Q1 2021 Valens Company Inc. Earnings Call
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Hello and welcome to the balance. The company's first quarter of fiscal 2021 Financial results conference call at this time. All participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder. This conference is being recorded. It is now my pleasure to introduce your host ever at night Executive Vice President of corporate development and capital markets of the Valens company Everett, please go ahead.
Thank you operator. Good morning, and welcome to the Valens company first quarter 2021 Financial results conference call for the period ended February 28th, 2021 a replay of this call will be archived on the investor relations section of the Valens website at the Valens company investors.
before
We Begin please let me remind you that during the course of this conference call Valens management may make statements including with respect to the Management's expectations or estimates of future performance all such statements other than statements of historical fact constitute forward-looking information or forward-looking statements within the meaning of the applicable Securities laws and are based on expectations estimates and projections at the date hereof
Specific forward-looking statements include without limitation all disclosures regarding future results of operations economic conditions and anticipated courses of action. These forward-looking statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. For more information on the company's risks and uncertainties related to forward-looking statements. Please refer to our latest annual information form and our latest management discussion and Analysis, otherwise known as mdna each as filed with the Canadian Securities regulatory authorities at home or on the valin company's website at the Valens company. The risks described in the annual information form which may cause the actual Financial results performance or achievements of the Valens company may be materially different from the estimated future results performance or achievements expressed by the forward-looking information or forward-looking statements are hereby Incorporated by reference herein. Yep.
These forward-looking statements reflect Management's current beliefs and reasonable assumptions based on current available information available to management as the date hereof. We cannot be certain that the actual results will be consistent with the forward-looking statements in the future. We caution you not to place undue Reliance upon such forward-looking statements for any reconciliacion of non-gaap measures. Please measured place and see a consult their latest md&a as filed on Sedar joining me on the call today are Mister Tyler Robinson chief executive officer Mister Cocke bizon Chief Financial Officer and Mister Jeff Fallas president with that. I would now like to hand the call over to Tyler Tyler, please go ahead and
Thank you everyone and welcome to everyone that has joined our earnings call to discuss our results for the first quarter ended February 28th, 2021 later on today's call. Jeff will provide an update on our down payment and strategic initiatives for 20 21 every night will highlight industry Trends in capital markets activities and Chris buys and we'll give an overview of our financial results of the first quarter off. But first i'm going to talk about our highlights for the quarter just over a year ago. We re-established the Valens company that manufacture of cannabis consumer packaged Goods since then, we have created manufacturer distributed what we believe are some of the most unique and Innovative products in the Canadian market today across all cannabis 2.0 categories the quality and consistency of the valence products continue to be recognized with our customers and consumers alike validating the strength in our sophisticated platform how the experience team and our ability to continue to execute in the Canadian market and Beyond Iron Chef.
Everyone to try the products that we have manufactured.
To recognize the balance Advantage. We are proud of what we built in Canada and are confident that it will springboard for our expansion into other domestic markets increase our market share with both new and existing customers and drive volumes for our trusted and acclaimed products. What as we walk through our first quarter achievements. It is clear that we are only getting started over the course of fiscal 21, we expect to drive considerable considerable girls in all areas of the business that we accelerate our path to increase profitability and visibility on a global level in q1. We accept our expansion strategy with several meaningful accomplishment. We have a robust domestic footprint in place now with RK to facility up and running. The newly-acquired light facility is scaling up quickly and the GTA facility just track to come online the end of the second calendar quarter of 2021 this dramatic increase in capacity leaves us in a strong position to focus our efforts on growing our International presence and with near-term phone number.
The US market we are currently in a number of advanced discussions regarding various opportunities with industry leaders in the first quarter. We increased our net revenue by Twenty 4.7% to twenty million wage compared to sixteen million q420 with the growth in our capabilities to manufacture and ship up finished cannabis products. We have increased product sales revenue year-over-year by 23.3% to 715.9 million Q121 from 14.5 million to 420.
Product sales made up approximately 90% of our total revenue in fiscal q1, and we expect that number to stabilize as we continue to launch new products and capture market share in the Canadian Recreation a market Australian medicinal market and other new markets. We expect to enter the short-term. We are happy to report that despite decrease in sales early and in the broader Canadian cattle market our provincial sales increased by 7.6% from Q4 2020 as we manufacture and distribute a full Suite of 2.0 products in categories such as Vape concentrates Beverages and oils across Canada. Most notably this was despite a Slowdown in the Canadian cannabis sales at the beginning of the year. Do you do pandemic restrictions on the retail store fronts and provincial Inventory management?
From the sales. We saw an increase in cannabis 2.0 market share to an estimated 5.5 and Alberta British, Columbia and Ontario compared with 4.9% in 8020 based on headset data not including fee to be LP manufacturing. And again, we expect this number to continue to increase as we expand our portfolio products, especially in the Edibles in topicals categorize and increase our partnership network network over the course of the year. We believe we have the low-cost most Innovative and adaptable product manufacturing platform and the Canadian Market. We we had have extreme efficient operations with the ability to get finished products to consumers in record time allowing us to advance and key verticals only beginning to take hold in the Canadian recreational Market looking ahead. We will offer various new-to-market formats designed exclusively for onset of 3.0 of cannabis 3.0 in Canada, which we expect will be complimentary complementary to the gross.
