The Flowr Corporation provided an operational update on its Canadian and European operations and a renewed focus to maintaining its status as a premium cannabis producer and making the requisite changes to its operations in order to reach profitability.
“Since January, the Company has undertaken several measures to improve the financial and operational viability of its business. We have shed non-core assets and licenses, raised additional equity capital and significantly reduced overall indebtedness. From an operational perspective, the K1 facility is now fully operational and each grow room is being utilized to ensure our fixed costs are being spread out over a higher number of production grams. The K1 facility is a world-class facility capable of producing award winning high-THC strains, such as our BC Pink Kush and BC Black Cherry, with a high level of consistency. We are also introducing new exciting strains and product formats to meet consumer demand, and are building a robust genetics program for future growth,” commented Darry Brooker, Chief Executive Officer of Flowr.
“In Europe, we entered into a bulk medical cannabis supply agreement to monetize the outdoor medical cannabis grown at the Aljustrel facility. We have also entered into a series of licensing agreements with Cookies that will allow us to grow their internationally renowned strains in addition to our own, and develop a retail footprint through a pharmacy network in Portugal. Overall, there has been a significant refocusing of the business with a view to reaching profitability in our Canadian operations and ensuring future value creation at our European operations where we have a strategic lead on our competitors.”
In April 2021, the Board of Directors of the Company appointed a Strategic Review Committee with a view to evaluating options for non-core assets and to develop a strategy for reducing SG&A expenses at the Company. The strategic review process is now substantially complete with the Company having divested non-core licenses and sold certain extraction and related equipment, for total proceeds of $1.1 million. In addition, the Company has entered into a binding agreement to sell certain industrial land located in Kelowna, British Columbia, subject to certain closing conditions, for an aggregate purchase price of $6.3 million. The land sale is expected to close in the fourth quarter of 2021.
For the year to date, the Company has taken a series of cost reduction measures resulting in annualized SG&A and other cash savings of approximately $3.3 million, before restructuring charges, through a combination of rightsizing, centralizing executive functions in Kelowna, subleasing excess office and warehouse facility, and divestment of non-core foreign subsidiaries.
The K1 facility is a purpose-built 85,000 square foot cannabis production facility with twenty grow rooms each outfitted with independent fertigation, humidity, ventilation and temperature controls. The last grow room was commissioned in July 2020 and the facility is now operating at 100% capacity. Currently, the K1 facility is growing BC Black Cherry, BC Pink Kush, and BC Strawnana. Utilizing our owned and operated Kelowna Research Station, Flowr now has a range of unique high-THC genetics in R&D, with a view to further expanding and enhancing our strain offering across Canada in 2022.
New Product Launches
Flowr is pleased to announce the launch of its latest strain BC Strawnana, which has tested at 25.6% THC and 2.9% terpenes. The Company expects this product to be available in Ontario, Alberta, British Columbia, and Saskatchewan starting in the third quarter of 2021. BC Strawnana will nicely complement the Company’s existing recreational product portfolio in Canada. This new strain was developed to provide consumers with another premium cannabis offering, with a strong sensory profile, high quality buds and high THC.
Flowr is also pleased to announce that it has launched its last “Underground Series” campaign with LB33, which has tested at 25.5% THC and 3.2% terpenes. The Underground Series is meant to provide consumers with unique product offerings that are diverse and on a limited time basis. It allows us to utilize our platform to recognize small, independent growers that share some of Flowr’s values, and expand our portfolio to include exciting new genetics.
Adding to the list of new offerings, Flowr is pleased to announce new formats available in 14g and 28g bags, further enhancing the format selection of premium cannabis for our Canadian consumers.
Lastly, the Company is pleased to announce the launch of BC Dog Walkers. BC Dog Walkers will provide consumers with Flowr’s flagship strains, BC Pink Kush, BC Black Cherry and BC Strawnana, in a 0.35 gram pre-roll format that prioritizes convenience and accessibility. The pre-roll market in Canada has seen significant increase since October 2018 and Flowr believes that providing its flagship strains in this format will further enhance its position as a premium cannabis producer.
Flowr is pleased to announce that it has been granted a research license by Health Canada. The research license allows the Company to distribute and administer its cannabis for research purposes and to test and review its products based on taste, sight, smell and touch. The Company will utilize this research license in the research and development of novel product offerings.
Export to Israel
As previously announced on June 7, 2021, Flowr entered into a supply agreement with Focus Medical Herbs Ltd., a company which IM Cannabis Corp. has an exclusive commercial agreement within Israel. Pursuant to the terms of the Supply Agreement, Flowr has agreed to export up to five hundred kilograms of premium dry flower cannabis in bulk form into Israel. IMCC has issued its first purchase order for approximately 220 kilograms of medical cannabis and Flowr expects the first export to Israel to be completed in Q4 2021.
