Quarterlytics / Healthcare / Drug Manufacturers - Specialty & Generic / The Flowr Corporation

The Flowr Corporation

flwr · TSX-V Healthcare
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Ticker flwr
Exchange TSX-V
Sector Healthcare
Industry Drug Manufacturers - Specialty & Generic
Employees 201-500
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FY2021 Annual Report · The Flowr Corporation
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Management’s 
Discussion and Analysis

For the years ended December 31, 2021 and 2020

MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

Management’s Discussion and Analysis 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) 
of The Flowr Corporation, (and together with its consolidated subsidiaries, collectively “Flowr” or the “Company”) 
provides a discussion and analysis of the financial condition and results of operations to enable a reader to assess 
material changes in the financial condition of the Company between December 31, 2021 and December 31, 2020, 
and results of operations for the three months and year ended December 31, 2021, ( "Q4 2021" and “YTD 2021”, 
respectively) and for the three months and year ended December 31, 2020, ("Q4 2020" and “YTD 2020”, 
respectively). The MD&A should be read in conjunction with Flowr’s audited consolidated financial statements for 
the years December 31, 2021 and 2020 (the “Financial Statements”). To the extent applicable, updated information 
contained in this MD&A supersedes older information contained in previously filed continuous disclosure 
documents.   

This MD&A is dated as of May 20, 2022.  All amounts in this MD&A are expressed in thousands of Canadian dollars 
(“CAD”) except per share data and unless otherwise indicated. 

The Financial Statements (and the financial information contained in this MD&A) were prepared in accordance with 
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board 
(“IASB”). The Financial Statements and this MD&A have been reviewed and approved by the Company’s Board of 
Directors (the “Board of Directors” or the “Board”). The Financial Statements include the accounts of the Company 
and its subsidiaries as described below. 

Non-IFRS Measures 

This MD&A contains certain financial performance measures that are not defined by IFRS, and are used by 
management to assess the financial and operational performance of the Company. These include but are not 
limited to adjusted EBITDA and segmented gross profit (loss) before inventory impairment and fair value 
adjustments on biological assets (as defined below). 

As there are no standardized methods of calculating non-IFRS measures, the Company’s approaches may differ 
from those used by other companies in the industry and may not be comparable as a result. Accordingly, these 
non-IFRS measures are intended to provide additional information and should not be considered independently 
or in substitution for measures prepared in accordance with IFRS. 

Additional information relating to the Company, including the Company’s Annual Information Form dated April 28, 
2021 (the “AIF”),is available on SEDAR at www.sedar.com.   

This MD&A contains forward-looking information within the meaning of Canadian securities legislation (see 
“Forward-looking Information, Risks and Uncertainties” below for a full discussion on the nature of forward-looking 
information). Information regarding the adequacy of cash resources to carry out the Company’s operations and 
capital projects or the need for future financing is forward-looking information. All forward-looking information, risks 
and uncertainties, including information not specifically identified herein, is made subject to the cautionary 
language at the end of this MD&A. Readers are advised to refer to the cautionary language included at the end of 
this MD&A under the heading "Forward-looking Information, Risks and Uncertainties" when reading any forward-
looking information. This MD&A is prepared in accordance with Form 51-102F1 and has been approved by the 
Company’s Board of Directors prior to its release. 

1 

 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

Company Overview 

Flowr is a cannabis company that strives to cultivate better people, plants and products. The Company’s primary 
operations are located in Canada and Portugal.  In Canada its operating campus is located in Kelowna, BC, which 
is part of the Okanagan Valley. This campus produces recreational and medicinal cannabis from a purpose-built 
indoor cultivation facility, an outdoor and greenhouse cultivation site, and the “Kelowna Research Station” (“KRS”) 
a  cannabis  research  and  development  facility.  Internationally,  Holigen  Holdings  Limited  (“Holigen”),  through  its 
wholly  owned  subsidiary RPK  Biopharma Unipessoal Lda (“RPK”), is licensed to cultivate  medicinal cannabis in 
Portugal, where it operates a GMP licensed cultivation facility.  Subsequent to December 31, 2021, the Company 
entered into separate agreements for the sale of the KRS facility and Holigen (refer to page 7 for further details.) 

The Company was incorporated under the Business Corporations Act (Alberta) on June 1, 2016 and continued from 
the Business Corporations Act (Alberta) to the Business Corporations Act (Ontario) on September 25, 2018. The 
head office of the Company is located at 60 Adelaide Street East, Suite 1000, Toronto, Ontario, M5C 3E4. The 
Company’s common shares (“Common Shares” ) are listed on the TSX Venture Exchange (the “Exchange”) under 
the symbol “FLWR”.   

The following table lists Flowr’s subsidiaries and percentage of holdings: 

Name of Subsidiaries 
The Flowr Canada Holdings ULC (“Flowr ULC”) (1) 

      Country 
Canada 

Holigen Holdings Limited ("Holigen") 

The Flowr Group (Okanagan) Inc. (“Flowr 
Okanagan”) 
Holigen Limited ("HL") 
RPK Biopharma Unipessoal Lda (“RPK”) 
TCann Pty Ltd ("TCann")(3) 
GreyCan Pty Ltd ("GreyCan")(2) 
Terrace Global Inc. ("Terrace") 

Malta 

Canada 

  Malta 

Portugal   
  Australia  
  Australia  
Canada 

Holdings as at (%) 

December 
31, 
2021 

December 
31, 
2020 

 90.8  

 100.0  

 100.0  
 100.0  
 100.0  
 —  
 100.0  

 100.0  
 —  
 —  

Parent 
Entity 
The Flowr 
Corporation 
The Flowr 
Corporation 
Flowr ULC 

 88.7  

 100.0  

 100.0  
 100.0   Holigen 
 100.0   HL 
 100.0   GreyCan 
 100.0   HL 

The Flowr 
Corporation 

 100.0  
 100.0   Terrace 
 100.0   Terrace 
Terrace 

  Uruguay   
  BVI 

Oransur, S.A ("Oransur")(3) 
Terra Nova Business Holdings Inc. ("TNBH")(3) 
Pharma Binoide S.L. Unipersonal ("Pharma 
Binoide") 
Productos Natrurais e Farmaceuticos, LDA 
("Terra Nova")(3) 
(1) 
Flowr owns 100% of the issued and outstanding Flowr ULC common shares and two US shareholders own 100% of the issued and 
outstanding Flowr ULC class A preferred shares. Combined Flowr has a 90.8% ownership interest in Flowr ULC.  The Flowr ULC class A 
preferred shares are exchangeable for Common Shares at the sole option and discretion of the holders on a one-for-one basis and at no 
cost to the holder. 
(2)  Flowr is in the process of dissolving this holding company. There are no material assets or operations held in this entity. 
(3) 

Inactive entities that were sold in 2021. 

 100.0  
 100.0 

Portugal 

 100.0  

TNBH 

Spain 

 — 

2 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
   
   
  
   
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

K1 Facility 

Flowr Okanagan holds the following licenses: (i) standard cultivation; (ii) standard processing; and (iii) sales licence 
issued under the Cannabis Act and Cannabis Regulations and operates an 85,000 square foot cultivation facility 
in  Kelowna,  British  Columbia  (the  “K1  Facility”),  designed  to  meet  the  International  Council  for  Harmonisation’s 
good manufacturing practices standards (“GMP”).  In August 2021, Flowr Okanagan was granted a research license 
by Health Canada. The research license allows the Company to distribute and administer its cannabis for research 
purposes and to test and review its products based on taste, sight, smell and touch. The Company will utilize this 
research license in the research and development of novel product offerings. 

The K1 facility has a total of 20 grow rooms, a purpose built irrigation system, and an automated packaging line 
that was commissioned in 2020.  In addition, Flowr Okanagan holds a standard cultivation, outdoor and storage 
license for a greenhouse and outdoor cultivation site adjacent to Kelowna 1 (“Flowr Forest”). Flowr Forest covers 
approximately 190,000 square feet of greenhouse and 140,000 square feet of outdoor grow space. For a summary 
of  the  regulatory  framework  relating  to  the  Company’s  operations,  please  refer  to  the  Company’s  Annual 
Information Form dated April 28, 2021 (the “AIF”). 

The KRS facility, a partnership with The Scotts Miracle-Gro Company through its subsidiary Hawthorne Canada 
Limited (“Hawthorne” ), was  commissioned in the fourth quarter of  2020 and provides Flowr  with a  platform to 
develop future genetics and advanced cultivation techniques. 

