LOWLF - Earnings call transcript Q2 2022

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Operator

Good day, and welcome to the Lowell Farms Inc.

Second Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask question. [Operator Instructions] Please note this event is being recorded. to Relations. conference like Mitoulas to now Investor of would turn over the Bill I ahead. go Please

Bill Mitoulas

Good afternoon, fiscal to Incorporated XXXX. and welcome financial Lowell to results Farms discuss for the second of the quarter conference call

of the materially Shure, this These results our the to we present The further XX go who our about in expectations. may based differ course be detail Risk Chairman Company's Q&A light results the as this Company's questions may Co-Founder these Factors on SEDAR. filed and that into Brian the considered in to any make insight go-forward any for Executive well to current are Before that outlined should of on statements. Chief revise factors. cause from is These open we later quarter risks Incorporated EDGAR not forward-looking call subject Officer; Lowell of filed please expectations and remind section portion does and Financial Form listing conference George let into any you Please financial risks begin, outlook statements forward-looking that in during of that to Any be Farms strategy. call the forward-looking provide in call, This also of statement will on the actual note and management analyst will undertake call. to uncertainties operations me performance, as Mark and statements are as Ainsworth, obligation are the future. Board; includes statements today, forward-looking Chief management Officer, the of Allen,

conclusion, Relations George. ahead. call that may leave page. our to be Investor And conference and I'll our will archived George, of happen call website call please you the over before who For recorded be advised now hand those on this to its go

George Allen

and you, everyone. Bill, good afternoon, Thank

for oversupply continued for cost the Ironically, in given which this to talk experiencing more Lowell. short announce quarter our a quarter to disappointing conditions with structure priced I'm about California under the proposition product, in about of conditions we'll be quarter. more not the was is exceptionally think that this before several Lowell And pressures be experiencing. is could anticipated else XX's XX's, of during right form value new financial obviously into quarter is shelves the the goals California I Lowell pressure. fell by a is of to excited a factor a market compounded of terms results, In Farms as much the the market I our challenging than to consumer liquidity. the This same market. that everyone launch want in product we and is inflationary a that budgetary hit The anything our is second compelling briefly quarter, talk bring

for volumes price in sacrifice of a to the belief During have cannabis from elected impossible figure a were flower levels, order in that volume refrain sustainable found largely of prices at in brand category. quarter nearly reductions our This to lower itself to and the disappointing short margin. the suffered. we of and especially our quarter, CPG have by below competitors, our prices, was We protect made since our we immensely second to revenue raise by the that our action We it aggressive deliberately guidance. the second flower choice price saw dipped the and not to well chase we guided in surge prices manifested

the of higher volume soft, flower than the quarter. farm albeit cannabis produced bulk during for quarter, first our slightly be the market continued While record a to

coupled California, are of our challenges our output portion sales is in portion of large a subject a with to CPG Now the for flower namely business, culprits and commoditization, primary oversupply bulk large sales. an which our cultivation of

in oversupply, some As we capitulation see cultivation market. though it don't the the see we fundamentally changing of evidence even do

suspect on effort simply will operators thereby the that margin problem. market in the afloat the into illicit stay many of to we However, oversupply extend these an and shift

and get cultivation balance and some relief we'll savings expect the in power consumers to While the tax was of retailers of margin oversupplied of helpful, market. that ultimately retain along we given most to QX, an passed

peers. commoditized our of meaningful have book see our among This alternatives many comparable attrition the our business when CPG As CPG of will are peers. we from and concentration, improve too products only

We quarter as where more market the are than brands the left row, attrition, evidence it. of seeing QX second represents that encouraging in a entered

hear cutting as are also partners count, environment. issues weary from that on this they’re that challenging of they back vendor market vendor our complement We reliability growing retailing

to our Now to pre-roll no contiguous the for best is Lowell vector peer us which which are pursue products, California. in brand, has

extending we product we're that bringing leadership market of over a been that for With engineering years. launch designing have the two by to Lowell XX's, and the

With we the bring doing completion final year, Good month. this later the will have to earlier be announced the we to we XX's this All the of components transaction market, which

existing factored raise with elephant the entered to is raise, receivable for that premature $X.X million with in been March – $X.X our investors balance. million that million on investments with not capital helps liquidity recently current We capital $X.X comment yet incremental equipment XX ended X.X complete, the the and it an be liquidity. is associated we've we about IRS Now quarter with the and terms. in We but would room below in the our an dialogue with active And quarter cash, launch.

