The Flowr Corporation (TSX.V: FLWR; OTC: FLWPF) (“Flowr” or the
“Company”) herein announces its financial and operational results
for the third quarter ended September 30, 2020.
Key financial and operating highlights in the
third quarter of 2020:
- The
Company generated gross revenue of approximately $3.5 million in
the third quarter, a 64% increase as compared to the same period in
2019 and a 15% increase sequentially from the second quarter in
2020.
- Net
revenue in the third quarter 2020 was $2.8 million, a 110%
increase as compared to the same period in 2019 and up 22%
sequentially from the second quarter in 2020.
- During
the quarter, the Company sold 552 kilograms of dried flower, an
increase of 144% as compared to the same period in 2019 and up 31%
sequentially from the second quarter 2020. In addition, 370
kilograms of sales were of the Company’s flagship strain BC Pink
Kush in the third quarter as compared to 345 kilograms of BC Pink
Kush sales in the second quarter of 2020.
- Flowr’s
BC Pink Kush was the #2, #1 & #1 selling dried flower SKU in
dollar terms sold by the OCS to retailers for the trailing 30, 60
and 90 days, respectively, for the period ended September 30,
2020.
- Flowr’s
BC Pink Kush has not been irradiated in 22 months, which the
Company believes is a testament to its ability to bring quality
product to market.
- The
average Flowr branded price per gram in the third quarter was $6.54
which the Company believes reflects its positioning in the premium
segment. Overall average price per gram in the third quarter was
$5.25, due to trim and biomass agreements entered into during the
quarter.
- In Canada, the Company achieved
significant positive gross margin before impairment of inventory
and fair value adjustments of biological assets.[1]
- SG&A
of $3.6 million in the third quarter of 2020 was 19% lower than in
the second quarter of 2020 as the Company continued to see benefits
of its global restructuring program announced in March 2020.
- A recent
consumer research report by the Brightfield Group highlighted Flowr
as the #7 ranked Brand by Awareness in Canada and had Flowr ranked
#1 or #2 in a variety of Loyalty, Brand Promotion and Satisfaction
scores among the top 10 purchased brands in Canada. The
Company expects to build on this achievement as it continues to
invest in sales and marketing.
[1] Refer to the “Non-GAAP Financial Measures” section below for
reconciliation to the IFRS equivalent.
Subsequent financial and operational highlights
post end of the third quarter:
- On October 19,
2020, the Company announced the strategic acquisition (the
“Acquisition”) of Terrace Global Inc. (TSX.V: TRCE) (“Terrace
Global”), a multi-country operator (MCO) led by experienced
cannabis entrepreneurs focused on the development and acquisition
of international cannabis assets. On a pro-forma basis, at the time
of the announcement of the Acquisition, the combined company had in
excess of $31 million in cash and marketable securities on its
balance sheet.
- Terrace Global
was created by a group of pioneers in the cannabis sector who have
prior successes in international cannabis markets and include the
founders of MedReleaf Corp., ICC Labs Inc. and Bedrocan Cannabis
Corp. Both Flowr and Terrace Global have sector leading insider
ownership and supportive lead investors groups.
- Terrace Global
and Flowr jointly operated the Company’s outdoor cultivation site
in Aljustrel, Portugal which is believed to be the largest medical
cannabis site in the European Union and one of the largest in the
world. A video of the Aljustrel project is available on the
Company’s website at flowrcorp.com. Throughout October, the Company
finished harvesting the majority of the 1 million square feet of
cultivation space planted at its outdoor site in Aljustrel,
Portugal. The Company’s preliminary findings from its outdoor
medical cannabis cultivation site, operated in partnership with
Terrace Global, suggested a harvest of approximately 3,000 kgs of
high THC (17-21% in premium cultivars) biomass.
- On
October 10th & 26th, pursuant to the to the Equity Line and
Profit Share Agreement with Terrace Global, the Company closed on a
fifth and sixth tranche of funding in an aggregate amount of $2.5
million.
- On October 6,
2020, the Company completed the development of the Flowr-Hawthorne
R&D Center’s (the “R&D Center”) first floor, in accordance
with terms of the R&D Agreement, as amended. The Company
believes that the 50,000 square foot R&D Center will be North
America’s first dedicated cannabis R&D facility focused on
cultivation techniques and systems including growth media, nutrient
formulations, irrigation and lighting systems, plant genetics and
integrated growing systems.
