The Valens Company (TSX:VLNS, OTCQX:VLNCF) Inc posted first-quarter fiscal year 2022 financial results that saw its net revenue jump 26.1% quarter-over-quarter, reinforcing the inherent strength of its diversified cannabis business lines.
For the period ended February 28, 2022, the Kelowna, British Columbia-based cannabis consumer products company reported revenue of $23.2 million, compared to $18.4 million in 4Q 2021.
The firm, which has expertise in manufacturing cannabinoid-based products and provides proprietary cannabis processing services, noted that revenue was primarily driven by provincial sales, which soared 36.7% to $10.8 million in 1Q 2022 compared to $7.9 million in 4Q 2021.
Valens noted that the increase was driven by the consolidation of the first full quarter results of Citizen Stash, as well as Valens' newly launched branded products, which represented the lion’s share of sales. Meanwhile, Green Roads revenue declined 10.5% to $5.1 million in the quarter from $5.7 million in 4Q 2021, primarily due to seasonal trends, with December historically being the slowest month of the year.
Still, business-to-consumer (B2C) revenue lines for provincial sales and Green Roads accounted for 68.5% of net revenue, pointed out the company. Separately, business-to-business (B2B) revenue increased 53.7% during the quarter to $6.3 million, compared to $4.1 million in 4Q 2021. Other revenue sources included Valens Labs, Pommies and international revenue.
Significantly, Valens became a top 10 licensed producer in Canada with a 3.1% market share in February 2022, compared to 2.4% in November 2021 in Alberta, British Columbia, Ontario and Saskatchewan based on Hifyre data.
Valens had cash and marketable securities of $20.2 million at the end of the quarter and subsequently, raised $32.3 million in gross proceeds.
The firm’s adjusted gross profit was $3.4 million, or 14.6% of net revenue in the 1Q, compared to $6.3 million, or 34.1% of net revenue in Q4 2021.
The company’s adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization during the quarter was negative $17.6 million, compared to negative $13.3 million in 4Q 2021. Valens, however, reiterated its objective of achieving positive adjusted EBITDA by 4Q 2022.
In a statement accompanying the numbers, Valens CEO Tyler Robson said: "The results from the first quarter demonstrate that Valens' underlying business has passed an inflection point. Valens delivered strong top line growth despite many headwinds in the marketplace. This performance reinforces the importance of Valens now diversified business lines across provincial sales, B2B LP sales, and Green Roads sales.”
Diversified business lines are now allowing Valens to deliver more sustainable growth.
“To that point, we delivered another quarter of strong provincial sales as we continue to grow our recreational market share, with the launch of Versus and Contraband. We are also pleased to report that our B2B segment has returned to growth,” Robson added.
The Valens boss acknowledged adjusted EBITDA declined due to an “inefficient cost structure” that had not yet benefited from the firm’s integration initiatives announced in late February and a change in sales mix that saw a lower percentage of sales come from its higher margin Green Roads business.
“We took the opportunity to exit some higher priced inventory through the B2B channel and reposition our holdings to better support the anticipated growth in future quarters,” said Robson. “These factors also resulted in lower gross margins in the quarter. Importantly, we are already seeing the benefits of our integration initiatives and anticipate realizing improvements to our cost structure in the back half of the year.”
Robson emphasized that Valens remains “on track” to deliver on its objectives and reiterated the firm’s “target to achieve positive adjusted EBITDA in 4Q 2022".
Analysts at Canaccord Genuity (TSX:CF, LSE:CF) said in a note to clients that Valens’ 1Q results came in “well ahead” of their expectations thanks to branded provincial sales, but it also showcased a “steepening profitability loss” as management worked through a number of cost control initiatives that are slated to hit the books meaningfully in the second half of 2022.
“That said, we remain optimistic on Valens' ability to execute along its “fewer, bigger, better” strategy as it looks to solidify a meaningful position in the domestic adult-use and international CBD markets,” said the analysts at Canaccord Genuity.
Canaccord Genuity maintained its “Speculative Buy” rating and C$7.00 price target on Valens stock. There is significant upside potential as Valens shares currently trade at around C$1.57.
Contact the author Uttara Choudhury at uttara@proactiveinvestors.com
Follow her on Twitter: @UttaraProactive
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