Earnings Call Transcript - SNDL Q2 2022

Operator, Operator

Hello, and welcome to The Valens Company's Second Quarter Fiscal 2022 Financial Results Conference Call. All participants are currently in a listen-only mode, and there will be a brief question-and-answer session after the formal presentation. This conference is being recorded. I am now pleased to introduce your host, Everett Knight, Executive Vice President of Corporate Development and Capital Markets of the Valens Company. Everett, please go ahead.

Everett Knight, Executive Vice President of Corporate Development and Capital Markets

Thank you, operator. Welcome to The Valens Company's second quarter fiscal 2022 financial results conference call for the period ended May 31, 2022. A replay of this call will be archived on the Investor Relations section of the Valens website at thevalenscompany.com/investors. Before we begin, please let me remind you that during the course of this conference call, The Valens' management may make statements including with respect to management’s expectations or estimates of future performance. All such statements other than statements of historical facts constitute forward-looking information or forward-looking statements within the meaning of the applicable securities laws and are based on assumptions, expectations, estimates, and projections as of the date hereof. Specific forward-looking statements include without limitation all disclosures regarding future results of operations, economic conditions, and anticipated courses of action. 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’s Discussion and Analysis, each as filed with Securities Regulatory Authorities. Although these forward-looking statements reflect management’s current beliefs and reasonable assumptions based on the current available information, we cannot be certain that the actual results will be consistent with the forward-looking statements in the future. There can be no assurance that actual outcomes will not differ materially from these results. Accordingly, we caution you not to place undue reliance upon such forward-looking results. For any reconciliation of non-GAAP measures measured and discussed, please consult our latest MD&A. Now, joining me on the call today are Mr. Robson, Chief Executive Officer; Mr. Sunil Gandhi, Chief Financial Officer; Mr. Jeff Fallows, President; and Mr. Adam Shea, Chief Commercial Officer will also be available for questions. With that, I would now like to hand the call over to Tyler. Tyler, please go ahead.

Tyler Robson, CEO

Thank you, Everett. Obviously, thanks, everybody for taking the time. We're going to jump right into it and hit a few things head on. And I'm probably going to start right on Slide six. The biggest things I want to do is try to remove the noise from what's going on in the industry and what's going on with the company and really focus on the fundamentals. I want to be very clear that this quarter was not up to our expectations. Even though we did have double-digit growth in every segment other than adult rec, we did have net revenue increased to 3.5%. SG&A did decline as we said it would, but it's not happening fast enough and our cash burn is improving, but again, not fast enough. So all the right things are happening. But we do need to do a better job of accelerating some of those opportunities. Obviously, the biggest one right now is the provincial sales. We missed on the double-digit growth, which I did mention. A few things happened out of our control, but I'm not using it as an excuse. When you look at the transition from Verse to Versus, our team did an outstanding job of being prepared to do it. I would say some of the provincial boards sold short. When you look at the depletion strategy of what's going on, we missed four weeks of those products because some of the retailers thought products weren't available because the provinces didn't have them ready for depletion. So rather than being out of stock, it was under a different SKU number. We have corrected it. I am happy to say that we got a record month of June, and everything is back on track. We are essentially ahead of where we expected to be now without any of the RTVs and without any of the late shipments that made it out of the Kelowna facility. Again, I'm being very optimistic, but cautious at the exact same time that business fundamentals are improving. I know there's a lot of noise and a lot of things to improve. But at the end of the day, I'm pretty happy with the way things are going internally. So with that, I'll turn it over to you, Jeff.

