Extraction specialist Valens Groworks (TSXV: VGW) has outperformed the cannabis sector this week after closing a C$43.1 million bought deal financing.
It plans to use the net proceeds of the deal to increase extraction capacity at its Kelowna facility, broaden its geographic presence and provide white label solutions. AltaCorp Capital Inc. led a syndicate of underwriters, GMP Securities, Raymond James, Haywood Securities and Mackie Research Capital, purchasing more than 14.6 million units at C$2.95.
Valens bills itself as the largest extraction company in Canada after it expanded capacity to 240,000 kg in Feb. 2019. However, it faces stern competition in this burgeoning sector of the cannabis industry and rival MediPharm is in the process of expanding its own capacity from 100,000 kg to 250,000 kg.
MediPharm will complete this project in the next couple of months and Valens needs to act if it is to retain its crown as the largest third-party extraction specialist in Canada. It initially announced a C$30 million financing, then upsized it to C$37.5 million and it closed this week at C$43.1 million.
A Competitive Scene
Edibles, beverages, vapes, and topicals are set to be permitted in Canada later this year. Concentrates are growing more popular than smoking cannabis in states like Colorado and California, and a similar trend is expected in Canada. Extraction services are in high demand and several firms are bidding to become the market leader in this sphere.
NextLeaf Solutions Ltd.
More than half of the new licenses issued by Health Canada have been for extraction only of late. MediPharm was the first, but there has since been an influx, with Neptune Wellness Solutions also joining the party.
Flexible and Scalable
The demand for edibles and other extracts is likely to soar once Canada expands the range of extracts permitted later this year and this growing group of extraction-focused companies stands to benefit. Large licensed producers could eventually cut them out by taking this in-house, but right now those firms are simply tying up deals with the like of Valens and MediPharm.
Valens has signed deals with the likes of The Green Organic Dutchman, Canopy Growth Corp. and Organigram. MediPharm has agreements in place with Up Cannabis, Canopy, James E. Wagner Cultivation Corp., INDIVA Ltd., Emerald Health Therapeutics Inc., and The Supreme Cannabis Company.
These extraction firms are significantly outperforming the Horizons Marijuana Lief Sciences Index ETF, and the future looks bright for Valens, as it is already ahead of the curve and it looks set to carve out a sizeable share of the extraction market. Its next step is to target growth in international markets, with Europe, in particular, becoming a huge focus for the cannabis industry over the next decade.
“We are building a footprint to not only meet the needs of our Canadian customers but meet the needs of the global cannabis marketplace,” said chief executive Tyler Robson. “With edibles and concentrates becoming available later this year in Canada, we must be ready for a shift in consumer demand and in turn be flexible and scalable in our offerings for our clients to meet that demand. The future of cannabis in Canada is coming and we are going to be at the forefront.”
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