Flowr Corp: Overlooked Cannabis Player Poised to Double Again in 2019

Flowr Corp: Overlooked Cannabis Player
iStock.com/Aleksandr_Kravtsov

Flowr Corp: Demand for Premium Cannabis Is Growing

When it comes to cannabis stocks, Flowr Corp (OTCMKTS:FLWPF, CVE:FLWR) has been one of the most reliable pot stocks in 2019, up 42%. It is also one of the few weed stocks to report any gains in May, advancing 4.3%.

Now, a gain of that magnitude isn’t something one would normally champion, but compared to the S&P 500, which tumbled 6.7%, and the Horizons Marijuana Life Sciences Index ETF (OTCMKTS:HMLSF, TSE:HMMJ), which cratered more than 13%, Flowr stock was a big winner in May.

Stocks across the board sold off in May after President Donald Trump ramped up his tariff threats with China and Mexico, two of the country’s top three trading partners. Canada is the United States’ second-biggest trading partner. A 25% tariff on Canadian imports seems unlikely at this point.

Still, a trade war with China and Mexico sent chills throughout the markets, with fears of an economic slowdown weighing down stocks.

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FLWPF stock has managed to avoid the fate that seems to have sent most marijuana stocks lower.

It certainly didn’t hurt that Flowr Corp reported solid financial results on May 17. Then on May 23, the company announced that it received listing approval by the Nasdaq, which will give Flowr stock a lot more exposure. The trading date has not yet been announced.

Flowr Corp Overview

Flowr has differentiated itself from its competition by growing ultra-premium medicinal and recreational cannabis. And the company sells its products at some of the highest price points in Canada. (Source: “Investor Presentation May 2019,” Flowr Corp, last accessed June 6, 2019.)

Growing premium-quality cannabis is difficult, but it’s worth the effort. It’s not the higher-priced, premium legal marijuana that has been driving cannabis connoisseurs back to the black market. It’s the poor-quality products found in many parts of the legal market.

More and more weed consumers understand the risks of using pesticide- and mold-laden illicit pot, and are attracted to federally regulated, premium-quality products from companies like Flowr.

The company currently sells its products in five Canadian provinces (British Columbia, Manitoba, Nova Scotia, Ontario, and Saskatchewan). On top of that, “FlowrRx,” the company’s medical brand, is distributed exclusively through Shoppers Drug Mart; the largest pharmacy chain in Canada, with roughly 1,300 locations.

Shoppers is currently the only pharmacy in Canada with a license to sell cannabis. This gives Flowr Corp a huge leg up on the competition; health insurance companies will only reimburse clients for medical cannabis if they purchase it from a pharmacy. Right now, FlowrRx is the most expensive cannabis you can purchase at Shoppers Drug Mart.

Expanding Production

Flowr grows its premium-quality cannabis at its 85,000-square-foot facility in Kelowna, British Columbia, which geographically is pretty much like Napa, California: hot and dry.

The first phase of the Kelowna site will be completed in the third quarter of 2019. By the end of that year, the company expects that all 20 grow rooms at its Kelowna campus will be propagated.

The second phase will be four times bigger. The company hopes that its Kelowna facility will be completed and reach total growing capacity in 2021. By then, Flowr expects to be able to produce over 50,000 kg (110,230 lb) of premium flower annually.

That production number total does not include “Flowr Forest,” a greenhouse and outdoor production facility that Flowr plans to build next to its flagship Kelowna property.  It will consist of 42 greenhouses that are 4,500 square feet and outdoor growing space that is 150,000 square feet.

The 42 greenhouses will be constructed once the company receives approval from Health Canada.

In December, Flowr Corp announced that it expanded its operations into the global markets by acquiring a 19.8% interest in Holigen Limited, a large-scale cannabis producer with operations in Portugal and Australia.

The Portugal site has an annual growing capacity of over 500,000 kg (1.1 million lb) over seven million square feet. Phase 1 of the Portugal facility will be roughly 968,800 square feet and should be operational by mid-2019, with annual production capacity of 77,500 kg (170,850 lb).

To put that massive size into proportion, the second-largest announced European marijuana growing operation attached to a Canadian licensed producer belongs to Hexo Corp. (NYSEAMERICAN:HEXO). At 350,000 square feet, it is just five percent of Holigen’s scale.

Holigen has an additional 260,000 square feet of production space in Australia.

FLWPF Stock Information
Market Cap $411.4 Million
52-Week High $6.30
52-Week Low $2.18
Shares Outstanding 86.5 Million
Float 54.0 Million
50-Day Moving Average $5.07
200-Day Moving Average $3.93

(Source: “The Flowr Corporation (FLWPF),” Yahoo! Finance, last accessed June 6, 2019.)

2018 Revenue Up 465%

On May 17, Flowr Corp announced its financial results for the first quarter ended March 31, 2019.

Revenue for the quarter came in at $1.6 million, compared to “nil” in the same quarter a year earlier. In the fourth quarter of 2018, the company reported revenue of $2.8 million. (Source: “The Flowr Corporation Announces Results for the First Quarter 2019,” Flowr Corp, May 17, 2019.)

Net loss for the first quarter of 2019 was $5.8 million ($0.06 per share), compared to a loss of $2.5 million ($0.03 per share) in the same prior-year period, and compared to a loss of $6.0 million ($0.10 per share) in the fourth quarter of 2018.

During the first quarter, the company sold approximately 211 kg (465 lb) of premium cannabis, at an average price per gram of $7.70, a quarter-over-quarter increase of nine percent.

The company also produced roughly 280 kg (617 lb) of cannabis during the quarter, compared to 259 kg (570 lb) in the fourth quarter of 2018.

At the end of the first quarter, 10 out of a planned 20 rooms were licensed and ready to use, with plants propagated in eight of the rooms.

Production in the first quarter did not include the addition of four grow rooms. Those rooms were propagated during the quarter but the increased production wasn’t realized until the beginning of the second quarter.

Also during the first quarter, the company continued to work on its Holigen project and continued to advance the preparation work for its Flowr Forest project.

“Our team in Kelowna is doing a tremendous job balancing our construction schedule, propagating and harvesting from rooms as they come online, and refining our cultivation process as we dial in our facility,” said Flowr CEO Vinay Tolia.

“We doubled the number of rooms available for propagation during the quarter and began harvesting from some of the additional rooms in the second quarter. At the same time, we continued to optimize processes and delivered improved yields compared to last quarter.”

Analyst Take

Flowr Corp continues to be one of the best overlooked cannabis plays out there. Its high-cost, high-quality, premium cannabis is in big demand.

Furthermore, the company has been reporting strong financials, it is expanding its production capacity, and its stock will begin trading on the Nasdaq in the near future.

With all that in mind, we could see Flowr stock double in value.