The Flowr Corporation Announces Results for the Second Quarter 2019 

Company to Host Conference Call and Webcast August 15, 2019 at 5:30 P.M ET

Toronto, ON, Aug 15, 2019

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,

(except per share and grams metrics)

Three months ended

June 30

Six months ended 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 June 30 Six months ended   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)

Adjusted EBITDA losses were higher for the three and six months ended June 30, 2019, compared to the same periods of 2018 due to the ramp-up of construction, cultivation and operating activities in 2019.

For a full discussion of Flowr’s operational and financial results for the three and six months ended June 30, 2019, please refer to the Company’s second quarter 2019 Management’s Discussion & Analysis and Financial Statements, which have been filed on SEDAR.

Corporate Updates

Holigen Holdings Limited

During the second quarter, the Company announced that it had entered into a share purchase agreement to acquire the remaining 80.2% interest in Holigen.  Subject to regulatory approval, the Company expects the acquisition to be completed within the third quarter of 2019.

On July 31, 2019, the Company announced that it had received a Health Canada export permit that allowed it to make an initial shipment of clones from its Kelowna Campus to Portugal.  The Company leveraged its proprietary clean stock protocol and carried out an intensive, nine-week integrated pest management program that led to the receipt of the required phytosanitary certification to ship the clones.  Flowr also utilized innovations to packaging to ensure the clones arrived healthy and ready for operations in Portugal.  Holigen now has a mother room planted with these clones in its Sintra indoor facility.

NASDAQ Listing

During the second quarter, Flowr received approval from Nasdaq to list its commons shares on the Nasdaq Capital Market (“Nasdaq”).  The Company has since decided to defer listing its common shares on the Nasdaq . Nasdaq listing approval does not expire and the Company intends to list at a future date, subject to any applicable listing conditions.

The Company is focused on investments that have the highest probability of generating near term cash flow.  In evaluating the use of proceeds from its recently closed $43.5 million bought deal equity offering, the Company has decided that the costs associated with the listing, including Directors and Officers Insurance, are not expected to generate returns comparable to using funds to expand its operational capacities.

Conference Call and Webcast

Flowr will host a conference call and webcast today at 5:30 p.m. Eastern Time.

Conference call and webcast details are as follows:

Toll Free: 1-877-705-6003

Toll/International: 1-201-493-6725

Conference call replay details are as follows:

Toll Free: 1-844-512-2921

Toll/International: 1-412-317-6671

Passcode: 13693091

The replay of the conference call will be available through midnight on Thursday, August 29, 2019.

About The Flowr Corporation

Flowr, through its subsidiaries, holds a cannabis production and sales license granted by Health Canada. With a head office in Toronto and a production facility in Kelowna, BC, Flowr builds and operates large-scale, GMP-designed cultivation facilities utilizing its own growing systems. Flowr’s investment in research and development along with its sense of craftsmanship and a spirit of innovation is expected to enable it to provide premium-quality cannabis that appeals to the adult-use recreational market and addresses specific patient needs in the medicinal market.

For more information, visit flowr.ca. Follow Flowr on Twitter: @FlowrCanada; Facebook: Flowr Canada; Instagram: @flowrcanada; and LinkedIn: The Flowr Corporation.

On behalf of The Flowr Corporation:

Vinay Tolia

CEO and Director

CONTACT INFORMATION:

MEDIA:

Sean Griffin

Vice President, Communications & Public Relations

(877) 356-9726 ext. 1526

sean.griffin@flowr.ca

INVESTORS:

Thierry Elmaleh

Head of Capital Markets

(877) 356-9726 ext. 1528

thierry@flowr.ca

Non-IFRS Financial Measures

This press release makes reference to certain measures that are not recognized measures under International Financial Reporting Standards (“IFRS”).  These non-IFRS measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS, and are therefore unlikely to be comparable to similar measures presented by other companies.  When used, these measures are defined in such terms as to allow the reconciliation to the closest IFRS measure.  These measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective.  Accordingly, they should not be considered in isolation nor as a substitute to the Company’s financial information reported under IFRS.  Management uses non‐IFRS measures such as Adjusted EBITDA to provide investors with supplemental information of the Company’s operating performance and thus highlight trends in the Company’s core business that may not otherwise be apparent when relying solely on IFRS financial measures.   Management believes that securities analysts, investors and other interested parties frequently use non‐IFRS measures in the evaluation of issuers. Management also uses non‐IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets, to assess its ability to meet future debt service requirements, in making capital expenditures, and to consider the business’s working capital requirements. Readers are cautioned that the non‐IFRS measures contained herein may not be appropriate for any other purpose.

