April 18, 2019

Flowr Corp (CVE:FLWR) CEO on Shoppers Drug Mart Supply Agreement

Midas Letter
Midas Letter
Flowr Corp (CVE:FLWR) CEO on Shoppers Drug Mart Supply Agreement

Flowr Corp (CVE:FLWR) (OTCMKTS:FLWPF) CEO Vinay Tolia has nothing but praise for the Flowr team after the company’s most recent earnings report. Flowr generated gross revenues of $3.3 million despite having only 20 percent of its main production facility in operation. Tolia explains that Flowr’s operations are still scaling in terms of production and yield optimization. He anticipates that by Q3 of this year, the company’s facility will be fully operational and estimates it will produce in excess of 10,000 kilos annually of premium cannabis. Tolia discusses the importance of consistency when producing high-quality cannabis. He emphasizes the significance of Flowr’s recent supply agreement with retail pharmacy chain Shoppers Drug Mart. Tolia shares details of Flowr’s European strategy and highlights the significance of the company’s recent partnership with Holigen, which provides access to the European medical market. Flowr is currently in the process of uplisting to the NASDAQ in the United States.


Narrator:     Flowr Corporation is a licensed producer of cannabis with a head office in Toronto and a production facility in Kelowna, BC.

Flowr is expanding globally in Portugal and Australia and has signed a distribution partnership with Shoppers Drug Mart.

The company recently broke ground on a 50,000 square foot R&D facility in partnership with Scotts Hawthorne. The company has a net cash of $572.64 million with management and insider ownership at just over under 75 percent.

Flowr Corporation listed on the TSX Venture at two dollars and 60 cents per share on September 26, 2018 under the symbol FLWR.

[stock_chart symbol=”FLWR:TSV” align=”left” range=”1Y”]

Benjamin A. Smith: Joining me today is Flowr Corporation CEO Vinay Tolia. Welcome to the program.

Vinay Tolia:  Thank you so much for having me, Ben.

Benjamin A. Smith: Okay, so getting right into your recent earnings report, you sold 406 grams of premium cannabis, and you did that despite only having about 20 percent of your main facility up and running. Can you explain to viewers why this was an accomplishment, and, you know, what did this signify to the market that you were able to have this strong revenue profile with such limited utility outlay?

Vinay Tolia:  Absolutely. So we have been saying for the last couple years, just how hard this product is to grow. That one of the things that makes us different is we’re talking about all of the steps that are necessary to sell cannabis at any quality, but let alone premium quality cannabis – it’s incredibly hard, and it’s often overlooked.

The fact that we were able to put up these numbers on a partially built facility just speaks volumes to our team and our, really our know-how.

Benjamin A. Smith: Okay, should investors extrapolate that if you’re producing gross revenues of 3.3 million on about a fifth of that facility – I’m not sure if all of that is the growing portion of it, but should those revenues extrapolate to at least five times in the next, you know, say quarter or two? Or you know, with the extra production capacity, will it go higher than that?

Vinay Tolia:  It’ll go much higher than that. We’re still scaling up as far as getting, optimizing our yield. So as you mentioned, we had 20 percent of our grow rooms operational in Q4; we’ll have 100 percent operational in Q3 this year, and when we’re fully operational from that first facility, it’ll be a minimum of 10,000 kilos annually of premium cannabis.

Benjamin A. Smith: Okay, and is this cannabis, do you have organic certification? You don’t right now, but are you pursuing organic certification? And if not, why is that not problematic for your company? Do you see that as an operational advantage, or not?

Vinay Tolia:  So that’s more of a marketing issue in our minds. What we’re trying to do is grow the best and cleanest cannabis. While it may not fall under the organic certification, I find that somewhat misleading, because what we’re trying to do is grow plants that have full terpene profiles and that are clean enough to not require a remediation step, a kill step, such as irradiation.

Now, the organic process can require irradiation, which affects the terpenes, which affects the taste and flavour of the plant. Our goal is to sell non-irradiated cannabis. So that, to us, is more important than that certification.

Benjamin A. Smith: Okay. Was that a big selling point to get into Shoppers Drug Mart? You announced that, that announcement came out March 18th that you were going to be part of their product portfolio at Shoppers. Was that a big selling point, that your product doesn’t need irradiation and furthermore, will that product be subject to medical subsidies in terms of patients being able to claim it against their insurance?

Vinay Tolia:  So absolutely on the – so I want to make a distinction that I don’t view quality as just irradiated or non-irradiated; it is a handful of things, so for me personally, quality is consistency – how consistently can you grow the same strain so that it has a similar genetic profile. And so especially when you’re talking about patients, these are people treating symptoms. They want the same efficacy time and time again.

