Form 10-Q - Quarterly report [Sections 13 or 15(d)]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended March 31, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 000-56254

LOWELL FARMS INC.

(Exact name of Registrant as Specified in its Charter)

British Columbia, Canada		87-3037317
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

19 Quail Run Circle - Suite B, Salinas, California		93907
(Address of Principal Executive Offices)		(Zip Code)

(831) 998-8214

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class registered	Trading Symbol(s)	Name of each exchange on which registered
NONE	NONE	NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 18,256,282 shares of the Registrant’s Subordinate Voting Shares outstanding as of May 13, 2024.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023	3
	Condensed Consolidated Statements of Income (Loss) for the Three Ended March 31, 2024 and 2023	4
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2024 and 2023	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023	6
	Notes to Condensed Consolidated Financial Statement (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	33

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 5.	Other Information	34
Item 6.	Exhibits	35
	Exhibit Index
	Signatures	36

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

LOWELL FARMS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands)

	March 31,			December 31,
	2024			2023
ASSETS
Current assets:
Cash and cash equivalents	$	1,175		$	2,311
Accounts receivable - net of allowance for doubtful accounts of $1,149 and $959 at March 31, 2024 and December 31, 2023, respectively.		2,067			2,620
Inventory		4,224			4,760
Prepaid expenses and other current assets		2,253			2,397
Total current assets		9,719			12,088
Property and equipment, net		3,814			4,099
Right of use assets, net		17,900			18,327
Other intangibles, net		2,448			2,544
Other assets		465			555

Total assets	$	34,346		$	37,613

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,931		$	4,314
Accrued payroll and benefits		212			363
Notes payable, current portion		2			3
Lease obligation, current portion		1,932			1,990
Other current liabilities		2,493			1,943
Total current liabilities		8,570			8,613
Lease obligation		17,161			17,522
Total liabilities		25,731			26,135
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Share capital		192,471			192,445
Accumulated deficit		(183,856	)		(180,967	)
Total stockholders’ equity		8,615			11,478

Total liabilities and stockholders’ equity	$	34,346		$	37,613

See Accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

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LOWELL FARMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(unaudited)

(in thousands, except per share amounts)

	Three Months Ended
	March 31,			March 31,
	2024			2023
Net revenue	$	4,874		$	7,526
Cost of goods sold		5,701			7,394

Gross profit (loss)		(827	)		132

Operating expenses
General and administrative		1,553			1,673
Sales and marketing		408			735
Depreciation and amortization		98			106
Total operating expenses		2,059			2,514

Loss from operations		(2,886	)		(2,382	)

Other income/(expense)
Other income (expense)		6			1
Unrealized change in fair value of investment		-			-
Interest expense		(9	)		(1,659	)
Total other income (expense)		(3	)		(1,658	)

Loss before provision for income taxes		(2,889	)		(4,040	)
Provision for income taxes		-			-
Net loss	$	(2,889	)	$	(4,040	)

Net loss per share:
Basic	$	(0.15	)	$	(0.33	)
Diluted	$	(0.15	)	$	(0.33	)
Weighted average shares outstanding:
Basic		19,024			12,177
Diluted		19,024			12,177

See Accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

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LOWELL FARMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited) (in thousands)

(in thousands)	Three Months Ended March 31, 2024
	Subordinate		Super							Total
	Voting		Voting		Share		Accumulated			Stockholders’
	Shares		Shares		Capital		Deficit			Equity
Balance-December 31, 2023		19,024		20	$	192,445	$	(180,967	)	$	11,478
Net loss		-		-		-		(2,889	)		(2,889	)
Share-based compensation expense		-		-		26		-			26
Balance- March 31, 2024		19,024		20	$	192,471	$	(183,856	)	$	8,615

(in thousands)	Three Months Ended March 31, 2023
	Subordinate		Super							Total
	Voting		Voting		Share		Accumulated			Stockholders’
	Shares		Shares		Capital		Deficit			Equity
Balance-December 31, 2022		12,177		20	$	191,742	$	(143,625	)	$	48,117
Net loss		-		-		-		(4,040	)		(4,040	)
Share-based compensation expense		-		-		60		-			60
Balance-March 31, 2023		12,177		20	$	191,802	$	(147,665	)	$	44,137

See Accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

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LOWELL FARMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in thousands)

	Three Months Ended
	March 31,			March 31,
	2024			2023
CASH FLOW FROM OPERATING ACTIVITIES
Net loss	$	(2,889	)	$	(4,040	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		808			1,196
Amortization of debt issuance costs		-			249
Share-based compensation expense		26			60
Provision for doubtful accounts		197			88
Unrealized loss on change in fair value of investments		-			-
Changes in operating assets and liabilities:
Accounts receivable		356			1,237
Inventory		536			695
Prepaid expenses and other current assets		144			315
Other assets		90			1
Accounts payable and accrued expenses		16			1,111
Operating lease payments		(309	)		-
Net cash provided by (used in) operating activities	$	(1,025	)	$	912
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of property and equipment		-			(29	)
Net cash used in investing activities	$	-		$	(29	)
CASH FLOW FROM FINANCING ACTIVITIES
Principal payments on lease obligations		(110	)		(608	)
Payments on notes payable		(1	)		(79	)
Net cash used in financing activities	$	(111	)	$	(687	)

Change in cash and cash equivalents		(1,136	)		196
Cash and cash equivalents-beginning of year		2,311			1,098
Cash, cash equivalents -end of period	$	1,175		$	1,294

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	9		$	821

OTHER NONCASH INVESTING AND FINANCING ACTIVITIES
Purchase of property and equipment not yet paid for	$	-		$	8

See Accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

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LOWELL FARMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The interim unaudited condensed consolidated financial statements (the “financial statements”) included herein have been prepared by Lowell Farms Inc. (the “Company” or “Lowell”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. The interim unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary (consisting only of normal recurring adjustments), to present a fair statement of results for the interim periods presented. The operating results for any interim period are not necessarily indicative of the results that may be expected for other interim periods or the full fiscal year. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Form 10-K filed for the year ended December 31, 2023. There have been no material changes to our significant accounting policies as of and for the three months ended March 31, 2024.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all intercompany balances and transactions.

The condensed consolidated balance sheet at December 31, 2023, has been derived from the audited consolidated financial statements but does not include all disclosures required by U.S. GAAP.

All dollar amounts in the notes to the unaudited condensed consolidated financial statements are expressed in thousands of United States dollars (“$” or “US$”), unless otherwise indicated.

In August 2023, the Company effected a reverse stock split consolidating all of its subordinate voting shares (“Subordinate Voting Shares”) on the basis of one post-consolidation Subordinate Voting Share for every ten pre-consolidation Subordinate Voting Shares, effective August 31, 2023 (the “Effective Date”). The Company’s outstanding super voting shares were also consolidated on the same basis as of the Effective Date. All share and per share data presented in the Company’s condensed consolidated financial statements have been retroactively adjusted to reflect the reverse stock split.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include allowance for doubtful accounts and credit losses, carrying value of inventory, revenue recognition, accounting for stock-based compensation expense, and income taxes. Actual results could differ from those estimates.

The global COVID-19 pandemic impacted the operations and purchasing decisions of companies worldwide. It also created significant uncertainty in the global economy. The Company has undertaken measures to protect its employees, partners, customers, and vendors. To date, the Company has been able to provide uninterrupted access to its products and services, including certain employees that are working remotely, and its pre-existing infrastructure that supports secure access to the Company’s internal systems. If the COVID-19 pandemic were to have an increased forward-looking impact on the productivity of the Company’s employees or its partners’ or customers’ decision to use the Company’s products and services, the results of the Company’s operations and overall financial performance may be adversely impacted. As of the date of issuance of the financial statements, the Company is not aware of any specific event or circumstance that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the unaudited condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the unaudited financial statements.

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LOWELL FARMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Recently Adopted Accounting Standards

No recently issued accounting pronouncements had or are expected to have a material impact on our condensed consolidated financial statements.

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LOWELL FARMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2. PREPAID AND OTHER CURRENT ASSETS

Prepaid and other current assets were comprised of the following items:

	March 31,		December 31,
(in thousands)	2024		2023
Deposits	$	1,132	$	1,134
Insurance		173		237
Supplier advances		66		26
Interest and taxes		-		26
Licenses and payments		48		106
Royalty advance		806		853
Other		28		15
Total prepaid and other current assets	$	2,253	$	2,397

3. INVENTORY

Inventory was comprised of the following items:

	March 31,		December 31,
(in thousands)	2024		2023
Raw materials	$	810	$	1,400
Work in process		215		307
Finished goods		3,199		3,053
Total inventory	$	4,224	$	4,760

4. OTHER CURRENT LIABILITIES

Other current liabilities were comprised of the following items:

	March 31,		December 31,
(in thousands)	2024		2023
Interest and tax accrual	$	140	$	109
Employee Retention Credit financing accrual		441		441
Accrued price promotions		133		133
Excise tax payments		291		289
Insurance and professional fee accrual		435		287
Third-party brand distribution accrual		943		558
Other		110		126
Total other current liabilities	$	2,493	$	1,943

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LOWELL FARMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5. PROPERTY AND EQUIPMENT

A reconciliation of the beginning and ending balances of property and equipment and accumulated depreciation during the three months ended March 31, 2024 and property and equipment, net as of December 31, 2023, are as follows:

	Leasehold			Furniture									Construction		Right of
(in thousands)	Improvements			and Fixtures			Equipment			Vehicles			in Process		Use Assets			Total
Costs
Balance-December 31, 2023	$	2,116		$	50		$	5,295		$	830		$	35	$	21,317		$	29,643
Additions		-			-			-			-			-		-			-
Disposals		-			-			-			-			-		-			-
Lease remeasurement		-			-			-			-			-		-			-
Balance – March 31, 2024	$	2,116		$	50		$	5,295		$	830		$	35	$	21,317		$	29,643

Accumulated Depreciation
Balance - December 31, 2023	$	(1,081	)	$	(49	)	$	(2,353	)	$	(744	)	$	-	$	(2,990	)	$	(7,217	)
Depreciation		(57	)		-			(205	)		(23	)		-		(427	)		(712	)
Disposals		-			-			-			-			-		-			-
Balance - March 31, 2024	$	(1,138	)	$	(49	)	$	(2,558	)	$	(767	)	$	-	$	(3,417	)	$	(7,929	)

Net Book Value - March 31, 2024	$	978		$	1		$	2,737		$	63		$	35	$	17,900		$	21,714

Net Book Value - December 31, 2023	$	1,035		$	1		$	2,942		$	86		$	35	$	18,327		$	22,426

Construction in process represents assets under construction related to cultivation, manufacturing, and distribution facilities not yet completed or otherwise not placed in service.

Depreciation expense of $712 and $1,095 were recorded for the three months ended March 31, 2024 and 2023, respectively, of which $691 and $1,069 respectively, were included in cost of goods sold.

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LOWELL FARMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6. Other Intangible Assets

A reconciliation of the beginning and ending balances of intangible assets and accumulated amortization during the three months ended March 31, 2024 and intangible assets, net as of December 31, 2023, are as follows:

	Definite Life Intangibles
	Technology/			Acquired
(in thousands)	Know How			Purchase Rights			Total
Costs
Balance-December 31, 2023	$	3,000		$	416		$	3,416
Additions		-			-			-
Balance-March 31, 2024	$	3,000		$	416		$	3,416

Accumulated Amortization
Balance-December 31, 2023	$	(761	)	$	(111	)	$	(872	)
Amortization		(75	)		(21	)		(96	)
Balance-March 31, 2024	$	(836	)	$	(132	)	$	(968	)

Net Book Value
December 31, 2023	$	2,239		$	305		$	2,544
Net Book Value
March 31, 2024	$	2,164		$	284		$	2,448

Intangible assets with finite lives are amortized over their estimated useful lives. Amortization periods of assets with finite lives are based on management’s estimates at the date of acquisition. The Company recorded amortization expense of $96 and $101 for the three months ended March 31, 2024 and 2023, respectively.

The Company estimates that amortization expense for our existing other intangible assets will average $399 annually for the next five fiscal years. Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, changes in useful lives or other relevant factors or changes.