KRS Facility and Genetics Program
Flowr owns and operates the Kelowna Research Station (the “KRS Facility”) in partnership with the Hawthorne Gardening Company, a subsidiary of The Scotts Miracle-Gro Company. An objective of the Company is to develop new and improved cannabis cultivars with genetics intended to optimize levels of production. To that end, Flowr is in the process of developing more than 50 high-THC exotic cannabis strains in order to solidify its pipeline of new and exciting genetics. The KRS Facility also allows Flowr’s R&D team to trial cultivars at the KRS Facility prior to commercialization in the K1 facility, allowing Flowr to trial genetics in a safe environment without affecting its commercial production. The Company believes that the KRS Facility will be a strong differentiator in ensuring Flowr’s genetics program continues to stay ahead of other premium dried flower producers.
Credit Agreement Amendments and Debt Repayment
On August 6, 2021, the Company entered into an amendment to its amended and restated credit agreement (“ARCA”) with a credit facility from a syndicate of lenders led by ATB Financial (“ATB”) whereby the senior creditors agreed to certain amendments allowing Flowr to additional flexibility under the ARCA to issue equity and to enter into financings arrangements with respect to Holigen. The Company also repaid $7.5 million towards the credit facility on August 6, 2021, reducing the principal amount outstanding under the ATB term and operating facilities to approximately $9.8 million.
As announced on July 19 and July 27, 2021, the Company closed two separate tranches of private placement equity financing for total gross proceeds of $7,564,000 and issued 36,019,047 units (“Units”) of the Company at a price of $0.21 per Unit. Each Unit consists of one common share in the capital of the Company and one common share purchase warrant which entitles the warrant holder thereof to acquire one common share at an exercise price of $0.26 per share any time for a period of 42 months from the closing date. In connection with the private placements, the Company paid ATB Capital Markets Inc. (“ATB”) a placement fee equal to $490,000 and granted ATB 2,004,000 broker warrants (“Broker Warrants”).
In August 2021, Flower announced that it signed an agreement with Green Hedge Education & Distribution Services Ltd. (“Green Hedge”) to act as the Company’s external sales agent providing coverage to licensed cannabis wholesalers and retailers across Canada. Green Hedge is a leading cannabis sales and distribution company headquartered in Toronto, Ontario led by Andrew von Teichman. His entrepreneurial experience over two decades in distribution and consumer packaged goods has established Green Hedge as one of Canada’s top cannabis field sales agencies. Operating in six provinces with more than 2,000 active retail partners in Canada, the company has a 93% penetration rate with their customers.
“In Europe, we see a significant opportunity for the growth of the industry as well as for our operations based in Portugal. Earlier this year, the Portuguese regulatory authorities approved the first market authorization for medical cannabis to be sold in local pharmacies in Portugal. We believe this was a watershed moment for the medical cannabis industry in the E.U. as there are now two jurisdictions, Germany and Portugal, that allow for medical cannabis sales,” commented Darryl Brooker, Chief Executive Officer of Flowr. “We also believe Portugal has the potential to be the first European country to legalize an adult use regime. While this transition may still be year away, we have taken a long-term view on this opportunity and are setting the stage to capture an early pole position with our partnership with Cookies. Having Cookies as our partner is an important next step to dominating the European cannabis market.”
First Revenues from Portugal
In 2021, Flowr saw its first revenues from its operations in the European Union as a result of a strategic warehousing partnership with Tilray Inc. This represented an important milestone for the Company and illustrates the importance of
operating an E.U. GMP certified facility.
On July 28, 2021, Flowr announced that Holigen Holdings Limited (“Holigen”) entered into a medical cannabis supply agreement (the “Supply Agreement”) with Galaxiavertical – Unipessoal Lda. (the “Galaxia”). Pursuant to the terms of the Supply Agreement, Galaxia has agreed to purchase from RPK the high-THC medical cannabis biomass at a price of approximately $750,000 (€500,000). This Supply Agreement represents the largest bulk medical cannabis sale in Portugal to date.
Holigen, through its wholly-owned subsidiary, RPK Biopharma Ltd (“RPK Biopharma”) entered into a series of agreements (the “Licensing Agreements”) with Cookies Creative Consulting and Promotions Inc. (“Cookies”) whereby RPK Biopharma will be cultivating and distributing Cookies products in Portugal from its E.U. GMP facility in Sintra. Pursuant to the terms of the Licensing Agreements, RPK Biopharma will cultivate and have the exclusive rights to sell Cookies branded products, including non-cannabis merchandise, in Portugal for three years subject to certain milestone commitments. Flowr has commenced the process of importing the Cookies branded genetics from Canada into Portugal and expects to be able to commence commercial production by year-end. Cookies will consult with Flowr on the development of a medical retail distribution strategy in Portugal through the country’s existing pharmacy networks and the design of up to three proprietary retail pharmacy outlets in the country.
About The Flowr Corporation
The Flowr Corporation is a Canadian cannabis company with operations in Canada and the European Union. Its Canadian operating campus, located in Kelowna, BC, includes a purpose-built, GMP-designed indoor cultivation facility; an outdoor cultivation site; and a state-of-the-art R&D facility. From this campus, Flowr produces recreational and medicinal products. Internationally, Flowr services the global medical cannabis market through its subsidiary, Holigen Holdings Limited, which has a license for cannabis cultivation in Portugal and operates a GMP licensed facility in Portugal. In 2020, Flowr’s BC Pink Kush was recognized as the top indica strain in Canada by KIND magazine.