The Valens Company (TSX:VLNS, OTCQX:VLNCF) Inc reported higher adjusted gross margin of $5.1 million for the third quarter compared to $4.1 million in the prior quarter, benefiting from its growth initiatives. integration that have also resulted in process-related efficiencies since the optimization of biomass and input supply 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 continue to realize the benefits of our previously announced integration initiatives, with a significant decrease in our consumption cash flow, which not only exceeded our previously announced guidance range, but was down approximately 62% quarter-over-quarter, despite lower net revenue,” said Valens CEO Tyler Robson. , in a press release.
“Valens has seen strong growth in provincial sales, our largest revenue segment. We believe we could have achieved even higher growth, but our momentum was dampened by the cybersecurity attacks on the Ontario cannabis store and the labor strike that affected the cannabis market. British Columbia,” he added.
READ: Valens firm remains ‘attractive risk-adjusted opportunity’ after acquisition announcement says Stifel GMP analysts
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 increased demand for newly launched branded products from the company.
“We continue to see strong sales of our retail brands, particularly our vaping product offerings, which saw significant market expansion in the third quarter. During the quarter, we also experienced lower revenue at Green Roads, as we have had to deal with stock shortages, online fulfillment challenges and changes in management and corporate structure which we believe will reduce costs, increase efficiency and better position the company for future growth,” Robson said.
“Most importantly, we saw the adjusted gross profit margin improve quarter over quarter to 24.9% from 17.2% in the second quarter of 2022 as we continue to see the benefits of our previously announced integration initiatives impact the income statement,” continued Robson.
Q3 2022 Highlights
Cash flow from operations was negative $7.6 million, a significant improvement of $12.2 million or 61.7% quarter over quarter.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved $6.1 million quarter-over-quarter to $9.8 million in Q3 2022 from $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 provincial sales growth was more than offset by lower bulk sales from Green Roads and B2B.
Green Roads revenue decreased 22.8% to $4.4 million in Q3 2022, from $5.7 million in Q2 2022, due to delays and stockouts at major product categories, technical challenges resulting from updates initiated by one of the company’s online service providers as well as by 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 wholesale sales.
The company ended Q3 2022 with cash, restricted cash and marketable securities of $32.2 million.
Building Canada’s Largest Revenue-Generating Cannabis Company
Valens said that in light of its proposed acquisition by SNDL Inc, the company is withdrawing all financial guidance it previously provided as it is no longer appropriate.
In August, Valens announced that it had reached an agreement to be acquired by SNDL, Canada’s largest private liquor and cannabis retailer, for approximately $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 economic headwinds in the market, 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,” said said Robson.
“Additionally, 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.
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