Lowell Farms Inc. Announces Unaudited Second Quarter 2023 Financial and Operational Results

Lowell Farms Inc. (the “Company”) (CSE: LOWL; OTCQX: LOWLF), a California-born vertically integrated cannabis company with advanced production capabilities including cultivation, extraction, manufacturing, and distribution, announces unaudited revenue and operating results for the second quarter (ended June 30, 2023). All figures stated are in US Dollars.

Second Quarter Financial Highlights

Revenues:

• Net revenue generated for Q2 2023 decreased 47% to $7.0 million, as compared to $13.2 million for Q2 2022. Net revenue was $7.5 million for Q1 2023, a decrease of 7%. 
  • CPG revenue decreased 40% compared to Q2 2022 and decreased 5% compared to Q1 2023.
  • Bulk revenue from self-grown wholesale products decreased 34% compared to Q2 2022 and decreased 11% compared to Q1 2023. In Q2 2023, there was a 37% decrease in volume and a 44% increase in realized price per pound compared to Q1 2023.
  • LFS revenue decreased 95% compared to Q2 2022 and decreased 18% compared to Q1 2023.
  • Out of state licensing revenue decreased 14% compared to Q2 2022 and increased 7% compared to Q1 2023.

Gross Margin:

• Gross margin for Q2 2023 was negative 4.8%, representing a gross loss of negative $0.3 million, compared to a gross margin of positive 1.8% for Q1 2023, which represented a gross profit of $0.1 million.

Operating Loss:

• Operating loss was $2.6 million compared to an operating loss of $3.0 million in Q2 2022, a 12% improvement. Operating loss was $2.3 million in Q1 2023.

Net Income:

• Net loss was $0.1 million compared to a net loss of $4.6 million in Q2 2022, and a net loss of $4.0 million for Q1 2023.

Adjusted EBITDA:

• Adjusted EBITDA was negative $1.2 million compared to adjusted EBITDA of negative $1.1 million in Q2 2022 and adjusted EBITDA of negative $1.1 million in Q1 2023. 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.
  

Subsequent events to the first quarter ended March 31, 2023:

• Lowell Farms Announces Sale Leaseback Transaction for Processing Facility
  • https://ir.lowellfarms.com/news-events/press-releases/detail/109/lowell-farms-announces-sale-leaseback-transaction-for

“Having implemented cost-saving measures throughout the first and second quarters of 2023, we remain focused on an upward trajectory, and we continue to push forward while navigating the challenges presented to us – both legislatively and financially – as leaders in the California cannabis marketplace,” says Chief Executive Officer and Co-Founder Mark Ainsworth.

“Our focus for the foreseeable future remains on maximizing efficiencies and new revenue streams, including third-party distribution, while expanding our portfolio of owned brands with new product lines that will captivate and command loyalty among consumers.”

Operational Highlights and Ongoing Initiatives:

• Cultivation Quality and Efficiency: 
  • Continuing to refine its cultivation processes, genetics, and enhance facilities and systems is always at the forefront of the Company’s objectives. 
    • Lowell Farms saw flower product totaling approximately 6,730 pounds during the second quarter of 2023 compared to 4,932 in Q1 of 2023. 
      • The Company harvested 36 times in Q2 2023; in contrast to 42 harvests in Q1 2023. 
        • HpLV outbreak attributed to weakened plant immunity.
      • The average turn time for the flowering rooms remained consistent with 60 days in Q2 2023 compared to 59 days in Q1 2023.
  • The portfolio of strains and consistent THC potencies coming from the cultivation are a result of the upgrades the Company has made to the electrical, mechanical, and environmental systems. 
    • The average flower potency has remained consistent with 26.1% in Q2 2023 compared to 26.3% in Q1 2023.
• Lowell Farm Services:
  • Lowell Farms Services (LFS) is the Company’s cannabis processing facility in Salinas Valley. 
    • In Q2 2023, the Company generated revenue of $0.1 million associated with Lowell Farm Services, consistent with revenue of $0.1 million in Q1 2023. LFS revenue includes sales of third-party bulk flower.
    • Lowell Farm Services processed approximately 23,300 pounds of wet weight third-party flower in Q2 2023 compared to 22,500 pounds in Q1 2023. 
      • Continued efficiencies in processing functions have resulted in reduced labor costs.
• California Market Trends:
  • Lowell Herb Co. 
    • Lowell 35’s revenue during Q2 2023 was $806k.
    • Lowell has remained one of the top three selling non-infused pre-roll brands in California and ranked as one of the top 20 brands in the state, according to Headset data.
    • Soft launched Infused 35’s product extension with two blends at BottleRock Music Festival leading to placement in 43 retail shops by the end of Q2 with approximately $57k in sales.
    • Sales of Lowell branded products generated revenue of $3.5 million in Q2 2023, compared to $3.9 million in Q1 2023.
• Out-of-State Licensing:
  • Collectively, out-of-state revenues increased 7% from $222k in Q1 2023 to $237k in Q2 2023.
  • Royalties in Q2 2023 were $230k, up 10% from the prior quarter.
  • Massachusetts 
    • Lowell Herb Co. is the 15^th top-selling non-infused pre-roll brand in the state, according to Q2 2023 BDS data.
    • Lowell pre-roll pack (The Creative) is positioned within the top 25 non-infused pre-roll SKUs in the state, according to Q2 2023 BDS data.
  • Illinois 
    • Lowell remains the 4^th top-selling non-infused pre-roll brand in the state, according to Q2 2023 BDS data.
    • Lowell products, The Creative and The Social, are the 3^rd and 4^th best-selling pre-rolls, according to Q2 2023 BDS data.
  • Arizona 
    • Lowell Smokes maintained the #1 selling pre-roll position in both unit sales and revenue in its flagship account in Arizona.
    • The brand unveiled its first line extensions in the state with locally-relevant, Arizona-specific blends – The Roadrunner Sativa, Diamondback Hybrid, and Sunset Point Indica.
  • Colorado 
    • Lowell Herb Co. was the 3^rd top-selling non-infused pre-roll brand in the state in Q2 2023.
    • Sold in Schwazze retail network as well as statewide through third-party partnership retailers.
  • New Mexico 
    • Exclusively distributed to consumers through Schwazze retail banners of R. Greenleaf and Everest with a total of 32 stores.
• Distribution Capabilities:
  • The average drop value was approximately $3,883 in Q2 2023 compared to $4,440 in Q1 2023.

Q2 Financial Results Earnings Conference Call Details:
The conference call with management at 5:30 p.m. ET on Thursday, August 10, 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/.