Valens GroWorks Corp Remains a Top Profit Play
Valens GroWorks Corp (OTCMKTS:VLNCF, CVE:VLNS) reported another quarter of record results.
Unfortunately, that news is being overlooked by mounting concerns about how the coronavirus (COVID-19) will impact the global economy. Fears of an economic pandemic sent the stock market tumbling on February 24, cobbling Valens’s 2020 momentum.
That said, VCLNCF stock is up about 8.3% year-to-date. Thanks to a strong outlook and knowledge that COVID-19 will eventually be contained, Valens is one of the most exciting marijuana stocks out there.
VLNCF Stock Overview
In January, cannabis-infused products legally hit store shelves in Canada. The launch of cannabidiol (CBD) edibles, beverages, vapes, and topicals came a little more than a year after recreational cannabis was legalized in Canada.
It’s difficult to overestimate just how big the cannabis-infused industry will be in Canada.
According to one report, cannabis-derivative products will create a CA$2.7-billion opportunity just in Canada. The global market for alternative cannabis products is expected to grow over the next few years to US$194.0 billion. (Source: “Deloitte Estimates Next Round of Cannabis Legalization Will Create a New $2.7-Billion Market in Canada,” Deloitte, June 3, 2019.)
Some people like the buzz of pot, but not the idea of smoking weed. So the introduction of new products into the legal pot market will reach a whole new audience that has been reluctant to try traditional cannabis products.
Marijuana companies love the idea of cannabis-infused products because they not only open up a whole new revenue stream, they have higher margins than traditional dried cannabis does.
Valens GroWorks helps big cannabis companies get those products to market. Valens does not grow the plants it works with. Instead, it extracts raw biomass and turns it into refined products that are used in edibles, vapes, and topicals.
Valens is the biggest marijuana extraction company in Canada. It is also in the process of becoming the biggest third-party marijuana product development and manufacturing company in the world. (Source: “Investor Presentation February 2020,” Valens GroWorks Corp, last accessed February 26, 2020.)
While the company has enough capacity right now to meet the current needs of its customers, it will need to increase its capacity to keep up with expected demand.
To that end, in 2020, Valens will be increasing its extraction capacity from 425,000 kilograms (937,000 pounds) to 1.0 million kilograms (2.2 million pounds).
Valens expects to be a major player in the cannabis-infused beverage market.
In September 2019, it signed a five-year white-label deal with Iconic Brewing Co. to make a minimum of 2.5 million pot-infused beverages. (Source: “Valens Announces 5 Year White Label Cannabis Infused Beverage Contract with Iconic Brewing Company’s Cannabis Division,” Cision, September 12, 2020.)
Then in November 2019, Valens acquired Pommies Cider Co. for $7.5 million. (Source: “Valens Establishes Operations in the Greater Toronto Area With the Acquisition of a Leading Beverage Company,” Cision, November 11, 2019.)
Valens GroWorks Stock Information
|Market Cap||$278.1 Million|
|Shares Outstanding||125.5 Million|
|50-Day Moving Average||$2.50|
|200-Day Moving Average||$2.44|
(Source: “Valens GroWorks Corp. (VGWCF),” Yahoo! Finance, last accessed February 26, 2020.)
Another Quarter of Record Results
On February 24, Valens announced its financial results for the fourth quarter and fiscal year ended November 30, 2019. Fourth-quarter revenue was up 86% quarter-over-quarter at $30.6 million, which was above the high end of guidance. (Source: “The Valens Company Reports Record Financial Performance in the Fourth Quarter and Fiscal Year Ended November 30, 2019 With Q4 Adjusted EBITDA of $17.7 Million,” Valens GroWorks Corp, February 24, 2020.)
Gross profit for the fourth quarter of 2019 was $22.6 million (73.8% of revenue), up from $12.8 million (77.8% of revenue) for the same prior-year period.
Fourth-quarter net income was $4.5 million, or $0.04 per share.
The company reported fourth-quarter 2019 adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) of $17.7 million (57.7% of revenue), up from $9.8 million (59.4% of revenue) in the third quarter of 2019.
Valens GroWorks Corp ended the 2019 fiscal year with a strong balance sheet: $58.7 million in cash and short-term investments, as well as net working capital of $88.2 million.
Full-year revenue increased to $58.1 million and gross profit increased to $41.4 million (71.2% of total revenue). Adjusted EBITDA for the year was $27.4 million.
Thanks to the rollout of cannabis-infused products in early 2020, Valens CEO Tyler Robson said the company’s white-label product development initiatives contributed to record fourth-quarter revenue.
“Our multi-year extraction contracts with industry leading players positioned us as the partner of choice in the industry and drove significant revenue, gross profit and adjusted EBITDA growth,” said Robson.
Subsequent to the end of fiscal 2019, Valens announced that it received its first international purchase orders for white-label products to customers in Australia. The initial shipments, totaling over 3,000 units, are expected to ship in the second quarter.
Valens GroWorks Corp is a rarity in the cannabis sector. It has been reporting strong revenue growth, is actually profitable, and has a strong balance sheet.
While it’s the largest cannabis extraction company in Canada, it broadened its offerings in the second half of 2019 to include white-label product development. That strategic shift has led to the company’s white-label contracts outnumbering its extraction contracts.
All of that bodes well for Valens’s strategy to accelerate its growth in the cannabis-infused market.