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LOWELL FARMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7. SHAREHOLDERS’ EQUITY

Shares Outstanding

The table below details the change in Company shares outstanding by class during the three months ended March 31, 2024:

	Subordinate		Super
(in thousands)	Voting Shares		Voting Shares
Balance-December 31, 2023		19,024		20
Balance-March 31, 2024		19,024		20

The Super Voting Shares carry 1,000 votes per share. The Subordinate Voting Shares carry 1 vote per share.

Warrants

A reconciliation of the beginning and ending balances of warrants outstanding is as follows:

(in thousands)
Balance-December 31, 2023			1,126
Balance-March 31, 2024			1,126

For the three months ended March 31, 2024, on a weighted average basis, warrants outstanding have an exercise price of $1.52 and expire in February, 2025. Warrants convert into subordinate voting shares.

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LOWELL FARMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

8. DEBT

Debt at March 31, 2024 and December 31, 2023, was comprised of the following:

	March 31,		December 31,
(in thousands)	2024		2023
Current portion of long-term debt
Vehicle loans⁽¹⁾	$	2	$	3
Total short-term debt		2		3

Long-term debt, net
Total long-term debt		-		-
Total Indebtedness	$	2	$	3
______________________
(1) Primarily fixed term loans on transportation vehicles. Weighted average interest rate at March 31, 2024 and December 31, 2023 was 6.4%.

Stated maturities of debt obligations are as follows as of March 31, 2024:

	March 31,
(in thousands)	2024
Balance of 2024	$	2
Total debt obligations	$	2

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LOWELL FARMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9. LEASES

A reconciliation of lease obligations for the three months ended March 31, 2024, is as follows:

(in thousands)
Lease obligation	Operating Leases			Finance Leases			Total
December 31, 2023	$	19,402			110			19,512
Lease principal payments		(309	)		(110	)		(419	)
March 31, 2024	$	19,093			-			19,093

All extension options that are reasonably certain to be exercised have been included in the measurement of lease obligations. The Company reassesses the likelihood of extension option exercise if there is a significant event or change in circumstances within its control.

The components of lease expense for the three months ended March 31, 2024 and 2023, are as follows:

	Three Months Ended
Finance Leases	March 31,		March 31,
(in thousands)	2024		2023
Amortization of leased assets ⁽¹⁾	$	41	$	573
Interest on lease liabilities ⁽²⁾		2		500
Total	$	43	$	1,073

____________

(1) Included in cost of goods sold, general and administrative expenses and other expenses in the consolidated statement of operations.

(2) Included in interest expense in the consolidated statement of operations.

	Three Months Ended
Operating Leases	March 31,		March 31,
(in thousands)	2024		2023
Amortization of leased assets ⁽¹⁾	$	386	$	-
Interest on lease liabilities ⁽¹⁾		382		-
Total	$	768	$	-

____________

(1) Included in cost of goods sold, general and administrative expenses and other expenses in the consolidated statement of operations.

The key assumptions used in accounting for leases as of March 31, 2024, were a weighted average remaining lease term of 8.7 years and a weighted average discount rate of 10%. The key assumptions used in accounting for leases as of December 31, 2023 were a weighted average remaining lease term of 8.9 years and a weighted average discount rate of 10%.

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The future lease payments with initial remaining terms in excess of one year as of March 31, 2024 were as follows:

(in thousands)	March 31, 2024
Balance of 2024	$	2,381
2025		3,258
2026		3,240
2027		3,324
2028 and beyond		16,847
Total lease payments		29,050
Less imputed interest		(9,957	)
Total	$	19,093

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LOWELL FARMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

10. SHARE-BASED COMPENSATION

During 2019, the Company’s Board of Directors adopted the 2019 Stock and Incentive Plan (the “Plan”), which was amended in April 2020, March 2021 and June 2023. The Plan permits the issuance of stock options, stock appreciation rights, stock awards, share units, performance shares, performance units and other stock-based awards, and, as of March 31, 2024, 2.3 million shares have been authorized to be issued under the Plan and 0.7 million are available for future grant. The Plan provides for the grant of options as either non-statutory stock options or incentive stock options and restricted stock units to employees, officers, directors, and consultants of the Company to attract and retain persons of ability to perform services for the Company and to reward such individuals who contribute to the achievement by the Company of its economic objectives. The awards granted generally vest in 25% increments over a four-year period and option awards expire 6 years from grant date.

The Plan is administered by the Board or a committee appointed by the Board, which determines the persons to whom the awards will be granted, the type of awards to be granted, the number of awards to be granted, and the specific terms of each grant, including the vesting thereof, subject to the provisions of the Plan.

During the three months ended March 31, 2024 and 2023, the Company granted shares to certain employees as compensation for services. These shares were accounted for in accordance with ASC 718 - Compensation - Stock Compensation. The Company amortizes awards over the service period and until awards are fully vested.

For the three months ended March 31, 2024 and 2023, share-based compensation expense was as follows:

	Three Months Ended
	March 31,		March 31,
(in thousands)	2024		2023
Cost of goods sold	$	-	$	-
General and administrative expense		26		60
Total share-based compensation	$	26	$	60

The following table summarizes the status of stock option grants and unvested awards at and for the three months ended March 31, 2024:

	Stock			Weighted-Average Exercise		Weighted Average Remaining Contractual		Aggregate Intrinsic
(in thousands except per share amounts)	Options			Price		Life		Value

Outstanding-December 31, 2023		1,453		$	1.9		5.3	$	-

Granted		250			0.16		-		-
Exercised		-			-		-		-
Expired		-			-
Cancelled		(94	)		3.24		-		-
Outstanding-March 31, 2024		1,609		$	2.06		1.37		-

Exercisable-March 31, 2024		1,127		$	2.37		4.77	$	-

Vested and expected to vest-March 31, 2024		1,609		$	2.06		1.37	$	-

The weighted-average fair value of options granted during the three months ended March 31, 2024, estimated as of the grant date were $0.16. As of March 31, 2024, there was $128 of total unrecognized compensation cost related to non-vested options, which is expected to be recognized over a remaining weighted-average vesting period of 0.9 years.

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LOWELL FARMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the three months ended March 31, 2024 and 2023, the fair value of the stock options granted were determined using the Black-Scholes option-pricing model with the following weighted average assumptions at the time of grant..

	Three Months Ended			Three Months Ended
	March 31,			March 31,
	2024			2023
Expected volatility		50	%		50	%
Dividend yield		0	%		0	%
Risk-free interest rate		4.15	%		1.1	%
Expected term in years		4.25	%		4.50	%

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LOWELL FARMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

11. INCOME TAXES

There was no provision for income tax expense for the three months ended March 31, 2024 or 2023 due to operating losses incurred in both periods.

12. NET LOSS PER SHARE

Net loss per share represents the net earnings/loss attributable to shareholders divided by the weighted average number of shares outstanding during the period on an as converted basis as follows:

	Three Months Ended
	March 31,			March 31,
(in thousands except per share amounts)	2024			2023
Net loss	$	(2,889	)	$	(4,040	)

Net loss per share:
Basic	$	(0.15	)	$	(0.33	)
Diluted	$	(0.15	)	$	(0.33	)
Weighted average shares outstanding:
Basic		19,024			12,177
Diluted		19,024			12,177

Weighted average potentially diluted shares (1):
Basic shares		19,024			12,177
Diluted shares		19,024			12,177

(1) For the above net loss periods, the inclusion of options, warrants, convertible debentures and restricted stock units in the calculation of diluted earnings per share would be anti-dilutive, and accordingly, were excluded from the diluted loss per share calculation.

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LOWELL FARMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

13. FAIR VALUE MEASUREMENTS

Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. An asset’s or liability’s level is based on the lowest level of input that is significant to the fair value measurement. Assets and liabilities carried at fair value are valued and disclosed in one of the following three levels of the valuation hierarchy:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions.

At March 31, 2024 and December 31, 2023 the carrying value of cash and cash equivalents, accounts receivable, prepaid expense and other current assets, accounts payable and other current liabilities approximate fair value due to the short-term nature of such instruments.

The carrying value of the Company’s debt approximates fair value based on current market rates (Level 2).

Nonrecurring fair value measurements

The Company uses fair value measures when determining assets and liabilities acquired in an acquisition as described above in the Notes to Condensed Consolidated Financial Statements, which are considered a Level 3 measurement.

14. COMMITMENTS AND CONTINGENCIES

Contingencies

The Company’s operations are subject to a variety of local and state regulation. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company ceasing operations. While management of the Company believes that the Company is in compliance with applicable local and state regulation as of March 31, 2024, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties or restrictions in the future.

The Company is being audited by the IRS for years 2019 and 2020 and may be subject to additional taxes, penalties and interest.

Litigation and Claims

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business.

On January 12, 2024, Cypress Holding Company, LLC (“Cypress”), a wholly owned subsidiary of the Company, surrendered possession of approximately 10 acres of real property at 139 Zabala Road, Salinas, California (the “Zabala Road Property”) leased by Cypress pursuant to a Lease Agreement dated April 1, 2017 (the “Zabala Road Lease”) with Tinhouse, LLC, dba Tinhouse Partners, LLC, as landlord (the “Landlord”). Prior to vacating the premises on January 12, 2024, the Company had operated a cultivation facility, which included four greenhouses totaling approximately 255,000 square feet, on the Zabala Road Property.

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In January 2023, the Company’s Board of Directors formed a strategic alternatives special committee of independent directors to explore, review and evaluate strategic and financial alternatives. As part of these efforts, Cypress Holding Company, LLC (“Cypress”), a wholly owned subsidiary of the Company entered into negotiations with Tinhouse, LLC, dba Tinhouse Partners, LLC, as landlord (the “Landlord”) of approximately 10 acres of real property at 139 Zabala Road, Salinas, California (the “Zabala Road Property”) leased by Cypress pursuant to a Lease Agreement dated April 1, 2017 (the “Zabala Road Lease”) to restructure the terms of the Zabala Road Lease, which provided for an expiry date of December 31, 2027, subject to five 5-year extension options exercisable by Cypress.

Later in 2023, the Company and the Landlord reached a settlement amending the terms of the Zabala Road Lease and reaching agreement on all rent-related issues. However, the Landlord declined to finalize the settlement agreement or honor the settlement terms related to rent. Then, on October 9, 2023, the Landlord terminated the Zabala Road Lease via a letter, which was served by its counsel on the Company. In October 2023, the Company filed a lawsuit for breach of contract and specific performance of the settlement agreement against the Landlord in order to enforce the settlement terms. The Landlord filed counterclaims against the Company, claiming damages of more than $36 million, which the Landlord claims are based on an analysis of accelerated rent due through the end of the term of the Zabala Road Lease, along with attorney’s fees, improvements, and other undefined costs. In a separate lawsuit, the Landlord filed an unlawful detainer action, seeking possession of the Zabala Road property, one year of back rent, attorney’s fees, and other damages. The unlawful detainer action concluded in January 2024 when the Company surrendered possession of the Zabala Road property to the Landlord. The court in the unlawful detainer action declined to award any monetary damages to the Landlord in connection with the unlawful detainer lawsuit, instead indicating that any damages related to the unlawful detainer claims would be decided in the lawsuit filed by the Company against the Landlord.

The Company intends to vigorously defend itself against the claims made by the Landlord. However, no assurance can be provided as to whether or not the Company will prevail, and it may be required to pay significant monetary damages. It is difficult to evaluate the likely outcome of a trial at such an early stage and with competing claims and cross-claims. In addition, due to the early nature of the case, an estimate on a loss cannot be made.

A putitive class action was filed on behalf of all California consumers who purchased products made by Lowell Farms, Inc. in California. The case alleges that Lowell failed to accurately label its products with the THC% identified by its testing laboratories, and that California consumers were thereby deceived into paying higher prices for Lowell’s products than they otherwise would have.

No trial has been scheduled in this matter. The parties are presently engaged in the process by which Plaintiff will bring a motion seeking certification of a class. If class certification is denied, then Plaintiff will be relegated to his own damages, which is likely just a few hundred dollars, and the case will likely end. If class certification is granted, then the parties will engage in fact discovery and the Court will set a trial date. The class certification motion is scheduled to be heard on August 26, 2024. Plaintiff has served discovery requests limited to class certification issues, but the parties have not engaged in any merits discovery. It is difficult to evaluate any potential outcome at such an early stage of the case where there has been no merits discovery. The Company is prepared to vigorously defend itself at the trial if a class is certified and a settlement is not reached. It is difficult to evaluate the likely outcome of a trial because Plaintiff has not articulated a theory of damages. In addition, due to the early nature of the case, an estimate of a loss cannot be made.

