Flower One Reports First Quarter 2021 Results and Provides Preliminary Revenue Guidance for Its Second Quarter
Second Quarter Revenue Guidance of $16-$18m Reflects Its Second Consecutive Record Revenue Quarter
LAS VEGAS & TORONTO, June 28, 2021–(BUSINESS WIRE)–Flower One Holdings Inc. (“Flower One” or the “Company”) (CSE: FONE) (OTCQX: FLOOF) (FSE: F11), the leading cannabis cultivator and producer in Nevada, is pleased to announce its financial and operating results for the first quarter ended March 31, 2021, along with its unaudited preliminary revenue guidance for the second quarter of 2021. All amounts are in U.S. dollars unless indicated otherwise.
First Quarter 2021 Highlights:
- The Company reports revenue in the first quarter of 2021 of $13.9M, consistent with its previous guidance of over $13.5M, representing a 53% increase over its revenue of $8.8M in the first quarter of 2020;
- Beginning in January, the Company underwent a complete restructuring transaction of its debt, which was completed in the second quarter of 2021. The successful debt restructuring, net proceeds from the convertible debenture financing and improved operating results enabled the Company to significantly improve its liquidity position by quarter end;
- Kellen O’Keefe was appointed to the role of President and Interim CEO and joined the Board of Directors along with Mitchell Kahn and Eliza Gairard to drive the corporate restructuring alongside the Company’s existing directors, Salpy Boyajian and Nitin Kaushal;
- As of March 2021, the Company is the top flower provider in the state of Nevada, producing both the number one (Cookies) and number two (NLVO, the Company’s in-house brand) as top-selling flower brands in the state¹;
- In addition to holding the two top-selling flower brands, the Company is also the leading producer of distillate, bulk and white label flower sales in the state of Nevada;
- The Company’s yielding cultivation analytics are reported up to 135.7 grams per plant through Q1 2021, at an average cost per gram of $0.58. The Company has historically reported its average cost per gram to be between $0.40 and $0.69 per gram;
- Through updates to its post-harvesting process (drying, curing, trimming and packaging), the Company has recognized over 300% increase in its processing capacity in the first quarter of 2021, in comparison to fourth quarter of 2020.
Second Quarter 2021 Revenue Guidance:
- The Company announces its second quarter 2021 preliminary unaudited revenue guidance of $16-$18 million, representing a record revenue quarter for the Company.
In the first quarter of 2021 we reported the best performance in the history of the Company, as the impact of the restructuring and operational improvements began to show results. With the new board of directors and management in place, we have taken the first steps towards positioning Flower One for long term success.
Kellen O’Keefe, Flower One’s President & Interim CEO
We are focused on the financial discipline and operational excellence required to meet or exceed projections and achieve cash flow positivity. We believe we are closer than ever to meeting these objectives, as we continue to capitalize on the return of tourism in Nevada.
O’Keefe added, “Over the past several months, we have improved the quality of cannabis that comes out of our facility, which has enabled us to generate a significantly higher average price per pound. Our commitment to quality has been very well received by the market, allowing us to gain nearly 25% share of the wholesale market and become the largest producer of cannabis in Nevada. We are grateful for the opportunity to serve Nevada high quality cannabis at approachable prices.”
“The operational transformation has not only facilitated increased cultivation and higher sales, but also lowered operating and corporate overhead compared with the fourth quarter of 2020 – bringing the Company closer to being cash flow positive,” said Richard Groberg, Flower One’s Interim CFO. “Given that new management didn’t assume full control until the end of January 2021, these results did not reflect the full impact of the new management’s strategies in terms of product allocation, pricing, product yield, cost of cultivation, harvesting and production.”
Looking ahead, we will continue to automate production at our facilities, where possible, which will enhance our ability to produce more at a lower all-in cost per gram.
Richard Groberg, Flower One’s Interim CFO
While first quarter 2021 was a record quarter, we expect our financial performance to continue to improve and for growth to accelerate throughout the remainder of the year, as reflected in our preliminary second quarter 2021 guidance.
First Quarter 2021 Financial Results:
Revenues
For the three-month period ended March 31, 2021, the Company earned revenue of $13.9 million, up significantly from fourth quarter of 2020 revenue of $9.7 million and $8.8 million in first quarter of 2020. The increases were a result of higher quality production, which resulted in increased unit sales and pricing of both our in-house brands and our brand-partner sales.
