The Flowr Corp still not a Buy, says ATB Capital

ATB Capital Markets analyst Frederico Gomes continues to keep a wary eye on The Flowr Corporation (The Flowr Corporation Stock Quote, Chart, News TSXV:FLWR), maintaining a “Sector Perform” rating and $0.10/share price target for a total return of 66.7 per cent in an update to clients on Friday.

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

Gomes’s new analysis comes after The Flowr Corporation announced an operational update for its facilities in Portugal, which are owned and operated by Flowr’s wholly-owned subsidiary, Holigen.

“We believe this update reflects positively on Flowr’s pursuit of a higher revenue base overall and potential opportunities in nascent international cannabis markets,” Gomes said.

The company’s Sintra facility is now completely set up, including six grow rooms to produce Flowr’s proprietary genetics, while the 25,000 square foot purpose-built facility is intended to mirror the production of Flowr’s K-1 and Kelowna Research Station (KRS) located in Kelowna, B.C.

All told, the company expects to harvest approximately 300 kilograms of medical cannabis in the first quarter of 2022, with an aim toward eclipsing 2,000 kg/year of production in the future.

According to Gomes, the first production harvest showed in-process testing of greater than 25 per cent THC content, while the second harvest started on January 31 has shown in-process testing of 27 per cent THC content. Flowr expects to benefit from operating leverage as each of its grow rooms are utilized to spread fixed costs, while Holigen is looking to achieve long-term stability on a number of strains, with an aim toward marketing them in the second half of 2022.

As part of the update, the company also announced that Tom Flow, Flowr’s co-founder and Chief Operating Officer, will be relocating to Portugal to oversee the operation.

“We still firmly believe that Holigen’s team and assets are a unique entry point into the European Union. The Sintra facility is one of very few E.U. GMP certified facilities on the continent. If a competitor wanted to enter the E.U. today they would face long lead times on regulatory approvals, construction, importation of genetics and assembly of a quality team with the requisite experience to be successful,” said Darryl Brooker, Chief Executive Officer of Flowr in the company’s February 11 press release. “There are several reasons to be in Portugal – the regulatory landscape is changing, the cost structure is highly competitive and there are no real competitors in the premium cannabis market yet.”

In the interim, the Holigen subsidiary intends to pursue B2B bulk medical cannabis sales as a means to generate immediate revenue in the short-term, while pursuing this brand development, according to Gomes.

Halogen is also looking to expand its international footprint, as it expects to achieve regulatory approval in Germany and the United Kingdom by the second half of 2022. Meanwhile, company management expects continued growth in Portugal with potential adult-use legalization in the country in the coming years.

“Medical cannabis is already legal in Portugal, and Holigen is offering lab services and co-manufacturing (tolling) services to third-parties with sales expected to exceed €500k per quarter in H2/22e,” Gomes said. “We believe that entering new international markets and commercializing the harvest from the Sintra facility at attractive per-gram prices could serve as catalysts for the stock.”

Gomes projects the company to pull in $3.5 million in revenue in the final quarter of 2021, contributing to an overall projection of $12.1 million for the year. From there, Gomes forecasts 2022 revenue at $22.6 million for a year-over-year increase of 86.8 per cent, while 2023 projects at $36.8 million for a year-over-year increase of 62.8 per cent.

Gomes forecasts a $3.5 million loss in the fourth quarter to set an overall loss projection of $18.4 million for the year. For 2022, Gomes forecasts an EBITDA loss of $11.7 million in EBITDA in 2022, while 2023 is estimated as a $5 million loss ahead of an expected positive turn in 2024.

Gomes forecasts $400,000 positive in the final quarter of 2021, producing an annual projection of an $8.7 million loss. Gomes then expects gross profit to turn positive in 2022 at $3.9 million, while 2023 projects at $10 million.

Flowr’s share price has taken a dive by 85.7 per cent over the last 12 months, but has come out even to begin 2022. January 28 saw the company hit a 52-week low at $0.06/share, a long way off its 52-week high of $0.49/share from a year ago today.