it for while step to in behind It's backdrop for proposition The we launch is bringing flower. challenging ideal as environment XX's the current value think quality competitive market it of over the pre-roll a the is XX's. price in is with do function exceptional. offerings, an simultaneously the improvement down Lowell, exceptionally point While a

we share weed we a very that for on We daily the from jarred pre-roll people, time, from of market that that time. long items presents basis. flower market. to the illicit consumer. is of XX% also sold consume of Now of market, ours but cannabis, And alternative think take inclusive this a has one over CPG been is We estimate the a first only not dream believe differentiated the a that this who to will

We are excited about forward initial look to launch, our earnings on our and to it next you over I'll giving our we'll turn Mark. feedback call.

Mark Ainsworth

divisions a afternoon, and yield experienced broken. to weight breaking we single harvest levels. George, XX% you, review weight pounds records continue of three QX record single start good X,XXX performance. of gains a in pounds to of and Thank cultivation. dry discuss each In XXX Wet saw and our with output We will will I harvest room flower, XX,XXX show a total I pounds, from everyone. quarter. cultivation, of increase

in cultivation we to of operation While peak anticipate in achieves We density no country strong a the yields other our team. the do. that yield testimony know that QX, record the output we

the show were no added LFS service sales our promise, customers margin. our quarter as new on Included of Service revenues we Our of $XXX,XXX little up small of LFS to during of behalf customers flower is million in sold quarter. to to handful first business at in LFS the a approximately XXX% $XXX,XXX. figures bulk relative continues over revenues $X.X sales

base from last outdoor seasonal As of steady year-round we customer growers. highlighted customer customers we to our greenhouse quarter, base are a transitioning

processing XX% to that roughly flower at of and the X-wall approximately our on facility drying is Our cost are flat flower we $XXX inclusive process capacity, pound, site. currently we and of QX operating a at total own

drying non-compliant hazards demand to despite of therein, the a on during as challenging unsafe permit an continued enforcement surge apparent they expected action times. flexibility county delay space the While the the enforcement we in a driven year the we in to actions these during by cannabis conditions, saw to community within drying the effort show cracking down county, by

to and business, We option in given expensive action When local compliance are very cultivation building their stable the CapEx lack Bulk anticipate that service appeal operators genetic rivals unique bag to other come, that taxes flower. within local our own going capital state. most unique does indoor of elect enforcement bullish behind using the facilities on it of continues a operators over greenhouse quarters lieu for our local of thanks at premium several sales, are flower and most sell growers and improvements. remains Lowell the on to their Farms that county we are necessary a this

elevated to pricing QX continue price said in premium In up made volumes. quarter, of get the a it about flower versus and every over comments that market. overall had June, by this local operators, our moving took We we of market ton in QX step approximately bit penny quarter a the last for more during pricing rose for that, price the anticipated, slightly premature. not short was a the were our $XXX Having The while expectations. shortcoming on for team bulk flower down counts

quarter, flower we X,XXX quarter. largely by the increase were sales, volumes in than Sales a our QX. During sold CPG sequentially, category. own XX.X% driven the from the declined during sales declining disappointing CPG XX% brands within pounds, packaged

flower witnessing gram lower our flower declined follow intentionally expense average pricing wholesalers, mentioned XX%. much brands did other we a per while at have X.X% we as As not trend the Headset, pricing category from before, wholesale overall the to volumes. of According is sales packaged quarter-on-quarter, sustained declined for pressure price top as

with growth sales our the flower leadership a QX in the layer category. commissions. maintain in to decline decline restructured volumes sales we of operations The In a partially is levels. from $XXX,XXX inventory we reducing fell challenges revenues in $XXX,XXX by drop middle our pre-roll manual we offset processes California collectively, our its sales for had sales Out-of-State, category QX. from $XXX,XXX. addressing lower inventory something Fortunately, have Out-of-State partner, to in as $XXX,XXX mid-July, levels, by still removing packaged from manufacturing using were and largely Wellness, included Ascend as are with royalties reportedly to struggled The in is has and to Ascend royalties

working Additionally, partner the to address With a them. about that the we I it quarter in and appear still over are turn anticipate the Schwazze, with Mexico Colorado those late New will quality in quarter we to very with but prospects issues persist, that, are Brian. closely and highlighted last to markets. excited third launching We receptive we

