Lowell Farms Inc

earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Bill Matoulas of Investor Relations. Please go ahead.

Good afternoon and welcome to the conference call to discuss Lowell Farm Incorporated's financial results for the fiscal second quarter of 2022. Before we begin, please let me remind you that during the course of this conference call, Lowell Farm Incorporated's management may make forward-looking statements. These forward-looking statements are based on current expectations that are subject to risks and uncertainties that may cause actual results to differ, particularly from expectations. These risks are outlined in the risk factor 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 in 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, The advice at this conference call will be recorded and archived on our investor relations website page. And now I'll hand the call over to George. George, please go ahead.

Thank you, Bill, and good afternoon, everyone. In terms of financial results, this quarter was obviously a disappointing quarter for Lowell. Lowell Farms fell short of several of our goals during the quarter as market conditions in California continued to be exceptionally challenging given oversupply and a consumer that is under budgetary pressure. This is compounded by a cost structure that is experiencing the same inflationary pressures everyone is experiencing. Ironically, we think the market conditions could not be more right for the launch of our much-anticipated Lowell 35s product, which I'm excited to announce will hit the shelves this quarter. The product is priced to bring a new form factor into California with a value proposition that is more compelling than anything else in the market. And before I talk about the 35s, I want to talk briefly about the second quarter and our liquidity. During the second quarter, we saw a surge of price action by our competitors, especially in the flower category. We deliberately made the choice not to lower our prices to chase volume at the sacrifice of margin. We were guided by the belief that flower prices have dipped below sustainable levels, and since we have found it nearly impossible in cannabis to raise prices, we elected to refrain from aggressive price reductions in order to protect our brand. and our volume suffered. This largely manifested itself in a CPG revenue figure for the second quarter that was immensely disappointing and well short of our guidance. While our farm produced the record volume of cannabis during the quarter, the bulk market for flower continued to be soft, albeit slightly higher than the first quarter. Now, the primary culprits for our challenges are an oversupply of cultivation output in California coupled with a large portion of our business which is subject to commoditization, namely bulk flower sales and a large portion of our CPG sales. As to cultivation oversupply, we don't see it fundamentally changing, even though we do see some evidence of capitulation in the market. However, we suspect that many of these operators on the margin will simply shift into the illicit market in an effort to stay afloat and thereby extend the oversupply problem. While cultivation tax relief was helpful and will retain some of that margin in Q3, we expect most of the savings to get passed along to retailers and ultimately consumers, given the power balance of an oversupplied market. As to CPG concentration, too many of our CPG products are commoditized and have comparable alternatives from our peers. This book of business will only improve when we see meaningful attrition among our peers. We are seeing encouraging evidence of that attrition as Q2 represents the second quarter in a row where more brands left the market than entered it. We also hear from our retailing partners that they are cutting back on vendor count as they're growing weary of vendor reliability issues that complement this challenging market environment. Now, the best vector for us to pursue is products which are contiguous to our Lowell pre-roll brand, which has no pure in California. With the launch of the Lowell 35s, we're extending that leadership by bringing a product to market that we have been designing and engineering for over two years. With the completion of the all-good transaction we announced earlier this year, we have the final components to bring the 35s to market, which we will be doing later this month. Now, the elephant in the room is our liquidity. We ended the quarter with $2.2 million in cash, $3.7 million below our March balance. and we've been in active dialogue with existing investors about an incremental capital raise, but that raise is not yet complete, and it would be premature to comment on terms. We recently factored an IRS receivable for $2.4 million that helps with current liquidity and capital equipment investments associated with the 35 launch. While the market backdrop is exceptionally challenging for Lowell, we do think it is an ideal environment for the launch of the 35s. The value proposition behind the 35 is exceptional. It's a step function improvement in quality over current pre-roll offerings, while simultaneously bringing it down to a price point as competitive with flour. Now, this has been a dream of ours for a very long time. We believe that over time, we will not only take share from the pre-roll market, but also from the jarred flour market. We estimate that 90% of cannabis, inclusive of the illicit market, is sold to people who consume weed on a daily basis. And we think this is one of the first CPG items that presents a differentiated alternative to that consumer. We are excited about our launch and we'll look forward to giving you our initial feedback on our next earnings call. I'll turn it over to Mark.