The Flowr Corporation Announces Second Quarter 2020 Results

TORONTO, Aug. 26, 2020 (GLOBE NEWSWIRE) — The Flowr Corporation (TSX.V: FLWR; OTC: FLWPF) (“Flowr” or the “Company”) herein announces its financial and operational results for the second quarter ended June 30, 2020.

Key financial and operating highlights in the second quarter of 2020:

• The Company generated gross revenue of approximately $2.9 million in the second quarter, a 7% increase vs the same period in 2019 and a 192% increase sequentially from the first quarter in 2020.
• Net revenue in the second quarter 2020 was $2.3 million, a 6% increase vs the same period in 2019.
• Average Flowr branded price per gram in the second quarter was $6.69 reflecting the Company’s positioning in the premium segment.  Overall average price per gram in the second quarter was $5.88, due to bulk sales agreements entered into during the quarter.
• 419 kgs of dried cannabis sales in the quarter was up 23% vs the same period in 2019 and up 242% sequentially from the first quarter in 2020.  345 kgs of sales were of the Company’s flagship strain BC Pink Kush.
• The Company harvested a total of 1,346 kgs of dried cannabis in the second quarter, up 193% vs the same period in 2019 and a 174% increase sequentially from the first quarter in 2020 as all grow rooms in the facility were being utilized after being fully licensed by Health Canada in February. 1,196 kgs of BC Pink Kush were harvested in the second quarter of 2020.  The Company expects to continue to increase the amount of its premium dried flower available for sale.  
• Normalized cash cost per gram was $3.58 in the second quarter, an improvement from $4.91 in the first quarter of 2020, as the Company began benefitting from its automated packaging line.  The Company believes more material improvements will be achieved in the third quarter once automation is fully operational and due to allocation of fixed costs over larger production quantities.
• SG&A of $4.6 million in the second quarter of 2020 was 16% lower than the second quarter in 2019 and was 27% lower than in the first quarter as the Company began seeing benefits of its global restructuring program announced in March 2020.
• Adjusted EBITDA loss of $2.9 million in the second quarter was a $4.0 million improvement sequentially from the first fiscal quarter in 2020.
• 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 (the “Offering”).  Management, insiders and employees of the Company, led by Flowr’s Chairman and CEO subscribed in excess of $12 million to the offering.
• Insiders representing in excess of 55% of total sharecount have signed a voluntary 1 year lock-up agreement in connection with the Offering, 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 had 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. 
• Flowr and Terrace Global have been advancing the operations in Europe and continue to be on track for harvesting what is believed to be the largest outdoor THC cultivation project in the EU in the fourth quarter of 2020.  During the second quarter, approximately 1 million square feet of cultivation space was planted with a variety of high THC cultivars including Flowr’s flagship BC Pink Kush.

Subsequent financial and operational highlights post end of the second quarter:

• Flowr’s BC Pink Kush was the number 1 selling dried flower SKU in dollar terms sold by the OCS to retailers for the trailing 1, 3 and 6 months for the period ended August 12, 2020.
• Flowr’s BC Pink Kush has not been irradiated in 18 months, a testament to Flowr’s ability to bring quality product to market.
• 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.
• The Company recently received approval of its Autorite des marches public (“AMP”) application to operate in the Province of Quebec and expects to be in market with product by the fourth quarter.
• The Company re-iterates its objective of becoming cash flow positive in H2 2020 even with the uncertainty around COVID-19.
• Q3 2020 net revenue is expected to be at least 30% higher than Q2 2020.

MANAGEMENT COMMENTARY

“We made progress against our key strategic and financial objectives in the second quarter of 2020.  Sales momentum in our flagship BC Pink Kush continues to build.  We have leading market share in Ontario which is evidence that there is strong consumer demand for premium dried flower despite the increasing proliferation of value brands in the sector.  We are very excited by the progress we are making with our partners at Terrace Global in Portugal and continue to expect a sizeable harvest in Q4 2020 in what we believe is the largest outdoor THC cultivation project in Europe to date.  Given the sales trends in our Canadian business we continue to believe we will become cash flow positive in the second half of 2020,” said Vinay Tolia, Flowr’s Chief Executive Officer.

SECOND QUARTER 2020 RESULTS

The following table summarizes the Company’s key financial and operational results:

*     Excludes trim
**   Net of excise tax, sales returns and price concessions.

• 1,346 kgs of production was the Company’s highest quarterly production number to date, reflective of having 20 grow rooms in operation.
• 1,196 kgs of BC Pink Kush was harvested in the second quarter of 2020, with approximately 40% of the harvests occurring late in the quarter in the month of June.
• Net revenue of $2.3 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 six months ended June 30, 2020:

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 six months ended June 30, 2020, please refer to the Company’s second 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: (888) 869-1189
Toll/International: 1-(706) 643-5902
Passcode: 8867395
Webcast: flowrcorp.com/investors
Online registration: http://www.directeventreg.com/registration/event/8867395

Conference call replay details are as follows:

Toll Free: 1-800-585-8367
Toll/International: 1-416-621-4642
Passcode: 8867395
Webcast: flowrcorp.com/investors

The replay of the conference call will be available through midnight on Wednesday, September 9th, 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 Tolia
CEO and Director

CONTACT INFORMATION:

INVESTORS & MEDIA:
Thierry Elmaleh
Head of Capital Markets
(877) 356-9726 ext. 1528
[email protected]

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 expectation that it will continue to increase the amount of its premium dried flower available for sale; the Company’s belief that more material improvements will be achieved in the third quarter once its automated packaging line is fully operational and due to allocation of fixed costs over larger production quantities; the terms of lock-up agreements; the anticipated funding by Terrace Global under the Partnership; the Company continuing to be on track for a harvest in Portugal in the fourth quarter of 2020, and the anticipated size of such harvest; the Company’s belief that Aljustrel is the largest outdoor THC cultivation project in Europe to date; 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 Company’s expected timeline for sales of product in Quebec; the Company becoming cash flow positive in H2 2020; the Company’s expectation that Q3 2020 net revenue will be at least 50% higher than in Q2 2020; sales momentum in BC Pink Kush continuing to build; there being strong consumer demand for premium dried flower despite the proliferation of value brands; the Company continuing to make progress with Terrace Global in Portugal; 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’s being unable to continue to increase the amount of its premium dried flower available for sale; the Company’s not achieving more material improvements in the third quarter once its automated packaging line is fully operational and due to allocation of fixed costs over larger production quantities; the Company being unable to complete harvest in Portugal on the anticipated timeline, or at all; the Company being unable to complete harvest in Portugal of the anticipated size, or at all; Aljustrel not being the largest outdoor THC cultivation project in Europe to date; 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 Company’s sales of product in Quebec not happening on the anticipated timeline, or at all; the Company not becoming cash flow positive in H2 2020, or at all; the Company’s not realizing net Q3 2020 net revenue at least 50% higher than in Q2 2020; sales momentum in BC Pink Kush not continuing to build; there not being strong consumer demand for premium dried flower despite the proliferation of value brands; the Company being unable to continue to make progress with Terrace Global in Portugal; 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 Q3 and 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 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 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 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.