Cannabis investors may think that they already know all about Valens GroWorks Corp. (CSE: VGW, OTCQB: MYMSF, Forum). The Stockhouse audience was introduced to Valens in a full-length feature article on December 22, 2017 (The One-Two Punch For Cannabis Success).
What’s changed in just nine month’s time? The Company has added a few new “punches” to its business model.
VGW still has its Valens Agritech division, the research, cultivation and processing side of the business. The Company still has its Kelowna, B.C. facility (having recently finished a phase 2 expansion). Valens is still seeking to position itself as a craft grower of premium cannabis products, and already has a supply and sales agreement in place with Canopy Growth Corp. (TSX: WEED).
What’s new is:
- Valens Agritech Ltd has completed its first few harvests and extractions with exceptional results
- The Company is focusing its operations on cannabis extracts and is one of the industry leaders in Canada with monthly processing capacity of 6,500 kilograms as of this writing
- Construction of a new, purpose-built $75 million, 400,000 square foot cultivation facility with ability to expand up to 800,000 square feet, a 50/50 joint venture with the JV partner supplying all of the building capital and the land
More on this later.
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Valens still has its Supra THC Services division, featuring the Company’s Supra THC cannabis lab – the industry leader in cannabis laboratory facilities for commercial services and research and development. Stockhouse readers will recall that Supra THC has commenced a joint venture with Thermo Fisher Scientific, an $80 billion U.S. multinational corporation, creating a “Centre of Excellence in Plant Based Medicine Analytics”. This project is now up-and-running.
Supra THC is now the first cannabis laboratory in Canada to have earned its ISO 17025 accreditation. The Company recently announced this milestone on June 14, 2018. Through Supra THC, VGW is the holder of a Dealer’s License, amended to permit toll processing of cannabis products.
This raises one of VGW’s competitive advantages: licensing. Supra THC Services Inc.’s license permits laboratory analysis of Cannabis for licensed individuals or licensed producers and Valens Agritech’s license permits cultivation for the purposes of research and development, as well as purchasing, processing and selling cannabis oil domestically and internationally. Upon receipt of Valens’ ACMPR cultivation license, VGW will become one of few awarded all three licenses and using them for commercial purposes.
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Many cannabis investors will be unfamiliar with the first two dealers’ licenses that VGW already holds. The reason for this is that these licenses are not issued via Health Canada’s Access to Cannabis for Medical Purposes Regulations. Instead, these licenses all fall under Canada’s Controlled Substances Act.
This is an important nuance and it will help to clear up an apparent contradiction that will have already been spotted by alert readers. If Valens has not yet received its ACMPR cultivation license, how can the Company have already harvested its first crops (at VGW’s Kelowna, B.C. facility)? Through its Dealers License.
The name of this license is perhaps a bit of a misnomer. While a Dealers License authorizes the licensee to buy cannabis from and sell cannabis to LP’s in Canada, they cannot in turn sell this to the domestic public. However, it authorizes cultivation, processing, export, import and business development. The Company will soon also be entitled to cultivate cannabis pursuant to its ACMPR license (through the two separate governing bodies) pending legalization and the merging of the two.
This leads to a major joint venture announced on April 11, 2018. Along with partner, Kosha Projects Inc., the Company has created Valens Farms. The centerpiece of Valens Farms is a $75 million purpose-built, 400,000 square foot cannabis cultivation facility, combining both indoor and greenhouse operations.
It will be situated on a 50-acre property within the municipal boundaries of Spallumcheen B.C. The District of Spallumcheen has already zoned this property for approximately 800,000 square feet of greenhouse and indoor facilities.
Kosha Projects is made up of experienced land and building developers in B.C.’s Okanagan Valley with projects and networks that stretch across Canada. Kosha will be supplying both the land and the capital for this Project, meaning zero dilution for VGW – and its shareholders.
The President of Kosha, Ashley McGrath commented:
We are extremely excited about this opportunity to partner with Valens Groworks and its competent team at Valens Agritech. We believe between both parties we have exactly what it takes to create an exceptional operation to push towards a quality-controlled, production-to-sale vertical integration for the company as a whole.