Expenses
Cost of sales of $7.662 million for the first quarter of 2021, down slightly from the fourth quarter of 2020 cost of sales of $7.68 million – due principally to higher revenues and cultivation and production efficiencies implemented by new management. Key cultivation analytics at the Company also improved, with the Company reporting an average cost per gram of $0.58, compared to the State of Nevada’s estimated average cost per gram to produce of $1.76. New management has made changes to the way it categorizes sellable flower from waste – greatly reducing the amount of unsellable production in inventory and the associated lotting and testing costs. The Company also has developed new SOP’s, resulting in greater efficiency in its methods of manicure and packaging. The key shift is to only lot and test the highest value, sellable parts of the cannabis plant, which, in addition to other operational efficiencies, has greatly reduced or eliminated the possibility of write-off’s due to having inventory of unsellable flower.
General and administrative expenses for the quarter totaled $7.4 million (which included approximately $1.5 million of one-time/non-recurring expenses associated with the corporate restructure) vs. $6.2 million during the first quarter of 2020 and $8.2 million during the fourth quarter of 2020. This improvement resulted from the new management’s focus on cost rationalization, offset partially by higher cannabis taxes related to higher sales. The Company continues to identify ways to manage expenses and reduce overhead costs.
Profitability Measures
Gross profit in the first quarter of 2021 amounted to $11.3 million or 81.8% of revenues, compared to $(25.7) million for the fourth quarter of 2020. First quarter of 2021 gross profit prior to fair value adjustments (non-cash adjustments based on the fair value of biological inventory and inventory) amounted to $6.2 million (or 44.8% of revenues) vs. $19.8 million for the fourth quarter of 2020 (20.4%). These improvements reflected the Company’s improving yields and selling price and reduced costs of cultivation, harvesting, drying and production.
For the quarter, the Company reported income from operations of $3.8 million and a net loss of $10.6 million. The net loss resulted from: $9.5 million of finance expenses, fair value losses on derivatives, losses on note modifications and foreign exchange losses.
Cash
As of March 31, 2021, the Company had cash and cash equivalents of $5.9 million.
“Due to the corporate restructure-related debt reductions and uses of proceeds from the January and March financings to reduce payables and other obligations, the Company’s liquidity position improved significantly. Given performance to date in Q2 and the April restructure of our Canadian Debentures, we expect further improvements as we continue to scale up and reduce costs,” noted Richard Groberg, Flower One’s Interim CFO.
Flower One’s first quarter 2021 financial statements and management’s discussion and analysis will be issued and filed on SEDAR at www.sedar.com on June 28 2021, and will be available on Flower One’s website at www.flowerone.com/investors/financial-reports.
Subsequent Events:
- Completion of debt restructuring program: The Company announced, on April 14, 2021, the approval of its convertible debenture resolutions and corresponding debenture amendments (the “Debentures”). As a result of the approved amendments, the Company has exercised its right to convert 60% of the principal amount of the Debentures for units comprised of one common share and ⅚ of a warrant, resulting in the total principal amount of the 9.5% unsecured debentures due March 28, 2022, being reduced from CAD$42,471,000 to CAD$16,988,400; and, the total principal amount of the 9.5% unsecured convertible debentures due November 15, 2022, being reduced from CAD$9,276,000 to CAD$3,710,400.
1 Data from BDS Analytics (BDSA) from January, February and March 2021.
About Flower One Holdings Inc.
Flower One is the largest cannabis cultivator, producer and full-service brand fulfillment partner in the state of Nevada. By combining more than 20 years of greenhouse operational excellence with best-in-class cannabis operators, Flower One offers consistent, reliable and scalable fulfillment to a growing number of industry-leading cannabis brands (Cookies, Kiva, Old Pal, Heavy Hitters, Lift Ticket’s, The Clear, HUXTON, and Flower One’s leading in-house brand, NLVO, and more). Flower One currently produces a wide range of products from flower, full-spectrum oils and distillates to finished consumer packaged goods, including a variety of: pre-rolls, concentrates, edibles, topicals and more for top-performing brands in cannabis. Flower One’s Nevada footprint includes the Company’s flagship facility, a 400,000 square-foot high-tech greenhouse and 55,000 square-foot production facility, as well as a second site with a 25,000 square-foot indoor cultivation facility and commercial kitchen. Flower One has built an industry-leading team focused on becoming the first high-quality, low-cost brand fulfillment partner.
The Company’s common shares are traded on the Canadian Securities Exchange under the Company’s symbol “FONE”, in the United States on the OTCQX Best Market under the symbol “FLOOF” and on the Frankfurt Stock Exchange under the symbol “F11”. For more information, visit: https://flowerone.com.
Note Regarding Preliminary Results
The results for the second quarter of 2021 are preliminary and have been prepared by management solely for the purpose of providing a preliminary update to shareholders and remain subject to final review by the Company’s Audit Committee and approval by the Company’s Board of Directors. The Company’s auditor has not audited the preliminary results, nor have they expressed any opinion or any other form of assurance on the preliminary results. The Company will release its unaudited financial statements and accompanying management’s discussion and analysis for the second quarter of 2021, once approved by its Audit Committee and Board of Directors, in due course.