Portugal Facilities 

Through its subsidiary RPK, Flowr operates the following facilities in Portugal to distribute to the Portuguese and 
EU medicinal cannabis markets. 

Sintra indoor facility 

Sintra is an indoor cultivation and finished product packaging facility located in Sintra, Portugal, just outside Lisbon.  
The Company received its EU GMP license for Sintra in 2020, placing it on a short list of cannabis companies with 
GMP certification and the ability to service both the domestic medical cannabis market and to export medicinal 
cannabis products to countries where legal cannabis frameworks exist.   

Aljustrel outdoor site 

Aljustrel  is  a  large  scale  7  million  square  foot  outdoor  cultivation  site  located  in  Aljustrel,  Portugal  focused  on 
cultivating and producing medicinal cannabis outdoors.  

3 

 
 
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

Highlights and Key Developments 

In thousands of CAD dollars (except 
where noted), 

Three months ended 
December  31,  

2021     

2020      

Grams harvested - K1 
Grams sold  
Average net sale price - Flowr Canada 
Gross revenue 
Net revenue(1) - Flowr Canada 
Net revenue(1) - Holigen 
Cost of sales(2) - Flowr Canada 
Cost of sales(2) - Holigen 
Net loss attributable to shareholders of 
the Company 
Adjusted EBITDA 
Capital Expenditure 
(1)  Gross revenue net of excise tax, provision for returns and concessions. 
(2)  Before inventory impairment and fair value adjustments. 

 1,270,027   
 1,406,904   
 2.61  
 4,292   
 3,679   
 122  
 4,785   
 477  

 (61,277)   
 (5,154)  
 577   

 1,195,260   
 311,308  
 4.92  
 2,066  
 1,533  
 67  
 1,843  
 1,061  

 (100,454)  
 (5,383) 
 911   

Year ended 
December  31,  
2020 
 4,336,240 
 1,405,495 
 5.30 
 9,441 
 7,446 
 67 
 7,975 
 3,493 

2021     

 4,278,407    
 6,627,052  
 1.76  
 14,877  
 11,636   
 712  
 19,372   
 2,692   

 (85,532)   
 (20,058) 
 1,293  

 (125,621)
 (18,670)
 12,713 

Financial Results (presented in $000s) 

  Consolidated gross revenue for Q4 2021 amounted to $4,292 compared with $2,066 in Q4 2020, while 
consolidated net revenue during Q4 2021 was $3,801 compared with $1,600 in Q4 2020.  Net revenue of 
$3,801  for  Q4  2021  was  the  highest  quarterly  revenue  recorded  by  the  Company  since  Q1  2021, 
contributed by increases in cannabis sales in Flowr Canada.  Net revenue from Flowr Canada during Q4 
2021 amounted to $3,679 compared with $1,533 in the same period of 2020, while revenue earned by 
Holigen was $122 during Q4 2021 compared with $67 in the same period 2020.  Net revenue from Flowr 
Canada in Q4 2021 was a new record and the third straight quarter of revenue growth, being 58%, 88%, 
and 4% higher than the net revenue for Q3, Q2, and Q1 2021 respectively.  The increase in revenue from 
Flowr Canada was due to higher grams of products sold during Q4 2021, partially offset by a decrease in 
average prices.  Sale of retail products during Q4 2021 was 276 kilograms compared with 238 kilograms 
in Q4 2020, contributed by the introduction of the new strain Strawnana and a new format of pre-rolls in 
Q4 2021.  Sale of cannabis through bulk wholesale channels during Q4 2021 was 1,131 kilograms compared 
with 73 kilograms in Q4 2020 primarily due to higher production from the K1 facility.   

  Gross revenue for the YTD 2021 amounted to $14,877 compared with $9,441 in the same period of 2020, 
while net revenue for the YTD 2021 totaled $12,348 compared with $7,513 in the same period of 2020.  
Net revenue from Flowr Canada increased to $11,636 in the YTD 2021 from $7,446 in the same period of 
2020, as a result of higher volume of retail and bulk cannabis products sold in the current year.   

  Net revenue from Holigen related to tolling service revenue earned in Portugal, which amounted to $122 
during Q4 2021 and $712 for YTD  2021, compared with $67 for the same respective periods in 2020.   

  SG&A expenses for Q4 2021 amounted to $3,900 compared with $4,614 in Q4 2020, while SG&A for the 
YTD  December  31,  2021  totaled  $16,327  compared  with  $18,613  for  the  same  period  in  2020.    The 
decrease  in  SG&A  expenses  reflects  the  cost  reduction  measures  the  Company  implemented  during 
2021.   

  Gross loss for Q4 2021 was $2,976 compared with a loss of $2,146 for Q4 2020.  Gross loss for Q4 2021 
increased from Q4 2020 primarily due to higher impairment of inventory.  Gross loss for YTD 2021 was 
$12,110 compared to a loss of $7,472 during the same period in 2020, primarily as a result of the increase 
in net revenue, higher cost of sales recorded, offset by higher gains resulting from fair value adjustments 
on inventory sold.  

4 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
  
 
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

 Cost of sales for Q4 2021 was $5,262 compared with $2,904 for Q4 2020.  The increase in cost of sales 
resulted from a significantly higher volume of cannabis sold during the current quarter at 1,407 kilograms 
compared with 311 kilograms sold during Q4 2020.  Cost of sales for YTD 2021 was $22,064 compared 
with $11,468 for YTD 2020 primarily due to the significantly higher volume of cannabis sold.



The Company recorded impairment charges totaling $57,096 in Q4 2021 compared with $83,979 in Q4 
2020.   For the  Flowr  Canada,  the  Company  recorded  $24,552 of impairment  against  goodwill,  $1,350 
against intangible assets, and $14,498 against property, plant and equipment.  For Holigen, an impairment 
charge  of  $4,661  was  recorded  against  intangible  assets  and  an  impairment  charge  of  $4,289  was 
recorded against property, plant and equipment.

 Net loss attributable to shareholders of the Company totaled $61,277 for Q4 2021 compared with a loss 
of $100,454 for  Q4 2020.    Net loss  attributable  to  shareholders  of  the Company  for YTD 2021 totaled
$85,532 compared with $125,621 for the same period in 2020.  The change in net loss for was primarily 
due  to  higher  revenue,  lower  SG&A  expenses,  lower  impairment  charges,  reversal  on  share-based 
compensation,  partially  offset  by  higher  depreciation  and  amortization,  loss  on  disposal  of  subsidiary, 
higher other expenses, and lower income tax recovery.

 On  May  20,  2022,  the  Company  and  its  senior  lenders  entered  into  a  Second  Amendment  to  Credit 
Agreement (the “2022 ARCA”), which included certain amendments to financial covenants and repayment 
terms.  Refer to ATB Credit Agreements on page 12.

Business Updates for the year 2021 

 On March  16,  2021, the  Company  closed  its  previously  announced  bought deal  short  form  prospectus
offering (the “Bought Deal ”) for gross proceeds of $15.9 million including the partial exercise of the over-
allotment  option  ($14.4  million  net  proceeds  after  fees  and  transaction  costs).    In  connection  with  the
Offering, the Company issued 31,127,453 units (the “Unit”) at a price of $0.51 per Unit (the “Issue Price ”).
Each Unit consists of one common share in the capital of Flowr (each a “Common Share ”) and one full
Common  Share  purchase  warrant  of  the  Company  (each  whole  warrant,  a  “Warrant”).  Each  Warrant  is
exercisable to acquire one Common Share at an exercise price of $0.64 per Common Share for a period
of two years from March 16, 2021 (the “Closing Date ”).

 During Q3 2021 Flowr closed two private placement financings for total gross proceeds of $7,564,000
and issued 36,019,047 units (“Units”) of the Company at a price of $0.21 per Unit, with each Unit consisting
of  one  Common  Share  and  one  Common  Share  purchase  warrant  which  entitles  the  warrant  holder
thereof to acquire one Common Share at an exercise price of $0.26 per share any time for a period of 42
months from the closing date.



Also during Q3 2021, Flowr made an early principal repayment of $7.5 million towards its senior amended
and restated credit agreement (“ARCA”) with a syndicate of lenders led by ATB Financial (“ATB Financial ”).
Furthermore, the ARCA was amended allowing Flowr to additional flexibility to issue equity capital and to
enter into financings arrangements with respect to Holigen.

 During  Q3  2021,  Flowr  achieved  full  operation  in  all  20  grow  rooms  at  the  K1  facility  and  consistently

increased the THC level by an average of +3.3%.