Some cannabis investors may be questioning the size of this capital investment. Investors are already familiar with expansion plans underway with many cannabis companies that involve either retrofitting greenhouses, or even converting non-agricultural buildings into indoor brick-and-mortar facilities.
The price-tag for many of these projects is substantially lower on a dollars-per-square-foot basis. CEO Tyler Robson, offered these insights on the Valens Farms initiative.
This purpose-built facility will be built in compliance with European Union (EU) Good Manufacturing Practices (GMP) standards, ensuring the product from this facility can be exported anywhere in the world where cannabis is nationally legal for medical or (in future) adult usage purposes. As a highly automated facility, it is designed to deliver impressive capacity with craft-like care and high production efficiency.
With a horticultural approach Valens Farms will produce a better, more sustainable product, both sun-grown and indoor with a substantially reduced energy footprint with ultra-low operating costs and high margins.
Through the joint venture with Kosha Farms, VGW will be able to dramatically ramp-up cultivation operations on the most cost-effective basis possible: no out-of-pocket cost to Valens. At the same time, the Company will have a large-scale state-of-the-art facility capable of producing the premium cannabis products demanded by CEO Robson and the VGW production team. As noted in a recent Stockhouse news feature on Valens, these plans have now been finalized.
This ties into what Tyler Robson called a “pivot” in Valens’ operations during the most recent conference call between Stockhouse Editorial and the Company’s management team: a strong focus on cannabis extract production. Why?
Even a year ago, all of the talk in Canada’s cannabis industry was on a looming “supply shortage”, once the recreational market becomes a legal reality in Canada. Since then, cannabis investors have seen a steady stream of mega-expansion announcements, dramatically increasing cultivation capacity across the sector.
More recently, some experts within the industry – including CEO Robson – have begun to question whether Canada’s cannabis industry is headed toward a near-term production surplus? Part of VGW’s answer to this question is going international. The Company is already actively pursuing opportunities – in a global cannabis market projected to reach $146 USD billion in size by 2025.
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The other part of the answer is cannabis extracts: a higher-margin cannabis product. Specifically, Valens is positioning itself to become a trusted producer of premium cannabis extracts in Canada.
The Company is already one of the industry leaders in extract processing capacity. To guarantee the “premium” component begins in the cultivation process itself. Currently, most cannabis extracts are produced from what cannabis companies politely call “trim” (along with other, more creative names).
In a quick “Cannabis 101” tutorial, Tyler Robson explains:
An important aspect to our cultivation methods is monocropping. By monocropping, we are able to maximize growing conditions for the specific strains we are growing and maximize the beneficial compounds found in these highly valued strains. Beyond just the quality of the plants biology for extraction purposes, this will maximize efficiencies by reducing grow cycle times and utilities volatility, maximizing bud yields and streamlining productivity of staff and equipment. Naturally, this turns all into superior product, higher yields as well as higher margins. It's a no brainer.
But Valens isn’t finished yet. VGW is already moving toward an additional expansion of extract production capacity: up to 10,000 kilograms per month. At that level, to the best of the Company’s knowledge this will make Valens a major CO2 provider for cannabis extracts in Canada.
In a cannabis market that is (potentially) about to be swamped with low-end cannabis production, VGW is already staking out higher ground. It’s yet another example of how this management team is building the Company. Like a good chess-player, Valens is always trying to stay at least one move ahead of the competition.
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That’s how a junior cannabis company with (at the moment) a market cap of only $133 million has already managed to become an industry leader in several areas in a very short period of time – going public in November 2016.
- An industry leader in cannabis extract production capacity
- Industry-leading cannabis lab, the first to earn ISO accreditation
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Slightly farther on the horizon, international export markets beckon as (in particular) European nations catch up to North America from a regulatory/legalization standpoint. With its European “GMP” production standards (certification pending), Valens is already prepared to move into that market – and its massive population base.
A step ahead. It’s a winning formula in playing chess. It’s also the secret to success in business.
valensgroworks.com
FULL DISCLOSURE: Valens GroWorks Corp is a paid client of Stockhouse Publishing.