Release Date: May 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lowell Farms Inc has successfully transitioned from using biomass from its own cultivation to procuring on the spot market, improving margins and ensuring continuous supply.
- The company has expanded its genetic lineup, enhancing product offerings and providing a broader selection to dispensary customers.
- Lowell Herb Co.'s product lines, particularly the Lowell infused 35s, have shown strong market acceptance and significant sales growth.
- Despite market challenges, Lowell Farms Inc's pre-roll sales have remained stable, demonstrating the enduring popularity and solid market presence of the product.
- The company is actively monitoring and adapting to the consolidation trend in the California dispensary market, positioning itself to capitalize on strategic opportunities.
Negative Points
- The Zabala cultivation site's costs and yields had previously negatively impacted margins, although this issue is being addressed.
- Sales of Lowell Herb Co's packaged flower SKUs have declined significantly, indicating challenges in maintaining previous sales levels.
- House Weed brand faced a significant sales drop due to credit holds on committed customers, impacting overall performance.
- The Cypress Cannabis brand and other smaller brands in the portfolio have experienced declines in revenue, reflecting ongoing market pressures.
- Overall net revenue and gross margin have decreased significantly, with the company reporting a net loss and negative adjusted EBITDA in Q1 2024.
Q & A Highlights
Q: Can you discuss the impact of the Zabala cultivation site's exit on your margins and product lineup?
A: Mark Ainsworth, CEO: The exit from the Zabala site initially negatively impacted our margins due to high cultivation costs and lower yields. However, by the end of Q1, we improved margins by sourcing biomass on the spot market, which also allowed us to expand our genetic lineup and offer a wider range of products to our customers without any supply interruptions.
Q: How is the consolidation trend within the California dispensary market affecting Lowell Farms?
A: Mark Ainsworth, CEO: We are observing significant consolidation, with smaller dispensaries often closing and reopening under larger entities. This trend is driven by regulatory complexities and tax burdens. We view this as a strategic opportunity to solidify our presence in the market by potentially partnering with these larger entities.
Q: What are the sales trends for your key products like Lowell Herb Co. and House Weed in Q1 2024?
A: Mark Ainsworth, CEO: Lowell Herb Co. maintained stable sales, particularly with the Dirty Fox product line, while the Lowell infused 35s line saw a growth of about 42%. However, House Weed faced significant challenges, with sales dropping by about 60% due to credit holds on committed customers.
Q: Can you provide insights into the financial performance of Lowell Farms in Q1 2024?
A: Jamie Schniedwind, CFO: Q1 net revenue was $4.9 million, down 35% both sequentially and year-over-year. The decrease was primarily due to lower bulk flower revenue and reduced volume at our processing facility. Our operating loss was $2.9 million, with an adjusted EBITDA of negative $1.1 million.
Q: What strategic shifts are you making in response to the current market dynamics in the cannabis industry?
A: Mark Ainsworth, CEO: We are focusing on diversifying our product sources and enhancing our genetic offerings by partnering with external farms. Additionally, we are expanding our third-party distribution services and exploring subleasing options for our facilities to optimize use and align our business model with market conditions.
Q: What are your expectations for Lowell Farms' operations and financial health moving forward?
A: Mark Ainsworth, CEO: We anticipate continued improvement in margins and are exploring new opportunities to enhance operational efficiency and capitalize on our assets. We are also committed to supporting the growth of our brands and maintaining financial stability by managing sales exposure and credit risks effectively.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
