Flower One Reports Record Revenue in Second Quarter 2021, Following Successful

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Company Exceeds Preliminary Guidance with its Second Consecutive Quarter of Record Revenue

LAS VEGAS & TORONTO, August 11, 2021–(BUSINESS WIRE)–Flower One Holdings Inc. (“Flower One” or the “Company”) (CSE: FONE) (OTCQX: FLOOF) (FSE: F11), the leading cannabis cultivator and producer in Nevada, is pleased to announce its financial and operating results for the second quarter ended June 30, 2021. All amounts are expressed in U.S. dollars unless indicated otherwise.

Second Quarter Highlights:

  • The Company reported record revenue of $18.3M, ahead of its guidance of $16M-$18M and representing a 373% increase over the same period of the prior year and a sequential increase of 32% compared to the first quarter 2021.

  • The Company holds two of the top three flower brands in Nevada (Cookies and in-house brand, NLVO), while its various bulk and white label offerings represent more sales by volume than the top selling brands in the state.

  • Adjusted EBITDA loss was $0.6M compared with Adjusted EBITDA loss of $1.9M in the same period of the prior year and an Adjusted EBITDA loss of $1.3M during the first quarter of 2021.

  • The Company consummated the restructuring of its Convertible Debentures, significantly reducing the Company’s debt and ongoing debt service obligations for those Convertible Debentures.

“We are very pleased with the momentum we are seeing at Flower One. With this being the first full quarter under new management, we are proud to report our second, consecutive quarter of record topline results and improved profitability,” said Kellen O’Keefe, Flower One’s President & newly appointed full-time Chief Executive Officer (CEO). “We are continually focused on creating long-term value for our shareholders and I am very proud of our team’s achievements to date. As we continue to evolve, we remain unwavering in our commitment to high-quality low-cost production, enabling us to deliver on our mission to share cannabis with the world at an approachable price. We have reached an important inflection point in our business as evident by the progress and results released today and look forward to using this momentum to continue to drive strong and sustainable growth.”

Second Quarter 2021 Financial Results:

Revenues

For the three-month period ended June 30, 2021, the Company reported revenue of $18.3M, up 32% from first quarter 2021 revenue of $13.9M and more than five times its second quarter 2020 revenues of $3.4M. The growth was driven by increased volume from both facilities as well as: higher quality product resulting in higher selling prices and a more favorable allocation between in-house brands and private label products.

Expenses

Cost of sales of $11.1M for the second quarter of 2021, 45% higher than first quarter 2021 and increased by $9.2M over second quarter 2020. These increases were principally driven by the higher revenue as well as: seasonally higher utility costs, increased costs of some of our supplies and packaging resulting from COVID-19 supply chain issues, and increased labor costs resulting from recent hiring competition within Las Vegas. The cash component of cost of sales increased to 46% from 43% in the first quarter of 2021 – also due to the higher labor, utility, supply and packaging costs.

General and administrative expenses (G&A) for the quarter totaled $7.7M, which included more than $0.5M of audit and tax related expenses – all of which are incurred annually and must be expensed in the quarter incurred vs accrued throughout the year. Net of those expenses, G&A expenses were down from the first quarter of 2021. The Company continues to identify ways to introduce automation, reduce expenses and overhead costs.

Profitability Measures

Gross profit in the second quarter of 2021 amounted to $6.2M, or 33% of revenues, compared to $0.5M, or 1% of revenue, for the second quarter of 2020. Second quarter 2021 gross profit, prior to fair value adjustments (non-cash adjustments based on the fair value of biological inventory and inventory) was $7.2M, or 39% of revenues, compared to $1.8M for the second quarter of 2020. These improvements reflected the Company’s improving yields and selling price as well as reduced costs of cultivation, harvesting, drying and production.

For the second quarter of 2021, net loss was $15.2M, as compared to a net loss of $21.3M for the same period of the prior year. The net loss in the quarter included non-recurring and mostly non-cash expenses related to the debt and restructure ($14M) and the write-downs of the assets disposed of by the Company that were purchased by prior management and no longer utilized by the company ($7M). Excluding these items, the Company generated an Adjusted EBITDA loss of $0.6M – a significant improvement from the $1.9M Adjusted EBITDA loss in the first quarter of 2021.