Brian Shure

afternoon, and Mark, good you, Thank everyone.

my in commentary a Before of note are please will a be GAAP I non-GAAP QX U.S. results and we portion begin, on XXXX basis. reporting that our

please reconciliation figures report are to for I indicated. in unless So results. non-GAAP full that note dollars also today's otherwise of would U.S. a to GAAP results refer earnings these We all release unaudited.

sequentially report and in while to sequentially and XX% on down to $X.X XX-Q short QX of the CSC order. year-over-year. XX% XX% year-over-year, be sequentially will XX% X% million and XX% revenue $XX.X million, million $X.X filed Form We declined flower revenue and quarterly up revenue reported CPG SEC with Our year-over-year. increased bulk declined declined

revenue The reflects of Lowell in quarter. reductions from the seasonal Services in compared and quarter while to CPG As revenue last $X in product and the XXX% Lowell edible declined concentrates decline to $X.X to the Farm to second Lowell XX% brand represent reorganize expected, increased XX% sequential harvest XX% to revenues reflects Services decline in from million. effort licensees quarter third-party our reflects Farm remain in revenue year. sequentially offerings. shipments sequentially in million, increase licensing packaging third-party refrain the CPG and an revenues revenue lower bulk and current our pricing sales licensing and The revenue strong

XX% as significant pricing compared seems have the second year. Bulk to revenue decline XX% year quarters. million, flower revenues primarily stable anticipate to several cultivated increased revenues declines last significantly flower the to CPG Year-to-date bulk the Lowell While from levels. XX% previous in pricing in pricing current to decline due bottomed increases $XX.X the in a prior X%, revenues sequentially, we increased modest quarter flower to year-over-year declined flower lower bulk years, and year while was were quarter pricing the due December, between principally lower X% flower pricing. is next from

and to our quarter operating XX% compares in and in million, quarter anticipating $X million reflects operating the year-over-year. expected $X.X first to fees. increases bulk year year. The year. the As Gross this the this packaged of current new million reported level is second CPG decline the XX% of next favorable XX% sequentially LFS and XX% pricing flower was the quarter XX's the to impact sales to due impact margins compared was QX including seasonal an net was income from same lower decline sequentially held million primarily in million in quarter compared due were spring LFS to the which $X.X and realized The prior we negative the small million and $X.X higher time expected $X.X service margin million bulk $X.X quarter of significantly of offerings. predominantly compared in was second million reflecting harvest sales the realized look in Adjusted for the The year. fees we or or sales $X.X the $X.X of was QX as returning year, reflecting negative until loss sales our volumes, the in income loss compared activity. net adjusted compared third-party pricing primarily year-over-year. service margin the EBITDA quarter in year-over-year, the growth CPG second compared in for or outdoor first bulk and prices reorganized to $X.X $X quarter quarter year-over-year. harvest, in EBITDA and anticipate last and volume sequentially of second in reductions as the primarily Operating to positive edible product half, the growth a We CPG and of prior of XX% to increase lower million million we XX% operating of from $X.X in are of quarter to loss The and million loss second to to forward fall concentrates flower. year-over-year year. second don't pre-rolls, Net EBITDA cost million adjusted was margin $X.X last expenses from sequentially

to For the compared EBITDA $X was million negative last half, adjusted $X million negative year. first

retention $XX million end expenditures balance to in XXXX. beginning Capital of at of of in capital I'll quarter. and million the by $X.X to first to to the the turn the million Mark? second that, million With Working $X.X back compared quarter. the July, in the the cash $X.X credits had incurred sheet. $X.X we backed at were a the employee for of Turning completed in was $XX.X million And financing call million the quarter end quarter, earned the Company at second compared Mark.

