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lowell 35's coming in hot
It's exciting times gearing up for the release of @LowellFarms 35's. We look forward to sharing more soon! #WeedInnovation #BehindTheScenes $LOWLF $LOWL pic.twitter.com/2DNQs6jQtD
— Lowell Farms Inc. (@LowellFarmsInc) August 24, 2022
Not a problem with a delayed response, I have been too busy to be on IHub much these days anyway. I own LOWLF and will continue to buy, I think there is a growing concern about how the illegal cannabis market is hurting legitimate cannabis business interests. CA is losing tens of millions to cartels every year, they have to take strong actions.
People seem blind to the fact cannabis is a commodity. A cash crop, like corn or soya beans. The only reason anyone ever got such a high price for it is because it was illegal. That is why I am holding Lowell. Branding is the key. Nobody owns shares in a corn farm but frito lay is recognized. The Mom and Pop growers that are still in operation will be those with a passion for the plant who grow excellent cannabis. There will always be a market for excellent flower and it will get a premium price. Once the industry is normalized it will be an ingredient in CPG products. These are early days and I see Lowell with a good chance to thrive if they play their cards right.
Sad but true , Legal competition in Cali will decrease rapidly...Good for Lowell but bad for small legal Mom and pop grows
“I would expect to see at least half of our businesses to fail in the next year,” said Genine Coleman, executive director of the Origins Council. “If I’m being quite frank, I think we need a new proposition. So much wrong is baked into this system that we are just not going to be able to move ahead without one.”
https://www.washingtonpost.com/nation/2022/08/21/california-marijuana-farms-failing/
I know this comment is very delayed but this is a potential windfall for Lowell , I know Interstate wont happen overnight but they need to gets these Lowell 35's debut to be a smash hit asap, Competition will be fast to copy , This issue is there Lic rev with other states , it doesnt allow for lowell 35's.
The machine is too top secret to just ship it and let someone become a potential competitior. Lowell 35's change the way people will smoke joints at a very economical level
SALINAS, Calif., Aug. 19, 2022 (GLOBE NEWSWIRE) -- Lowell Farms Inc. (the “Company”) (CSE: LOWL; OTCQX: LOWLF), a California-born innovator in cannabis cultivation and maker of the legendary brand Lowell Smokes, along with its subsidiary, Indus Holding Company ("Subco"), has issued an aggregate of $4.2 million of senior secured convertible debentures ("2022 Convertible Debentures") of Subco, which are convertible, as more fully described below, into an aggregate of 18.2 million subordinate voting shares of the Company ("Subordinate Voting Shares") with respect to principal and additional Subordinate Voting Shares upon conversion of accrued and unpaid interest. Investors in the 2022 Convertible Debentures received warrants of the Company ("2022 Warrants") to purchase an aggregate of 18.2 million Subordinate Voting Shares and warrants of Subco ("Subco Warrants") to purchase an aggregate of 27.3 million non-voting common shares ("Subco Shares") of Subco. The Company has received investor commitments for the purchase of an additional $2.5 million in 2022 Convertible Debentures.
The 2022 Convertible Debentures are part of the same series of convertible debentures issued in connection with the Company’s and Subco’s April 2020 financing ("2020 Convertible Debentures"). Proceeds from the financing are contemplated to be used for working capital purposes, automation investments and expansion into new markets.
“We are grateful for investor support as a testimony to the strategy we have employed to differentiate ourselves,” said George Allen, Chairman of Lowell Farms. “This financing allows Lowell to bring capabilities to market that have been in development for years.”
Highlights of the Financing
The 2022 Convertible Debentures bear a fixed interest rate of 5.5% per annum and will mature on October 31, 2023. The amounts due under both the 2022 Convertible Indentures and the 2020 Convertible Debentures are secured on a pari passu basis by substantially all assets of the Company (other than the Company’s Salinas County processing facility).
The 2022 Convertible Debentures, including accrued and unpaid interest thereon, are convertible into Class C common shares of US Subco ("Class C Shares") at the option of the holder at a conversion price of US$0.2313 (the "Conversion Price"). Each Class C Share is redeemable for one Subordinate Voting Share.
Each investor in the 2022 Convertible Debentures received, for no additional consideration, 2022 Warrants to purchase a number of Subordinate Voting Shares of the Company equal to the number of Class C Shares into which such investor's 2022 Convertible Debenture is convertible. Each 2022 Warrant has an exercise price of US$0.2613 and a 42-month term from the date of issuance.
Each investor in the 2022 Convertible Debentures also received, for no additional consideration, Subco Warrants to purchase a number of Subco Shares equal to one-and one-half times the number of Class C Shares into which such investor's 2022 Convertible Debenture is convertible. Each Subco Warrant has an exercise price of US$0.2613 and a 42-month term from the date of issuance. Under certain circumstances, investors will have the right to require the Company to repurchase their Subco Warrants and any Subco Shares issued upon exercise of Subco Warrants on a Subordinate Voting Share-equivalent basis.
As further consideration for their investments in the 2022 Convertible Debentures, the expiration date applicable to 2020 Warrants held by certain investors will be extended from October 13, 2023 to April 13, 2025 and may be further extended to February 19, 2026, if applicable regulatory approvals are sought and obtained.
The financing is considered a “related party transaction” pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”) because certain directors of the Company participated in the financing. Pursuant to Sections 5.5(b) and 5.7(1)(a) of MI 61-101, the Company is exempt from the requirements to obtain a formal valuation and minority shareholder approval because the Subordinate Voting Shares trade on the CSE and the fair market value of insiders’ participation in the financing was below 25% of the Company’s market capitalization for purposes of MI 61-101.