- On September 30,
2020, the Company entered into an amendment to the R&D
Agreement with Hawthorne, whereby Hawthorne agreed to lend up to
$1.3 million in additional funding to Flowr. To date, approximately
$1.1 million has been funded.
- Given
recent COVID-19 related protection measures taken in Ontario, the
delay in entering the Quebec market, the delay of new cultivar
launches & the pending Terrace transaction expected to close by
year end, the Company has decided against providing more specific
guidance at this time. Under normal operating conditions, the
Company would expect to be cash flow positive in the first half of
2021.
MANAGEMENT COMMENTARY
“We continue to make inroads in proving out our
business model in the Canadian recreational market. While
competition is intensifying, we believe there is a clear consumer
demand driven market for premium products in the Canadian
marketplace. Our pending merger with Terrace Global will put us in
a stronger financial position and better equip us to execute on our
strategic objectives as we enter 2021 and beyond. We are very
excited to welcome the Terrace team to the Flowr family and
continue to work towards closing the transaction by the end of
2020,” said Vinay Tolia, Flowr’s Chief Executive Officer.
THIRD 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 endedSeptember
30 |
Nine months ended
September 30 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Grams Harvested – K1* |
1,305,311 |
|
446,854 |
|
3,140,979 |
|
1,186,570 |
|
Grams Sold |
552,409 |
|
226,807 |
|
1,094,187 |
|
777,626 |
|
Average Net Realized Price per
Gram |
5.25 |
|
8.03 |
|
5.68 |
|
7.23 |
|
Gross Revenue |
3,403 |
|
2,069 |
|
7,375 |
|
6,642 |
|
Net revenue ** |
2,823 |
|
1,344 |
|
5,913 |
|
5,154 |
|
Gross profit (loss) before fair
value adjustments |
(2,660 |
) |
46 |
|
(5,326 |
) |
230 |
|
Selling, General and
Administrative expense |
3,563 |
|
6,085 |
|
14,000 |
|
15,054 |
|
Share-based compensation |
1,022 |
|
3,442 |
|
2,624 |
|
9,036 |
|
Net income/(loss)** |
(10,174 |
) |
(14,688 |
) |
(28,105 |
) |
(9,675 |
) |
Basic & diluted
earnings/(loss) per share |
(0.06 |
) |
(0.12 |
) |
(0.19 |
) |
(0.09 |
) |
Cash used in investing
activities |
(4,247 |
) |
(20,318 |
) |
(14,283 |
) |
(47,158 |
) |
Cash from financing
activities |
2,794 |
|
43,976 |
|
27,251 |
|
62,373 |
|
|
|
|
|
|
|
|
|
|
|
* Excludes trim**
Net of excise tax, sales returns and price concessions.
- Net
revenue of $2.8 million was the Company’s highest revenue quarter
since initial industry wide product sell-in in Q4 2018.
The following table summarizes the
Company’s financial results for the three months
and nine months
ended September 30,
2020:
In thousands of CAD dollars |
Three months endedSeptember
30 |
Nine months ended
September 30 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
Net income/(loss) |
(10,427 |
) |
(14,688 |
) |
(30,113 |
) |
(9,675 |
) |
Depreciation and
amortization |
1,812 |
|
793 |
|
4,583 |
|
1,926 |
|
Unrealized (gains) losses on fair
value adjustments of biological assets |
2,733 |
|
(3,597 |
) |
6,578 |
|
(5,300 |
) |
Fair value adjustments on
inventory sold |
(196 |
) |
269 |
|
(907 |
) |
438 |
|
Share-based compensation |
1,106 |
|
3,442 |
|
2,834 |
|
9,036 |
|
Restructuring costs |
— |
|
— |
|
726 |
|
— |
|
Transaction and listing
costs |
— |
|
1,086 |
|
— |
|
1,086 |
|
Unrealized (gain) loss on fair
value of investments held in shares |
106 |
|
— |
|
103 |
|
148 |
|
Unrealized loss on valuation of
warrant investment |
— |
|
63 |
|
39 |
|
434 |
|
Loss (gain) on acquisition of
investment in Holigen |
— |
|
7,098 |
|
— |
|
(11,652 |
) |
Finance costs |
1,384 |
|
212 |
|
2,885 |
|
478 |
|
Interest expense |
— |
|
(2 |
) |
(15 |
) |
(72 |
) |
Adjusted EBITDA |
(3,482 |
) |
(5,324 |
) |
(13,287 |
) |
(13,153 |
) |
|
|
|
|
|
|
|
|
|
|
|
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. 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 nine months ended September 30,
2020, please refer to the Company’s third quarter 2020 Management’s
Discussion & Analysis and Consolidated 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 live webcast details
are as follows:
Webcast:
flowrcorp.com/investors/events-and-presentationsOnline
registration:
http://www.directeventreg.com/registration/event/7384863
Conference call and webcast replay
details are as follows:
Toll Free: 1-800-585-8367Toll/International:
1-416-621-4642Passcode: 7384863Webcast Replay:
flowrcorp.com/investors/events-and-presentations/The telephone
replay of the conference call will be available through midnight on
January 12, 2021.
