Valens GroWorks Corp. (TSXV:VGW), one of the Top 3 Canadian cannabis extraction stocks by market cap, announced a private label supply deal with Shoppers Drug Mart and recently provided revenue guidance
SmallCapPower | September 18, 2019: Valens GroWorks Corp. (TSXV:VGW) (OTC:VGWCF), one of the Canadian cannabis extraction stocks, on September 16, 2019, announced a supply deal with Shoppers Drug Mart to provide cannabis oil and derivative products on a private label basis for Medical Cannabis by Shoppers (online medical cannabis eCommerce site).
‘Life Brand’ cannabis products could be available online through Shoppers. The product offerings are expected to include cannabis oil, capsules, tinctures, topicals, vape cartridges, and other products. Under the terms of the agreement, Valens GroWorks is immediately going to begin production of oil caps and tinctures with further products expected to be produced as permitted by Health Canada regulations. Shoppers Drug Mart is one of Canada’s leading pharmacies, with 1,338 stores across the country and the supply deal with Valens helps position the Company as one of the largest third-party extractors in Canada.
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Valens GroWorks now has the most supply agreements among pure-play extractors. The supply deal with Shoppers brings Valens’ list of extraction clients to 12, which is the most of any pure-play extractor. Valens’ list of tolling clients include six of the Top 12 largest Canadian cultivators by market cap, including Canopy Growth Corporation (TSX:WEED), Tilray Inc. (NASDAQ:TLRY), HEXO Corp. (TSX:HEXO), Sundial Growers (NASDAQ:SNDL), Organigram Holdings (TSX:OGI), and The Green Organic Dutchman (TSX:TGOD). The Shoppers Drug Mart agreement could become the largest of all the supply deals because of the company’s history in Canada and familiarity with Canadian consumers, particularly the elderly (ages 65+), which is the fastest growing segment of cannabis consumers, according to Statistics Canada data.
Valens GroWorks provides Q3/19 guidance; revenue expected to be between $16M to $17M. On September 12, 2019, Valens provided investors with revenue guidance for Q3/19. Management indicated that revenue was expected to be in the range of $16M to $17M. Additionally, the Company reported that in the first 45 days of Q3/19, it processed 7,358 kg of biomass and indicated that processing volumes are increasing MoM. As a result, we are expecting Valens GroWorks to process ~16,000 kg of biomass in Q3, which would bring in revenue of ~$16.5M for Q3 if the Company maintains average revenue of $1,030/kg of biomass processed. Investors should expect a gradual ramp-up of extraction services through to Q4/19, with a significant ramp-up expected in Q1/20, when edibles and derivatives are fully legalized in Canada. Valens is expected to release Q3/19 (quarter ended August 31, 2019) financial results on or about October 15, 2019.
Valens GroWorks stock closed Tuesday’s trading session up 1.6% to $3.76. Valens shares trade at a market cap of $450.3M. VGW is currently trading at 2020E EV/sales and EV/EBITDA multiples of 2.3x and 5.0x, a discount to pure-play extraction peers, which trade at multiples of 3.5x and 20.1x, respectively.
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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