Jeff Fallows, President

Great. Thanks, Tyler. So the core message on the first Slide 7 is that there is progress with both improvements and challenges coming from all of our focus areas. We continue to gain market share in Q2 as new product launches at the provincial level began to gain momentum. However, challenges related to our brand changeover from Verse to Versus resulted in us taking a step back in aggregate revenue despite our market share gains. Again, we saw a rapid rebound in both demand and aggregate sales in June with our best retail sales month-to-date. We also saw revenue rebound at Green Roads from a seasonally weak Q1 reaching aggregate revenue dollars roughly equal to that of Q4. However, inconsistency of supply from our third-party manufacturing partners, including vapes and gummies, limited growth, and we were left with a material amount of demand on the table in the quarter. Efforts are already underway to address these challenges, which are expected to dissipate as we get deeper into Q3 and Q4. Integration initiatives are delivering against plan and are expected to deliver strong cost savings both above and below the gross margin line over the next two quarters. While some of the targeted initiatives took longer than originally planned to launch, the net benefits of the additional planning and preparation have created an opportunity to deliver more than the $20 million in annual savings originally forecasted. Managing cash and reducing cash burn are key areas of focus for us, and we are beginning to see the benefits of our efforts here. That said, we have yet to see the full impact translate to our cash flow statement, but remain confident that we will be able to manage our cash balance effectively and see a material reduction in our use of cash over the next two quarters in line with our anticipated EBITDA performance. While our Canadian recreational business continues to get the majority of our focus in line with the opportunity we see there, we continue to keep our finger on the pulse of the US THC market to ensure we remain well positioned to enter that market when appropriate. Moving to Slide 8, we've made significant progress executing on our strategic initiatives this quarter, showing both a modest growth in net revenue of 3.5% and a more meaningful decline in SG&A of 6.2%. Despite this temporary setback in provincial sales this quarter, resulting from the Verse to Versus transition, our Canadian recreational market share expanded, growing from 2.8% to 3.2% in Q2, firmly solidifying us as a top 10 licensed producer. This is a particularly strong showing as we continue to see strong sell-through for our products at retail. Subsequent to quarter-end, we secured an exclusive cannabis partnership with Coldhaus and saw the launch of our Quebec exclusive brand, Bon Jak, which are both expected to further accelerate provincial sales in coming quarters. In Q2, we saw B2B LP sales increase 11.1% and we expect to see ongoing strength in the segment as we continue to realign to focus on larger customers and orders. Our Green Roads, U.S. CBD business returned back to growth in Q2 with revenue increasing 11.8%, primarily driven by early momentum in new product launches and new international distribution channels for Green Roads branded products. Five months into our integration initiatives, we have actioned $15 million in annual cost savings, and I've identified over $5 million of additional annual cost savings to be actioned in the next few quarters. With the annual cost savings action identified to date, Valens is on track to exceed management's original $20 million target by fiscal year-end 2022. Moving to Slide 9, Valens has become a top 10 licensed producer with a 3.2% market share in Q2. Most importantly, for the three and twelve months ended May 30, Valens is one of the fastest-growing companies as measured by retail consumption as we continue to develop strength within our brand portfolio through products that resonate with consumers. Moving to Slides 10 and 11, we continue to dive a little deeper into our market share performance on a product category basis based on high fire data. In Q2, we expanded market share across all product categories in which we participate. This is an impressive showing despite the noted quarter-over-quarter decline in provincial sales. Starting with vapes, we remain a top 10 LP improving to the number seven position in Q2 with our market share increasing to 3.7% despite the category continuing to get more competitive quarter-over-quarter. In Q2, we launched four of the most affordable vape SKUs in Ontario under the Versus brand. Since launching in May, we are already seeing evidence that our vapes are taking targeted market share away from competitors with our vape manufacturing