Valens GroWorks Corp (CVE:VGW) Strong Q2 2019 Results

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Valens Groworks Corp (TSX-V:VGW) (OTCMKTS:MYMSF) (FRA:7LV) President Jeffrey Fallows highlights company milestones achieved in the second quarter of 2019. Among increasing revenues 296 percent from the previous quarter, Valens also anticipates operating to almost full capacity  in terms of volumes by end of the calendar year. To keep in front of the growing demand, Valens have recently announced a large-scale capacity increase to 425,000 kilograms per year – making Valens the largest third party extraction facility in Canada. The Valens President also discusses helping the company with its future international expansion.

Transcript

Narrator:  Valens GroWorks Corp. is a multi-licensed, vertically-integrated cannabis company focused on being the partner of choice for leading Canadian and international cannabis brands.

Valens is the largest third-party extraction Company in Canada with an annual capacity of 425,000 kg of dried cannabis and hemp biomass at their purpose-built facility in Kelowna, British Columbia.

Additionally, their subsidiary Valens Labs is a Health Canada licensed ISO 17025 accredited cannabis testing lab providing sector-leading analytical service

Valens GroWorks Corp trades on the TSX-Venture under the ticker VGW

James West: I’m joined now by Jeffrey Fallows. He’s the President of Valens GroWorks Corp., trading on the TSX Venture under the symbol VGW. Jeffrey, welcome.

Jeffrey Fallows: Thanks for having me.

James West: Tell me about all that is happening in Valens Gro recently.

Jeffrey Fallows: So we just announced our second quarter 2019, and had some pretty strong results coming out of there, plus there’s a lot of volumes and really starting to hit up our ramp in terms of both revenue and EBITDA. So, really starting to hit our stride, and really looking forward to things coming in the next couple of quarters.

James West: Yeah, wow, that’s quite an increase – up 296 percent in the first quarter over last year’s first quarter. What’s the annual run rate looking like for exit 2019?

Jeffrey Fallows: So we’re seeing a pretty steady increase in volumes as the year goes on. We anticipate being pretty close to our full capacity by the end of the year in terms of volumes through. Right now, we’re really working with our partners in ensuring, you know, there’s a lot of process that goes in with the scale-up both on their side and our side, making sure volumes come in where they’re supposed to come in and go out where they’re supposed to go out.

James West: Right.

Jeffrey Fallows: So, making great progress on that, and every day it’s getting better, as you can see with the quarter-over-quarter volume increase.

James West: You bet. So I recall that Valens GroWorks was making sequential announcements that you were extracting for this large-scale LP, that large scale LP, but you also had some of your own cultivation. Is that still the mix?

Jeffrey Fallows: So we are not doing any cultivation.

James West: Oh, okay.

Jeffrey Fallows: We are focused exclusively on providing extraction services to our clients, and as we’ve also announced, we’re now moving from straight base extraction, where we provide either crude or distillate oils to our customers; we’re also now moving to Phase II in the market, which is, you know, vape pens, softgels, topicals, all those kind of sort of next-generation products that are going to hit the shelves later this year.

James West: Oh, okay, so you’re doing all of the products. Do you have a focus, do you have a product line into the medical world, as well?

Jeffrey Fallows: Yeah, we are, whether it’s recreational or medical, we’re agnostic as to which market it goes into. We’re about providing good quality products to our customers.

James West: Sure. So does that mean you are going to source your feedstock biomass all the time from LPs?

Jeffrey Fallows: Yeah. So a majority of our volumes right now are processed through toll, which means that they remain the property of the LPs. We send back the oil to them. But as we’re moving more towards the white label, and depending on what our clients are looking for, in some cases we may be sourcing product for them; in other instances, we may be processing their own product and then just moving it farther down the value chain to, as I say, things like vape pens and soft gels, etcetera.

James West: Sure. You’re approaching capacity; does that mean you’re going to increase capacity?

Jeffrey Fallows: So we just announced a large-scale capacity increase to 425,000 kilograms per year, making us the largest third party extraction facility in Canada. We also announced that we’ve started construction on our adjoining facility next door, which will take our capacity up to 1 million kilograms per year. But you know, more important than the mass volume of it, is obviously the margin and the return we’re getting on each of those kilograms that we are processing, and we feel pretty good about what we’re seeing so far coming out of there.

James West: Sure.

Jeffrey Fallows: So, as we’re ramping, I think you’ll see that 425,000 number, we’ll be starting to hit that on our run rate as we roll through the end of the year, and then into 2020, we really expect that larger scale to come online and to be requiring those volumes.

James West: Sure. The business model of extractors seems to generate a lot of free cash flow, as evidenced by MediPharm and others, and certainly Valens Gro is starting to exhibit that same pattern. What is it about the extraction business model that makes it so robust when it comes to generating cash?

Jeffrey Fallows: Well, I think, you know, first and foremost, it’s required for the next generation products. So you have to extract out the cannabinoids to put them into those other products, so we’re a vital part of the value chain right now. And secondly, especially when it comes to the Valens sense, we offer a full suite of services. So you know, if you’re doing a CO2 extraction or you’re doing an ethanol extraction, or even a hydrocarbon extraction, where we’re the only one in Canada capable of doing that – you know, providing these services and providing the quality of product we provide, affording us some strong margins right now.

James West: Wow. That’s fantastic. And what sort of exposure do you have to the global marketplace – Europe, Latin America, United States?

Jeffrey Fallows: So we have a number of conversations going across the globe, quite frankly, and that’s part of my job and why I joined the team, is to help them with this international expansion plan. And my focus right now is really understanding everything that’s in our pipeline and understanding, if we’re going to be investing a dollar of shareholders’ money, where’s the best return back for us. So that may be, you know, it may be in a joint venture context, it may be in an acquisition context, it may be just a greenfield start-up by ourselves, but we’re going through all that exercise right now and choosing the rest to deploy shareholder money.

James West: Sure. What product type is the most popular, is the biggest seller, for Valens Gro?

Jeffrey Fallows: So I’d say right now it’s oil, obviously – it’s either crude or distillate oil. As we move into 2020, we expect to be a large percentage coming from vapes and the vape category, and those sort of next generation products. And certainly on an international scale, which is largely a medical market – there’s not many recreational markets that you can sell into – you know, so those would be more medical based, which would be tinctures and those sorts of things, as you’re going internationally.

James West: Wow, cool. Okay, well, that’s a great update, Jeffrey. We’ll leave it there for now and come back to you soon. Thanks very much for joining me today.

Jeffrey Fallows: Thanks for having me.

 

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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