June 19, 2020
TheCannalysts have been speaking with the Flowr Corporation for some time now. Earlier this year, we accepted an invitation to tour their facility and research campus in Kelowna, British Columbia. Along with other financial analysts invited, we spent a full day at the site.
Beyond the financial statements, we didn’t have much familiarity with the company prior to our visit. Like others in the sector, they are working toward their target operating state, and are currently completing one of the few dedicated facilities in Canada for cannabis research and development.
The company has obtained EU-GMP certification in a manufacturing facility in Portugal, GMP certified packaging and production in Australia, offers a premium indoor flower for domestic markets, a 10 acre outdoor production area beside the indoor facility, and have an array of 43 ‘shade-houses’ in the space.
We arrived early on a Tuesday to a location on the outskirts of Kelowna to the main grow facility. It’s a large building, and according to Flowr, it’s the 16th iteration of a design and build of an indoor grow space (by founder Tom Flow). The design is said to reflect the cumulative learnings of those previous builds, and here is some of our observations:
Core Indoor Facility
- Space within the facility emphasizes canopy space, which has been maximized. Access corridors are narrow, an on one side of the building. Office space is concentrated at the front of the building.
- The building is highly engineered. From security to cabling to water systems, we have seen few indoor systems of this level of design.
- With regard to nutrients – the room housing their storage, pathing, and use – is extremely advanced.
The cloning room/nursery is smaller than most we’ve seen in newer facilities, but is stated to be sufficient for propagation. Some clones exhibited yellowing, and we noticed some attrition (<1-2%) during planting. We are uncertain though how this area may support larger scale planting of the shade-houses for the summer months.
Once planted, the rooms are used until the finish: vegetative state through flowering. The rooms are larger than we’ve seen in other newly constructed indoor facilities.
Items notable around operations at the indoor site:
Facility utilization appears very focused. The amount of space currently in production is driven by their primary cultivar – ‘BC Pink Kush’. Consumer uptake of other initial cultivars has had limited success, and Flowr is focusing on this specific cultivar (+20% THC) at time of writing.
It is a very ‘thin’ shop personnel wise. We didn’t see many personnel in the facility, but this could be a function of the level of automation available and timing of visit. The employee lounge doubled as offices/workspace/meeting rooms, which reflects what we saw as a focus of maximizing grow space within the building footprint.
An automated packaging machine was installed and commissioned in April. Cost reductions are expected.
Two other cultivars were in the process of being taken to flower as ‘test runs’, and were limited in the number of plants being grown. We viewed 2 rows of each of the new cultivars being grown out (BC Tahoe OG & BC Louis XIII).
The amount of clones planted versus finished plants is good. We saw an attrition rate of perhaps <5% from vegetative state to final flower – which in our experience, is within general production norms. Canopy heights are relatively uniform, and plant consistency was good overall.
We note that Flowr performs some of the most significant corrections to plants we’ve ever seen. The pre-flower trimming is extensive, but appears not to be resource intensive. A single employee can perform this task in a room over a single day. The corrections are done just prior to flowering, which also differs from other methods we’ve seen across other indoor producers.
In terms of purpose built cannabis production facilities – this build represents the 17th iteration by the designer/grower. Facility design can vary, depending upon the individual’s experience and preference. This can also lead to differences of opinion, but, in our view it is analogous to having a favourite colour or food. It’s a choice of personal preference and knowledge. Grows are supported by specific approaches, and the facility is designed to support such.
The quality of design is ultimately reflected in yield and time to maturation for a given cultivar.
Plant variability, facility specifications, grower inclinations – there are a range of variables that interact with each other. A change in one variable can cascade through output, and what we saw overall at Flowr was healthy plants and consistent growth patterns throughout their life-cycle. There were instances of apical height differentials on the perimeter of a couple of the rooms. These differences were negligible, and within typical plant variability. Even a degree of temperature or a minor difference in cubic feet per minute of airflow can induce visual differences across identical plants. For the space and intensity of maximizing canopy, the grow looked very good
‘Bud’ (or flower) size wasn’t large on this particular plant, a probable cause being a function of the cultivar’s morphology and/or grow method. The Grower’s capability and methods drives yield, which may differ between companies (given a specific cultivar).
As our readers know, different cultivars can vary widely with differing shapes, feeding requirements, and photoperiod duration during growth and maturation stages. The specific corrections made on the Pink Kush (pictured below) are intended by the Master Grower to maximize the plant’s yield within a facility’s specific design.
The following are observations of the indoor grow space by TheCannalysts’ resident scientist, Graham Jones MSc:
The cultivation building consists of many indoor growing rooms, a mother room and rooms for cuttings to root under domes. Plants are transferred from the mother room, to a rooting room, then to moving beds in a growing room until harvest. Plants remain in the same growing room for vegetative and flowering stages.
There was highly selective screening for plants being transferred from rooting room to growing rooms, many of the discarded clones appeared discoloured. We observed very old mothers in the mother room, older than the claimed 1 year regeneration cycle as indicated by the diameter of the stems.
