Flora Growth Corp. Reports First Quarter 2024 Financial Results
Flora Growth Corp. (NASDAQ: FLGC) reported its Q1 2024 financial results, highlighting significant legislative advances in the U.S. and Germany regarding cannabis. The company acquired TruHC Pharma GmbH for $6.4 million, securing key licenses and facilities in Germany. Flora also completed an underwritten offering raising $3.23 million and announced plans for new product launches and partnerships.
Financially, Flora reported a net loss of $3.4 million, an improvement from the $3.9 million loss in Q1 2023. Operating expenses decreased by 29% YoY, but Adjusted EBITDA loss increased to $1.5 million from $0.8 million. JustCBD maintained a gross profit margin of 41% on $5.4 million sales, while Vessel reported a 39% margin on $1.3 million sales. Phatebo neared breakeven with branded pharmaceuticals leading sales.
- Net loss decreased to $3.4 million from $3.9 million in the previous year.
- Cash used in operating activities reduced by 70%, from $4.3 million to $1.3 million.
- Total operating expenses decreased by 29% year-over-year.
- Acquisition of TruHC Pharma GmbH enhances strategic positioning in German cannabis market.
- Gross profit margin for JustCBD remained strong at 41% on $5.4 million sales.
- Raised $3.23 million through an underwritten offering.
- Secured key licenses and facilities in Germany for cannabis production and distribution.
- Successful launch preparations for new cannabis products in Germany and partnerships in the UK, Israel, and Poland.
- Phatebo moved closer to breakeven, driven by branded pharmaceutical sales.
- Adjusted EBITDA loss increased to $1.5 million from $0.8 million in the comparable quarter.
- Vessel reported a loss from continuing operations of $1.1 million and an Adjusted EBITDA loss of $0.2 million.
- Significant reliance on legislative changes in the U.S. and Germany which may pose regulatory risks.
- Dependence on successful shareholder approval for the completion of the TruHC acquisition.
- Operating expenses of $6.3 million, although reduced, still represent a significant outlay.
Insights
The financial results of Flora Growth Corp. indicate some positive developments but also certain challenges. The net loss of
The acquisition of TruHC Pharma GmbH appears strategically sound, targeting the burgeoning German cannabis market. The German legislative changes, including the de-scheduling of cannabis and the establishment of cannabis social clubs, offer significant growth potential. Flora's acquisition provides essential EU-GMP processing and production licenses, positioning it well to capitalize on this regulatory shift. Additionally, the potential reclassification of cannabis by the U.S. DEA could open up new opportunities in the U.S. market. However, this is speculative and contingent on legislative follow-through. Investors should be aware of the regulatory landscape's volatility but also the substantial market opportunities if these changes come to fruition.
Flora's plans to launch new products and partnerships, particularly the cannabis home grow kit in Germany, align well with the current market trends towards legalization and personal cultivation. The company's extensive seedbank, featuring award-winning strains, provides a strong competitive edge. In addition, the partnerships for distribution in the UK, Israel and Poland diversify its market presence and reduce dependency on any single market. However, the success of these initiatives will depend on effective execution and market acceptance. The introduction of new products in the vaporizer and dry herb categories also suggests a forward-looking approach to market demands. Retail investors should consider the potential for revenue growth from these new products while also keeping an eye on execution risks.
Fort Lauderdale, Florida--(Newsfile Corp. - May 14, 2024) - Flora Growth Corp. (NASDAQ: FLGC) ("Flora" or the "Company"), a consumer-packaged goods leader and pharmaceutical distributor, reported today its financial and operating results for the three months ended March 31, 2024.
"2024 has been a catalyst-rich period for Flora. Legislators in the primary markets in which we operate, namely the U.S. and Germany, have demonstrated a willingness to advance a progressive cannabis agenda. In Germany, the de-scheduling of cannabis, the reforms surrounding cultivation for personal use, the establishment of cannabis social clubs, and the removal of cannabis from the list of prohibited substances in the Narcotics Act, represent historical milestones," said Clifford Starke, Chief Executive Officer.
"We have been proactive in responding to Germany's legislation. In April, we acquired TruHC Pharma GmbH ("TruHC") - an entity with a strategically built German cannabis platform with EU-GMP processing, production, laboratory, and storage licenses. TruHC also holds GDP wholesale licenses for import and export, as well the requisite medical cannabis licenses," added Mr. Starke.
"Additionally, reports have emerged suggesting the U.S. Drug Enforcement Administration may reclassify cannabis from a Schedule I to a Schedule III substance. It could be the first real step towards a progressive federal policy in over 50 years. We believe this potential landmark reform could have positive implications for the Company," concluded Mr. Starke.
TruHC Acquisition
Flora acquired TruHC in all-share deal valued at
- A GDP wholesale license and an EU-GMP processing and production license for medical cannabis. It also owns and operates an EU-GMP certified laboratory ready for instant cannabis analysis as required for the new Cannabis Social Clubs.