The partnership of our Network as we anticipate.
Bring on leading cpg customers looking to enter into the Cannabis industry. We also view our Advanced product development and abilities as a catalyst for entering both evolving and more mature Global markets as a cash category begins to reflect the true consumer packaged good. I'll turn the call over to Jeff president the Valens company to dive deeper into the operational treatments and strategic initiatives for 2021.
Thank you Tyler. We have started the year with a strong first-quarter following the most productive operational year in our history during which violence established itself as a leader in the Canadian cannabis product manufacturing Market in q1 twenty-twenty Valens extended at Sweet of manufacturing capabilities to include Edibles and topicals two of the fastest growing categories in the Canadian Market in the first quarter. We manufactured 53 skus in comparison to sixty two in the fourth quarter of 2020 including topicals and edible products along with pictures Vapes concentrates and beverages representing a complete offering of two products.
Valens manufactured products are winning in the market demonstrated by both our product sales and our provincial sales growth despite the slowdown in sales across the sector in early 2021 the decrease in unique skus took over quarter can be attributed to Vons focus on maximizing skew and sales velocity of existing products that are proven to lead within their respective categories within the Canadian Market as Thursday matures. We will continue to closely monitor the popularity of our products in order to optimize our productive capacity meet demand for many customers and increase consumer accessibility in line with our strong goals last quarter. We continue to launch new and Innovative cannabis 2.0 product formats, including new on DVD 100 a high potency CBD dominant oil in the medical medical cannabis by Shoppers could place. We also launched customizable THC and CBD water soluble drops, which are part of a growing product portfolio. We have planned for the with verse Canada's which includes driver job.
Flower pre-rolls and beverages. We are pleased to see that our product quality and consistency is increasingly being recognized by our customers consumers and private and government government operates retailers as we continue to have success listing our products despite ongoing provincial selling constraints in The Wider industry ahead of the onset of cannabis 3.0 in Canada. We will be entering Neuvirth such as the recently entered Wellness Market with a wide range of products such as Edibles Beverages and topicals we have already made meaningful progress with this having entered the topic was category with the loss of life CBD bath bombs complementing the the brands existing line up of Premium wellness products, we expect violence to lead the wellness category in Canada in Canada with the lots of additional Personal Care Home Products, alongside many of our customers in the coming quarters, including Baum mental Rob soft chews, honey and a variety of bath bombs.
During the quarter van submitted a site evidence package to health Canada for our third facility in Canada located in the GTA construction is nearing completion at the facility which will provide an additional 30.
Thousand square feet of manufacturing space and we'll focus on the formulation cold packing and manufacturing of cannabis-infused Beverages and other customized 2.0 and 3.0 products using my balance and modem technology. We expect to begin manufacturing commercializing and shipping out products from the facility in the second half of fiscal 2021 with this facility coming on life. We expect to increase our cannabis infused beverage market share in Canada, which was approximately 5.1% in Alberta, British, Columbia and Ontario in q1 2021. According to head set data despite having only one customer in this category today's
We also expanded our product distribution capabilities with the amendment of our health Canada license to sell dry cannabis products to authorize provincial and territorial retailers in Canada. Based on the strong demand. We receive from the existing and potential future customers with this new license Valens now offers a complete range of products to its customers in the Canadian recreational Cannabis market and increases his total addressable Market them to begin shipping dried cannabis products including flower and pre-rolls in the second quarter of 2021.
To further increase violence ability to capture market share in Canada. We expanded our domestic distribution Network to Manitoba and now have the ability to sell products in five provinces near-term entry into the remote provinces and territories including Quebec is expected in the short term as discussions continue with provincial and territorial boards and private retailers by the end of fiscal 2021. We expect to be an all preferences and territorial markets in Canada the achievements over the last year in solid Financial results that we reported today for Q1-twenty-one reflect are successful transformation as a business through several key strategic initiatives following our public financing. We have a strong Capital position to fuel our growth as we launch new and Innovative cannabis, 2.0 and 3.0 product formats and agreement and agreements connect you to build our manufacturing capabilities and accelerate our International expansion strategy as the global cannabis Market continues to expand we plan to enter the US market and other International markets subject to age.
Legal and Regulatory Frameworks through strategic Partnerships and Acquisitions with existing Market leaders Who We Believe recognize the value of our platform. We are currently in advanced discussions with respect to a number of global expansion initiatives that we expect to come to fruition in the next few quarters that will expand Valens overall addressable market and long-term shareholder profitability analysis from all over to Everett to discuss industry Trends our market share gains and capital markets activities Everett, please go ahead.
