Lowell Farms Inc. Announces Third Quarter Revenue

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 third quarter (September 30, 2021). All figures stated are in US Dollars and are on a US GAAP basis.

Third Quarter Financial Highlights:

• Revenue generated for the three-month period ended September 30, 2021 was $12.5 million; a decrease of 12% from Q3 2020 and a decrease of 18% from the preceding quarter.
• Sales of bulk wholesale flower fell 71% or $3.9 million during the quarter due to depressed wholesale prices in the market.
• The Company booked its first revenues from two new businesses, brand licensing and Lowell Farm Services of $1.5 million collectively.
• Gross margin was 1% compared to margin of 35% and 38% in the third quarter of last year and Q2 2021, respectively.
• Operating loss of $7 million compared to operating loss of $473 thousand in Q2 2021 and operating income of $772 thousand in Q3 2020.
• Net loss for the third quarter was $8.7 million compared sequentially to net income of $731 thousand, which included income from insurance claim proceeds of $2.6 million, and compared to a net loss of $1.2 million in the third quarter last year.
• Adjusted EBITDA in the third quarter was negative $5.2 million compared sequentially to adjusted EBITDA of $740 thousand and adjusted EBITDA of $1.9 million year over year. See “Use of Non-GAAP Financial Information” below.

Management Commentary:
Our many successes during the third quarter were overshadowed in our financial results by the deterioration of the wholesale bulk market in California. We continue to gain share with a product suite that consumers are responding to. The supply-demand balance in California is struggling to find equilibrium and wholesale prices have fallen to unprecedented levels.

Against this backdrop, our strategy to partner with the thousands of diverse and talented growers in the California landscape is already showing significant benefit in lowering our costs and improving the variety of our product offering. We backstop that channel with our own captive supply from one of the finest greenhouse operations with a demonstrable cost-advantage over other mixed-light operations. We chose this as an alternative to building additional infrastructure and the market is showing us the prudence of this decision.

In CPG, our brands continue to outperform in the marketplace as demonstrated by third-party data aggregators. According to Headset, the Lowell brand has regained the #1 share position in non-infused pre rolls in the market and we are now one of the largest brand houses in the state with a captive distribution model that allows us to pivot quickly as consumer preference changes. We are gaining share in nearly all the large product categories and we are just getting started.

In terms of licensing, we are very encouraged by the progress we showed in the two states where we have already licensed our Lowell brand: Illinois and Massachusetts. Today we are adding Michigan to that list and we couldn’t be more thrilled. It is one of the most exciting recreational markets in the country with some absolutely fantastic products.

We believe the Lowell brand has all the traits necessary to be a winning brand against a marketplace that is slowly transitioning from being a regional one to now national and even worldwide.

In terms of near-term profitability, we are expecting a lift in revenue and contribution from our Lowell Farm Services division in the fourth quarter which should allow us to recover revenue growth and profitability on a near-term basis without price normalization.

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 third quarter ended September 30, 2021:

• Lowell Farms Inc And Ascend To Bring Award-Winning Lowell Smokes Brand To Michigan, November 15, 2021
• Lowell Smokes Now Available Exclusively at Ascend in Massachusetts, September 13, 2021 
  • https://ir.lowellfarms.com/news-events/press-releases/detail/74/lowell-smokes-now-available-exclusively-at-ascend-in
• Lowell Farm Services
  • Lowell Farms commissioned a first-of-its-kind cannabis processing facility in Salinas Valley and started receiving third party products in Q3. 
    • In the third quarter the Company generated revenue of $802 thousand associated with Lowell Farms Services. This reflects a new revenue source for Lowell Farms, which is expected to increase over the next several quarters.
• Cultivation Quality and Efficiency: 
  • As the Company continues to evaluate its cultivation processes, refine genetics, and enhance facilities and systems, the focus has been continuing to improve the yield and potency. 
    • Lowell Farms saw its flower production at the greenhouse continue to steadily increase during the quarter, exceeding guidance of flower product for a total of 9,754 lbs during the quarter in comparison to 9,714 lbs in Q2 2021 and 4,724 lbs in Q1 2021. 
      • The Company harvested 43.5 rooms in Q3 2021; in contrast to the 40.5 rooms harvested in Q2 2021 and the 36 rooms in Q1 2021.
      • The average turn time for the flowering rooms has seen continued improvement and is now at 56 days in Q3 2021 compared to 64 days in Q2 2021 and 74 days in Q1 2021.
  • 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 improvements resulted in an increased average potency of 24.37% in Q3 2021 compared to 22.47% in Q2 2021 and 21.4% in Q1 2021.
• Cultivation Technology, Infrastructure, and Labor Efficiencies: 
  • Added increased harvest procedures in early Q3 that reduced the turn time of each harvest by 20%.
  • Implemented additional SOP’s for fresh frozen, which has shown an increase in efficiency and improved product quality.
  • The Company onboarded a new cultivation and processing seed to sale software that will be fully implemented in Q4 and will reduce labor cost and improve accuracy and timing.
• Owned Core Brands and Out-of-State Licensing: 
  • Lowell Herb Co. 
    • Sales of Lowell branded products generated revenue over $6.5 million in the third quarter, while year-to-date revenues totaled $13.3 million.
    • Lowell Herb Co. launched in both Massachusetts and Illinois has and has received a positive reception from the market upon the introduction of Lowell Smokes.
• Distribution and Sales Capabilities:
  • With the increased desirability of the Lowell brand, dispensary partners are continuing to add Lowell portfolio products to their orders. 
    • The average delivery drop value has increased by 14% in Q3 2021 and the average daily route value has increased by 22% in the same quarter, respectively.

Q3 Financial Results Earnings Conference Call Details:
The conference call with management at 5:30 p.m. ET on Monday, November 15, can be accessed using the following dial-in information:

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/.