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Flora Growth Reports First Quarter 2023 Financial Results

  • Flora generated $20.1 million in revenue in Q1 2023, a 307% increase year-over-year.
  • Gross profit for Q1 2023 increased 105% year-over-year, to $5.5 million.
  • Posting a net loss of $3.9 million for Q1 2023 (decreased from Q1 2022). New leadership plans to further reduce expenses and focus on organic revenue growth.

Flora Growth Corp. (NASDAQ: FLGC) (“Flora'' or the “Company”), a global cultivator, manufacturer, and distributor of cannabis products and brands, reported today its financial and operating results for the quarter ended March 31, 2023. All financial information is provided in U.S. dollars unless indicated otherwise.

“As I take the reins of the organization, I am pleased to share the results of the first quarter of 2023, which included increased revenue generation for the Company,” said Hussein Rakine, newly appointed CEO of Flora. “The first quarter was focused on strengthening our operational performance, focusing on financial discipline, and optimizing the integrations of all our M&A transactions. Our House of Brands continued to be the primary revenue-generating pillar, posting sequential growth and steady margins. Our Commercial and Wholesale division was positively impacted by the addition of our German distribution business while our pharmaceutical initiatives continued to progress.”

Rakine continued, “However, the first quarter was not without its challenges which included impediments in our ability to export cannabis from Cosechemos, delays in the realization of operating expense reductions, and the prior period’s M&A-related transaction costs and liabilities, all affecting both the Company's liquidity position and ability to fully realize our strategic plan for the quarter.

With respect to the challenges in exporting cannabis, we did not have the inventory of premium cannabis material required for the fulfillment of pending purchase orders and purchase intent notices in the first quarter. In addition, the export process from Colombia has proven to take longer and operate with less consistency than we had anticipated. Additionally, despite implementing various cost-saving initiatives to lower operating expenses, the Company has not yet achieved its ultimate organization-wide cost-reduction goals. To address this challenge, we will continue exploring various strategies to reduce operating costs.”

Rakine noted, “If we are not successful in meeting our business plans we may continue to face cash flow deficiencies. As a result, we may explore debt, equity financing or strategic alternatives to fund continued operations.

My priority is to further optimize the organization, reduce spend and focus on organic growth in revenue areas which offer the highest margin contribution and return on investment. I look forward to sharing our progress in the coming months, as we seek to chart the path to unlock the most shareholder value possible. I would like to thank the Flora team for their hard work and for welcoming me into my new role.”

Q1 2023 Financial and Operational Summary

  • 1Q2023 revenue of $20.1 million, representing a 307% increase year-over-year and the highest revenue-generating quarter in the Company’s history.
  • Expanding revenue generation in the quarter and for the House of Brands segment, which contributed $14.2 million of the total revenue.
  • The Commercial and Wholesale segment delivered nearly $8.0 million in revenue, driven by the German-based pharmaceutical distribution subsidiary.
  • Gross profit for 1Q2023 increased by 105% year-over-year to $5.5 million.
  • Gross margin was 27%, a decrease from 54% in 1Q2022. This expected reduction was primarily driven by the contribution of lower-margin sales in the German pharmaceutical distribution subsidiary.
  • Adjusted EBITDA loss for 1Q2023 was $1.4 million, compared to a loss of $3.4 million in 1Q2022.
  • Adjusted EBITDA margin for 1Q2023 improved to -7% from -69% in 1Q2022. This improvement is in line with our expectations for the quarter.
  • Net loss for the period was $3.9 million, as compared to $7.6 million for Q12022, and net loss margin for Q12023 improved to -19% from -154% in Q12022.
  • Operating expenses for Q12023 were $8.6 million, a 17% decrease year-over-year.
  • As a percentage of sales, operating expenses for 1Q2023 decreased to 43% from 209% in 1Q2022.
  • As of March 31, 2023, the Company had approximately $5.3 million in cash and cash equivalents as compared to $9.5 million as of December 31, 2022.
  • Delays with revenue capture from Cosechemos, challenges in the realization of overhead reductions, and acquisition-related costs and liabilities continue to be the primary contributors to the Company’s liquidity position.

