The Flowr Corporation Announces Third Quarter 2020 Results

The Flowr Corporation 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 10^th & 26^th, 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:

*      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:

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.