The Valens Company Inc. (VLNS)

[GE_Jim]

The Valens Company Reports Financial Results for The Second Quarter of Fiscal 2021
Jul. 14, 2021 5:00 PM ETThe Valens Company Inc. (VLNCF)
Valens entered the US market with the acquisition of Green Roads, securing a global leadership position in the health and wellness market

Country-wide SKU listings increased 76.0% to 132 as of the end of Q2 2021, compared to 75 in Q1 2021

Nine additional SKU listings were achieved since the end of Q2 2021, and another 40 SKU listings have been accepted by provincial distributors with first shipments expected in Q3 or Q4 2021 bringing total to 181

Estimated share of the growing extract-based market remained stable at ~5% in Alberta, British Columbia, and Ontario in Q2 2021, based on Hifyre data and not including B2B LP manufacturing

Entered into four new product categories, including flower, pre-rolls, topicals, and edibles, significantly increasing Valens' total addressable market in Canada and beyond

KELOWNA, BC, July 14, 2021 /PRNewswire/ - The Valens Company Inc. (TSX: VLNS) (OTCQX: VLNCF) (the "Company," "The Valens Company" or "Valens"), a leading manufacturer of cannabis products, is pleased to report its second quarter financial results for the period ended May 31, 2021.

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Tyler Robson, Chief Executive Officer, Co-Founder and Chair of The Valens Company, said: "We believe that our business model remained resilient despite ongoing challenges presented by the pandemic, and our strategy continued to demonstrate its effectiveness as we gained significant market penetration across the country. We are proud to share that in the second quarter alone, Valens had 132 SKUs listed in Canada – a 76% increase in comparison to 75 SKUs listed in the first quarter of 2021. This material growth in SKU listings stands in stark contrast to many of our competitors in the sector and is a testament to the innovation and quality we are bringing consumers and retailers."

Robson continued, "Importantly, we are seeing this momentum continue into the third quarter with an additional 40 SKUs accepted by the provincial boards with shipments during the third and fourth quarters. These new listings include products from four newly entered categories during the second quarter, such as flower, pre-rolls, topicals, and edibles, with many of them already receiving high consumer acclaim. Additionally, we have enhanced our platform with increased technical capabilities and greater efficiency to develop and commercialize winning products, which we expect will drive revenue growth in the second half of fiscal 2021. We look forward to continuing to drive new product innovation in the sector, specifically in the flower, pre-roll, beverage, concentrates, and edibles categories. With our recent distribution wins into New Brunswick, Manitoba, and Yukon, we are positioned well to capitalize on these investments."

Key Highlights

Gross revenue increased 16.1% in Q2 2021 to $20.5 million compared to $17.6 million in Q2 2020
Net revenue increased 6.5% in Q2 2021 to $18.8 million compared to $17.6 million in Q2 2020
Product sales increased 70.5% in Q2 2021 to $16.9 million compared to $9.9 million in Q2 2020
The year-over-year increase in product sales was driven by successful new product launches across multiple cannabis categories as partners expanded their portfolios in parallel with Valens' scaled-up manufacturing capabilities
Product sales as a percentage of net revenue remained at ~90.0% in Q2 2021
SKU listings increased by 76.0% to 132 in Q2 2021 compared to 75 in Q1 2021
Of these 132 SKU listings, 24.2% had their first shipments towards the end of Q2 2021, meaning Q3 2021 will be the first full quarter of contribution from these SKU listings
Subsequent to the end of Q2 2021, Valens obtained an additional 9 SKU listings, and another 40 SKU listings have been accepted by provincial distributors with first shipments expected in Q3 2021 or early Q4 2021
Estimated share of the growing extract-based market remained stable at ~5% in Alberta, British Columbia, and Ontario in Q2 2021, based on Hifyre data and not including B2B LP manufacturing
Estimated share of the cannabis-infused beverage category grew to 8.0% in Q2 2021 from 5.5% in Q1 2021 in Alberta, British Columbia, and Ontario, based on Hifyre data with only one customer in this category to date
Valens expects to bring on more partners in this category with the launch of the GTA Facility expected in the second half of fiscal 2021
Launched the number one selling baked good, the Verse Double Chocolate Brownie, in addition to the number one selling bath product, the nuance Soothing Eucalyptus CBD Bath Bomb, at the Ontario Cannabis Store ("OCS") in June 2021, according to OCS sales data
Manufactured 57 SKUs in Q2 2021 within a carefully curated portfolio across all cannabis categories, compared to 53 SKUs in Q1 2021, with a focus on driving higher efficiencies through increased listings across provinces
Ended the quarter with a strong cash position of ~$23.9 million, prior to the closing of a $46 million bought deal financing on June 1, 2021
*The term "SKU listings" refers to the total number of provincial and territorial listings of products manufactured and distributed by The Valens Company