Mark Ainsworth

Thanks, Brian.

over Let's questions. to for the turn operator it

Operator

[Operator Bobby And our now from question-and-answer question will begin go Instructions] the Canaccord. We with session. ahead. first Burleson will Please come

Robert Burleson

for taking Thanks my Great. question.

to you've prospects understand sounds guess LF there on fitting the the XX's just Sorry market. some see any first I noise. XX's for background you of the the research and one the It like be would looks nice into it's done trying like – in some launch. – a hole

your So just what maybe assessment a detail little of its prospects? bit more on

George Allen

by is of consumer, XX% the you we you when of cannabis the would inclusive need for say cannabis of data, Really, And a at drives cannabis of buys comes would market. illicit We've cannabis where on really I every Bobby, of single bought consumed, Well, lot XX% think is that's could go estimate on day. the tell hard understanding consumed done the generally we I who smokes of this. long a time. the look an the this today, who work from market. the topic we who

wanted right. So understand use case we to for that is, what the really consumer

from really smoking a haven't trying of So lot a lot find who weed explore illicit the weed consumer this talk for relatively market in cases, cases, of users, this of weed. are and volume there, sort lot to we big consumer. cannabis is it's the who think you But or they a time a of in in pitch out really they're buy aren't that consumers, lot look – and these the is because at spend the – lot daily when we the smoked novelties people, coming I market, fun lot down they a heavy price-sensitive, fat cannabis, a of buy But because the it discovery dollars are the of of a cannabis to of lot middle right. at

up and of sensitive consumers day, about price to consumers, If some super single you day every they're cannabis something smoke eight a an use those like point. some

industry to the how failing some the the consumer, looking lot so spend from when sell achieve of the consumer. board from on how price tobacco from anywhere a go went of loose to we've of and of our of – our lot down what time sort we $XX the from And frankly, with that of could industry and find flower. and for market we to can talk it leadership a to you the happening a flower so flower flower tobacco parity price tobacco cigarettes. tobacco And take really, And $XX. tobacco today how on sort came that lot at of of into market got our if was in the a of industry, industry today, it an you point be eighth was to that And history lot

sort of the California for, is in market the higher pre-roll is Lowell $XX other $XX for in that on so Our and markets. pre-rolls, anywhere to the well legacy from that pack known pre-roll

And so represents watermark you priced and that is out cannabis out high of brand – sort that product really terms are though a legacy, is – that, even sort consumer. it of in brand, that of

weren't you're but started smoking that, lot of sort the was consumers we when what smoking – even sharing other a cannabis. lot more In with the during that COVID we And documented, with were happened smoking often addition you more during started you we well and cannabis, like COVID, fact – pretty is this to alone. really smoking a – you're also people,

down skyrocket. factor costs in go what the was your start is had to smaller. the to happens to the you size, when pre-roll we to dosage terms that journeys And one how form So get of get on try of

of of a really automation. really was way in single-use cost is that this sessionability to serving the only size to path smoker – in to try daily for your And only pre-roll the sort to get the cannabis or down. the unlock So doing only

started this think And at it we end coming we we sort with think month potentially truly I long for exploring think has crack of game us automation. journey we next then out we're So the on or is the have, sort and that of the of easy, to it the but automation, been beginning an and sounds product and incredibly changing. that month code

present cannabis their think at in experience daily And about so times it. of fresh, an that in super good pocket does really have alternative of excited high-quality, cannabis the sort we're it We all flower. to form consumer,

it. So we're about excited very

Robert Burleson

Okay. Great. California. And then the just of for kind is year-over-year weakness and you're that retail some channel on in the overall correlated same-store in tightly revenue, seeing how business to just CPG comps the of sales decline your there

George Allen

much flower hard mean I Yes. data. have They have quarter impossible consumers printed for quarter, it's the on in flower. we exact have historically buy share. they are And I the when flower, have how jar. share you know I lost really on to because data hold do flower appeal. during is right. bag that to during the more the the levels almost We the brand. that appeal, so lost potency to the don't looks decidedly brand product and They an largely very get jar consumers the But

to tends a sort be sort ends far and the well. consumer, of and factor dispensary smell the brand. But as for look way consumer So sort in a come place so and goes less is into of being to price the important up brand like and list tend down of the peel

price in make couldn't flower it, pretty we in share. launch, product But chase, doing quarter, flower want this to you during means of addition reality afford lost drop we prices to times. What especially chase that to as is what raise you price from we want is, we it and and brand, do have that, sort of then so means can And denigrates doesn't and dropped to really again. because cannabis. one-way the other an to our it on If elevated too brand. aggressively is sense we learned new And price, our want honestly pricing don't don't that to the a street is drop producers brand. that a which the never eve that many we we know We've refrain

that it just in know or But healthier had And alternative set like and not made would have so price margin. on topline we and not probably but holding we been held have a – looked the on suffered don't have how of decision, had we price. CPG, I out been to so conscious would would we suspect play convicted facts what I

Robert Burleson

Fair enough.

