The Valens Company (TSX:VLNS, OTCQX:VLNCF) Inc has told investors it is seeing strong momentum across all key segments in the first quarter of 2022, as the cannabis-focused group posted fourth quarter and full-year fiscal 2021 results to end-November.
The company said recent cost-saving and integration measures had placed it on the 'path towards profitability' and it expects to achieve both positive adjusted EBITDA by the fourth quarter this year and revenue guidance for fiscal 2023 of at least C$225 million.
In the 12 months to November 30, 2021, Valens said net revenue came in at C$78.2 million, down from C$83.7 million in fiscal 2020, while in the fourth quarter it was C$18.4 million, down from C$20.9 million in the preceding quarter of the same year.
The company put the quarter-on-quarter decline down to the transition of its B2B business to align with its 'fewer, bigger, better' growth strategy. It was also negatively impacted by the floods in British Columbia which resulted in supply chain disruptions, it said.
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But Valens noted that in its two key revenue segments, it had been very pleased with "growth in provincial sales revenue and the full quarter revenue generated by our Green Roads US CBD business".
"With the B2B transition largely behind us, we expect to have more sustained growth in 2022", it said.
Provincial sales in the fourth quarter increased by 31.7% to C$7.9 million compared to C$6million in Q3, 2021.
Valens branded products represented the majority of these sales, which are expected to increase in the coming quarters as listings achieved in 2021 begin to "meaningfully contribute" to market share and revenue gains.
Valens noted that the US-focused Green Roads business had generated C$5.7 million of revenue in its first full quarter of consolidation, growing 21.3% quarter-over-quarter from C$4.7 million for the partial quarter in Q3, 2021.
The company also noted a 'bright spot' in the quarter had been its adjusted gross profit margin which increased from 27.4% in Q3, 2021 to 34.1% in Q4, 2021.
After the quarter-end, Valens noted that it had strengthened its custom manufacturing partnership network and begun trading on the Nasdaq.
"With our track record of driving one of the highest revenues per dollar invested compared to our Canadian cannabis peers, our recent Nasdaq listing already showing increasing liquidity and expanding our reach to investors in the United States, we believe we are well-positioned to drive value for our shareholders in 2022," said president of Valens Jeff Fallows in a statement.
"Looking back over the last year we are incredibly proud of what we have achieved in a tough global environment. In 2022 we have a leading cannabis innovation platform best positioned to drive B2C revenue growth both north and south of the border as well as B2B revenue growth as the benefits of our 'Fewer, Bigger, Better' strategy begin to materialize," he added.
Stifel GMP rates shares a 'Buy'
Broker Stifel GMP described the fourth quarter results as 'mixed' but noted that provincial REC (recreational cannabis) listings were continuing to grow, which offered the company an 'outlet for its increased production capacity'.
"We also highlight the company's surprising margin expansion, the best in over a year and exceeding our entire forecast period despite cost inflation and flooding in BC which likely increased shipping costs," said Stifel analysts.
They also noted that the group's higher than expected operating expenses could be pared down with a targeted around C$20m in annualized synergies with 40% in selling, general and administrative expenses (SG&A) and 60% in cost of goods sold (COGS), matched with operating leverage going forward.
"With shares continuing to trade below book value, we view VLNS as an appealing risk-reward opportunity for investors," concluded the broker, which rates the stock a 'Buy'.
Valens is a leading cannabis consumer products company, with significant expertise in manufacturing cannabinoid based products and a mission to bring the benefits of cannabis to the world.
Contact the writer at giles@proactiveinvestors.com