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LOWELL FARMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

15. GENERAL AND ADMINISTRATIVE EXPENSES

For the three months ended March 31, 2024 and 2023, general and administrative expenses were comprised of:

	Three Months Ended
	March 31,		March 31,
(in thousands)	2024		2023
Salaries and benefits	$	613	$	929
Professional fees		372		163
Share-based compensation		26		60
Insurance		226		271
Administrative		316		201
Total general and administrative expenses	$	1,553	$	1,624

16. RELATED-PARTY TRANSACTIONS

Transactions with related parties are entered into in the normal course of business and are measured at the amount established and agreed to by the parties.

During October 2022, Cannaco Research Corporation, an existing customer, became a related party when a new member joined the Board of Directors. Total sales recognized for Cannaco Research Corporation for the three months ended March 31, 2024 and 2023 were $134 and $93, respectively. In December, 2022, the Company entered into an agreement with Cannaco Research Corporation to lease approximately 2,000 square feet of warehouse space in Los Angeles to facilitate distribution services in the area. The lease is a 12-month storage agreement for the warehouse space. Total payments to Cannaco Research Corporation for the lease were $nil and $10 in the three months ended March 31, 2024 and 2023, respectively.

17. SEGMENT INFORMATION

The Company’s operations are comprised of a single reporting segment engaged in the production and sale of cannabis products in the United States. As the operations comprise a single reporting segment, amounts disclosed in the financial statements also represent a single reporting segment.

18. SUBSEQUENT EVENTS

The Company has evaluated potential subsequent events through May 13, 2024, the date the unaudited financial statements were available to be issued. No material subsequent events were identified.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

This management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of the Company is for the three ended March 31, 2024 and 2023. It is supplemental to, and should be read in conjunction with, the Company’s consolidated audited financial statements (the “financial statements”) and the accompanying notes for the year ended December 31, 2023. All dollar amounts in this MD&A are expressed in thousands of United States dollars (“$” or “US$”), unless otherwise indicated.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words or other similar or comparable words. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical facts may be deemed to be forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, results of operations and future growth prospects. The forward-looking statements contained herein are based on certain key expectations and assumptions, including, but not limited to, with respect to expectations and assumptions concerning receipt and/or maintenance of required licenses and third party consents and the success of our operations, are based on estimates prepared by us using data from publicly available governmental sources, as well as from market research and industry analysis, and on assumptions based on data and knowledge of this industry that we believe to be reasonable. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward- looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” in our Form 10-K for the year ended December 31, 2023, (the “Form 10-K”). Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available after the date of this Quarterly Report on Form 10-Q. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report on Form 10-Q.

OVERVIEW OF THE COMPANY

We are a California-based cannabis company with vertically integrated operations including extraction, processing, manufacturing, branding, packaging and wholesale distribution to retail dispensaries. We manufacture and distribute proprietary and a limited number of third-party brands throughout the State of California, the largest cannabis market in the world. We also provide manufacturing, extraction and distribution services to several third-party cannabis and cannabis branding companies. We operate a 40,000 square foot processing facility in Monterey County, a 15,000 square foot manufacturing and laboratory facility in Salinas, California, a separate 21,000 square foot distribution and flower packing facility in Salinas, California and a warehouse depot in Los Angeles, California. On January 12, 2024, we surrendered possession of a 255,000 square foot greenhouse cultivation and warehouse facility. See “Recent Developments.”

Product Offerings

Our present product offerings include flower, pre-rolls, vape pens, oils, extracts, chocolate edibles, mints, gummies, topicals and tinctures. We sell our products under owned and third-party brands. Brands we own include the following: Cypress Cannabis (a premium flower brand); Flavor Extracts (crumble and terp sugar products): House Weed (a value driven flower, vapes and concentrates offering delivering a flavorful and potent experience); Moon (a range of high-potency, high-quality and high-value edibles); Humble Flower (a premium brand offering cannabis-infused topicals, pre-rolls, sublingual tablets); and Original Pot Company (baked edibles). We also exclusively manufacture and distribute Lowell Herb Co. and Lowell Smokes (premium packaged flower, pre-roll, concentrates, and vape products); 35s (a line of automated pre-rolls) and products for several other third party brands in California and provide third party extraction processing and distribution services and bulk extraction concentrates and flower to licensed manufacturers and distributors.

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Processing and Manufacturing Operations

We operate a 40,000 square foot processing facility in Monterey County in close proximity to our cultivation operations that provides drying, bucking, trimming, sorting, grading, and packaging operations for up to 250,000 pounds of wholesale cannabis flower annually. The facility processed nearly all the cannabis that we grew at our existing cultivation operations until we exited the facility as well as providing processing services for regional growers from primarily the Salinas Valley area.

Our manufacturing facility is located in Salinas, California and houses our edible product operations and extraction and distillation operations. The edible product operations utilize internally produced cannabis oil, which can also be supplied from multiple external sources. Our manufacturing operations produce a wide variety of cannabis-infused products in our 15,000 square foot manufacturing facility in Salinas. Our products include chocolate confections, tinctures, baked goods, hard and soft non-chocolate confections, and topical lotions and balms. Lowell Farms utilizes modern commercial production equipment and employs food grade manufacturing protocols, including industry-leading standard operating procedures designed so that its products meet stringent quality standards. We have implemented updated compliance, packaging and labeling standards to meet the requirements of the California Medical and Adult-Use Cannabis Regulation and Safety Act with the advent of adult use legalization in California.

We also operate an automated flower packaging line, an automated pre-roll line and a pre-roll assembly line for making finished goods in those respective categories with feedstock grown at our cultivation operations.

Debt Settlement, Asset Sale and Licensing

On October 6, 2023 the Company repurchased all of the $22,157 aggregate principal amount of outstanding Senior Secured Convertible Debentures together with the related warrants to purchase 10,627,483 subordinate voting shares of the Company and 4,324,845 common shares of Indus. Share amounts reflect the 1 for 10 reverse stock split effective August 31, 2023. A total of 6,849,572 shares of the Company were issued to holders based on the proportion of the outstanding Debentures held by such holder, of (x) membership interests in LF Brandco LLC (“Brandco”), an entity formed to hold the Company’s intellectual property relating to its “Lowell Smokes” and “Lowell Herb Co.” brands (including trademarks, logos and additional identifying marks, domain names and social media accounts).

The Company has entered into a license agreement with Brandco for the “Lowell” trademarks, logos, and related intellectual property on an exclusive basis in the State of California for a five-year license term, with up to three five-year extensions. The Company’s exercise of the extension terms is subject to mutual agreement on certain sales performance criteria for each extension term.

Distribution and Distribution Services

We have a primary distribution center, warehouse and packing facility located in Salinas, California and a warehouse depot in Los Angeles, California. We provide physical warehousing and delivery to retail dispensary customers throughout the State of California for our manufactured products as well as third-party branded products distributed on behalf of other licensed product manufacturers. Deliveries are made daily to over 80% of the licensed dispensaries in California utilizing a fleet of 20 owned and leased vehicles. We provide warehousing, delivery, customer service and collection services for select third-party brands.

Technology Platform

We maintain an automated, on-demand supply chain logistics platform, utilizing e-commerce, enterprise resource planning and other technology to manage product movement, order taking and logistics needs.

Inventory Management

We have comprehensive inventory management procedures, which we believe are compliant with the rules set forth by the California Department of Cannabis Control (formerly the California Department of Consumer Affairs’ Bureau of Cannabis Control) and all other applicable state and local laws, regulations, ordinances, and other requirements. These procedures ensure strict control over Lowell Farms’ cannabis and cannabis product inventory from cultivation or manufacture to sale and delivery to a licensed dispensary, distributor or manufacturer, or disposal as cannabis waste. Such inventory management procedures also include measures to prevent contamination and maintain the quality of the products cultivated, manufactured or distributed.

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Sources, Pricing and Availability of Raw Materials, Component Parts or Finished Products

We source flower for sale from multiple high quality and reliable growers. We have developed relationships with local cannabis growers whereby flower quantities are readily available at competitive prices should the sourcing need arise. We source our biomass needs from third-party suppliers. Biomass material is readily available from multiple sources at competitive prices. Lowell Farms manufactures substantially all cannabis oil and distillate needs from its internal extraction operations. A small amount of specialized cannabis oil is procured from multiple external sources at competitive prices. Lowell Farms manufactures all finished goods for its proprietary brands. Third-party distributed brand product is sourced directly from third-party partners.

Recent Developments

Surrender of Cultivation Facility

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Reconciliations of Non-GAAP Financial and Performance Measures

The Company has provided certain supplemental non-GAAP financial measures in this MD&A. Where the Company has provided such non-GAAP financial measures, we have also provided a reconciliation below to the most comparable GAAP financial measure. These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for or as an alternative to, and should only be considered in conjunction with, the GAAP financial measures presented herein.

In this MD&A, reference is made to adjusted EBITDA and working capital which are not measures of financial performance under GAAP. The Company calculates each as follows:

EBITDA is net income (loss), excluding the effects of income taxes (recovery); net interest expense; depreciation and amortization; and adjusted EBITDA also includes unrealized foreign currency gains/losses; share-based compensation expense; and other transactional and special expenses, such as out-of-period insurance and tax recoveries and acquisition costs and expenses related to the markup of acquired finished goods inventory, which are inconsistent in amount and frequency and are not what we consider as typical of our continuing operations. 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 generated by operations. We use adjusted EBITDA internally to understand, manage, make operating decisions related to cash flow generated from operations and evaluate our business. In addition, we use adjusted EBITDA to help plan and forecast future periods.

Working capital is current assets less current liabilities. Management believes the calculation of working capital provides additional information to investors about the Company’s liquidity. We use working capital internally to understand, manage, make operating decisions related to cash flow required to fund operational activity and evaluate our business cash flow needs. In addition, we use working capital to help plan and forecast future periods.

These measures are not necessarily comparable to similarly titled measures used by other companies.

The table below reconciles Net loss to Adjusted EBITDA for the periods indicated:

	Three Months Ended
	March 31,			March 31,
(in thousands)	2024			2023
Net loss	$	(2,889	)	$	(4,040	)
Interest expense		9			1,659
Provision for income taxes		-			49
Depreciation and amortization in cost of goods sold ⁽²⁾		1,191			1,090
Depreciation and amortization in operating expenses ⁽²⁾		103			106
Depreciation and amortization in other income (expense)		-			-
EBITDA⁽¹⁾		(1,586	)		(1,136	)
Investment and currency (gains)/ losses		-			-
Share-based compensation		26			60
Transaction and other special charges⁽³⁾		478			-
Adjusted EBITDA⁽¹⁾	$	(1,082	)	$	(1,076	)

(1) Non-GAAP measure

(2) For the three months ended March 31, 2024, includes $479 related to interest charges on operating leases recorded in cost of goods sold, and $4 related to interest charges on operating leases recorded in operating expenses.

(3) For the three months ended March 31, 2024, includes $478 related to expenses incurred in exiting the cultivation facility.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Revenue

We derive our revenue from sales of extracts, distillates, branded and packaged cannabis flower, pre-rolls, concentrates and edible products to retail licensed dispensaries and bulk flower, biomass and concentrates to licensed manufacturers and distributors in the state of California. In addition, we distribute proprietary and several third-party brands throughout the state of California, and we provide fee services for drying and processing third-party product for licensed cultivators in the State of California. We licensed the Lowell Smokes brand in Illinois and Massachusetts beginning in 2021 and in Colorado and New Mexico beginning in 2022. In October 2023, as part of the Debenture Repurchase, the Company sold the rights to the Lowell Smokes brand. The Company recognizes revenue upon delivery of goods to customers since at this time performance obligations are satisfied.

The Company classifies its revenues into the following major categories: Consumer Packaged Goods (“CPG”) revenue, Bulk revenue, Lowell Farm Services revenue, and Licensing revenue.

	·	CPG products are primarily sales of proprietary and exclusively licensed brands of the Company.

	·	Bulk product includes revenue from flower, biomass and distillates sales.

