The Company becomes one of the lowest-cost
cannabis platforms following realignment of inventory to drive
future growth in the 2.0, 3.0 markets, and beyond
KELOWNA, BC, Jan. 19, 2021 /CNW/ - The Valens Company
Inc. (TSX: VLNS) (OTCQX: VLNCF) (the "Company," "The Valens
Company" or "Valens"), a leading manufacturer of cannabis
derivative products, today provided an update on its corporate
initiatives to drive further growth in 2021.
After analyzing Canadian cannabis market trends, including: (1)
the anticipated increase in outdoor cannabis volumes and continued
overall decline in dried cannabis pricing, (2) the strong success
of its value-priced product offerings with partners, and (3) the
near-term launch of several new product formats which leverage both
strain and terpene specific profiles, The Valens Company made the
strategic decision to liquidate the majority of its cannabis oil
inventories at market clearing prices in the fourth quarter of
2020. This decision led to a related one-time financial statement
impact in the fourth quarter of 2020 between $9.0 million and $10.0
million, including a $2.9
million to $3.2 million loss
from the sale of bulk cannabis oil, an inventory write-down of
$4.7 million to $4.9 million, and a provision on previously
entered biomass commitments of $1.4
million to $1.9
million.
The Valens Company has achieved two core objectives with the
completion of this strategic initiative. First, the Company has
reduced the average price of its oil inventory by over 50% and can
now rebuild its inventory with targeted strains of dried cannabis
sourced at opportunistic, lower price points that are anticipated
to grow product gross margins in 2021. Second, Valens can now
better align its catalogue of strains in inventory with its
innovative product portfolio, as well as offer a broader range of
products at consumer-friendly prices – an attractive advantage to
existing and potential new partners, including large consumer
packaged goods companies.
Tyler Robson, Chief Executive
Officer and Chair of the Board, said, "Looking into 2021, we wanted
to clear the deck and increase our flexibility to make a much more
aggressive push into the market with new, innovative products,
including several exciting opportunities in the Health &
Wellness category, at highly competitive prices. Adding low-cost
inputs to our already low-cost manufacturing infrastructure makes
us tough to beat and will help us secure a cost leadership position
in the market. While this decision resulted in a one-time financial
statement impact in the quarter, we now enjoy the increased
opportunity to capture market share, drive future product margin
expansion and generate shareholder value as one of the most
flexible, lowest-cost cannabis platforms in the Canadian market
focused on 2.0 and 3.0 cannabis derivative products."
Preview of Fourth Quarter 2020 Revenue and First Quarter 2021
Guidance
For the fourth quarter of 2020, preliminary gross revenue will
be between approximately $17 million
and $18.5 million, with preliminary
net revenue between $15 million and
$16.5 million. An approximate
quarter-over-quarter increase of 250% in provincial product sales
in the fourth quarter worked to offset some of the loss attributed
to lower bulk oil revenues as a result of market clearing pricing
for the inventory liquidation. Various reintroduced provincial
COVID-19 restrictions to cannabis storefronts also negatively
impacted revenue in the quarter and led to a delay in achieving
purchase orders originally planned for the fourth quarter,
resulting in these purchase orders being shifted into the first
quarter of 2021.
Revenue for the first quarter of 2021 is expected to be between
$19 million to $23 million, driven by the Company's newly
launched and operational K2 Facility which is expected to give
Valens the ability to increase product and provincial sales, enter
into new innovative product verticals, and increase output volumes.
The Company expects the K2 Facility to continue to unlock revenue
growth throughout the remainder of fiscal 2021.
The Valens Company expects to report its fiscal 2020 fourth
quarter results in late February.
Term Loan Repayment and Covenant Realignment
In addition to the above strategic initiative, the Company made
a voluntary prepayment of $9,500,000
borrowed under the Term Loan on November 30,
2020, reducing the secured revolving loan to $9,500,000 as of the date hereof, and the credit
facility was amended: (i) to remove an accordion feature that
previously allowed the Company to increase the aggregate
commitments under the credit facility by up to an additional
$10,000,000, (ii) to amend certain
financial covenants including the senior leverage ratio and the
fixed charge coverage ratio and the basis of EBITDA calculations
for these financial covenants to be determined on an annualized
forward looking basis commencing in the first quarter of 2021,
(iii) to add a minimum liquidity covenant of $5,000,000 until June 30,
2021, (iv) to add a fourth tier of pricing resulting in
interest on the term loan of prime plus 2.00% to prime plus 2.75%
depending on certain financial covenants, and (v) a waiver was
proactively requested by the company and received from the Lender
relating to the fourth quarter of 2020 financial covenants due to
the previously mentioned inventory write-down.
