Take a pass on Flowr Corp, says ATB Capital

ATB Capital Markets analyst Frederico Gomes delivered an update on The Flowr Corporation (The Flowr Corporation Stock Quote, Chart, News TSXV:FLWR) on Friday where the analyst maintained a “Sector Perform” rating and $0.10/share price target.

Headquartered in Toronto, The Flowr Corporation cultivates, produces and sells cannabis in Canada, while also having operations in Europe and Australia.

Gomes’s updated analysis comes after The Flowr Corporation announced it had sold its interest in the Kelowna Research Station (KRS) R&D facility to Hawthorne, a subsidiary of The Scotts Miracle-Grow Company.

“We view the sale as a positive step towards the Company’s operational turnaround as FLWR adapts to the competitive market reality, improves its balance sheet, and looks to grow the efficiency of its operations both in Canada and abroad,” Gomes said.

The deal, which is worth a total of $16 million, is presented as $3 million in immediate cash considerations, the extinguishing of a $12 million principal debt under an existing agreement with Hawthorne, and the remaining $1 million coming upon closing of the transaction, which is expected to come in the second quarter of 2022.

When the deal closes, Gomes estimates the company will have $15 million in pro-forma cash compared to $17 million in pro-forma debt.

“The KRS building and Hawthorne partnership has given us the ability to trial and commercialize exotic and unique cannabis strains, giving us a competitive advantage in the Canadian market,” said Darryl Brooker, Chief Executive Officer of Flowr in a February 18 press release. “Moving forward we will maintain a very close relationship with Hawthorne and will continue to benefit from shared Research and Development and the partnership will continue through a service agreement.”

The company also announced four new genetic product strains, including BC Clementine Crush, BC Lemon Ice, BC Spiced Grape, and BC Mango Melon OG. Flowr expects to launch these new products from March through May, having gained approval in Alberta, British Columbia, Ontario, and Quebec.

“These additional listings represent a strategy to offer consumers differentiated, high-THC, and high-Terpene product strains, which we view as positive, given the changing consumer demands in the Canadian market,” Gomes said.

Flowr’s product development pipeline continues, as its press release also indicated the company has successfully completed trialing 44 new genetics and will shortly begin commercial growing of up to 10 new and exotic genetics selected for their unique terpene, morphological and THC profile, with launches expected later in 2022 and early into 2023.

Overall, the company’s products are now available in over 1,500 retail outlets across every Canadian province, with an additional 11 SKUs set recently listed in Ontario and more to come in the near future.

Flowr’s stock price has shrivelled to a loss of 81.7 per cent over the last 12 months, though the seeds of a bounceback are there as it has produced a 7.1 per cent return since the start of 2022. A year ago, Flowr’s stock price was at a 52-week high of $0.41/share, most recently hitting a 52-week low of $0.06/share on January 28. At the time of his report’s publication, Gomes’ $0.10 target represented a projected 12-month return of 54 per cent.