Forward-Looking Information and Statements

This press release includes forward-looking information within the meaning of Canadian securities laws regarding Flowr and its business, which may include, but are not limited to: statements with respect to the release date of Flowr’s financial results, Kelowna 1 being on track to be fully operational by year end, the Company continuing to optimize operational grow rooms, Flowr Forest delivering an initial harvest in 2019 and supporting the rollout of new form factors, the Company’s executing its plan to build a single operation base to service the Canadian market, the Company’s fully operational Kelowna facility driving significant financial performance, construction of Kelowna 1 progressing and the Company’s expectation that it will be completed in the third quarter of 2019, the Company having 20 grow rooms available in the fourth quarter of 2019, the Company’s expectations for capital expenditures with respect to Kelowna 1 and Flowr Forest in the second half of 2019, the Company’s expectations for production from Flowr Forest in 2019, the expected size of Flowr Forest, including the cultivation and greenhouse areas, the Company’s plans to roll-out new form factors in late 2019 and early 2020, the R&D facility being on track for completion in the second half of 2019, the Company’s ongoing expansion efforts in support of its increased production platform, the expected completion of the Holigen acquisition in the third quarter of 2019, the Company’s continued evaluation of a listing on Nasdaq and the timing thereof, the Company’s intention to list on the Nasdaq at a future date, the Company focusing on investments that have the highest probability of generating near term cash flow,  Flowr’s investment in research and development along with its sense of craftsmanship and a spirit of innovation enabling it to provide premium-quality cannabis that appeals to the adult-use recreational market and address specific patient needs in the medicinal market  and other factors. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “is expected”, “expects”, “scheduled”, “intends”, “contemplates”, “anticipates”, “believes”, “proposes” or variations (including negative and grammatical variations) of such words and phrases, or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Such statements are based on the current expectations of Flowr’s management and are based on assumptions and subject to risks and uncertainties. Although Flowr’s management believes that the assumptions underlying these statements are reasonable, they may prove to be incorrect. The forward-looking events and circumstances discussed in this press release may not occur by certain specified dates or at all and could differ materially as a result of known and unknown risk factors and uncertainties affecting Flowr, including risks associated with a delay  in releasing Flowr’s financial statements (which could result in a violation  of applicable laws), Kelowna 1 not being fully operational by year end, Flowr’s inability to optimize operational grow rooms, Flowr Forest not delivering an initial harvest in 2019 and not being able to support the rollout of new form factors, Flowr’s inability to execute its plan to build a single operational base to service the Canadian market, Flowr’s facilities not being fully operational and/or not driving significant financial performance, Kelowna 1 not being completed by the end of the third quarter of 2019, Flowr not having 20 grow rooms available in the fourth quarter of 2019, Flowr being unable to make the capital expenditures expected in the second half of 2019 with respect to Kelowna 1 and Flowr Forest, Flowr Forest not producing the expected number of kilograms of material in 2019, the Company failing to cultivate the area of Flowr Forest described herein or all greenhouses included in the Flowr Forest, which could delay other form factor sales and/or materially impact sales, Flowr not being able to complete its planned rollout of new form factors in late 2019 and early 2020 or at all, the R&D facility not being completed in the second half of 2019, Flowr failing to complete the Nasdaq listing for any reason, including due to the costs associated therewith or failure to meet the Nasdaq listing conditions at the time of listing, Flowr’s inability to continue expansion efforts in support of its increased production platform, the acquisition of Holigen not being completed in the third quarter of 2019 or at all, the Company not being able to select and pursue investments that have the highest probability of generating near term cash flow,  Flowr not being able to sustain its competitive advantage in cultivation and being unable to remain at the forefront of industry innovation, whether as a result of failed construction of the facilities or otherwise, Flowr not being able to meet demand or fulfill purchase orders, which could materially impact revenues and its relationships with purchasers, Flowr requiring additional financing from time to time in order to continue its operations and such financing may not be available when needed or on terms and conditions acceptable to the Company, new laws or regulations adversely affecting the Company’s business and results of operations, results of operation activities and development of projects, project cost overruns or unanticipated costs and expenses, the inability of Flowr’s products to be high quality, the inability of Flowr’s products to appeal to the adult-use recreational market and address specific patient needs in the medicinal market, the inability of Flowr to produce and distribute premium, high quality products, the inability to supply products or any delay in such supply, Flowr’s securities, the inability to generate cash flows, revenues and/or stable margins, the inability to grow organically, risks associated with the geographic markets in which Flowr operates and/or distributes its products, risks associated with fluctuations in exchange rates (including, without limitation, fluctuations in currencies), risks associated with the use of Flowr’s products to treat certain conditions, the cannabis industry and the regulation thereof, the failure to comply with applicable laws, risks relating to partnership arrangements, possible failure to realize the anticipated benefits of partnership arrangements, product launches (including, without limitation, unsuccessful product launches), the inability to launch products, the failure to obtain regulatory approvals, economic factors, market conditions, risks associated with the acquisition and/or launch of products, the equity and debt markets generally, risks associated with growth and competition (including, without limitation, with respect to Flowr’s products), general economic and stock market conditions, risks and uncertainties detailed from time to time in Flowr’s filings with the Canadian Securities Administrators and many other factors beyond the control of Flowr.  Although Flowr has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. No forward-looking information can be guaranteed. Except as required by applicable securities laws, forward-looking information speaks only as of the date on which it is made and Flowr undertakes no obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events, or otherwise.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.