The Flowr Corporation (TSX.V: FLWR; OTC: FLWPF)
(“
Flowr” or the “
Company”) is
pleased to announce the results of a strategic review process
designed to improve the financial capacity of the Company and
refocus the operations to the core business of the Company, which
is to produce ultra-premium and premium dry flower for the Canadian
and European markets. The Board of Directors of the Company
appointed a Strategic Review Committee led by independent director
Joanne Lee with a view to evaluating options for non-core assets
and to develop a strategy for reducing SG&A expenses at the
Company.
“Since the start of the new year, the Strategic
Review Committee has worked hard to make Flowr a leaner and more
focused Company,” commented Steve Klein, Chair of the Board of
Directors. “Within ninety days, the Company has made the decision
to dispose of non-core assets and has been very creative in
reducing cash outlays and started to right-size its headcount, all
with a view to improving its balance sheet and driving towards
profitability. This is hard work that we hope will pay off for all
shareholders in the long-term.”
Strategic Review
The Strategic Review Committee was appointed by
the Board of Directors with a view to: (i) reduce corporate
overhead and headcount; (ii) dispose of non-core assets, including
duplicative licenses in the E.U.; and (iii) implement further cost
savings strategies with a view to preserving cash and cash
equivalents.
SG&A Review
Headcount Reduction
In the first quarter of 2021, the Strategic
Review Committee identified corporate overhead reduction
opportunities, resulting in SG&A reductions of approximately $2
million per year. The Company has also determined to have the
majority of senior level executive positions relocate to its
facilities in Kelowna, British Columbia with relocations expected
in the second quarter of this year.
Toronto Office
The Company has made the strategic decision to
close the Toronto office and move most key management personnel
positions to Kelowna. The Company is in the process of sub-leasing
its Toronto office. The Company has successfully implemented remote
working – as a result, all remaining Toronto employees will
continue to work remotely.
Fenwick Sublease
The Company has made the strategic decision to
sub-sublease approximately 75% of its multiuse facility located in
Kelowna, along with the outdoor space under its lease. The Company
will continue to use a portion of the building for dock warehousing
needs and expects the subleases of the remaining areas to result in
annualized cash flow savings of up to approximately $500,000 per
year.
Non-Core Assets and
Operations
Sale of Non-Core Assets
The Strategic Review Committee has identified
approximately 4 acres of industrial land in Kelowna that is
non-core to the business and currently vacant. The Company has
initiated the sale of non-core land and expects gross proceeds of
between $4-5 million from the sale. In addition, the Company is in
the process of selling large-scale extraction manufacturing
equipment and expects gross proceeds from sale to be approximately
$1 million. Lastly, the Company owns approximately 6 hectares of
industrial land in Aljustrel, Portugal. The Company has yet to
determine whether to sell this land; however, the fair market value
is expected to be in excess of $1 million.
Sale of Non-Core Licenses
The Company will be exiting all non-core
jurisdictions, including Australia, Uruguay and Spain. To that end,
the Company has entered into an agreement to sell Terra Nova
Business Holdings Inc., an indirect wholly-owned subsidiary, which
holds a pre-license authorizing it to construct a medical cannabis
greenhouse facility in Portugal. The purchaser of Terra Nova has
assumed all of the obligations of Terra Nova and allowed for Flowr
to regain a 10% equity interest in the event certain milestone
occur. In addition, Flowr has terminated the call option agreement
between Terrace Global Inc. (“Terrace”), a
wholly-owned subsidiary, and Inception Investment Corp., such that
Terrace will no longer seek to acquire an equity interest in the
recreational cannabis business in Uruguay. Flowr has also sold
Oransur, S.A., an indirect wholly-owned subsidiary, which was a
hemp operator in Uruguay. Under the terms of the agreement, Flowr
will be allowed to regain a 10% equity interest in the event
certain milestones occur.
The Company is also in the process of selling
TCann Pty Ltd., the entity that holds its medical cannabis licenses
in Australia. Upon completion this sale will represent the
Company’s exit from the Australian medical cannabis market and
there will be no further operating or capital expenses directed
towards those operation post-closing.
Overall, the exit or disposition of these
businesses and assets are expected to save the Company
approximately $1 million on an annual basis.
Cash Preservation
Initiatives
Marketing Budget in Shares
The Company’s marketing firm of record,
Zerotrillion Ltd. (“Zerotrillion”), has agreed to
accept $310,778 of its fees payable in common shares in the capital
of the Company (the “Consideration Shares”)
pursuant to a shares for services agreement (the “Shares
for Services Agreement”). Pursuant to the Shares for
Services Agreement, the Corporation proposes to issue, subject to
the approval of the TSX Venture Exchange (“TSXV”),
the Consideration Shares to the Consultant in lieu of cash as
compensation for the Consultant’s provision of certain media
consulting services, including advertising services, to the
Corporation in accordance with the Shares for Services Agreement
and the 2021 Creative Services Agreement appended thereto. The
Consideration Shares will compensate the Consultant for its
services to the Corporation between March 31, 2021 and March 31,
2022, and will be issued on a quarterly basis. The Consideration
Shares will be issued at a deemed price per Consideration Share
equal to the greater of: (i) $0.10; and (ii) the volume-weighted
average trading price of the Consideration Shares on the TSXV on
the last trading day of each fiscal quarter in which the Consulting
Fee (as defined in the Shares for Services Agreement) was earned
through the provision of services to the Corporation, less
twenty-five percent (25%).
