and six months from the date of grant.
About The Flowr Corporation
The Flowr Corporation is a Toronto-headquartered
cannabis company with operations in Canada, Europe, and
Australia. Its Canadian operating campus, located in Kelowna,
BC, includes a purpose-built, GMP-designed indoor cultivation
facility; an outdoor and greenhouse cultivation site; and a
state-of-the-art R&D facility that is awaiting licensing from
Health Canada. From this campus, Flowr produces recreational
and medicinal products. Internationally, Flowr intends to
service the global medical cannabis market through its subsidiary
Holigen, which has a license for cannabis cultivation in Portugal
and operates GMP licensed facilities in both Portugal and
Australia.
Flowr aims to support improving outcomes through
responsible cannabis use and, as an established expert in cannabis
cultivation, strives to be the brand of choice for consumers and
patients seeking the highest-quality craftsmanship and product
consistency across a portfolio of differentiated cannabis
products.
For more information, please visit flowrcorp.com
or follow Flowr on Twitter: @FlowrCanada and LinkedIn: The Flowr
Corporation.
On behalf of The Flowr Corporation:Vinay
ToliaCEO and Director
CONTACT INFORMATION:
INVESTORS & MEDIA:Thierry ElmalehHead of Capital
Markets(877) 356-9726 ext. 1528thierry@flowr.ca
Notice regarding future-oriented financial
information:
To the extent any forward-looking information in
this press release constitutes future-oriented financial
information or financial outlooks within the meaning of securities
laws, such information is being provided to demonstrate the
potential financial performance of the Company and readers are
cautioned that this information may not be appropriate for any
other purpose and that they should not place undue reliance on such
future-oriented financial information and financial outlooks.
Future-oriented financial information and financial outlooks, as
with forward-looking information generally, are, without
limitation, based on the assumptions and subject to the risks set
out below under “Notice regarding forward-looking information”.
Forward-Looking Information
This press release contains “forward-looking
information” within the meaning of Canadian Securities laws, which
may include but is not limited to: the Company’s ability to produce
high-quality product in a controlled indoor environment; the
Company’s expectations for productivity efficiencies from its
automated packaging equipment; the anticipated savings from the
restructuring of the Company’s global workforce; Ms. Hossu helping
lead the Company for its next stage of global growth; the
anticipated funding by Terrace Global under the Partnership; the
Company’s belief that Aljustrel is one of the largest outdoor THC
growing operations in Europe to date; the Company continuing to see
a substantial increase in production and sales through the
remainder of the year; the anticipated net revenues for Q2 and Q3;
the Company becoming cash flow positive in H2 2020 even with the
uncertainty around COVID-19; the Company seeing a step function
change in its operating and financial results going forward; the
Company’s view that customers demand high THC products and are
willing to pay a premium for such products; the Company’s
foundational thesis that growing high quality cannabis at scale is
difficult and only a few companies are both focused and able to do
so; the Company’s expectation that Holigen will contribute
meaningfully to its results in 2021; the Company being focused
initially on driving dried flower sales out of Holigen; sales
trends and demand for the Company’s BC Pink Kush strain remaining
robust and promising; the Company executing its near and long-term
strategic goals; Flowr servicing the global medical cannabis market
and operating GMP facilities in Portugal and Australia; Flowr
supporting improving outcomes through responsible cannabis use and
striving to be the brand of choice for consumers and patients
seeking highest -quality craftmanship and product consistency; and
Flowr’s business, production and products and Flowr’s plans to
provide premium quality cannabis to adult use recreational and
medical markets.
