It was near midnight on Monday when Flower One Holdings Inc. (CSE: FONE) (OTCQB: FLOOF) posted results that missed expectations as the company reels from consecutive periods of revenue drop amid financing concerns. The Nevada-based cannabis cultivator and producer released its financial report card for the second quarter ending June 30, 2022.
The company reported revenue of $7.9 million in the second quarter — below the Yahoo Finance Average analyst estimate for revenues of $9.6 million.
The company lent its woes to some of the same issues stated in the previous quarter, citing the pandemic’s effects on Nevada’s cannabis market in addition to a “thriving” illicit market, which has resulted in price compression and decreased statewide cannabis sales. Tourist activity in the state has continued to slowly rebound to pre-pandemic levels, it said, though still remains far below company expectations amid the reductions in conferences, corporate and international travel.
The company posted a net loss of $5.4 million for the quarter, versus a net loss of $1 million for the same period last year. The earnings were a loss of one cent per share, in line with Yahoo estimates.
“Despite best efforts from our team to continue to produce the best quality cannabis we can at the lowest possible price, we face significant market pressures and with our current cash burn rate we must continue to explore all avenues to source working capital, and there is no guarantee that the company will receive this funding,” said CEO Kellen O’Keefe.
Cost of sales for the second quarter was $6.9 million, versus $11 million from the same period last year. The company said that the drop in gross margin is a direct result of wholesale price compression driven by top-line market softening and increased supply.
Second quarter 2022 gross profit before fair value adjustments was $1 million, versus $7.2 million from the same quarter last year. The company said that the drop in gross profit is directly attributable to wholesale price compression, “as well as an increase in consumer incentives, such as pricing discounts and other promotions, in order to maintain market position for both in-house and brand partner products.”
In Flower One’s filing, the company said that it needs “adequate capital resources” to support its ongoing operations and development, adding that assessing its viability as a company “requires judgments about the company’s ability to execute its strategy by funding future working capital requirements.”
The company had cash and cash equivalents of $3.6 million, versus $2.2 million in the same period last year. The company’s overall liability balance has increased by $11.9 million since the end of last year. The company’s total liabilities are $138 million.
“While still navigating through a challenging global economic environment, we continue to strengthen and refine our ability to decrease and control our costs,” said CFO Araxie Grant. “In the second quarter we significantly reduced our operating expenses, and continue to practice the financial discipline required to give the company the chance to achieve positive cash flow.”