The Valens Company (TSX:VLNS, OTCQX:VLNCF) Inc has reported a higher adjusted gross profit of $5.1 million for the third quarter compared to $4.1 million in the previous quarter, benefitting from its integration initiatives which resulted in process-related efficiencies as well as from optimizing biomass and input sourcing and the commissioning of new automation equipment.
"Our third quarter results clearly show that we are executing on the most important initiative in this environment, which is cash flow. We are continuing to realize the benefits of our previously-announced Integration Initiatives, with a significant decrease in our cash burn, which not only exceeded our previously-stated guidance range but was down approximately 62% quarter-over-quarter, despite lower net revenues," Valens CEO Tyler Robson said in a statement.
"Valens delivered strong growth in provincial sales, our largest revenue segment. We believe that we could have achieved even higher growth, but our momentum was muted by the cybersecurity attacks on the Ontario Cannabis Store and the labour strike impacting the British Columbia market,” he added.
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Provincial sales increased 22.8% to $11.3 million in Q3 2022 from $9.2 million in Q2 2022. The increase was primarily driven by higher demand for the company’s newly-launched branded products.
“We continue to see strong sell-through of our brands at retail, especially our vape product offerings, which saw significant market expansion in the third quarter. During the quarter, we also experienced a decrease in revenue at Green Roads as we worked through stock-outs, online execution challenges and management and corporate structure changes that we believe will lower costs, increase efficiency, and better position the business for future growth," Robson said.
"Most importantly, we saw adjusted gross profit margin improve quarter-over-quarter to 24.9% compared to 17.2% in Q2 2022, as we continued to see the benefits of our previously announced Integration Initiatives flow through the income statement," Robson continued.
3Q 2022 highlights
Cash flow from operations was negative $7.6 million, a significant $12.2 million or 61.7% improvement quarter-over-quarter.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved by $6.1 million quarter-over-quarter to negative $9.8 million in Q3 2022 compared to negative $15.9 million in Q2 2022.
Net revenue decreased 15.4% to $20.3 million in Q3 2022 from $24.0 million in Q2 2022, as double-digit growth in provincial sales was more than offset by declines in Green Roads and B2B bulk sales.
Green Roads’ revenue decreased 22.8% to $4.4 million in Q3 2022 from $5.7 million in Q2 2022 due to delays and stock-outs in major product categories, technical challenges resulting from updates initiated by one of the company’s online service providers as well as senior management and other organizational changes associated with its previously-announced Integration Initiatives.
B2B sales fell 44.3% in Q3 2022 to $3.9 million from $7.0 million in Q2 2022 due to lower bulk sales.
The company ended 3Q 2022 with cash, restricted cash, and marketable securities of $32.2 million.
Creating Canada's largest revenue-generating cannabis company
Valens said in light of its proposed acquisition by SNDL Inc, the company is withdrawing all the financial guidance it previously provided as they are no longer appropriate.
In August, Valens announced that it had reached a deal to be acquired by SNDL, the largest private-sector liquor and cannabis retailer in Canada, for about $138 million.
"During the quarter, Valens entered into an arrangement agreement to be acquired by SNDL to create a leading vertically integrated cannabis platform in Canada. With the current market economic headwinds, we believe the pro-forma company will be well positioned to capture market share while also providing our investors with exposure to one of the strongest balance sheets in the industry," Robson said.
“Moreover, the pro-forma entity will be the largest revenue-generating cannabis company in Canada, with a near-term opportunity to become one of the most profitable cannabis companies in Canada," Robson concluded.
Contact the author at jon.hopkins@proactiveinvestors.com