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
information and 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 such information and 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 relating to: the
Company being unable to produce high-quality product in a
controlled indoor environment and having to irradiate product,
which could materially adversely impact sales of Flowr’s products;;
the Company’s being unable to realize productivity efficiencies
from its automated packaging equipment; savings from the
restructuring of the Company’s global workforce being less than
anticipated; Ms. Hossu being unable to help lead the Company in its
next stage of global growth; the funding received from Terrace
Global under the Partnership being less than anticipated; the
Company being unable to achieve a substantial increase in
production and sales through the remainder of the year; the net
revenues for Q2 and Q3 being less than anticipated, which could put
further pressure on the trading price of the Company’s securities;
the Company being unable to become cash flow positive in H2 2020,
and thus requiring the Company to obtain additional liquidity
and/or file for creditor protection; the Company failing to realize
sales out of Holigen, and thus having limited growth and revenue
generation generally and outside of Canada; the Company failing to
realize a step function change in operations and financial results
in 2020 and onwards, despite the full operation of the Kelowna 1
Facility and production of primarily high THC strains, which could
materially adversely affect the Company’s financial results and
working capital; the Company failing to produce, or having crop
failures of, its new product offerings, given the limited amount of
experience growing such strains; the Company’s view that customers
demand high THC products and are willing to pay a premium for such
products not materializing, which could materially adversely affect
the Company’s business, operations and financial results; sales
trends and demand for the Company’s BC Pink Kush strain not being
robust; the Company’s foundational thesis that growing high quality
cannabis at scale is difficult and only a few companies are both
focused and able to do so not materializing, thus impacting the
Company’s strategy and ultimately its financial results; EU-GMP
certification failing to open the medicinal cannabis opportunity
for the Company in global markets; Flowr’s inability to scale its
business in 2020, which could materially adversely impact its
financial condition and result in breach of its debt arrangements;
Flowr being unable to complete its crop and harvest at Aljustrel in
2020, which could materially adversely impact its competitive
position globally and its business and operations; the Company’s
infrastructure being unable to support Flowr’s objective to be cash
flow positive in the second half of 2020; the Company being unable
to complete its objectives and/or those objectives not positioning
the Company for long term success; the Company being unable to
execute its near and long-term goals; new genetics not driving
further operational improvements and/or enhancing the Company’s
product mix; the Canadian industry not being in short supply of
premium dry flower; the Company’s expectations, including timing,
for the first harvest from Portugal not being realized; the Company
not being well positioned to distribute EU-GMP compliant product
into underserviced markets; the Company being unable to address
consumer demand with new genetics; the Company being unable to
prioritize data acquisition to ensure production planning is driven
by consumer insights and that its portfolio of finished products
will address consumer preference; Flowr being unable to advance its
plan for its Kelowna Campus to be a single hub for all aspects of
cultivation, processing and packaging to service the Canadian
cannabis market; Kelowna 1 being unable to produce high caliber
dried flower; the Company being unable to double its operating
capacity at Kelowna 1; Flowr being unable to deliver finished
products from new genetics into the marketplace in 2020; new
genetics not delivering higher yields and/or not supporting the
rollout of an expanded line of high THC products; Kelowna 1 being
unable to reach the anticipated production run-rate at the end of
2020; the Company not realizing premium pricing relative to the
broader adult-use market; any inaccuracies in the estimated total
capex for Kelowna 1; Flowr Forest’s production per annum being less
than anticipated; the Company being unable to launch concentrate
products; the Company being unable to satisfy its expectations for
propagation and harvesting Flowr Forest in 2020; the inability to
complete construction of facilities in Portugal in a timely fashion
or at all; the inability to realize revenue from the Company’s
European operations within the anticipated timeframe or at all; the
Company being unable to establish sales and distribution channels
in Europe and Australia to deliver medicinal cannabis to
underserviced markets; any failure to realize expectations with
respect to the anticipated timing for harvests, propagation,
completion of construction and installation of extraction
infrastructure at the Company’s Sintra facility; the Company being
unable to commence GMP packaging and commercial sales in Europe
within the anticipated timeframe or at all; the Company being
unable to realize expectations for annual production and processing
capacity at its Sintra facility; the inability to complete a
partial extraction and processing facility at the Company’s
Aljustrel facility; the Aljustrel facility being unable to complete
a phased ramp up of production; the Company’s inability to realize
expectations for harvests at its Aljustrel facility in 2020;
Flowr’s assets in Australia not being a hub for distribution and
sales of medicinal cannabis into the Australasian region; Flowr
being unable to service the global medical cannabis market and/or
operate GMP-designed manufacturing facilities in Portugal and
Australia; Flowr being unable to support improving outcomes through
responsible cannabis use and/or striving to be the brand of choice
for consumers and patients seeking highest-quality craftmanship and
product consistency; the construction and development of Holigen’s
and the Company’s cultivation and production facilities; general
economic and stock market conditions; adverse industry events; loss
of markets; future legislative and regulatory developments in
Canada and elsewhere; the cannabis industry in Canada generally;
the ability of Flowr to implement its business strategies; Flowr’s
inability to produce or sell premium quality cannabis; the impacts
of the COVID-19 pandemic materially adversely effecting Flowr’s
business; the 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
they are 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. When considering such
forward-looking information, readers should keep in mind the risk
factors and other cautionary statements in Flowr’s Annual
Information Form dated April 28, 2020 (the “AIF”) and filed with
the applicable securities regulatory authorities in Canada. The
risk factors and other factors noted in the AIF could cause actual
events or results to differ materially from those described in any
forward-looking information.
Neither TSX Venture Exchange nor its Regulation
Services Provider (as that term is defined in policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
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