platform. Keep an eye on this category for us over future quarters. We continue to see our beverage market share expand for the fifth consecutive quarter with a 10.9% market share in Q2. Since the launch of Versus Seltzers at the Pommies facility at the beginning of the year, we have heard and continue to hear tremendous feedback from consumers and budtenders. Furthermore, in Q2, we added to our lineup of beverages with the launch of mango and ruby grapefruit, arriving just in time for the summer season. Moving to our flower-based offerings, we continue to build on our leadership in dried flower and pre-rolls, which are two product categories we have seen tremendous growth in over a short period despite not cultivating flower. We have seen incredible traction with our Versus BC God Buds since its launch in July of last year, and it has now become one of the best-selling SKUs in Canada. With the launch of our Versus Super Lemon Haze and Quarter Mill, we look to replicate the success in the dried flower category. Furthermore, with the launch of our Jar of J’s into Versus and our premium infused pre-roll Big Willie under Contraband, we look to gain further market share in the pre-roll category, as we add new innovation and provide convenience to consumers in a variety of formats. In summary, we don't believe the revenue setback during the quarter is indicative of the opportunities we are realizing in adult rec. On the contrary, we continue to make great strides against our strategic objectives in the first six months of 2022 and continue to grow market share. With the recent product launches, ongoing innovation, and expanding our distribution for all categories with Coldhaus, we expect to achieve our targets in each product category. Slide 12, we have made a significant shift in our provincial sales strategy by signing an exclusive cannabis partnership with Coldhaus to increase store penetration and expand market share in core markets. Working with Coldhaus will provide distribution coverage to 65% of the Canadian market, allowing us in conjunction with Coldhaus' dedicated field team to connect with and educate retail staff about our brands and product attributes and help drive consistent in-store category strategy across British Columbia, Alberta, and Ontario, which has the most saturated retail markets. This partnership will allow us to increase the frequency, reach, and touchpoint of our brands. More importantly, we can utilize their sophisticated CRM system to have real-time data to better serve retail stores across Canada. Lastly, subsequent to quarter-end, we have organically expanded our retail and online footprint in Quebec with the launch of Bon Jak, an exclusive brand in Quebec. With this launch, we have secured an additional six SKUs in Quebec, which we anticipate will hit markets in September 2022. Slide 13, as mentioned earlier, provincial sales took a step back in the quarter due to a complete rebranding and switch over to Versus. More specifically, this transition was not properly delineated for brand continuity by provincial distributors in their ERP system, which caused retailers to think the product was out of stock when we had simply rebranded devices. This resulted in absent depletions in some of our highest velocity SKUs in one of the busiest months of the year. That being said, with the Versus rebranding now behind us, the business is off to a strong start in Q3 with sell into provincial distributors strongly rebounding, and we saw provincial sales accelerate in June with record monthly revenue. Even more importantly, we are seeing strong visibility into our pipeline of purchase orders for July. On slide 14, as discussed, we did see a rebound in revenue at Green Roads in the quarter, but that growth was muted by delays and stock outs in key product categories. We've already actioned process changes to minimize these disruptions going forward. We'll continue to work with our suppliers to ensure we are realizing the full demand opportunity for Green Roads products. We have seen early success in the launch of new gummy and vape SKUs and expect these to be key areas of growth for us in the back half of the year. Slide 15, that said, competition for CBD-based products in the U.S. remains strong. We are moving quickly to deliver our new solution-based offerings into new and more appropriate channels. We expect to see greater success from these efforts in the coming quarters, particularly as we more fully leverage our online capabilities, launch our kiosk strategy in partnership with Signifi in premium locations around the U.S., and build greater volumes with new distributor relationships, which have been a key focus of the Green Roads retail team. With that, I'll pass it back to Tyler to discuss our B2B performance.