Flowr successfully introduced a new format of pre-rolls trademarked Dogwalkers which started delivery
in Q4 2021.  These 0.35g pre-rolls are packaged in an innovative tin pack of seven pre-rolls and have
been listed in British Columbia, Alberta, and Ontario.

 During Q4 2021 the Company introduced its high-THC strain BC Strawnana, which was accepted for listing

in Ontario, British Columbia, Alberta, and Saskatchewan.

5 

MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

  Over 50 new and exotic genetics have been trialed since Q2 2021.  Three of these new strains have been 
approved for product listing in Q1 of 2022, significantly expanding the Company’s product portfolio.    

 

 

In December  2021, the Company completed its first shipment of  premium dried cannabis flowers from 
Canada  to  Israel,  as  part  of  the  previously  announced  international  supply  agreement  (the  “Supply 
Agreement”)  with  Focus  Medical  Herbs  Ltd.  (“Focus  Medical”),  a  company  which  IM  Cannabis  Corp. 
(NASDAQ:  IMCC)  (CSE:IMCC)  (“IMC”)  has  an  exclusive  commercial  agreement  with  in  Israel.    The  first 
shipment  consisted  of  premium  cannabis  across  two  strains  for  a  total  of  $825,000.  The  shipment 
represents the Company’s debut into the Israeli market and the first significant international export. 

In December 2021, the Company successfully closed the previously announced sale of unused industrial 
land located in Kelowna, BC for gross  sale price  of  $6.3  million in cash, including  $5.3  million  paid  on 
closing and a further $1.0 million cash receivable within six months upon satisfaction of certain conditions.  
Pursuant  to  the  credit  agreement  with  a  syndicate  of  senior  lenders  led  by  ATB  Financial  (the  “Credit 
Facility”), the Company made an early principal repayment of $3 million towards the Credit Facility using 
proceeds from the land sale, reducing the principal amount outstanding to $5.7 million by the end of 2021.  
In exchange for the $3 million paydown, ATB Financial proceeded to release its security over Holigen 
Holdings Limited (“Holigen”).   

  Holigen’s indoor facility in Sintra, Portugal was fully operational with all grow rooms planted and producing 
E.U. GMP medical cannabis during Q4 2021.  The BC Black Cherry and BC Strawnana strains from Flowr 
have been in production with the first harvest taking place in January 2022. 

Key Events Subsequent to December 31, 2021 

 

In  February  2022  the  Company  entered  into  an  agreement  to  sell  its  interest  in  the  KRS  Facility  to 
Hawthorne Canada Limited (“Hawthorne”) for an aggregate purchase price of $16 million (the “KRS Sale”), 
to be paid as follows: 1) an initial cash payment of $3.0 million; 2) full extinguishment of the principal amount 
outstanding under the existing loan agreement between Flowr and Hawthorne for the construction of the 
KRS  Facility  on  closing  at  approximately  $12  million;  and  3)  the  balance  of  the  purchase  price  of 
approximately $1.0 million paid in cash upon closing. The KRS Sale is expected to close in Q2 2022 and 
is subject to certain closing conditions.   

  On April 19, 2022, the Company, through its wholly-owned subsidiary HHL, entered into a share purchase 
agreement (the “Purchase Agreement”) with Akanda Corp. (NASDAQ: AKAN) (“Akanda”) and Cannahealth 
Limited (the “Purchaser”), a wholly-owned subsidiary of Akanda. Pursuant to the Purchase Agreement, the 
Purchaser will acquire from HHL (the “Holigen Sale”) all of interests in HL (including HL’s wholly owned 
subsidiary RPK) for aggregate consideration of approximately $35 million.  

Pursuant to the terms of the Purchase Agreement, the Company has agreed to sell HL to the Purchaser 
for  total  consideration  payable  of  approximately  $35  million  (the  “Purchase  Price”)  consisting  of:  (i) 
$3,750,000 in cash; (ii) 1,900,000 common shares in the capital of Akanda (the “Consideration Shares”) 
which closed at U.S.$10.30 per share on April 19, 2022; (iii) the indirect assumption by Akanda of RPK’s 
indebtedness of approximately $5,100,000; and (iv) at least $834,000 of interim funding to Holigen which 
has already  been  received  by Flowr. If the  Purchase Agreement  does not  close  on or  prior to May 31, 
2022, the interim funding will be repaid to Akanda by the delivery of medical cannabis from Holigen at a 
price of €2.00 ($2.72) per gram or in cash, at the discretion of Flowr.  In connection with the Transaction, 
Holigen will pay an advisory fee equal to 7% of the Purchase Price, 50% of which is payable in cash and 
50% of which is payable in Consideration Shares.   

6 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

In addition, Akanda has agreed to subscribe for $1 million of common shares in the capital of Flowr (the 
“Private Placement”) at a price per share of $0.07 per share, subject to the approval of the TSX Venture 
Exchange (the “TSXV”). The Consideration Shares are subject to a customary six-month lockup.   

The Holigen Sale closed on April 29, 2022 upon receiving the necessary approvals and satisfaction of 
other closing conditions.   

COVID-19 Pandemic and Operational Management 

Since early 2020, the Company has had to adapt its  business due to the COVID-19 pandemic. In general, the 
Company’s operating facilities in Kelowna, British Columbia and Portugal, have been less impacted by the COVID-
19 pandemic than what has been experienced in the most populous cities in Canada, such as Toronto. Further, 
each of the Company’s cultivation sites has implemented robust pandemic measures, including limitations on non-
essential  travel,  increased  use  of  personal  protective  equipment,  social  distancing,  staggering  staffing  at  our 
production  facilities,  non-essential  staff  have  been  working  from  home  and  contract  tracing.  Overall,  cannabis 
consumption during the pandemic has not been materially impacted; however, the Company has seen a slower 
than expected roll-out of retail stores in key urban areas, such as Toronto, due to the pandemic. The Company 
has also seen human resources impacts relating to the pandemic as a result of restrictions on travel within Canada 
and abroad. The Company is not eligible for any government financing programs; however, the Company received 
approximately $3,105 in subsidies from the Canada Emergency Wage Subsidy in 2020 and $239 in subsidies from 
the same program in 2021. 

In the short term, the Company is seeking to mitigate these impacts through taking current conditions into account 
in  preparing  its  estimates,  forecasts  and  expectations,  and  through  technology-mediated  engagement  with 
retailers. The Company continues to monitor developments in order to adapt and respond in order to protect the 
health and safety of the Company’s employees, patients and consumers and the best interests of the Company.   

The  development  and  operation  of  the  Company’s  business  is  dependent  on  labour  inputs  which  could  be 
adversely disrupted by the ongoing impact of COVID-19.  While it is difficult to predict the impact of the coronavirus 
outbreak  on  the  Company’s  business,  measures  taken  by  the  Canadian,  Ontario  and  BC  governments,  and 
voluntary  measures  undertaken  by  the  Company  with  a  view  to  the  safety  of  the  Company’s  employees,  may 
adversely  impact  the  Company’s  business,  for  instance  by  impeding  the  labour  required  to  cultivate,  process, 
market and distribute the Company’s products and disrupting the Company’s critical supply chains. The Company’s 
Kelowna 1 facility has implemented precautionary measures to ensure the safety of the staff and product, including 
limiting visits to the site to essential personnel only, ensuring proper protocols around sanitation, mask usage and 
physical distancing, and placing potentially exposed employees in self-quarantine for the appropriate period of 
time.  