- The facility of TruHC is a flexible production space with EU-GMP certified modules that can be extended and customized for any production process from processing to extraction and enables a license extension for a future in country cultivation of medical cannabis and supply of cannabis dispensaries expected to be opened in 2025 during phase 3 of legalization. TruHC also holds a narcotic license with EU-GMP certified storage.
- TruHC's licenses allow TruHC to apply for new medical cannabis and cultivation licenses and become an official cannabis test lab for upcoming cannabis social clubs. It also enables international import of seeds and flowers for future distribution.
Financing Activities
- Flora closed an underwritten offering of 1.7 million common shares for aggregate gross proceeds of approximately
$3.23 million , prior to deducting underwriting discounts and other offering expenses. The Company's Chief Executive Officer, Clifford Starke, purchased shares in this offering. - The Company entered an At-The-Market ("ATM") Issuances Sales Agreement with Aegis Capital Corp. with aggregate offering price of up to
$3.8 million . The Company has not yet sold any shares as part of the ATM.
New Product Launches and Partnerships
- The Company plans to launch a cannabis home grow kit, start up material seeds and cuttings in Germany in response to the first phase of Germany's new recreational cannabis legalization law. The Company's existing seedbank, which is arguably the largest globally, and the over 200 strains held within, including several world-glass genetics and winners of Cannabis Cups, is expected to be a key component to the Company's strategy.
- The Company entered partnerships for the distribution of Vessel Brands in the United Kingdom, and in Israel with Althea Group Holdings Limited and IM Cannabis Corp., respectively.
- Flora entered an exclusive distribution agreement with Me Raw Trade Ltd. to distribute both JustCBD and Vessel branded products in Poland.
- Flora was appointed to chair the U.S. Hemp Roundtable Board of Directors, which is the hemp industry's national advocacy organization consisting of a coalition of companies and organizations committed to safe hemp and CBD products.
Financial Highlights
During the three months ended March 31, 2024, the Company reported:
- Net loss of
$3.4 million compared to a net loss of$3.9 million in the comparable quarter. - Cash used in operating activities of
$1.3 million compared to cash used in operating activities of$4.3 million in the comparable quarter, an improvement of70% quarter-over-quarter. - Total operating expenses of
$6.3 million , compared to$7.7 million in the comparable quarter. Excluding the impact of non-cash impairment of$0.9 million , operating expenses decreased by29% year-over-year. - Adjusted EBITDA loss of
$1.5 million compared to an Adjusted EBITDA loss of$0.8 million in the comparable quarter.
JustCBD Highlights
- Income from continuing operations of
$0.1 million and Adjusted EBITDA of$0.2 million in the quarter. - Maintained a gross profit margin of
41% on sales of$5.4 million . Just International contributed$0.2 million to sales across 11 countries. - The top selling products in the quarter included the Night Time Bear, Peach and CBD+ Calming Gummies.
- Approximately
36% of revenues stemmed from our director-to-consumer model, while approximately64% was generated through business-to-business sales. - Expansion of product development in the Pets category.
- Over 200 new wholesale customers were added to our network in the quarter.
Vessel Highlights
- Loss from continuing operations of
$1.1 million and Adjusted EBITDA loss of$0.2 million in the quarter. - Maintained a gross profit margin of
39% on sales of$1.3 million . - Core products represented
48% of sales and Compass products contributed31% to sales; the largest individual item sold was Core Black, adding11% to sales. - Approximately
50% of revenues stemmed from our director-to-consumer model, while approximately50% was generated through business-to-business sales. - Finalized new product developments in the vaporizer and dry herb categories set to launch in the coming quarters.
- Over 35 new wholesale customers were added to our network in the quarter, including several Multi-State Operators.
Phatebo Highlights
- Closer to breakeven on loss from continuing operations and Adjusted EBITDA of
$0.1 million in the quarter. - Branded pharmaceuticals were the largest contributors to sales, including medications from Merck, Vertex, Novartis, MSD, Novo Nordisk, AstraZeneca, Janssen, and Gilead Sciences.
- All sales were business-to-business sales.
EBITDA and Adjusted EBITDA are non-U.S. GAAP measures. A reconciliation of U.S. GAAP to non-U.S. GAAP financial measures has been provided in the section titled "About Non-GAAP Financial Measures". Important disclosures regarding the use of non-U.S. GAAP supplemental financial measures are also included below.
Board Appointment
- The Company appointed Brendan Cahill as an independent director and member of each of the Company's audit committee, compensation committee and nominating and corporate governance committee, effective May 2, 2024.
- Mr. Cahill was President and Chief Executive Officer of Excellon Resources Inc. from 2012 to 2022. Previously, he was Vice President Corporate Development and Corporate Secretary of the Pelangio group of companies. He is currently a Director of the Group Elevan Resourecs Corp. and former director of KORE Mining Ltd. And Cryptostar Corp. He is a member of the Transplant Cabinet at the University Health Network and a member of the Law Society of Ontario.
Conference Call
A conference call hosted by senior management will be held on Wednesday, May 15, 2024, at 11:00 AM EST. Please join the conference call approximately ten minutes prior to the scheduled start time.