Thank you, Jeff and Tyler and have made clear. We've continued 2020s momentum into the first quarter with an excellent success so far during the quarter, we ramped production at home and create a new products and entered new verticals for new Revenue opportunities. We increased our share of the extract based market and Alberta, British, Columbia and Ontario to an estimated 5.5% in q1 2021 from 4.9% in Q4 twenty-twenty based on headset data and not including B2B LP manufacturing even more meaningful. We are continuing to see our provincial sales increase as we launch new products with our customers and expand our distribution of existing projects across Canada Valens is outperforming at every turn and we have now manufactured approximately 1.4 million units of finished goods over the twelve months ended, February 28th, June.
21 we are delighted.
Need to have reached this Milestone, especially given that our growth looks set to continue throughout the year.
At the largest third-party vape pen manufacturer in the country, we continue to drive significant volumes of each quarter. And as of q1, 20-21 Valens manufactured over 900,000 a products and we are pleased to report that during the first quarter the Valens Valens manufactured and distributed the second best-selling Vapes you off cannabis Tropic women one gram Vape cartridge across Alberta, British, Columbia and Ontario according to head set data the popularity of verse Tropic Lemon Song by led to the development of additional three flavors Sunset Peach Mandarin mint and summer Berry all of which were also manufactured and shipped out in the first quarter to vet has
And the growth of the Canadian cannabis Market also looks healthy. We're seeing that extract based product sales are beginning to make up a larger percentage of sales in the market as a more variety of products are being introduced specifically extract phase product sales made up 31% of the Cannabis sales in Alberta, British, Columbia and Ontario in January according to head set data off in the first quarter. There was a 73% increase in biomass extracted quarter-over-quarter as we saw an increased demand for CBD distillate and I slit as mentioned last call with the continued wave of financing in the sector. We were having negotiations with potential LP customers who are now well capitalized to engage with third-party operators.
Subsequent to the quarter. We announced new strategic agreements with leading cannabis Partners in the industry that we expect will expand our product offerings Valens entered into an extraction in the manufacturing agreement with Rubicon Organics where we will leverage our full complement of proprietary extraction capabilities, including organic certified CO2 ethanol and other apps and Technologies to deliver customized consumer experiences in a variety of 2.0 products under the LPS product portfolio. Additionally, we entered into a custom manufacturer agreement with expiry on biotechnology to provide end-to-end pre-roll manufacturing service services and product distribution service services with continued discussions to expand the existing agreement to include additional product development and Manufacturing Services for range of next-generation products this agreement marked our first pre-roll manufacturing agreement and sit down.
Stash pre-rolls will be the first dried cannabis product that balance will have manufactured in the market over the course of twenty Twenty-One. We expect to continue to grow our partnership networks without peace cannabis grand houses and consumer packaged good companies and with the closing of our acquisition on Life Food Technologies, which is all which also took place after the quarter wage to expand existing agreements with customers looking to enter the evolving edible space in Canada with the addition of the light facility. We now have the capacity to produce a wide range of edible products in various formats and dosages as part of our Central platform vegan sugar-free and low-sugar formats are available and we'll be home especially complimentary for the development of balance wellness products sweet as Jeff mentioned earlier since closing. We have welcomed this and successfully integrated several life team members to the Valentine's Day.
Emily and have already begun
Aan manufacturing and launching Edibles products marketing Valens entry into the category in partnership with verse cannabis balance launched Versace choose a new line of edible formulation a unique flavors at a great value. The new product lineup includes verse baked apples off juice and verse sour medley song juice since they're launched vs. Soft chews have been receiving rep customer reviews for their flavor profile and overall customer experience and we hope to bring these already leading products to other domestic markets in the short term in the second quarter of 2021. We intend to launch an assortment of unique consumer-driven edible products into the market alongside various Partners In addition to continuing to manufacture with existing life Partners, including the citizen staff strawberry Macland gummies and a one cannabis Summit Wildberry soccer shoes.
Lastly with the closing of our 39.7 million baat Dil public offering on January 29th, 2021. We are in a strong cash position to fuel our growth forms. I discussed earlier we plan to use a majority of the net proceeds of the offering to pursue strategic m&a and business expansion opportunities in Canada and international markets with a balance of the net proceeds for working capital requirements and General Corporate purposes with that. I'll now turn the call over to Chris Biden to run through the financial results for the first quarter of fiscal. 2021 Chris, please go ahead.
Thank you, Everett quarter-over-quarter. Net revenue increased four million or 24.7% to twenty million compared to $60 million in the previous quarter ended November 30th 2020. The increase in Revenue was driven by a four million increase in revenue from Cannabis operations, which generated revenue of 19.6 million compared to 15.6 million in the previous quarter.
Cannabis operations Revenue associated with product sales increased 3.4 million or 23.3% as a result of increased volume through the execution of white label offerings and winterize distillate and isolate sales to support our industry partners.
Product sales growth was also driven through provincial product sales which increased 7.6% over the prior quarter as the company continues to execute on his transition strategy away from a focus on co-processing to product development and Manufacturing.
