Lowell Farms Inc. Announces Record Revenues and Record Cultivation Output for the Second Quarter

Lowell Reports 37% sequential growth in revenue driven by large cultivation yields advances and strong growth in demand for the Lowell branded products

Lowell Farms Inc. (the “Company”) (CSE: LOWL; OTCQX: LOWLF), a California-born innovator in cannabis cultivation and maker of the legendary brand Lowell Smokes, announced revenue and operating results for the second quarter (ended June 30, 2021). All figures stated are in US Dollars and are on a US GAAP basis.

Second Quarter Financial Highlights:

  • Revenue generated for the three-month period ended June 30, 2021 was $15.2 million; an increase of 53% from Q2 2020 and an increase of 37% over the preceding quarter.
  • Gross margin was 38% compared to negative margin of 13% in both the second quarter of last year and Q1 2021.
  • Operating loss of $473 thousand compared to operating loss of $4.8 million and $5.7 million in Q2 2020 and Q1 2021, respectively.
  • $2.6 million insurance recovery associated with plant stress incurred in 2020.
  • Net income of $731 thousand compared to net loss of $8.8 million and $6.7 million in Q2 2020 and Q1 2021, respectively. The current quarter includes proceeds from insurance claims of $2.6 million.
  • Adjusted EBITDA for the three-month period ended June 30, 2021, was $740 thousand, which excludes insurance claim proceeds, compared to negative adjusted EBITDA of $7.2 million in Q2 2020. See “Use of Non-GAAP Financial Information” below.

Our Flower production at the greenhouse ramped steadily during the quarter and we exceeded our guidance of 8,500 to 9,000 lbs during the quarter by a healthy margin at 9,553 lbs, a 102% increase over the preceding quarter. Additionally, our plan to restore the Lowell brand to health was met with success during the quarter.

“We have a lot to be proud of, but I am particularly excited about the continued progress we are making at the cultivation level,” says Lowell Farms Inc. Chief Executive Officer Mark Ainsworth. “We have spent a good portion of Q2 dialing in our automated environmental systems to continue to reach increased yields and potencies and right now we are collecting important data to provide the optimal conditions for each particular genetics. This is an exciting phase and we look forward to reporting back to you on our learnings and improvements as well as the positive impacts on our annual harvest run rate.”

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 second quarter June 30, 2021:

  • 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 fine tuning all systems in order to continue to improve the output. 
      • Lowell Farms saw its flower production at the greenhouse ramped steadily during the quarter, exceeding guidance of flower product for a total of 9,714 lbs during the quarter in comparison to 4,724 lbs in Q1 2021 and 4,159 lbs in Q2 2020.
      • The Company harvested 40.5 rooms in Q2 2021; in contrast to the 36 rooms harvested in Q1 2021 and 18 rooms in Q2 2020.
      • The average turn time for a flowering room has improved and is now at 64 days in Q2 2021 compared to 74 days in Q1 2021 and 90 days in Q2 2020.
    • The portfolio of strains coming from the newly improved cultivation and as a direct result of the upgrades to the electrical, mechanical, and environmental systems have consistently tested higher THC potency. 
      • These upgrades resulted in an increased potency of 22.47% in Q2 2021 compared to 21.4% in Q1 2021 and 19.4% in Q2 2020.
  • Cultivation Tech, Infrastructure, and Labor Efficiencies
    • Argus programmed for self-preservation mode to counteract the impact of wildfires.
    • The Company purchased a Mobius Sorter in Q2 to reduce labor cost and improve timing.
    • Plant nutrition was switched from manual top-feed to liquid feeding through Roots Talk system.
  • Lowell Farm Services
    • Lowell Farms commissioned first-of-its-kind cannabis processing facility in Salinas Valley and started accepting orders on July 20, 2021 
      • The 10-acre, 40,000 sq ft processing facility will provide drying, bucking, trimming, sorting, grading, and packaging operations for up to 250,000 lbs. of wholesale cannabis flower annually.
      • The facility is centrally located in the Salinas Valley with several million square feet of cultivation canopy within a few miles.
      • The facility currently includes eight environmentally-controlled, segregated drying rooms, each capable of accepting in excess of up to 30,000 pounds of wet cannabis plant material per month.
      • In the facility’s bucking and trimming area, there is a combination of mechanized and hand trimming services.
  • Owned Core Brands
    • Lowell Herb Co 
      • Sales of Lowell branded products generated revenue of $5.8 million in the second quarter which was the first full quarter of brand ownership.
      • Lowell Herb Co. has been introduced to approximately 399 new accounts YTD with a positive reception from the market upon the introduction of Lowell products, made with flower grown at our greenhouse.
  • Distribution and Sales Capabilities: 
    • With the high desirability with the Lowell brand, dispensary partners that have been previously ordering legacy products have now added Lowell products to their orders and vice versa. 
      • The average delivery drop has increased by 46.5% from Q1 2021 to Q2 2021 and the average per route has increased 49.7% in the same period.

“We have a lot to look forward to, and despite the headwinds we anticipate encountering from decline in bulk sales and the compression in the market,” said George Allen, Chairman of the Board for Lowell Farms. “Our strategy is to offset revenues with our increased cultivation output and the launch of our new LFS business unit which is ramping quickly to incredibly high demand.

“We are also seeing extremely positive results from our expansion to Illinois and we are on track to launch Massachusetts later this quarter. We fully expect to add more markets in the near future. In California, we are positioning Lowell to be successful in an incredibly competitive operating environment and I am incredibly encouraged by the numbers coming out of our cultivation.”

Q2 Financial Results Earnings Conference Call Details: 
The conference call with management at 5:30 p.m. ET on Monday, August 16, can be accessed using the following dial-in information:

U.S. and Canadian Toll Free:1-877-407-0789
International:1-201-689-8562
Conference ID:13721106
Webcast:http://public.viavid.com/index.php?id=145513

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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