Nice twitter thread on cannabis busts in Ny and Cali ,,,The synopsis is that growers are buying way less supplies and According to lots of people, some legal business in CA are definitely risking a lot to stay afloat and selling/letting product hit illicit mkt , which is eventually going to lead to Cali busts of legal operators that will benefit other operators who are playing by the rules.
Big difference from Cali is that it isn't grown here so much easier to clamp down once things start rolling. Also, bc it is travelling a fairly long way, price differential between legal/illicit mkt should be much smaller.
— Merida Capital Holdings (@MeridaCap) August 12, 2022
Pi Financial reiterates $1.10
Cannacord Genuity says .40 cents
Question And Answer
Operator [1]
[Operator Instructions] And our first question will come from Bobby Burleson with Canaccord.
Robert Joseph Burleson, Canaccord Genuity Corp., Research Division - MD & Analyst [2]
Sorry for any background noise. I guess the first one would be just trying to understand some of the research you've done on the 35's -- the LF 35's launch. It sounds like you see some nice prospects there and it's fitting into -- looks like a hole in the market. So just maybe a little bit more detail on what your assessment of its prospects?
George Allen, Lowell Farms Inc. - Chairman of the Board [3]
Well, Bobby, I would tell you we could go hard on this topic for a long time. We've done a lot of work on this. Really, I would generally say where we think the need comes from is really an understanding of who drives the cannabis market. And when you look at the data, of who buys cannabis today, 90% of the cannabis that's consumed inclusive of the illicit market. 90% of the cannabis consumed, we estimate is bought by the consumer, who smokes every single day. So we really wanted to understand what the use case for that consumer is, right?
So we spend a lot of time trying to find that consumer because I think we talk a lot in cannabis, and it's really fun to explore the novelties of cannabis discovery for people, who haven't smoked a lot of weed or aren't smoking a lot of weed. But when you really look at the market and the big dollars out there, it -- the sort of the fat pitch coming down the middle are is this -- is this daily cannabis consumer. But a lot of these consumers, who are relatively heavy users, in a lot of cases, they buy from the illicit market, in a lot of cases, they buy weed at volume because they're price-sensitive, right?
If you use something like cannabis every single day and some consumers smoke up to an 8 a day, some of those consumers, they're super sensitive about price point. And so a lot of what was happening in the market was sort of failing from how to talk to that consumer, how to go find that consumer. And frankly, we've got some leadership on our board from the tobacco industry, and so we spend a lot of time looking at the tobacco industry and the history of tobacco industry and how the tobacco industry went from loose tobacco into cigarettes. And really, a lot of it -- a lot of it came down to sort of the price point of when you can achieve price parity with flower.
And if you take our flower today, our flower today [indiscernible] flower that we sell could be on the market for anywhere from $28 to $35. Our pre-rolls, the sort of the legacy pre-roll pack that Lowell is so well known for, that pre-roll is on the market for anywhere from $40 to $50 in California and higher in other markets. And so you really are -- that product and that brand, even though it represents sort of a high -- sort of a high watermark in terms of brand legacy, is sort of out -- is priced out that, that cannabis consumer.
In addition to that, we also -- we really started with the fact that like during COVID, what happened during COVID was the consumers started smoking more cannabis, and we -- this is pretty well documented, but you're smoking a lot -- a lot more often you're smoking sort of alone. And even when you were smoking with other people, you weren't sharing cannabis. So one of the journeys that we had to go on was how to get the pre-roll smaller. And when you try to get form -- when you try to get the form factor down in terms of dosage size, what happens is [ your ] costs start to skyrocket. So the only way to really unlock the single-use serving size or sessionability of a pre-roll for this sort of daily smoker in cannabis is to try to get your cost down. And the only -- really the only path to doing that was in automation.
So we -- then we started exploring sort of automation, and it sounds easy, but it has been an incredibly long journey for us to sort of crack the code on automation. And we think we -- we think we have, and I think that the product that we're coming out with at the beginning and next month or potentially the end of this month is truly game changing. And so we're super excited about it. We think it does present that sort of daily cannabis consumer, an alternative to have fresh, really high-quality, good cannabis experience in their pocket at all times in the form of flower. So we're very excited about it.
Robert Joseph Burleson, Canaccord Genuity Corp., Research Division - MD & Analyst [4]
And then just on the CPG revenue, how tightly correlated is your kind of year-over-year decline there and some of the weakness you're seeing for that business to just overall same-store sales comps in the retail channel in California.
George Allen, Lowell Farms Inc. - Chairman of the Board [5]
Yes. I mean I don't have the exact data. I do know that during the quarter, we lost share. We decidedly lost share during the quarter largely in flower. And flower historically is almost an impossible brand product to really hold on to brand. But it's very hard for you to get consumers because consumers have so much more data when they buy flower, right? They have potency levels that are printed on the jar. They have the how the flower looks and the jar appeal, the bag appeal. So the -- so the brand sort of ends up being sort of far less important for the consumer. So the consumer goes into a dispensary and price tends to be a factor and look and peel and smell tend to come in place as well. But way down the list is sort of like brand.
And so what that means is that as other flower producers drop price and pretty aggressively dropped price during the quarter, we sort of refrain from doing it, and that means we lost share. And the reality is we couldn't afford [ for it ] to chase, and it doesn't make sense to brand. What you don't want to do is, you don't want to chase because pricing is a one-way street in cannabis. We've learned this too many times. If we drop our flower price, it denigrates our brand, especially on the eve of a new product launch, which we want to have an elevated brand. But then in addition to that, we know that we can never really raise prices again. And so we just made a conscious decision, and I don't know how to play out the alternative set of facts and what it would have looked like had we not -- had we not held price or been so convicted on holding price. But I suspect that top line would have been healthier in CPG, but we probably would have suffered on margin.
