The Valens Company Inc. (OTCQX: VLNCF) provided an update on its corporate initiatives following the close of the market on Tuesday. The Valens Company said it made the strategic decision to liquidate the majority of its cannabis oil inventories at market-clearing prices in the fourth quarter of 2020. The stock was falling over 9% on the news to lately sell at $1.92.
This company said that the decision will lead 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.
Valens said it came to this decision based on the anticipated increase in outdoor cannabis volumes and continued overall decline in dried cannabis pricing, the strong success of its value-priced product offerings with partners, and the near-term launch of several new product formats that will leverage both strain and terpene specific profiles.
Tyler Robson, Chief Executive Officer 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.”
Valens said that 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. The company noted that 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 said it expects to report its fiscal 2020 fourth-quarter results in late February.