Lowell Farms Inc. Announces First Quarter 2021 Financial Results

Lowell Farms Inc. (the “Company”) (CSE: LOWL; OTCQX: LOWLF), a leading, vertically-integrated, California-focused cannabis company, announced revenue and operating results for the first quarter (ended March 31, 2021). All figures stated are in US Dollars and are on a US GAAP basis.

First Quarter Financial Highlights:

  • Revenue generated for the three-month period ended March 31, 2021 was $11.0 million; an increase of 17% from the Q1 2020 and an increase of 20% over the preceding quarter.
  • Adjusted EBITDA for the three-month period ended March 31, 2021, was ($4.6 million), which approximates adjusted EBITDA in Q1 2020. See “Use of Non-GAAP Financial Information” below.
  • Operating expenses were $4.2 million for the three-month period ended March 31, 2021, compared to $5.4 million in the first quarter of the prior year.
  • Gross margin was negative 13% compared to negative margin of 18% in the first quarter of last year.
  • Operating loss of $5.7 million compared to operating loss of $7.1 million in Q1 2020.

Recent harvests have begun to exceed pre-stress yields which is encouraging for Q2 and beyond, but revenue in the current quarter continued to be impacted by lower yields experienced from cultivation as a result of plant stress from the wildfires and extreme temperatures in the late summer. Revenues were also impacted by the decision to continue to significantly reduce lower margin third party agency and distributed brand sales and focus primarily on higher margin owned brand products.

“We enter the new quarter with confidence that our greatest challenges are behind us,” says Lowell Farms Inc. Chief Executive Officer Mark Ainsworth. “While we saw improvements in revenue year-over-year, the results showcased in this quarter still reflect the headwinds we encountered in 2020.

“We are seeing promising results from the sales of the recently acquired Lowell Herb Co. branded products. We also exited the first quarter with a return to healthy cultivation yields, meeting or exceeding the levels we experienced in the middle of last year.”

Operational Highlights and Ongoing Initiatives in 2021: 
The Company’s focus and strategic planning of key initiatives continue to drive sustainable profitable growth, with top priorities on its cultivation facilities, improving operational efficiency, and refinement of biological assets.

Subsequent events to the fiscal fourth quarter December 31, 2020:

  • Lowell Farms and Ascend Wellness Holdings Announce Strategic Licensing Agreement, Bringing Award-Winning Lowell Smokes to Illinois and Massachusetts 
    • April 14, 2021 – Press release here
  • Lowell Farms Appoints Bryan Dunmire to Chief Product Officer 
    • March 10, 2021 – Press release here
  • Lowell Farms Inc. Emerges From Acquisition With an Eye Toward Dominance in California’s Cannabis Industry and Beyond 
    • March 5, 2021 – Press release here
  • Cultivation Quality and Efficiency
    • As the Company continues to evaluate its cultivation processes, refine genetics, and enhance facilities and systems, the focus has been on overcoming the challenges in order to improve the output. 
      • Lowell Farms saw a significant increase YoY from operating 29 flowering rooms at 145k sq. ft and nine nursery rooms at 45k sq. ft. in Q1 2021, compared to operating eight flowering rooms at 40k sq. ft. and two nursery rooms at 10k sq. ft in Q1 2020.
      • The Company harvested 36 rooms in Q1 2021; in contrast to 12 rooms harvested in Q1 2020.
      • The average turn time for a flowering room has improved over 25% from 100+ days in 2020 Q1 to 72 days 2021 Q1.
      • The Company successfully completed the electrical, mechanical, and environmental upgrades with final approval from the county in Q4 2020. With the improved environment upgrades, we have seen increased yield results.
      • The clone dome in the nursery was brought online in Q1 2021 resulting in being able to propagate clones to scale with consistent quality and potencies.
    • Portfolio of strains coming from the newly improved cultivation have consistently tested in the mid to high 20’s for THC potency. 
      • Continued yield improvements are expected to be seen as the environmental control system has been installed and implemented.
      • Potency on flower has been consistently in excess of 20%+ with several 25%-30%+ THC strains.
      • New cultivars were brought into the facility and the Company expects to roll out two to three new strains every quarter to ensure an ever evolving and diverse selection for our consumers.
      • By the end of Q1, significant strides were made in pest management and quality from outsourced genetics.
      • The overall plant health in the nursery has been dramatically improved and is expected to yield visible results in Q2.
    • In Q4, Lowell Farms commissioned an automated flower packaging line which meant an immediate 61% reduction in flower packing headcount. 
      • The implementation has generated two times the productivity from 50 lbs. per shift to 100 lbs. per shift.
      • An Argus Specialist has been overseeing the process of implementation of the control system within our cultivation.
      • Roots Talk Fertigation System is now being used to provide liquid nutrition to the plants.
    • Team 
      • With additions in key areas, the right team is in place to oversee and manage the increased yield improvements within the cultivation.
  • Owned Core Brands
    • Lowell Herb Co 
      • April represented the second full month under consolidated ownership and the first such month whereby the product was sold under a combined salesforce.
      • Lowell Herb has been introduced to 124 new accounts YTD with a positive reception from the market upon the introduction of Lowell products, made with flower grown at Lowell Farms greenhouse.
    • Owned brands continue to gain market share: 
      • House Weed experienced consistent sales growth in Q1 with the addition of a variety of SKU’s.
      • Moon edibles (chocolates, mints, gummies) saw a 17% increase in account invoices, strengthening the brand footprint, and reach throughout NorCal and SoCal. Moon case orders are up 30% from Q4 2020 to Q1 2021.

Q1 Financial Results Earnings Conference Call Details: 
The conference call with management at 8:30 a.m. ET on Wednesday, May 5, can be accessed using the following dial-in information:

U.S. and Canadian Toll Free:1-877-300-8521
Conference ID:10154598

Please dial-in at least 10 minutes before the call to register.

The conference call will be webcast live and archived on the investor relations section of the Lowell Farms website at https://ir.lowellfarms.com/.

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