Valens Groworks Corp: Pot Stock Up 126% in 2019 After Another Record Quarter

Valens Groworks Corp 2019 a Transformational Year, With VGWCF Stock Up 126%
iStock.com/Tinnakorn Jorruang

Valens Groworks Corp Up 126% in 2019 & It’s Just Getting Started

Valens Groworks Corp (OTCMKTS:VGWCF, CVE:VGW) is one of those rare cannabis stocks that seems to have forgotten that we’re in the midst of an industry sell-off.

Valens Groworks stock is up about 126% since the start of 2019, after reporting record back-to-back-to-back financial results.

The legal cannabis industry might be subject to extreme growing pains and investor fatigue, but Valens continues to be an overlooked bright spot, with tremendous long-term growth potential.

VGWCF Stock Overview

Valens Groworks helps some of the biggest pot producers in Canada turn their plants into extracts.

Advertisement

In fact, Valens is the biggest third-party cannabis extraction company in Canada, with annual capacity of 425,000 kilograms (936,965 pounds) of dried cannabis and hemp biomass. (Source: “Corporate Presentation, October 2019,” Valens Groworks Corp, last accessed October 21, 2019.)

In June, Valens announced that construction has begun on an adjoining facility at its property in Kelowna, British Columbia, Canada.

This new facility, once completed in the first quarter of 2020, will increase the company’s extraction capacity to over 1.0 million kilograms (2.2 million pounds). (Source: “Valens Substantially Increases Annual Extraction Capacity to 425,000kg With Plans to Increase Capacity to Over 1,000,000kg,” Valens Groworks Corp, June 18, 2019.)

In addition to significantly increasing Valens Groworks’ extraction capacity, the new facility expands the company’s white-label offerings, which include capsules, edibles, concentrates, topicals, and vape products.

The company currently has extraction agreements with 10 cannabis firms, including five of the top 10 cannabis companies in Canada, including Tilray (NASDAQ:TLRY), HEXO Corp. (NYSE:HEXO), and Canopy Growth (NYSE:CGC). (Source: “Corporate Presentation, October 2019,” Valens Groworks Corp, op. cit.)

Valens has white-label agreements with Tilray, Shoppers Drug Mart (one of Canada’s largest retail pharmacies), Tantalus Labs, and Iconic Brewing Co.

The company is also negotiating more than 50 additional white-label opportunities.

VGWCF Stock Information

Market Cap $295.2 Million
52-Week Change 96.6%
52-Week High $3.66
52-Week Low $0.85
Shares Outstanding 123.2 Million
Float 88.94 Million
50-Day Moving Average $2.53
200-Day Moving Average $2.85

(Source: “Valens GroWorks Corp. (VGWCF),” Yahoo! Finance, last accessed October 21, 2019.)

Valens Groworks stock was on fire in the early part of this year, hitting a 52-week high of $3.66 on April 30, for a year-to-date gain of 232%. That’s just about the time the cannabis stock market started to sell off (or slowly leak). VGWCF stock mostly avoided those headwinds, although it is down from its record price.

Valens Groworks stock is actually hitting an important inflection point that’s both bullish and bearish. It recently charted a double bottom near $2.20, a tested support level. A double bottom is reversal pattern that, in this case, is a bullish indicator.


Chart courtesy of StockCharts.com

On the other hand, the 200-day moving average and 50-day moving average have converged, with the 200-day moving average about to cross over the 50-day moving average. This is a bearish indicator called a death cross.

In this case though, VGWCF stock appears more bullish, since it rebounded off record third-quarter financial results. This stock will, no doubt, face periods of volatility, but its long-term outlook remains strong.

Another Quarter of Record Revenue and Earnings

In October, Valens reported record revenue; adjusted earnings before interest, tax, depreciation, and amortization (EBITDA); and profitability for the third quarter ended August 31. (Source: “Valens Reports Record Revenue, Adjusted EBITDA And Profitability For The Third Quarter Of Fiscal 2019,” Valens GroWorks Corp, October 15, 2019).

The company announced that its third-quarter revenue increased 87% sequentially to $16.5 million. Its gross profit increased to $12.8 million from $5.1 million in the preceding quarter.

Adjusted EBITDA for the third quarter of 2019 came in at $9.8 million, compared to $2.0 million in the second quarter. Valens reported third-quarter net income of $5.9 million ($0.05 per share), compared to a net loss of $10.5 million ($0.10 per share) in the second quarter of 2019.

The company ended the third quarter with a strong balance sheet, with $69.2 million in cash and cash equivalents and short-term investments. It had a working capital position of $84.1 million.

During the third quarter, Valens Groworks Corp processed 26,625 kilograms (58,698 pounds) of dried cannabis and hemp biomass, a 212% increase from the second quarter of 2019. In the first 45 days of the fourth quarter, Valens processed 13,423 kilograms (29,593 pounds) of biomass.

The company said it expects its production volume to increase in the second half of the fourth quarter as it begins to process larger white-label lots for sale in 2020 and continues to process its previously announced contracted volumes.

Subsequent to the end of the third quarter, Valens Groworks announced a deal with Shoppers Drug Mart in which Valens will become the first third-party processor to supply the pharmacy with cannabis oil for its online medical marijuana store.

Valens also signed its first beverage agreement with Iconic Brewing. Over the five-year term of that deal, Valens’ will manufacture 2.5 million cannabis beverages.

Analyst Take

It has been a transformational year for Valens Groworks Corp. The company began commercial production in the first quarter and it has been reporting record financial results since then.

Valens has increased its production volume and will, in the early part of 2020, be capable of processing in excess of 2.2 million pounds of cannabis. That’s more than enough, for now, to meet the growing demand for its extraction services. This bodes well for Valens Groworks stock.