Tyler Robson, CEO

Thanks, Jeff. B2B sales increased 11.1% quarter-over-quarter with Q2 revenue increasing to $7 million. While we have seen higher demand for bulk sales, we remain optimistic that the platform will continue to strengthen as our partners optimize their manufacturing processes amidst both industry and economic headwinds. B2B can be lumpy quarter-to-quarter as we realign biomass to optimize the margin profile for each customer. Moreover, our pipeline remains robust with new B2B opportunities within and outside of the cannabis industry, which provides upside. Sunil?

Sunil Gandhi, CFO

Thanks, Tyler. Slide 17, please. Let me start by saying that our operating environment continues to be challenging with ongoing inflationary cost pressures, a volatile supply chain, and retail price compression given the highly fragmented state of the industry in Canada. As a result, we have been taking aggressive actions to right-size our cost structure and streamline our business, which I will discuss in more detail later in the call. We do expect at this time that 2022 will be a challenging environment with financial failures anticipated across the marketplace. Now on Slide 17, consolidated net revenue increased by 3.5% to $24 million in Q2 2022, with broad strength across Green Roads, B2B, and international markets more than offsetting the volatility in our provincial sales revenue. As previously discussed, provincial sales revenue decreased by 14.8% to $9.2 million in the quarter, largely due to asset depletion that turned provincial markets from the rebranding of certain SKUs from Verse to Versus. Additionally, about $0.5 million shipments to provinces were delayed in Q2, pushing revenue from May into June. But even excluding these factors, provincial sales revenues have rebounded in June, marking the best month ever for the company. This combined with a strong pipeline of purchase orders already in hand for July gives us confidence that the rebrand and expanded product portfolio is gaining traction with consumers and budtenders. Our B2B segment continues to demonstrate double-digit growth, reaching $7 million in revenue in Q2, up 11.1% from the previous quarter. The increase is primarily driven by higher demand in bulk sales and some onboarding of new customers. Our Green Roads U.S. CBD business also saw double-digit growth of 11.8% to reach $5.7 million in the quarter. Growth was primarily driven by direct-to-consumer ecommerce sales and an increase in international sales from the Florida facility. International revenue from the Canadian facilities showed strong performance in the quarter, growing to $1.1 million, up from $0.4 million in the previous quarter driven by growth in shipments to Australia. Moving over to this slide, adjusted gross profit was $3.4 million, or 14% of net revenue in Q2. Margins in Q2 were negatively impacted by moving through higher costs, inventory, and sales mix between B2B and B2C channels. Despite the flat adjusted gross profit in the quarter, we implemented numerous initiatives in Q2 with conditions expected to balance improving adjusted gross margins in the coming quarters. These include optimizing our biomass and input sourcing, commissioning new automation, such as on flower packing, and optimization of our product and provincial mix. As a result of the variables, we are confident that our margin profile will demonstrate significant improvement in Q3 and Q4 of 2022. Adjusted EBITDA was negative $15.9 million in Q2. The improvement in adjusted EBITDA was attributable to lower SG&A costs, with adjusted gross profit being flat quarter recorded on a reported basis. SG&A as a percentage of net revenue improved by 908 basis points in Q2 relative to Q1, as we're starting to realize the initial benefit of our integration initiatives. Furthermore, this includes a $1.4 million non-cash impairment related to risks on B2B receivables in the quarter. Adjusting for this, EBITDA would have been negative $14.4 million in the quarter compared to negative $17.6 million in Q1. Now moving over to Slide 19. This waterfall chart shows the sources and uses of cash since the end of Q1. Overall in Q2, we took a large step forward with cash flow from operations and cash flow from investing activities showing a combined improvement of $4.8 million quarter-over-quarter. This is before the realization of the majority of our integration initiatives. We expect this trend to continue and improve significantly into Q3 and Q4. Cash flow from operations alone improved by $3.2 million or 13.9%. These improvements stem from the improvement in adjusted EBITDA and working capital investments moderating this quarter representing a much smaller drag on cash. The negative adjusted EBITDA profile of the business, although improving, represents our primary focus as we move into the latter half of 2022. Key elements on the pathway to achieving positive adjusted EBITDA include integration initiatives that are on track to deliver the targeted savings. Further savings in procurement and biomass sourcing as contract growing regions begin to provide product in the months ahead. Revenue growth that we've now seen come back to growth in provincial sales as previously mentioned and reduced one-time costs associated with brand launches that we experienced earlier in the fiscal year. We expect cash from operations to demonstrate significant improvement in Q3, projecting between negative $9 million and negative $12 million based on the following factors: one, the improved EBITDA performance through the combination of margin improvement and cost reductions that have been actioned and are expected to reduce this level of cash burn in Q3 and throughout Q4; secondly, we have initiatives underway to dispose of non-core assets such as the citizen stash facility, and this is expected to add to our cash position; thirdly, we are expecting continued improvement in working capital management as we have now largely moved through several product launch phases. Now that being said, as a matter of prudence and to increase our margin of error, we are currently exploring non-dilutive options, such as operating lines or working capital solutions to increase our financial flexibility in the event of further deterioration in market conditions. Moving to Slide 20, only five months into our integration initiatives, we have actioned $15 million in annual cost savings and have identified another $5 million of additional cost savings to be actioned in the next few quarters. With the action and identified to date, we are on track to exceed our initial estimate of $20 million as a target by fiscal year end 2022. The important takeaway from this initiative is that they only had a smaller impact on our financials in Q2, and our company expects to realize the majority of the benefits in Q3 and Q4. Of the $15 million actioned, approximately 79% or $11.9 million of the cost savings are coming through SG&A with the remaining 21% or $3.1 million coming through the COGS line. Of the additional cost savings that have been identified, Valens anticipates 40% of that to come through SG&A and 60% to come through costs as we further streamline the organization to deliver process-related efficiencies. Management expects these cost savings to positively impact operating budgets and drive margin expansion in the coming quarters. In conclusion, before we get to the Q&A session, this quarter clearly shows the progress we have made in overall SG&A as we realized the fruits of our integration initiatives. However, we've largely not seen the positive impact of our contract growth and further automation and integration initiatives related to cost control that are coming online in Q3 and Q4. With biomass costs being one of the largest inputs for our cost of goods sold, we expect greater strides forward on gross margins over the coming quarters. We are moving quickly and we are a much different company today than we were in Q2 and for the better. With that, I will turn the call over to the operator and open the line for the question-and-answer session.

