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press release

June 25, 2020, 5:01 p.m. EDT

The Flowr Corporation Announces First Quarter 2020 Results and Changes to its Board of Directors

TORONTO, June 25, Jun 25, 2020 (GLOBE NEWSWIRE via COMTEX) -- TORONTO, June 25, 2020 (GLOBE NEWSWIRE) -- The Flowr Corporation (tsx.v:FLWR) /zigman2/quotes/205237089/delayed FLWPF -0.44% ("Flowr" or the "Company") herein announces its financial and operational results for the first quarter ended March 31, 2020.

Key financial and operating highlights in the first quarter of 2020:

  • The Company generated gross revenue of approximately $1 million in the first quarter.

  • Average price per gram in the first quarter was $6.93, reflecting the Company's positioning in the premium segment.

  • 123 kgs of sales in the quarter was entirely of its flagship strain BC Pink Kush. The Company did not have enough finished product to meet demand in the quarter. Product availability has since substantially improved in the second quarter.

  • The Company harvested a total of 262kg of BC Pink Kush in the first quarter (with a large portion being harvested late in quarter). Flowr's BC Pink Kush has not been irradiated since January 2019, a testament to the ability to produce high-quality product in a controlled indoor environment.

  • In February, the Company received Health Canada approval to double capacity at its flagship Kelowna 1 Facility enabling it to become fully operational. The newly licensed area includes the Company's automated packaging equipment which is expected to drive productivity efficiencies going forward.

  • In March, the Company restructured 25% of its global workforce, saving approximately $6 million annually.

  • In late March, the Company announced that its European subsidiary Holigen received its EU-GMP certification at its facility in Sintra Portugal, putting the Company on a short list of cannabis companies with this license in Europe.

  • During the quarter, the Company launched a new and revitalized Flowr recreational brand initiative which included a full brand redesign, including new logo, new consumer facing website (flowr.ca) and various digital marketing initiatives.

  • During the quarter, Irina Hossu joined the Company as Chief Financial Officer to help lead the Company for its next stage of global growth. Irina brings over 15 year of experience in progressively senior finance leadership roles across a variety of global industries including consumer-packaged goods, beverage and alcohol, and financial technology.

Subsequent financial and operational highlights post end of the first quarter

  • The Company strengthened its financial position with the closing of an aggregate non-brokered $21.5 million secured subordinated convertible debenture unit private placement in two tranches, the first on April 27, 2020 and second on June 3, 2020, which were led by Flowr's Chairman and CEO who committed in excess of $11 million.

  • Insiders representing approximately 60% of total sharecount have signed a voluntary 1 year lockup, in addition to any lock-ups they have currently entered into, and have not sold a share since the Company's inception.

  • On May 14, 2020, the Company announced that it has entered into an Equity Line and Profit Sharing Agreement (the "Partnership") with Terrace Global Inc. /zigman2/quotes/202503094/delayed CA:TRCE 0.00% ("Terrace Global") to fund the development and operations of Holigen, with both parties expecting Terrace Global to fund at least $3 million over the course of the Partnership.

  • The Company shipped approximately 14,000 clones to Portugal to support the planting of Aljustrel for the 2020 season. Terrace has contributed 30,000 seeds to the Partnership, including 8 different high THC strains. The two companies have successfully planted the seeds and clones together in an area totaling approximately 1 million square feet of the Aljustrel Facility. The Company believes this project to be one of the largest outdoor THC growing operation in Europe to date.

  • The Company made its first dried flower sales in the Australian market through its Australian subsidiary Holigen Australia, selling Pink Kush and Sensi Star to medical patients.

  • All 20 grow rooms at the Kelowna 1 Facility are currently propagated with plants and the Company expects the vast majority of 2020 production to be premium dried flower in excess of 20% THC.

  • Flowr' BC Pink Kush was recently highlighted by the OCS ahead of 4/20 as their bestselling premium pink kush strain. A recent publication by the OCS, cited Flowr branded pre-rolls as the #1 selling brand of pre-rolls on OCS.ca for the period April 1, 2019 to March 31, 2020.

  • Over 500 kg of BC Pink Kush was harvested in April & May. The Company believes it will see a continued substantial increase in production and sales throughout the remainder of the year given the full operation of the Kelowna 1 Facility and production of primarily high THC strains.

  • Net revenues in Q2 2020 are expected to be in excess of $2 million with Q3 expected to be substantially greater than Q2. The Company re-iterates its objective of becoming cash flow positive in H2 2020 even with the uncertainty around COVID-19.

