Lowell Farms Inc. Announces Unaudited Second Quarter 2022 Financial and Operational Results

 Lowell Farms Inc. (the “Company”) (CSE: LOWL; OTCQX: LOWLF), a California-born innovator in cannabis cultivation and maker of the legendary brand Lowell Smokes, announces unaudited revenue and operating results for the second quarter (ended June 30, 2022). All figures stated are in US Dollars.

Second Quarter Financial Highlights:

  • Revenue generated for the three-month period ended June 30, 2022 was $13.2 million; an increase of 6% sequentially and down 13% from Q2 2021, reflecting a 51% reduction in bulk flower pricing year over year.
  • Bulk flower revenue increased 94% sequentially while declining 37% from Q2 levels last year due to lower pricing.
  • CPG revenue declined 18% sequentially and 23% from the prior year, as the company held pricing stable and reorganized its CPG offering.
  • Lowell brand revenues remain strong representing 66% of CPG revenues compared to 60% in the prior year.
  • Lowell Farm Services (LFS) revenue increased $1.2 million from the first quarter due to spring harvests and third-party bulk flower revenue.
  • Gross margin as reported was 11.3% in the second quarter compared to 12.7% sequentially and 37.9% year over year, reflecting strong bulk pricing in the prior year.
  • Operating expenses were $4.5 million or 34% of sales for the quarter, compared to $4.0 million or 33% of sales in the first quarter and $6.2 million or 41% of sales in the first quarter last year, reflecting cost reductions realized in the current year.
  • The operating loss in the second quarter was $3.0 million compared to an operating loss of $2.5 million sequentially and an operating loss of $0.5 million year-over-year, reflecting significantly lower bulk pricing year over year.
  • Net loss for the first quarter was $4.6 million compared sequentially to a net loss of $4.1 million, which compares to net income of $0.7 million in the second quarter last year, which included an insurance claim receipt of $2.6 million and favorable bulk flower pricing.
  • Adjusted EBITDA in the first quarter was negative $1.1 million compared sequentially to adjusted EBITDA of negative $0.9 million and positive adjusted EBITDA of $0.7 million year over year. Adjusted EBITDA is a non-GAAP financial measure. See “Use of Non-GAAP Financial Information” below for further information and a detailed reconciliation to Net Loss, the closest comparable GAAP measure.
Revenue Summary ($’s in ‘000)
  March 31, 2022June 30, 2022 % Change$ Change
 CPG Revenues$9,077$7,444 -18%(1,633)
 Bulk Product$1,758$3,415 94%1,657 
 LFS/Third-Party Bulk$851$2,048 141%1,197 
 Out-of-State Licensing$723$274 -62%(449)
 Net revenue$12,409$13,181 6%772 

“California cannabis is in the middle of a fight for survival. There are fewer chairs at the table than there are attendees,” said Chairman of the Board George Allen. We will prevail through innovation and branding, and not by lowering our prices. While the second quarter is a disappointment, we are well prepared for our upcoming 35’s launch in September. ”

Subsequent events to the first quarter ended March 31, 2022:

Operational Highlights and Ongoing Initiatives:
The Company’s focus remains on key initiatives to drive sustainable profitable growth as well as working closely with governing bodies to ensure effective changes in the cannabis industry taxation system that would make higher profitability possible.

  • Cultivation Quality and Efficiency
    • The Company’s focus on refining its cultivation processes, genetics, and facilities continue to improve the yield, potencies, and increase margins quarter over quarter. 
      • Lowell Farms saw its flower production at the greenhouse continue to increase, with flower totaling 12,053 lbs during the second quarter of 2022 in comparison to 8,356 lbs in the first quarter of 2022. 
        • The Company harvested 42 times in the second quarter of 2022; in contrast to 41 harvests in the first quarter of 2022.
        • The average turn time for the flowering rooms has seen continued improvement and is now at 57 days in the second quarter of 2022 compared to 58 days in the first quarter of 2022.
        • The Company continues to evolve its licenses and completed construction and received the Monterey County Cannabis Business permit, a prerequisite to the California Annual License.
  • Lowell Farm Services:
    • Lowell Farm Services, a first-of-its-kind cannabis processing facility in Salinas Valley, continues to improve operational efficiencies with a stronger focus on new clients and scalability. 
      • As expected, Lowell Farm Services revenue increased 141% sequentially to $2.0 million.
      • Licensing revenue declined 62% sequentially to $0.3 million, partially on account of timing of packaging orders.
      • The sequential increase in Lowell Farm Services reflects revenue from third-party seasonal harvests and third-party bulk flower sales and the decline in licensing revenue reflects lower packaging shipments to licensees in the quarter. 
  • Portfolio Brands, Bulk Product and Out-of-State Licensing:
    • CPG revenue declined 18% sequentially to $7.4 million and declined 23% year over year while bulk flower revenue increased 94% sequentially to $3.4 million, while declining 37% year over year. 
      • The decline in CPG revenue is due to holding pricing stable and current efforts to reorganize edible and concentrates product offerings.
      • The Company sold approximately 6,374 lbs of bulk flower, a 76.8% increase sequentially.
    • Lowell Herb Co. revenues remain strong and represent 66% of CPG revenues in the current quarter compared to 60% in the second quarter last year. 
      • Lowell Herb Co. ranked 10th amongst the top 30 brands in California in terms of lowest change in wholesale cost per gram (-2.6% from Q1 to Q2) which confirms the brand loyalty to be able to hold prices steady in an uber-competitive market.
      • In Q2, portfolio brands Lowell Herb Co. and House Weed combined for the 2nd highest sales in the combined categories of Flower and All-Flower Prerolls per Headset.
    • Out-of-state Licensing 
      • Collectively out-of-state revenues fell from $723k in the first quarter of 2022 to $274k in the second quarter. 
        • The drop included a decline in royalties from $389k to $263k.
        • The decline in royalties is something the Company is addressing with its partner within those markets.
        • The markets continue to experience supply disruptions during the quarter which contributed to sales declines.
      • The Company anticipates launching Colorado and New Mexico late in the third quarter with Schwazze and the team is bullish about their prospects in those markets.

“To compete with the illicit market, we have to do it with quality and value,” said CEO Mark Ainsworth. “Our whole plan is built on three pillars: exceptionally good cannabis, a brand that people trust, and automation. We are closer than ever to having all three.”

Q2 Financial Results Earnings Conference Call Details:
The conference call with management at 5:30 p.m. EDT on Tuesday, August 9, can be accessed using the following dial-in information:

U.S. and Canadian Toll Free: 1-877-407-0789
International: 1-201-689-8562
Webcast: Lowell Farms Inc.
Conference ID: 10169777

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