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
Cautionary Note Regarding Non-GAAP Measures
This press release refers to certain financial performance
measures that are not defined by and do not have a standardized
meaning under IFRS (termed “Non-GAAP measures”). These Non-GAAP
measures are defined in Management’s Discussion and Analysis of
Financial Condition and Results of Operations for the three and
nine months ended September 30, 2020 under “Non-IFRS Measures”.
Non-GAAP measures are used by management to assess the financial
and operational performance of the Company. The Company believes
that these Non-GAAP measures, in addition to conventional measures
prepared in accordance with IFRS, enable investors to evaluate the
Company’s operating results, underlying performance and prospects
in a similar manner to the Company’s management. As there are no
standardized methods of calculating these Non-GAAP measures, the
Company’s approaches may differ from those used by others, and
accordingly, the use of these measures may not be directly
comparable. Accordingly, these Non-GAAP measures are intended to
provide additional information and should not be considered in
isolation or as a substitute for measures of performance prepared
in accordance with IFRS.
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 belief that
Aljustrel is the largest outdoor THC cultivation project in Europe
and one of the largest in the world; the harvest from Aljustrel
yielding approximately 3,000 kgs of high THC (17-21% in premium
cultivars) biomass; the Company’s belief that the R&D Center
will be North America’s first dedicated cannabis R&D facility
focused on cultivation techniques and systems including growth
media, nutrient formulations, irrigation and lighting systems,
plant genetics and integrated growing systems; the anticipated
funding from Hawthorne under the amended R&D Agreement; the
Company’s expectation that it will build on its achievements as it
continues to invest in sales and marketing; the Company continuing
to invest in sales and marketing; the anticipated timeline for
completion of the Acquisition; the expected benefits of the
Acquisition, including the Company’s expectation that the
Acquisition will put it in a stronger financial position and better
equip it to execute on its strategic objectives as it enters 2021
and beyond; the Company’s anticipated timeline for becoming cash
flow positive; there being strong consumer demand for premium dried
flower products; 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:
Aljustrel not being the largest outdoor THC cultivation project in
Europe and one of the largest in the world to date; the harvest
from Aljustrel not yielding approximately 3,000 kgs of high THC
(17-21% in premium cultivars) biomass; the R&D Center not being
North America’s first dedicated cannabis R&D facility focused
on cultivation techniques and systems including growth media,
nutrient formulations, irrigation and lighting systems, plant
genetics and integrated growing systems; the funding received from
Hawthorne under the amended R&D Agreement being less than
anticipated; the Company’s being unable to build on its
achievements as it continues to invest in sales and marketing; the
Company being unable to continue to invest in sales and marketing;
the Acquisition not being completed within the anticipated
timeline, or at all; the Company not realizing the expected
benefits of the Acquisition, including the Company’s expectation
that the Acquisition will put it in a stronger financial position
and better equip it to execute on its strategic objectives as it
enters 2021 and beyond; there not being strong consumer demand for
premium dried flower products; the Company being unable to achieve
a substantial increase in production and sales through the
remainder of the year; the net revenues for Q4 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 the anticipated timeline, 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 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;
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 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 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; 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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