There’s consistency, there’s the nurturing of the genetics. It’s, there’s a lot of what I call TLC for lack of a better word, how you monitor the environmental conditions, when you add nutrients, when you water, how you trim – that really is about cultivating what I mentioned, the terpene profile of the plant, that’s another part. And then there’s the cleanliness, is, can you have a facility and processes that allow you to grow a plant that’s so clean when it’s time for harvest, it can pass Health Canada testing for microbial limits without a kill step.

So that’s what quality is for me, and that’s what’s so – that was what was so valuable for Shoppers. Remember, Shoppers is, you know, they’re pharmacists. What they care about is supplying their patients with quality product. So not only does quality product result in a better aesthetic experience – so it smells better, tastes better – but there’s so many of these flavonoids, cannabinoids, terpenes, that are misunderstood that have medical benefits. So while this isn’t researched, higher quality product leads to better outcomes for patients. That’s why Shoppers is so intent on serving their patients with the highest quality product. That’s why they approached us, that’s why they’re such phenomenal partners.

And to your point about insurance, yes, absolutely. All the patients who go through Shoppers are eligible for any eligible write offs on their taxes, as well as, I believe it was Great West a month ago said that they will start reimbursing their customers for specific conditions, but only if they buy through Shoppers. So I think that’s something to look forward going out as additional insurance companies having a similar program.

Benjamin A. Smith: Yeah. Manulife has a big program as well, with multiple symptoms.

Vinay Tolia:  Oh, they do, okay.

Benjamin A. Smith: Now, pivoting towards your European Union growth strategy, it’s my understanding that you are trying to construct an EU GMP-certified facility in the EU. Can you explain what your strategy is for the European distribution and production going forward?

Vinay Tolia:  Absolutely. So we view the EU as an incredibly exciting and important market. Again, a different market than here in Canada; it’s clearly much more, or completely, medicinally focused, so we partnered up and acquired 19.8 percent of a company called Holigen. They have assets in Australia as well as Portugal, and the one in Portugal is very unique. It is the largest cultivation asset, potentially, in the world. It’s a large outdoor grow; they have a quota that can exceed half a million, or 500,000 kilos a year, from this one site.

So the idea is to get that, build it, get it up and running, and to supply the entire EU with medicinal product from there.

Benjamin A. Smith: Okay, I think there may be a misconception, or not, as it were, I wanted to get your opinion on it – that outdoor grow is more for perhaps edibles, or maybe the low-end recreational market. Do you think that outdoor grows actually can be suitable for the medical market in terms of quality production, even though it is outdoor and perhaps the environment is a little less controlled?

Vinay Tolia:  So this product would be headed for extraction and then for the medicinal market. I completely agree with you that outdoor and even greenhouse, for that matter, isn’t competing with our premium indoor, or anyone’s premium indoor flower. These are totally separate markets. We view the market as bifurcating. I think in the future there’ll be the premium indoor flower, and then the rest will be biomass. That will be product for extraction, and you mentioned edibles and gummies; all that product is going to come from outdoor and greenhouse. So that’ll be really a race to the bottom as far as who can produce more efficiently. So I completely agree with you.

But if you can extract it and put it into an oil, then you can use it for the medicinal market; but that’s not the premium flower for patients like we have here in Canada.

Benjamin A. Smith: Okay. Now lastly, you know, the second quarter has just begun, fiscal second quarter of 2019. Can you give investors sort of a rough blueprint as much as you can, about what catalysts lie ahead for Flowr Corp., and what investors should expect? You know, how much you should move the ball forward, say, by the end of the year.

Vinay Tolia:  Sure. So we have a lot of exciting expansion plans. So we have, as I mentioned, our first facility, Kelowna One, that will be fully operational in Q3. We are also, we broke ground last October in our R&D facility, which is a partnership with Scott’s Miracle Gro – Scotts Hawthorne. That will be done in Q3, as well. These are all on our Kelowna campus.

We have another, we have plans for a larger grow facility called Kelowna Two that’ll be four times the size of our original Kelowna One facility, that we’re hoping to break ground on mid-year this year, and then as well as, we have our NASDAQ listing, which we’re still waiting for approval from the NASDAQ, but that seems to be on schedule, as well.

Benjamin A. Smith: Any timelines on that specifically, or?

Vinay Tolia:  No specific – we can’t comment on specific timelines. We’re just waiting for final regulatory approval. But we have no reason to believe that there is anything amiss there.

But as far as catalysts, we had, you know, our first Kelowna building, second Kelowna building R&D facility, as well as, we will be building a greenhouse and outdoor grow on some agriculture land, approximately 40 acres of ag land, across the street from our Kelowna One facility. And we’re hoping to plant mid-year for that, and to your point, all that product will be headed for the extract markets later this year.

Benjamin A. Smith: Terrific. Well, a great update. Thanks a lot for joining us again on the program, Mr. Tolia, and we’ll look forward to, you know, following your story going forward.

Vinay Tolia:  Thank you so much.

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