This Canadian company is taking a three-pronged approach to growth with the extraction of cannabis oils, a cannabis testing lab and a cultivation facility.
All three of its businesses are centered on the company’s goal of producing the highest quality cannabis oils, and it has partnered with a U.S. biotech firm for research and development. The company faces the risks inherent in all startups. If it is successful in creating an attractive niche, it could draw competition from much larger rivals in the cannabis industry.
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VALENS GROWORKS CORP., $1.83, symbol VGW on the Canadian Securities Exchange (Shares outstanding: 72.6 million; Market cap: $132.9 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.
The Canadian Securities Exchange (CSE), formerly the Canadian National Stock Exchange (CNSX), is an alternative stock exchange.
The company 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 Supra THC Services 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, Supra 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 May 31, 2018 (its latest filing), Valens lost $2.4 million, or $0.03 a share, compared to a loss of $1.7 million, or $0.03 a share (on fewer shares outstanding) a year earlier. The only revenue reported by the company was $22,741 in consulting fees.
The company recently raised $25 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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