The Flowr Corporation (TSX.V: FLWR; OTC: FLWPF) (“Flowr” or the
“Company”) herein announces its financial and operational results
for the fourth quarter and fiscal year ended December 31,
2019.
Key financial and operating highlights in the
fourth quarter and for the full year of 2019
- The Company generated gross revenue of approximately $1.6
million in the fourth quarter and achieved the highest level of
quarterly production to date.
- Full year gross revenues were approximately $8.2 million based
on 993 kilograms sold.
- Average price per gram in the fourth quarter was $6.10 and for
the full year was $6.99, excluding a bulk wholesale transaction,
average price per gram in the fourth quarter would have been $6.61
and $7.12 respectively on a normalized basis.
- The Company sold through all of its BC Pink Kush packaged in
the fourth quarter, all of which had minimum THC levels of
20%.
- Flagship indoor Kelowna 1 Facility capex of $20.2 million was
incurred in fiscal 2019 and the Kelowna 1 Facility was
substantially completed in the quarter.
Subsequent financial and operational highlights
post fiscal 2019
- The Company strengthened its financial position with the
closing of a non-brokered $20 million secured subordinated
convertible debenture unit private placement on April 27, 2020, led
by Flowr’s Chairman and CEO who committed in excess of $10
million.
- Insiders representing approximately 59% 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.
- In February, the Company received Health Canada approval to
double capacity at its flagship Kelowna 1 Facility enabling it to
become fully operational including automated packaging
equipment.
- In March, the Company restructured 25% of its global workforce,
saving in excess of $6 million in annual expenses.
- With the aforementioned completion of the Kelowna facility,
cost restructuring, and focus on the Canadian dried flower market,
the Company re-iterated its objective of becoming cash flow
positive in H2 2020 even with the uncertainty around COVID-19.
- All 20 grow rooms at the Kelowna 1 Facility are currently
propagated with plants and the Company expects 95% of 2020
production to be premium dried flower in excess of 20% THC.
- The Company recently commissioned its automated packaging line
and expects to see an improvement in efficiency beginning in the
second quarter of 2020.
- Flowr’ BC Pink Kush was recently highlighted by the OCS ahead
of 4/20 as their bestselling premium pink kush strain.
- 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.
- The Company recently 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.
- 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. Consistent with its
strategic focus in Canada, the Company will be focused initially on
driving dried flower sales out of Holigen.
- In January, the Company hired Irina Hossu 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.
- The Company is forecasting first quarter 2020 gross revenues of
approximately $1 million, due to legacy strain mix production
headwinds. Notably, all first quarter sales were BC Pink
Kush. The Company believes it will see a substantial increase
in production and sales in the latter half of 2020 and onwards
given the full operation of the Kelowna 1 Facility and production
of primarily high THC strains including BC Pink Kush, BC Tahoe OG
& BC Louis XII.
MANAGEMENT COMMENTARY
“We believe we are on the doorstep of seeing a
step function change in our operating and financial results.
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 robust and promising. 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 recently joined a
short list of companies with EU-GMP certification which will open
the medicinal cannabis opportunity for us there soon. We now
have certain GMP certifications in Australia as well as Europe. Our
conviction in our strategic direction is further validated by
management leading yet another round of financing in a very
challenging capital markets environment. 2020 will be a big
year for Flowr,” said Vinay Tolia, Flowr’s Chief Executive
Officer.
FOURTH QUARTER 2019 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 endedDecember
31 |
Twelve months ended December 31 |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
Grams Harvested – K1* |
660,948 |
|
319,174 |
|
1,851,895 |
|
677,341 |
|
Grams Harvested – Flowr
Forest |
3,323,669 |
|
|
3,323,669 |
|
|
Grams Sold |
215, 761 |
|
405,584 |
|
993,387 |
|
405,584 |
|
Average Net Realized Price per
Gram |
6.10 |
|
7.08 |
|
6.99 |
|
7.08 |
|
Gross Revenue |
1,589 |
|
3,270 |
|
8,231 |
|
3,270 |
|
Net revenue |
51 |
|
2,870 |
|
5,205 |
|
2,870 |
|
Gross profit (loss) before fair
value adjustments |
(7,937 |
) |
252 |
|
(7,707 |
) |
(390 |
) |
Selling, General and
Administrative expense |
6,616 |
|
3,905 |
|
21,670 |
|
8,150 |
|
Share-based compensation |
2,767 |
|
3,357 |
|
11,803 |
|
7,208 |
|
Net income/(loss)** |
(26,996 |
) |
(6,059 |
) |
(36,967 |
) |
(17,907 |
) |
Basic earnings/(loss) per
share |
(0.21 |
) |
(0.10 |
) |
(0.33 |
) |
(0.22 |
) |
Diluted earnings/(loss) per
share |
(0.21 |
) |
(0.10 |
) |
(0.33 |
) |
(0.22 |
) |
Cash used in investing
activities |
(14,584 |
) |
(10,609 |
) |
(61,742 |
) |
(21,670 |
) |
Cash from financing
activities |
16,737 |
|
2,267 |
|
79,110 |
|
51,296 |
|
|
|
|
|
|
|
|
|
|
- During the fourth quarter of 2019, out of the Kelowna 1
Facility, the Company produced 661 kilograms of dried cannabis, an
increase of 50% over the third quarter. This represented the
highest quarterly production figure to date.
- Approximately 30% of fourth quarter production and 69% of sales
were attributed to BC Pink Kush.
- Kilograms sold of 226 was up 5% over the third quarter.
- Net revenues were impacted by a total of $1.4 million in
one-time events, for full disclosure on this and inventory
impairments please refer to Flowr’s 2019 Q4 MD&A.