MANAGEMENT COMMENTARY

"As previously mentioned, we believe Q1 was the bottom for us in the Canadian recreational market and that we will see a step function change in our operating and financial results going forward. Our flagship purpose-built indoor facility in Canada is finally fully operational and licensed. We are producing only high quality and high THC strains out of it, which we know consumers demand and are willing to pay a premium for. Sales trends and demand for our BC Pink Kush strain remain very encouraging. Our foundational thesis that growing high quality cannabis at scale is difficult and only a few companies are both focused and able to do so is playing out in our view. In Europe, we are extremely excited by our Partnership with Terrace Global after having recently joined a short list of companies with EU-GMP certification. We expect Holigen to contribute more meaningfully to our results beginning in 2021. Our conviction in our strategic direction is further validated by management recently leading yet another round of financing in a very challenging capital markets environment." said Vinay Tolia, Flowr's Chief Executive Officer.

FIRST QUARTER 2020 RESULTS

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
March 31
2020 2019
Grams Harvested - K1 490,101 279,760
Grams Sold 122,514 211,195
Average Net Realized Price per Gram 6.93 7.70
Gross Revenue 1,012 1,812
Net revenue 776 1,626
Gross profit (loss) before fair value adjustments (1,623) 114
Selling, General and Administrative expense 6,019 3,701
Share-based compensation 857 2,103
Net income/(loss) (12,492) (5,850)
Basic earnings/(loss) per share (0.09) (0.06)
Diluted earnings/(loss) per share (0.09) (0.06)
Cash used in investing activities (4,023) (12,645)
Cash from financing activities 3,576 2,110
  • 100% of sales and of first quarter production were attributed to BC Pink Kush.

  • Average selling price per gram was $6.93 reflecting the Company's positioning in the premium segment.

  • Kilograms sold of 123 was down 46% over the fourth quarter as the Company worked through the last of legacy strain mix headwinds.

  • Gross revenues were approximately $1 million in the quarter. Returns and price concessions were $73k in the quarter. Inventory impairment was $666k in the quarter on legacy strains which the Company is no longer producing.

The following table summarizes the Company's financial results for the three months ended March 31, 2020:

In thousands of CAD dollars Three months ended March 31
2020 2019
(Loss)/Income before taxes (12,778) (5,998)
Depreciation and amortization 1,240 469
Unrealized (gains) losses on fair value adjustments of biological assets 2,628 (206)
Fair value adjustments on inventory sold (158) (42)
Inventory Impairment 666 --
Share-based compensation 892 2,103
Restructuring costs 737 --
Unrealized losses on fair value of investments held in shares (2) 148
Unrealized loss on valuation of warrant investment 39 351
Loss (gain) on acquisition of investment in Holigen -- --
Finance costs 498 --
Interest expense (24) 40
Adjusted EBITDA (6,262) (3,135)

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 and plus inventory impairments. 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 months ended March 31, 2020, please refer to the Company's first quarter 2020 Management's Discussion & Analysis and Financial Statements, which have been filed on SEDAR.

CONFERENCE CALL AND WEBCAST

The Company will host a conference call and webcast to review these results today at 5:30 p.m. Eastern Time.

Conference call and webcast details are as follows:

Toll Free: 1-833-227-5845
Toll/International: 1-647-689-4072
Passcode: 8781563
Webcast: flowrcorp.com/investors

Conference call replay details are as follows:

Toll Free: 1-800-585-8367
Toll/International: 1-416-621-4642
Passcode: 8781563
Webcast: flowrcorp.com/investors

The replay of the conference call will be available through midnight on Thursday, July 9 [th] , 2020.

BOARD CHANGES

The Company also announced today that Dr. J. Andre De Barros Teixeira has stepped down from his position on the Board of Directors of the Company.

"I would like to thank Andre for his dedication and service to the Company," stated Vinay Tolia, Chief Executive Officer of Flowr. "In particular, I would like to thank Andre for his leadership in assisting with the integration of Holigen and Flowr."

In his place, the Company is pleased to announce that Thomas Flow has been appointed to the Board to fill the vacancy created by Dr. Teixeira stepping down. Along with his director role, Tom will continue in his role managing the Kelowna based operations, as Managing Partner.

"We are excited to have Tom back on the Board, given his tremendous experience and industry insight", said Mr. Tolia. "I look forward to continuing to work with Tom and the entire Board on executing the Company's near and long-term strategic goals."