Jeff Fallows, President,
commented, "Our strategic decision to reposition our inventory also
led us to proactively renegotiate our credit facility to better
align with the needs of the business as it grows. Although it
resulted in a reduction of our surplus cash balance, the repayment
of the Term Loan relieved constraining covenants and increased both
our operational and financial flexibility to aggressively pursue
emerging market opportunities and support our future international
expansion, including our anticipated U.S. market entry. Our cash
balance remains healthy and we remain financially well-positioned
to execute on our global business strategy."
About The Valens Company
The Valens Company is a
leading manufacturer of cannabis derivative products with a mission
to bring the benefits of cannabis to the world. The Company
provides proprietary cannabis processing services across five core
technologies, in addition to best-in-class product development,
formulation and manufacturing of cannabis consumer packaged goods.
The Valens Company's high-quality products are exclusively
formulated for the medical, therapeutic, health and wellness, and
recreational consumer segments, and are offered across numerous
product formats, including oils, vapes, concentrates, edibles and
topicals, as well as pre-rolls, with a focus on next-generation
product development and innovation. Its breakthrough patented
emulsification technology, SōRSE™ by Valens, converts cannabis oil
into water-soluble emulsions for seamless integration into a
variety of product formats, allowing for near-perfect dosing,
stability, and taste. In partnership with brand houses, consumer
packaged goods companies and licensed cannabis producers around the
globe, the Company continues to grow its diverse product portfolio
in alignment with evolving cannabis consumer preferences in key
markets. Through its wholly owned subsidiary Valens Labs Ltd., the
Company is setting the standard in cannabis testing and research
and development with Canada's only
ISO17025 accredited analytical services lab, named The Centre of
Excellence in Plant-Based Science by partner and scientific world
leader Thermo Fisher Scientific. Discover more on The Valens
Company and its subsidiaries at
http://www.thevalenscompany.com.
Notice regarding Forward Looking Statements
All information included in this press release, including any
information as to the future financial or operating performance and
other statements of The Valens Company that express management's
expectations or estimates of future performance, other than
statements of historical fact, constitute forward-looking
information or forward-looking statements within the meaning of
applicable securities laws and are based on expectations, estimates
and projections as of the date hereof. Forward-looking statements
are included for the purpose of providing information about
management's current expectations and plans relating to the future.
Wherever possible, words such as "plans", "expects", "scheduled",
"trends", "indications", "potential", "estimates", "predicts",
"anticipate", "to establish", "believe", "intend", "ability to", or
statements that certain actions, events or results "may", "could",
"would", "might", "will", or are "likely" to be taken, occur or be
achieved, or the negative of these words or other variations
thereof, have been used to identify such forward-looking
information. Specific forward-looking statements include, without
limitation, all disclosure regarding future results of operations,
earnings guidance, economic conditions and anticipated courses of
action. Investors and other parties are advised that there is not
necessarily any correlation between the number of SKUs manufactured
and shipped and revenue and profit, and undue reliance should not
be placed on such information.
The risks and uncertainties that may affect
forward-looking statements include, among others, regulatory
risk, United States border
crossing and travel bans, reliance on licenses, expansion of
facilities, competition, dependence on supply of cannabis and
reliance on other key inputs, dependence on senior management and
key personnel, general business risk and liability, regulation of
the cannabis industry, change in laws, regulations and guidelines,
compliance with laws, reliance on a single facility, limited
operating history, vulnerability to rising energy costs,
unfavourable publicity or consumer perception, product liability,
risks related to intellectual property, product recalls,
difficulties with forecasts, management of growth and litigation,
many of which are beyond the control of The Valens Company. For a
more comprehensive discussion of the risks faced by The Valens
Company, and which may cause the actual financial results,
performance or achievements of The Valens Company to be materially
different from estimated future results, performance or
achievements expressed or implied by forward-looking information or
forward-looking statements, please refer to The Valens Company's
latest Annual Information Form filed with Canadian securities
regulatory authorities at www.sedar.com or on The Valens
Company's website at www.thevalenscompany.com. The risks
described in such Annual Information Form are hereby incorporated
by reference herein. Although the forward-looking statements
contained herein reflect management's current beliefs and
reasonable assumptions based upon information available to
management as of the date hereof, The Valens Company cannot be
certain that actual results will be consistent with such
forward-looking information. The Valens Company cautions you not to
place undue reliance upon any such forward-looking statements. The
Valens Company disclaims any intention or obligation to update or
revise any forward-looking statements whether as a result of new
information, future events or otherwise, except as required by
applicable law. Nothing herein should be construed as either an
offer to sell or a solicitation to buy or sell securities of The
Valens Company.
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SOURCE The Valens Company Inc.