7 

 
 
 
 
 
 
 
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

Key Financial and Operational Results 

The following table summarizes the Company’s key financial and operational results: 

In thousands of CAD dollars, 
(except loss per share and grams harvested) 

Grams harvested - K1 
Grams sold 
Gross revenue 
Net revenue(1) 
Cost of sales 
Impairment of inventory 
Gross loss before fair value adjustments 
Selling and marketing and G&A 
Share-based compensation 
Transaction costs 
Restructuring costs 
Impairment of assets 
Loss from disposal of subsidiary 
Net loss 
Basic and diluted loss per share 

Three months ended 

December 31,     
2020     

2021      

 1,270,027    
 1,406,904   
 4,292  
 3,801   
 5,262  
 1,515   
 (2,976)   
 3,900   
 631   
 —   
 —   
 57,096    
 (909) 
 (63,859)   
 (0.15)  

 1,195,260   
 311,308  
 2,066  
 1,600   
 2,904  
 842  
 (2,146)  
 4,614   
 396   
 917   
 —   
 83,979   
 —  
 (99,750)  
 (0.07)  

2021     

Year ended 
December 31,   
2020 
 4,336,240 
 1,405,495 
 9,441 
 7,513 
 11,468 
 3,517 
 (7,472)
 18,613 
 3,020 
 917 
 726 
 83,979 
 — 
 (127,855)
 (0.95)

 4,278,407    
 6,627,052   
 14,877  
 12,348    
 22,064   
 2,394  
 (12,110)   
 16,327    
 (83)  
 —   
 —   
 57,096   
 241  
 (89,234)  
 (0.23)   

Revenue and cost of sales from the Company’s two segments, Flowr Canada and Holigen, are summarized below: 

Revenue 
Cost of sales 

Production costs 
Salaries and benefits 
Share-based compensation 
Depreciation 

Total cost of sales 
Impairment of inventory 
Gross loss before fair value adjustments 
Gross (loss) profit before non-cash 
items  
and fair value adjustments(1) 

Three months ended  
December 31,  2021 
 Flowr Canada  Holigen    Total 

Three months ended  
December 31,  2020 

     Flowr Canada  Holigen    Other  Total 

 3,679   

 122  

 3,801   

 1,533  

 67  

 - 

 1,600 

 1,935  
 1,434  
 (43) 
 1,459  
 4,785   
 869  

 2,121   
 186  
 1,434  
 -  
 (43) 
 -  
 1,750  
 291  
 5,262   
 477  
 1,515  
 646  
 (1,975)    (1,001)    (2,976)  

 885  
 389  
 49  
 520  
 1,843  
 827  
 (1,137) 

 516  
 -  
 -  
 545  
 1,061  
 (10) 
 (984) 

 - 
 - 
 - 
 - 
 - 
 25 
 (25)

 1,401 
 389 
 49 
 1,065 
 2,904 
 842 
 (2,146) 

 310  

 (64) 

 246  

 259  

 (449) 

 - 

 (190) 

8 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
  
 
 
  
 
 
  
  
  
  
  
 
 
  
  
 
 
 
   
   
 
 
 
 
   
  
 
 
 
 
 
 
 
 
 
  
  
  
 
 
  
  
 
 
 
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

Year ended  
December 31,  2021 
 Flowr Canada  Holigen    Total 

Year ended  
December 31,  2020 

     Flowr Canada  Holigen    Other  Total 

Revenue 
Cost of sales 

Production costs 
Salaries and benefits 
Share-based compensation 
Depreciation 

Total cost of sales 
Impairment of inventory 
Gross loss before fair value adjustments 
Gross profit (loss) before non-cash 
items  
and fair value adjustments(1) 

 11,636   

 712    12,348  

 5,807   
 7,011  
 141  
 6,413  

 7,300   
 1,493  
 7,011  
 -  
 141  
 -  
 7,612  
 1,199  
 19,372     2,692     22,064   
 2,394   
 646  
 (12,110)  
 (9,484)   (2,626) 

 1,748  

 7,446  
 7,975  
 2,581  
 2,682  
 259  
 2,453  
 7,975  
 2,937  
 (3,466) 

 67   
 3,493   
 1,332   
 -   
 -   
 2,161   
 3,493   
 555  
 (3,981) 

 7,513 
 11,468 
 3,913 
 2,682 
 259 
 4,614 
 11,468 
 3,517 
 (7,472)

 25 
 (25)

 (1,182)  

 (781)  

 (1,963)  

 2,183  

 (1,265) 

 - 

 918 

(1)  Gross profit before non-cash items and fair value adjustments is a non-IFRS measure and is defined as revenue less production costs and 
salaries and benefits.  Management believes this measure provides useful information as it approximates gross margin on cash basis on 
revenue realized in a period.    

Revenue 

Consolidated net revenue for Q4 2021 was $3,801, 138% higher when compared with $1,600 in Q4 2020.  Net 
revenue for YTD 2021 was $12,348, representing a 64% increase from $7,513 for the year of 2020.   

During Q4 2021, the Company sold 276 kilograms of retail cannabis products and recorded net revenue of $1,619, 
compared with 238 kilograms of retail products sold for net revenue of $1,534 in the same period in 2020.  Net 
revenue from retail products during Q4 2021 was slightly lower due to lower average prices, as the industry has 
experienced a general decline in retail prices.  The Company sold 1,131 kilograms of cannabis and biomass through 
wholesale channels for net revenue of $2,060 during Q4 2021, compared with 73 kilograms sold for net revenue 
of $66 for the same period in 2020.  The significantly higher volume of cannabis sold through wholesale channels 
related primarily to higher production from the K1 Facility in the second half of 2021.   

For YTD 2021, Flowr sold 1,231 kilograms grams of retail cannabis products for net revenue of $7,039 compared 
with 1,070 kilograms of retail products sold for $7,191 in 2020.  For YTD 2021, the Company sold 5,396 kilograms 
of cannabis through bulk wholesale for net revenue of $4,597, compared to 335 kilograms sold for net revenue 
of  $322  in  2020.    The  majority  of  the  bulk  wholesale  volume  were  sold  in  Q2  and  Q3  2021  during  which  the 
Company sold a total of 4,131 kilograms of bulk cannabis related primarily to inventory that were produced in 2020.   

Retail cannabis products 
Bulk wholesale 
Total 

Grams 
 276,226   
 1,130,678   
 1,406,904   

Three months ended  
December 31,  2021 
Sales  
($,000) 

Avg Price   
($/g) 
$ 5.79  
$ 1.89   
$ 2.66  

Grams 
 238,279  
 73,029  
 311,308  

 1,619  
 2,060   
 3,679   

Three months ended  
December 31,  2020 
Sales  
($,000) 

Avg Price   
($/g) 

 1,534  
 66  
 1,600  

$ 6.44 
$ 0.90 
$ 5.14 

9 

 
 
 
 
 
 
 
   
   
 
 
 
 
   
   
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

Year ended  
December 31,  2021 
Sales  
($,000) 

Grams 
 1,230,883   
 5,396,169   
 6,627,052   

Avg Price   
($/g) 
$ 5.50  
$ 0.78  
$ 0.31   

Grams 
 1,070,189  
 335,306  
 1,405,495  

 7,039   
 4,597  
 11,636   

Year ended  
December 31,  2020 
Sales  
($,000) 

Avg Price   
($/g) 

 7,191  
 322  
 7,513  

$ 6.72 
$ 0.96 
$ 5.35 

Retail cannabis products 
Bulk wholesale 
Total 

Net revenue earned in Portugal through Holigen was $122 during Q4 2021 and $712 for YTD 2021, compared with 
$67 for the same respective periods in 2020.  Revenue earned in Portugal during 2021 related to tolling services 
provided to third party licensed producers at Holigen’s facilities.   

Cost of Sales 

Cost of sales for Flowr Canada for Q4 2021 was $4,785 compared with $1,843 in Q4 2020, with the increase a 
direct result of the significantly higher total grams of cannabis sold.  During Q4 2021 Flowr sold 1,407 kilograms of 
cannabis compared with 311 kilograms in the same period of 2020. Cost of sales for Flowr Canada for the YTD 
2021 was $19,372 compared with $7,975 in the same period of 2020 due to higher total grams of cannabis sold.  
For the YTD 2021 Flowr Canada sold a total of 6,627 kilograms of cannabis compared with 1,094 kilograms during 
the same period in 2020.   

Cost of sales for Holigen decreased to $477 in Q4 2021 from $1,061 in Q4 2020, due to lower level of operating 
activities in 2021.  Cost of sales for Holigen for YTD 2021 was $2,692 compared with $3,493 for the YTD 2020.  
Cost of sales for Holigen relates to operating costs incurred at the facilities in Portugal.   

Gross loss before fair value adjustments for Flowr Canada increased from a loss of $1,137 in Q4 2020 to $1,975 in 
Q4 2021 as a result of higher grams of cannabis sold as wholesale bulk at lower average prices and gross margin 
per gram compared with retail cannabis products.  Gross loss before fair value adjustments for Flowr Canada for 
the YTD 2021 increased from a loss of $3,466 in the YTD 2020 to $9,484 in 2021, with the increase primarily a 
result of higher grams of cannabis sold through bulk wholesale at lower average prices per gram compared with 
retail cannabis products.   