Operator, Operator

Thank you. We will now conduct the question-and-answer session. Our first question is from Aaron Grey with Alliance Global Partners. Please proceed with your questions.

Aaron Grey, Analyst

Hi, good morning and thank you for the questions. First question for me, just going from the Verse to Versus right, you talked about a record month in June for sales to provinces and strong visibility into July. Just want to get some commentary in terms of how you feel about the sell-through at retail for that, especially with the brand switch and potentially not having it on shelf or online for that certain period of time we talked about a couple of weeks. And then if you could just quantify the revenue impact you think you had from the disconnect with the provinces in the different SKU numbers? Thank you.

Tyler Robson, CEO

Yes, thanks, Aaron. Great question. I will kick it over to Adam Shea, our Chief Commercial Officer in one second, but I would say it definitely hurt us. The balanced team did everything we could to basically make a smooth transition. But it was very lumpy at some of the provincial boards, even doing a brand transition at quarter-end or their inventory month for the year-end was challenging to say the least. But Adam, why don't you comment on both of those?

Adam Shea, Chief Commercial Officer

Yes, thanks, Tyler. Aaron, I appreciate the question. The Verse to Versus transition, despite some choppiness throughout Q2, we're in a very good spot now. We're seeing strong, strong replenishment orders coming in. I'm very bullish on where we'll be over the next several weeks. I think we have normalized our depletion rate. As for your specific question around the impact, on average, the depletion rate from provincial boards to customers in our major markets is anywhere between $800,000 to $1 million a week, depending on the point of the year. So having one or two weeks of no depletions due to SKUs not being activated really did have an unfortunate impact, but certainly wasn't indicative of the efforts by our team or where we believe the brand would go.

Aaron Grey, Analyst

Okay, great. Thanks very much for that color. And then, second question from me, just on the gross margin, as it relates to your EBITDA profitability target, can we focus on the gross margin for a second here and just help us bridge to some of the line items there in terms of the improvements on the gross margin, whether or not you want to get more of a specific target in terms of what's embedded in the EBITDA profitability on the gross margin side. Any color there to help us bridge around the improvement would be very helpful. Thank you.

Tyler Robson, CEO

Absolutely. Sunil, why don't you take that one?

Sunil Gandhi, CFO

Sure. Look, obviously, we don't really give margin guidance as an official statement from the company. But based on our views, we absolutely expect to see our gross margin profile double from where it is now. We want this steady-based business long-term to be a gross margin profile of north of 30%.

Neal Gilmer, Analyst

Yes, good morning. Thanks for the questions. Maybe I'll start on the Coldhaus distribution or partnership. Obviously, it was just announced in June, when does that actually get sort of fully implemented? And what sort of things are you going to be sort of monitoring as far as evaluating the success of that over the first few months of the program?

Tyler Robson, CEO

Yes. It’s a great question. Adam, why don't you start and then I'll add on to the back of yours?

Adam Shea, Chief Commercial Officer

Yes, sounds good. Neal, thanks for the question. Very excited about the Coldhaus partnership. Anyone who is familiar with Coldhaus, they're experts in drugstore distribution, logistics, etc. We've got an exclusive partnership with them now where they will solely represent Valens brands, specifically to start in the markets of BC, Alberta, and Ontario. In those three major markets, we’ll have well over 90% coverage of the legal cannabis retail universe, with the ability for frequency, weekly and bi-weekly to well over 75% of that universe. So we're very bullish. This gets underway on September 1. We are excited about the ability for that team to have laser-focused priorities related to Valens-specific brands and ultimately be able to help both retailers and consumers better navigate our portfolio.