Consolidated net revenue in the first quarter of fiscal 2021 decreased 37.4% to twenty million compared to revenues of $32 million in the same period of fiscal 2012-13 decrease in Revenue was driven by a reduction in cannabis operations Revenue to nineteen point six million compared to Thirty one point six million in the same. In fiscal 20,000 cannabis operations Revenue associated with told extraction and co-packing decreased 14.6 million or 89.3% Is it company continue to execute on its strategy of transitioning away from a focus on tour processing to a product development and Manufacturing Company?
in addition to
The shift in Focus the company continued to see a reduction in shipments of biomass from extraction Partners as partners adjusted their Workforce and operations to manage through the uncertainty created by the COVID-19 at that the continued execution of product development and Manufacturing strategy was highlighted by the increase in product sales of 2.6 million or 17.2% with the scale off of white label product formulation and Manufacturing to include tinctures Vapes beverages Edibles concentrates and sourcing both both winterized and just put oil for our partners kind of a 2.0 products.
Additionally The company generated 0.69 million in revenue from analytical testing through the company flab compared to 0.73 million in the previous quarter ended November 30th, 2020 including 0.28 million inter-company test in Revenue at the volume of third-party tests completed by the lab remains strong and consistent or money order.
Is that for a previously mentioned in the first quarter? We extracted 17813 kilograms of biomass a 73% increase over the prior quarter using input source LP partners for co-processing as well as balance on inventory for 2.0 products. In addition. The company utilized its bulk oil to manufacture 53 products fuse in the back order a decrease of 15% compared to the prior quarter, but an increase of 47.2% compared to the end of the first half of last year.
Gross profit for the first quarter of 2021 decreased to 4.8 million compared to 18.1 million in the same. In fiscal 2020 the gross profits and cannabis operations for the first quarter was 4.2 million or 21.6% compared to Seventeen point seven million or 56.2% in the same. Fiscal 2020 gross profit was negatively impacted in the quarter of the company continued execution of the shift away from historical focus on pole processing to a current statistics focus on product development and Manufacturing and the repositioning of based Hardware utilized with certain industry partners.
However, on a quarter-over-quarter basis gross profit increase to 4.8 million for the first quarter of 2021 compared to a loss of six million in the previous month ended November 30th, 2020 the gross profit from Cannabis operations for the first quarter was 4.2 million compared to a loss of six point five million in the previous quarter wage increase in gross margin was largely attributable to the inventory write-down and owners contract loss and loss on the sale of certain lots of bulk which rice and distillate boiled eggs, which were experienced as part of our strategic repositioning initiatives executed in the fourth quarter of 2020.
New Edition
Analytical testing operations on increase in gross profit dollars for the first quarter to 0.58 million or 83.6% compared to 0.57 million or 77.4% in the previous quarter operating expense for the quarter or approximately 11.9 million compared to eleven point five million in the same period last year with the slight year-over-year increase in expenses for the first quarter was driven by a depreciation and amortization facility facility expansion costs and higher wages salaries in general administrative cost of the company continues to build out its team and production facilities to execute on its product development and Manufacturing strategy.
You need the first quarter of 2021 with adjusted ebitda of -2.2 million which decreased by 16.5 million over the same period in fiscal 2028 as a result of the companies continued transition away from tourist attraction services to consumer product development and Manufacturing platform, including both cannabis oil sales rep remain confident that our business transformation to a product development and Manufacturing platform and our acquisition of light food technologies will allow us to see predictable positive ebitda performance package teacher quarters, as a reminder, we ended fiscal 2020 with positive adjusted ebitda, despite the challenging conditions that existed in many parts of the market.
At the end of the year, we were one of the few companies in Canada space that's achieved this level of performance for our shareholders. We are excited about twenty Twenty-One as we leverage our challenges are changing business, um model recent acquisitions and product expansions to create long-term sustainable value for shareholders and stakeholders.
The company continues to closely monitor inventory levels and balances outstanding with our partners to ensure a strong financial balance sheet position as of February 28th, 2021, the company had 10.9 million in trade accounts receivable outstanding over 60 days and an Express expected loss rate on overdue balance has is estimated to be zero point six million wage subsequent Collections and various discussions with those Associated customers and Analysis of credit worthiness.
In addition the company has subsequently collected as trade accounts payable standing with the same Partners or has recorded an impairment loss provision representing 56% of the bank accounts receivable balance which supports the cash position of the company.
As previously mentioned on January 29th, 2021 the company closed the deal financing pursuant to which the company issued nineteen point four million units valued at $39 million dollars, which was comprised of one common share of the company and 1/2 share purchase warrant. Each full share purchase warrant is exercisable at a price of $255 per share off for a period of 36 months from the date of closing.
