Time to Check Out Valens Company Inc.
If you’ve been following pot stocks, you’d know that the cannabis industry is firing on all cylinders.
But other than delivering double- and sometimes triple-digit growth rates, pot companies also have to adapt to the changing regulatory environment. For instance, in Canada, there’s something called “Cannabis 2.0,” and companies that can capitalize on this new era could be big winners.
You see, Canada legalized recreational pot in October 2018. That was “Cannabis 1.0.” One year later, the second phase of legalization came into effect, which legalized marijuana-derivative products like edibles, vapes, and infused beverages. So now the country is in Cannabis 2.0.
Because cannabis-derivative products tend to command higher margins than dried flower, companies have been vying to gain a share of the Cannabis 2.0 market. And that could be a major catalyst for Valens Company Inc. (OTCMKTS:VLNCF, TSE:VLNS), formerly known as Valens GroWorks Corp.
Headquartered in Kelowna, British Columbia, Valens does not grow any cannabis plants. Instead, it is a leading cannabinoid-based product manufacturing company in Canada. Valens offers a wide range of services, including extraction, analytical testing, formulation, and white-label product development and manufacturing.
Basically, Valens aims to be the partner of choice for companies that want to bring marijuana-oil-based products to the market.
And even though VLNCF stock is a low-priced pot stock—trading at $1.66 per share at the time of this writing—the company already serves some of the leading players in the Canadian cannabis industry, such as Canopy Growth Corp (NYSE:CGC), Tilray Inc (NASDAQ:TLRY), and HEXO Corp (NYSE:HEXO). (Source: “The Valens Company August 2020,” Valens Company Inc., last accessed August 27, 2020.)
Note that, while the Cannabis 2.0 market is relatively new—the first marijuana-derivative products arrived on Canadian store shelves in December 2019—Valens Company Inc. already offers a full suite of manufacturing capabilities, including capsules, tinctures, vapes, beverages, and concentrates.
It plans to add topicals and edibles to the lineup in the near future.
Now, you can probably see why Valens stock could be special. The demand for cannabis-derivative products has been on the rise. It is projected that, by 2024, the size of marijuana-oil-based wholesale market in Canada will reach approximately CA$2.5 billion. Therefore, capturing just a small portion of that market would result in a revenue opportunity in the hundreds of millions of dollars. (Source: Ibid.)
Keep in mind that, in Valens Company Inc.’s fiscal-year 2019 (which ended November 30, 2019), it generated total revenue of CA$58.1 million. In other words, if the company can continue grabbing a share of the expanding Cannabis 2.0 market in the coming years, it should be able to generate enormous growth in its business.
Looking at the financials, Valens Company’ numbers slipped sequentially in the most recent fiscal quarter due to the impact from the COVID-19 pandemic. But on a year-over-year basis, things still looked quite impressive.
In the second quarter of fiscal 2020, which ended May 31, the company generated CA$17.6 million of revenue, representing a 100.3% increase year-over-year. Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) came in at CA$2.7 million for the reporting quarter, up from CA$2.0 million earned in the year-ago period. (Source: “The Valens Company Reports Financial Results for the Second Quarter of Fiscal 2020,” Valens Company Inc., July 15, 2020.)
Like most pot stocks, VLNCF stock took a beating in the market sell-off earlier this year and is currently one of the lower-priced names in the industry.
However, because of Valens Company Inc.’s focus on extraction and manufacturing, the business is well positioned to capitalize on Cannabis 2.0, which is one of the biggest catalysts for the Canadian marijuana industry right now. And that means Valens stock could see much better days ahead.