- Average selling price per gram was $6.10 for the quarter and
$6.99 for the year, which included 35kg sold at $3.50 per gram, in
a bulk wholesale transaction. On a normalized basis excluding
the bulk wholesale transaction, the average selling prices per gram
would have been $6.61 and $7.12 respectively reflecting the
Company’s positioning in the premium segment.
The following table summarizes the
Company’s financial results for the three and twelve months ended
December 31, 2019:
In thousands of CAD dollars |
Three months ended December 31 |
Twelve months ended December 31 |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
(Loss)/Income before taxes |
(27,752 |
) |
(6,059 |
) |
(37,723 |
) |
(17,907 |
) |
Depreciation and
amortization |
1,272 |
|
620 |
|
3,198 |
|
640 |
|
Unrealized (gains) losses on fair
value adjustments of biological assets |
5,688 |
|
(165 |
) |
388 |
|
420 |
|
Fair value adjustments on
inventory sold |
44 |
|
(500 |
) |
482 |
|
(500 |
) |
Inventory Impairment |
5,303 |
|
— |
|
5,303 |
|
— |
|
Share-based compensation |
3,181 |
|
3,356 |
|
12,217 |
|
7,208 |
|
Transaction and listing
costs |
— |
|
381 |
|
686 |
|
2,184 |
|
Unrealized losses on fair value
of investments held in shares |
41 |
|
— |
|
189 |
|
— |
|
Unrealized loss on valuation of
warrant investment |
16 |
|
(489 |
) |
450 |
|
(153 |
) |
Loss (gain) on acquisition of
investment in Holigen |
3,499 |
|
— |
|
(8,153 |
) |
— |
|
Finance costs |
391 |
|
— |
|
869 |
|
— |
|
Interest expense |
(13 |
) |
(104 |
) |
(85 |
) |
(102 |
) |
Adjusted EBITDA |
(8,330 |
) |
(2,960 |
) |
(22,179 |
) |
(8,210 |
) |
|
|
|
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 and twelve months ended December
31, 2019, please refer to the Company’s fourth quarter 2019
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: 1-647-689-4072Webcast:
flowcorp.com/investors
Conference call replay details are as
follows:
Toll Free:
1-800-585-8367Toll/International: 1-416-621-4642Passcode:
6296956Webcast: flowrcorp.com/investors
The replay of the conference call will be
available through midnight on Wednesday, May 13th, 2020.
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: Flowr having an automated
packaging line in place in the near term; with the completion of
the Kelowna 1 Facility, cost restructuring, and focus on the
Canadian dried flower market, the Company becoming cash flow
positive in H2 2020 even with the uncertainty around COVID-19; the
Company seeing efficiencies in the second quarter of 2020 based on
its commissioned packaging line; Flowr’s ability to produce high
quality product in a controlled indoor environment and not having
to irradiate product as a result of such expertise; the Company
being focused initially on driving dried flower sales out of
Holigen; Ms. Hossu helping lead the Company for its next stage of
global growth; the Company’s forecasted Q1 gross revenues;
the Company forecasting a substantial increase in production and
sales in 2020 and onwards given the full operation of the Kelowna 1
Facility and production of primarily high THC strains including BC
Pink Kush, BC Tahoe OG & BC Louis XII; the Company being on the
doorstep of seeing a step function change in its operating and
financial results; the Company’s view that customers demand high
THC products and are willing to pay a premium for such products;
sales trends and demand for the Company’s BC Pink Kush strain
remaining robust and promising; 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; EU-GMP
certification opening the medicinal cannabis opportunity for the
Company in global markets; 2020 being a big year for Flowr;
the Company’s belief that sun setting certain strains in favour of
new genetics will address consumer demand; the Company’s
expectation that production from additional grow rooms during the
fourth quarter will support an increase in sales volume; Flowr’s
expectation that new genetics will deliver higher yields as well as
support the rollout of an expanded line of high THC products; the
Company’s expectation for Kelowna 1’s production run-rate at the
end of 2020; the Company’s expectation that it will continue to
realize premium pricing relative to the broader adult-use market;
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: Flowr
not having an automated packaging line in place in the near term,
which would result in additional costs and less efficiencies; the
completion of the Kelowna 1 Facility, cost restructuring, and focus
on the Canadian dried flower market, not positioning the Company to
become cash flow positive in H2 2020 even with the uncertainty
around COVID-19, and thus requiring the Company to obtain
additional liquidity and/or file for creditor protection; Flowr’s
not be able 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 failing to
realize sales out of Holigen, and thus having limited growth and
revenue generation generally and outside of Canada; Ms. Hossu
failing to help the Company for its next stage of global growth;
the Company not achieving the forecasted Q1 gross revenues, which
could put further pressure on the trading price of the Company’s
securities; the Company failing to increase production and
sales in 2020 and onwards, despite the full operation of the
Kelowna 1 Facility and production of primarily high THC strains
including BC Pink Kush, BC Tahoe OG & BC Louis XII, which could
materially adversely effect 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 not being able to use
recent events to change its operating and financial results; 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 effect 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; 2020 failing to be a big year for Flowr; 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 additional grow rooms at Kelowna 1 not becoming
operational as anticipated or at all; 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 get the
additional grow rooms at Kelowna 1 operational and producing
product in the timelines described herein, which would materially
adversely impact its ability to meet its revenue targets in 2020
and also its ability to become cash flow positive; 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; production from
additional grow rooms during the fourth quarter not being able to
support an increase in sales volume; 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; production capacity at Kelowna 1 once it is fully
licensed and “dialed in” being less than expected; 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 execute its plan to launch a live resin
vape offering as its first extract product, including with respect
to anticipated timing; the Company being unable to launch other
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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