Operator [6]
Our next question will come from Jason Zandberg with PI Financial.
Jason Zandberg, PI Financial Corp., Research Division - Special Situations Analyst [7]
I just wanted to get your thoughts on the elimination of the cultivation taxi California. So specifically, what would -- what would it look like if it was in effect at the beginning of Q2, sort of what would the cost savings? And just generally, your high-level view on what you think this will do in terms of -- obviously, it's going to be lower cost, so competition with the illicit market will be easier. But do you think that -- and so what sort of impact do you expect this to have?
George Allen, Lowell Farms Inc. - Chairman of the Board [8]
Yes. I mean -- so if we held on to all of it, right, if we held on to all the cultivation tax for CPG products, for anything that's flower based, it would be sort of greater than 10 point of margin shift, 10 points to 15 points of margin shift. The reality is that I think that is an ephemeral way to look at it because I don't see that margin -- I don't see how that's possible to hold on to it. In fact, we've -- some of our products, we've given the savings, not all of that, we've given a great portion of the savings back to retailers, just because the fundamental issue is that you've got more supply than there is demand in the market.
And so when it comes to like a big step function change, where everybody gets $1.40 off on an [ 8 ], you kind of have no choice, but to pass that along because it's a prisoner's dilemma, the first person that does it is going to get the share. So when it came to like that change in the market, we looked at all our products and we said, how many of them are commoditized, which ones are the most commoditized. And if they're most commoditized, can we expect the prisoner's dilemma, we expect somebody else to be the first prisoner, but then -- then we're going to get in front of it.
In some of our other products like our Lowell pre-rolls, which tend to be very sort of stable and price agnostic for consumers within a relative pricing band, we didn't see the need or the feel need so much to compromise in terms of price. So there, we should see margin expansion, but it's going to -- to a lesser extent because they're higher priced, our legacy pre-rolls are higher priced. So it's not quite 10 points. But -- but I will say that we have probably been more firm on holding price there. A lot of the stuff, it will remain to be seen like how fast the market adjusts.
In general, I think the case for the cultivation tax, and I think this even went to the policy decision that they made in Sacramento, the case for the cultivation tax reduction is really about trying to compete with the illicit market. And if the price -- the tax cut gets to the consumer into the dispensary and the effective price drops in the dispensary, then I think -- and this is a positive, then I think that there's a chance that some, some incremental wave of consumers that was making the -- that were making the decision to go to illicit market could potentially be lured into the legal dispensary market and so growing the pie.
And I think that's where probably the affirmative case is for the cultivation tax relief, probably more so on a longer-term basis than just a margin boost for all cultivators. And I think any cultivator that thinks that they're just going to pocket their cultivation tax relief and not see pricing degradation on the backs of it, I think that's kind of [ foolish to do ] especially when it comes to anybody, who's predominantly selling flower.
Jason Zandberg, PI Financial Corp., Research Division - Special Situations Analyst [9]
Just can we -- can you just give some color on just your out-of-state revenues that fell during the quarter. Obviously, you're going to get some, some help with addition of Colorado, New Mexico. Just wondering if you could address both the decline and then sort of the -- what your expectations are for adding those 2 new states?
George Allen, Lowell Farms Inc. - Chairman of the Board [10]
Yes. So the royalty decline is obviously [ that's ] more challenging [ or the ] more concerning, right? So in our revenues, we have a combination of royalties, which are high margin, almost all margin. And then we have -- we have packaging sales, which are -- I think we make 5 points of margin on the packaging sales. So a large -- and to a great extent, and Brian showed the exact numbers, but to a great extent, the decline was accounted for by a decline in packaging sales, which is timing of packaging sales and timing of inventory.
But there was also a pretty material decline in royalties, and the royalty decline is something that we're really focused on. And that's [ where] I would say, the health of that business, I think we've suffered a little bit from some quality issues that we've seen in the market and probably a little bit of footfalls on our side in terms of brand support and to reaffirming those brand, as our competitors are sort of getting a little bit more savvy. We've added some resources locally to start to improve the brand support that we're gaining. We are seeing some traction on that so far this quarter.
So I think that we have -- I think that we have a good plan of action there. The quality issues that we're struggling with a little bit are just partnership issues. I think Ascend has been a great partner to us. At the same time, I think the focus that they've given the brand at times has been ebbs and flows. And so we're just trying to make sure that we get our fair share of attention from them.
The brand is still the #3 pre-roll brand in Illinois and sort of somewhere close to that in Massachusetts. We have a lot of potential. And really, that licensing is about getting consumers familiar with the brand and using that opportunities to sow the seeds for future product development, as well as complementing our margin profile. So I think I think we've learned some lessons from it. I think we've also -- we're trying to be a better partner to Ascend and maybe being a little closer on a daily basis, as to how things are being managed over there and greatest on our report card from here?
Jason Zandberg, PI Financial Corp., Research Division - Special Situations Analyst [11]
And then just a look ahead to Colorado and New Mexico?
George Allen, Lowell Farms Inc. - Chairman of the Board [12]
Yes. So Colorado, New Mexico, I think they're probably going to launch -- I think they're -- we're trying to get it in this quarter. It's going to be at the end of the quarter. If it is -- if it lands this quarter, I'm super excited about it. I think Colorado is just an awesome market to be in, and I see a lot of blue sky. Despite Colorado is really sort of crafty market, it's very craft, like brands are very crafty and localized. And I think there's a blue sky opportunity there to be sort of -- to sort of be like a little bit bigger of a brand. And I think so that Colorado is just a market we have to be in, if you want to have [ street cred ] in cannabis.
