Valens (VLNS.T), the Kelowna-based cannabis company has built one of the most legitimate businesses in the Canadian cannabis space.
In Valen’s early stages the company was mainly focused on extraction, and while that’s still a key component of their business they have branched out in multiple directions. They didn’t get stuck being a one-dimensional cannabis company, and their management is dedicated. This has allowed Valens to outlast many of its competitors.
Valens posted $83M CAD in revenue in 2020. The company’s market cap currently sits at $394M CAD, and they had $48M CAD in the bank as of February 2020.
They didn’t do a crazy IPO that overvalued their company.
Their insiders have typically only worked at one or two companies and don’t have a laundry list of shell companies.
Their revenue has steadily grown from $5M CAD in 2018 to $58M CAD in 2019 to $83M CAD in 2020. Because of these strong revenue numbers and small market cap, their price to sales ratio is low, sitting at 4.7. By all metrics this company is undervalued.
In a recent interview with COO Chantel Popoff, she stated Valen’s currently has 250 employees with hopes of reaching 300 by summer. They have grown their company the right way, and the stock has followed suit.
Edibles
To date, Valens has manufactured just over 190 different SKUs across nine different product categories within the space focusing primarly on oils and vapes. Valens is looking to expand its product line, making a big push into the consumer packaged goods space. In Q2 of 2021 Valen’s intends on launching an assortment of edible products into the market through their most recent acquisition.
In March, Valens acquired the Kelowna-based CPG company LYF Edibles for $25M CAD. LYF is focused on manufacturing everyday foods that support more of the 3.0 categories, such as desserts, energy bars, fruit, nut, and seed mixes, things that were more specialized and more CPG (consumer packaged goods) aligned.
LYF holds capabilities to produce things such as real fruit gummies, caramel-filled bars, peanut butter cups, candies, granola products—but they’re also looking at the different consumer trends that clients are after, such as plant-based, sugar-free, and natural ingredient offerings. LYF has a 10,500 sq/ft facility in Kelowna, BC.
Valens has the infrastructure and capability to create cannabis products at a massive scale, so buying an edibles company to fill out the rest of the supply chain makes a lot of sense. $25M seems like a steep price for where LYF is, but I’m going to trust Valens on this one.
The company is heavily invested in co2 extraction, allowing Valens to extract around 20,000-30,000 kg of biomass per quarter which are converted into full-spectrum oil. The co2 extraction process preserves the full cannabis profile of the biomass including cannabinoids, flavonoids, and terpenes. Valen’s has a research partnership with Thermo Fisher (TMO.N), a big player in the scientific research space doing $20B CAD per year in revenue. The lab offers third-party testing services, another revenue stream in Valen’s already diversified business model.
International
Valens recently closed a $35M CAD financing, most of which will be deployed towards international expansion. Jeff Fallows, President of The Valens Company, said, “Over the course of 2020, Valens has created a platform that is not only highly adaptable to changing market conditions, but also easily transportable into new markets.
May 14, 2020, the company entered into a five-year non-exclusive distribution agreement with Cannvalate Pty Ltd. (“Cannvalate”). This gives the company access to the Australian market.
https://equity.guru/2021/03/02/is-there-an-undervalued-cannabis-market-in-australia-right-now-and-does-it-matter/
The company made an initial shipment of CBD isolate and THC and CBD distillate to a partner in Denmark, after being selected to support a research and development initiative for a leading pharmaceutical company. In 2019, Valens entered into an expanded agreement with SoRSE Technology, granting Valens the exclusive license to use the proprietary emulsion technology that transforms cannabis oil and oil-based terpenes into water-compatible forms for use in beverages, edibles, topicals, and other consumer products in Canada, Europe, Australia and Mexico during the initial 5-year term.
Valen’s has a plan for worldwide expansion, but everything started in Kelowna, BC – the absolute perfect spot to grow a weed company.
Kelowna roots
Kelowna, a small city about 350km East of Vancouver has a long history of cannabis culture, the city is home to North America’s first cannabis cultivation research center, and many BC LPs grow in and around the Kelowna area. Its climate is famous for growing world-renowned wine grapes, fruit, and of course – cannabis.
Valens has benefited from its location in Kelowna for a number of reasons. Valens uses local extraction company Vitalis’s co2 extraction gear to test and formulate products, and LYF Edibles is located just down the street from Valens.
Being in Kelowna has allowed the company to operate in a cheaper jurisdiction than somewhere like Vancouver or Toronto. Kelowna still has close proximity to the big city and there is no shortage of capital, with many businesses. Through reading several posts on the Kelowna subreddit, it appears as though the city is saturated with young and talented designers, web developers, and marketers.
So with ideal growth conditions, nearby business partners, and a community of cannabis enthusiasts Valen’s is kind of in the perfect spot. With the introduction of new verticals like third-party research services, edibles/CPG goods, vaporizers, and oils Valens has diversified their revenue streams as good as any company I have seen in the cannabis industry. Their management seems dedicated to the company with little insider selling. Management has a clean background and wasn’t involved in several of the cannabis companies that cut corners and tried to get rich quick.
It makes sense why the company has gone from $5M CAD to $86M CAD in revenue in only 2 years.
