Market Overview

The Flowr Corporation Announces Results for the Second Quarter 2019


TORONTO, Aug. 15, 2019 (GLOBE NEWSWIRE) -- The Flowr Corporation (TSXV:FLWR, OTC:FLWPF) ("Flowr" or the "Company") herein announces its financial and operational results for the quarter ended June 30, 2019.

Select highlights from the second quarter of 2019 include:

  • The Company generated gross revenue of approximately $2.8 million and net revenue of approximately $2.2 million, which excludes approximately $358,000 of design and construction fees from Hawthorne Canada Limited in relation to the construction of the R&D facility on the Kelowna Campus;
  • Preparation of Flowr Forest, the Company's outdoor and greenhouse grow area, was completed during the quarter and subsequent to quarter-end, planting of an initial crop was completed after Health Canada licensing was received on July 12, 2019;
  • 61% increase in grams sold compared to the first quarter of 2019, driven by expanded distribution and increased production as cultivation activities ramp up in tandem with construction;
  • Late in the quarter, Flowr entered into a supply agreement with Alberta Gaming, Liquor & Cannabis; and
  • Construction of Kelowna 1, Flowr's purpose-built, indoor cultivation facility, is expected to be fully operational in the fourth quarter of 2019.
The following table summarizes the Company's key financial and operational results:
In thousands of Canadian dollars, Three months ended Six months ended 
(except per share and grams metrics) June 30 June 30
  2019   2018   2019   2018  
Grams produced*  459,956   136,294   739,716   136,294  
Grams sold 339,624   -   550,819   -  
Average net realized price per gram 6.41   -   6.91   -  
Net revenue 2,184   -   3,810   -  
Gross profit (loss) before fair value adjustments 70   (245 ) 184   (901 )
Selling, General and Administrative expense 5,268   1,521   8,969   2,735  
Share-based compensation 3,491   1,087   5,594   1,473  
Net income/(loss)** 11,010   (3,632 ) 5,161   (6,214 )
Basic earnings/(loss) per share 0.13   (0.04 ) 0.08   (0.07 )
Diluted earnings/(loss) per share 0.08   -   0.05   -  
Cash used in investing activities (14,195 ) (1,924 ) (26,840 ) (7,023 )
Cash from financing activities 16,288   11,302   18,397   12,085  
*Grams produced refers to the grams of dried cannabis harvested from plants in the period. The Company calculates grams produced based on the final recorded weight of dried harvested buds that have completed the drying stage net of any weight loss during the drying process for the period.
** Includes an approximate $18.8 million gain on investment in Holigen Holding Limited.

Management Commentary

"In the second quarter, our team continued to concurrently ramp up production and advance development at our flagship Kelowna campus.  We delivered an increase in production as we continue to optimize our operational grow rooms and were able to translate the production increase into a similar percentage increase in sales volumes.  Revenues and average selling prices in the quarter were impacted by our product mix, predominantly as we sold fewer pre-rolls than in the prior quarter," commented Vinay Tolia, Flowr's Chief Executive Officer. "We also advanced our outdoor and greenhouse grow, of which we completed initial planting, and are well-positioned for an initial harvest later this year to support the roll-out of new form factors.  Taken together, we are executing our plan to build a single operational base from which we will service the Canadian market and once fully operational, drive significant financial performance."

Operational Results for the Three Months Ended June 30, 2019

Kelowna 1

The Company produced approximately 460 kilograms of cannabis in the second quarter, compared to 280 kilograms in the first quarter of 2019, representing an approximate 61% increase.

The Company continued to advance construction at Kelowna 1 and is expected to be completed early in the fourth quarter of 2019. Currently, the Company has a total of 10 grow rooms propagated with plants.  During the quarter, a portion of the indoor operating facilities were utilized for clone production that ultimately supported the successful first planting of a crop at Flowr Forest, the Company's outdoor and greenhouse grow areas.

Upon completion of construction, a total of 20 grow rooms will become available for operating activities beginning in the fourth quarter of 2019.

The Company spent approximately $7.2 million on the development of Kelowna 1 during the second quarter.  The total budget for the Kelowna 1 project is $36.3 million, of which $9.2 million is expected to be spent in the second half of 2019.

Flowr Forest

On July 15, 2019, the Company announced receipt of a second site cultivation license from Health Canada for its Flowr Forest project, consisting of an outdoor cultivation area of 150,000 square feet plus 189,000 square feet across 42 greenhouses.  Subsequently, the Company completed planting of its initial grow for Flowr Forest which is expected to be harvested in the second half of 2019.

The Company expects 2019 production from Flowr Forest to be approximately 5,000 kilograms of dried cannabis that is expected to support the planned roll-out of new form factors in early-2020.

The anticipated capital spending on Flowr Forest is $9.5 million in 2019, of which $7.2 million was spent year-to-date 2019.

Research and Development ("R&D") Facility

Together with Hawthorne Canada Limited ("Hawthorne), Flowr is creating a cannabis cultivation R&D facility, which is located adjacent to Kelowna 1.  Construction advanced according to plan during the quarter and the project remains on track for completion in the second half of 2019.

Financial Results for the Three Months Ended June 30, 2019

Net income in the second quarter of 2019 totalled $11,010 which was $14,642 higher than the net loss in the second quarter of 2018. The increase is mainly driven by gain on investment in Holigen Holding Limited ("Holigen") and sales in the second quarter of 2019 partially offset by the ramp-up of the activities of the Company in 2019.  Excluding the non-cash valuation of investments, key costs contributing to a higher loss in the second quarter of 2019 were general and administrative expenses, share-based compensation and cost of sales partially offset by unrealized gains on changes in fair value of biological assets.

Cost of sales for the second quarter of 2019 was $2.1 million compared to $245,000 in the second quarter of 2018.  The increase in cost of sales is largely attributable to the expensing of capitalized inventory costs, as product was sold in the second quarter of 2019.  In the second quarter of 2018, start-up costs were expensed directly to cost of sales.

Selling, general and administrative expenditures, consisting primarily of salaries and professional fees, were $5.3 million in the second quarter of 2019 compared to $1.5 million in the second quarter of 2018.  Share-based compensation was $3.5 million in the second quarter of 2019 compared to $1.1 million in the second quarter of 2018.  

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 and 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.

In thousands of CAD dollars Three months ended Six months ended
  June 30 June 30
  2019 2018 2019 2018
Net income/(loss) 11,010   (3,632 ) 5,161   (6,214 )
Depreciation and amortization 664   175   1,133   205  
Unrealized (gains) losses on fair value adjustments of biological assets (1,497 ) 210   (1,703 ) 847  
Fair value adjustments on inventory sold 211   -   169   -  
Share-based compensation 3,491   386   5,594   1,473  
Unrealized loss on valuation of warrant investment 20   27   371   59  
Gain on acquisition of investment in Holigen (18,750 ) -   (18,750 ) -  
Interest expense (income) 156   (2 ) 196   -  
Adjusted EBITDA (4,695 ) (1,848 ) (7,829 ) (3,630 )
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