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February 28th, 2021 it remains a balance outstanding under the term loan facility of nine million dollars and the secured revolving facility of up to ten million dollars remains on Drawn off at the end of the quarter. The company was in breach of certain Financial covenants under the credit facility accordingly, the remaining balance outstanding under the term facility of nine million dollars was classified as current on the company's balance sheet the company continues to work with the lenders to amend certain Financial covenants and obtain a waiver for the period ended February 28th, 2021 to federal debt package with the new requirements of our successfully repositioned business. The company had forty nine point three million in cash as of February 28th, 2021 compared to a point three million as of November 30th 2020 which includes gross proceeds of 39.7 million from the bought deal financing that closed at the end of fiscal 2020.
With that, I'll turn the call over to the operator open the line so the question and answer session.
Thank you. We will now conduct a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad a confirmation to indicate your lines in the question queue. You may press star to if you like to remove your question from the Q4 participants use a speaker equipment. It may be necessary to pick up your handset before pressing the store Keys. We ask that you limit yourself to two questions initially so that we have time to speak with many of you as possible. If you have additional questions, please rejoin the queue and we will Endeavour to come back to you later in the call. One moment, please. While we pack for questions.
Hi, first question comes from Andrew Parker know with Steve. Please proceed with your question.
Hi, good morning, and congrats on on the great quarter here. Wanted to maybe first touch on you know, your gross margin in Q4 you repositioned a lot of your inventory and and you know was discussing about how your new sourcing of of lower input costs could go through and and increased margin sooner. Just wondering you know, how much of that are we seeing in q1, and should we expect more going forward?
Chris have let me take this one.
Certainly. Yeah, as we as we work through q1, we we continue to sell through some of the inventory that we had on the balance sheet as of the end of last fiscal. There was a bit of a a continued drag on our margins into q1. I think as we move into Q2 and Q3, I think we should continue to see growth in in our margins as we kind of work through that inventory. As long as you mentioned on our last call our ability to now Source biomass that at lower prices, so we'll see continued strength from from that in our in our margin profile page as well as the um, the product sales side of the business continues to expand and we continue to bring to Market additional Innovative products that at stronger margins that will continue to as well support the the growth and margins that we anticipate realizing as we move into into Q2 and Q3 of this. Yes.
thanks for that additional color and
and just touching on on the dried flower here that you know you guys seem to expect to launch imminently with with sales in two provinces wage. You talk a little bit about your strategy there, you know, I mean, there's already a lot of dried flower products on the market and you know on The Vape side you guys have sex successful, you know differentiated yourselves and just was curious about you know, how you're thinking on on the flower and pre-roll side to to do the same.
Sure. Tell her why don't you take this one?
Yeah, absolutely. So a couple of things to think about as as we are the lowest cost producer in the largest purchaser of biomass is a few things to keep in mind one. We are not stuck to any genetic or any product portfolio. We can go out and hand select the genetics we want to launch and also we can launch it at a cost that no one else can so when you really look at the value proposition we can bring the table. No one can compete with what we're supposed to do. We're extremely disruptive and not only pre-rolls butthole flower and when you look at the market size, it's it's hovering around 60% right now, even though it's declining it's a huge Revenue opportunity for our organization. So we're excited stay in those in like like we said in the call, you will see some of that flower sales in Q2. So we're we're going to hit the ground running.
Thanks for that congrats again, and I'll get back in the queue.
Our next question comes from Neal Gilmer with Haywood Securities. Please proceed with your question.
Yeah, good morning guys. Maybe I'd start with just your comment posting a press release and in the prepared remarks in evaluating sort of the sales velocity of some of the products you're taking the market wage. You give us a little bit more sense of you know, what you're looking for there. What sort of time. You you know evaluate the silver and you know, I guess, you know the subset to that with rep back to some of the province's doing some inventory rationalization of the course of of Q1 of these calendar q1 here, you know, whether that affected your ability to really sort of assess how you wanted us to focus on on which products to bring to Market.
Okay, maybe I'll maybe I'll take this to start look as with any sort of a growing Market environment. I especially in the Canadian context where we saw a number of consumers trying a number of different products et cetera, you know, you can't just sort of sit put a product out there to sort of let it sit you have to be, you know have time. If you have to make sure that the products positioned properly and and focus on those that are gaining market share and and you know, don't be hesitant to to drop products that aren't so I think you're going to see Valens may continue to launch products out there with our partners making sure that our product portfolio is optimal for the consumer trends that are developing and the opportunities that we're seeing in the market. So, uh, you know in in particular we spent a lot of time over the last couple of months in working with the provinces and understanding and going into detail deep conversations with not only what we're seeing in the market but soliciting feedback from them.
As to what they're seeing in the market how they want products position and and sort of where their holes are in there.
Like portfolios that they're providing with that information. We done go back to our partners on the brands that we're working with work through new product opportunities and help them either. Uh, I replace existing excuse that are not performing well or repositioned them based on that feedback. So I think you're going to see that continue to happen with us given the number of products We Touch wage given the number of customers that we represent at the provinces. We believe we have, you know, some of the best Insight in the market as to what those products should be and we're going to be aggressive and making sure that we go after the transmission. We see materializing and that we want to bring on board the balance platform.