Non-IFRS Measures

Three-Months Ended
June 30, 2021

Three-Months Ended
June 30, 2020

Six-Months Ended
June 30, 2021

Six-Months Ended
June 30, 2020

Net Income (loss) before income taxes

$

(15,194,651

)

$

(21,280,800

)

$

(26,496,947

)

$

(27,670,601

)

Plus Adjustments:

Depreciation and amortization

180,182

239,913

360,364

479,826

Finance expenses

2,506,559

6,527,535

12,045,927

13,212,671

EBITDA

$

(12,507,910

)

$

(14,513,352

)

$

(14,090,656

)

$

(13,978,104

)

Plus Adjustments:

Realized fair value adjustment on sale of inventory

3,520,112

1,043,195

13,294,377

5,177,621

Unrealized fair value adjustment (loss) on growth of biological assets

(3,773,811

)

182,663

(19,546,707

)

(7,324,771

)

Write-down and provision for inventory

1,209,363

82,277

2,072,066

10,647,643

Share-based compensation

122,026

379,705

769,054

776,209

Fair value gain on derivative

(10,660,810

)

605,511

(6,640,719

)

(6,906,722

)

Gain on note payable modification

(88,966

)

0

(14

)

0

Provision for impairment on intangible assets

0

9,300,225

0

9,300,225

Loss on disposal of property, plant and equipment

6,981,561

0

6,981,561

0

Loss on debt modifications and extinguishment

4,726,601

0

5,181,747

0

Loss on convertible debt restructure

9,234,619

0

9,234,619

0

Foreign exchange gain (loss)

684,533

1,059,791

923,966

(1,998,320

)

Adjusted EBITDA

$

(552,682

)

$

(1,859,985

)

$

(1,820,705

)

$

(4,306,219

)

Balance Sheet

The Company used a portion of the proceeds from the Convertible Notes Units and operating cash flows to make significant reductions in accounts payables, accrued liabilities and the remaining short-term debt, which have been reduced by more than $8M since December 31, 2020.

In April, the Company completed the restructure of its Convertible Debentures, which reduced its debt from approximately $40.7M to approximately $16.3M. The debt restructuring allowed Flower One to right-size its capital structure by reducing the debt service burden on the business and improving cash flow.

The following chart highlights the Company’s improving financial position as at June 30, 2021, March 31, 2021 and December 31, 2020. All funded debts and leases noted below are at their respective face value irrespective of IFRS-based discounts.

Non-IFRS Measures

December 31, 2020

March 31, 2021

June 30, 2021

Cash and equivalents

$

1,055,861

$

5,897,744

$

2,171,180

Accounts Receivable

3,057,545

6,129,467

6,987,141

Trade accounts payable and accrued liabilityes

28,124,299

19,527,984

20,667,362

Net Working Capital (Current Assets – Current Liabilities)

(64,822,019

)

(27,004,418

)

900,345

Funded Debts

Nonconvertible Debt

Short Term

$

34,233,000

$

30,803,065

$

635,545

Long Term & RB Equipment Lease

46,760,879

43,929,208

53,139,429

Total Nonconvertible Debt

80,993,879

74,732,273

53,774,974

Convertible Debt

Convertible Debentures

$

40,748,236

$

40,748,236

$

11,361,635

Convertible Notes

0

19,004,520

18,940,232

Total Convertible Debt

40,748,236

59,752,756

30,301,867

Total Funded Debt

$

121,742,115

$

134,485,029

$

84,076,841

Share capital and contributed surplus

$

117,732,950

$

128,518,479

$

150,087,317

“We have improved our capital structure due to the successful debt restructuring completed in April 2021, as well as the many operational changes made throughout the organization,” said Richard Groberg, Flower One’s Interim CFO. “While we are pleased with our progress to date, we will continue to work to achieve operating efficiencies and optimize the balance sheet. With our stronger financial position and more efficient production capabilities, we expect to continue to drive improved topline and profitability results in the second half of the year.”

Flower One’s second quarter and first half 2021 financial statements and management’s discussion and analysis will be issued and filed on SEDAR at www.sedar.com on August 11, 2021 and will be available on Flower…

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