The Valens Company (Valens) (TSXV: VLNS) (OTC: VLNCF) is the largest third-party extraction company in Canada that provides testing, extraction, formulation, product development and manufacturing. Incorporated in 1981, Valens focuses on extraction services and white label product development and manufacturing in the cannabis industry. Their uniqueness is in the best-in-class proprietary extraction technology and processes to deliver high quality of their products and services consistently.
Valens as a 3rd party product developer and manufacturer specializes in White label contracts in extraction that providing differentiated products and proprietary services for leading Canadian and international cannabis brands. They build differences in the process of cannabis extraction from dried cannabis or hemp, oil extraction, crude oil, oil winterization, to oil refinement which mostly are distillate and isolate. Valens claims as the only one able to provide hydrocarbon, an inevitable step to get more refined concentrates, which makes up more than 50% of products in the mature market.
Products and Services
Valens achieves customer experience by providing high-quality products that derive from their proprietary extraction purification formulation.
Specifically, their extraction products include more than 100 terpene formulations to enhance user experiences and deliver faster onset and offset. It is more convenient and more like alcohol the consumption behavior aspect. Valens harbors the exclusive license for SōRSE cannabis emulsion technology to develop extraction formulations for beverages and edibles. Expanding their consumer market to Europe, Australia, and Mexico, Valens sees incredible interest from their potential market while launching their “Cannabis 2.0” white label product offering categories.
Providing customers with the widest variety of extraction techniques which allows them to produce the largest range of end products. As a 3rd party product developer and manufacturer, Valens develops extraction formulations, allowing for the production of a wide variety of tinctures, capsules, concentrates, vapes, topicals, beverages, and edibles.
Likewise, Valens establishes standards for analytic testing by having the first ISO 17025 accredited lab, which is mandated by the health department of Canada. Further, they gain global recognition for methodologies and would achieve high margin revenue sources through third-party lab testing.
Moreover, Valens’s technology in extraction processes offers their strategic partners various choices from ethanol, hydrocarbon, solvent-less, to terpene to build distinguished high-value brands. Valens has already built strong partnerships with distinguished CBD brands including Canopy Growth Corp., The Green Organic Dutchman, HEXO Corp., Organigram Holdings Inc., and Tilray. Valens made reoccurring agreements with these strategic partners, to provide promising revenue and substantial cash flow for them.
Valens now rebranded into the Valens Company has made following operating activities to become a multi-licensed, vertically-integrated cannabis company.
Specifically, Valens holds Valens Agritech Ltd. (VAL), for its Licensed Producer (LP) license to cultivate and produce oil, a standard processing and standard cultivation license under the Cannabis Act, and more importantly for an analytical testing license from Health Canada. Similarly, on October 18, 2018, Valens incorporated Valens Labs Ltd. (Labs) to transfer the assets and operations of Supra upon the closing of the Rotogro transaction.
Moreover, Valens incorporated Valens Farms Ltd. (Farms) to hold the interest in the cannabis production facility with Kosha Projects Inc, on July 19, 2018.
Likewise, Valens acquired Supra THC Services Inc. (Supra) for its analytical testing license from Health Canada which allows Supra to process and produce extracts from cannabis and related active ingredients for scientific purposes on April 5, 2017. Moreover, on October 23, 2018, Valens reached an agreement to sell Supra to Rotogro International Limited (Rotogro).
In December 2019, Valens announced Q4 2019 revenue guidance around $27 million to $30 million resulting in an estimated 2019 annual revenue of about $55 million to $58 million. Sale increased significantly from Valens’ white label product output and “Cannabis 2.0” product-focused distillate input.
As we look into Valens’ performances during the past periods, we find that Valens has raised gross margin gradually and kept a steady pace in debt-to-asset (DA) and debt-to-equity (DE). In addition, in the past period, Valens has offset negative return-on-asset (ROA) and return-on-equity (ROE) and gained an incredible net income of $5.9 million. The leading cause of net income in the past period resulted from disciplined execution in managing general and administrative expenses (SG&A). In Q3 2019, Valens reduced SG&A substantially to 6.2% of net revenue compared to 20.8% in Q2 2019.
Additionally, in the past period, Valens gained $16 million in revenue from segmented business of extraction, analytical testing, and corporate operating. Compared to segment operating losses and net losses from analytical testing and corporate operating, Valens’ extraction products and services offset them by bringing significant operating profit and net income.
As for Q4 2019, Valens aims to achieve revenue growth from their “Cannabis 2.0” white label products and to expand worldwide in confronting bigger markets in Europe, Australia, and Latin America, following the agreement for SōRSE cannabis emulsion technology.
Valens sets the goal for the future that planning to get EU-GTP certified facility and more strategic countries in expanding geography. In addition to that, they have entered the Toronto stock exchange venture market (TSXV) coded as VLNS, but Valens aims for NASDAQ listing that going internationally is more consistent and more invaluable to them.
Right now Valens intends to launch a normal course issuer bid (NCIB) to be funded with cash on hand and the Company’s current positive cash flow from operations, which would bring better ROA and ROE for their investors. On March 30, 2020, Valens will announce Q4 2019 and the annual report of fiscal 2019. Let’s look forward to their performances in the booming cannabis market in 2020.
Source: The Valens Company