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Flowr Corp
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Ladies and gentlemen, thank you for standing by, and welcome to The Flowr Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] I'd now like to hand the conference over to your speaker today, Thierry Elmaleh. You may begin.
Thank you, operator. Participating on today's call are The Flowr Corporation CEO, Vinay Tolia; Founder and Managing Partner, Tom Flow; President Lance Emanuel; and our new CFO, Irina Hossu. Please note that throughout the call, we will refer to Flowr and the company interchangeably with The Flowr Corporation. Before management discusses results, I would like to remind participants that all amounts discussed on this call are denominated in Canadian dollars.Please also note that statements made during this call may include forward-looking information and future-oriented financial information regarding Flowr, its business and disclosure regarding possible events, conditions or results that are based on information currently available to management, which indicates management's expectations of future growth, results of operations, business performance and business prospects and opportunities. Such statements are made as of the date hereof, and Flowr assumes no obligation to update or revise them to reflect events, disclosures or circumstances, except as required by applicable securities laws. Such statements involve significant risks and uncertainties that are not guarantees of future performance or results as a number of these risks and uncertainties could cause results to differ materially from results discussed today. Given the risks and uncertainties, one should not place undue reliance on these statements and information. Please refer to risk factors, forward-looking information and future-oriented financial information sections of our public filings, including, without limitation, our 2019 year-end AIF, our Q4 2019 MD&A and our Q4 2019 earnings press release for additional information, which are now filed on SEDAR.In addition, this discussion may include 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 non-IFRS measures include, but are not limited to, adjusted EBITDA. As there are no standardized methods of calculating non-IFRS measures, the company's approach may differ from those used by others 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. We refer you to our MD&A, which includes reconciliations of the non-IFRS measures.It's now my pleasure to turn the floor over to Vinay Tolia, Flowr's CEO.
Thank you, Thierry. Earlier today, we released our fourth quarter and fiscal year-end results. I'll begin by highlighting our strategic and operational progress before Irina reviews our financial results.We're very pleased to have closed a $20 million private placement earlier this week, led by myself and our Chairman, Steve Klein, to the tune of over $10 million. We believe this capital will enable us to become cash flow positive in the second half of 2020 and that the level of financial investments further signifies our level of conviction in the business and strategic direction of the company.Also, management and insiders that own nearly 60% of Flowr stock have agreed to a voluntary 1-year lockup. The group, including myself, have never sold a single share. You can see we clearly believe in the company's strategy.First, to address the global COVID endemic. Since early March, we made the requisite changes to our operating procedures in our production facilities around the world to ensure the safety of all of our staff. While COVID has clearly affected our business, various government bodies have deemed cannabis an essential service, and we have continued to ship orders to our partners.In March, we made the difficult decision of restructuring 25% of our global workforce in an effort to preserve capital and narrow our focus to executing on the Canadian premium dried flower market over the next 6 months, which we believe enable our company to become cash flow positive. Admittedly, our fourth quarter revenues were short of our internal expectations as we continue to work through our legacy product assortment of low- to mid-THC strains and waited for Health Canada approval for the remaining 50% of the Kelowna 1 facility, which we finally received in late February.We had no issue in selling our BC Pink Kush product, and we sold everything that was packaged. In Q4, we produced 675 kilos of indoor dried flower, a 51% increase against the previous quarter and our highest production to date. As I've mentioned in the past, to make a major shift in genetics takes time. But now that all 20 rooms -- grow rooms are populated with high-THC strains, we should begin seeing a step change in production and sales beginning as soon as next month. It's worth noting that our purpose-built indoor facility is, in our view, the best place to grow consistent high-THC and premium cannabis. In fact, our latest harvest, we -- in our latest harvest, we saw one of the highest yields that we've seen since we began growing in the facility. Furthermore, our automated packaging line is in the newly licensed area. We recently commissioned it and expect to see an improvement in efficiency going forward. It's taking over 2 years, but our flagship facility is finally fully licensed and operational. Given the encouraging demand trends and sell-through rates we've seen with BC Pink Kush, we've never had this