Dial-in details for the conference call are as follows:
Toll-Free (North America): 1-844-763-8274
USA Toll: +1-412-717-9224
Canada Toll: +1-647-484-8814
About Non-U.S. GAAP Measures
EBITDA and Adjusted EBITDA are non-U.S. GAAP financial measures that do not have any standardized meaning prescribed by U.S. GAAP and may not be comparable to similar measures presented by other companies. We calculate EBITDA as total net income (loss) from continuing operations, plus (minus) income taxes (recovery), plus (minus) interest expense (income), plus depreciation and amortization. We calculate Adjusted EBITDA as EBITDA plus (minus) non-operating expense (income), plus share based compensation expense, plus asset impairment charges, plus (minus) unrealized loss (gain) 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 EBITDA and Adjusted EBITDA provide meaningful and useful financial information as these measures demonstrate the operating performance of the business.
Management believes that this non-U.S. GAAP financial information is useful as a supplement to comparable U.S. GAAP financial information. Management reviews these non-U.S. GAAP financial measures on a regular basis and uses them, together with financial measures included in the Company's financial statements, to evaluate and manage the performance of the Company's operations. These measures should be evaluated in conjunction with the comparable U.S. GAAP financial numbers reported by the Company.
The reconciliation of the Company's Adjusted EBITDA, a non-U.S. GAAP financial measure, to net income (loss), the most directly comparable U.S. GAAP financial measure, for the periods ended March 31, 2024, and 2023 is presented below:
| For the quarter ended March 31, 2024 (In thousands of United States dollars) | JustCBD | Vessel | Phatebo | Corporate & Other | Consolidated | ||||||||||
| Net income (loss) from continuing operations | $ | 110 | $ | (1,077 | ) | $ | (6 | ) | $ | (2,401 | ) | $ | (3,374 | ) | |
| Income tax expense | - | - | 64 | 64 | 128 | ||||||||||
| Interest expense (income) | - | - | 36 | (14 | ) | 22 | |||||||||
| Depreciation and amortization | 48 | 17 | 6 | 3 | 74 | ||||||||||
| EBITDA | 158 | (1,060 | ) | 100 | (2,348 | ) | (3,150 | ) | |||||||
| Non-operating loss (1) | 1 | - | - | 131 | 132 | ||||||||||
| Share based compensation | - | - | - | 10 | 10 | ||||||||||
| Asset impairment | - | 864 | - | 34 | 898 | ||||||||||
| Unrealized loss from changes in fair value (2) | - | - | - | 607 | 607 | ||||||||||
| Adjusted EBITDA | $ | 159 | $ | (196 | ) | $ | 100 | $ | (1,566 | ) | $ | (1,503 | ) |
| For the quarter ended March 31, 2023 (In thousands of United States dollars) | JustCBD | Vessel | Phatebo | Corporate & Other | Consolidated | ||||||||||
| Net income (loss) from continuing operations | $ | 246 | $ | (557 | ) | $ | 54 | $ | (2,929 | ) | $ | (3,186 | ) | ||
| Income tax expense (recovery) | - | - | 25 | (103 | ) | (78 | ) | ||||||||
| Interest expense (income) | 3 | - | 21 | (1 | ) | 23 | |||||||||
| Depreciation and amortization | 196 | 352 | 7 | 309 | 864 | ||||||||||
| EBITDA | 445 | (205 | ) | 107 | (2,724 | ) | (2,377 | ) | |||||||
| Non-operating (gain) (1) | (2 | ) | - | - | (10 | ) | (12 | ) | |||||||
| Share based compensation | - | - | - | 654 | 654 | ||||||||||
| Unrealized loss from changes in fair value (2) | - | - | - | 883 | 883 | ||||||||||
| Charges related to the flow-through of inventory step-up on business combination | - | - | 45 | - | 45 | ||||||||||
| Adjusted EBITDA | $ | 443 | $ | (205 | ) | $ | 152 | $ | (1,197 | ) | $ | (807 | ) |
(1) Non-operating loss (gain) include 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.
About Flora Growth Corp.
Flora Growth Corp. is a consumer-packaged goods leader and pharmaceutical distributor serving all 50 states and 28 countries with 20,000+ points of distribution around the world. For more information on Flora, visit www.floragrowth.com.
https://www.phatebo.de/home-en
Investor Relations:
Investor Relations ir@floragrowth.com
Clifford Starke Clifford.Starke@floragrowth.com
Media:
Cautionary Statement Concerning Forward-Looking Statements
This press release contains "forward-looking statements," as defined by U.S. 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. These forward-looking statements include, but are not limited to, statements about: legislative developments in the United States and Germany and the potential impacts thereof, the efficacy and impact of the TruHC acquisition, obtaining shareholder approval for the second closing of the TruHC acquisition, the contributions TruHC may make to Flora, the use of the ATM and the efficacy and impact of new product launches and partnerships. Such forward-looking statements are subject to various and risks and uncertainties, including those described under section entitled "Risk Factors" in Flora's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the "SEC") on March 28, 2024, 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/edgar. 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 on information currently available to Flora (or to third parties making the forward-looking statements).
To view the source version of this press release, please visit https://www.newsfilecorp.com/release/209181
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