This B.C.-based company plans to position itself as a high quality producer of cannabis oils with the help of three main businesses.
It has agreements with cannabis producers to extract resins and oils from cannabis buds and leaves. It has also formed a cannabis research partnership with a leading New York lab. Plus it has an agreement to launch a grow facility in early 2019. If successful, the company can establish a strong niche for itself. And the gap between its market cap and sales is not as big as most of its competitors. However, start-ups always carry risk and its niche market could attract bigger rivals in the industry.
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VALENS GROWORKS CORP., $1.58, symbol VGW on the Canadian Securities Exchange (Shares outstanding: 93.2 million; Market cap: $147.3 million; TSI Cannabis Quality Rating (CQR): ; www.valensgroworks.com), is involved in three main areas of the cannabis industry: the extraction of cannabis oils; research into cannabis and its chemical compounds; and growing cannabis.
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Valens continues to enter into extraction agreements to process marijuana from producers into cannabis resins and oils (see Valens Agritech below).
The most recent is with major producer Canopy Growth (symbol WEED on Toronto). Valens will provide extraction services to process Canopy Growth’s whole flower (buds) and trim (less-potent leaves) into high-grade cannabis resin. Valens has now received the first shipment for extraction processing under this agreement.
In November 2018, Valens reached a similar agreement with Harvest One (symbol HVT on the Toronto Venture Exchange). Harvest One’s subsidiary, United Greeneries, will ship bulk quantities of dried cannabis to Valens over an initial three-year term. The company will receive and process the cannabis into bulk resin or other cannabis oil derivative products. Valens will also conduct research services for Harvest One to support that company’s product line development including health and wellness products, beverages, vape pens, and nutraceuticals using cannabis oil derivative products. Valens believes that the significance of these products is reflected in the more developed markets in the U.S., where raw flower makes up less than half of the products sold.
Also in November 2018, Valens entered into a multi-year cannabis extraction services agreement with B.C.-based GTEC Holdings (symbol GTEC on the Toronto Venture Exchange). Under the deal, GTEC will ship bulk quantities of dried cannabis to Valens for an initial four-year term. The company will then process the cannabis cannabis oil derivatives as required by GTEC before bulk shipping the products back to GTEC for final processing and sale.
Valens operates through three main businesses:
Valens Agritech focuses on the company’s cannabis extraction services and has production capacity of 6,000 kilograms of cannabis per month. The company now has just a small growing facility to supply marijuana for extraction. It also aims to provide extraction services to other cannabis producers.
In March 2018, Valens announced the successful completion of its initial batch of supercritical CO2-extracted cannabis oil. Its 400 kilograms per month processing capacity was recently increased to 6,000 kilograms per month with the addition of several new machines.
CO2 can be turned into a liquid when you expose it to high pressure and temperatures below -69 degrees. By further increasing pressure and reducing the temperature, the liquid becomes supercritical. This means the CO2 can then take on the properties of both a gas and a liquid. When this supercritical CO2 passes through cannabis in an extractor, it pulls out all the cannabinoids such as THC and CBD. There is no ethanol alcohol or butane used throughout the process. The resulting CO2 oil is an extremely high-grade concentrate that contains neither toxins nor unwanted elements. It can be vaped or otherwise vapourized and inhaled to produce a high or deliver the desired medicinal dose.
Valens Labs is a cannabis testing lab and, in collaboration with Thermo Fisher Scientific (symbol TMO on New York), is developing a “Centre of Excellence in Plant Based Medicine Analytics.” Because of what it sees as its unique expertise, Valens Labs aims to provide analytical services and consulting across the cannabis industry.
Valens Farms will operate a cannabis growing facility. In June 2018, Valens entered into a joint venture agreement with Kosha Projects Inc. for the construction of a $75 million, 400,000-square-foot cannabis production facility. After Kosha’s recovery of its construction and development cost, Valens is entitled to a 51% interest in the assets and will earn 50% of revenues from operations. Valens estimates that the first harvest will be in early 2019. Once fully constructed, this facility will be capable of producing more than 50,000 kilograms per year.
Valens Farms will grow cannabis specifically for extraction and will employ a mono-cropping methodology. Most producers have anywhere from two to 20 strains of cannabis under production, each with slightly different cultivation demands. Valens believes this compromises quality and consistency. By employing mono-cropping, Valens hopes to protect the genetic purity of its strain and optimize the quality and volume of its cannabis oil.
As the company raised capital, developed its business and invested in capacity, it lost $8.3 million in 2016 and $4.4 million in 2017.
In the quarter ended August 31, 2018 (its latest filing), Valens lost $2.3 million, or $0.03 a share, compared to a loss of $1.0 million, or $0.02 a share (on fewer shares outstanding) a year earlier. The only revenue reported by the company was $14,575 in consulting fees.
The company recently raised $27.3 million in a share issue at $1.95 each.
Valens aims to position itself as a producer of the highest quality cannabis oils, thanks to its research and development with Thermo Fisher Scientific as a partner.
However, startups are inherently risky, especially so in a new market with an uncertain regulatory environment and low barriers to entry. If its niche proves to be attractive, it could attract competition from much larger cannabis industry rivals.
Still, the gap between Valens’s market cap and its sales isn’t as big as it is for many of its competitors. That could also make the company a potential takeover candidate. While that alone is not reason enough to buy the stock, it adds to Valens’s appeal.
Valens GroWorks. has a 3-Leaf Cannabis Quality Rating (CQR). The stock is a speculative buy for aggressive investors who want exposure to the marijuana industry.
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