Selling and Marketing, General and Administrative (“SG&A”)  

SG&A expenses in Q4 2021 totaled $3,900, an improvement of 15% compared with $4,614 in Q4 2020.  SG&A 
expenses for the YTD 2021 decreased by 12% to $16,327 from $18,614 for the year 2020.  SG&A expenses have 
decreased by 12% since the end of 2020 as a result of the cost reduction measures undertaken by the Company 
that began in late 2020 and continued through 2021. 

Adjusted EBITDA (Non-IFRS Measure) 

Adjusted  EBITDA  is  defined  as  net  loss,  plus  (minus)  income  taxes  (recovery),  plus  (minus)  interest  income 
(expense)  including  finance  costs,  plus  depreciation  and  amortization,  plus  share-based  compensation,  plus 
(minus) non-cash fair value adjustments on biological assets and inventory sold, plus restructuring and transaction 
costs,  plus  (minus)  loss  (gain)  on  investments  and  plus  (minus)  unusual  or  non-recurring  items.  Management 
believes this measure provides useful information as it is a commonly used measure in the capital markets and as 
it is a close proxy for repeatable cash used by operations. 

10 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

In thousands of CAD dollars 

Loss before taxes 

Three months ended   
December 31,    

2021      

2020     

 (66,215)  

 (103,709) 

Year ended 
December 31,   
2020 
 (133,822)

2021      

 (92,122)  

Depreciation and amortization 
Unrealized losses on fair value adjustments of biological 
assets 
Fair value adjustments on inventory sold 
Share-based compensation 
Transaction costs 
Severance costs 
Restructuring costs 
Loss on early conversion of convertible debentures 
Realized loss on sale of investments held in shares 
Unrealized (gain) loss on fair value of investments held 
in shares 
Unrealized loss on valuation of warrant investment 
Impairment of assets 
Loss on disposal of asset 
Loss on disposal of subsidiary 
Gain on sublease 
Finance costs 
Interest expense 
Other 
Adjusted EBITDA 

 2,710   

 1,848  

 11,764   

 6,431 

 762  
 (696)  
 588  
 —  
 51  
 —  
 —  
 —  

 —  
 —  
 57,096  
 20  
 (909) 
 651  
 675  
 (6) 
 119  
 (5,154)  

 791  
 (124) 
 445  
 917  
 —  
 —  
 7,966  
 271  

 (271) 
 —  
 83,979  
 1,131  
 —  
 —  
 1,384  
 (11) 
 —  
 (5,383) 

 3,571   
 (6,025)  
 58  
 —  
 1,232  
 —  
 —  
 —  

 —  
 —  
 57,096  
 20  
 241  
482  
 3,149   
 2  
 474  
 (20,058)  

 7,369 
 (1,031)
 3,279 
 917 
 — 
 726 
 7,966 
 271 

 (168)
 39 
 83,979 
 1,131 
 — 
 — 
 4,269 
 (26)
 — 
 (18,670)

Summary of Quarterly Results 

In thousands of CAD dollars 
Gross revenue 
Net revenue 
Net loss 
Net loss attributable to: 

 Q4-2021 Q3-2021 Q2-2021  Q1-2021 Q4-2020     Q3-2020     Q2-2020     Q1-2020 
 1,012 
 776 
 (12,492)

 4,615 
 2,406  
 2,172  
 3,834 
 (7,484)   (8,702)

 2,066  
 1,600  
 (99,750) 

 4,292 
 3,801 
  (63,859)

 3,403  
 2,823  
 (10,174) 

 2,960  
 2,314  
 (5,438)  

 3,564 
 2,541 
 (9,189)

Common and preferred  shareholders 
Non-controlling interest 

 (61,277)
 (2,582)

 (8,774)
 (415)

 (7,204)
 (280)

 (8,277)  (100,454)
 704 

 (425)

 (9,717)
 (457)

 (4,886) 
 (552) 

 (10,564)
 (1,928)

Basic and diluted EPS attributable common and 
preferred shareholders of the Company 
Q3-2019 EPS was updated to reflect the revised calculation resulting from the finalized acquisition accounting for Holigen. 

 (0.02) 

 (0.04)  

 (0.62) 

 (0.07) 

 (0.02)

 (0.02)

 (0.15)

 (0.09)

Liquidity and Capital Resources 

Liquidity 

The main sources of liquidity are the Company’s cash and cash equivalents, other working capital, debt, and equity 
issuances. As at December 31, 2021, cash and cash equivalents were $4,196 compared to $20,774 at December 31, 
2020.  Working deficit was $403 compared to a working capital of $12,794 at December 31, 2020, calculated as 
total current assets less total current liabilities.  

As at December 31, 2021 and December 31, 2020, the Company had $4,966 principal amount of subordinated 
secured convertible debentures outstanding.  The debentures bear interest at 10% per annum from the closing 
date of April 27, 2020, calculated semi-annually in arrears on June 30 and December 31 of each year, with the last 
interest  payment  to  be  paid  on  the  fourth  anniversary  of  April  27,  2024.    Subject  to  the  Exchange’s  approval, 
interest will be paid annual in kind through the issuance of common shares based on the spot market price. 

11 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
  
   
   
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

ATB Credit Agreement 

The Company is party to a credit agreement (the “ATB Credit Agreement”) with a syndicate of lenders led by ATB 
Financial.  In connection with the acquisition of Terrace in December 2020, the Company entered into an ARCA 
whereby  the  original  financial  covenants  under  the  ATB  Credit  Agreement  were  replaced  with  the  following 
financial covenants: (i) to maintain a senior debt to tangible net worth ratio of no greater than 1.3:1; (ii) a minimum 
cash holding of $3.5 million; and (iii) commencing on the fourth quarter of 2021, the Company must maintain certain 
quarterly minimum EBITDA balances.  In addition, the ARCA allows for the Company to prepay the term facilities 
issued under the ARCA by $5 million, at which point the EBITDA covenant would be deferred for an additional 
year and the maturity date would be extended to November 18, 2023.    

Under the ARCA, the outstanding balance of the loan proceeds bear interest at prime plus 2.75 basis points.  The 
principal repayments under the term facilities issued under the ARCA are quarterly and the remaining principal 
amount of all loans and all other obligations in connection with such term facilities being repayable on the maturity 
date being November 18, 2022, with a one-year extension at the discretion of the Company. Interest payments 
are made on a monthly basis. 

On August 6, 2021, the Company entered into an amendment to the ARCA whereby the senior creditors agreed 
to  certain  amendments  allowing  Flowr  additional  flexibility  under  the  ARCA  to  issue  equity  and  to  enter  into 
financings arrangements with respect to Holigen.  The Company also repaid $7.5 million towards the credit facility 
on August 6, 2021, reducing the principal amount outstanding under the ATB Financial term and operating facilities 
to approximately $9.8 million. 

Flowr had the following outstanding undiscounted loan obligation as of December 31, 2021: 

Loan Commitments in CAD 

Covenants and 2022 Amendments to the ARCA 

      up to 1 year       

1 - 3 years       

5,705 

 -  

Total 
 5,705  

As of December 31, 2021, the Company is in compliance with the senior debt to tangible net worth ratio and the 
minimum cash covenants.   The Company was not in compliance with the  minimum EBITDA covenant  for the 
fourth quarter of 2021, the first time the covenant was tested.  On May 20, 2022, the Company and the Senior 
Lenders entered into a Second Amendment to Credit Agreement (the “2022 ARCA”).  The 2022 ARCA included 
the following key amendments: 

  The minimum cash covenant is reduced to $2,000 from $3,500; 
  The  minimum  EBITDA  test  is  deferred  to  commence  with  the  second  quarter  of  2022,  and  may  be 
further  deferred  if  the  Company  completes  the  Hawthorne  Sale  Agreement  and  the  Holigen  sale 
transaction before June 30, 2022; 

  An  immediate  early  repayment  of  $918  towards  the  principal  amount  outstanding  under  the  Term 

Facility; 

  The final proceeds from the Hawthorne Sale Agreement of approximately $1,000 will be used towards 

early repayment of the Term Facility upon closing of the transaction; and 

  An  amount  of  up  to  $1,600  from  the  cash  portion  of  the  Holigen  sale  will  be  used  towards  early 

repayment of the Term Facility upon closing of the transaction. 

Hawthorne Loan 

On January 25, 2018, and as subsequently amended, Hawthorne and Flowr Okanagan entered into an agreement 
(the “R&D Agreement”) to construct KRS and for Flowr Okanagan to provide certain R&D services upon completion 
of KRS.    