New Mexico, I think this is a good market. Schwazze has a great footprint there. I would say it probably wouldn't have been a market that we rush into, but for what's the partnership in Colorado and grateful for it, and we can't wait to be there as well. But as I said, I think the impact is likely to be much more Q4 and we'll give you guidance, as to how things are headed there. But I think it's very likely to hit towards the end of the quarter.
Operator [13]
[Operator Instructions] Our next question will come from Doug Cooper with Beacon Securities.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [14]
Good evening, George. Just on the 35's launching towards the end of this month or early in September. Can you talk a little bit about your distribution strategy and given that this is a new product for the consumer and the dispensary, the bud tenders, have you run focus groups or like what is your strategy for roll out there? And how quickly do you think you can gain share in shelf space?
George Allen, Lowell Farms Inc. - Chairman of the Board [15]
Yes. It's really the million-dollar question, as to how fast the ramp goes. I mean what I generally tell you is like our conviction level from top to bottom in the Company, about the quality of the product, the price points and the differentiation of the product, the uniqueness of the product, I don't think that there's any disagreement whatsoever about all those testimonies. And so I think we get -- we have a -- we have almost unanimous consent about where we go eventually. The path to getting there is a little bit more challenging in California, in terms of predicting it. You've got a lot of retail end points that we're trying to get distribution through. We're trying to focus our efforts to a very limited number of end points, I mean retailers initially at launch because we want to make sure that consumers have a really good experience with the product. We also want to point consumers to a store that's going to have adequate inventory and volume to support the roll out.
What I'll generally say is like we are pushing everything we have on a limited budget, but we're pushing everything we have behind this product launch. We think we've got all the key ingredients behind it. The big factor -- the big swing factor here is going to be what's the adoption ramp look like. But from just a consumer and what the consumer is looking for, I think we've got a product that is really well tailored for this advanced California market. And I think there's also a strong belief that this product will get dragged or pulled into other markets, which we're looking forward to.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [16]
So can you give us an idea, are you going to launch in the Los Angeles area? Or is there a specific region you want to...
George Allen, Lowell Farms Inc. - Chairman of the Board [17]
Yes. I mean when you really think about California, there's islands of cannabis. So we're picking somewhere between 5 and 7 stores to initially launch and we're giving all those stores virtually bottom less inventory, basically refilling them every night as much as we can. And then we're doing a big social media push to drive consumers to those stores. And that way, we can make sure that the experience in those stores, the education level, the bud tenders in those stores, the engagement level, the social media push, the homepage takeovers, all of that stuff we can manage when it comes to a smaller footprint release and we can cover almost the entire state.
So that those stores are relatively geographically diverse within the state. We haven't picked all our partners just yet, but we're in the process right now. And what we're targeting for is a store that is an 80% probability that's within a 10-minute drive of 80%, as I said, 80% of the consumer. So trying to get as much as we can, San Diego, L.A., Bay Area Cities, San Francisco and Sacramento, all of those sort of big sort of islands are going to be covered.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [18]
So can you just walk through how many machines do you have -- pre-roll machines you have? What's the capacity? What's the throughput on those, do you think? And when you talk bottomless inventory, like this is inventory come from LFS or coming from -- I mean, where is the actual product coming from?
George Allen, Lowell Farms Inc. - Chairman of the Board [19]
Yes. So right now, we're putting -- I want to be a little careful about the -- Doug, I have to think a little bit about machine count and giving -- and giving -- I don't think that we're going to be supply constrained. Let's put it this way. I don't think that we're going to be supply constrained at this launch. I think it's about generating as much demand as we can.
I want to be a little bit careful about talking about the sort of general unit economics of the engineering product because I just don't want -- we have a moat and I need that moat, as deep and wide, as I can make it. So -- and recognizing that a lot of our competitors listen to the call. So what I will say is that we think we have a lot of capacity that -- where demand is going to be the primary driver. I would say we are extremely excited about the launch, but we -- the one thing that we're, I think, trying to be tepid about is the pace of adoption.
And by the way, we're also willing and excited to hear customer feedback and iterate alongside customer feedback. We've done a tremendous amount of work on our side, getting the product right, but that doesn't mean we're blind or immune to or deaf to feedback from consumers.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [20]
And just I guess, [ from my indication ], when you say single, [ this is ] single dose, is this like [ 0.3 of a gram ] or [ 0.25 or 0.2 ] or something like that?
George Allen, Lowell Farms Inc. - Chairman of the Board [21]
Yes. So the product -- the reason why the product is called the 35's [ is just ] 350 milligrams. It basically 10 sticks to a pack, making up an 8. We are -- we are engineering and preserving the ability to go up and down in size. So the way we think about it is the consumer, who likes cannabis sort of dials in on exactly what they think the right kind of amount of cannabis is that they want to have in each [ stick ], right? And the price point is commensurate to that.
So in the future, we'll be going smaller and we'll be going larger to give consumers, a serving size choice because one thing that we decided in the beginning of COVID, we were all relighting way too many joints, right? Like the kind of prospect of relighting weed is like one of the most [ disgusting ] phenomenon. But when you're sitting there with a 1 gram joint and there's nobody around to share with during COVID, it sits there in an ashtray and you either throw it out and waste a lot of weed or you relight it, and you just taste disgusting.
So what we're trying to do is make sure that we're trying to create weed and sort of sessionability and that -- look, it's changing the way consumers behave can take some time. But when we really look at the way our hardcore smokers perform and what they look for this product really does seem to fit them all. So we'll see. I mean, look -- we're looking forward to seeing how it hit.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [22]
And just on the pricing, when you said pricing is a one-way street, so you want to make sure I guess, the launch price, you want to get it low enough to attract people, but then maybe you can't raise. So when you said [indiscernible] [ 28% to 35% ], I think that's yours, but the Street sort of lowered and the competition lowered [indiscernible] by 30% is already said in the quarter. So what is the pricing strategy out-the-gate.