Corporate and Operational Highlights:

In the second quarter, The Valens Company continued to execute on its corporate strategy and advance its global manufacturing platform, as illustrated by the following milestones and initiatives:

Entered the US market with the acquisition of Green Roads for US$40 million, which closed in June. In combination with Green Roads, Valens more than triples its total addressable market and secures a global leadership position in the cannabis health and wellness vertical with one of the largest CBD brands by market share. Additionally, the acquisition strengthens Valens' capabilities to supply global markets with an expanded product offering and increased speed to market with a US-based manufacturing and cGMP certified co-manufacturing platform.
Expanded Canadian distribution network to supply Manitoba, New Brunswick, and Yukon Territory with Valens-manufactured products. The Company now distributes its products in six provinces and one territory, including Alberta, British Columbia, Ontario, and Saskatchewan. Expansion of Valens' distribution platform continues to be a top priority and the Company intends to bring its innovative product portfolio to consumers in all regions of Canada including the remaining Eastern provinces in the second half of fiscal 2021, with entry into Quebec being a top priority.
Launched a range of innovative products in four new categories, including edibles, topicals, flower, and pre-rolls.
Edibles: Since closing the acquisition of LYF during the second quarter, The Valens Company has formulated, manufactured, and distributed over 15 new edibles products with various partners in a wide variety of formats, including chocolate, soft chews, and baked goods. Available at select provincial retailers, chocolate offerings include milk chocolate coffee quinoa with no added sugar, toffee crunch, ice cream sandwich cookies & cream milk chocolate bites, acai berry dark chocolate, cherry milk chocolate fruit chews, chocolate truffles, and the newly-launched double chocolate brownie from Verse Cannabis – one of the first confectionery products of its kind to hit the Canadian recreational market. Additionally, soft chews are offered in a wide variety of fruit flavours, including pineapple coconut, lemonade, cherry, watermelon, blackberry acai, blue raspberry, and green apple.

Topicals: Crafted with all-natural plant-derived essential oils and infused with 100mg of premium CBD, the nuance CBD Bath Bomb is the first Valens-manufactured topical product and currently the largest bath bomb available in the Canadian market. The bath bomb joins nuance's brand lineup of premium wellness products and is offered in two formats, Soothing Eucalyptus and Revitalizing Grapefruit, at select provincial retailers.

Flower & Pre-Rolls: In partnership with Verse Cannabis, The Valens Company introduced a variety of flower and pre-roll products under the Verse Originals line, including BC God Bud Flower, Dreamweaver Pre-Rolls, and the Amp Pre-Roll – the first flower products sourced and manufactured by Valens to enter the Canadian market. Since they have launched, Valens has experienced strong sell-through for this line of products across its Canada-wide distribution network.

Strengthened Licensed Producer partnership network with the addition of two leading Canadian producers. Valens will provide extraction and custom manufacturing services for Rubicon Organics, and pre-roll manufacturing and distribution services for Citizen Stash Cannabis Corp. with the potential to expand these agreements to include additional product development and manufacturing services as the relationship strengthens.
Bolstered Management team and Board of Directors. Sunil Gandhi has been appointed Chief Financial Officer, bringing 25 years of corporate and operational finance experience largely in the consumer packaged goods and alcohol beverage industries, most recently at Trophy Foods as CFO and prior, at one of North America's largest beverage companies. Adam Shea has been appointed Chief Commercial Officer, bringing over 16 years of experience in commercial strategy, sales, and marketing, with various consumer-focused organizations in the food, beverage, tobacco, and cosmetics industries, including Weston Foods, Coty Beauty, and British American Tobacco. Dr. Guy Beaudin, executive leadership advisor, and Drew Wolff, former Starbucks executive, were elected to the Company's Board of Directors at its Annual and Special Meeting of Shareholders on May 25, 2021.