We had our first look at Flowr last quarter. Since then, they had a restructure of their near term operations, and raised some $20MM in a bought deal that we compared to a raise by $FIRE.

We noted last time that cash pressures should be diminishing, and that domestic sales will act as a bridge for their wider global ambitions. Let’s see what their year end brought, and check in if sales throughput has increased.

To the financials!

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• Cash down to $10MM as of year end. A timely raise.
• Sales of some 222k grams. While sales in the quarter were about $1.5MM (or about $6.75/g), returns ($975k), price concessions ($436k), and an inventory impairment of $5.3MM.
• G&A ran to $6MM in the quarter, up $1MM from previous.
• Estimated selling prices per gram in bios were knocked down to $3.26/gram from $6.55/g quarter previous.

Ok, this one’s gonna be short up top. Operationally, there isn’t much to speak about, because there hasn’t been much in terms of sales. Which (as I’m sure they likely think), is the most important thing for this company at the moment.

There’s been many things going on, but it all boils down to getting product desired by consumers grown and out of the facility. They have multiple grow modalities, access to genetics, and a Pink Kush that appears to be a linchpin in their consumer strategy.

It’s not hard to spot that $FLWR’s 2019 sales mix missed several targets, some by a wide mark. According to the MD&A, the inventory impairment was due to low THC flower and a product mix the domestic consumer market wasn’t enamoured with.

Flowr Forest’s ‘outdoor’ production from last year isn’t able to be seen in these financials, and is a question mark for me at the moment.

$FLWR is currently weighing in building out extraction and drying at its’ indoor Portuguese facility in Sintra. It’s EU-GMP licensed, which probably explains the costs involved in getting it production ready. Despite this, they are planting 20 acres of outdoor in Portugal, expecting a harvest in the 4th quarter of this year.

The Holigen deal that we detailed last time – has filtered through the financials, and has ostensibly resulted in a write-down of some $6MM in goodwill. It’s ornate to say the least, and an example of what going operational internationally looks like.

Their Aussie entry is far more subdued, both in complexity and size. With only 3k sq ft of canopy, it’s immaterial. Operationalization is under consideration, and one wonders if anything will happen there until revenues begin inciting more substantially.

Disclosure in the financials are good – it’s much easier to take a look at an outfit when one doesn’t have a ton of blanks to fill in. But until gross margins become positive, there isn’t much GoBlue can spread. And if there are concerns, it’s in the $20MM of G&A, and $12MM of SBC that was charged over the year. By adding an additional build onto the facility, additional G&A will continue to be attracted to margins.

From these statements, it looks like they used the 4th quarter to clear several decks. The two most prominent ones being outdated/unsaleable inventory, and delaying the launch of all 2.0 products (until they become cash flow positive).

They’ve got some runway in terms of loan repayments. There’s favourable conditions attached to their euro denominated facility (COVID hasn’t been bad for everything, the loan is priced at [Euribor + 300bp], with a floor of 3%. So yes, they have a loan at 3%).

An additional facility with ATB is more pressing, comes with financial ratio testing, and an operational condition that all rooms must be in operation (I haven’t seen that one before). Principal repayments begin at the end of June 2020:

From a cash requirements standpoint, it could be worse.

The Hawthorne deal – where Scotts MiracleGro put up an $11.5MM loan to build an R&D campus beside their facility is unique anywhere in cannabis. We’ll have more on this shortly. The concept is interesting, and monetizing it would really be a kickstart. And…..that’ll be a challenge if the absence of cash. Way back in 2018, they bought a piece of Inplanta for $50k, signalling an interest in genetics, and an ability to access them. Hawthorne’s potential is right in the space where an ‘Anandia’ or ‘Mother‘ is.

Around the same time, $FLWR also picked up a stake in Ace Valley for some $750k. These two deals appear fallow/non-contributory at the moment.

<Longer time followers of TheCannalysts might recognize Inplanta by one of its’ founders, Dr. Igor Kovalchuk, who knows and appeared on Cyto’s Science Panel at our Edmonton WeCann™ event.>

The share price of $FLWR has mimicked much of the sector, and the market has not been enthused.

The indoor facility is state of the art. And due to the outdoor location, shade-houses appear to be an upgrade from either strictly outdoor or greenhouse production. They’ve got a deal and linkage to an agricultural titan in Scotts. And access to the EU in initial production (3 of 6 rooms indoor) and outdoor production to commence.

Ready and set.

Generating sales is $FLWR’s single – and sole – path forward.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position $FLWR