George Allen, Lowell Farms Inc. - Chairman of the Board [23]
Yes. We're trying to get it out the door at pre excise tax than $20. And so I think a lot of that -- a lot of the reasons why we're launching with a limited set of retailers right away is we're trying to encourage the retailers to launch with sort of a more consumer-friendly keystone. And so part of the narrative for us is to approaching retailers, who are willing and working with retailers, who are willing to be a little bit more aggressive on keystone with the consumer.
So we're going to cut price, and we're going to be pretty aggressive in terms of how we price it to those retailers because we -- I mean, we have a lot of savings here, right? We've engineered the system here to create a lot of savings. And so we want to make sure that our consumers get the benefit of that. And remember, what you're trying to talk to, you're trying to talk to the consumer, who usually buys weed by the ounce or by the half ounce, right? That consumer is super price-sensitive and you're not going to get their attention with a [ $30 8 ] pre-roll. It just won't happen. So we're trying to get their attention and we have the margin to do it. Obviously, margin is something that we're working very closely on right now to refine, but we do have the margin with our systems and infrastructure.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [24]
So on the back of the envelope, if yours -- if there's -- if the retailer is selling to me, the consumer $20 plus excise s tax, what are you selling to the retailer at? And then what is your cost? Can you just give us an idea, ballpark what the margin growth well, might look like compared to your CPG product today exactly?
George Allen, Lowell Farms Inc. - Chairman of the Board [25]
Yes. So I'll give you some guidance on this. What I'll say is -- it is work in progress.. We do have some flexibility built into the system on pricing. We're somewhere in the [ $10 to $11.50 ] range in terms of price out the door. And I'm [ going to do everything ] I can to get us close to $10. And yes, at $10, we're operating at a [ 6-plus ] margin.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [26]
Sorry, you missed that George, part, operating at what.
George Allen, Lowell Farms Inc. - Chairman of the Board [27]
A 16%-plus material margin.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [28]
And then, I guess, moving to the balance sheet, $2.2 million cash at the end of June. What was the -- what's the CapEx that you expect in Q3, including buying the machines, I think or was that for stock? I don't have the net, I only have the press release right in front of me, but -- and then [indiscernible], yes, go ahead
George Allen, Lowell Farms Inc. - Chairman of the Board [29]
No, if you remember -- do you remember that originally, yeah go ahead.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [30]
And then maybe just walk through the $2.2 million regarding -- was that IRS rebate or something else? Sorry, I didn't quite get that?
George Allen, Lowell Farms Inc. - Chairman of the Board [31]
Yes. So once again, there is still -- the original All Good transaction was a stock transaction and cash transaction, the cash fees was $1.5 million. So that commitment we've funded with the cash that we had. And we also were able to bring in to factor this IRS receivable related to the CARES Act and the CARES Act basically had a provision for recovery of payroll taxes associated with the COVID burdens.
So we had an IRS receivable that our company filed in, I believe in April and May of this year. And we chose to factor that receivable to an interested party in order to get some additional cash in the door to fund some of those CapEx. So the $1.5 million is through the machines, but there's also CapEx associated with our facility improvements and preparedness. And we'll give more clarity around that -- but the $1.5 million is by far the biggest chunk of it.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [32]
And sorry, just my last one, I guess, would be we're halfway through the third quarter essentially. If you take a conservative launch on the 35's given what you see in the market now on the CPG market and the bulk and so forth, do you expect to be cash flow neutral in the quarter. [indiscernible] maybe give us some sort of guidance?
George Allen, Lowell Farms Inc. - Chairman of the Board [33]
I mean I think we're definitely going to consume cash during the third quarter inclusive of the CapEX...
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [34]
Just from operations, I am talking about. I am -- yes, just talking about the operations, excluding CapEx.
George Allen, Lowell Farms Inc. - Chairman of the Board [35]
The -- what I would generally say is, I would say, third quarter, the bar will be high for us to be cash flow neutral from an operational perspective given some of the operating investments we're making around the 35's launch and launched the product out there accelerating, but and some of that will be reflective of working capital going into inventory.
The market conditions for us, like what I'll generally say is our business, where bulk prices are for flower right now, the only answer for us is to gain CPG revenue dollars. I mean that's where the margin future is for our Company. So we need to gain traction in terms of more CPG and margin dollars and doing that outside of the low-margin category of flower. So that's our primary focus right now. That's really what the 35 launch is all about. I think we'll have a lot more to say about our trajectory and success in doing that this time next quarter. But I think we'll also be updating as time moves on in terms of the traction of launching them and how things are going.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [36]
Sorry. And just my last one. I think you have access to 8 machines. Is that right? And you brought in 3? Is that where you stand right now?
George Allen, Lowell Farms Inc. - Chairman of the Board [37]
So yes, I want to be a little bit careful about that -- the answer. Right now, the machines that we have under contract -- well, right now, we have 2 machines, 2 machines, we've got another machine coming either towards the end of this year or early next year, and then we've secured an order for more, more next year. I want to be a little bit careful about how many -- how many exactly.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [38]
And if Ascend or Schwazze says you're shooting the lights out with [indiscernible] brand now has basically switched from the new style pre-roll. Would you give them access to machine? Or are we getting ahead of our association?
George Allen, Lowell Farms Inc. - Chairman of the Board [39]
It's a really tough question for us. It is a really tough question. I think the world is changing so quickly right now in terms of cannabis. Regardless of where we are from like a policy standpoint, cannabis is moving more freely around this country. And I don't know whether or not we want this product to be -- we don't know yet, whether we want this product to be some -- something that other people control.
