Flower One Archives - Green Market Report

Flower One Holdings Inc. (CSE: FONE) (OTCQX: FLOOF) released its financial and operating results for the first quarter ending March 31, 2021, with revenue rising 53% to $13.9 million over last year’s $8.8 million. This topped the previous guidance from Flower One of $13.5 million and was a big jump sequentially over the fourth quarter’s $9.7 million. Flower One reported an income from operations of $3.8 million and a net loss of $10.6 million. The company said the net loss resulted from $9.5 million of finance expenses, fair value losses on derivatives, losses on note modifications, and foreign exchange losses.

“In the first quarter of 2021 we reported the best performance in the history of the Company, as the impact of the restructuring and operational improvements began to show results,” said Kellen O’Keefe, Flower One’s President & Interim CEO. “With the new board of directors and management in place, we have taken the first steps towards positioning Flower One for long-term success. We are focused on the financial discipline and operational excellence required to meet or exceed projections and achieve cash flow positivity. We believe we are closer than ever to meeting these objectives, as we continue to capitalize on the return of tourism in Nevada. Over the past several months, we have improved the quality of cannabis that comes out of our facility, which has enabled us to generate a significantly higher average price per pound. Our commitment to quality has been very well received by the market, allowing us to gain nearly 25% share of the wholesale market and become the largest producer of cannabis in Nevada.”

Balance Sheet Improvements

Beginning in January, Flower One underwent a complete restructuring transaction of its debt, which was completed in the second quarter of 2021. The successful debt restructuring, net proceeds from the convertible debenture financing and improved operating results enabled it to significantly improve its liquidity position by the quarter-end. General and administrative expenses for the quarter totaled $7.4 million (which included approximately $1.5 million of one-time/non-recurring expenses associated with the corporate restructure) vs. $6.2 million during the first quarter of 2020 and $8.2 million during the fourth quarter of 2020. This improvement resulted from the new management’s focus on cost rationalization, offset partially by higher cannabis taxes related to higher sales.

“Due to the corporate restructure-related debt reductions and uses of proceeds from the January and March financings to reduce payables and other obligations, the Company’s liquidity position improved significantly. Given performance to date in Q2 and the April restructure of our Canadian Debentures, we expect further improvements as we continue to scale up and reduce costs,” noted Richard Groberg, Flower One’s Interim CFO.

Second Quarter Guidance

Flower One gave its second-quarter 2021 preliminary unaudited revenue guidance of $16-$18 million.  Groberg said, “Given that new management didn’t assume full control until the end of January 2021, these results did not reflect the full impact of the new management’s strategies in terms of product allocation, pricing, product yield, cost of cultivation, harvesting, and production. Looking ahead, we will continue to automate production at our facilities, where possible, which will enhance our ability to produce more at a lower all-in cost per gram. While first-quarter 2021 was a record quarter, we expect our financial performance to continue to improve and for growth to accelerate throughout the remainder of the year, as reflected in our preliminary second-quarter 2021 guidance.”

Flower One Holdings Inc. (OTCQX: FLOOF) announced unaudited preliminary first-quarter revenue guidance of $13.5 million. Flower One said that it expects to announce the date for its filing of the fiscal 2020 year and first quarter 2021 in the coming weeks.

The company hasn’t reported results since the third quarter ending in September 2020 when revenues were $11.9 million.

“We are extremely proud of our team and the tremendous collaborative effort put forth by so many to successfully restructure Flower One and become the top producer in Nevada,” said Kellen O’Keefe, Flower One’s President and Interim CEO. “For us to have accomplished what we have under the circumstances was nothing short of remarkable and something our entire team can be very proud of. As a company, we have never been in a stronger position and will emerge from the pandemic a different company on an entirely new trajectory. We continue to break records month after month, ending April with all-time high monthly sales and the highest average selling price per pound in our company’s history. We are extremely well-positioned for future growth as Vegas comes back online; and, we welcome the first Cookies store to the strip this week.”

Flower One also reported that as of March 2021, it is the top flower provider in the state of Nevada, recognizing both the number one (Cookies) and number two (NLVO, the Company’s in-house brand) as top-selling flower brands in the state. The company said that in addition to holding the two top-selling flower brands, it is also the leading producer of distillate, bulk, and white label flower sales in the state of Nevada.

Other highlights in the company’s statement included:

• The Company’s yielding cultivation analytics are reported up to 135.7 grams per plant through the first quarter of 2021, at an average cost per gram of USD$0.58. The Company has historically has reported its average cost per gram to be between USD$0.40-0.69;
• Through updates to its post-harvesting process (drying, curing, trimming and packaging), the Company has recognized over 300% growth in its processing capacity in the first quarter of 2021, in comparison to the fourth quarter of 2020.

