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Friday, Jul 1, 2022
Mugglehead Magazine
Alternative investment news based in Vancouver, B.C.

Industry update

Valens bullish on manufacturing strategy despite Q4 sales drop

Despite an 11.6% drop in revenue, the Canadian cannabis extractor says domestic manufacturing expansion will boost sales this year

Valens bullish on manufacturing strategy despite Q4 sales drop
Valens bullish on manufacturing strategy despite Q4 sales drop

Moving into 2021, Canadian cannabis extractor The Valens Company Inc. (TSX: VLNS) says it will rebound from an 11.6 per cent drop in fourth-quarter revenue as it completes its transition to a third-party manufacturer business model.

Late Wednesday, the British Columbia-based company said it made $16 million dollars in the three months ended Nov. 30, down from $18.1 million in the previous quarter.

Since Valens posted record sales of $31.9 million in the first-quarter 2020 — which is when cannabis 2.0 products came online in Canada — an oversupply of bulk resin has hammered the market. Pandemic-related production issues, onerous regulations, as well as soft demand have all hurt sales of products like vapes, edibles and drinks.

Read more: Valens stabilizes revenues as it ramps up third-party manufacturing

After six straight quarters of recording positive adjusted earnings before interest, taxes, depreciation, and amortization, Valens reported a third-quarter adjusted EBITDA loss of $4.3 million.

The firm says it will focus on continuing to lead the Canadian cannabis manufacturing market and expand its provincial distribution network to drive revenue growth in 2021.

Valens is also looking at acquisition and partnership opportunities to enter the U.S. and other international markets, according to a statement.

With Democrats in control of the White House and U.S. Congress, Piper Sandler analysts project potential federal legalization this year could open up a US$115 billion global market by 2030.

Valens bullish on manufacturing strategy despite Q4 sales drop

Valens says it’s now the largest third-party vape manufacturer in Canada. The company produces these full-spectrum 510 vape carts for licensed producer BRNT Group. Press photo

For now, Valens says it’s working with over 30 licensed producers in Canada while securing over 10 white-label manufacturing agreements. The company produced 62 stock-keeping units in the fourth quarter, up from 56 in the prior quarter.

While the firm reports having a cash balance of $48.7 million, it posted a $16.6 million net loss in the fourth quarter.

Valens net revenues for its fiscal-year 2020 was a reported $83.8 million, up 44 per cent annually. But net losses climbed 235 per cent in fiscal 2020 to $20.7 million.

In the fourth quarter, the company got a sales licence for its expanded K2 facility, next to its headquarters in Kelowna, B.C.

After building the 42,000-square-foot site to European Union Good Manufacturing Process standards, Valens says it’s seeking certification to bolster export opportunities to the E.U.

The company began shipping tincture products to Australia last year through an import deal with the country’s largest medical cannabis distributor.

“Moving into 2021 with a transformed business model, a growing international presence, and over 77,000 square feet of manufacturing space, Valens is focused on three key initiatives – growing unit volumes per SKU, increasing Cannabis 2.0 and 3.0 product market share, and driving revenues in new consumer verticals,” CEO Tyler Robson said in the statement.

With its recent acquisition of Kelowna-based LYF Food Technologies Inc., which is expected to close in March, Valens says it will focus on expanding further into manufacturing edibles and beverages.

Read more: Valens bets big on edibles with $25M LYF acquisition

That’s despite new Health Canada November sales data that show producers, retailers and provincial distributors held over 14 million edible product units in their inventories compared to just 1.61 million units sold. November edible product sales were down 8.5 per cent overall from 1.76 million in October.

But Valens points to long-term growth trends in mature U.S. markets like Colorado, where edibles make up 10 per cent of total sales.

The firm also cites Hyfire data that show edibles market share in Canada grew from 2.6 per cent in the first quarter of 2020, to 5.1 per cent in the final quarter.

Valens reiterated its previously announced guidance for the first quarter of fiscal 2021 with revenue projected to be between $19 million to $23 million, driven by the company’s boosted domestic manufacturing capacity.

Valens stock fell nearly 4 per cent Thursday to $1.78 on the Toronto Stock Exchange.

Top image via Valens


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