level of conviction and visibility into our commercial efforts in the Canadian recreational market. The time is now for us to prove our core value proposition. The growing premium quality cannabis at scale is difficult to do and that we are one of the few companies in a position to do so. It's also worth noting that we haven't irradiated any BC Pink Kush in our facility in over 16 months. And our cannabinoid content range continues to tighten with products in the market that are consistently between 22% to 25% THC. In the fourth quarter, we also had our first harvest of Flowr Forest. We harvested a little under 1,300 kilos of dried flower and 13,000 kilos of frozen material, which is the equivalent dry weight of 1,900 kilos from our outdoor greenhouse. This material may, subject to release, be used for extraction purposes. But we have decided to pause further investments in our Rec 2.0 strategy until we become cash flow positive. All in all, we believe our Canadian operations are well positioned to enable us to become cash flow positive at the corporate level in the second half of this year.In Europe, we're extremely excited about our competitive positioning, and we recently received our EU-GMP certification at our Sintra facility just outside Lisbon, which puts us on the short list of companies in Europe with this certification. With GMP certification in Australia and Europe, we believe we're ideally positioned to be a partner of choice throughout the world. Construction of the Sintra facility is mostly complete. 3 of the 6 grow rooms are operational and recent harvests have been promising. We intend to plant over 1 million square feet on our outdoor cultivation site in Aljustrel in the coming weeks, which will likely be the largest cultivation in Europe. We recently received an export permit from Health Canada to ship 10,000 clones to Portugal to help support the operation.Now I'll turn it over to Irina to run through some financial highlights.
Thank you, Vinay, and good evening, everyone. I am very excited to have recently joined Flowr and share an incredible amount of conviction and optimism in our company's strategic direction. I intend to bring a heightened focus on financial discipline, analysis and rigor to help us achieve our ambitious global growth plans and near-term commitments on becoming cash flow positive in the second half of 2020. Our go-forward financial management strategy will be based on a 3-pronged approach: Appropriate investment in sales and marketing to support our expected growth, ROI and data-driven decision making focusing on high return investments, all while ensuring G&A growth at a slower pace than revenue. We believe that these approaches will allow us to achieve our strategic plan while recognizing the need for tight cash management during these uncertain times. We are focused on our internal controls environment, and we'll also be evaluating potential improvements to our systems in the near term. Now let's review Q4 results. We sold 216 kilos product in the quarter at an average price of $6.10 per gram. Price per gram in Q4 was impacted by bulk sales of 35,000 grams at $3.50 per gram. On a normalized basis, Q4 price per gram was $6.61. On a full year basis, we sold approximately 993 kilos at an average price of $7.12 per gram. Gross revenue was $1.6 million for the quarter and $8.2 million for the full year.Q4 net revenue was negatively affected by approximately $1.4 million in onetime events, specifically, returns for legacy strains sold in 2018. Given our adjusted strategic priority of producing high-THC and demand-driven strains, the company does not expect further material returns. As a result of these onetime adjustments, net revenue in Q4 was $51,000 and $5.2 million on a full year basis.The total cost of sales were $2.7 million for the quarter, which included approximately $1.2 million in income statement line item reclassification and onetime events. On a full year basis, total cost of sales were $7.6 million. The normalized cash per gram sold for the quarter, which excludes depreciation, amortization and onetime adjustments, was $4.52 compared to $5 in Q3. We expect further operational efficiencies due to our new packaging line to improve our cost per gram significantly beginning in late Q2 of this year. Further cost per gram efficiencies are expected as fixed costs will be diluted against the larger production volume. In Q4, the company took an inventory impairment of $5.3 million, which included impairing inventory pertaining to legacy strands and also impairing the inventory from Flowr Forest. The company is awaiting a regulatory review of this inventory, and as Vinay mentioned, we have made a strategic shift from live resin in the short term.Selling, general and administrative expenditures consisted primarily of salaries and professional fees were approximately $6.9 million for the quarter compared to $6.1 million in Q3 of 2019 and were in line with management expectations. The higher SG&A is due to the expansion across all functional areas to support the increasing production platform in Canada and the build-out of our global business with the acquisition of Holigen. As Vinay mentioned, in March of this year, the organization undertook a global restructure of approximately 25% of its workforce, which we expect to generate approximately $6 million in annualized savings. Adjusted EBITDA in the fourth quarter, which excludes noncash expenditures, was a loss of $8.3 million as compared to a reported loss of $5.6 million for the third quarter of 2019. This increase in loss is primarily due to accounting for 1 full quarter of ramp up of Holigen operations as the active decision closed on August 20. On a full year basis, adjusted EBITDA was a loss of $22.2 million. The company believes that we will achieve breakeven in the second half of 2020, driven by increased demand-driven sales, scale and operational efficiencies and the SG&A measures previously discussed. Achieving positive EBITDA will be our first step towards achieving our targeted adjusted EBITDA margin of 25% to 30%. Throughout Q4, the company continued to manage the construction and operations at K1 concurrently. The K1 facility was substantially complete in Q1 2020, and 20 rooms are now operational. We do not expect further material CapEx investment in our Canadian operations. Holigen is expected to begin generating revenues in late Q4 of this year, and we expect some capital investment this year to support revenue-driving activities. Flowr ended the quarter with a net working capital balance of approximately $7.8 million, including a nonrestricted cash balance of approximately $10.5 million. To bolster our balance sheet position, we recently closed on a $20 million non-brokered private placement of convertible bond units, led by management and insiders. As we noted earlier, we feel this capital will enable us to be cash flow positive in the second half of 2020. As Vinay mentioned, Q1 revenues will be suppressed due to the final harvest of low to mid-THC strain, however, we sold through all available of BC Pink Kush. With the Kelowna facility fully operational and the shift in strains complete, we believe Q2 will be an inflection point for our business.I'll now turn the call back to Vinay for closing remarks.
Thanks, Irina. In the past few years, we're proud to have integrated 2 site licenses from Health Canada, constructed a purpose-built indoor facility, constructed and applied for the final licenses of our R&D facility at GMP-certified facilities in Australia and Europe and perhaps the largest licensed cultivation footprint in Europe. To go from 0 to over 7 million square feet of licensed cultivation space is something we take great pride in.Our strategy is to have rightsized facilities for the markets we're targeting to ensure that we can cultivate products that meet our customers' demand. This avoids pursuing scale for the sake of scale and allows us to prove out the business in a capital-efficient way.We're now happy to answer any questions you may have. Operator, please open the line for Q&A.
[Operator Instructions] Your first question comes from the line of Vivien Azer with Cowen.
I hope everyone is safe and healthy. I'd just like to start off, and I apologize, as you know, I don't cover you. But look, I'm having a really hard time reconciling the fact that you generated gross revenues of $1.6 million in the fourth quarter, selling out all of your BC Pink Kush, and then the guide for 1Q, like maybe this is like as easy as like some of the things that we see in beer. Is it just kind of just the timing of cultivation? But I'm having -- like the disconnect seems kind of wide.
Of course. Vivien, thanks for jumping in. The -- it's just purely a function of timing. So it's purely a function of how much Pink Kush we had available to sell. So essentially, every single gram of Pink Kush that we've had to sell, we've been able to sell. And as I mentioned, to make a wholesale shift in our genetic library, it's taken 9 months. So really, as of January, February, everything we've been planting has been Pink Kush and the other high-THC strains. But before that, we've just been constrained by the amount of Pink Kush we had available for sale.
Totally, that makes sense. And like, yes, absolutely, like leaning to Pink Kush. I mean the fact that not only have you not seen like genetic degradation but actually have may have enhanced your genetics. That is a worthwhile investment, and the revenue chasing seems totally reasonable. But then keeping in mind, like you're generating this roughly $6.60 -- $6.60 ASP, which is awesome. But how do I reconcile the delta between your gross revenue and your net revenue then? Because it's very wide.
Sure. So particularly in Q4, there was quite a material impact between gross to net. And really what happened was there were old strains that were sold in to customers when we really first went live with our products dating back to 2018. So we had some fairly significant return provisions that we took in Q4, with the expectation that there would be some returns coming back from the provinces. We have certainly spoken to all of our provincial partners, and we do not anticipate any further returns. So it really was a one-time event that occurred in Q4.
That's super helpful. And congrats on the new CFO role. Delighted to see more diversity in the industry, so congrats on that. Last one for me, please. Vinay, can you just help us understand how like COVID-19 maybe impacting your medical operations in Europe? The Europeans have obviously been -- how do I characterize this, more aggressive, I would argue, more diligent than we have been in the U.S. and frankly in Canada. We hear a lot about Spain. We hear a lot about Germany. It seems obviously adjacent to your cultivation in Germany as your end market. So what are you seeing in terms of COVID-19 impacts into the European cannabis market?