Mr. Flow is globally recognized for his cannabis thought leadership and is an expert at building and operating cannabis cultivation facilities. Mr. Flow was previously co-founder and Chief Operating Officer at MedReleaf, and currently sits on the board and advisory committees of several cannabis-related companies.

In addition, Flowr also announced today that 100,000 restricted share units (the "RSUs") have been granted to an officer of the Company. The RSUs will vest in equal tranches of fifty percent at three and six months from the date of grant.

About The Flowr Corporation

The Flowr Corporation is a Toronto-headquartered cannabis company with operations in Canada, Europe, and Australia. Its Canadian operating campus, located in Kelowna, BC, includes a purpose-built, GMP-designed indoor cultivation facility; an outdoor and greenhouse cultivation site; and a state-of-the-art R&D facility that is awaiting licensing from Health Canada. From this campus, Flowr produces recreational and medicinal products. Internationally, Flowr intends to service the global medical cannabis market through its subsidiary Holigen, which has a license for cannabis cultivation in Portugal and operates GMP licensed facilities in both Portugal and Australia.

Flowr aims to support improving outcomes through responsible cannabis use and, as an established expert in cannabis cultivation, strives to be the brand of choice for consumers and patients seeking the highest-quality craftsmanship and product consistency across a portfolio of differentiated cannabis products.

For more information, please visit flowrcorp.com or follow Flowr on Twitter: @FlowrCanada and LinkedIn: The Flowr Corporation.

On behalf of The Flowr Corporation:
Vinay Tolia
CEO and Director

CONTACT INFORMATION:

INVESTORS & MEDIA:
Thierry Elmaleh
Head of Capital Markets
(877) 356-9726 ext. 1528
thierry@flowr.ca

Notice regarding future-oriented financial information:

To the extent any forward-looking information in this press release constitutes future-oriented financial information or financial outlooks within the meaning of securities laws, such information is being provided to demonstrate the potential financial performance of the Company and readers are cautioned that this information may not be appropriate for any other purpose and that they should not place undue reliance on such future-oriented financial information and financial outlooks. Future-oriented financial information and financial outlooks, as with forward-looking information generally, are, without limitation, based on the assumptions and subject to the risks set out below under "Notice regarding forward-looking information".

Forward-Looking Information

This press release contains "forward-looking information" within the meaning of Canadian Securities laws, which may include but is not limited to: the Company's ability to produce high-quality product in a controlled indoor environment; the Company's expectations for productivity efficiencies from its automated packaging equipment; the anticipated savings from the restructuring of the Company's global workforce; Ms. Hossu helping lead the Company for its next stage of global growth; the anticipated funding by Terrace Global under the Partnership; the Company's belief that Aljustrel is one of the largest outdoor THC growing operations in Europe to date; the Company continuing to see a substantial increase in production and sales through the remainder of the year; the anticipated net revenues for Q2 and Q3; the Company becoming cash flow positive in H2 2020 even with the uncertainty around COVID-19; the Company seeing a step function change in its operating and financial results going forward; the Company's view that customers demand high THC products and are willing to pay a premium for such products; the Company's foundational thesis that growing high quality cannabis at scale is difficult and only a few companies are both focused and able to do so; the Company's expectation that Holigen will contribute meaningfully to its results in 2021; the Company being focused initially on driving dried flower sales out of Holigen; sales trends and demand for the Company's BC Pink Kush strain remaining robust and promising; the Company executing its near and long-term strategic goals; Flowr servicing the global medical cannabis market and operating GMP facilities in Portugal and Australia; Flowr supporting improving outcomes through responsible cannabis use and striving to be the brand of choice for consumers and patients seeking highest -quality craftmanship and product consistency; and Flowr's business, production and products and Flowr's plans to provide premium quality cannabis to adult use recreational and medical markets.

