Lowell Farms Inc. Announces Unaudited Third Quarter 2022 Financial and Operational Results
SALINAS, Calif., Nov. 09, 2022 (GLOBE NEWSWIRE) — Lowell Farms Inc. (the “Company”) (CSE: LOWL; OTCQX: LOWLF), a California-born innovator in cannabis cultivation and maker of the legendary brand Lowell Smokes, announces unaudited revenue and operating results for the third quarter (ended September 30, 2022). All figures stated are in US Dollars.
Third Quarter Financial Highlights:
- Revenue generated for the three-month period ended September 30, 2022 was $8.7 million; a decrease of 34% sequentially and down 31% from the third quarter of 2021.
- The company changed the accounting for slotting fees paid to retail partners during the quarter. Previously, these fees had been booked as sales & marketing expenses and are now being treated as a deduction from revenues. The change in the accounting results in a $0.7m reduction in Q3 revenues, $0.4m of which was related to prior periods.
- Lowell brand revenues remain strong increasing to 82% of CPG revenues compared to 66% in the prior quarter.
- CPG revenue declined 18% sequentially and 31% from the prior year inclusive of the adverse impact to Q3 revenues resulting from the accounting treatment referenced above.
- Bulk flower revenue decreased 43% sequentially to $2 million, and increased 2% year over year.
- Lowell Farm Services (LFS) revenue decreased to $0.3 million in the third quarter of 2022.
- Out-of-State Licensing increased 13% to $0.3 million during the quarter.
- The company incurred $1.5 million of out of period expenses due to inventory adjustments and prior period variances, most of which are reflected in COGS during the quarter.
- Gross margin as reported was -21.9% in the third quarter compared to 11.3% sequentially and 0.5% year over year. Excluding the effect of out of period expenses incurred, gross margins would have been -2.9% for the quarter.
- Operating expenses were $3.3 million or 38% of sales for the quarter, compared to $4.5 million or 34% of sales in the second quarter and $7.0 million or 56% of sales in the first quarter last year, reflecting cost reductions and operating efficiencies realized in the current year.
- The operating loss in the third quarter was $5.2 million compared to an operating loss of $3.0 million sequentially and an operating loss of $7.0 million year-over-year, reflecting lower margins in the current quarter and reduced volumes.
- Net loss for the third quarter was $4.8 million which includes recognition of a $2 million gain related to an ERC credit received. This compares sequentially to a net loss of $4.6 million and a net loss of $8.7 million in the third quarter last year.
- Adjusted EBITDA in the third quarter was negative $3.5 million compared sequentially to adjusted EBITDA of negative $1.1 million and negative adjusted EBITDA of $5.2 million year over year. Without the impact of the out-of-period adjustments itemized above, Adjusted EBITDA for the third quarter would have been negative $1.7 million. Adjusted EBITDA is a non-GAAP financial measure. See “Use of Non-GAAP Financial Information” below for further information and a detailed reconciliation to Net Loss, the closest comparable GAAP measure.
- Capital Expenditures during the quarter were $1.9 million, the vast majority of which was associated with the launch of the new Lowell 35’s product.
While these unaudited results are not in line with expectations, we remain confident moving into 2023 and beyond. The successful launch and positive reception that our 35’s pre-roll brand has enjoyed gives us great confidence, as the market share for this coveted new product has increased substantially since the launch in September.
Chairman of the Board George Allen
The positive launch of the 35’s is proof of the solid investments we’ve made in our technology and the innovations that we’ve made as brand creators and marketers. We expect the 35’s, among other Lowell brands, to carry us to greater success in the future.
Subsequent events to the second quarter ended June 30, 2022:
- Lowell Farms Inc. Announces Closing of $4.2 Million Convertible Debenture Financing, August 19, 2022
- https://ir.lowellfarms.com/news-events/press-releases/detail/95/lowell-farms-inc-announces-closing-of-4-2-million
- Lowell Farms Inc. Announces Sale of Additional $2.2 Million of Convertible Debentures, August 26, 2022
- https://ir.lowellfarms.com/news-events/press-releases/detail/96/lowell-farms-inc-announces-sale-of-additional2-2
- Lowell Farms Inc. Commences Sales of Its New Pre-roll: The Lowell 35, September 22, 2022
- https://ir.lowellfarms.com/news-events/press-releases/detail/97/lowell-farms-inc-commences-sales-of-its-new-preroll-the
- Lowell Farms Inc. Welcomes Summer Frein and Ann Lawrence to Board of Directors, October 31, 2022
- https://ir.lowellfarms.com/news-events/press-releases/detail/99/lowell-farms-inc-welcomes-summer-frein-and-ann-lawrence-to
Portfolio Brands and Out-of-State Licensing:
- California Market Trends: Lowell 35’s; The Fastest Growing Pre-Roll on the Market
- Since launching the Lowell 35’s product on September 29th, Lowell has secured the No. 1 spot as the top-selling non-infused pre-roll brand in California, according to Headset data.
- Lowell Herb Co products now accounts for over 10% of the total non-infused pre-roll market, an increase since the launch of Lowell 35’s, according to Headset data since September, 2022.
- Each of the three core Lowell 35’s blends has made the list for the top 15 most purchased non-infused pre-roll SKUs in California, according to Headset data since September, 2022.