	·	Lowell Farm Services revenue is related to our processing facility that provides drying, bucking, trimming, sorting, grading, and packaging services.

	·	Licensing revenue includes fees from licensing the Lowell Smokes brand and sales of packaging and support services associated with non-California based activities.

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Revenue by Category

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023:

	Three Months Ended
	March 31,		March 31,
(in thousands)	2024		2023		$ Change			% Change
CPG	$	4,125	$	4,659	$	(534	)		-11	%
Bulk		681		2,530		(1,849	)		-73	%
Lowell Farm Services		68		115		(47	)		-41	%
Licensing		-		222		(222	)		-100	%
Net revenue	$	4,874	$	7,526	$	(2,652	)		-35	%

CPG revenues decreased $0.5 million for the three months ended March 31, 2024, compared to the same period of the prior year, primarily as a result of reduced sales volumes of packaged flower, and pre-rolls. The reduction in revenue is partially driven by additional procedures to manage credit risk by only selling to credit worthy customers as well as managing the business as it shifts to procuring cannabis raw material from suppliers as the Company shifts away from self-grown cannabis raw material. This change in strategy temporarily reduced available inventory as the Company transitioned to new suppliers. Lowell brand revenues for the three months ended March 31, 2024 were $2.9 million and represented 70% of CPG revenues compared to $3.9 million in revenue and 84% of CPG sales in the same period in the prior year. The Company continues to expand its portfolio of distributed brands which has grown to $1.0 million in revenue during the current period, compared to $0.2 million in the same period of the prior year.

Bulk sales decreased $1.8 million in the three months ended March 31, 2024 compared to the same period in the prior year. The decline during the year was the result of the Company shifting to procuring cannabis raw material from suppliers, as opposed to utilizing self-grown flower. This decision has enabled the Company to strategically purchase cannabis raw material to match demand for the CPG market but has limited the available cannabis raw material for bulk sales. The decrease in revenue reflected a 66% decrease in total pounds sold and a 10% increase in price per pound.

LFS and licensing revenues generated $0.1 million and $0.2 million in the three months ended March 31, 2024 and March 31, 2023, respectively. During the current period, the Company was primarily focused on managing the procurement of third party flower for CPG products, as opposed to third party processing. No licensing revenues were generated in 2024 reflecting the sale of the Lowell Smokes brand in October 2023.

Cost of Sales, Gross Profit and Gross Margin

Cost of goods sold consists of direct and indirect costs of production processing and distribution, and includes amounts paid for direct labor, raw materials, packaging, operating supplies, and allocated overhead, which includes allocations of right of use asset depreciation, insurance, managerial salaries, utilities, and other expenses, such as employee training, cultivation taxes and product testing. The Company manufactures for several brands and processes for cultivators that do not have the capability, licensing or capacity to process their own products. The fees earned for these activities absorb fixed overhead in manufacturing and generates service revenue. Our focus in 2024 is expected to be on flower, pre-rolls and on processing third party product at our processing facility. With the exit from the cultivation facility during early 2024, we will be able to react quickly to the demands of the market to better source our production needs and better control spending on third party purchased flower to manage cash outflows on flower and CPG manufacturing. We are focusing on improving our technology workflow to enable us to match production more closely with demand, executing smaller, more frequent production runs to lower inventory working capital, optimize efficiencies and expedite product getting to the market faster.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023:

	Three Months Ended
	March 31,			March 31,			Change
(in thousands)	2024			2023			$			%
Net revenue	$	4,874		$	7,526		$	(2,652	)		-35	%
Cost of goods sold		5,701			7,394			(1,693	)		-23	%
Gross profit	$	(827	)	$	132		$	(959	)		-727	%
Gross margin	-17.0		%		1.8	%

Gross margin was (17%) and 1.8% in the three months ended March 31, 2024 and 2023, respectively. Gross profit was adversely affected during the period by expenses incurred as a result of the transition away from the cultivation facility in early 2024. The expenses incurred were related to labor costs, utilities and general overhead expenses. As the Company finalizes recording the exit from the cultivation facility, these expenses are not expected to recur and the non-revenue generating expenses have unfavorably impacted gross profit and margin in the current period. Further impacting gross margin is a reduction in CPG volumes generating high fixed costs per unit and increased depreciation expense related to operating lease classification of existing leases.

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Total Operating Expenses

Total operating expenses consist primarily of costs incurred at our corporate offices; personnel costs; selling, marketing, and other professional service costs including legal and accounting; and licensing costs. Sales and marketing expenses consist of selling costs to support our customer relationships, including investments in marketing and brand activities and corporate infrastructure required to support our ongoing business. Selling costs as a percentage of retail revenue are expected to decrease as our business continues to grow due to efficiencies associated with scaling the business. We expect to incur periodic transaction costs related to expansion efforts and to continue to invest where appropriate in the general and administrative function to support the increasing complexity of the cannabis business.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023:

	Three Months Ended
	March 31,			March 31,			Change
(in thousands)	2024			2023			$			%
Total operating expenses	$	2,059		$	2,514		$	(455	)		-18	%
% of net revenue		42	%		33	%

Total operating expenses decreased $0.5 million for the three months ended March 31, 2024 compared to the same period of the prior year, primarily reflecting headcount reductions between years, operating efficiencies and offset by increased legal fees incurred. Operating expenses increased as a percentage of net revenue to 42% for the three months ended March 31, 2024 compared to 33% for the three months ended March 31, 2023.

Other Income (Expense)

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023:

	Three Months Ended
	March 31,			March 31,			Change
(in thousands)	2024			2023			$		%
Total other income (expense)	$	(3	)	$	(1,658	)	$	(1,655)		100	%
% of net revenue		0%			-69%

Other income (expense) decreased $1.7 million for the three months ended March 31, 2024 compared to the same period of the prior year. The change was driven by the prior year results, which included interest expense related to convertible debentures, mortgage payable and interest expense on leased facilities. During the current period, the Company classifies leases as operating leases, with interest expense reflected in cost of goods sold.

Net Loss

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023:

	Three Months Ended
	March 31,			March 31,			Change
(in thousands)	2024			2023			$		%
Net loss	$	(2,889	)	$	(4,040	)	$	1,151		28	%

Net loss was $2.9 million in the quarter ended March 31, 2024, compared to net loss of $4.0 million for the same period of the prior year as a result of the factors noted above.

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LIQUIDITY AND CAPITAL RESOURCES

Our primary need for liquidity is to fund the working capital requirements of our business, capital expenditures, general corporate purposes, and lease financing service. Our primary source of liquidity has been funds generated by financing activities. Our ability to fund our operations, to make planned capital expenditures, to make scheduled lease payments depends on our future operating performance and cash flows, and ability to obtain equity or debt financing, which are subject to prevailing economic conditions, as well as financial, business and other factors, some of which are beyond our control. Cash generated from ongoing operations have not been sufficient to fund operations and, in particular, to fund the Company’s short term capital investments into manufacturing and cultivation expansions or to fund growth initiatives in the long-term. The Company raised additional funds from a $9.0 million sale leaseback transaction during the quarter ended June 30, 2023.

At March 31, 2024, we had $1.2 million in cash and cash equivalents and $1.1 million of working capital, compared to $2.3 million of cash and cash equivalents and $3.5 million of working capital at December 31, 2023. As of March 31, 2024, included in working capital is $1.0 million of deposits that are held for future cash management needs.

The Company is focused on improving its balance sheet by improving accounts receivable collections, right-sizing inventories and increasing gross profits. We have taken a number of steps to improve our cash position and to continue to fund operations and capital expenditures including:

	·	Focusing on collection of principal balances only;

	·	Scaled back our investment in and support for non-core brands;

	·	Focused marketing and brand development activities on significantly growing Lowell and owned brands;

	·	Restructured our organization and identified operating, selling and administrative expense cost efficiencies;

	·	Developed Lowell Farm Services to add revenue, cash flow generation and potential flower sourcing through processing third party flower;

	·	In 2022 and 2023 we reduced headcount and significantly decreased our seasonal workforce as we focus on necessary infrastructure to support our current operations;

	·	In 2023, re-negotiating leases on facility space, including leasing more economically feasible facilities in Los Angeles and selling and leasing back our processing facility; and

	·	In January 2024, exited our cultivation facility to take advantage of profitably sourcing flower from multiple third party sources. Refer to “Recent Developments.”

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Cash Flows

The following table presents the Company’s net cash inflows and outflows from the unaudited condensed interim consolidated financial statements of the Company for the three months ended March 31, 2024 and 2023:

	Three Months Ended
	March 31,			March 31,			Change
(in thousands)	2024			2023			$			%
Net cash provided by (used in) operating activities	$	(1,025	)	$	912		$	(1,937	)		-212	%
Net cash used in investing activities		-			(29	)		29			100	%
Net cash used in financing activities		(111	)		(687	)		576			84	%
Change in cash and cash equivalents	$	(1,136	)	$	196		$	(1,332	)		680	%

Cash used in operating activities

Net cash used in operating activities was $1.0 million for the three months ended March 31, 2024, a $1.9 million unfavorable decline, or 212%, compared to the three months ended March 31, 2023. The change was primarily driven by a $1.1 million increase in accounts payable in the three months ended March 31, 2024, compared to a minimal change in the prior year period, and a $0.4 million decrease in accounts receivable in the current year, compared to a $1.2 million decrease in accounts receivable in the same period in the prior year. The reduction in accounts receivable is driven by collection efforts of the Company and increased credit risk management procedures, as well as an overall reduction in total sales during the current period. The Company recorded $0.3 million of operating lease payments during the current period.

Cash used in investing activities

Net cash used in investing activities was $0.1 million for the three months ended March 31, 2023. The Company did not make any new significant investments into long-lived fixed assets during the three months ended March 31, 2024.

Cash used in financing activities

Net cash used in financing activities was $0.1 million for the three months ended March 31, 2024, a favorable change over cash used in financing activities of $0.7 million in the same period of the prior year. The change was due to a reduction in lease payments after the Company exited its cultivation facility in 2023, as well as reclassifying existing leases as operating leases.

Working Capital and Cash on Hand

The following table presents the Company’s cash on hand and working capital position as of March 31, 2024 and December 31, 2023:

	March 31,		December 31,		Change
(in thousands)	2024		2023		$			%
Working capital⁽¹⁾	$	1,149	$	3,475	$	(2,326	)		-67	%

Cash and cash equivalents	$	1,175	$	2,311	$	(1,136	)		-49	%

_________________

⁽¹⁾ Non-GAAP measure - see Non-GAAP Financial Measures in this MD&A. (Total current assets less total current liabilities)

At March 31, 2024, we had $1.2 million in cash and cash equivalents and $1.1 million of working capital, compared to $2.3 million of cash and cash equivalents and $3.5 million of working capital at December 31, 2023. The decrease in cash and cash equivalents was primarily due to unfavorable changes in operating assets and liabilities.

The Company’s future working capital is expected to be significantly impacted by the growth in operations, continuing margin improvement and the ability to manage the growing complexity of the cannabis business.

CHANGES IN OR ADOPTION OF ACCOUNTING PRONOUNCEMENTS

This MD&A should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2023. Also see Note 1 to our unaudited condensed consolidated financial statements included in this Form 10-Q for changes of adoption of accounting pronouncements.

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CRITICAL ACCOUNTING ESTIMATES

The preparation of the Company’s unaudited condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Significant judgments, estimates and assumptions that have the most significant effect on the amounts recognized in the unaudited consolidated financial statements are described below.

Estimated Credit Losses - Accounts receivable are recorded at invoiced amounts and when credit terms are extended to customers, management performs a periodic assessment of whether accounts receivable will be collected. A reserve is booked against doubtful accounts and determined based on factors such as credit worthiness of the customer, past performance with the customer, the age of the receivable and the customer’s ability to pay outstanding amounts.

	·	Estimated Useful Lives and Depreciation of Property and Equipment - Depreciation of property and equipment is dependent upon estimates of useful lives which are determined through the exercise of judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.

	·	Estimated Useful Lives and Amortization of Intangible Assets - Amortization of intangible assets is recorded on a straight-line basis over their estimated useful lives, which do not exceed the contractual period, if any.

	·	Identifiable assets acquired and liabilities assumed are recognized at the acquisition date fair values as defined by accounting standards related to fair value measurements.