About Flora Growth Corp.

Flora Growth Corp. is a global cannabis company dedicated to bringing the benefits of cannabis to people worldwide. Our commitment is to create, master and connect the international cannabis supply chain by setting the standard for world-class cultivation and manufacturing, thoughtful brand development, and rigorous research and development of medical-grade cannabis products that meet the highest standards of quality, safety, and efficacy. Our mission is to create a world where the benefits of cannabis are accessible to everyone, and we are working toward that goal by becoming a leading importer and exporter of cannabis to meet demand in every corner of the market. Visit www.floragrowth.com or follow @floragrowthcorp on social media for more information.

Cautionary Statement Concerning Forward-Looking Statements

This press release contains ‘‘forward-looking statements,’’ as defined by federal securities laws. Forward-looking statements reflect Flora’s current expectations and projections about future events at the time, and thus involve uncertainty and risk. The words “believe,” “expect,” “anticipate,” “will,” “could,” “would,” “should,” “may,” “plan,” “estimate,” “intend,” “predict,” “potential,” “continue,” and the negatives of these words and other similar expressions generally identify forward looking statements. Such forward-looking statements are subject to various risks and uncertainties, including those described under the section entitled “Risk Factors” in Flora’s Annual Report on Form 10-K, previously filed with the SEC on March 31, 2023, as amended April 28, 2023, as such factors may be updated from time to time in Flora’s periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in Flora’s filings with the SEC. While forward-looking statements reflect Flora’s good faith beliefs, they are not guarantees of future performance. Flora disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes after the date of this press release, except as required by applicable law. You should not place undue reliance on any forward-looking statements, which are based only on information currently available to Flora (or to third parties making the forward-looking statements).

About non-U.S. GAAP measures

Adjusted EBITDA is a non-U.S. GAAP financial measure that does not have any standardized meaning prescribed by U.S. GAAP and may not be comparable to similar measures presented by other companies. We calculate Adjusted EBITDA as total net loss, plus (minus) income taxes (benefit), plus (minus) interest expense (income), plus depreciation and amortization, plus (minus) non-operating expense (income), plus share based compensation expense, plus goodwill and other asset impairment charges, plus (minus) unrealized loss (gains) from changes in fair value, plus charges related to the flow-through of inventory step-up on business combinations, plus other acquisition and transaction costs. Management believes that Adjusted EBITDA provides meaningful and useful financial information as this measure demonstrates the operating performance of the business.

Adjusted EBITDA margin % is a non-U.S. GAAP financial measure that does not have any standardized meaning prescribed by U.S. GAAP and may not be comparable to similar measures presented by other companies. We calculate Adjusted EBITDA margin % as Adjusted EBITDA, as described above, divided by revenue for the period.

For a reconciliation of these non-U.S. GAAP financial measures to the most directly comparable U.S. GAAP financial measures, please see Table 4 under "Reconciliation of GAAP to non-U.S. GAAP financial results" included at the end of this release.

Table 1. Condensed Interim Consolidated Statements of Financial Position

(in thousands of United States dollars, except share amounts which are in thousands of shares)

 

 

 

 

As at:

 

March 31, 2023

 

December 31, 2022

ASSETS

 

 

 

 

Current

 

 

 

 

Cash

$

5,259

 

$

9,537

 

Trade and amounts receivable, net of $3,024 allowance ($2,988 at December 31, 2022)

 

6,729

 

 

6,851

 

Loans receivable and advances

 

273

 

 

271

 

Prepaid expenses and other current assets

 

1,875

 

 

978

 

Indemnification receivables

 

3,432

 

 

3,429

 

Inventory

 

10,311

 

 

10,089

 

Total current assets

 

27,879

 

 

31,155

 

Non-current

 

 

Property, plant and equipment

 

4,968

 

 

4,810

 

Operating lease right of use assets

 

