Flower One Holdings Inc. (“Flower One” or the “Company”) (CSE: FONE) (OTCQB: FLOOF) (FSE: F11), the leading cannabis cultivator and producer in Nevada, today announced its financial and operating results for the second quarter ended June 30, 2022. All amounts are expressed in U.S. dollars unless indicated otherwise.
“Despite best efforts from our team to continue to produce the best quality cannabis we can at the lowest possible price, we face significant market pressures and with our current cash burn rate we must continue to explore all avenues to source working capital, and there is no guarantee that the Company will receive this funding,” said Kellen O’Keefe, Flower One’s President & Chief Executive Officer.
Second Quarter 2022 Financial Results:
Revenues
For the three-month period ended June 30, 2022, the Company reported revenue of $7.9M. Nevada’s cannabis market continues to be harshly affected by the ongoing impact of the pandemic, and a thriving black market, which has resulted in price compression and decreased statewide cannabis sales. While tourism has continued to slowly rebound to pre-pandemic levels, visitor counts still remain far below expectations as a direct result of the reduction in conferences, corporate, and international travel.
Expenses
Cost of sales for the second quarter of 2022 was $6.9M, compared to $11M from the same period in 2021. The decrease in gross margin is a direct result of wholesale price compression driven by topline market softening and increased supply.
Profitability Measures
Second quarter 2022 gross profit before fair value adjustments was $1M, compared to $7.2M from the same period of the prior year. The decrease in gross profit is directly attributable to wholesale price compression, as well as an increase in consumer incentives, such as pricing discounts and other promotions, in order to maintain market position for both in-house and brand partner products.
For the quarter, the Company recorded a net loss of $5.4M, compared to a net loss of $1M for the same period of the prior year.
| Three months ended June 30, | ||||||
| 2022 | 2021 | |||||
| (As Restated) | ||||||
| Revenue | $ | 7,898,306 | $ | 18,253,624 | ||
| Cost of sales | 6,855,411 | 11,034,373 | ||||
| Gross profit before fair value adjustments | 1,042,895 | 7,219,251 | ||||
| Net change in fair value of biological assets | (416,772) | 3,861,704 | ||||
| Gross profit | $ | 1,459,667 | $ | 3,357,547 | ||
| Gross margin | 18% | 18% | ||||
| Gross margin before impact of biological assets | 13% | 40% |
Balance Sheet
As of June 30, 2022, the Company had cash and cash equivalents of $3.6M, compared with $2.2M as of June 30, 2021. The Company’s overall liability balance has increased by $11.9M as compared to December 31, 2021.
“While still navigating through a challenging global economic environment, we continue to strengthen and refine our ability to decrease and control our costs,” said Araxie Grant, Flower One’s Chief Financial Officer. “In the second quarter we significantly reduced our operating expenses, and continue to practice the financial discipline required to give the Company the chance to achieve positive cash flow.”
Flower One’s second quarter 2022 financial statements and management’s discussion and analysis will be issued and filed on SEDAR at www.sedar.com on August 29, 2022 and will also be available on Flower One’s website at www.flowerone.com/investors/financial-reports.
Restatement of 2021 Interim Financial Information
The Company previously announced that, on the recommendation of the Audit Committee of the Company’s Board of Directors and after consultation with MNP LLP, the Company’s independent registered public accounting firm, that Flower One’s previously issued unaudited interim financial statements for each of the first, second and third quarters of 2021 prepared in accordance with International Financial Reporting Standards as filed on SEDAR would be restated and should no longer be relied upon.
As a result, the Company has made both material and immaterial restatements to (1) cash and cash equivalents, (2) current and long term prepaids and deposits, (3) the carrying value of cannabis and oil-based cannabis inventory, and related cost of sales, (4) the valuation of biological assets and related fair value adjustments, (5) property, plant and equipment, loss on disposal of assets and related depreciation, (6) trade payables, accrued liabilities and construction payables, (7) valuation methodology for convertible debentures and warrants, and related derivative liability and fair value loss on derivatives, (8) the classification of current and non-current equipment financing and term debt balances, (9) general and administrative expenses, (10) stock based compensation expense for Restricted Share Units (“RSUs”) granted in 2021, (11) loss on debt modification or extinguishment related to debt modifications, (12) related party transaction disclosures; and (13) finance expenses, including interest, accretion and transaction costs.
The Company has made restatements retrospectively to the comparative periods as at and for the six-month period ended June 30, 2021, and the three-month periods ended March 2021, June 2021, September 2021 and December 2021. The condensed consolidated interim financial statements for the periods as at and ended between March 31, 2021 and September 30, 2021 were not adjusted and refiled at the time of discovery of the need for restatement, rather the comparative period as at and for the three and six-month periods ended June 30, 2021, has been corrected in the unaudited condensed interim consolidated financial statements as at and for the three and six-month periods ended June 30, 2022.
