Flower One Holdings Inc.

Third-quarter 2021 revenue was $14.1 million, up 18% year over year versus $11.9 million in Q3 2020. Reported third-quarter cost of sales was $14.8 million, and management said the 9-month period ending September 2021 had cost of sales of $33.5 million and gross margin of 27%. Reported gross loss for the third quarter was $2.3 million versus a loss of $10.4 million in the prior-year period; 9-month gross profit was $15.2 million versus a gross loss of $14.6 million in the prior-year period. G&A expense was $5 million in the third quarter and $20.2 million for the 9-month period versus $17.6 million a year ago. Cash and cash equivalents were $4.9 million at September 30, 2021, up from $2.2 million at June 30, 2021 and $1.1 million at December 31, 2020. No explicit next-quarter or full-year financial guidance was given; management said the first phase of capital improvements is expected to be completed in early 2022 and should directly improve operating performance and profitability.

Kellen O'Keefe framed the quarter around operational rebuilding in Nevada and said the company is focused on defending its position as the state’s largest cannabis supplier. He said market softness, price compression and reduced tourism created headwinds, but emphasized that the local Nevada market has proven stronger than originally expected and that lounges expected in summer 2022 could be a positive catalyst. His tone was constructive but cautious: the company still has “a tremendous amount of work left to do” and is prioritizing facility upgrades, automation and financial discipline.

Araxie Grant said the quarter was affected by restructuring costs, legacy items and operational adjustments, while reporting $14.1 million in revenue, $14.8 million in cost of sales for the quarter, and 27% gross margin for the 9 months ended September 2021. She pointed to higher utility costs, COVID-related supply pricing increases and labor shortages from Las Vegas hiring competition as cost pressures, and noted that G&A rose to $20.2 million for the 9-month period from $17.6 million a year earlier due to restructuring, capital improvements, and higher cannabis taxes and selling costs. On the balance sheet, she highlighted cash increasing to $4.9 million and said the company will keep working to lower cost of capital and operating expenses while aiming for positive cash flow as quickly as possible.

Analysts pressed on cash runway and whether the company is sufficiently capitalized to execute the facility upgrades. Management said the CapEx program is being split into phases to manage cash flow and that it is pursuing the best mix of debt and equity financing, with the first phase already underway and expected to finish in early 2022. Questions also focused on Nevada demand and COVID-related tourism trends; management said weekend tourist traffic has been steady, but midweek convention traffic remains slower, while the local market continues to show strength. On pricing, management confirmed compression across biomass and 2.0 products such as vapes and edibles, and said better quality, consistency, automation and SKU rationalization should help lower costs near term.