Okay, thanks George.

Operator

from ahead. go will Zandberg Jason PI question next with Financial. Our come Please

Jason Zandberg

Hey, the thanks to wanted taking the for cultivation the on thoughts I of for California. elimination your question. just tax get

terms But beginning – QX, impact And do look the – was cost, at in think would easier. of on obviously, sort this specifically, your have? savings? will So of be expect will of you generally, in you the with view it's cost what if market – be what going what like so just and of would would to high-level it what what lower sort so it to the effect this that do do illicit competition you think

George Allen

anything to the CPG that's would mean point Yes. for XX I – on shift, for to – on it. ephemeral held The flower shift. is held products, I if be to points I XX it if it XX of possible think greater margin than that look cultivation sort how to reality margin don't all an based, hold margin is of don't way it, right, that to on see points tax all to we that so we because that's see I of at of

portion the than issue there back fundamental great in retailers, savings, of got In demand the we've to just given given of is market. savings fact, supply because that is products, all our some you've of the we've the that, not a more

prisoner's going that it of everybody but like so to along gets when person you dilemma, the the a does kind change, step a eighth, function to it's share. no it where have get comes is $X.XX pass off that to big first because an And choice, on

of change our commoditized, we of most dilemma, then the many that it else came like if expect commoditized, the the In to price relative and when feel some products need to stable the see prisoner's going like it. sort Lowell a So prisoner, are which be we expect terms how looked of market, or didn't other of be they're somebody front need our in we most can ones of for to at our agnostic compromise tend band, And pre-rolls, the products to in consumers said, which pricing in we but commoditized. the and all first get them we're we very within are so much to price.

they're So priced, there, to to margin see pre-rolls but priced. are it's should lesser because going – higher legacy we extent a our expansion, higher

decision – that tax effective general, So the have But made consumer say holding think case I is then dispensary, policy gets how In the price a of the when some cultivation I more just the pie. the consumers for see I making wave seen lured market the cultivation the basis selling that the I more stuff, cut anybody, the there. probably it's was where the we think growing I the so case price it dispensary there's will cultivator affirmative and this quite their firm that that making A adjusts. the decision not cultivation like that legal think backs I went the who's not the longer-term any especially I XX tax remain even lot of that were potentially points. to that's for the degradation to pricing fast a really to been it, in dispensary tax, then on the illicit a compete is will be to predominantly think the reduction illicit trying for of And to tax all – some, in tax into I this price think the chance the positive, about drops case and the that Sacramento, and comes a is they probably to market. think if and of relief, [indiscernible] into cultivators. for to market probably that's just to go be going that than so And cultivation incremental on market kind on could – boost relief pocket they're thinks the flower. it margin and And think with

Jason Zandberg

good color. That’s

just Obviously, with just Out-of-State during some, quarter? your going help the to you're revenues Just fell addition that can on Colorado, you some of New color give get some Mexico.

Just wondering and address sort states? of if what both those could adding decline – then the expectations for you new are two your the

George Allen

Yes.

the So right. concerning, the more obviously decline or that's more challenging is royalty

combination we five which So margin, then – in our which we sales, of have revenues, the packaging we have on are royalties, margin points a all high sales. are almost margins. think packaging And of I make

for We've by where really and savvy. we're a start there sales, brand, as sort decline some to are gaining. and – the those royalties, I I that on. decline extent, also accounted of market But timing So of the inventory. a something health in royalty the locally support a sales little packaging a and pretty from and focused improve little we've was a that support competitors we've side that probably bit quality some the suffered of footfalls large think resources the and a business, and seen of to bit a extent, material to brand packaging we're timing in decline reaffirming brand issues in more terms of that's decline to say, added in would on a exact little our but numbers, which that of was great Brian bit to getting is showed great the is And our

quarter. that traction so this far seeing on are We some

that that of think that I issues. action are plan struggling quality a So we're we partnership good just think bit there. we have – with have The I little issues a

great think brand to has flows. I focus the the been they've has at that and us. I time, given a the same think partner Ascend At times been ebbs

in we're Illinois The in we of our get is make close sure still number fair of to brand attention from and pre-roll somewhere so share Massachusetts. that And trying the brand to just them. that three sort

about And familiar have lot complementing and consumers of really, to opportunities using is We the the well profile. potential. product with development, that licensing for as our future brand seeds as a sow getting that margin

think I it. some think from lessons So I learned we've

trying little be also as being we've managed here? closer card report to think our and partner I greatest there maybe better being from basis, to a – things how and on to over a a daily we're on are Ascend