In 2021, Flowr won three awards at the ADCANN
Awards - including the coveted Brand of The Year award. The annual
awards, which are voted on by the public, exist to celebrate the
best marketing and advertising across Canada’s growing cannabis
industry. Alongside the Brand of The Year Award, Flowr also won
Campaign of the Year for their Rembrandt inspired BC Pink Kush
Campaign which works with regulations of the cannabis industry to
highlight Flowr’s approach by blending art and science.
Zerotrillion, Flowr’s agency of record, was also
recognized for its work building the Flowr brand and subsequent
campaigns and was awarded Agency of The Year.
RSUs for Salary and Director
Fees
In an effort to preserve cash and further
alignment directors and employees with the Company, the Company has
implemented a program whereby employees may take up to 20% of their
base salary in restricted share units (“RSUs”). In
addition, the Board of Directors has agreed to receive 50% of its
director fees payable in RSUs.
Other Balance Sheet
Initiatives
ATB Amendments
On December 18, 2020, the Company entered into
an Amending and Restated Credit Agreement (“ARCA”)
with a syndicate of lenders led by ATB Financial. The ARCA provided
for additional covenant flexibility for the Company such that the
only financial covenants in place until the fourth quarter of 2021
are for the Corporation to maintain a senior debt to tangible net
worth ratio of greater than 1.3:1 and a minimum cash on hand of
$3.5 million. In addition, the ARCA allows for the Corporation to
prepay the ARCA by $5 million above its principal repayments, at
which point this covenant relief will be extended for an additional
year and the maturity of the loan would be extended for an
additional year.
In addition, the ARCA provided for the following
financing baskets available without lender pre-approval: (i) up to
$2 million in respect of PMSI financing; (ii) up to $2.5 million in
respect of accounts receivable factoring; and (iii) unlimited
junior permitted indebtedness.
Debenture Conversion
On November 16, 2020, the Corporation announced
completion of the early conversion of certain of its 10.0%
subordinated secured convertible debentures due April 27, 2024 (the
“Debentures”) pursuant to an early conversion
opportunity (the “Early Conversion Opportunity”).
Approximately $16.4 million aggregate principal amount of
Debentures were converted under the Early Conversion Opportunity,
resulting in the issuance of approximately 47.8 million Common
Shares. Upon closing of the Early Conversion Opportunity, there
were approximately $5 million aggregate principal amount of 10%
Subordinated Debentures still outstanding. All such outstanding 10%
Subordinated Debentures continue to be governed by the terms of the
indenture between the Corporation and Computershare Trust Company
of Canada dated April 27, 2020, as amended.
$15.9 Million Bought Deal
Financing
On March 16, 2021, the Company closed a bought
deal offering (the “Offering”). In connection with
the Offering, the Company issued 31,127,453 units of the Company
(the “Units”) at a price of $0.51 per Unit (the
“Issue Price”) for aggregate gross proceeds to the
Company of approximately $15.9 million, inclusive of the partial
exercise of the over-allotment option. Each Unit consists of one
Common Share and one full Common Share purchase warrant of the
Company (each whole warrant, a “Warrant”). Each
Warrant is exercisable to acquire one Common Share at an exercise
price of $0.64 per Common Share for a period of two years from
March 16, 2021 (the “Closing Date”). Following the
partial exercise of the over-allotment option granted to the
Underwriters, an additional 3,274,508 Units remain exercisable by
the Underwriters at the Issue Price, in whole or in part, at any
time for a period of thirty days from the Closing Date. The
Underwriters were paid a cash commission equal to 7.0% of the gross
proceeds of the Offering and received Unit purchase warrants of the
Company (the “Underwriters’ Warrants”) equal to
6.0% of the number of Units sold under the Offering, with each
Underwriters’ Warrant being exercisable to acquire one common share
at the Issue Price for a period of 24 months from the Closing Date.
The net proceeds of the Offering will be used for general corporate
purposes.
Base Shelf Prospectus
On April 13, 2021, the Company announced that it
filed a final short form base shelf prospectus (the “Final
Shelf Prospectus”) with the securities commissions or
similar authorities in each province of Canada.
The Final Shelf Prospectus enables the Company
to offer and issue up to $100,000,000 of common shares, preferred
shares, debt securities, subscription receipts and warrants, or any
combination thereof (collectively, the
“Securities”). The Securities may be issued from
time to time, separately or together, in amounts, at prices, and on
terms to be determined based on market conditions at the time of
the offering and as set out in an accompanying prospectus
supplement, during the 25-month period that the Final Shelf
Prospectus remains effective. The amount and timing of any future
offerings will be based on the Company’s financial requirements and
market conditions at that time.
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. 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. In
2020, Flowr’s BC Pink Kush was recognized as the top indica strain
in Canada by kind magazine.
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:Lance
EmanuelPresident and Interim Chief Executive Officer
CONTACT INFORMATION:
INVESTORS & MEDIA:Irina HossuChief Financial
Officeririna.hossu@flowr.ca
Forward-Looking Information and Statements
This press release contains “forward-looking
information” within the meaning of Canadian securities laws. 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
inability to complete the sale of non-core assets described in this
press release; 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, risks and uncertainties detailed from time to
time in Flowr’s filings with the Canadian Securities
Administrators; the Company’s inability to raise capital or have
the liquidity to operate or advance its strategic initiatives 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 or statements, there may be other
factors that cause actions, events or results to differ from those
anticipated, estimated or intended. No forward-looking information
or statement can be guaranteed. Except as required by applicable
securities laws, forward-looking information and statements speak
only as of the date on which they are made and Flowr undertakes no
obligation to publicly update or revise any forward-looking
information or statements, whether as a result of new information,
future events or otherwise. When considering such forward-looking
information and statements, readers should keep in mind the risk
factors and other cautionary statements in Flowr’s Annual
Information Form dated April 29, 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 or statements.
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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