Valens GroWorks Corp: A Preview of its Q2 Financials

Valens GroWorks Corp. (TSXV:VGW), one of the Canada-listed, pure-play cannabis extraction stocks, is expected to report its Q2/19 financial results on July 15, 2019

SmallCapPower | July 11, 2019: Valens GroWorks Corp. (TSXV:VGW) (OTC:VGWCF), one of the Canada-listed, pure-play cannabis extraction stocks, is scheduled to report Q2/19 financial results on July 15, 2019 after markets close.

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Today we are going to look at what investors should expect from Valens’ second-quarter results. Analysts are expecting revenue to come in at $6.7M with a net loss of 1.2M. Management has also provided some revenue guidance. In its Q1/19 MD&A, the Company announced that it had processed ~5,000 kg of biomass in the first 55 days of Q2, implying that VGW is expecting to process 8,200 kg during the second quarter. Valens GroWorks generated $2.2M in revenue on 1,800 kg of biomass processed in Q1, and presuming it maintains a similar run-rate, Valens could generate up to $9.9M in revenue based on 8,200 kg processed in Q2/19. On July 10, 2019, Valens GroWorks up-listed and began trading on the Toronto Venture Exchange (TSXV).

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Robust client base of Canadian cultivators supports future revenue growth. Valens has signed toll processing extraction agreements with five of the Top 10 licensed cultivators by market cap, including The Green Organic Dutchman (TSX:TGOD), Organigram (TSXV:OGI), Tilray (NASDAQ:TRLY), Canopy Growth (TSX:WEED), and HEXO Corp. (TSX:HEXO). The HEXO and TGOD contracts are for a minimum of 30,000 kg of biomass in the first year and a minimum of 50,000 kg in the second year, while the TLRY agreement is for a minimum of 60,000 kg over two years. The Company announced on June 18, 2019, that it plans to expand its annual extraction capacity from 240,000 kg to 425,000 kg, with plans to increase to 1,000,000 kg once the Company builds out the rest of facility by Q2/20. The expansion of extraction capacity is expected to add further revenue potential as the Company can bid on more extraction agreements.

Ready for legalization of derivatives and edibles. Valens GroWorks can offer cultivators four different types of extraction methods (CO2, ethanol, hydrocarbon, and solvent-less). With this wide selection of extraction methods VGW can develop a wide variety of products and formulations for its partners, including oils, capsules, vape pens, wax, shatter, butter, and live resin. In addition, Valens GroWorks has a partnership with Sorse Emulsion Technology for exclusive Canadian rights to a proprietary formula for a cannabis beverage. The beverage is expected to be shelf stable, with zero cannabis taste and colour, and a 5 to 15 minute onset time with a 45 minute to 2 hour offset time, designed to mimic an alcoholic beverage.

Looking ahead. With a total of 10 toll processing agreements, Valens GroWorks has clear revenue visibility for the next two years and is ready for the legalization of derivatives and edibles. The additional extraction capacity will enable Valens to enter into further agreements with more cultivators, which is expected to drive revenue growth.

Shares of Valens GroWorks closed Tuesday’s trading session down 1.25% at $3.96. Valens stock trades at a market cap of C$370 Million.

  • Market Cap: $370 Million
  • YTD Return: 162%
  • 90-Day Average Trading Volume: 1,014,000
  • Q2/19 Consensus Revenue Estimate: $6.7 Million (4 estimates)
  • Q2/19 Consensus Net Income Loss Estimate: $1.2M Million (4 estimates)
  • Earnings Date: Monday, July 15, 2019, after markets close

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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