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CAN (ON): License producer announces restructuring, updates on operations

The Flowr Corporation has restructured approximately 25% of its workforce globally, which is expected to result in an annual reduction of headcount expenses in excess of approximately $6 million. "In an effort to tighten the timeline towards becoming cash flow positive in H2 2020, the Company has decided to focus its resources near term on the Premium Canadian dried flower market, specifically to continue building on the positive sales momentum it has been seeing with its Flowr branded BC Pink Kush and other high THC strains expected to be launched in the marketplace in 2020," the team with the company explains.

"The changes we announced today were part of an ongoing comprehensive review of our operations to reduce costs, focus on the highest value priorities and accelerate cash flow generation, in addition to some of the anticipated macro-economic headwinds stemming from COVID-19. This was an extremely difficult decision that we did not take lightly and would like to thank former and current employees for their tremendous contributions. The resulting company will be a leaner, more efficient organization. Our fundamental thesis that consumers demand quality dried flower has been proven correct as evidenced by heavy demand for our flagship strain, BC Pink Kush. We also look forward to the release of our newest high THC strains BC Louis XIII and BC Tahoe OG in the coming months. Given that our Kelowna 1 facility is now fully operational, we expect to see a step function change in production and sales beginning in the second quarter. While we continue to be very optimistic about our derivative form factor product plans, in light of the current macro environment we feel it’s prudent to delay further material investments in these areas and focus on our core competency – producing premium indoor-grown dried flower and building the Flowr brand in the Canadian recreational market," commented Vinay Tolia, CEO of Flowr.

Operational update: Canada
The Company has advanced its Kelowna Campus to be a single hub for all aspects of cultivation, processing and packaging to service the Canadian cannabis market. "The Company has only invested in either highly controlled indoor growing environments for premium high THC dried cannabis (Kelowna 1) or low cost outdoor and shade-house production for extraction (Flowr Forest). Notably, the Company has not invested in traditional greenhouses, which are more expensive to build and operate, because it believes that they cannot produce premium smokable products. Flowr has proven that low cost outdoor and shade-house grows provide quality inputs, especially for use in extraction. Recently, the Company launched new corporate and Canadian recreational websites, consistent with its brand marketing strategies."

Kelowna 1 Indoor Facility
On February 24, 2020, the Company announced it had received approval from Health Canada to open an additional 10 grow rooms, bringing the total to 20 at the Facility. The ultimate production capacity is expected to be approximately 10,000 kg of premium cannabis when fully optimized. Since that announcement, the Company has propagated 7 of the newly licensed grow rooms with the remaining 3 to be planted within the next 30 days.

The Company has taken preventative measures to remain a reliable supply chain partner during the COVID-19 pandemic.
Outdoor and Shade-House Facility 

The Company has decided to delay the launch of its live resin product until its Canadian dried flower operations are generating positive cash flow.

As a result, the Company has decided to selectively plant outdoors to enable optionality for a full outdoor grow to support its revised live resin launch plans.

Flowr/Hawthorne R&D Facility 
Flowr and Hawthorne have entered a strategic R&D alliance to build a state of the art, 45,000 square foot R&D Facility, the 1st of its kind in Canada.

Construction of the R&D Facility is substantially complete. The Company submitted the evidence package to Health Canada to license the first floor on February 24, 2020 and expects to receive licensing approval in Q2 2020. Once operational, the R&D Facility will allow Flowr to stay on the leading edge of cultivation technology and maximize plant health and yields.

Sintra, Portugal Indoor Facility
Sintra is a highly controlled indoor cultivation, extract processing and finished product packaging facility. Construction of the facility is substantially complete with 3 of the 6 total grow rooms currently operational. Obtaining GMP certification is both a critical step to the production and sales of a high value medicinal product which can be distributed to any country within in the EU and is Flowr’s top priority within its Holigen business. 

The Company had its final GMP inspection in September 2019 and still anticipates receipt of EU-GMP certification.
Construction of the Sintra Facility is substantially complete.

Aljustrel, Portugal
Aljustrel is a 7 million square foot outdoor cultivation facility which has been deemed a Project of National Interest by the Portuguese Government, the only cannabis related project to receive this designation. The Company expects a phased ramp up of production at Aljustrel to match capacity with the revenue potential of an expanding European medicinal cannabis market.

The Company plans to plant over 1,000,000 square feet of cultivation area in 2020 with a harvest expected in Q4 2020.

The Company maintains its GMP compliant packaging facility in Australia. Flowr expects its assets in Australia to be a hub for distribution and sales of medicinal cannabis into the Australasian region.

During the first quarter, Holigen Australia received a modest shipment of premium dried flower from our Kelowna 1 Facility to be sold and distributed into the Australian market. 

Further to the Company’s announcement on November 19, 2019 relating to the entering into of a credit agreement with ATB Financial (“ATB”) for access to debt financing of up to $25 million, on February 28, 2020, the Company completed its second draw-down of $3.2 million from its term facility, and $500,000 from its revolving operating credit facility under the credit agreement. Furthermore, the Company is assessing various financing alternatives to address near term working capital needs.

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