- Lowell 35’s authorized retailers have climbed from 16 initial launch partners, to over 120 retailers across the state of California – with more in the process of onboarding.
- Since the launch of the 35’s, Lowell’s share of pre-roll sales is up from 8% to 13% within a sample of 35 launch partner stores.
- 64% of consumers who purchased the Lowell 35’s were purchasing Lowell for the first time in 2022.
- Out-of-State Licensing
- Collectively out-of-state revenues grew 13% from $274k in Q2 to $310k in Q3.
- Royalties in Q3 were $268k, slightly up from Q2.
- Ongoing operational improvements are being implemented to better packaging processes, menu depth, and distribution.
- Massachusetts
- Lowell Herb Co is the ninth top-selling non-infused pre-roll brand in the state, according to 2022 BDS data.
- The Lowell Smokes product had a strong finish to Q3 with over $800k in sales in the month of September, the best-selling month so far in 2022, according to 2022 BDS data.
- The Lowell Smokes ‘Chill Indica’ pack is the 2nd highest selling pre-roll SKU in the state, according to September 2022 BDS data.
- Illinois
- Lowell is the 4th top-selling non-infused pre-roll brand in the state, according to 2022 BDS data.
- The Lowell Smokes product sales remained steady throughout the third quarter, mirroring the overall market trend showing a plateau in month-over-month sales growth.
- Colorado
- Lowell will officially launch in the state throughout the LivWell dispensary network of over 20 retailers in November 2022.
- Lowell Smokes & Quicks products will also launch throughout the Starbuds and Emerald Fields dispensary networks in mid fourth quarter, bringing the Company’s total retail doors up to over 40 before the end of the fourth quarter.
- New Mexico
- Through its licensing partner, Schwazze, Lowell is in the process of building-up inventory to launch throughout the Star Buds network in the fourth quarter of this year.
- Collectively out-of-state revenues grew 13% from $274k in Q2 to $310k in Q3.
Operational Highlights and Ongoing Initiatives:
- Cultivation:
- The Company has finalized all construction and improvements in Cultivation and will continue to refine its cultivation processes, genetics, and facilities to improve the yield, potencies, and increase margins quarter over quarter.
- Lowell Farms saw a minimal decrease in flower production at the greenhouse due to seasonality, with flower totaling 11,375 lbs during the third quarter of 2022 in comparison to 12,053 lbs in the second quarter of 2022.
- The Company harvested 40 times in the third quarter of 2022; in contrast to 42 harvests in the second quarter of 2022.
- The average turn time for the flowering rooms has held steady at 57 days in the second and third quarter of 2022.
- The Company received its Monterey County Cannabis Business permit and accompanying Science Amendment and has filed the necessary paperwork to convert from provisional license to an Annual license.
- Lowell Farms saw a minimal decrease in flower production at the greenhouse due to seasonality, with flower totaling 11,375 lbs during the third quarter of 2022 in comparison to 12,053 lbs in the second quarter of 2022.
- The Company has finalized all construction and improvements in Cultivation and will continue to refine its cultivation processes, genetics, and facilities to improve the yield, potencies, and increase margins quarter over quarter.
- Lowell Farm Services:
- Lowell Farm Services, a first-of-its-kind cannabis processing facility in Salinas Valley, continues to improve operational efficiencies with a stronger focus on new clients and scalability.
- Lowell Farm Services revenue decreased $1.8m sequentially to $0.3 million.
- The Company received approval for Land Use amendment which allows third party processing, manufacturing, extraction, and distribution activities on site.
- Lowell is in the process of applying for a Distribution license to facilitate on site compliance testing as well as a Manufacturing license to allow for infused pre-roll production.
- Post drying processing times reduced from 45+ days to less than 30 days in the quarter.
- Lowell Farm Services, a first-of-its-kind cannabis processing facility in Salinas Valley, continues to improve operational efficiencies with a stronger focus on new clients and scalability.
“Our commitment to industry-revolutionizing technology, research, and genetics will ensure that Lowell Farms remains a leading force in this fast-changing environment,” says Chief Executive Officer and Co-Founder Mark Ainsworth. “The quickness and efficiencies provided by our automated pre-roll machines, for example, allows us to maintain our competitive advantage in the marketplace, and we will continue to make similar strategic investments in order to achieve long-term growth and success.”
Q3 Financial Results Earnings Conference Call Details:
The conference call with management at 5:30 p.m. EST on Wednesday, November 9, can be accessed using the following dial-in information:
U.S. and Canadian Toll Free: 1-888-349-0084
International: 1-412-317-0455
Webcast: Lowell Farms Inc.
Please dial-in at least 10 minutes before the call to register.
The conference call will be webcast live and archived on the investor relations section of the Lowell Farms website at https://ir.lowellfarms.com/.
ABOUT LOWELL FARMS INC.
Lowell Farms Inc. (CSE:LOWL; OTCQX:LOWLF) (the “Company”) is a California-based cannabis company with advanced production capabilities supporting every step of the supply chain, including cultivation, extraction, manufacturing, brand sales, marketing, and distribution. Lowell Farms grows artisan craft cannabis with a deep love and respect for the plant, and prides itself on using sustainable materials – from seed to sale – to produce an extensive portfolio of award-winning originals, including Lowell Herb Co, House Weed and MOON, for licensed retailers statewide.
