Lowell Farms Misses On Revenue As It Moves Into Eastern Markets

Lowell Farms Inc. (CSE: LOWL; OTCQX: LOWLF) second-quarter results missed expectations — showing how producers have been eating their own margins by lowering prices, as many have pivoted toward crisis mode amid a lack of regulatory action and a tightening economic landscape. The company released its financial results for the second quarter ending June 30, 2022.

The company missed total revenue expectations as it delivered approximately $13.2 million during the period — missing the Yahoo Finance Average analyst estimate for revenues of $19.98 million.

Lowell Farms reported revenues of $13.2 million for the second quarter of 2022, an increase of 6% sequentially and down 13% from the same quarter last year — reflecting a 51% reduction in bulk flower pricing year over year. Bulk flower revenue increased 94% sequentially while declining 37% from second-quarter levels last year due to lower pricing.

“California cannabis is in the middle of a fight for survival,” said board chairman George Allen. “There are fewer chairs at the table than there are attendees. We will prevail through innovation and branding, and not by lowering our prices.”

The company reported gross margin of 11.3% in the second quarter versus 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, versus $4.0 million or 33% of sales in the previous quarter and $6.2 million or 41% of sales in the first quarter last year, reflecting cost reductions realized in the current year.

The company also reported a second-quarter 2022 GAAP net loss of $4.6 million versus a net loss of $4.1 million last quarter, and a net income of $700,000 in the same period last year. Diluted loss per share in the fourth quarter was $2.24 versus diluted earnings per share of $0.11 in the same period last year.

Non-GAAP income before interest, taxes, depreciation, amortization and share-based compensation (Adjusted EBITDA) was a loss of $1.1 million in the second quarter — down 22% from a loss of $900,000 in the previous quarter — versus earnings of $700,000 in the same period last year.

The company said it is focused on refining its cultivation processes, genetics, and facilities continue to improve the yield, potencies, and increase margins quarter over quarter.

“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.”

The legal industry will continue to languish behind an expansive illicit market that has always been able to offer more competitive pricing and bypass state taxes, rules and regulations that have burdened operators struggling make it in the world’s oldest legal marijuana market.

California’s Democratic Gov. Gavin Newsom signed into law last month solutions meant to remedy the tax burden for many businesses in the state – eliminating a weight-based tax for cannabis growers but leaving the 15% tax on retail sales. The bill also allows the state to eventually raise retail taxes to make up for the lost cultivation revenue.

Decelerating consumer growth in Western states such as California and Colorado “suggests that the most established markets are nearing saturation of consumer participation, which stands in sharp contrast to the rapid growth happening in new and emerging markets,” according to a report by Colorado-based cannabis data firm BDSA Analytics.

Adam Jackson

Adam Jackson writes about the cannabis industry for the Green Market Report. He previously covered the Missouri Statehouse for the Columbia Missourian and has written for the Missouri Independent. He most recently covered retail, restaurants and other consumer companies for Bloomberg Business News. You can find him on Twitter at @adam_sjackson and email him at adam.jackson@crain.com.

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