With the latest stock market sell-off, a lot of pot stocks look dirt cheap. While the industry still faces uncertainty, some low-priced pot stocks could be opportunities for bargain hunters.
Check out Valens GroWorks Corp (OTCMKTS:VLNCF, CVE:VLNS), a cannabis company headquartered in Kelowna, British Columbia, Canada. Note that the company recently rebranded itself as The Valens Company.
Like most tickers, VLNCF stock has taken a beating in the recent market crash. It now trades for about $1.40 apiece. Despite all that, the company actually runs one of the fastest-growing businesses in the legal marijuana industry.
You see, while most of the well-known pot companies are marijuana flower producers, Valens focuses on extraction. The company provides a wide range of services including extraction, analytical testing, formulation, and white-label product development and manufacturing.
It has partnered with leading producers such as Canopy Growth Corp (NYSE:CGC), HEXO Corp (NYSE:HEXO), OrganiGram Holdings Inc (NASDAQ:OGI), and Tilray Inc (NASDAQ:TLRY). (Source: “The Valens Company,” Valens GroWorks Corp, last accessed March 20, 2020.)
With an annual capacity of 425,000 kilograms (936,965 pounds) of dried cannabis and hemp biomass at its purpose-built facility in Kelowna, Valens is the largest third-party marijuana extraction company in Canada.
And that is just a start. The company plans to increase its extraction capacity to 1,000,000 kilograms (2,204,623 pounds) for hemp and cannabis in 2020 to keep up with expected demand.
Just take a look at Valens GroWorks’ latest earnings report and you’ll see why it’s special.
In the fourth quarter of the company’s fiscal-year 2019, which ended November 30, it generated CA$30.6 million of revenue. (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.)
The amount represented a whopping 86% increase quarter-over-quarter and was above the high end of management’s guidance range.
The company’s revenue per gram of input was CA$1.25 in the fourth fiscal quarter, which more than doubled its CA$0.61 revenue per gram of input in the third fiscal quarter.
Moreover, The Valens Company earned CA$22.6 million of gross profit and CA$17.7 million of adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) in the fourth quarter of its fiscal 2019.
Again, these numbers marked substantial sequential improvements because, in the company’s third fiscal quarter, its gross profit and adjusted EBITDA were CA$12.8 million and CA$9.8 million, respectively.
And even though economists aren’t very optimistic about how things are going to turn out in 2020, there is actually a catalyst for Valens GroWorks stock: “Cannabis 2.0.”
You see, Canada legalized recreational pot in October 2018, but that was just the first phase. The second phase of legalization, which arrived one year after that, legalized cannabis-derivative products such as edibles, topicals, vapes, and infused beverages. With those products starting to hit store shelves back in December 2019, Canada has moved into the era of Cannabis 2.0.
Since extraction is a necessary step to manufacture pot-derivative products, Valens GroWorks Corp’s business could get a solid boost under Cannabis 2.0.
How do we know that Cannabis 2.0 products will be popular?
Well, in the U.S., consumers have already embraced them. In 2016, 71% of pot products consumed in the U.S. were flower-based products. By 2018, the market share of flower-based products in America had dropped to 53%, with the other 47% coming from oil-based products such as edibles, concentrates, and vapes. (Source: “The Valens Company,” Valens GroWorks Corp, op. cit.)
Recently, The Valens Company announced the launch of a line of cannabis-infused beverages in Canada. These products are produced under a white-label agreement with A1 Cannabis Company, a subsidiary of Iconic Brewing Co. (Source: “The Valens Company Launches White Label Cannabis-Infused Beverages in Canada,” Valens GroWorks Corp, March 5, 2020.)
“Our agreement with A1 demonstrates the strategic value of partnering with leading companies that share our vision and reinforces our commitment to launching the Cannabis 2.0 products that consumers are looking for,” said Chief Executive Officer Tyler Robson. (Source: Ibid.)
It is estimated that, when Canada’s legal marijuana market reaches maturity, consumers in that country will spend CA$1.6 billion on cannabis extract-based products annually.
As the largest third-party cannabis extraction company in the country, Valens GroWorks Corp—aka The Valens Company—stands ready to capitalize on that market, and VLNCF stock could see much better days ahead.