Sure. We've really seen no impact in demand. There's still a shortage of GMP-certified product. So we haven't seen much of an impact in demand there. The biggest impact, I would say, is simply the whole process of GMP certification. Because of COVID, it becomes a fact that people don't want regulators or auditors flying around to different places to do audit, that whole backlog has just gotten longer. So as you know, you need that GMP certification in order to release final product into the European market. If you -- everyone is in line for that, and we they thought it was going to be 6 months. Now all of a sudden, it's going to be a year or 18 months. So that kind of first-mover advantage in Europe is a real thing. But we haven't seen any -- we haven't seen any real change in demand in Europe. But I would probably put that more to the fact that it is a supply-constrained market right now.
Your next question comes from the line of Bill Kirk with MKM Partners.
So it looks like even if you adjust out inventory impairment, gross margin was negative in 4Q. Can you maybe confirm if that was the case? And help us understand why that was and why you expect it to go positive?
Sure. So there were a couple of things that happened in Q4. So there was inventory impairment that we spoke of. There were also, I mentioned, some financial statement reclassifications. So there were a number of items that we previously would have included in SG&A expenses that were moved up to cost of sales item. So when we exclude -- when we sort of normalize for those, we would have not have seen a normalized -- excuse me, a negative gross margin for the quarter.
Okay. And do those expenses remain up in the COGS line? Or is it like -- how is that...
They do. Yes, they do.
Okay. Is there some leverage you get on that type of expense item that -- and when thinking about how gross profit margin should go positive, you get leveraged over those newly moved SG&A items in that were moved into COGS?
So let me just clarify, if I may. The items that were moved in Q4 was really a year-to-date catch up. So Q4 would have been abnormally high and the first 3 quarters would have been abnormally low. So there is some leverage. But really what was moved was salaries for employees who were specific to cultivation that were improperly classified throughout other parts of last year.
Irina, you want to talk about potential target margins in the future? Maybe that'll help guide Bill?
Sure. So from a gross margin perspective, we are targeting between 45% to 50%. We do anticipate to have some fairly significant improvements in our cost base beginning at the end of this quarter. By significant, I mean anywhere between $0.70 to $1 improvement by driving efficiencies through the production line. And then further efficiencies are expected as we move into Q3. We do expect a fairly material uptake in our harvest. And the fixed costs that we have will obviously then be spread across higher yield and higher harvest, which will inherently reduce our production costs.
Okay. I think I get that. Switching to the top line inflection that you're talking about for 2Q, how do we think about the magnitude? Is it essentially going from, call it, 5 rooms of Pink Kush to 20 rooms of Pink Kush? Is that how we should think about the size of the inflection?
Yes. I mean the actual magnitude of rooms of Pink Kush are -- between Pink Kush and our new high THC strains, the Tahoe OG and Louis XIII, we're talking about 95% of our production just being high THC. The real -- only question mark for Q2 is really COVID. I mean we've seen some uncertainty around Ontario around -- that's been our biggest market, and that's been kind of, by far, our biggest market for Pink Kush. There's a little uncertainty there. They're just -- although we've seen a pickup in online sales, overall, sales are down significantly from the retailers. And although the -- you've been reading a lot about the pickup in online sales, in net-net, overall Ontario sales are down. Like I said, they're down pretty significantly. So the best way to think about it -- I wish I could give more clear guidance. I could have about a month ago. But a month ago, we basically were selling out of every single thing that we're selling -- selling to Ontario. That may or may not happen now given to -- given the environment with COVID.
Okay. But from a production standpoint then, it was roughly, I'm just kind of guessing, but 5 rooms of high-THC Pink Kush and now it will be 20 rooms of high-THC between the 3 genetics.
Correct. It will be roughly 5 and then it will be 20. But remember that we got licensed for the remaining 10 rooms at the end of February, and we've been propagating the balance of those 10 rooms since then. So it's not just going to go from 5 to 20 in one shot. It will really be kind of Q3, where you'll see the full production come online from all 20 rooms.
Your next question comes from the line of Nikolaas Faes with Bryan Garnier.