Tyler Robson, CEO

Yes. Just to add on that, Neal. The biggest advantage will be not only the direct store model where we are going to be physically in stores very frequently, but I think the competitive intelligence from the CRM system will allow us to be much more methodical and concise on how we maneuver. So as they're gathering information in store, we can literally find out which stores are carrying which SKUs and be laser-focused on the ones that aren't. I believe it's going to be the most dominant sell-through force out there, and that’s something we have never seen anything like before in my career.

Neal Gilmer, Analyst

Okay, great. Thanks both of you for that. Second question I guess is on the EBITDA profitability. I guess if I'm trying to think through the cost-saving initiatives you guys have announced, at least $20 million, if I just sort of take the simple way to go about it, that’s $5 million a quarter, some of it just going through COGS and some through SG&A. If there’s a certain revenue, I don’t know if you're going to answer this, but is there a certain revenue level that you guys need to achieve such that you're going to reach EBITDA profitability in Q4, just basically just sort of coming off of what was reported in the EBITDA loss in Q2?

Tyler Robson, CEO

Absolutely. Like you said, I don't know if we'll answer exactly that. But Jeff, why don't you take a stab at it, and then Sunil will follow up?

Jeff Fallows, President

Sure. Obviously, if you do the simple math on it, let's say, for example, applying a 30% gross margin, you can sort of come to an assumption around sort of targeted SG&A levels. What you're going to see is a combination of both; number one, revenue growth as we're seeing in the pipeline, both on our retail recreational footprint as well as Green Roads and other areas of business; number two, as we mentioned, we see $20 million-plus in savings through the initiatives that we're running; we think that's going to contribute towards that EBITDA positivity; and thirdly, as we see retail sales or recreational sales continue to increase, the product mix will shift towards higher-margin products. Sunil, I don’t know if you want to add to that.

Sunil Gandhi, CFO

No, I think Jeff hit the nail on the head. It's obviously about flexing all three levers; revenue growth, margin expansion, and reducing SG&A all at the same time will all contribute as we move ahead.

Andrew Partheniou, Analyst

Hi, good morning, thanks for taking my questions. Maybe first talking about B2B and the U.S. have business, international as well, all very impressive growth rates here. Just looking forward trying to understand, do you believe that these growth rates are replicable? Or do you expect to see stronger growth in rec that could supplement or overtake maybe a little bit of softening in the B2B CBD channels or international, because it seems this quarter was really hitting on all cylinders there and it could be a little bit of softening before a reacceleration would sometimes occur. Just wondering if that's the proper way to think about it or if next quarter we should see continued momentum on all these businesses.

Tyler Robson, CEO

Yes, great question. Jeff, I will answer the first part, and I'll kick it over to you on the U.S. side. I do expect stability across the board in a lot of the verticals, with the biggest area of attention for us being adult rec or provincial sales. There's a huge opportunity there, which should bring stability to our forecasting and moving forward because we are in control of our own destiny. As far as B2B, it's extremely lumpy, so it's week by week, month by month. A lot of the challenges we're seeing without rec, a lot of other licensed producers are seeing as well. There's a lot of turbulence, but our goal right now is to optimize our manufacturing capabilities and then backfill with strategic partnerships like the B2B relationship. I expect more momentum to continue, especially through adult rec and some of the other opportunities, with stability on the B2B side. Jeff, why don’t you touch on the U.S.

Jeff Fallows, President

Sure. From the Green Roads side, while we did see 11% growth quarter-over-quarter, I can say that it didn't meet our expectations in terms of performance in the quarter. There were some online challenges related to our strategies with Facebook and Instagram that held us back a bit, but also, as we noted, the third-party suppliers not providing the consistency or availability of product to meet demand. We do expect there's more demand, opportunity, and shelf growth coming out of Green Roads in the coming quarters, working hard to realize that. On the international side, you're right, there was a nice little bump in this quarter. But I won't say that's a one-time event; that's been a long time in building and nurturing that. We're starting to see the benefits of all those efforts materialize. So we are excited about the additional revenue provided by those channels and we think there's more to come.