I think it's -- I think we need to learn a little bit more about our capabilities and margin profile. It's a complicated -- this is a really complicated product to make, and it represents a tremendous amount of IP, a lot of which we acquired in the All Good transaction. So I'm really reluctant right now to [ use the future], where we just say, here are the keys, you guys can make this. And by the way, sure, go ahead and make whatever else you want. That feels a little dangerous. So then you're left with other options. Do you basically tell the consumer, the only way you're getting this product is come to California and get it? Or do you tell the consumer we're going to make the capital investments in your home state to try to replicate the experience? I don't know. I think it's too early to say.
Illicit is undoubtedly a big problem so it’s great to see them going after the cartel and ruthless criminal elements within the illicit market.
I still like Lowell’s chances a lot. The brand has staying power and George is ideally suited as its ambassador and champion. I’m waiting on how near term liquidity issues are handled, they’re on cash fumes while bulk, cpg and LFS segment s are not generating the margins they need to self fund much longer. They probably need $5 or $6M to shore up near term cash constraints.
I have had Lowell Farms on my watchlist for a long time. Several months ago, I did see the news that the California state government was going to start going after illegal grows. I decided to take a small stake in LOWLF, with the hope that the state and Feds would come down hard on the organized criminals that had taken over the illegal cannabis market. The only reason I stayed away from Cali weed companies was the illegal cannabis competition, it has prevented many from turning a profit. For too long the state had turned a blind eye to a huge problem.
https://www.washingtonexaminer.com/news/california-marijuana-illegal-farms-destroyed-los-angeles
https://2urbangirls.com/2022-08-la-seeks-to-enhance-enforcement-of-illegal-cannabis-operations/
Thanks for the insight on the latest earnings call.
Interstate commerce for cannabis will be a sea change in the industry, if Congress only could. Funny how most of the MSO's have limited licensing and getting $3k per pound and still can't turn a profit. Stiffer sentencing for illegal growers and more focus on Federal law enforcement going after the cartels is what is needed.
many people are missing a big narrative that is shaping up , Cali has announced a month ago 1 billion in efforts to reduce illegal cannabis
https://www.benzinga.com/markets/cannabis/22/08/28434552/lowell-farms-q2-revenue-grows-6-sequentially-despite-the-booming-illicit-cannabis-market
The quarter was quite disappointing across the board despite an incredible 12k lb harvest. Current liquidity concerns along with what has turned out to be a viciously competitive California market where both wholesale and retail margins have collapsed caused me to rethink my position for now. I’m back on the sidelines and want to see some recovery in CPG and licensing revs along with details of a probable private placement. It’s becoming clear in my mind that the 35’s are the make or break product for this company or else they’re just going to probably limp along in the low velocity premier brand pileup. George was very protective of his strategy on the cc showing just how cut throat competition has become. I will continue to keep close tabs on Lowell’s progress and updates from George and hopefully get back in as an opportunity presents itself. I agree, he’s a truly unique leader in this industry.
After listening to the call yesterday, it seems one of the better bright spots for lowell and their licensing agreement has took a turn for the worst they are averaging between 700k and 1 mil a quarter for the last three quarters, this quarter it was 300k Why was it only 300,000 .It's really simple they had nobody representing their product they just made a relationship with another MS0 who's solving its own problems to deal with they were unconcerned with Lowell.
George Allen the CEO mentioned on the call that they had people representing them now and those other states they did have an add running on LinkedIn last month looking for Representatives. so let's say they realized what has to be done and they put a plan into place to remedy that it's not going to happen overnight.Ultimately you still have the similar problem of really not controlling your product quality when your not manufacturing it , the standard proceedure is to make prerolls with shake or trim , who know what Ascend was doing and why after 9 months/3 Q's of solid Revenue , the sales fell off a cliff
The new line of Lowell 35's which is probably one of the bright spots for lowell will launch this month in California , however that would take a long time to materialise because he sensually they've invented a new way to consume cannabis in a very small pre-roll basically shaped like a cigarette what's an incredibly low price point for a wholesaler around ten bucks and to be retail around 20, Lowell realized That 90% of cannabis is consumed by the daily smokers and daily smokers don't really want to put down a joint and have to relight it after it goes out so 35's is Lowell solution to that problem . That takes time which will translate to competition , obviously Big tobbacco knows how to do this . The bigger difficulty is for them to do it in other states , to just a hand one of their proprietary machines over it isn't really a good idea because it won't take long for somebody to just break it down and make their own and steal all their IP, George Allen mentioned that the solution was not an easy one that he couldn't really give an answer and how they would grow that line in other states. and speculated that one possibility was to do it themselves, but that requires alot of capital
Truthfully almost everyone had or is headed for a down quarter. Particularly in California. They are moving in the right direction , Selling plane old cannabis is a race to the bottom its about Brands , and Lowell has one of the best
I have to say I believe George Allen is one of the brightest CEOs there is in cannabis. He appears to be very sincere and it's absolutely passionate about Lowell and their success
Lowell Farms Inc. Announces Unaudited Second Quarter 2022 Financial and Operational Results
SALINAS, Calif., Aug. 09, 2022 (GLOBE NEWSWIRE) -- 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.
Lowell Farms Inc. will report Q2 earnings after market closes on Tuesday, August 9. Investors are invited to join the earnings call with management at 5:30 p.m. EDT for a discussion of these recent financial and operational results.
https://t.co/0RAHYlxqie
To add to that guys comment, I think if George is able to scratch together just a little capital over the next few quarters, he will acquire at least one of these under-funded branded players. Lowell’s greenhouse and LFS platform feeding industrial scale equipment means they can radically alter marginal unit costs of any acquired competitors. Having said that I appreciate how intensely discerning he is with this process. “Miles of bad road in California cannabis…”. Look no further than the disastrous example of TPCO for an example of how plugging together assets can backfire.
