Cannabis extraction company Valens GroWorks (Valens GroWorks News, Stock Quote, Chart CSE:VGW) has posted phenomenal growth over the first half of 2019, but there’s a lot more where that came from, says Bruce Campbell of StoneCastle Investment Management, who thinks that the company is well-positioned to benefit from Canada’s soon-to-be booming market in edibles and concentrates.
“If you look at where things are in the US, dried flower is dropping below 50 per cent of the overall market. We’re seeing the vape market taking a bigger share and growing the fastest, and then you’re seeing all the other ancillary products and edibles,” said Campbell, president and portfolio manager at StoneCastle, to BNN Bloomberg Friday.
“This is where Canada will be in just over six months time,” he said.
VGW has pulled back over the past couple of months, but the stock is still an absolute winner this year, climbing from $1.51 per share on December 31 to a high of $4.90 by late April (VGW is currently in the low-$4.00 range).
Ahead of its second quarter financials due on July 15, Kelowna, BC-based Valens last reported earnings on April 26, where its numbers arrived largely in line with analysts’ expectations, generating $2.2 million in revenue, itself a big increase over a top line of zero just a year ago. A graduation is also in order, as last month, Valens announced conditional approval to list on the TSX Venture exchange.
“What Valens has done is build extraction technology and expertise in a number of different lines of extraction,” said Campbell. “They have the only licensed facility to do butane extraction in Canada. And so, they can produce for different products.”
“Most people have found that if you’re an LP and you went out and bought this extraction equipment, you’re not getting the through-put that you expected,” he said. “Valens obviously has experience in this, and so where they’re going to gain market share is, say, if you’re an LP and you need the expertise to produce vape pens and you need specialty oil to do that, you’re going to go to someone like Valens and they’re going to do that for you.”
A Deloitte report released last month said that spending on edible pot should hit $2.7 billion annually once it begins later this fall, while the global market for so-called alternative cannabis products should double over the next five years.
Campbell says this growth will unfold in Valens’ favour.
“They’ll continue to pick up market share because of their specialty and I think that this stock goes higher, certainly over time as they show you exactly what they can do from a revenue perspective and how that revenue falls to the bottom line because this can be a really high-margin business, especially if you look at their peers down in the US,” he says.