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Valens Shifts Gears, Executes Multiple Extraction Agreements

Jeff Nielson Jeff Nielson, Stockhouse
1 Comment| January 31, 2019

Click to enlargeStockhouse investors are becoming increasingly familiar with Valens GroWorks Corp (CSE: VGW, OTCQB: MYMSF, Forum). Originally introduced in a full-length feature article from December 22, 2017, the Company has recently been in the news through inking a series of multi-year cannabis extraction agreements. More on this later.

The first article on VGW highlighted the Company’s commitment to the highest quality cannabis cultivation. But as with many Canadian LP’s, Valens has also been placing increasing emphasis on value-added cannabis operations. This reflects a divergence that is occurring among cannabis companies as this industry matures.

On the one side are the cannabis companies that remain fully committed to broadly diversified cannabis operations. On the other side are cannabis companies that are choosing to increasingly specialize in their operations. Both business models have merit, but Valens GroWorks is clearly focusing on the latter approach.

While continuing with its premium cultivation operations (and increasing cultivation capacity), the Company has been rapidly expanding another branch of its business: cannabis extraction operations. A new mantra with VGW is that “extraction is the foundation of opportunity”.

Click to enlarge

The reasoning is straightforward. Extraction yields cannabis oils, a fundamental input in a wide array of cannabis value-added products. With monthly extraction capacity of 6,000 kilograms of dried flower, Valens is one of the leaders in cannabis extraction capacity. [Editor's note: the text in this paragraph has been slightly revised from what was originally published on January 31, 2019.]

That extraction capacity is certainly enough to turn heads in the cannabis industry. But to get real traction with investors, the Company needed to demonstrate that it could convert all that capacity into revenue streams.

Since November 2, 2018, the Company has signed no less than five extraction deals with other cannabis companies. Five deals in less than 90 days: that’s execution. While the terms of these deals aren’t specific in terms of quantifying the level of extraction, these are all multi-year extraction agreements with companies that they know are executors (like Valens itself) and producing at scale, effectively.

Included among Valens’s extraction deals is a multi-year deal with industry leader, Canopy Growth (TSX: WEED). Investors already familiar with Valens will be aware that this is the Company’s second agreement with Canopy Growth. Previously, Valens and WEED had already contracted for VGW to become a supplier of high-end dried cannabis for Canopy Growth’s broad retail operations.

However, for investors scrutinizing this series of extraction deals, that’s not the only point of interest from these agreements. On January 21, 2019; Valens signed its fourth extraction agreement, a multi-year deal with Sundial Growers Inc.

Sundial Growers is a private, Alberta-based cannabis company. Why is that significant?

For publicly listed companies, executing business deals with other entities can also raise compliance issues with respect to potential business partners. As a private company, Sundial Growers can do business with whoever it chooses, without looking over its shoulder for regulatory approval. And Sundial chose Valens.

Even more recently, on January 29, 2019, the Company announced a new multi-year cannabis extraction deal with Organigram Inc (TSX: V.OGI). Organigram is another established player in the Canadian cannabis industry, with its operations focused in Atlantic Canada. That’s also significant.

Valens is based in British Columbia, with its extraction and testing operations conducted from the Company’s flagship facility in Kelowna, B.C. While cannabis extraction capacity can be located in a number of Canadian provinces, Organigram has chosen to ship its cannabis literally across the country – in order to team up with Valens.

Greg Engel, the CEO of Organigram explained this decision:

"Looking ahead to another year of unprecedented firsts in the national and global cannabis industries, our growth strategy is aggressive. A key element of that success is partnerships with companies like Valens who can offer the capacity, quality and expertise to help ensure we deliver on our ongoing commitment to meeting the increasing demand of the global medical and adult recreational cannabis markets." [emphasis mine]
Capacity, quality and expertise. For investors wondering how and why Valens has been able to complete this string of extraction agreements over such a short time horizon, this answers the question. For those looking for clues as to how successful VGW will be in leveraging this massive extraction capacity going forward, the perspective of Organigram’s CEO will be very encouraging.
Valens’s own Chief Executive, Tyler Robson, summed up this news.
"We are pleased to be a trusted partner of Organigram and the Canadian cannabis industry. We are proud to collaborate with companies like Organigram who continue to look for innovative technologies that will best serve the long-term needs of their customers."
A Canadian leader in cannabis extraction capacity is becoming a Canadian leader in existing extraction partnerships with other Canadian cannabis companies. As Valens shifts gears from strategy to execution, the big winners will likely be the Company’s shareholders.

FULL DISCLOSURE: This is a paid article of Stockhouse Publishing.

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It’s not 6500 kg/month of oil output, it’s 6500 kg/month of dry flower input which equates to ~ 650 kg/month of oil output
January 31, 2019

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