2,345

 

 

2,537

 

Intangible assets

17,470

 

 

18,096

 

Goodwill

23,372

 

 

23,372

 

Investments

730

 

 

730

 

Other assets

 

276

 

 

287

 

Total assets

$

77,040

 

$

80,987

 

LIABILITIES

 

 

 

 

Current

 

 

Trade payables

$

6,322

 

$

7,748

 

Contingencies

 

4,998

 

 

5,044

 

Current portion of debt

 

1,086

 

 

1,086

 

Current portion of operating lease liability

 

1,241

 

 

1,188

 

Other accrued liabilities

 

1,852

 

 

2,381

 

Total current liabilities

 

15,499

 

 

17,447

 

Non-current

 

 

Non-current operating lease liability

 

1,614

 

 

1,869

 

Deferred tax

 

1,616

 

 

1,712

 

Contingent purchase considerations

 

4,699

 

 

3,547

 

Total liabilities

 

23,428

 

 

24,575

 

SHAREHOLDERS' EQUITY

 

 

Share capital, no par value, unlimited authorized, 136,938 issued and outstanding (135,573 at December 31, 2022)

 

-

 

 

-

 

Additional paid-in capital

 

150,403

 

 

150,420

 

Accumulated other comprehensive loss

 

(2,375

)

 

(2,732

)

Deficit

 

(93,976

)

 

(90,865

)

Total Flora Growth Corp. shareholders’ equity

 

54,052

 

 

56,823

 

Non-controlling interest in subsidiaries

 

(440

)

 

(411

)

Total shareholders' equity

 

53,612

 

 

56,412

 

Total liabilities and shareholders' equity

$

77,040

 

$

80,987

 

Table 2. Condensed Interim Consolidated Statements of Loss and Comprehensive Loss

(in thousands of United States dollars, except per share amounts which are in thousands of shares)

For the three

months ended

March 31, 2023

For the three

months ended

March 31, 2022

Revenue

$

20,107

 

$

4,946

 

Cost of sales

 

14,630

 

 

2,276

 

Gross profit

 

5,477

 

 

2,670

 

Operating expenses

Consulting and management fees

 

4,040

 

 

2,444

 

Professional fees

 

33

 

 

1,249

 

General and administrative

 

528

 

 

922

 

Promotion and communication

 

1,314

 

 

2,549

 

Travel expenses

 

139

 

 

242

 

Share based compensation

 

654

 

 

1,526

 

Research and development

 

16

 

 

210

 

Operating lease expense

 

366

 

 

207

 

Depreciation and amortization

 

942

 

 

454

 

Bad debt expense

 

29

 

 

1

 

Other expenses (income), net

 

493

 

 

528

 

Total operating expenses

 

8,554

 

 

10,332

 

Operating loss

 

(3,077

)

 

(7,662

)

Interest expense (income)

 

23

 

 

(21

)

Foreign exchange (gain) loss

 

(12

)

 

(11

)

Unrealized loss from changes in fair value

 

883

 

 

-

 

Net loss before income taxes

 

(3,971

)

 

(7,630

)

Income tax recovery

 

(66

)

 

-

 

Net loss for the period

$

(3,905

)

$

(7,630

)

Other comprehensive gain (loss)

Exchange differences on foreign operations, net of income taxes of $nil ($nil in 2021)

$

357

 

$

(577

)

Total comprehensive loss for the period

$

(3,548

)

$

(8,207

)

 

Net loss attributable to:

Flora Growth Corp.

$

(3,876

)

$

(7,566

)

Non-controlling interests in subsidiaries

 

(29

)

 

(64

)

Comprehensive loss attributable to:

Flora Growth Corp.

$

(3,519

)

$

(8,143

)

Non-controlling interests in subsidiaries

 

(29

)

 

(64

)

Basic and diluted loss per share attributable to Flora Growth Corp.

