RE:RE:RE:RE:RE:RE:RE:RE:RE:ValensStockwatch commentary on Valens inventory selloff:
"Here in Canada, Cannabis 2.0 producer The Valens Company Inc. (VLNS) lost 29 cents to $2.46 on 2.13 million shares, after talking up a "strategic decision" on a "strategic initiative." Experienced investors will know those to be warning words. Indeed, Valens went on to explain that, in order to "clear the deck and increase our flexibility" -- red alert -- it is liquidating a chunk of its inventory and will thus have to take a $9-million to $10-million one-time charge in the fourth quarter. The charge covers the bulk of its cannabis oil inventory. Oil has a shelf life, of course, although it is long enough that it is likely not the main factor here. A more important factor appears to be product cost. Valens noted that it has reduced the average price of its oil inventory by over 50 per cent and can now "rebuild its inventory with targeted strains of dried cannabis sourced at opportunistic, lower price points." In other words, it is getting rid of high-cost older inventory (by selling it at a steep discount) and replacing it with newer, lower-cost stuff. This leads to writedowns in the short term but, it hopes, better margins in the longer term.
A cynic might note that this is the kind of thing a company might choose to do when an upcoming quarter is going to be disappointing anyway. A net loss might as well be a bigger net loss, getting the writedown out of the way, and ideally making the subsequent quarters look all the better. While Valens did not acknowledge this mercurial line of thinking, it did hint that the fourth quarter results are going to contain some letdowns. Notably, it provided a preliminary net revenue estimate for the fourth quarter of $15-million to $16.5-million. This would be a decrease from $18.1-million in the third quarter. Valens added that it expects revenue to rebound to a range of $19-million to $23-million in the first quarter, with further "revenue growth throughout the remainder of fiscal 2021."