Canadian producer The Valens Company Inc. (TSX: VLNS) (Nasdaq: VLNS) took a bit of a financial hit while focusing on its business strategy transition, which the firm expects will pay off by the end of next year.
On Monday, the Kelowna, British Columbia-based pot company released its financial report for the fiscal year and the fourth quarter ended Nov. 30, 2021, showing gross revenue for the year up by nearly 5 per cent to $90.2 million from $86.1 million. But for the quarter, sales dipped almost 5 per cent to $23.3 million.
Net revenue for the year dropped by almost 7 per cent to $78.2 million from $83.8 million last year. Quarter-over-quarter, it slid by more than 12 per cent to $18.4 million.
Valens attributes this to a decline in business-to-business transactions — falling 54 per cent to $4.1 million in the quarter — as the firm “aggressively” moved to align with its transitional business strategy, “in anticipation of continued headwinds for smaller, undercapitalized cannabis companies in 2022.”
Gross profit dropped by 33 per cent year-over-year. Chart via Valens
With the B2B transition mostly completed, CEO Tyler Robson says Valens expects to have more sustained growth this year.
“This quarter showcases the progress we have made in our business plan in key areas despite a competitive and challenging operating environment in Canada and globally,” he says in a statement.
Read more: Valens posts nearly $25M in Q3 revenue, continues aggressive acquisition strategy
Both provincial sales and its subsidiary Green Roads showed strong growth, up 32 per cent and 21 per cent respectively in the fourth quarter.
B2B fell 54 per cent in Q4 2021 to $4.1 million from $8.9 million in Q3. Chart via Valens
By the end of the period, Valens had 219 provincial product listings.
But adjusted earnings before interest, taxes, depreciation and amortization was a $13.3 million loss compared to a $6.2 million loss in the previous quarter.
Valens says the decline in EBITDA was driven by a reduction in the Canadian Emergency Wage Subsidy, inflationary cost pressures, increased costs from supply chain disruptions, the Nasdaq listing process, integration of new acquisitions and flooding in B.C.
Robson says a bright spot this quarter was the firm’s adjusted gross profit margin, which increased to 34 per cent from 27 per cent last period.
“With further automation and our recently announced integration initiative, we are now heading down the path towards profitability. This supports our confidence and commitment to achieving both positive adjusted EBITDA by Q4 2022 and our revenue guidance for 2023 of at least $225 million,” he says.
Citizen Stash’s Nuken cultivar. The B.C.-based producer, now owned by Valens, has gained a strong reputation in Canada’s premium segment. Photo by Nick Laba
Adjusted gross profit rose 9 per cent to $6.3 million from $5.7 million.
Valens reports a cash and marketable securities position of $19.1 million at the end of the quarter, and afterwards raised $40 million in debt financing. That’s down 38 per cent from nearly $31 million last quarter.
The firm says proceeds from the debt financing were used to repay previous existing debt, and for general working capital purposes.
Read more: Valens to manufacture pre-rolls and vapes for MTL Cannabis
Read more: Valens set to acquire Citizen Stash for $54.3M
Valens has closed its acquisitions of Citizen Stash and Verse Cannabis, driving the extraction firm’s presence in flower and pre-roll segments.
By the end of the fiscal year, the company says it’s expanded its domestic and international footprint, noting it entered Quebec’s market through a letter of intent with Société québécoise du cannabis and the U.S. CBD market through Green Roads.
On Tuesday, company stock dropped more than 5 per cent to $2.47 on the Toronto Stock Exchange.
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