Tyler Robson, CEO

Yes, no problem. Just transitioning back to Coldhaus here. A little deeper into your decision-making process between partnering exclusively with Coldhaus versus developing your own sales force. Just wondering what really drove you to partner with them instead of developing this in-house? Yes. That is a great question. Adam, feel free to tag on at the end. We looked at all models going forward, interviewed the majority of the big distribution platforms and/or sales agencies. We've never seen anything with the level of sophistication that we saw with Coldhaus, whether it was the CRM system or the routing. I’ve never seen anything like it. Even when you look at the predictability of the opportunity at hand, it’s like we can be at this store at this time between 10:25 AM on a Tuesday and 10:30 AM. So the repeatability and traceability have been extremely successful. If you look at some of their other partners, you can understand why we would choose them. Adam, I don't know if you want to add anything.

Adam Shea, Chief Commercial Officer

Yes. Andrew, the only three things I'd add to Tyler's comments are, the way to look at this really is about—it's a balanced sales force that is anchored in Coldhaus. The retailer will see a Valens representative wearing Valens’ branding show up to their store. The person at store XYZ in Ontario that also has a store in BC, is just going to see a Valens representative who's there on a consistently frequent basis, being very methodical about their call, rather than just randomly talking about 25 different things over the course of 40 minutes, rather, a very specific 15-minute call that is anchored in key priorities. As Tyler referenced, the significance of their intelligence around routing really allows us to drive that reach and frequency that we did not see in any of the other partners we could have considered. So, we're very excited for that to be underway on September 1.

Frederico Gomes, Analyst

Hi, good morning, thanks for taking my questions. My first question is on your sales guidance. That would be more than double the revenue that you had this quarter, annualized. So could you remind us how much of that growth you expect to come from B2C in Canada? How much of that would be B2B? And how much would come from the U.S.? Just trying to understand which segments you expect will grow faster next year and how much you have within your control to drive that growth. Thanks.

Tyler Robson, CEO

Yes, good question. I'll probably kick it over to Jeff or Sunil. I don't think we're going to give formal guidance on the breakdown of how we expect the revenue to unfold. Obviously, with a turbulent time in cannabis. I think it's going to come from multiple levers or verticals. But Jeff feel free to add on.

Jeff Fallows, President

Sure. If we're looking at the various segments, we think there's a significant opportunity for us in the Canadian recreational space, which is getting a lot of focus. A significant amount of the growth is anticipated from that area; number one. Number two, we think Green Roads in the U.S. CBD business has just begun to scratch the surface on what that business is capable of doing. So from our perspective, that's going to also add a significant contribution to that growth profile. You're also going to see international start to take a little piece of the pie as we move forward here in the coming quarters. B2B, as Tyler said, it won't be lumpy, but some of the relationships we are nurturing could be a significant contributor to our revenue profile going forward.

Aaron Grey, Analyst

Okay, great. Thanks for the color. I will hop back in the queue.

George Todorovic, Analyst

Yes, good morning, guys. Just filling in for Nicholas Cortellucci this morning. Firstly, what product forms are you seeing most of the rebound in during June and July?

Tyler Robson, CEO

Yes, great question. Adam, you can talk on that one?

Adam Shea, Chief Commercial Officer

Yes, we are seeing, quite frankly, across all parts of the business. The one area where we're a little sluggish is on concentrates. However, we are seeing significant upticks in all our form factors. Vapes are leading the way with very strong volumetric replenishment orders. Our dried flower business, similarly, has good traction as well, marketing a rebound, just the edible business is normalizing. Lots of opportunities still on the edible side. However, we are feeling positive about our volume as we proceed through Q3.

Sunil Gandhi, CFO

I think what we stated in our material was that we expect the cash burn to reduce as the EBITDA goes down. You would expect some cash along that path, but you don't expect any material investments in working capital or CapEx. That's what gives us the confidence that we're on the path towards cash flow breakeven, allowing us to navigate through the balance of the year.

Tyler Robson, CEO

Yes, appreciate it. Just want to say thank you for everyone for the continued support and time. Obviously, this quarter was not up to my expectations. Even though we were doing basically what we said we're going to do regarding cash burn and SG&A, we're doing everything we said. It's just not happening quickly enough, and with such a big opportunity that we missed on adult rec, we will bounce back and continue to drive the business forward. So with that, again, I want to thank everybody and I'll turn it back to the operator to close the call. Thank you.

Operator, Operator

Thank you. This does conclude today's call. Thank you for your participation. You may now disconnect your lines at this time and have a great day.