Yeah, Neil just to kind of add to what Jeff said the best way to think about. It is fewer bigger better. We're launching fewer skis and we saw that in the calm down cuz we're going to we're going to get behind a few a few key ones and wage to drive a lot of velocity and a lot of a lot of volume through those and then the best way to think about it too is is we're listening to Consumers. We don't need to be everything to everybody. So you're going to see a much more strategic approach from the same group rather than the majority of our industry peers. For example, we're only launching one set of flour skus right out of the gate and it's going to do extremely well. So the model for us is fewer bigger better.
Thanksgiving Tyler, that's helpful. Then maybe my follow-on question would be from that is that if you're doing a few a bigger better than I assume then you know, you probably have the opportunity to increase margins wage margins that way because you're icing for shipments into the province's, you know, if you're doing larger shipments on fewer skus, you probably have some cost efficiencies that are achieved through that. Is that a correct wage? Yeah, you're the one hundred percent correct? Right across the board. You'll see optimizing efficiencies optimizing processes turning machines more often. And then yeah that bigger ship ma'am and more consistent shipment. So yeah, it'll be lucrative all the way across the board.
And you know if you think about 20 20 as we've said previously was all about us building our platform right making sure that we had the right capabilities in the right team driving that we believe we've often as we said in our last quarter and with the acquisition of life and now for us it's about taking that that platform and optimizing it to the best return for shareholders.
Okay, great. Thanks guys. Congrats on the quarter.
Our next question comes from David kideckel with a TV Capital markets. Please proceed with your question.
Hi, good morning. Congrats on this is quarter everybody. Thanks for taking my question. My first I want to go a little bit deeper if that's okay and to the US and your International expansion pack both strategy and timeline. I know Jeff you mentioned your prepared remarks, or maybe it was Everett once federally permissible to do. So in the US we know, you know through the farm bill with hemp opportunities those are available. So I'm just wondering as far as your strategy is concerned. How should we think about this is it's still through hemp-based companies or products or other multi-state operators. And also if you could maybe just clarify what your your timing is for the next?
Sure.
So if I look at a couple of things happen David with respect to the us from our standpoint, you know, firstly we got you know, our big ugly positioning I could bring it on T to facilitate getting our our Canadian Footprints online and functioning and and and functioning well that you know with that behind us and secondly with the changes in the White House and and the change in perspective on what the opportunity was in the US in a shorter period of time, obviously, then from Valens company perspective it was time for us to get more aggressive or without marketing opportunity. Obviously, I would toddlers experience and and several team members experience in the US. We've got relationships. We understand the market we understand the products and so from that perspective and from our shareholders perspective, they want us there. So with that view we took, you know, a very strategic review of the market opportunities. We we have listing requirements obviously with the team.
Sucks and we have other requirements that we have to live up to. So the the best thing I can tell you is that we're looking at it strategically. I think we are approached. They're from you know, from a cvd perspective obviously has to be a a key consideration in our strategy given THC continues to be a challenge from a listing perspective. I'd say that but from our standpoint we're being very creative about how we're approaching that to make sure that we're maximizing the opportunity for shareholders and getting that Capital efficiency in our lives that they've come to expect from us off the best way I can put our strategy. I think that from a timeline perspective, you know, we think the opportunity is is is current we think that the market is coming around in a way that we like in a way that the balance platform can do quite well in so will you can see us being aggressive and from the timeline perspective, you know in the near-term?
Okay, maybe just expand on that quickly. I would say that we raised money for a reason obviously. There's there's more a creative m&a opportunities and and what we may remain diligent on his his keeping the same return on invested Capital. We want to highest return on invested capital in the in the Canadian cannabis space as Jeff mentioned and uh, I think that obviously mentioned the prepared remarks. We took him later stage conversations there and finding more and more opportunities in that market, especially recently.
Okay. Thanks. That's helpful. My second question moving along here in your your mdna where you've mentioned the mutually terminated contracts with both track and Birnbaum. I'm wondering can you maybe give a little bit more color on as to the reasons for that and also does the fact that you mutually agreed to terminate these contracts that preclude you from both? Both companies should not allow allow that feature. Thanks.
Never wanting to take this one.
Sure. No, no, no, not at all day. We we can we can re-engage them. Actually, we're working with one of those Partners on the edible side with our life team anyways, but the the biggest thing we're looking for is as Jeff and Tyler mentioned is skewed velocity. What our shareholders want is is fewer skus at a higher sales velocity and that's what we're going to hold our partners to and as I prepare for the next wave of Partnerships, which we believe will be cpg companies. Uh, I believe that this is just preparing for that and and making sure that we're picking the kind of right Partners in the different aspects. I I think that they're both great companies and we'll have plenty of opportunities to maybe work with them down the road and I think that they're going to continue to see success. This was more of an internal decision based on the velocity G as well as uh new Partnerships and and where they fit in our platform
Got it. Okay. Thanks, and if I can just squeeze one more quick one in here. Just can you maybe give an overall update with respect to to beverages the ones? I know you have two in the market place right now THC on Thursday, and and also just next steps with pommies facility. Thanks.
