The Valens Company (TSX:VLNS, OTCQX:VLNCF) Inc has posted a second-quarter revenue of $24 million, up 3.5% from the previous quarter’s $23.2 million, driven by double digit growth in subsidiary Green Roads and business-to-business (B2B) sales.
Revenue for the three months ended 31 May, 2022 was partially offset by a decline in provincial sales, although the segment has rebounded strongly in June with record monthly revenue, the cannabis company said.
"The second quarter of 2022 clearly shows that we are executing on our 2022 objectives showing both modest revenue growth in the quarter and a meaningful decline in both cash burn and SG&A expenses,” Valens CEO Tyler Robson said in a statement.
“This is expected to accelerate in future quarters as the majority of cost savings from our Integration Initiatives have not been fully realized as these initiatives were executed part way through Q2 and into Q3 2022," he added.
READ: The Valens Company inks exclusive cannabis partnership with Coldhaus Distribution to boost Canadian sales
"Despite the temporary setback in provincial sales, we continue to see strong sell-through for our brands at retail as we were able to expand market share across all product categories,” Robson continued.
Green Roads’ revenue increased 11.8% sequentially to $5.7 million in Q2 2022 from $5.1 million in Q1 2022, primarily driven by a 15.9% increase in direct-to-consumer e-commerce sales and an increase in international sales.
B2B revenue increased 11.1% in Q2 2022 to $7.0 million from $6.3 million in Q1 2022, primarily driven by higher demand in bulk sales, while international revenue amounted to $1.1 million in Q2 2022 from $400,000 in Q1 2022, led by higher sales in Australia.
Provincial sales meanwhile fell 14.8% sequentially to $9.2 million in the second quarter, partially due to the rebranding of Versus from Verse which affected sales.
"Encouragingly, we've continued to make progress against our Integration Initiatives, having actioned $15 million and now expecting to exceed the $20 million in targeted cost savings,” CEO Robson said.
“Looking ahead, we intend to realize these cost savings in the coming quarters, which when achieved would lead to a material step down in our overall cost structure,” he said, adding that Valens is well-positioned to continue implementing its strategic initiatives for a more profitable future.
Valens provides proprietary cannabis processing services, in addition to best-in-class product development, manufacturing, and commercialization of cannabis consumer packaged goods. The Valens Company's high-quality products are formulated for the medical, health and wellness, and recreational consumer segments, and are offered across all cannabis product categories with a focus on quality and innovation.
Commenting on the second-quarter results, broker Stifel GMP said revenues were slightly below expectations while the outcome of the company’s cost initiatives was ahead of forecast.
Stifel has a $4.50 target price for Valens stock based on 1.5 times its FY2023 sales estimate.
With proforma cash of $31 million and an improving “cash burn setup”, the broker believes Valens has the resources to reach profitability despite the “significant” $128 million impairment relating to goodwill, intangible assets, prepaid deposits and assets held for sale reported during the quarter.
Stifel said its positive stance on Valens is supported by the company's exposure to the entire Canadian cannabis market, US hemp-derived CBD market and international opportunities; its flexibility to produce every product format available, thereby maximising its utility to brand partners/LPs; and current valuation which is too pessimistic with its shares trading around tangible book value, offering investors an attractive risk-reward opportunity.
Shares of Valens were trading around C$0.87 in Toronto on Thursday afternoon and US$0.66 in New York.
Contact the author at jon.hopkins@proactiveinvestors.com