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 information and 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 such information and 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 relating to: the Company being unable to produce high-quality product in a controlled indoor environment and having to irradiate product, which could materially adversely impact sales of Flowr's products;; the Company's being unable to realize productivity efficiencies from its automated packaging equipment; savings from the restructuring of the Company's global workforce being less than anticipated; Ms. Hossu being unable to help lead the Company in its next stage of global growth; the funding received from Terrace Global under the Partnership being less than anticipated; the Company being unable to achieve a substantial increase in production and sales through the remainder of the year; the net revenues for Q2 and Q3 being less than anticipated, which could put further pressure on the trading price of the Company's securities; the Company being unable to become cash flow positive in H2 2020, and thus requiring the Company to obtain additional liquidity and/or file for creditor protection; the Company failing to realize sales out of Holigen, and thus having limited growth and revenue generation generally and outside of Canada; the Company failing to realize a step function change in operations and financial results in 2020 and onwards, despite the full operation of the Kelowna 1 Facility and production of primarily high THC strains, which could materially adversely affect the Company's financial results and working capital; the Company failing to produce, or having crop failures of, its new product offerings, given the limited amount of experience growing such strains; the Company's view that customers demand high THC products and are willing to pay a premium for such products not materializing, which could materially adversely affect the Company's business, operations and financial results; sales trends and demand for the Company's BC Pink Kush strain not being robust; the Company's foundational thesis that growing high quality cannabis at scale is difficult and only a few companies are both focused and able to do so not materializing, thus impacting the Company's strategy and ultimately its financial results; EU-GMP certification failing to open the medicinal cannabis opportunity for the Company in global markets; Flowr's inability to scale its business in 2020, which could materially adversely impact its financial condition and result in breach of its debt arrangements; Flowr being unable to complete its crop and harvest at Aljustrel in 2020, which could materially adversely impact its competitive position globally and its business and operations; the Company's infrastructure being unable to support Flowr's objective to be cash flow positive in the second half of 2020; the Company being unable to complete its objectives and/or those objectives not positioning the Company for long term success; the Company being unable to execute its near and long-term goals; new genetics not driving further operational improvements and/or enhancing the Company's product mix; the Canadian industry not being in short supply of premium dry flower; the Company's expectations, including timing, for the first harvest from Portugal not being realized; the Company not being well positioned to distribute EU-GMP compliant product into underserviced markets; the Company being unable to address consumer demand with new genetics; the Company being unable to prioritize data acquisition to ensure production planning is driven by consumer insights and that its portfolio of finished products will address consumer preference; Flowr being unable to advance its plan for its Kelowna Campus to be a single hub for all aspects of cultivation, processing and packaging to service the Canadian cannabis market; Kelowna 1 being unable to produce high caliber dried flower; the Company being unable to double its operating capacity at Kelowna 1; Flowr being unable to deliver finished products from new genetics into the marketplace in 2020; new genetics not delivering higher yields and/or not supporting the rollout of an expanded line of high THC products; Kelowna 1 being unable to reach the anticipated production run-rate at the end of 2020; the Company not realizing premium pricing relative to the broader adult-use market; any inaccuracies in the estimated total capex for Kelowna 1; Flowr Forest's production per annum being less than anticipated; the Company being unable to launch concentrate products; the Company being unable to satisfy its expectations for propagation and harvesting Flowr Forest in 2020; the inability to complete construction of facilities in Portugal in a timely fashion or at all; the inability to realize revenue from the Company's European operations within the anticipated timeframe or at all; the Company being unable to establish sales and distribution channels in Europe and Australia to deliver medicinal cannabis to underserviced markets; any failure to realize expectations with respect to the anticipated timing for harvests, propagation, completion of construction and installation of extraction infrastructure at the Company's Sintra facility; the Company being unable to commence GMP packaging and commercial sales in Europe within the anticipated timeframe or at all; the Company being unable to realize expectations for annual production and processing capacity at its Sintra facility; the inability to complete a partial extraction and processing facility at the Company's Aljustrel facility; the Aljustrel facility being unable to complete a phased ramp up of production; the Company's inability to realize expectations for harvests at its Aljustrel facility in 2020; Flowr's assets in Australia not being a hub for distribution and sales of medicinal cannabis into the Australasian region; Flowr being unable to service the global medical cannabis market and/or operate GMP-designed manufacturing facilities in Portugal and Australia; Flowr being unable to support improving outcomes through responsible cannabis use and/or striving to be the brand of choice for consumers and patients seeking highest-quality craftmanship and product consistency; the construction and development of Holigen's and the Company's cultivation and production facilities; general economic and stock market conditions; adverse industry events; loss of markets; future legislative and regulatory developments in Canada and elsewhere; the cannabis industry in Canada generally; the ability of Flowr to implement its business strategies; Flowr's inability to produce or sell premium quality cannabis; the impacts of the COVID-19 pandemic materially adversely effecting Flowr's business; the 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 they are 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. When considering such forward-looking information, readers should keep in mind the risk factors and other cautionary statements in Flowr's Annual Information Form dated April 28, 2020 (the "AIF") and filed with the applicable securities regulatory authorities in Canada. The risk factors and other factors noted in the AIF could cause actual events or results to differ materially from those described in any forward-looking information.

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

COMTEX_367383827/2471/2020-06-25T17:00:53

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