Lowell Farms Inc

Greetings. Welcome to the Lowell Farms Inc. Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Bill Metoulas, Investor Relations. Thank you. You may begin.

Thank you, Hillary. Good afternoon. Good afternoon. Welcome to the conference call to discuss Lowell Farms financial results for the fiscal second quarter of 2021. Before we begin, please let me remind you that during the course of this conference call, Lowell Farms management may make four looking statements. These four looking statements are based on current expectations that are subject to risks and uncertainties and they cause actual results to differ materially from expectations. These risks are outlined in the risk factors section of our form 10 filed on EDGAR and our listing statement filed on CDAR. Any forward-looking statements should be considered in light of these factors. Please also note that any outlook we present is as of today and management does not undertake any obligation to revise any forward-looking statements into the future. This call includes George Allen, chairman of the board, Mark Ainsworth, co-founder and chief executive officer, as well as chief financial officer, Brian Schur, who will go into detail about the company's financial results for the quarter later in the call. The Q&A portion of this call will be open to analyst questions to provide further insight into the company's performance, operations, and go-forward strategy. For those of you who may happen to leave our call before its conclusion, Be advised that this conference call will be recorded and archived on our investor relations website page. And now, with that, I'll hand the call over to George. George, please go ahead.

Thanks, Bill. Good afternoon, everyone. I'm grateful to give you a report as to our progress, and indeed, there's much to talk about. The two acquisitions that we've done this year have transformed our company and positioned us well for the future. The acquisition of the Lowell brand and the acquisition of our flower prostitute facility in Salinas. Both acquisitions give our investors a strong indication as to where your management team believes the industry is headed. They're also both entirely unique without equal in the industry and as such position us differently than any other cannabis company in the world. Now, none of this could have happened without the relentless commitment from this team. I want to thank them for their continued willingness to give this company, our shareholders, and each other everything they have. As to Q2 performance, I was very pleased with our progress. 37% sequential revenue growth was extremely strong and squarely in the range that we had previously guided. Our profitability, as measured by EBITDA, was slightly ahead of guidance as well. Mark and Brian will go into more details on the quarter, but there's really a lot to be proud about. Our flour production at the greenhouse ramped steadily during the quarter, and we exceeded our guidance of flour production of 8,500 to 9,000 pounds during the quarter with a total output of 9,553 pounds. Additionally, our plan to restore the Lowell brand to health was met with resounding success during the quarter. Sales of Lowell-branded products rose 166%. over the first quarter, driven by an increase of 125% in pre-rolls and 386% in packaged flour. We opened approximately 210 new doors during the quarter for Lowell, and we've just launched a marketing campaign that we believe highlights the Lowell brand in a fresh and novel manner. We've also relaunched our Quix product during the quarter, which offers smaller serving sizes. Now, there's a lot to do with the Lowell brand. Our mission is to migrate wallet share from packaged flour into the pre-roll category and ultimately into our wallets. And we have a plan as to how we're going to do it. The plan involves product innovation, vast quantities of flour, large scale pre-roll and packaging automation, and a marketing campaign that empowers change in consumption. Now, the good news is that we're bringing a larger audience to this conversation. Our recent launch in Illinois has exceeded our expectations at the very early stage. Launched in only eight stores within the state, which has approximately 110 stores, we sold over 5,000 packs in the first nine days, approximately double our expectation. Later this month, we'll begin wholesaling our product to other dispensaries across the state. Now, in anticipation of that launch, our team was on the ground this week and meeting with dispensaries and the demand is enormous. I'm extremely excited to be joining the moment that cannabis is having in Illinois. The momentum here suggests that this is an extremely compelling start. And if we're correct about the viral nature of this product and its iconic packaging, we should see demand escalate as awareness grows. Now it's conceivable that volumes in Illinois exceed that of California as soon as the end of this quarter. To put that in context, we're currently selling approximately 50,000 units a month in California. So in Illinois, this isn't a sideshow, it's an exhibition. Now the end game with Lowell and the Lowell consumer is to catch them with an idea that they haven't heard before. And that idea is that smoking cannabis can be sexy. They've heard that smoking weed is legal, They've heard that smoking weed might have gotten a bad rap, and they've heard it can even be medicinal. But they haven't yet been convinced that smoking weed can be sexy. And that's the essence of Lowell, and it is a foundational element of many best-in-class brands throughout history. A Lowell joint is not something you hide. It's something you share. It's a badge, and it's a badge for those that get it. Lowell is how cannabis comes into the party, not lurking around out back, in the parking lot, or out on the fire escape, Lowell is something you share and show off. Now, that's the message we deliver our consumer. Alongside that message, we're going to deliver a product that replicates the price point and selection of flour. And that's how, in short, we plan to migrate share from flour, a category that's approximately five times the size of pre-rolls, into Lowell smokes. As to our launch in other states, We're still on track to launch Massachusetts later this quarter. We've also had multiple requests to launch Lowell in new markets. We're evaluating all those alternatives now and fully expect to add more markets in the very near future. Our strong instinct is to get these two markets launched and to use that experience and momentum to inform the next few launches. Most importantly, I am highly encouraged by the willingness of MSOs to allow outside brands onto shelves in their limited license markets. And I think this is telling us something about an important shift in the balance of power in cannabis. Over in California, we're positioning Lowell to be successful in an incredibly competitive operating environment. The recent launch of Lowell Farm Services, a business that has dual purposes, It gives the company an alternative line of business which has very strong fundamentals and a very long future that is fundamentally intertwined with the inevitable outcome whereby California becomes the epicenter of Canada's cultivation in the United States. It also gives us access to vast quantities of flour that we can use for inputs in our CPG business. Coupled with our existing farm, LFS gives us access to all the flour we need without having to make large capital bets on commodity prices over the long term. Now, this isn't to say that we're not going to require any more cultivation, but it will be done opportunistically. Now, as you will recall, we pivoted into this strategy after analyzing the pipeline of new supply coming online in California. Indeed, We estimate now that total canopy in California grew over the last 12 months by 59%, fueled by an explosive increase for outdoor canopy of 94%. Now what's important to know is that virtually none of this outdoor canopy has any legally compliant way of drying their flower. And that is why we commissioned the launch of Lowell Farm Services. We already have a pipeline of customers that goes well beyond our ability to satisfy. The other side of this coin, however, is that the increased canopy has put downward pressure on flower prices. Flower that was trading for well over $1,100 per pound only a quarter ago is now trading for under $800 a pound. Obviously, we're exposed to this price drop. During the second quarter, $5.7 million of our revenues came from the sale of excess or bulk flour from our greenhouse. This pricing headwind is going to have an impact on revenues during the third quarter as we ramp up LFS. This is the tempest that we saw coming, and we prepared for it. But nonetheless, we will feel its impact. Altogether, though, I'm very pleased with our positioning and execution. With that, I'm going to turn it over to Mark. Mark?