Some more of the smaller private operators going out of business and, not a lot of upside for the public plays on a space that maybe, looked very attractive given their, really discounted valuations and interesting and differentiated and solid businesses, if you took out the challenging macro environment and that includes, one of my, one of the names I've long pitched is Lowell Farms.
I think Lowell (OTCQX:LOWLF) has a great business. It has a real brand. It's recognized amongst consumers and you even see it bear fruit with some of their licensing deals that they've announced. They have licensing deals with Schwazze. They have licensing deal with Ascend. There's a lot of interesting opportunity for Lowell, but I think that in the near term that that's a real headwind for both the publics and the privates in California
https://seekingalpha.com/article/4531453-cannabis-micromacro-picture-podcast-transcript
As long as you have such a disparate approach to legalized weed with protective “moats” by state line and high wholesale prices, these grow ops that can produce for $100 to $200 a pound in Cali or OK will continue to pop up wherever they can and then dump their product into these pricier markets. It’s good to see law enforcement go after these guys, especially the violent and dangerous cartel types, but it’s just an ongoing game of whack a mole as long as wholesale prices in some states are $3k a lb. The incentive is just too appetizing. At some point the greedy MSOs will be finally be aggressively lobbying for federal legislative reform as their margins are going to continue to compress.
Thanks for posting that article. I had no idea there were so many varying cartels in Cali. I’d always assumed most illicit growers were just locals with small legacy farms who couldn’t afford all the regulatory fees required to go legal. It’s ironic that it’s taking a water shortage for law enforcement to finally go after these operations but whatever it takes.
Many local officials and authorities in small municipalities in Cali are on the take from the Cartels. It's like the days of Al Capone and bootleg liquor, the original scar face had many politicians and law enforcement on the payroll, in the days of alcohol prohibition. Of course if someone did not cooperate with the Outfit, they were beaten or killed, the same occurs today will illegal cannabis operations.
It took the Federal and State government resources to overcome the local level of corruption back in the bootleg booze days. So it will be for the same for today's illegal cannabis market. Federal and State authorities realize how much tax money can be raked in, so there is finally an incentive to shut down illegal cannabis operations and prosecute those criminals.
Interesting to see that China and Russian mobs are now competing with South American Cartels. The FBI and State Police are the only effective means to curb the illegal Cali cannabis market, its the only way the legal weed business will survive. Drone surveillance is an inexpensive way to gather intel on these illegal grow sites, much less obvious then helicopters and planes.
The days of the mom & pop pot farms are over, they have been pushed out by organized crime. It's high time that the Feds gave this crime the same attention that was given to the New York and Chicago mobs back in 80's & 90's.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” — Paul Samuelson
— Compounding Quality (@QCompounding) July 30, 2022
Analyst P.I. Financial On 8/3
Lowell Farms Inc. (CSE-LOWL)
Price Target: C$1.10
Price (last): C$0.29
Rating: Buy
52-week High/Low: C$1.72/C$0.25
Shares Out. (basic): 100.5M
Shares Out. (fd): 280.8M
Market Cap: C$28M
Risk: SPECULATIVE
Return: 286.0%
Cash: C$5.9M
Debt: C$47.6M
This sounds doom and gloom ,,, but if you look at the opportunity for Experienced operators to benifit from decreased competition, and lower priced aquistions? just my 2 cents
https://www.cannabisbusinesstimes.com/article/midyear-corporate-cannabis-update-revenue-legislation/
This sounds doom and gloom ,,, but if you look at the opportunity for Experienced operators to benifit from decreased competition, and lower priced aquistions? just my 2 cents
https://www.cannabisbusinesstimes.com/article/midyear-corporate-cannabis-update-revenue-legislation/
It’s way more nuanced than this tweet. The reality is that illicit is growing and will steal more and more share from inefficient over-taxed MSO’s who think their state line “moats” protect them and foolishly believe they can retain those fat wholesale and retail margins. Margins are already eroding and will continue for these guys. This is the reason for Lowell’s pivot and I expect the far more expensive Lowell smokes sku to be extraordinarily overshadowed by Lowell 35’s once they hit the market. This is a velocity game. Listening to George’s take on this industry you really do get a sense of just how battle tested California players are. Stealing share from the legal and illicit competition ain’t easy.
Roth on 🇺🇸 #cannabis 🌿
— Todd Harrison (@todd_harrison) July 25, 2022
"We view the ~$65B+ illicit market as the largest opportunity in the U.S. to convert to the regulated market as more states approve cannabis. pic.twitter.com/MHdPWtd0EE
Go LOWLF
California Cannabis Enforcement Efforts Help Protect People, the Environment, and the Legal Market
Department of Cannabis Control slated to seize $1 Billion worth of illegal cannabis product
Excellent interview. Considering how tight Lowell is with Ascend, let’s hope they’re already in early discussions on an expansion into the NY market. Legal interstate commerce is sounding like it may be another 2 to 4 year wait and Lowell just doesn’t have the capital to properly enter NY, so the licensee model appears to be the cheapest most expedient path to expansion.
Yes agreed. $2M a quarter or hopefully an $8M + annual run rate exiting 22 for the licensees is nothing to sneeze at. And as these revenues grow this will improve the margin profile. And my guess is George will most certainly want to enter the NY market in 2023.
As I’d suggested recently, the tailwinds are mounting for Lowell and these low .20s were gift shares.
So far if you read the financials the Lic model is producing 750,000 k to1 mill per quarter for out of state Lic agreement , the current agreement with Ascend is 2 states with a 3rd coming on, The we get revenue Schwazze ramping of Col and NM later 2022 or early 2023 . that should produce when fully built out at least 2 mil per quarter and thats only 5 states . I know its a long way off and lots can happen but this is huge money once they get this model ramped up
The licensee model is a mixed bag. While it’s great in terms of expansion and deepening of brand awareness and reputation my understanding is Lowell only collects revenue of 15% wholesale. So despite licensee sales being impressive, little of this lands in Lowell’s coffers. The upside to the licensee model is virtually no costs to Lowell and with 3 more states coming online, the revenue run is certainly going to get better.