Jason Zandberg

New Great. to and a And just Colorado Mexico? then look ahead

George Allen

Yes.

we're get probably to they're So going it Colorado, quarter, about think the quarter. it. I'm to It's of excited lands going Mexico, it if New it they're – I launch in think be this trying this to the super If – at quarter. is – end I

awesome we – want that opportunity little a street sort I be think brands I brand. of cannabis. of there localized. to just a really be Colorado crafty and sort sort is in, I bit market, there's if of market a craft, just think And to lot market be to are have you of And have I like is very Colorado think it's an of so in blue see a and is to be Despite sky like Colorado a blue bigger in, sky. very to crafty cred

there the say in think you and things to this think end well. I hit a to much but market But can't would to we of are that market. guidance, think Schwazze as what's quarter. Colorado it's give as I into, we'll likely how a likely have wouldn't and great wait it I it, good be for QX the footprint for is the grateful Mexico, more rush there. New But to probably I a and as has headed we partnership been there. be very the is impact said, towards I

Jason Zandberg

George. Okay. Thank you,

Operator

Our with Instructions] ahead. Please Cooper next question from Doug come [Operator Securities. will Beacon go

Doug Cooper

George. Good Hi. evening,

you have Just on or what bud dispensary, strategy of you tenders, focus you And strategy bit a for out launching product quickly your share the like do space? and there? consumer roll or in is shelf run how for think in can about gain the the the XX's groups new end this towards given Can this talk a September. little you is distribution your month that the early and

George Allen

differentiation really mean quality like about from price I ramp product, the question, those It's don't conviction is that generally any to tell the Yes. to the product, of points goes. million-dollar the I what in as our there's the top think fast the the the whatsoever bottom you level how Company, product, disagreement I uniqueness testimonies. of and the of all about the

so And have bit we where California, to a it. path almost terms there we a in consent think in – unanimous is we go little more The getting I about we get challenging of predicting eventually. – have

the points that end distribution We're experience with You've number make lot a very retailers efforts good to trying of to at I a we're want to focus sure initially we have through. limited really got end get that launch our product. because trying to mean retail points, a of consumers

there's we strong think this product which factor everything here really we will consumers roll for I swing just We is and to consumer pushing And going we've limited to also generally factor adoption want big a looking all a to budget, ramp point ingredients or behind the have the what – I'll we've The it. consumer think got is a be belief the looking but forward we're we we're the support this markets, We What for, I are But inventory going product get this to think product got tailored adequate a that a to that dragged behind that's is launch. from well big everything other and to. into out. look market. like. what's also on pulled have advanced key pushing store volume the like say California is have

Doug Cooper

to are Los there an you the region specific Angeles in to a you is going area? idea, can launch Or us want you give confirm? So

George Allen

I think Yes. mean islands about when you really of California, there's cannabis.

we're media giving launch to virtually So those drive we're we push entire those big consumers stores refilling we're initially then to the all that basically a somewhere the night inventory, much the to stores, stores, the social almost picking five homepage to release the bottom stores. the stuff takeovers, footprint can that we level, and them cover and social it bud in manage all every comes seven way, can stores as sure of we doing between and those when And And can the media we can. a as in smaller state. make tenders that engagement experience education those less push, level,

those the relatively diverse within geographically that So stores are state.

consumer. the just a I an We we're within as our that's XX%, XX% is in the XX% said, XX-minute we're targeting but for of yet, partners haven't picked And what all process of right now. probability that a is drive store

much and San Diego, can, Area Bay Francisco sort sort to islands trying all San are of we be covered. of Cities, get So as L.A., to of those big Sacramento, going as

Doug Cooper

What's when or So is do many through coming bottomless can is on you how machines mean, actual – you capacity? think? have? machines – the have where What's inventory, I inventory come And you coming the those, talk this product LFS you just like from? the throughput pre-roll walk do from from you

George Allen

Yes.

