Valens GroWorks Reports Solid Earnings In Third Quarter

Following the close of the market on Tuesday, cannabis extraction product company Valens GroWorks Corp. (TSXV: VGW) (OTC: VGWCF)  reported its financial results for the third quarter of fiscal 2019 with revenue increasing 87.1% to $16.5 million over last year’s $2.2 million for the same time period. Revenues increased 641.4% sequentially over the previous quarter’s revenue of $8.8 million.

The company delivered net income of $5.9 million (or $0.05 per share basic and diluted) in the third quarter, compared to a net loss of $10.5 million (or a loss of $0.10 per share basic and diluted) in the second quarter of 2019.

“We are extremely pleased with the roll-out of our business plan and the continued scale-up in the Company’s extraction operations which have allowed us to continue our aggressive quarter over quarter growth in volumes, revenue, adjusted EBITDA and net income,” said Tyler Robson, CEO of Valens. “While we anticipate that our margins in future quarters will continue a strong upward trend from the levels seen in previous quarters, especially as our volumes continue to ramp and efficiencies are realized, margins in the third quarter were aided, in part, by a one-time contract opportunity which we do not anticipate recurring in future quarters. Finally, our net income in the quarter has made us the most profitable public company in the Canadian cannabis sector with the highest net income margin (excluding biological asset fair value adjustments).”

Valens also noted that it has a strong balance sheet with $69.2 million in cash and cash equivalents and short-term investments and a net working capital position of $84.1 million as of August 31, 2019.

Processing Details

During the quarter, Valens said it processed 26,625 kilograms of dried cannabis and hemp biomass which was a 212% increase over the second quarter of 2019. Valens said it had already processed 13,423 kilograms of biomass in the first 45 days of the fourth quarter. “During the early part of the quarter, we worked with a number of our clients to process smaller, higher revenue white label product lots in preparation for the launch of edibles and concentrates later this year. This is anticipated to result in higher revenue per gram of input compared to previous quarters. Volumes are expected to accelerate into the back half of the fourth quarter, particularly as we begin to process larger white label lots for sale in 2020 and resume the processing of our previously announced contracted volumes.”

After the quarter ended, Valens signed an agreement to become the first third-party processor to supply Shoppers Drug Mart with cannabis oil products for their online medical cannabis site. The company also signed its first beverage agreement with Iconic Brewing to manufacture 2.5 million cannabis beverages over the term of the 5-year agreement.

“We have a clear strategic vision for the Company and with our strong balance sheet and demonstrated cash flow generating capabilities, we are well-positioned to achieve that vision,” said Jeff Fallows, President of Valens. “In the near term, we are focussed on delivering on our existing contracts with industry-leading partners, like Shoppers Drug Mart, to provide innovative white-label product development and manufacturing services for vape cartridges, tinctures, gel capsules, beverages, and topicals. Looking to the future, we will to continue to make strategic capital investments, both domestically and internationally, to improve our technical capabilities and grow our intellectual property portfolio as well as expand the Valens platform to new and strategic markets with the objective of creating long term value for our shareholders and all of our stakeholders.”

 

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