	·	Fair Value of Investments in Private Entities - The Company uses discounted cash flow model to determine fair value of its investment in private entities. In estimating fair value, management is required to make certain assumptions and estimates such as discount rate, long term growth rate and, estimated free cash flows.

	·	Share-Based Compensation - The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options and warrants granted. In estimating fair value, management is required to make certain assumptions and estimates such as the expected life of units, volatility of the Company’s future share price, risk free rates, future dividend yields and estimated forfeitures at the initial grant date. Changes in assumptions used to estimate fair value could result in materially different results.

	·	Deferred Tax Asset and Valuation Allowance - Deferred tax assets, including those arising from tax loss carry-forwards, requires management to assess the likelihood that the Company will generate sufficient taxable earnings in future periods in order to utilize recognized deferred tax assets. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. In addition, future changes in tax laws could limit the ability of the Company to obtain tax deductions in future periods. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the reporting date could be impacted.

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FINANCIAL INSTRUMENTS AND FINANCIAL RISK

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities; current portion of long-term debt; and long-term debt. The carrying values of these financial instruments approximate their fair values.

Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of the inputs used to make the measurements. The hierarchy is summarized as follows:

	·	Level 1 - Quoted prices (unadjusted) that are in active markets for identical assets or liabilities

	·	Level 2 - Inputs that are observable for the asset or liability, either directly (prices) for similar assets or liabilities in active markets or indirectly (derived from prices) for identical assets or liabilities in markets with insufficient volume or infrequent transactions

	·	Level 3 - Inputs for assets or liabilities that are not based upon observable market data

The Company has exposure to the following risks from its use of financial instruments and other risks to which it is exposed and assess the impact and likelihood of those risks.

These risks include: market, credit, liquidity, asset forfeiture, banking and interest rate risk.

Credit Risk

	·	Credit risk is the risk of a potential loss to the Company if a customer or third party to a financial instrument fails to meet its contractual obligations. The maximum credit exposure at March 31, 2024 and December 31, 2023 is the carrying amount of cash and cash equivalents and accounts receivable. All cash and cash equivalents are placed with U.S. and Canadian financial institutions.

	·	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 but has limited risk as a significant portion of its sales are transacted with cash.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations associated with financial liabilities. The Company manages liquidity risk through the management of its capital structure. The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to settle obligations and liabilities when due.

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In addition to the commitments outlined in Note 14, the Company has the following contractual obligations at March 31, 2024 and December 31, 2023:

	Maturity: < 1 Year
	March 31,		December 31,
(in thousands)	2024		2023
Accounts payable and Other accrued liabilities	$	6,424	$	6,257

Market Risk

Strategic and operational risks arise if the Company fails to carry out business operations and/or to raise sufficient equity and/or debt financing. These strategic opportunities or threats arise from a range of factors that might include changing economic and political circumstances and regulatory approvals and competitor actions. The risk is mitigated by consideration of other potential development opportunities and challenges which management may undertake.

Interest Rate Risk

Interest rate risk is the risk that the fair value or the future cash flows of a financial instrument will fluctuate as a result of changes in market interest rates. The Company’s interest-bearing loans and borrowings are all at fixed interest rates; therefore, the Company is not exposed to interest rate risk on these financial liabilities. The Company considers interest rate risk to be immaterial.

Price Risk

Price risk is the risk of variability in fair value due to movements in equity or market prices. Cannabis is a developing market and subject to volatile and possibly declining prices year over year, including volatility in bulk flower pricing, as a result of increased competition and other factors. Because adult-use cannabis is a newly commercialized and regulated industry in the State of California, historical price data is either not available or not predictive of future price levels. There may be downward pressure on the average price for cannabis. There can be no assurance that price volatility will be favorable or in line with expectations. Pricing will depend on general factors including, but not limited to, the number of licenses granted by the local and state governments, the supply such licensees are able to generate, activity by unlicensed producers and sellers and consumer demand for cannabis. An adverse change in cannabis prices, or in investors’ beliefs about trends in those prices, could have a material adverse outcome on the Company and its valuation.

Asset Forfeiture Risk

Because the cannabis industry remains illegal under U.S. federal law, any property owned by participants in the cannabis industry which are either used in the course of conducting such business, or are the proceeds of such business, could be subject to seizure by law enforcement and subsequent civil asset forfeiture. Even if the owner of the property were never charged with a crime, the property in question could still be seized and subject to an administrative proceeding by which, with minimal due process, it could be subject to forfeiture.

Banking Risk

Notwithstanding that a majority of states have legalized medical marijuana, there has been no change in U.S. federal banking laws related to the deposit and holding of funds derived from activities related to the marijuana industry. Given that U.S. federal law provides that the production and possession of cannabis is illegal, there are arguments that financial institutions cannot accept for deposit funds from businesses involved with the marijuana industry and legislative efforts to provide greater certainty to financial institutions have not been successful. Consequently, businesses involved in the marijuana industry often have difficulty accessing the U.S. banking system and traditional financing sources. The inability to open bank accounts with certain institutions may make it difficult to operate the business of the Company, its subsidiaries and investee companies, and leaves their cash holdings vulnerable.

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OUTSTANDING SHARE DATA

As of May 13, 2024, the Company had the following securities issued and outstanding:

	Number of Shares
(in thousands)	(on an as converted basis)
Issued and Outstanding
Subordinate voting shares		18,256
Class B shares (1)		881
Super voting shares		20
Reserved for Issuance
Options		1,609
Warrants		1,126
		21,892

____________________

(1) Class B shares reserved for conversion to Subordinate voting shares.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information requested by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2024, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

Our management is responsible to report any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management believes that there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were no significant changes to our internal control over financial reporting during the three months ended March 31, 2024.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Zabala Road Lease

Potency and Labeling

A putative class action was filed in the Los Angeles County California Superior Court on behalf of all California consumers who purchased products made by Lowell Farms, Inc. in California. The case alleges that Lowell failed to accurately label its products with the THC% identified by its testing laboratories, and that California consumers were thereby deceived into paying higher prices for Lowell’s products than they otherwise would have.

No trial has been scheduled in this matter. The parties are presently engaged in the process by which Plaintiff will bring a motion seeking certification of a class. The class certification motion is scheduled to be heard on August 26, 2024. Plaintiff has served discovery requests limited to class certification issues, but the parties have not engaged in any merits discovery. It is difficult to evaluate any potential outcome at such an early stage of the case where there has been no merits discovery. The Company is prepared to vigorously defend itself at the trial if a class is certified and a settlement is not reached. It is difficult to evaluate the likely outcome of a trial because Plaintiff has not articulated a theory of damages. In addition, due to the early nature of the case, an estimate of a loss cannot be made.

There are no other legal proceedings material to the Company to which the Company or a subsidiary thereof is a party or of which any of their respective property is the subject matter, nor are there any such proceedings known to the Company to be contemplated, and there have been no such legal proceedings during the Company’s most recently completed financial year or the quarter ended March 31, 2024.

Item 1A. Risk Factors

There were no material changes to the risk factors disclosed in, Item 1A. “Risk Factors” in our Form 10-K for the year ended December 31, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended March 31, 2024 there were no unregistered sales of equity related securities identified, outside of those already reported.

Item 5. Other Information

Securities Trading Plans of Directors and Executive Officers

During the quarter ended March 31, 2024, none of our directors or executive officers adopted or terminated a Rule 10b5-1 trading plan or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K).

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Item 6. Exhibits

Exhibit No.		Exhibit Description
31.1		Certification of Chief Executive Officer filed pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer filed pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2		Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

_______________

Furnished herewith. This certification is deemed not filed for purpose of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LOWELL FARMS, INC.

Date: May 14, 2024	By:	/s/ Mark Ainsworth
		Mark Ainsworth
		Chief Executive Officer (principal executive officer)

Date: May 14, 2024	By:	/s/ Jamie Schniedwind
		Jamie Schniedwind
		Chief Financial Officer (principal financial and accounting officer)

nullnullnullnull

Cover - shares	3 Months Ended
Cover - shares	Mar. 31, 2024	May 13, 2024
Cover [Abstract]
Entity Registrant Name	LOWELL FARMS INC.
Entity Central Index Key	0001838128
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	true
Entity Current Reporting Status	Yes
Document Period End Date	Mar. 31, 2024
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2024
Entity Ex Transition Period	false
Entity Common Stock Shares Outstanding		18,256,282
Entity File Number	000-56254
Entity Incorporation State Country Code	Z4
Entity Address Address Line 1	19 Quail Run Circle - Suite B
Entity Address City Or Town	Salinas
Entity Address State Or Province	CA
Entity Address Postal Zip Code	93907
City Area Code	831
Local Phone Number	998-8214
Document Quarterly Report	true
Document Transition Report	false
Entity Tax Identification Number	87-3037317
Entity Interactive Data Current	Yes

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Current assets:
Cash and cash equivalents	$ 1,175	$ 2,311
Accounts receivable - net of allowance for doubtful accounts of $1,149 and $959 at March 31, 2024 and December 31, 2023, respectively.	2,067	2,620
Inventory	4,224	4,760
Prepaid expenses and other current assets	2,253	2,397
Total current assets	9,719	12,088
Property and equipment, net	3,814	4,099
Right of use assets, net	17,900	18,327
Other intangibles, net	2,448	2,544
Other assets	465	555
Total assets	34,346	37,613
Current liabilities:
Accounts payable	3,931	4,314
Accrued payroll and benefits	212	363
Notes payable, current portion	2	3
Lease obligation, current portion	1,932	1,990
Other current liabilities	2,493	1,943
Total current liabilities	8,570	8,613
Lease obligation	17,161	17,522
Total liabilities	25,731	26,135
STOCKHOLDERS' EQUITY
Share capital	192,471	192,445
Accumulated deficit	(183,856)	(180,967)
Total stockholders' equity	8,615	11,478
Total liabilities and stockholders' equity	$ 34,346	$ 37,613

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
CONDENSED CONSOLIDATED BALANCE SHEETS
Allowance For Doubtful Accounts	$ 1,149	$ 959

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (unaudited)
Net revenue	$ 4,874	$ 7,526
Cost of goods sold	5,701	7,394
Gross profit (loss)	(827)	132
Operating expenses
General and administrative	1,553	1,673
Sales and marketing	408	735
Depreciation and amortization	98	106
Total operating expenses	2,059	2,514
Loss from operations	(2,886)	(2,382)
Other income/(expense)
Other income (expense)	6	1
Unrealized change in fair value of investment	0	0
Interest expense	(9)	(1,659)
Total other income (expense)	(3)	(1,658)
Loss before provision for income taxes	(2,889)	(4,040)
Provision for income taxes	0	0
Net loss	$ (2,889)	$ (4,040)
Net loss per share:
Net loss per share: Basic	$ (0.15)	$ (0.33)
Net loss per share: Diluted	$ (0.15)	$ (0.33)
Weighted average shares outstanding:
Weighted average shares outstanding: Basic	19,024	12,177
Weighted average shares outstanding: Diluted	19,024	12,177

CONDENDSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Total	Subordinate Voting Shares	Super Voting Shares	Share Capital	Accumulated Deficit
Balance, shares at Dec. 31, 2022		12,177	20
Balance, amount at Dec. 31, 2022	$ 48,117			$ 191,742	$ (143,625)
Net loss	(4,040)			0	(4,040)
Share-based compensation expense	60			60	0
Balance, shares at Mar. 31, 2023		12,177	20
Balance, amount at Mar. 31, 2023	44,137			191,802	(147,665)
Balance, shares at Dec. 31, 2023		19,024	20
Balance, amount at Dec. 31, 2023	11,478			192,445	(180,967)
Net loss	(2,889)			0	(2,889)
Share-based compensation expense	26			26	0
Balance, shares at Mar. 31, 2024		19,024	20
Balance, amount at Mar. 31, 2024	$ 8,615			$ 192,471	$ (183,856)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
CASH FLOW FROM OPERATING ACTIVITIES
Net loss	$ (2,889)	$ (4,040)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	808	1,196
Amortization of debt issuance costs	0	249
Share-based compensation expense	26	60
Provision for doubtful accounts	197	88
Unrealized loss on change in fair value of investments	0	0
Changes in operating assets and liabilities:
Accounts receivable	356	1,237
Inventory	536	695
Prepaid expenses and other current assets	144	315
Other assets	90	1
Accounts payable and accrued expenses	16	1,111
Operating lease payments	(309)	0
Net cash provided by (used in) operating activities	(1,025)	912
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of property and equipment	0	(29)
Net cash used in investing activities	0	(29)
CASH FLOW FROM FINANCING ACTIVITIES
Principal payments on lease obligations	(110)	(608)
Payments on notes payable	(1)	(79)
Net cash used in financing activities	(111)	(687)
Change in cash and cash equivalents	(1,136)	196
Cash and cash equivalents-beginning of year	2,311	1,098
Cash, cash equivalents -end of period	1,175	1,294
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	9	821
OTHER NONCASH INVESTING AND FINANCING ACTIVITIES
Purchase of property and equipment not yet paid for	$ 0	$ 8

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2024

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all intercompany balances and transactions.