Just continuing on the same line of question on the inflection point, and I'll just picking up what you just said on Q3. If you take a step back, what is your annualized capacity now at Kelowna indoor capacity?
It's all a function of yield. I would say -- right this second, I would say it's somewhere in the neighborhood of probably 6,000 kilos per annum. But again, it -- as I mentioned, we had a harvest just this week that came down at a much higher yield. If we can average those yields, that will go up significantly. So I would say 6,000 to 7,000 kilos right now is a fair run rate. And we're hoping to increase that as yields increase as well.
So say that it goes, in a couple of months, down to 8,000. So let me say that you're going to have breakeven the cash flow positive in the second half year. You're probably looking at selling about 4,000 kilograms, and that would give you just over that breakeven point. Is that correct? And then in Q2, I need to see somewhere in between what you do in Q1 and in Q3.
I think in Q2, the real question mark is this going to be what the overall demand picture is. I know I mentioned OCS in the -- or Ontario in our overall sales. And in fact, if you look at the numbers, our market share in Ontario has actually gone up. But the overall sales in Ontario has gone down so much. We obviously have suffered because of that. So Q2 is really going to be about uncertainty around COVID. And then was your question 4,000 kilos in the second half of this year or 4,000 kilos for the entire year?
No, no, no. In the second part of the year.
Second half of this year, that's probably a bit aggressive just given the ramp-up in yields. I think that's probably a bit aggressive.
Yes. Okay. Well, just the harvest in tons or something like that. And as you point out, and how do you need to look at Q1, how do you need to understand that 1 million gross figure, first of all? I understand it right that there is no negative returns anymore on the impact of Q1 figure? Secondly, that actually kind of assumes that we sell only about 140, 150 kilograms of produce in that first quarter. And why is it lower than the 250 that you sold before? What drives that decline?
It's really -- Nik, it's really just a matter of how much Pink Kush we had available. And remember, the product that we're selling in Q1 were products that were planted in Q3 of the prior year. So it's really just all about the harvest cycles and how much Pink Kush we have available.
Right. Now that makes sense. And then just maybe one last question on Europe. You're telling us that Europe will have your first sales in the fourth quarter for Europe. Now I believe that you already have production in Sintra going on. So why is that not being sold at this stage?
That's a conservative number. I think we'll see sales before that. That's a conservative number. And then as I mentioned, we will be planting Aljustrel this month, and I think it will be, almost certainly be, the largest cultivation in all of Europe, for sure, the largest outdoor cultivation.
Yes. Yes. The 1 million square feet that you mentioned, how much is actually going to yield?
Sorry, can you repeat that? The 1 million square feet, how much is what?
How much yield will that give you? So sorry...
That's a tricky one. But if you can -- if you assume a very conservative yield number, I mean, you can assume 10 grams a square foot, which is a very conservative yield number. And you're talking in excess of -- you're talking about 10,000 kilos.
Right. Wow. Where are you going to sell those 10,000 kilograms then?
I'd tell you, there is a lot of demand in Europe for GMP-certified product. There's also demand for feedstock into -- to create medical oils. But right now, in Europe, there is a -- it's almost insatiable demand for products.
Your next question comes from the line of David Kideckel with AltaCorp Capital.
Congratulations, everybody, on this quarter. Just a couple of questions for me. I want to go back to COVID-19 and medical cannabis, in particular, out in Europe. So Vinay, I heard you mention there's no issue of demand at all for the product in Europe for medical cannabis. But given that there's still only a few, maybe a couple of select countries, Germany, in particular, maybe the U.K., some other places would even allow medical cannabis, beyond the GMP certification delay for other companies, not you, do you think in general, for some of the EU member countries that it might put them back and maybe approving medical cannabis as a whole?
That's a really tough question. I guess what I was trying to get across when I said that we haven't seen a drop-off in demand is you look at overall sales in Ontario and things like that, and you see some of those steep declines. We haven't seen that decline in the customers who want product now in Germany. That's, I guess, that's what I meant. The question is how will medical cannabis -- will this delay or potentially speed up medical cannabis adoption in Europe, that's a really tough question. I'm not sure. I guess all I can comment on that is, oftentimes, the regulatory bodies that are in charge of this stuff are the same bodies dealing with COVID-19. So I mean there's a chance that this gets put on the back burner, further cannabis legislation, but it's really hard to say. We have -- we don't have much insight into that.