The plants in the growing rooms looked healthy at all four stages we observed, early and late vegetative and flowering stages. Pruning was heavy early (and before harvest), leading to flower buds almost exclusively at the top of the plant in the canopy. Stem thickness was good at all stages with minimal drooping when moving the plant beds. One cultivar dominated production, with only small amounts of a couple other cultivars viewed in production.
Flowr’s genetic stock consists of 42 cultivars with the most interesting being a 20% THCA + 3% THCVA cultivar. If Flowr chooses to grow out a large portion of the available cultivars – nutrient demands and environmental inputs can be applied to each cultivar. They have 20 different nutrient tanks that can contain 20 different mixtures for growing 20 different cultivars – with individual nutrient feeding schemes. It’s the most sophisticated nutrient system we’ve ever seen.
Across the street from their indoor facility is 10 acres of land. Half of this is dedicated to 43 shade-houses that are 4,500 sqft each. Several of these have supplemental lighting, and were used for cultivar and mother plant identification during last year’s outdoor season.
Outdoor Grow Area
Flowr holds 5 acres of undedicated outdoor grow space across the street from their indoor facility. Flowr ran a pilot in the space last year, but according to CEO Vinay Tolia, outdoor planting will not be repeated as of writing.
He noted that the difference between product grown in their shade-houses was far superior in yield and quality to their outdoor plants. The shade-house structures also avoid negative/uncertain outcomes in outdoor horticulture, like weather events, extreme temperature, and frost.
Hawthorne Research and Development Campus
Located beside the indoor facility is the Campus. It is currently under construction, with the bulk of the main floor substantially complete.
It contains a laboratory, along with 12-14 unique and isolated growing rooms, and is anticipated to support research around the efficacy of different inputs on plant yield and quality. It promises to be a unique space in the cannabis sector, and this sort of research is not only highly sought after, it can build competitive advantage. It will also contain an analytical lab with a UPLC-MS/MS and GC-MS for cannabinoid/terpene identification and quantification.
- The company’s footprint in indoor, shade-houses, outdoor potential, and the Hawthorne campus is relatively unique in Canadian cannabis companies. We believe this has many advantages around cost of production and flexibility. This also places a high premium on production planning.
- We have mixed feelings about the Hawthorne Campus and it’s ultimate utility to Flowr. Despite the uplift from having 2 smaller size research rooms to validate lighting/environmental aspects/feeding, the space is not considered large enough to support a formal breeding program that would create a competitive advantage. The bulk of rooms is funded by and deployed by Scotts (parent of Hawthorne) to test products on cannabis plants. While the Campus’ output of findings and feedback to Flowr was not specified during our visit, we assume a robust information sharing agreement should be in place.
- The second floor of the Campus – the genetics laboratory – is currently unfunded. Hawthorne may make an incremental contribution to the formal laboratory, but as of writing, it is not confirmed. This may be a measured and risk avoidance approach by the parent company Scotts, but we perceive that full potential of the facility hinges on financial support/incremental capital.
- A significant move towards introducing ‘live-resin’ to the Canadian market is novel, and the product potential appears high. At this point, the lack of permitting for onsite processing and manufacture is an impediment. We hold concerns around retail product knowledge and consumer market maturation within Canada; that the Canadian consumer is less mature than American counterparts; and that adoption of ‘live-resin’ containing products will require a time for adoption. Recent announcements by Flowr have delayed the introduction of ‘live-resin’ as a product offering.
- The lack of Flowr brand identification and awareness needs to be addressed. The flagship cultivar (Pink Kush) appears to be relied upon heavily in terms of output. Mid and longer-range product offerings in development needs to hit consumer desire. We believe company based branding and market awareness, product planning – as well as communicating a clear company vision for the next 1-3-5 years to be critical.
- The international assets and development/deployment are a significant advantage to entice future capital. Advancing these business plans to a revenue producing state – in tandem with domestic product uptake – will create such enticement. We cannot state whether recent capital raises are adequate or insufficient.
- The fallowing of the outdoor grow this season will prohibit ‘lowest’ cost production. Kelowna (by extension, the Okanagan) can be extremely hot during the summer months and could limit production potential. The space is already permitted, and ample expansion into additional shade-houses is possible. We view uplift in yield and environmental control by the shade houses to be a good point of differentiation for lower cost ‘outdoor’ flower of high quality. All outdoor grow is subject to events outside of the control of producers.
- The mother room space show plants that require regeneration. Stem thickness indicates plants are older than 1 year.
- The current breeding program plan involves using marker assisted selection to find and breed cannabis with desirable cannabinoid/terpene profiles and agronomic traits. The most difficult aspect is finding markers associated with the traits one wants to track through a breeding program.
- Finding useful markers involves more than just running a statistical test on a small population to find markers unique to specific cannabinoid/terpene profiles, one has to confirm a mechanism between the marker, and a desired/undesired trait. Without confirming such a mechanism, a marker discovered solely through an association test will most likely diverge from the associated trait, rendering the marker non-indicative. Marker assisted selection is more expensive in comparison to traditional breeding, which economically demands each marker to be accurate to take full advantage of using markers. ‘Breeding’ is about generating targets to identify traits. By using large scale production, one can select from a larger population …….and identify desired traits more quickly than ‘traditional’ breeding programs.
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 authors hold no position in $FLWR