12 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

Pursuant to the R&D Agreement, the Company owns the land and building comprising KRS and Hawthorne has 
financed all construction and development costs through a loan to the Company and in return have access to KRS 
over  a  20  year  period.    The  Company  provides  management  and  operational  services  to  KRS  and  retains 
ownership  facility  at  the  end  of  the  20-year  period.    In  total,  Hawthorne  loaned  the  Company  $11.5  million  in 
principal amounts for the construction and development of KRS (the “Hawthorne Loan”).  Upon the completion of 
the first floor of KRS in October 2020, the Hawthorne Loan began amortizing through an agreed upon payment 
schedule over 20 years, including an annual interest rate of 4%. If the R&D Agreement is terminated under certain 
circumstances, the Company could be required to pay 100% of all amounts advanced by Hawthorne and $1,500 
in liquidated damages.   

As  of  December  31,  2021,  the  principal  amount  of  the  Hawthorne  Loan  was  approximately  $11  million.    The 
management fees paid by Hawthorne to the Company fully reimburse the Company for all principal and interest 
payments due pursuant to the Hawthorne Loan.  

Upon the official commissioning of R&D Facility in October 2020 Hawthorne began paying the Company a monthly 
management  fee  and  a  monthly  SR&ED  service  fee  for  overseeing  the  operations  of  KRS,  which  will  continue 
through the 20-year term. In accordance with the R&D Agreement, these fees will completely offset the monthly 
principal repayments and interest accruals on the Hawthorne Loan over the life of the loan.  

In addition to the Hawthorne Loan, on December 31, 2020 the Company entered into an amendment to the R&D 
Agreement whereby Hawthorne agreed to lend up to $1,300 in additional funding to Flowr at an interest rate of 
4% per annum. The funding will be used to fund approved budgeted expenses related to the development of KRS. 
As of December 31, 2021, total of $1,241 was advanced under the loan.   

In addition to KRS, the Company has also granted Hawthorne security over a cash collateral account to a maximum 
of $2.5 million, which account is only required to be funded at such time that the appraised value of KRS is lower 
than the amount of the Hawthorne Loan.  As at December 31, 2021 and December 31, 2020, the cash collateral 
account was $nil.  The effective interest rate of the loan is 3.39%. 

The Company had the following outstanding loan obligations to Hawthorne as of December 31, 2021: 

Loan Commitments in CAD 

Holigen Loans 

 up to 1 year      1 - 3 years      3 - 5 years      over 5 years      

 11,954 

 -  

-  

 -  

Total 
 11,954  

RPK has entered into several secured term loan agreements with Caixa Central de Crédito Agrícola Mútuo (“Caixa”) 
with respect to the purchase of property, plant, and equipment, with maturities between 2024 and 2026 (the “RPK 
Loans”).  The RPK Loans bear interest at a variable rate of the 12-month EURIBOR rate plus 3% per annum.  As at 
December 31, 2021, a total of €4.7 million in principal amounts has been drawn down on the RPK Loans.   

One of the RPK Loans (the “RPK Equipment Loan”) has the following covenants: (i) loan to RPK value ratio of less 
than or equal to 70%; (ii) financial autonomy ratio of 20% or more; and (iii) net debt/EBITDA ratio in RPK of equal or 
less than four beginning from 2020.  As of December 31, 2020, RPK was in breach of the Net Debt/EBITDA ratio 
for which a waiver was granted to RPK on April 15, 2021 by Caixa.  Under the terms of the wavier, Caixa has waived 
the  compliance  with  the  net  debt/EBITDA  ratio  until  December  31,  2021,  extended  the  deadline  for  financial 
autonomy  ratio  of  less  than  20%  to  September  2021  and  extended  the  loan  to  RPK  value  ratio  of  less  70%  to 
September 2021. As at December 31, 2021, RPK was in breach of the net debt/ EBITDA ratio covenant for which 
the  Company  is  in  the  process  of  obtaining  a  waiver  from  Caixa,  as  such  the  RPK  Equipment  loan  has  been 
classified as a current loan payable in the interim condensed consolidated statements of financial position. 

13 

 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

The  Company  had  the  following  loan  principal  amounts  outstanding  related  to  its  Holigen  operations  as  of 
December 31, 2021: 

     up to 1 year       1 - 3 years       3 - 5 years       over 5 years       Total 
 3,904  
 5,618  

 1,914  
 2,754  

 1,268  
 1,825  

 722 
 1,039 

 —  
 —  

Loan Commitments in EUR 
Loan Commitments in CAD 

Commitments and Contingencies 

Contractual Obligations 

The Company’s contractual obligations for the period ended December 31, 2021 are set out below: 

    Less than 1      

  1-3 years    3 - 5 years  over 5 years  
As at December 31, 2021 
 — 
Accounts payable and liabilities 
 7,354 
Lease obligations 
 — 
Long-term debt, excluding Hawthrone debt 
 — 
Hawthorne debt 
 — 
Convertible debentures 
Total contractual obligations 
 7,354 
(1) All interest  and  principal  payments  due pursuant to the  Hawthorne  Loan are reimbursed to the Company by 
Hawthorne pursuant to monthly management fee payments. 

Total  
 7,613    
 10,979   
 11,323   
 11,954   
 4,113  
 45,982    

 year 
 7,613   
 1,271  
 6,744  
 11,954  
 —  
 27,582   

 —   
 620  
 1,825  
 —  
 —  
 2,445   

 —   
 1,734  
 2,754  
 —  
 4,113  
 8,601    

Future minimum payments as at December 31, 2021, under agreements to which the Company is a party are as 
follows: 

In thousands of CAD dollars 
Purchase obligations 

     Less than 1 year    1- 3 years      3- 5 years       Over 5 years      Total 
 138 

 138   

 —   

 —   

 —   

The Company expects to meet its contractual obligations and commitments.  

Off-Balance Sheet Arrangements 

There are no off-balance sheet arrangements as at December 31, 2021. 

Transactions with Related Parties 

The Company’s related parties as defined by International Accounting Standard 24 "Related Party Disclosures" 
(IAS  24),  include  the  Company’s  subsidiaries,  executive  and  non-executive  directors,  senior  officers  and  key 
management  personnel.  Transactions  with  related  parties  are  measured  at  fair  value,  which  in  all  cases  are 
equivalent  to  the  exchange  amounts  being  the  amount  of  consideration  established  and  agreed  upon  by  the 
related parties. All related party transactions entered into by the Company are in the normal course of business 
and  have  been  approved  by  the  Board  of  Directors  of  the  Company  and/or  shareholders  of  the  Company  as 
required.   Refer to Note 13  of the consolidated financial statements for  the year ended  December 31,  2021 for 
details on related party transactions.   

14 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
 
      
 
    
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

Risk Management 

The Company’s exposure to financial instruments includes, but is not limited to, the following risks: 

Market risk 

Market risk is the risk that the future cash flows or the fair value of a financial instrument will fluctuate because of 
changes  in  market  conditions.  The  Company  operates  in  an  industry  regulated  by  Health  Canada  and  other 
regulatory  authorities  in  Portugal.  Changes  in  legislation  could  have  a  significant  impact  on  the  Company’s 
operations. 

Interest rate risk 

Interest rate risk primarily arises from floating rate borrowing, including various revolving and other lines of credit. 
A 10% change in the floating interest rates does not have a material impact on the consolidated statements of loss 
and  comprehensive  loss.  Certain  borrowings  are  also  transacted  at  fixed  interest  rates.    The  Company  has  an 
agreement with ATB that requires the Company to enter into interest rate swap contracts on 25% of its outstanding 
loan with ATB.  On December 31, 2021, the Company entered into an interest rate swap contract on a notional 
amount of $3,926 with ATB whereby the Company has a fixed interest rate of 1% per annum and ATB has a floating 
interest rate based on benchmark bankers’ acceptance.  The swap contract has a three-month term and is settled 
monthly.  The termination date of the agreement is November 18, 2022. 

Foreign currency risk 

The operating results and financial position of the Company are reported in Canadian dollars. As the Company 
operates  internationally,  certain  of  the  Company’s  financial  instruments  and  transactions  are  denominated  in 
currencies  other  than  the  Canadian  dollar.  The  results  of  the  Company’s  operations  are,  therefore,  subject  to 
currency transaction and translation risks.   

The Company’s main risk is associated with fluctuations in Euros, Australian and U.S. dollars. The Company holds 
cash  in  Canadian  dollars,  U.S.  dollars  and  Euros.  Assets  and  liabilities  are  translated  based  on  the  Company’s 
foreign currency translation policy. The Company has determined that as at December 31, 2021, the effect of a 10% 
increase or decrease in Euros and U.S. dollars against the Canadian dollar on financial assets and liabilities would 
result in an increase or decrease of approximately $3,076 (December 31, 2020 – $10,190) to net loss and $738 
(2020 – $461) to comprehensive loss for the year ended December 31, 2021.  