The condensed consolidated balance sheet at December 31, 2023, has been derived from the audited consolidated financial statements but does not include all disclosures required by U.S. GAAP.

All dollar amounts in the notes to the unaudited condensed consolidated financial statements are expressed in thousands of United States dollars (“$” or “US$”), unless otherwise indicated.

Use of Estimates

Recently Adopted Accounting Standards

No recently issued accounting pronouncements had or are expected to have a material impact on our condensed consolidated financial statements.

PREPAID AND OTHER CURRENT ASSETS

3 Months Ended

Mar. 31, 2024

PREPAID AND OTHER CURRENT ASSETS

PREPAID AND OTHER CURRENT ASSETS

2. PREPAID AND OTHER CURRENT ASSETS

Prepaid and other current assets were comprised of the following items:

	March 31,		December 31,
(in thousands)	2024		2023
Deposits	$	1,132	$	1,134
Insurance		173		237
Supplier advances		66		26
Interest and taxes		-		26
Licenses and payments		48		106
Royalty advance		806		853
Other		28		15
Total prepaid and other current assets	$	2,253	$	2,397

INVENTORY

3 Months Ended

Mar. 31, 2024

INVENTORY

INVENTORY

3. INVENTORY

Inventory was comprised of the following items:

	March 31,		December 31,
(in thousands)	2024		2023
Raw materials	$	810	$	1,400
Work in process		215		307
Finished goods		3,199		3,053
Total inventory	$	4,224	$	4,760

OTHER CURRENT LIABILITIES

3 Months Ended

Mar. 31, 2024

OTHER CURRENT LIABILITIES

OTHER CURRENT LIABILITIES

4. OTHER CURRENT LIABILITIES

Other current liabilities were comprised of the following items:

	March 31,		December 31,
(in thousands)	2024		2023
Interest and tax accrual	$	140	$	109
Employee Retention Credit financing accrual		441		441
Accrued price promotions		133		133
Excise tax payments		291		289
Insurance and professional fee accrual		435		287
Third-party brand distribution accrual		943		558
Other		110		126
Total other current liabilities	$	2,493	$	1,943

PROPERTY AND EQUIPMENT

3 Months Ended

Mar. 31, 2024

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT

5. PROPERTY AND EQUIPMENT

	Leasehold			Furniture									Construction		Right of
(in thousands)	Improvements			and Fixtures			Equipment			Vehicles			in Process		Use Assets			Total
Costs
Balance-December 31, 2023	$	2,116		$	50		$	5,295		$	830		$	35	$	21,317		$	29,643
Additions		-			-			-			-			-		-			-
Disposals		-			-			-			-			-		-			-
Lease remeasurement		-			-			-			-			-		-			-
Balance – March 31, 2024	$	2,116		$	50		$	5,295		$	830		$	35	$	21,317		$	29,643

Accumulated Depreciation
Balance - December 31, 2023	$	(1,081	)	$	(49	)	$	(2,353	)	$	(744	)	$	-	$	(2,990	)	$	(7,217	)
Depreciation		(57	)		-			(205	)		(23	)		-		(427	)		(712	)
Disposals		-			-			-			-			-		-			-
Balance - March 31, 2024	$	(1,138	)	$	(49	)	$	(2,558	)	$	(767	)	$	-	$	(3,417	)	$	(7,929	)

Net Book Value - March 31, 2024	$	978		$	1		$	2,737		$	63		$	35	$	17,900		$	21,714

Net Book Value - December 31, 2023	$	1,035		$	1		$	2,942		$	86		$	35	$	18,327		$	22,426

Construction in process represents assets under construction related to cultivation, manufacturing, and distribution facilities not yet completed or otherwise not placed in service.

Depreciation expense of $712 and $1,095 were recorded for the three months ended March 31, 2024 and 2023, respectively, of which $691 and $1,069 respectively, were included in cost of goods sold.

Other Intangible Assets

3 Months Ended

Mar. 31, 2024

Other Intangible Assets

Other Intangible Assets

6. Other Intangible Assets

	Definite Life Intangibles
	Technology/			Acquired
(in thousands)	Know How			Purchase Rights			Total
Costs
Balance-December 31, 2023	$	3,000		$	416		$	3,416
Additions		-			-			-
Balance-March 31, 2024	$	3,000		$	416		$	3,416

Accumulated Amortization
Balance-December 31, 2023	$	(761	)	$	(111	)	$	(872	)
Amortization		(75	)		(21	)		(96	)
Balance-March 31, 2024	$	(836	)	$	(132	)	$	(968	)

Net Book Value
December 31, 2023	$	2,239		$	305		$	2,544
Net Book Value
March 31, 2024	$	2,164		$	284		$	2,448

SHAREHOLDERS EQUITY

3 Months Ended

Mar. 31, 2024

SHAREHOLDERS EQUITY

SHAREHOLDERS' EQUITY

7. SHAREHOLDERS’ EQUITY

Shares Outstanding

The table below details the change in Company shares outstanding by class during the three months ended March 31, 2024:

	Subordinate		Super
(in thousands)	Voting Shares		Voting Shares
Balance-December 31, 2023		19,024		20
Balance-March 31, 2024		19,024		20

The Super Voting Shares carry 1,000 votes per share. The Subordinate Voting Shares carry 1 vote per share.

Warrants

A reconciliation of the beginning and ending balances of warrants outstanding is as follows:

(in thousands)
Balance-December 31, 2023			1,126
Balance-March 31, 2024			1,126

DEBT

3 Months Ended

Mar. 31, 2024

DEBT

DEBT

8. DEBT

Debt at March 31, 2024 and December 31, 2023, was comprised of the following:

	March 31,		December 31,
(in thousands)	2024		2023
Current portion of long-term debt
Vehicle loans⁽¹⁾	$	2	$	3
Total short-term debt		2		3

Long-term debt, net
Total long-term debt		-		-
Total Indebtedness	$	2	$	3
______________________
(1) Primarily fixed term loans on transportation vehicles. Weighted average interest rate at March 31, 2024 and December 31, 2023 was 6.4%.

Stated maturities of debt obligations are as follows as of March 31, 2024:

	March 31,
(in thousands)	2024
Balance of 2024	$	2
Total debt obligations	$	2

LEASES

3 Months Ended

Mar. 31, 2024

LEASES

LEASES

9. LEASES

A reconciliation of lease obligations for the three months ended March 31, 2024, is as follows:

(in thousands)
Lease obligation	Operating Leases			Finance Leases			Total
December 31, 2023	$	19,402			110			19,512
Lease principal payments		(309	)		(110	)		(419	)
March 31, 2024	$	19,093			-			19,093

The components of lease expense for the three months ended March 31, 2024 and 2023, are as follows:

	Three Months Ended
Finance Leases	March 31,		March 31,
(in thousands)	2024		2023
Amortization of leased assets ⁽¹⁾	$	41	$	573
Interest on lease liabilities ⁽²⁾		2		500
Total	$	43	$	1,073

____________

(1) Included in cost of goods sold, general and administrative expenses and other expenses in the consolidated statement of operations.

(2) Included in interest expense in the consolidated statement of operations.

	Three Months Ended
Operating Leases	March 31,		March 31,
(in thousands)	2024		2023
Amortization of leased assets ⁽¹⁾	$	386	$	-
Interest on lease liabilities ⁽¹⁾		382		-
Total	$	768	$	-

____________

(1) Included in cost of goods sold, general and administrative expenses and other expenses in the consolidated statement of operations.

The future lease payments with initial remaining terms in excess of one year as of March 31, 2024 were as follows:

(in thousands)	March 31, 2024
Balance of 2024	$	2,381
2025		3,258
2026		3,240
2027		3,324
2028 and beyond		16,847
Total lease payments		29,050
Less imputed interest		(9,957	)
Total	$	19,093

SHARE BASED COMPENSATION

3 Months Ended

Mar. 31, 2024

SHARE BASED COMPENSATION

SHARE-BASED COMPENSATION

10. SHARE-BASED COMPENSATION

For the three months ended March 31, 2024 and 2023, share-based compensation expense was as follows:

	Three Months Ended
	March 31,		March 31,
(in thousands)	2024		2023
Cost of goods sold	$	-	$	-
General and administrative expense		26		60
Total share-based compensation	$	26	$	60

The following table summarizes the status of stock option grants and unvested awards at and for the three months ended March 31, 2024:

	Stock			Weighted-Average Exercise		Weighted Average Remaining Contractual		Aggregate Intrinsic
(in thousands except per share amounts)	Options			Price		Life		Value

Outstanding-December 31, 2023		1,453		$	1.9		5.3	$	-

Granted		250			0.16		-		-
Exercised		-			-		-		-
Expired		-			-
Cancelled		(94	)		3.24		-		-
Outstanding-March 31, 2024		1,609		$	2.06		1.37		-

Exercisable-March 31, 2024		1,127		$	2.37		4.77	$	-

Vested and expected to vest-March 31, 2024		1,609		$	2.06		1.37	$	-

	Three Months Ended			Three Months Ended
	March 31,			March 31,
	2024			2023
Expected volatility		50	%		50	%
Dividend yield		0	%		0	%
Risk-free interest rate		4.15	%		1.1	%
Expected term in years		4.25	%		4.50	%

INCOME TAXES

3 Months Ended

Mar. 31, 2024

INCOME TAXES

INCOME TAXES

11. INCOME TAXES

There was no provision for income tax expense for the three months ended March 31, 2024 or 2023 due to operating losses incurred in both periods.

NET LOSS PER SHARE

3 Months Ended

Mar. 31, 2024

Net loss per share:

NET LOSS PER SHARE

12. NET LOSS PER SHARE

Net loss per share represents the net earnings/loss attributable to shareholders divided by the weighted average number of shares outstanding during the period on an as converted basis as follows:

	Three Months Ended
	March 31,			March 31,
(in thousands except per share amounts)	2024			2023
Net loss	$	(2,889	)	$	(4,040	)

Net loss per share:
Basic	$	(0.15	)	$	(0.33	)
Diluted	$	(0.15	)	$	(0.33	)
Weighted average shares outstanding:
Basic		19,024			12,177
Diluted		19,024			12,177

Weighted average potentially diluted shares (1):
Basic shares		19,024			12,177
Diluted shares		19,024			12,177

FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2024

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

13. FAIR VALUE MEASUREMENTS

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions.

The carrying value of the Company’s debt approximates fair value based on current market rates (Level 2).

Nonrecurring fair value measurements

COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2024

Commitments And Contingencies Disclosure Abstract

COMMITMENTS AND CONTINGENCIES

14. COMMITMENTS AND CONTINGENCIES

Contingencies

The Company is being audited by the IRS for years 2019 and 2020 and may be subject to additional taxes, penalties and interest.

Litigation and Claims

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business.

GENERAL AND ADMINISTRATIVE EXPENSES

3 Months Ended

Mar. 31, 2024

GENERAL AND ADMINISTRATIVE EXPENSES

GENERAL AND ADMINISTRATIVE EXPENSES

15. GENERAL AND ADMINISTRATIVE EXPENSES

For the three months ended March 31, 2024 and 2023, general and administrative expenses were comprised of:

	Three Months Ended
	March 31,		March 31,
(in thousands)	2024		2023
Salaries and benefits	$	613	$	929
Professional fees		372		163
Share-based compensation		26		60
Insurance		226		271
Administrative		316		201
Total general and administrative expenses	$	1,553	$	1,624

RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2024

RELATED PARTY TRANSACTIONS

RELATED-PARTY TRANSACTIONS

16. RELATED-PARTY TRANSACTIONS

Transactions with related parties are entered into in the normal course of business and are measured at the amount established and agreed to by the parties.

SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2024

SEGMENT INFORMATION

SEGMENT INFORMATION

17. SEGMENT INFORMATION

SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2024

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

18. SUBSEQUENT EVENTS

The Company has evaluated potential subsequent events through May 13, 2024, the date the unaudited financial statements were available to be issued. No material subsequent events were identified.

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	3 Months Ended
	Mar. 31, 2024
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation	The interim unaudited condensed consolidated financial statements (the “financial statements”) included herein have been prepared by Lowell Farms Inc. (the “Company” or “Lowell”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. The interim unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary (consisting only of normal recurring adjustments), to present a fair statement of results for the interim periods presented. The operating results for any interim period are not necessarily indicative of the results that may be expected for other interim periods or the full fiscal year. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Form 10-K filed for the year ended December 31, 2023. There have been no material changes to our significant accounting policies as of and for the three months ended March 31, 2024. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all intercompany balances and transactions. The condensed consolidated balance sheet at December 31, 2023, has been derived from the audited consolidated financial statements but does not include all disclosures required by U.S. GAAP. All dollar amounts in the notes to the unaudited condensed consolidated financial statements are expressed in thousands of United States dollars (“$” or “US$”), unless otherwise indicated. In August 2023, the Company effected a reverse stock split consolidating all of its subordinate voting shares (“Subordinate Voting Shares”) on the basis of one post-consolidation Subordinate Voting Share for every ten pre-consolidation Subordinate Voting Shares, effective August 31, 2023 (the “Effective Date”). The Company’s outstanding super voting shares were also consolidated on the same basis as of the Effective Date. All share and per share data presented in the Company’s condensed consolidated financial statements have been retroactively adjusted to reflect the reverse stock split.
Use of Estimates	The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include allowance for doubtful accounts and credit losses, carrying value of inventory, revenue recognition, accounting for stock-based compensation expense, and income taxes. Actual results could differ from those estimates. The global COVID-19 pandemic impacted the operations and purchasing decisions of companies worldwide. It also created significant uncertainty in the global economy. The Company has undertaken measures to protect its employees, partners, customers, and vendors. To date, the Company has been able to provide uninterrupted access to its products and services, including certain employees that are working remotely, and its pre-existing infrastructure that supports secure access to the Company’s internal systems. If the COVID-19 pandemic were to have an increased forward-looking impact on the productivity of the Company’s employees or its partners’ or customers’ decision to use the Company’s products and services, the results of the Company’s operations and overall financial performance may be adversely impacted. As of the date of issuance of the financial statements, the Company is not aware of any specific event or circumstance that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the unaudited condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the unaudited financial statements.
Recently Adopted Accounting Standards	No recently issued accounting pronouncements had or are expected to have a material impact on our condensed consolidated financial statements.

PREPAID AND OTHER CURRENT ASSETS (Tables)

3 Months Ended

Mar. 31, 2024

PREPAID AND OTHER CURRENT ASSETS

Summary of Prepaid Expenses And Other Current Assets

	March 31,		December 31,
(in thousands)	2024		2023
Deposits	$	1,132	$	1,134
Insurance		173		237
Supplier advances		66		26
Interest and taxes		-		26
Licenses and payments		48		106
Royalty advance		806		853
Other		28		15
Total prepaid and other current assets	$	2,253	$	2,397

INVENTORY (Tables)

3 Months Ended

Mar. 31, 2024

INVENTORY

Summary of Inventory

	March 31,		December 31,
(in thousands)	2024		2023
Raw materials	$	810	$	1,400
Work in process		215		307
Finished goods		3,199		3,053
Total inventory	$	4,224	$	4,760

OTHER CURRENT LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2024

OTHER CURRENT LIABILITIES

Schedule of Other Current Liabilities

	March 31,		December 31,
(in thousands)	2024		2023
Interest and tax accrual	$	140	$	109
Employee Retention Credit financing accrual		441		441
Accrued price promotions		133		133
Excise tax payments		291		289
Insurance and professional fee accrual		435		287
Third-party brand distribution accrual		943		558
Other		110		126
Total other current liabilities	$	2,493	$	1,943

PROPERTY AND EQUIPMENT (Tables)

3 Months Ended

Mar. 31, 2024

PROPERTY AND EQUIPMENT

Schedule of Property And Equipment

	Leasehold			Furniture									Construction		Right of
(in thousands)	Improvements			and Fixtures			Equipment			Vehicles			in Process		Use Assets			Total
Costs
Balance-December 31, 2023	$	2,116		$	50		$	5,295		$	830		$	35	$	21,317		$	29,643
Additions		-			-			-			-			-		-			-
Disposals		-			-			-			-			-		-			-
Lease remeasurement		-			-			-			-			-		-			-
Balance – March 31, 2024	$	2,116		$	50		$	5,295		$	830		$	35	$	21,317		$	29,643

Accumulated Depreciation
Balance - December 31, 2023	$	(1,081	)	$	(49	)	$	(2,353	)	$	(744	)	$	-	$	(2,990	)	$	(7,217	)
Depreciation		(57	)		-			(205	)		(23	)		-		(427	)		(712	)
Disposals		-			-			-			-			-		-			-
Balance - March 31, 2024	$	(1,138	)	$	(49	)	$	(2,558	)	$	(767	)	$	-	$	(3,417	)	$	(7,929	)

Net Book Value - March 31, 2024	$	978		$	1		$	2,737		$	63		$	35	$	17,900		$	21,714

Net Book Value - December 31, 2023	$	1,035		$	1		$	2,942		$	86		$	35	$	18,327		$	22,426

Other Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2024

Other Intangible Assets

Schedule of Intangible Assets

	Definite Life Intangibles
	Technology/			Acquired
(in thousands)	Know How			Purchase Rights			Total
Costs
Balance-December 31, 2023	$	3,000		$	416		$	3,416
Additions		-			-			-
Balance-March 31, 2024	$	3,000		$	416		$	3,416

Accumulated Amortization
Balance-December 31, 2023	$	(761	)	$	(111	)	$	(872	)
Amortization		(75	)		(21	)		(96	)
Balance-March 31, 2024	$	(836	)	$	(132	)	$	(968	)

Net Book Value
December 31, 2023	$	2,239		$	305		$	2,544
Net Book Value
March 31, 2024	$	2,164		$	284		$	2,448

SHAREHOLDERS EQUITY (Tables)

3 Months Ended

Mar. 31, 2024

SHAREHOLDERS EQUITY

Schedule of Shares Outstanding

	Subordinate		Super
(in thousands)	Voting Shares		Voting Shares
Balance-December 31, 2023		19,024		20
Balance-March 31, 2024		19,024		20

(in thousands)
Balance-December 31, 2023			1,126
Balance-March 31, 2024			1,126

Schedule of Warrants Outstanding

(in thousands) Balance-December 31, 2023 1,126 Balance-March 31, 2024 1,126

DEBT (Tables)

3 Months Ended

Mar. 31, 2024

DEBT

Schedule of Debt

	March 31,		December 31,
(in thousands)	2024		2023
Current portion of long-term debt
Vehicle loans⁽¹⁾	$	2	$	3
Total short-term debt		2		3

Long-term debt, net
Total long-term debt		-		-
Total Indebtedness	$	2	$	3
______________________
(1) Primarily fixed term loans on transportation vehicles. Weighted average interest rate at March 31, 2024 and December 31, 2023 was 6.4%.

Schedule of Maturities Of Debt Obligations

	March 31,
(in thousands)	2024
Balance of 2024	$	2
Total debt obligations	$	2

LEASES (Tables)

3 Months Ended

Mar. 31, 2024

LEASES

Schedule of Reconciliation Of Lease Obligations

(in thousands)
Lease obligation	Operating Leases			Finance Leases			Total
December 31, 2023	$	19,402			110			19,512
Lease principal payments		(309	)		(110	)		(419	)
March 31, 2024	$	19,093			-			19,093

Schedule of Lease Obligations

	Three Months Ended
Finance Leases	March 31,		March 31,
(in thousands)	2024		2023
Amortization of leased assets ⁽¹⁾	$	41	$	573
Interest on lease liabilities ⁽²⁾		2		500
Total	$	43	$	1,073

Schedule of Lease Expense

	Three Months Ended
Operating Leases	March 31,		March 31,
(in thousands)	2024		2023
Amortization of leased assets ⁽¹⁾	$	386	$	-
Interest on lease liabilities ⁽¹⁾		382		-
Total	$	768	$	-

Schedule of Future Lease Payments

(in thousands)	March 31, 2024
Balance of 2024	$	2,381
2025		3,258
2026		3,240
2027		3,324
2028 and beyond		16,847
Total lease payments		29,050
Less imputed interest		(9,957	)
Total	$	19,093

SHARE BASED COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2024

SHARE BASED COMPENSATION

Schedule of Share-based Compensation Expense

	Three Months Ended
	March 31,		March 31,
(in thousands)	2024		2023
Cost of goods sold	$	-	$	-
General and administrative expense		26		60
Total share-based compensation	$	26	$	60

Schedule of Stock Option Activity

	Stock			Weighted-Average Exercise		Weighted Average Remaining Contractual		Aggregate Intrinsic
(in thousands except per share amounts)	Options			Price		Life		Value

Outstanding-December 31, 2023		1,453		$	1.9		5.3	$	-

Granted		250			0.16		-		-
Exercised		-			-		-		-
Expired		-			-
Cancelled		(94	)		3.24		-		-
Outstanding-March 31, 2024		1,609		$	2.06		1.37		-

Exercisable-March 31, 2024		1,127		$	2.37		4.77	$	-

Vested and expected to vest-March 31, 2024		1,609		$	2.06		1.37	$	-

Schedule of Weighted Average Assumptions

	Three Months Ended			Three Months Ended
	March 31,			March 31,
	2024			2023
Expected volatility		50	%		50	%
Dividend yield		0	%		0	%
Risk-free interest rate		4.15	%		1.1	%
Expected term in years		4.25	%		4.50	%

NET LOSS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2024

Net loss per share:

Schedule of Net Earnings/(loss) Per Share

	Three Months Ended
	March 31,			March 31,
(in thousands except per share amounts)	2024			2023
Net loss	$	(2,889	)	$	(4,040	)

Net loss per share:
Basic	$	(0.15	)	$	(0.33	)
Diluted	$	(0.15	)	$	(0.33	)
Weighted average shares outstanding:
Basic		19,024			12,177
Diluted		19,024			12,177

Weighted average potentially diluted shares (1):
Basic shares		19,024			12,177
Diluted shares		19,024			12,177

GENERAL AND ADMINISTRATIVE EXPENSES (Tables)

3 Months Ended

Mar. 31, 2024

GENERAL AND ADMINISTRATIVE EXPENSES

Schedule of General and Administrative Expenses

	Three Months Ended
	March 31,		March 31,
(in thousands)	2024		2023
Salaries and benefits	$	613	$	929
Professional fees		372		163
Share-based compensation		26		60
Insurance		226		271
Administrative		316		201
Total general and administrative expenses	$	1,553	$	1,624

PREPAID AND OTHER CURRENT ASSETS (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
PREPAID AND OTHER CURRENT ASSETS
Deposits	$ 1,132	$ 1,134
Insurance	173	237
Supplier Advances	66	26
Interest And Taxes	0	26
Licenses and payments	48	106
Royalty Advance	806	853
Other	28	15
Prepaid Expenses And Other Current Assets	$ 2,253	$ 2,397

INVENTORY (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
INVENTORY
Raw Materials	$ 810	$ 1,400
Work In Process	215	307
Finished Goods	3,199	3,053
Inventory	$ 4,224	$ 4,760

OTHER CURRENT LIABILITIES (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
OTHER CURRENT LIABILITIES
Excise Tax payments	$ 291	$ 289
Accrued price promotions	133	133
Third Party Brand Distribution Accrual	943	558
Insurance And Professional Accrual	435	287
Interest and tax accrual	140	109
Employee Retention Credit financing accrual	441	441
Other	110	126
Total Other Current Liabilities	$ 2,493	$ 1,943

PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands	3 Months Ended
PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Mar. 31, 2023	Dec. 31, 2023
Depreciation	$ (712)	$ (1,095)
Net Book Value	3,814		$ 4,099
Leasehold Improvements
Property And Equipment Cost, Beginning	2,116
Additions	0
Disposal	0
Lease remeasurement	0
Accumulated Depreciation, Beginning	1,081
Depreciation	(57)
Accumulated amortization disposals	0
Accumulated Depreciation, Ending	1,138
Net Book Value	978		1,035
Property And Equipment Cost, Ending	2,116
Furniture and fixtures [Member]
Property And Equipment Cost, Beginning	50
Additions	0
Disposal	0
Lease remeasurement	0
Accumulated Depreciation, Beginning	(49)
Depreciation	0
Accumulated amortization disposals	0
Accumulated Depreciation, Ending	(49)
Net Book Value	1		1
Property And Equipment Cost, Ending	50
Equipment [Member]
Property And Equipment Cost, Beginning	5,295
Additions	0
Disposal	0
Lease remeasurement	0
Accumulated Depreciation, Beginning	2,353
Depreciation	(205)
Accumulated amortization disposals	0
Accumulated Depreciation, Ending	(2,558)
Net Book Value	2,737		2,942
Property And Equipment Cost, Ending	5,295
Vehicles [Member]
Property And Equipment Cost, Beginning	830
Additions	0
Disposal	0
Lease remeasurement	0
Accumulated Depreciation, Beginning	(744)
Depreciation	(23)
Accumulated amortization disposals	0
Accumulated Depreciation, Ending	(767)
Net Book Value	63		86
Property And Equipment Cost, Ending	830
Construction in Process
Property And Equipment Cost, Beginning	35
Additions	0
Disposal	0
Lease remeasurement	0
Accumulated Depreciation, Beginning	0
Depreciation	0
Accumulated amortization disposals	0
Accumulated Depreciation, Ending	0
Net Book Value	35		35
Property And Equipment Cost, Ending	35
Right of Use Assets
Property And Equipment Cost, Beginning	21,317
Additions	0
Disposal	0
Lease remeasurement	0
Accumulated Depreciation, Beginning	2,990
Depreciation	(427)
Accumulated amortization disposals	0
Accumulated Depreciation, Ending	(3,417)
Net Book Value	17,900		18,327
Property And Equipment Cost, Ending	21,317
Property Plant And Equipments [Member]
Property And Equipment Cost, Beginning	29,643
Additions	0
Disposal	0
Lease remeasurement	0
Accumulated Depreciation, Beginning	(7,217)
Depreciation	(712)
Accumulated amortization disposals	0
Accumulated Depreciation, Ending	(7,929)
Net Book Value	21,714		$ 22,426
Property And Equipment Cost, Ending	$ 29,643

PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Depreciation expense	$ 712	$ 1,095
Cost of Goods Sold [Member]
Depreciation expense	$ 691	$ 1,069

Other Intangible Assets (Details) $ in Thousands	3 Months Ended
Other Intangible Assets (Details) $ in Thousands	Mar. 31, 2024 USD ($)
Other Intangible Assets [Member]
Definite life intangibles cost, beginning	$ 3,416
Additions	0
Definite life intangibles cost, ending	3,416
Accumulated amortization, beginning	(872)
Amortization	(96)
Accumulated amortization, end of period	(968)
Net book value	2,448
Technology/KnowHow [Member]
Definite life intangibles cost, beginning	3,000
Additions	0
Definite life intangibles cost, ending	3,000
Accumulated amortization, beginning	(836)
Amortization	(75)
Accumulated amortization, end of period	(761)
Net book value	2,164
Acquired Purchase Rights [Member]
Definite life intangibles cost, beginning	416
Additions	0
Definite life intangibles cost, ending	416
Accumulated amortization, beginning	(111)
Amortization	(21)
Accumulated amortization, end of period	(132)
Net book value	$ 284

Other Intangible Assets (Details Narrative) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Amortization expenses	$ 96	$ 101
Other Intangible Assets [Member]
Amortization	$ 399

SHAREHOLDERS EQUITY (Details) - shares shares in Thousands	Mar. 31, 2024	Dec. 31, 2023
SHAREHOLDERS EQUITY
Number of subordinate voting shares outstanding	19,024	19,024
Number of super voting shares outstanding	20	20

SHAREHOLDERS EQUITY (Details 1) shares in Thousands	Mar. 31, 2024 shares
SHAREHOLDERS EQUITY
Warrants, Beginning Balance	1,126
Warrants, Ending Balance	1,126

SHAREHOLDERS EQUITY (Details Narrative)	3 Months Ended
SHAREHOLDERS EQUITY (Details Narrative)	Mar. 31, 2024 $ / shares
SHAREHOLDERS EQUITY
Warrants outstanding expire date	February, 2025
exercise price	$ 1.52

DEBT (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Total Indebtedness	$ 2	$ 3
Vehicle Loans [Member]
Total short-term debt	2	3
Short term debt	2	3
Total long-term debt	$ 0	$ 0

DEBT (Details 1) $ in Thousands	Mar. 31, 2024 USD ($)
DEBT
2024	$ 2
Total Debt Obligations	$ 2

DEBT (Details Narrative)	3 Months Ended	12 Months Ended
DEBT (Details Narrative)	Mar. 31, 2024	Dec. 31, 2023
Vehicle Loans [Member]
Weighted average interest rate	6.40%	6.40%

LEASES (Details) $ in Thousands	3 Months Ended
LEASES (Details) $ in Thousands	Mar. 31, 2024 USD ($)
Lease Liability, Beginning	$ 19,512
Lease Principal Payments	(419)
Lease Liability, ending	19,093
Operating Leases [Member]
Lease Liability, Beginning	19,402
Lease Principal Payments	(309)
Lease Liability, ending	19,093
Finance Leases [Member]
Lease Liability, Beginning	110
Lease Principal Payments	(110)
Lease Liability, ending	$ 0

LEASES (Details 1) - USD ($) $ in Thousands	3 Months Ended
LEASES (Details 1) - USD ($) $ in Thousands	Mar. 31, 2024	Mar. 31, 2023
LEASES
Amortization Of Leased Assets - Finance Leases	$ 41	$ 573
Interest On Lease Liabilities - Finance Leases	2	500
Total - Finance Leases	43	1,073
Amortization Of Leased Assets - Operating Leases	386	0
Interest On Lease Liabilities - Operating Leases	382	0
Total Operating Lease Amortization	$ 768	$ 0

LEASES (Details 2) $ in Thousands	Mar. 31, 2024 USD ($)
LEASES
2024	$ 2,381
2025	3,258
2026	3,240
2027	3,324
2028 - And Beyond	16,847
Total lease payments	29,050
Less Imputed Interest	(9,957)
Total	$ 19,093

LEASES (Details Narrative)	3 Months Ended	12 Months Ended
LEASES (Details Narrative)	Mar. 31, 2024	Dec. 31, 2023
LEASES
Weighted Average Remaining Lease Term	8 years 8 months 12 days	8 years 10 months 24 days
Weighted Average Discount Rate	10.00%	10.00%

SHARE BASED COMPENSATION (Details) - USD ($) $ in Thousands	3 Months Ended
SHARE BASED COMPENSATION (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Mar. 31, 2023
Share-based compensation expense	$ 26	$ 60
General And Administrative Expense [Member]
Share-based compensation expense	26	60
Cost of Goods Sold [Member]
Share-based compensation expense	$ 0	$ 0

SHARE BASED COMPENSATION (Details 1) $ / shares in Units, shares in Thousands	3 Months Ended
	Mar. 31, 2024 USD ($) $ / shares shares
SHARE BASED COMPENSATION
Stock Options Outstanding, Beginning \| shares	1,453
Stock Options, Granted \| shares	250
Stock Options, Cancelled \| shares	(94)
Stock Options Outstanding, Ending \| shares	1,609
Stock Options Exercisable \| shares	1,127
Stock Options Vested and expected \| shares	1,609
Weighted-average Exercise Price Outstanding, Beginning \| $ / shares	$ 1.9
Weighted-average Exercise Price, Granted \| $ / shares	0.16
Weighted-average Exercise Price, Exercised \| $ / shares	0
Weighted-average Exercise Price, Cancelled \| $ / shares	3.24
Weighted-average Exercise Price Outstanding, Ending \| $ / shares	2.06
Weighted-average Exercise Price Exercisable \| $ / shares	2.37
Weighted-average Exercise Price Vested and expected \| $ / shares	$ 2.06
Weighted-average Remaining Contactual Life Outstanding, Beginning Balance	5 years 3 months 18 days
Weighted-average Remaining Contactual Life Outstanding, Ending Balance	1 year 4 months 13 days
Weighted-average Remaining Contactual Life, Exercisable	4 years 9 months 7 days
Weighted-average Remaining Contactual Life, Vested And Expected To Vest	1 year 4 months 13 days
Aggregate Intrinsic Value Outstanding, Beginning	$ 0
Aggregate Intrinsic Value Outstanding, Ending	0
Aggregate Intrinsic Value, Granted	0
Aggregate Intrinsic Value, Exercised	0
Aggregate Intrinsic Value, Expired	0
Aggregate Intrinsic Value, Cancelled	0
Aggregate Intrinsic Value, Exercisable	0
Aggregate Intrinsic Value vested and expected	$ 0

SHARE BASED COMPENSATION (Details 2) - Stock Option [Member]	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Expected Volatility	50.00%	50.00%
Dividend Yield	0.00%	0.00%
Risk-free Interest Rate	4.15%	1.10%
Expected Term In Years	4 years 3 months	4 years 6 months

SHARE BASED COMPENSATION (Details Narrative) $ / shares in Units, $ in Thousands, shares in Millions	3 Months Ended
	Mar. 31, 2024 USD ($) $ / shares shares
SHARE BASED COMPENSATION
Proceeds From Issuance Of Stock Options	2.3
Stock Option For Future Grant	0.7
Vesting Period Descriptions	The awards granted generally vest in 25% increments over a four-year period and option awards expire 6 years from grant date
Weighted-average Exercise Price Granted \| $ / shares	$ 0.16
Unrecognized Compensation Cost Related To Nonvested Restricted Stock Units \| $	$ 128
Vesting Period	10 months 24 days

NET INCOME (LOSS) PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Net loss per share:
Net income (loss)	$ (2,889)	$ (4,040)
Net Loss Per Share:
Basic	$ (0.15)	$ (0.33)
Diluted	$ (0.15)	$ (0.33)
Weighted Average Shares Outstanding:
Basic	19,024	12,177
Diluted	19,024	12,177
Weighted average potentially diluted shares:
Basic Shares	19,024	12,177
Total Weighted Average Potentially Diluted Shares	19,024	12,177

COMMITMENTS AND CONTINGENCIES (Details Narrative)		3 Months Ended
COMMITMENTS AND CONTINGENCIES (Details Narrative)	Jan. 12, 2024	Mar. 31, 2024
Description of real property	the Company, surrendered possession of approximately 10 acres of real property at 139 Zabala Road, Salinas, California (the “Zabala Road Property”) leased by Cypress pursuant to a Lease Agreement dated April 1, 2017 (the “Zabala Road Lease”) with Tinhouse, LLC, dba Tinhouse Partners, LLC, as landlord (the “Landlord”). Prior to vacating the premises on January 12, 2024, the Company had operated a cultivation facility, which included four greenhouses totaling approximately 255,000 square feet
January 2023 [Member]
Extension options period		5 years
Insurance expiry date		December 31, 2027

GENERAL AND ADMINISTRATIVE EXPENSES (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
General and administrative	$ 1,553	$ 1,673
Salaries And Benefits [Member]
General and administrative	613	929
Professional Fees [Member]
General and administrative	372	163
Share-based Compensation [Member]
General and administrative	26	60
Insurance [Member]
General and administrative	226	271
Administrative [Member]
General and administrative	316	201
Total [Member]
General and administrative	$ 1,553	$ 1,624

RELATED PARTY TRANSACTIONS (Details Narrative) - OMG [Member] - USD ($)	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Total sales	$ 134,000	$ 93,000
Payment of lease	$ 0	$ 10
Lease term	12 months

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