– careful bit right constrained. now, going I want I think Doug, about to – we're – machine don't think giving So a be and putting we're that supply be count little the to little about to I a have

Let's think don't be put that constrained this way. going to this I launch. we're supply at it

the I it's much the and and talking want as as careful think I little bit economics as about a unit want about as deep moat a of wide, be moat, make we just it. to – demand need product generating general I about sort of I can. don't engineering because we can I that have

our – competitors of that the a recognizing and to listen So lot call.

side, one the extremely blind we're, is the to way, customer we're the going primary are doesn't We've to say or product say we pace we deaf demand immune iterate or – of I work we're driver. would feedback. a thing of that I the is where will by mean excited think launch, we to And the adoption. the alongside but a done So be lot be amount tremendous is capacity that feedback but consumers. trying think, also excited getting and customer I tepid on hear that we to what willing right, about our and to have of feedback – about from that

Doug Cooper

you gram or X.XX single of And just like is say X.X X.X a single, like when or dose, my is that? this from identification, or I guess, this something

George Allen

Yes.

called – basically the XX's product XX is an a the the So milligrams. making why product just sticks XXX eighth. up It reason pack, to is the

We are engineering and preserving the size. ability to go in up and down

sort So is stick, is commensurate amount think think cannabis that the the about of each it on the to And in the right have they who exactly is cannabis price that. want of we consumer, what they in right? of to dials kind way likes point

So many with relight you of smaller weed we share the that we'll size one and the because most nobody choice a one of COVID, the you disgusting But sits with of it going and we throw just disgusting. in sitting an relighting waste phenomenon. is future, to it, we'll larger around right? thing weed kind you're one too decided there's when gram or and in there it either in you joint and of were like COVID, out Like and lot the during beginning a going taste there a prospect consumers, ashtray all be serving way be to joints, of give relighting

weed at what and to them sessionability product behave way time. we hardcore seem this sure when way fit really they trying So of that trying take that make to really smokers can – does our we're it's perform the is to all. But the create what we're consumers and sort changing some for and look do look, look

I see. hit. – look to we'll seeing how we're forward So looking it mean,

Doug Cooper

And enough raise. then you but I just street, people, maybe want attract want one-way to the you it pricing, get you is said the when launch so on to sure can't guess, price, make pricing a to low you

gone think and the sort Eighth said the Street in XX% yours, the but of $XX Jarred that's to is Jarred $XX said is already for lowered lowered Eighth So when quarter. you competition I by

So what pricing strategy the is out-the-gate?

George Allen

get to than pre-excise door at $XX. tax trying We're Yes. it the out

with launching And of limited away set why so that of of is keystone. we're of the the a lot more to I think we're encourage consumer-friendly lot – reasons launch retailers a sort a trying a to retailers with right

and working retailers, And so narrative for the willing aggressive retailers, to consumer. be who to bit more the are who keystone little part on are with approaching us with willing of is a

a here, of So here to lot it we're mean, of of savings we're savings. price, how terms – have to going in a aggressive we cut retailers we going the pretty We've we engineered be create I because right? to price those lot and system to

to sure And or usually to that. benefit to consumers want that we what get you're with pre-roll. the right? remember, the to of $XX trying a you're talk talk not consumer, is so And happen. ounce by eighth who you're to to, buys the their It ounce, That trying our weed make consumer going and the get won't by half attention price-sensitive just super

we now and So refine, it. we're infrastructure. trying systems with but margin our we're margin we that on the and to attention margin have to get do Obviously, working the right do have very to closely their is something

Doug Cooper

– excise plus there's $XX the your So like look margin at? growth on might us the what what Can retailer to are to product today if – the tax, exactly? yours compared consumer your if And an give selling is back envelope, you retailer CPG cost? the to ballpark of if the what the me, idea, you is well, selling then just

George Allen

Yes.

of to at at us margin. I'm a six-plus it I'll operating do in $XX.XX everything the $XX, We're give guidance $XX door. pricing. you to out system in some progress. work is say we're this. price in range yes, some What into to $XX. And So the get going flexibility I to on close the I'll We terms have – is top do can built And on somewhere

Doug Cooper

part, at George, that missed you Sorry, what. operating

George Allen

margin. A XX%-plus material

Doug Cooper

then, I of QX, for you me, including in cash balance and in then net, front yes, the $X.X right the end sheet, only And – the the stock? CapEx the that great. don't I guess, moving expect machines, of million What was to or but Okay, June. go the at have what's have buying – press release that ahead. I think I the [indiscernible] was