Sure, so we're you know, incredibly encouraged by the the feedback that we're getting particularly on our Summit ten members that we producing in partnership with a Thursday. It's doing incredibly well feedback is great. But as we look to bring pommies online as we said in the second half of this year, you know our objective as a Mac team is to not have a standing start there. Obviously, we're having a number of ongoing conversation while we're working when the product development sense to bring, you know, new beverage formulations to the Forefront so that you know, when he gets turned on and that production facility starts to starts to churn that there's meaningful volumes, you know already coming out of that facility, but as we look through the rest of 2021, I think you can expect them, you know, the traditional build of of the capacity as we bring you product formats on and get them in the market, you know for the rest of the 2021.
Okay. Thanks very much for that color. Very helpful. Congrats again on the quarter. I'm going to hop back in the queue.
Our next question comes from Sean Maher with canaccord genuity. Please proceed with your question.
Hey, good morning, and congrats in the corridor. My my first ones just touching on kind of the opportunity. So given that you guys are actively pursuing those opportunities and in some scenarios are in advanced discussions as I understand. Could you maybe provide some color around what you're seeing on the valuation side in the private in the private Market Public Market has taken off of a breather over the last few weeks of just trying to get an understanding. Um how or if that's been reflected in any way in those private Market valuations.
Sure, so we all talk about this one and others can add on after so we're encouraged by what we're seeing and that's one of the catalysts that allows us to get a little bit more aggressive obviously as a bulb and I have said we're hyper focused on, you know, getting a return on investment for our shareholders. So yes, we have noticed some some realistic and better align valuations in the market for selecting these and we see others repositioning towards that that level as well. But what we're really seeing from our conversations that we've had in the acquisition scenarios is, you know, a real attraction to to our currency or volunteers and we like that obviously firstly because it creates alignment and and between our shareholders and gets everyone moving towards the same goal of return home. But also it helped us in a number of scenarios, you know, repositioning the value of an offer the holding of violence sure, which we fundamentally believe is undervalued in the market wage.
You know the opportunity we see for the business and that's a very compelling pitch for us to go.
Potential partners with um, and and we're seeing real world evidence of that on a regular basis.
All right. Thank you. And then my second one just stepping a back back a bit when when the Q4 numbers were pre-released and q1 guidance is he was given there was mention that COVID-19 related head winds had shifted some sales from Q4 into q1. I was wondering if we could unpackage this a bit. Um, what would sales have looked like in the quarter if we stripped this out and I also maybe would you be able to specify what segment of the business witnessed kind of that shift?
Sure. Maybe I'll take a quick shot at this and every Chris you can probably add on to that. I think as we were in the end of Q4, I'm going into the q1. Obviously there was not the shut down in Ontario and and we were having some encouraging and verbal indications from the provinces on expectations for volumes and and Thursday were you know in line with the growth that we were seeing till then and and represent a very compelling opportunity, you know, what happened ultimately as the second wave and and now third wave of cold come into play was a retrenchment on behalf of the provinces and you see that across the broader sector with some of the lp announcements that have happened as of late where they really took a cautious approach given the choice can collect particularly in Ontario. So from it was from provincial sales that I would say that there was the more conservative approach to the volumes that happened in q1. Yep.
Altered your expectations as we rolled into into Q4. Um, and I'll say on top of that you add that, you know places like Ontario where they were uh-uh, you know changing distribution facilities and Thursday and instituting a bunch of other sort of queue management policies of that and not altogether. I think represents sort of a slower down that you're seeing in and a cold already so down that you're seeing them, you know in the numbers across the sector ever do Chris
I think from from my end Sean like I think that obviously the the results speak for themselves is quite obviously we show growth like provincial sales kind of showed that increased 7.6% and and your continued to see that sales velocity obviously with kind of the COVID-19 environment. Um, we hope to be higher than even where we're at even this quarter but with click and collect and and kind of the provincial retailers managing that accordingly I think you see that in the results but going into the second quarter and looking in the future here, we're conditioned to see great growth and what we don't have in the market currently, uh in our results in the first quarter is life came online right now. We have Edibles in the market you're going to see obviously are bath bombs just launched off you're going to see concentrates to come to the market as well as as Tyler mentioned you're going to see flower in the second quarter. So I think that we're we're very confident in this environment that we're doing the right things to gain listings, and yep.
Can you that sales velocity even with?
Kind of a tougher environment people got to remember their Ontario was almost shut down almost every single day in our kind of Q1/4, but I think that the product sales will also be in the update even in that kind of shows the success and obviously the innovation of that and and that's what we're going to strive for kind of looking forward to going into Q2.
Thank you. Thanks for the color there and congratulations again on on a great quarter. I'll pass the pass the mic alone.