That's a great answer. And it's similar to a lot of, I think, what we're all hearing from kind of U.S. as well, with -- to speed things up as kind of a tax generating opportunity for governments, or does it expedite it or not expedite it.Okay. So I want to move back as well to the margin profile. I think you said between 45% and 50%. And I guess my question is, is there going to be a blended mix here when we're taking into account medical cannabis in Europe versus your premium flower here in Canada?And one other thing, I guess, to break that up further, would that margin profile further be kind of subdivided if we're assuming, whether it's premium flower in Europe or...
That's a great question. Yes. So what -- I think what Irina was speaking to was our indoor -- the margin profile for our indoor flower in Kelowna. In Europe right now, I mean, you're talking about the outdoor flower, which is incredibly low cost. We're talking south of $0.35 a gram. And right now, the prices in Europe are high. So I mean we'll see what that margin profile looks like once we actually make some sales. But -- I think Irina was talking about the margin profile for Kelowna in particular. But I think it's fair to say that the blended margin would be -- our target margin would be somewhere around there on the expected, kind of, steady state would be somewhere around there on the European side as well over time.
Yes, very helpful. My last question now is, I mean, for some of the retailers that we cover as well as a firm, a big message we hear from them is the illicit market is actually their biggest competition, not even other competitive retailers. So I guess the question for you guys with your BC Pink Kush, because this is a premium product, not a lower end product that is meant to compete with illicit market product, does BC Pink Kush -- do you find at all that the illicit market is a competitor? Or -- and if not, I mean, who are you really competing with? Is it just other legitimate brands?
Yes. We've said from the start that we view our biggest competition as the illicit market because those folks who are used to that level of quality, we want those folks to step into the store and view BC Pink Kush as a reasonable alternative. I think it's worth noting, I mentioned during the remarks that we haven't irradiated our BC Pink Kush in -- since January of 2019. So that's one of the big things that allows that product to really have the smell, taste and feel of the illicit market product. And so I would absolutely view that as our biggest competition. There are some other folks who are -- some craft crows who are putting out good product as well. So I don't want to say there's no one else that has really good products because there are. But that being said, we view that -- our goal is to get that illicit market user to have a similar experience or better experience with our product. And we're very excited, frankly, about the new genetics as well. The Tahoe OG and then the Louis XIII, we think those are going to be just as good, if not better, than the Pink Kush.
[Operator Instructions] Your next question comes from the line of Scott Fortune with Roth Capital Partners.
Just kind of along the lines of that, can you reconcile, kind of production and supply/demand dynamics going on in Canada, specifically, kind of for your focused premium high-THC side of things, obviously, we're seeing a lot of top LP shuttering cultivation and we're seeing pricing from that standpoint. Are you seeing competition on the high end? You mentioned the black market, obviously. And then what are the new market opportunities for you to continue to sell? Just kind of step us through kind of over the next quarters, how do you see the supply/demand dynamics as all these LPs are going down the value chain and the pricing side of things that keep your $6 and $10 price per gram, per se?
Yes. So we've absolutely seen a bifurcation in the market. So we've seen massive price compression on the kind of lower THC and lower quality product. Frankly, that's one of the reasons we had to take write-downs on some of our lower THC strains there. They're not as desirable. So we're seeing that there. But on the high -- on the premium side, haven't really seen a whole lot of price compression. Again, if you -- we believe that there's real value in the premium side of the market. Do you -- if you think about this on a cost per serving, it's -- you're really talking about a couple of bucks. You're not talking about a $1,000 bottle of wine versus a $20 bottle of wine. So the folks who are the real connoisseurs that are willing to pay up for that, they remain willing to pay up for that premium product. So we -- while there have been more entrants into that premium segment over the last few months, which we still think that it's massively underserved. And you can do the math, just looking at the facilities around the country, how many of them even have the capability, if whether or not they have the skills to do so, well, how many of them are built and set up the right way to even have the capability -- even have a chance to growing that premium high end, the high-THC product? Not a lot.
Yes. And that's the key I was getting at. You're not seeing much of a competitive response as more people move down the value chain and others might be able to get to cultivation where they can actually cultivate high end, but you're not seeing success coming from that side from other cultivators or competitors getting into the premium side as quickly.