I also want to add that the relationships they are developing with other MSO's around the country ,,,recently SHWZ ( Starbuds in Co and R-Greenleaf in NM) they have a relationship Ascend wellness, AWH retail locations in Massachusetts and Illinois via a strategic licensing agreement. Michigan upcoming later this year as well i anticipate that revenue at least doubling to 2 mil per quarter if not more by year end and only increasing over time as more states come on, This is really huge margins
1) Recent quarterly cash burn was around $2.1M (down $7.9 to $5.8 sequentially). This was a huge improvement over the prior quarter.
2) The cult tax will impact Q3 forward as it went into effect July 1. It should be about $1.5M in quarterly tax savings ($160 per lb X 38K lbs).
3) The 15% excise tax is shifting from distributors to retail point of sale but this is just a change of who collects the tax, so no additional windfall for Lowell with this change.
4) Yes, the key for Lowell is scale, velocity and margins. Right now, they have the scale. Next they need to funnel formerly wholesale product into the retail cpg segment, enter the Lowell 35’s and I imagine their kid brother House weed prerolls. With the automated equipment on hand, it’s clear George envisions high velocity for Lowell’s prerolls. Margins are excellent for the 35’s.
Lowell's Q1 cash flow from operations was negative ($900k). They'll save $1.5M a quarter in cultivation tax now that it's been wiped out, so just right there that's enough to turn them positive on cash flow from operations. That's before any benefit from no longer paying a 15% tax on distributed goods and any impact from increased CPG revenue due to the expansion of the Lowell line into different flower offerings (like the quarters of big buds), carts, and concentrates. They have the capacity to handle the added CPG revenue by diverting flower that they would have sold wholesale, so margins will expand as they make more efficient use of their facilities.
Finished building my position. I view these prices as absolute gift shares similar to the ones I picked up when George came in to recap Indus over two years ago.
In terms of Cali:
The cultivation tax is out as of July 1.
Excise remains unchanged at 15%.
Retail dispensary license growth is finally gaining steam. 150 new licenses issued state wide since February.
Wholesale glut is still an issue - all the more reason for Lowell to funnel as much of their product through a growing retail channel.
Listening to George’s last 2 presentations it’s clear he is Lowell’s brand ambassador; he’s talking about an industrial scale pre-roll platform here, while completely unafraid to share his entire playbook with investors and competitors alike, which speaks to a level of immense confidence in their platform and this marquee product.
Lowell 35’s (rolling out soon) have huge product disruptor potential. I’m excited to see what kind of sales numbers we will see in coming quarters. I’d imagine there will be some cannabalization of the higher priced Lowell smokes sku but it’s clear the 35’s are being designed as a customer go-to product, a high velocity sku that only efficiently scaled up competitors will be able to try and price match. With one product rollout George is going after packaged flower, pre-rolls and illicit competitors. Very very large addressable market up for grabs. My money is on George and team. All imo.
Slowly scaling back into Lowell after a long absence. Share structure stinks but George and team are building something special in the California king maker market.
Headwinds:
- ongoing sector illiquidity, general market weakness and possible upcoming consumer recession.
- State regulatory and taxation stranglehold on the industry driving bankruptcies while emboldening/growing the illicit market.
- Federal legislative blockade on industry support and reform along with punitive 280e taxation clause.
- Cali outdoor supply glut hemorrhaging margins and will need a large amount of suppliers to come offline to reach the bottom.
Tailwinds:
- Proposed California cultivation tax moratorium as of July 1. If it passes, that is about $160 a pound or close to $6.4M in annual savings for Lowell.
- Q1 was low water mark for the LFS segment as they shift from outdoor clients to a more consistent supply source of indoor grown product.
- The team has done a remarkable job at reducing opex and managing their very tight cash position and appear on the brink of profitability.
- The Lowell 35 pre roll rollout this summer appears to be an industry disruptor setting a standard of exceptional quality for deep value that could steal significant share at a pricing point that only scaled up highly efficient operations could compete with.
- Continuing licensee success and expansion with very limited costs or marketing.
GAME ON
So excited. #Weedinnovation pic.twitter.com/7gu2lLnihD
— George Allen (@G4Geronimo) May 24, 2022
$LOWLF stated clearly on last weeks' EC "our liquidity leaves very little room for error". My full call quotes attached which offer lots of insights into the CA operating environment pic.twitter.com/B1upchpvbr
— LogicPrevails (@LogicPrevails_) May 17, 2022
This market is in its infancy. At some point, in the States, it will be a commodity, taxed and regulated like all others. The psychoactive properties will always have some measure of control, like alcohol.
Medical patients in my State allow up to 5 plants at one time.
Cannabis should of been the same as coffee and tea.
They are taxed, have quality control and sold everywhere.
Local farmers market would be ideal.
Let the bio farmer work his field and make a living.
Cannabis Act was implemented by Chief of Police Bill Blair.
It does,nt work and never will.
There will be no incentive to bust legacy when canna ounces go for 10$.
On line stores are allready selling ounces for 49$.
But it is still too pricey.
Are you aware that LP,s have been lubbying Gov. to bust legacy growers?
Putting folks in jail for a plant is not helping your share prices any...
There is some progress. Thailand lets any individual grow any amount.
LPs stock market Ponzi will eventually pop-O-la
Cannabis is not the problem here. Arresting canna growers is...
No prison for pot.
Free the weed!
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