George Allen

No, remember remember that you do if you – yes ahead. originally, go

Doug Cooper

quite I IRS $X.X get just – like Sorry, or million the maybe didn't rebate that? something walk else? was then And that regarding through

George Allen

Yes.

once million. All was transaction, the a $X.X again, fees is and transaction there – Good cash transaction the So original still stock cash was

commitment to related for also IRS recovery CARES to taxes in the And the the had. basically So payroll the COVID we provision Act we of to and that bring able burdens. we've that Act cash receivable funded with with a associated factor had this were CARES

some receivable cash So that factor that our to additional year. this of in an believe of get I chose receivable May fund to IRS in in those an CapEx. to and we order some interested had we to party filed company And April door in, the

$X.X but chunk preparedness. by facility associated improvements million also clarity more $X.X – is that CapEx our the around we'll is through far of the there's And the and give the with million but So machines, biggest it.

Doug Cooper

through sorry, third my And would just the quarter halfway last I we're one, essentially. be guess,

give flow of see If forth, the in market you sort XX's us do in on neutral the you a cash take so the conservative on CPG you now to given the be what guidance? market quarter. bulk some and launch Maybe the and expect

George Allen

think quarter I definitely cash CapEX... mean inclusive going I we're the to consume third the of during

Doug Cooper

excluding yes, about. talking Just CapEx? – am just the talking about from am operations, I I operations,

George Allen

what of market for the bulk the future I into CPG inventory. business, like dollars. prices XX's now, say, would and cash the is investments margin launch for operational our conditions that is to are generally product What is reflective flow for quarter, generally high the there some going for us the us answer perspective that's will out capital would working of Company. some is, flower third bar revenue but around the The neutral to be us, I'll where given accelerating, we're be an be our I and from will say mean making for say I of right only launched gain where operating

traction gain and to need category margin dollars more we of the and terms outside of of that flower. CPG in So doing low-margin

the right now. focus what primary XX is all launch That's our really that's about. So

success lot and on in also I as think that think But of are launching going. about be the doing moves we'll terms more time time our of we'll traction trajectory them and how updating quarter. have things to a next I say in this

Doug Cooper

one. last my just And Sorry.

access Is you brought think to three? have I right you eight you machines. And stand that where that right? in Is now?

George Allen

how about bit another machines answer. little the Right the a now, end that contract two year, have machine this we under right next be more, to we early year. bit want we've then got two to about of machines, year towards and either an next well, careful I we've secured or for many I want be yes, So have more careful the order machines, exactly. – now, coming little a

Doug Cooper

them shooting Would the lights And says machine? to getting our out if new switched Ascend from you're [indiscernible] you style access pre-roll. or basically of Or give Schwazze association? we with ahead now the brand has are

George Allen

really a really tough It's is us. question tough question. for It a

want quickly a we freely yet, I think so to this not don't now other or moving product product control. And people country. standpoint, we that in this whether whether want don't this cannabis the are from right we world is be know I of know policy to more is of changing like something we – terms be around cannabis. Regardless where

product our Good make, more and I amount we – lot a I IP, little it we complicated – about It's profile. think the tremendous it's to need of think this learn really a is in transaction. a bit represents a complicated and which acquired capabilities margin All to a of

And a can whatever That guys reluctant right by ahead now [use the dangerous. future], really make just else make say, go here little you the I'm to want. you are sure, way, feels the So and where keys, we this.

getting tell So and options. to make Or to don't the state to left try Do with this get California consumer, come the you're it? you're way product in your is home going we're consumer you to do the tell the I the only replicate know. experience? you then other capital investments basically

it's think to too early I say.

Doug Cooper

much. Thanks George. very Great, Okay.

George Allen

you. Thank

Operator

turn to This concludes any our Ainsworth over closing to for question-and-answer session. Mark I the would like conference back remarks.

Mark Ainsworth

earnings with the forward business. an talking you joining the for to our update Thank We look taking and for time again on next call. our on to you, get call

Operator

presentation. The for concluded. now conference you attending today's has Thank

You may disconnect. now

Lowell Farms (LOWLF) 14 Aug 222022 Q2 Earnings call transcript