Our next question comes from John Chu with Des jardins Capital markets. Please proceed with your question. Hi, good morning. Maybe just a little bit more color on the drive home free Road strategy. Can you maybe give us a bit of insight in terms of the price here segment you're looking to address is a value mainstream premium and are these going to be seasonal products or limited edition or a short time offering given the the ability that you have is to kind of pick and choose to strange. So of this particular drug cultivation. You're seeing I really nice dream, but then the next. You're finding a better one than you kind of just rotate through that any insight would be helpful there. Thanks.
Shirt other one. I turned that back to you.
Yeah, absolutely. So we haven't finalized what we want to do long term yet because obviously it's a very fluid Market but what you'll see is the most cost-effective pre-roll in the market in a in a value pack with a very high-quality. I wouldn't say it's premium. But if it's good better best it isn't better category. And what we're going to do is is be disruptive. So we fix specific genetic strains specific to be disruptive. And what we will do is change them out. Like we said earlier fewer bigger better. We're going to roll with a few genetic right out of the gate and then we will modified we can change with consumer experience with one thing. We do extremely well at balance that I think very few people are doing well in Canada is listening to the consumer understanding the consumer and staying out of your own way. So what we're going to do is is come out very strongly the future of products and then let the consumer dictate what they want.
Okay, that's very helpful. And then maybe just the second question here the look at your biomass extracted that was quite a bit. Maybe just a bit of a breakdown in terms of what percentage of that was internal versus external and then tied into that, you know, obviously with a lot of companies having cashed up over the last three or four months.
Do we can we expect to see more totally related Revenue to re-emerge again? Thanks.
Sure, Chris water my pass the phone to you for answering the first part there that others could jump in the water sounds good. So on the on the biomass extracted a moment, we saw a significant demand in the first quarter, um for CBD distillate and isolate from our partners. So a large portion of that volume that was driven by extraction of our materials so that we could meet demand that we were seeing for those types of products as we continue to see growth in the wellness center of the of the industry. Um, and uh, I mean continue to see that going forward, um for sure.
Income from overall product portfolio perspective John as we as we look out. What we're finding is is the conversations with our LP Partners took the product platform. We have to offer them now, which as we've said literally includes every pretty much every product form that's possible out in the market from a a 2.0 and you'll soon see 3.0 context wage. You know, what were the conversations are becoming more and more interesting for us in terms of the product that they're now coming to us for the market is starting to realize, you know, they can't be experts in everything off as as caller was saying and, you know from a a sales in a brand and a product development perspective, you know, there are opportunities where Valens makes a lot of sense for both parties out there and those conversations are are becoming more and more encouraging so while before, you know, maybe we would have done the extraction on its holding basis and sent back now. There's compelling Converse.
Okay. Well, you know, maybe it's not a send back of the bulk oil. Maybe maybe we put it in the tincture for you. Maybe we put in a vape pen for you and maybe we you know, put it in the beverage for you or something like that and those conversations are getting more and more encouraging. So in terms of total extraction or total tolling volumes, maybe that number doesn't grow materially but in terms of the opportunity that's a biomass come get us in our extraction facility generates. We're pretty encouraged by that.
Okay, great. And then maybe just one quick last question any any insights you can give us on March sales and and the first couple of weeks into April. What do you seeing are we seeing an improvement despite wage industry had when we're seeing out there.
Hi everyone. Take this one.
Sure. Yeah. Yeah John, I think that with with kind of some of these new products on the market. I think we're trending in the right direction. Like I think that from from we're also keep in mind that we have a few more product launches even came in on top of that. So March from an industry standpoint kind of bounced back and and we did accordingly as well. And obviously what's next week is 4:20. So I think that we're we're very excited and off with some of these new products on the market place. I encourage everyone to go up and try back bombs that are on the market here recently and some of our other kind of 2.0 products on the market would be a great for life experience. So I think we're trending in the right direction with the COVID-19 restrictions kind of coming in here recently in Ontario. We'll see how that impacts us. But overall, I think we're quite positive, uh, even ugh despite that because of the new launches as well as kind of the trending that we had even today.
Okay, great. Thank you.
We have reached the end of the question and answer session at this time. I'd like to turn the call back over to Tyler Robinson for closing remarks.
Figure operator, and thank you everyone else for joining from an operational perspective. The Valens company can easily get stronger. We've made significant strides in the first quarter of the fiscal year, and now we have them formidable product platform in the country, which is beginning to be reflected our financials. Just a couple of things. I'd like to hammer home before we wrap up the call. The model for Valens going forward is fewer bigger better. We have the most Innovative adaptable and flexible product offering in the country, and you'll see those start to leak out over the next few quarters with a a large majority coming in Q2, so we're excited are on a manufacturing expertise. We believe is best positioned to capitalize on what's expected in the future of the Cannabis industry everyday extracted based consumer packaged Goods over the age of 21 will be bringing the valves advantage to do markets consumers and customers. We're looking forward to updating you on our progress with that. I'll ask the operator to close the call. Thank you.
Thank you. This does conclude today's call. Thank you for your participation. You may disconnect your lines at this time and have a great day.