Not a lot. And one thing that's worth noting too is we've spent minimal sales and marketing dollars. So as this year progresses and we start increase -- spending to increase awareness and demand, one can only assume that we'll see further demand for the product, but this is all really happening organically.
Great. And then last question, do you have opportunities to expand into provinces or planning to move up, like marketing and dollar amounts in different provinces? Can you call those out?
Absolutely. So if we think back to what some of our 3-pronged approach to financials, we are very much planning on making appropriate investments in sales and marketing. What we have found, at least for the first quarter of this year, is that we have been supply-constrained versus demand-constrained. But as we increase our demand over the coming quarters, we do anticipate to make fairly significant investments where required. If you read through our MD&A, we have recently signed with Rose in Quebec. We are awaiting approval through Quebec market to sell into that channel, but we are evaluating different options that we might have.
Your next question comes from the line of Nikolaas Faes with Bryan Garnier.
Yes. I had a follow-up question, Vinay, on your inventories. So I suppose that your inventories are full with products of those low-THC products that you cannot sell. So what's the plan with them?And then secondly as well, if I understand you're right, there's quite a lot of the Flowr Forest harvest that is still in the freezer waiting for you to start up the 2.0 production at the end of the year. So is that indeed in the freezer? And are you not growing anything further at Flowr Forest? Or how do I need to see that dynamic around your -- out of growing in Kelowna?
Sure. I'll answer the last question first. So we are evaluating what to do with Flowr Forest this year. Potentially right now, we're able to plant a crop in Flowr Forest if we wanted to. We're evaluating that, depending on what our strategy and timing will be for the -- our live resin rollout.And then on your question on the inventory, so we've taken -- we've written down substantially all the inventory that we -- the lower-THC product inventory that we have. We are looking for some avenues to send it to extraction or send it to some other LPs. So we're hoping to work through that in the coming months. But like I said, we have taken the appropriate write-downs for that. So I don't think it should affect future financial statements much. And just in absolute numbers, Nik, it's not a -- we're talking about hundreds of kilos of product here. We're not talking about thousands and thousands of kilos of products. So in absolute number, it's not -- it's not absolutely massive.
No, no. It's just a difference, I suppose what you had in Q4 of 660 kilograms in Kelowna and the sales of 215. So about 400 kilograms.
So again, to Vinay's earlier point, we did take the appropriate provisions in the fourth quarter. If you read through the MD&A to the financial statements, you'll see that's from an overall inventory valuation perspective, we actually don't have quite a bit of inventory sitting in our financial statements. And I would say roughly right, 50% of the inventory we have on hand is for both cannabis, the other 50%, again, rough numbers is [ for trim ].
But -- and Nik, to your -- what you're getting at is, right now, currently, as of this date, every single room is high-THC. And it's -- yes.
That reminds me about another question I have when you were saying that at the beginning of the next month you will see a step change in sell-through of high-THC products. You do mean next month like in 2 days' time, the 1st of May?
Correct. May is going to be -- we are anticipating some harvest from the new rooms, which will come down in May. So we won't be supply constrained
Okay. So April stood at a lower level. But then starting May, you really see some step changes there?
Correct. We'll have enough high-THC strains to meet demand for the first time in a while.
And your next question comes from the line of [ Eric Feist ] with investor.
Yes. I just want to follow-up on that. You took back well over $1 million worth of -- wholesale dollars' worth of cannabis packaged and ready to go out the door. What's your plan with it? I mean when you're doing $300,000 or $400,000 a month now, that's significant money. I mean that's -- that's a whole quarter worth of products.
Yes. And remember, as Irina said, well, one of it, about $400,000, $450,000 of it was bulk, so it wasn't packaged. And that was from December 2018. So yes, we are looking to find some channels to move that product likely into -- turning it into distillate for extract or potentially shipping some off overseas.
There are no further questions at this time. I will turn the call back over to the presenters for any closing remarks.
Thank you, everyone, for the time. We are -- it's been tough time in the market right now. As you guys all know, it's been challenging in the cannabis industry before COVID. But for the first time, we had enough of the demand-driven strains to meet supply -- or the supply to meet demand, and we're looking forward to the next couple of quarters and really proving our value proposition. Thank you so much for the time.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.