At December 31, 2021, the Company has not entered into any hedging agreements to mitigate currency risks, with 
respect to foreign exchange rates. 

Other price risk  

Other  price  risk  is  the  risk  that  the  fair  value  or  future  cash  flows  of  a  financial  instrument  will  fluctuate  due  to 
changes in market prices, other than those arising from interest rate risk.  The Company is not significantly exposed 
to other price risk with respect to its financial instruments, as their fair values and future cash flows are not impacted 
materially by fluctuations in market prices.  

15 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

Credit Risk 

The exposure to credit  risk  arises through the potential failure of  a customer  or  another third party to  meet its 
contractual obligations to the Company. As at December 31, 2021, the Company had amounts receivable of $3,027 
(December 31, 2020 - $1,277). The Company provides credit to its customers in the normal course of business and 
has established credit evaluation and monitoring processes to mitigate credit risk.  The Company is not significantly 
exposed to credit risk as the amounts receivables are primarily due from provincial government organizations and 
overall amounts receivable comprise 5% (December 31, 2020 – 1.4%) of the Company’s total assets.  All cash is 
held with highly rated financial institutions and associated risks are considered nominal.  

Liquidity Risk 

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial 
liabilities  that  are  settled  by  delivering  cash  or  another  financial  asset.  The  Company  relies  on  the  cash  flows 
generated from its operations, retained cash balances, available lines of credit under its loan facilities and its ability 
to raise debt and equity from the capital markets to fund its operating, investment, commitments and other liquidity 
needs.  To  reduce  these  risks,  the  Company:  (i) prepares  regular  cash  flow  forecasts  to  monitor  its  capital 
requirements and available liquidity (ii) strives to maintain a prudent capital structure that is comprised primarily of 
equity and debt financing; and (iii) targets a minimum level of liquidity comprised of surplus cash balances to avoid 
having to raise additional capital at times when the costs or terms would be regarded as unfavorable. 

Refer to Commitments and Contingencies section for a summary of the maturity profile of the Company’s financial 
liabilities based on contractual discounted payments.  

Capital Risk Management 

The Company considers its capital to be its equity and debt. The Company’s objective for capital management is 
to:  (i) maintain  sufficient  levels  of  liquidity  to  fund  and  support  its  capital  projects  and  operating  activities;  and 
(ii) maintain a strong financial position to ensure it has ready access to debt and equity markets to supplement free 
cash  flow  being  invested  in  its  growth  projects.  The  Company  monitors  its  financial  position  and  the  potential 
impact of adverse market conditions on an ongoing basis. The Company manages its capital structure and makes 
adjustments to it based on prevailing market conditions and according to its business plan. The Company’s funding 
strategy is to maintain a capital structure comprised primarily of cash sourced from equity and debt offerings and 
net earnings generated from its operations. In March 2020, the World Health Organization declared the outbreak 
of COVID-19 a global pandemic. Government measures to limit the spread of COVID-19, including the closure of 
non-essential businesses, did not materially disrupt the Company’s operations during year ended December 31, 
2021.  The  production  and  sale  of  cannabis  have  been  recognized  as  essential  services.  The  Company  is 
continuously  monitoring  the  impact  of  the  COVID-19  pandemic  on  market  conditions  and  will  adjust  its  capital 
structure strategy accordingly.    

16 

 
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

Share Capital Information 

As at the date of this MD&A, the number of Common Shares of the Company and other securities of the Company 
exercisable for Common Shares of the Company that are outstanding are as follows: 

      Common shares  on exercise  
Securities  
 410,408,088 
Common shares 
 41,598,000 
Flowr ULC class A preferred shares (convertible into common shares)* 
 8,562,069 
Convertible debenture (share equivalent) 
 108,216,743 
Warrants  
 10,987,712 
Stock options 
 2,082,772 
Restricted share units 
Fully diluted share capital 
 581,855,384  
*The Flowr ULC class A preferred shares are issued and outstanding in the Flowr ULC and convertible into Common Shares 
of the Company at the election of the holder and no cost to the holder. 

Disclosure Controls and Procedures 

Management has established processes to provide them with  sufficient knowledge to support  representations 
that  they have exercised  reasonable diligence that (i) the consolidated financial  statements  do not contain  any 
untrue statement of material fact or omit to state a material fact required to be stated or that is necessary to make 
a  statement  not  misleading  in  light  of  the  circumstances  under  which  it  is  made,  as  of  the  date  of  and  for  the 
periods  presented  by  the  consolidated  financial  statements;  and  (ii) the  consolidated  financial  statements  fairly 
present in all material respects the financial condition, results of operations and cash flows of the Company, as of 
the date of and for the periods presented. 

In  contrast  to  the  certificate  required  for  non-venture  issuers  under  National  Instrument  52-109  Certification  of 
Disclosure in Issuers’ Annual and Interim Filings (NI 52-109 ), the Venture Issuer Basic Certificate does not include 
representations relating to the establishment and maintenance of disclosure controls and procedures ("DC&P") 
and internal control over financial reporting ("ICFR"), as defined in NI 52-109. In particular, the certifying officers 
filing this certificate are not making any representations relating to the establishment and maintenance of: 

i) controls  and  other  procedures  designed  to  provide  reasonable  assurance  that  information  required  to  be 
disclosed  by  the  issuer  in  its  annual  filings,  interim  filings  or  other  reports  filed  or  submitted  under  securities 
legislation  is  recorded,  processed,  summarized  and  reported  within  the  time  periods  specified  in  securities 
legislation; and 

ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of 
financial statements for external purposes in accordance with the issuer’s accounting policies. 

The  issuer’s  certifying  officers  are  responsible  for  ensuring  that  processes  are  in  place  to  provide  them  with 
sufficient knowledge to support the representations they are making in the certificate. Investors should be aware 
that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost-
effective  basis  DC&P  and  ICFR  as  defined  in  NI  52-109  may  result  in  additional  risks  to  the  quality,  reliability, 
transparency and timeliness of interim and annual filings and other reports provided under securities legislation. 

17 

 
 
 
 
 
 
 
 
 
 
  
  
 
  
  
 
  
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

Forward-looking Information, Risks and Uncertainties 

Certain statements contained in this MDA constitute “forward-looking information” within the meaning of applicable 
Canadian  securities  laws,  which  are  based  upon  the  Company’s  current  internal  expectations,  estimates, 
projections,  assumptions  and  beliefs.  Statements  concerning  the  Company’s  objectives,  goals,  strategies, 
intentions, plans, beliefs, expectations and estimates, and the business, operations, future financial performance 
and  condition  of  the  Company  is  forward-looking  information.  The  words  “believe”,  “expect”,  “anticipate”, 
“estimate”,  “intend”,  “may”,  “will”,  “would”  and  similar  expressions,  including  the  negative  and  grammatical 
variations  of  such  expressions,  are  intended  to  identify  forward-looking  information,  although  not  all  forward-
looking information contains these identifying words. These statements are not guarantees of future performance 
and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to 
differ  materially  from  those  anticipated  in  the  forward-looking  information.  In  addition,  this  MD&A,  may  contain 
forward-looking information attributed to third-party industry sources. 

By  its  nature,  forward-looking  information  involves  numerous  assumptions,  known  and  unknown  risks  and 
uncertainties,  both  general  and  specific,  that  contribute  to  the  possibility  that  the  predictions,  forecasts  and 
projections  that  constitute  forward-looking  information  will  not  occur.  Such  forward-looking  information  in  this 
MD&A speaks only  as  of the date of this MD&A. Forward-looking information in this MD&A  includes, but is not 
limited to, statements with respect to: 

 

 

 

 

 

 

 

the performance of the Company’s business and operations; 

the Company’s strategies with respect to growing premium cannabis, attaining certain International 
Council for Harmonisation’s good manufacturing practices standards (“GMP”) and manufacturing 
certifications and enforcing certain protocols; 

the Company’s capital expenditure programs; 

the future development of the Company, its growth strategy and the timing thereof; 

the acquisition strategy of the Company; 

the estimated future contractual obligations of the Company; 

the Company’s future liquidity and financial capacity including its ability to satisfy financial obligations in 
future periods; 

  expectations regarding the Company’s ability to raise capital; 

  Flowr having access to the additional financing as permitted under the ARCA; 

 

the supply and demand for cannabis products and services similar to the Company’s products and 
services; 

  cost and/or pricing of the Company’s products; 

 

 

the ability to establish and market the Company’s brands within its targeted markets; 

the launch of new product offerings and that such product offerings will meet expectations of cannabis 
consumers; 

18 

 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

 

 

 

 

 

 

the ability of Flowr to produce new product offerings that will deliver a customer experience including 
tastes and aroma; 

the experience and skill set of Flowr’s management and directors; 

the retention of key personnel of the Company; 

the Company’s treatment under government regulatory and taxation regimes; 

the sale of Holigen as part of Flowr’s cannabis strategy; 

licensing with respect to the Company’s property and facilities; 

  certification of Flowr’s facilities by the applicable regulatory authorities.   

