The Valens Company Inc.

Valens reported Q2 fiscal 2022 consolidated net revenue of $24 million, up 3.5% year over year. Provincial sales revenue was $9.2 million, down 14.8%, while B2B revenue was $7 million, up 11.1%, and Green Roads revenue was $5.7 million, up 11.8%. Adjusted gross profit was $3.4 million, or 14% of net revenue, and adjusted EBITDA was negative $15.9 million; excluding a $1.4 million non-cash impairment, adjusted EBITDA would have been negative $14.4 million versus negative $17.6 million in Q1. SG&A declined 6.2%, and cash flow from operations improved by $3.2 million quarter over quarter, with combined operating and investing cash flow improving $4.8 million. Looking ahead, management said Q3 cash burn from operations should improve to between negative $9 million and negative $12 million, and they expect to exceed the original $20 million annual cost-savings target by fiscal year-end 2022.

Tyler Robson framed the quarter as disappointing but fixable, emphasizing that the biggest issue was the temporary disruption from the Verse-to-Versus transition rather than demand weakness. He said the company is seeing the right fundamentals improve: June was a record month, provincial sales are back on track, and internal execution on SG&A and cash burn is moving in the right direction even if not fast enough. His tone was cautious but confident, with repeated emphasis that the business is improving and that Valens will bounce back.

Sunil Gandhi said the operating environment remains challenging because of inflation, supply-chain volatility, and retail price compression, and he expects 2022 to remain difficult across the industry. He highlighted the financial improvements already underway: $15 million of annual savings identified and actioned, another $5 million+ identified, SG&A down 6.2%, and a combined $4.8 million improvement in cash flow from operations and investing activities quarter over quarter. He also said Q3 operating cash burn should improve to between negative $9 million and negative $12 million, and that the company is exploring non-dilutive liquidity options such as operating lines or working capital solutions for flexibility.

Analysts pressed management on the size and duration of the Verse-to-Versus disruption, and Adam Shea said the issue likely cost one to two weeks of depletions, with major markets typically moving 800,000 to 1 million units a week. Questions also focused on gross margin and the path to EBITDA profitability; Sunil said management expects gross margin to “double” from current levels and eventually be north of 30%, while Jeff and Sunil said EBITDA improvement will come from revenue growth, the $20 million-plus in savings, and a better product mix. Another major topic was the Coldhaus partnership, which management said begins September 1 and will give Valens broader reach, weekly or bi-weekly store coverage in key provinces, and CRM-driven store-level intelligence.