Debt Restructuring/ New CEO

In April, the company announced that it converted 60% of the principal amount of the Debentures for units comprised of one common share and ⅚ of a warrant- resulting in the total principal amount of the 9.5% unsecured debentures due March 28, 2022, being reduced from C$42,471,000 to C$16,988,400; and, the total principal amount of the 9.5% unsecured convertible debentures due November 15, 2022, being reduced from C$9,276,000 to C$3,710,400. The company had defaulted on payments such as $262,500 due on January 1, 2021 in connection with a loan from RB Loan Portfolio I, LLC  and lease payments in the amount of $526,677 due on January 5, 2021 in connection with the company’s lease of the greenhouse facility located at 3950 North Bruce Street in North Las Vegas.

In January Kellen O’Keefe was appointed from his previous position of Chief Strategy Officer to Flower One’s President and Interim Chief Executive Officer.

Flower One Holdings Inc.  (OTCQX: FLOOF) completed an initial debt restructuring, closed on $10 million of a non-brokered convertible debenture offering that could rise to $25 million, and made changes to its Board of Directors and executive management team. The company recently defaulted on payments such as $262,500 due on January 1, 2021 in connection with a loan from RB Loan Portfolio I, LLC  and lease payments in the amount of $526,677 due on January 5, 2021 in connection with the company’s lease of the greenhouse facility located at 3950 North Bruce Street in North Las Vegas.

Flower One had also not paid the January lease payment of $248,268 in connection with the lease of its cultivation and production facility at 343 Neeham Road in North Las Vegas, and interest payments due on two other loans (totaling $152,306 and $27,575), all of which were due January 1, 2021.

“Coupled with the Board and Management changes, the combination of the cash infusion, debt conversions, and debt and lease restructurings better positions the company’s Balance Sheet and debt service obligation,” said Interim CFO Richard Groberg. “With these steps, as well as recent cost rationalizations, Flower One has more flexibility to further its evolving cultivation, production, and sales strategies to serve the expanding Nevada market for cannabis consumption.”

New CEO

Kellen O’Keefe has been appointed from his previous position of Chief Strategy Officer to Flower One’s President and Interim Chief Executive Officer. Ken Villazor stepped down as Flower One’s Chief Executive Officer, President, and Chairman of the Board, positions he has held since January 1, 2018. Salpy Boyajian has been appointed as Executive Vice President, from her previous position of COO of Nevada Operations, and also has been appointed as Chairman of the Board.

“Today marks a transformational moment in Flower One’s history as we welcome prominent, industry-leaders to our Board of Directors as well as further strengthening our management team,” said O’Keefe. “We have taken the first steps towards properly capitalizing the business, restructuring our debt, and better positioning the Company for long-term success. We are excited about the future for cannabis in Nevada and are committed to our promise to deliver exceptional quality cannabis at accessible prices.”

Debt Restructuring

Flower One reached a modification agreement with its secured lender, RB Loan Portfolio II with respect to its existing $30 million term debt and with RB Loan Portfolio 1, LP, for an existing $16.9 million equipment financing. The company extended the maturity date from June 27, 2021, to December 21, 2021, and modified the interest rate to 14%, with 12% paid monthly and 2% paid at maturity, and the addition of an “Exit Fee” of $1 million payable upon payment in full of the Term Loan on the Maturity Date. Certain conditions were placed on the loan modification and the company listed them as follows:

• the requirement that the Company pay certain previously defaulted obligations
• that the Company complete of at least the Initial New Equity and the Subsequent New Equity by March 5, 2021
• a Loan Modification Fee equal to 3% per annum on the outstanding principal of the Term Loan from May 19, 2020 until the “Effective Date” of the Term Loan Modification (January 25, 2021)
• Flower One common shares in an amount equal to US$1,200,000 (with such common shares is subject to a six month lock-up agreement)
• the grant of one-half warrant for each share granted, such warrants being exercisable for three years at a price of C$0.31, and reimbursement of Lender expenses

The company also entered into a Lease Modification Agreement with regard to the Master Lease Agreement dated February 1, 2019, for equipment lease financing of certain equipment at the Bruce St. Facility, pursuant to which the Lessor has agreed to forbear existing events of default and make certain modifications to Master Lease. The company was able to reduce the monthly payments. In connection with the Loan Modification Agreement, the company has issued US$1,200,000 worth of equity units.

Flower One closed on $10 million of a non-brokered Convertible Debenture Offering of up to $25 million “Debenture Units”. The company said expects to close the second tranche of the Offering at or about the end of February 2021. The net proceeds are intended to be used for working capital, previous debt obligations, and general corporate purposes. In connection with the initial closing under the offering, the company issued a total of 12,824 Debenture Units at a price of C$1,000 per Debenture Unit.

New Board Members

New additions to the Board include Mitchell Kahn, Eliza Gairard, and Kellen O’Keefe, effective January 26, 2021. Mr. Kahn, Mrs. Gairard, and Mr. O’Keefe will join the Board in addition to current Directors, Salpy Boyajian and Nitin Kaushal. Nitin Kaushal, who was recently appointed to the board, will serve as the Chair of the Company’s Audit, Risk and Finance Committee. Effective January 26, 2021, Amit Varma, David Wesley, and Ken Villazor have stepped down from the Board.