 

the sale of KRS and the strategy of advancing cannabis cultivation techniques and systems; 

  KRS being North America’s first dedicated cannabis R&D facility focused on cultivation techniques and 
systems including growth media, nutrient formulations, irrigation and lighting systems, plant genetics 
and integrated growing systems; 

 

the Company’s ability to bring new strains to market; 

 

foreign exchange fluctuations; 

 

the Company’s international focus on construction of indoor and outdoor cultivation and processing 
facilities; and 

 

the Company’s net sales of all or any one of its products. 

 

the actual costs of savings from the Company’s restructuring initiatives, including with respect to its 
workforce; 

 

the Company’s automated packing line driving operating efficiencies; 

With  respect  to  the  forward-looking  information  contained  in  this  MD&A,  the  Company  has  made  certain 
assumptions  and  such  forward-looking  information  is  subject  to  certain  risks,  including,  without  limitation,  the 
following risks and assumptions: 

 

the ability to develop and market future products; 

 

timing to launch new products; 

  cost to develop and/or manufacture products; 

  operating cost estimates and yield trends for the Company; 

 

the duration and extent of the impact of COVID-19; 

19 

 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

 

inventory levels; 

  pricing for the Company’s products; 

 

future market demand/trends; 

  gross profitability for products; 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the ability of the Company to comply with its contractual obligations; 

the successful sale of products to third parties on terms favorable to the Company; 

the  ability  of  the  Company  to  maintain  key  strategic  alliances,  and  licensing  and  partnering 
arrangements, now and in the future; 

the  ability  of  the  Company  to  maintain  its  distribution  networks  and  distribute  its  products  effectively 
despite significant geographical expansion; 

the  cannabis  regulatory  environment  in  which  the  Company  operate,  including  the  areas  of  taxation, 
environmental protection, consumer safety and health regulation; 

the timely receipt of any required regulatory approvals; 

the ability of the Company to maintain and/or acquire regulatory licenses and remain in compliance with 
applicable regulations; 

the  general  economic,  financial,  market  and  political  conditions  impacting  the  industry  in  which  the 
Company operates; 

the tax treatment of the Company and its subsidiaries and the materiality of legal proceedings; 

the ability of the Company to achieve or increase profitability, fund its operations with existing capital, 
and/or raise additional capital to fund future acquisitions and/or development, including construction and 
licensing of the facilities of the Company; 

the ability of the Company to acquire any necessary technology, products or businesses and effectively 
integrate such acquisitions; 

reliance  on  third-party  suppliers  to  supply  the  Company  with  products  required  for  their  respective 
businesses on favourable terms; 

the ability of the Company to generate sufficient cash flow from operations; 

the availability of raw materials and finished products necessary for the Company’s products; 

 

the impact of increasing competition; 

20 

 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

 

 

 

 

 

the ability of the Company to obtain and retain qualified staff, equipment and services in a timely and 
efficient manner; 

the ability  of the Company to  maintain  and  enforce the  protection  afforded  by trade secrets  or  other 
intellectual property rights; 

the ability of the Company to conduct operations in a safe, efficient and effective manner; 

the ability of the Company to achieve lender financial covenants; 

the results of continuing and future safety and efficacy studies by industry and government agencies 
related to the Company’s products; and 

 

the ability of the Company to successfully market its products and services. 

  Flowr’s focus on research and development to breed specific cannabis varieties to identify unique 

characteristics not improving and differentiating Flowr’s final products; 

 

 

 

the actual costs of savings from the Company’s restructuring initiatives, including with respect to its 
workforce, not materializing and thus putting further strain on the Company’s financial resources; 

the tax treatment of the Company and the materiality of legal proceedings;  

the commercial and production impact of COVID-19 or any future pandemics; 

Forward-looking information contained in this MD&A is based on the key assumptions described herein. Readers 
are cautioned that such assumptions, although considered reasonable by the Company, may prove to be incorrect. 
Actual results achieved during the forecast period will vary from the information provided in this MD&A as a result 
of numerous known and unknown risks and uncertainties and other factors. The Company cannot guarantee future 
results. 

Risks  related to  forward-looking information include those risks  referenced herein  and in the Company’s other 
filings with the Canadian Securities Regulators. Some of the risks and other factors which could cause actual results 
to differ materially from those expressed in the forward-looking information contained in this MD&A include, but 
are not limited to, the risk factors described above and included under the heading “Risk Factors” in the AIF. 

Forward-looking  information  contained  in  this  MD&A  is  based  on  the  Company’s  current  plans,  expectations, 
estimates, projections, beliefs and opinions and the assumptions relating to those plans, expectations, estimates, 
projections, beliefs and opinions may change. Management has included the summary of assumptions and risks 
related  to  forward-looking  information  included  in  this  MD&A  for  the  purpose  of  assisting  the  reader  in 
understanding management’s current views regarding those future outcomes. Readers are cautioned that this 
information may not be appropriate for other purposes. Readers are cautioned that the lists of assumptions 
and risk factors contained  herein are  not exhaustive.  Neither  the Company  nor  any other  person assumes 
responsibility for the accuracy or completeness of the forward-looking information contained herein.

Such forward-looking information is made as of the date of this MD&A and the Company disclaims any intention 
or obligation to update publicly any such forward-looking information, whether as a result of new information, future 
events or results or otherwise, other than as required by applicable securities laws.  

21 

 
 
 
 
 
 
 
 
 
MANAGEMENT’S DISCUSSION & ANALYSIS 
For the years ended December 31, 2021 and 2020  

All  of  the  forward-looking  information  made  in  this  MD&A  are  expressly  qualified  by  these  cautionary 
statements and other cautionary statements or factors contained herein, and there can be no assurance that 
the actual results or developments will be realized or, even if substantially realized, that they will  have the 
expected consequences to, or effects on, the Company. 

Actual results, performance or achievements could differ materially from those expressed in, or implied by, any 
forward-looking information in this MD&A, and, accordingly, investors should not place undue reliance on any such 
forward-looking  information.  New  factors  emerge  from  time  to  time  and  the  importance  of  current  factors  may 
change from time to time and it is not possible for the Company’s management to predict all of such factors, or 
changes in such factors, or to assess in advance the impact of each such factors on the business of the Company 
or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those 
contained in any forward-looking information contained in this MD&A. 

Other Disclosures 

Trademarks 

This MD&A includes trademarks that are protected under applicable intellectual property laws and are the property 
of the Company or its affiliates or licensors. Solely for convenience, the trademarks of the Company or its affiliates 
and/or licensors referred to in this MD&A may appear with or without the ® or ™ symbol, but such references or the 
absence thereof are not intended to indicate, in any way, that the Company or its affiliates or licensors will not 
assert, to the fullest extent under applicable law, their respective rights to these trademarks. Any other trademarks 
used in this MD&A are the property of their respective owners. 

Market Data 

This  MD&A  contains  certain  statistical  data,  market  research  and  industry  forecasts  that  were  obtained,  unless 
otherwise  indicated,  from  independent  industry  and  government  publications  and  reports  or  are  based  on 
estimates derived from such publications and reports and management’s knowledge of, and experience in, the 
markets in which the Company operates. Industry and government publications and reports generally indicate that 
they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and 
completeness of their information. While the Company believes this data to be reliable, market and industry data 
is subject to variation and cannot be verified due to limits on the availability and reliability of raw data, the voluntary 
nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey. The 
Company has not independently verified the accuracy or completeness of such information contained herein. In 
addition, projections, assumptions and estimates of the Company’s future performance and the future performance 
of the industry in which the Company operates are necessarily subject to a high degree of uncertainty and risk 
due to a variety of factors, including those risk factors described above and in the AIF. 

22