$

(0.03

)

$

(0.11

)

Weighted average number of common shares outstanding - basic and diluted

 

132,868

 

 

69,604

 

Table 3. Condensed Interim Statement of Cash Flows

(in thousands of United States dollars)

 

For the three months

ended March 31, 2023

For the three months

ended March 31, 2022

Cash flows from operating activities:

 

Net loss

 

$

(3,905

)

$

(7,630

)

Adjustments to net loss:

 

Depreciation and amortization

 

 

942

 

 

454

 

Stock-based compensation

 

 

654

 

 

1,715

 

Changes in fair value of investments and liabilities

 

 

883

 

 

-

 

Bad debt expense

 

 

29

 

 

1

 

Interest expense (income)

 

 

23

 

 

(21

)

Interest paid

 

 

(23

)

 

(17

)

Income tax recovery

 

 

(66

)

 

-

 

 

 

 

(1,463

)

 

(5,498

)

Net change in non-cash working capital:

 

Trade and other receivables

 

 

91

 

 

707

 

Inventory

 

 

(113

)

 

192

 

Prepaid expenses and other assets

 

 

(920

)

 

58

 

Trade payables and accrued liabilities

 

 

(1,919

)

 

(2,020

)

Net cash used in operating activities

 

 

(4,324

)

 

(6,561

)

 

 

 

Cash flows from financing activities:

 

Equity issue costs

 

 

-

 

 

(79

)

Exercise of warrants and options

 

 

-

 

 

78

 

Loan borrowings

 

 

-

 

 

212

 

Loan repayments

 

 

(19

)

 

(18

)

Net cash (used) provided by financing activities

 

 

(19

)

 

193

 

 

 

 

 

Cash flows from investing activities:

 

Purchases of property, plant and equipment and intangible assets

 

 

(102

)

 

(187

)

Business and asset acquisitions, net of cash acquired

 

 

-

 

 

(15,457

)

Net cash used in investing activities

 

 

(102

)

 

(15,644

)

 

 

 

 

Effect of exchange rate on changes on cash

 

 

167

 

 

(359

)

 

 

 

 

Change in cash during the period

 

 

(4,278

)

 

(22,371

)

Cash and restricted cash at beginning of period

 

 

9,537

 

 

37,616

 

Cash and restricted cash at end of period

 

$

5,259

 

$

15,245

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

Common shares issued for business combinations

 

$

-

 

$

14,917

 

Assets acquired for contingent consideration

 

 

303

 

 

-

 

Common shares issued for other agreements

 

 

95

 

 

272

 

Operating lease additions to right of use assets

 

 

97

 

 

-

 

Table 4. Reconciliation of GAAP to non-U.S. GAAP financial results

The reconciliation of the Company’s Adjusted EBITDA, a non-U.S. GAAP financial measure, to net loss, the most directly comparable U.S. GAAP financial measure, for the three months ended March 31, 2023 and 2022 is presented in the table below:

(in thousands of United States dollars)

For the three months

ended March 31, 2023

For the three months

ended March 31, 2022

Net loss for the period

$

(3,905

)

$

(7,630

)

Income tax benefit

 

(66

)

 

-

 

Interest expense (income)

 

23

 

 

(21

)

Depreciation and amortization

 

942

 

 

454

 

Non-operating income (1)

 

(12

)

 

(11

)

Share based compensation

 

654

 

 

1,526

 

Unrealized loss from changes in fair value (2)

 

883

 

 

-

 

Charges related to the flow-through of inventory step-up on business combinations

 

45

 

 

1,631

 

Other acquisition and transaction costs (3)

 

-

 

 

651

 

Adjusted EBITDA

$

(1,436

)

$

(3,400

)

Adjusted EBITDA Margin %

 

-7.1

%

 

-68.7

%

(1) 

 

Non-operating expense includes foreign exchange losses.

(2) 

 

Unrealized loss from changes in fair value includes changes in the value of the Company’s contingent consideration associated with its acquisition of JustCBD.

(3) 

 

Other acquisition and transaction costs are one-time legal and due-diligence fees related to business combinations.

 

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