Yesterday after market close, The Valens Company reported Q2/22 financial results that missed our expectations. The Company reported $24.0M in revenue (+28% YoY, +4% QoQ), below our estimate of $26.7M. The provincial sales segment regressed QoQ due to the rebranding of Verse to Versus and revenue timing issues, while the Green Roads and B2B segments remained strong. As such, branded market share declined in May 2022, but management saw a strong rebound in June 2022, posting record monthly revenue. More importantly, management reiterated its objective of reaching positive adjusted EBITDA by Q4/22 and its 2023 guidance of $225M+ in revenue with 10%+ adjusted EBITDA margins (including future acquisitions). Additional highlights from the quarter include:

• Revenue of $24.0M vs. our estimate of $26.7M and $23.2M generated last quarter. Provincial revenue came in at $9.2M (-15% QoQ) due to the factors mentioned above. Green Roads revenue came in at $5.7M (+12% QoQ), which was attributable to growth in DTC e-commerce sales and international sales. B2B revenue came in at $7.0M (+11% QoQ) due to higher demand for bulk sales. International revenue came in at $1.1M and other revenue came in at $1.0M.

• Adjusted gross profit of $3.4M (14% margin) vs. our expectations of $6.1M (23% margin) and $3.4M (15% margin) posted in Q1/22. Management outlined that it expected improved gross margins in the coming quarters based on optimizing input sourcing and automation

• Adjusted EBITDA of -$15.9M vs. our estimate of -$12.0M and -$17.6M in Q4.

• Valens ended the quarter with $26.1M in cash and equivalents

Market Share: Following the provincial sales decline, VLNS’ market share came in at 3.2% in May compared to highs of 3.4% in April. This included 3.6% in flower, 1.8% in pre-rolls, 3.1% in edibles, 3.7% in vapes and 910.9% in beverages. We are expecting a rebound in market share in Q3 as June was a record month and management has high visibility into July sales.