After speaking with The Valens Company (The Valens Company Stock Quote, Chart, News TSXV:VLNS) management about the impact of COVID-19, M Partners analyst Paul Piotrowski came away confident about the company’s position within the current cannabis climate.
Piotrowski followed up with an update to clients on Tuesday where he reiterated his “Buy” rating and $8.70 target price for VLNS, which at press time represented a projected 12-month return of 272 per cent.
Although economies worldwide have been hobbled by the COVID-19 pandemic, in North America, at least, the anecdotal evidence so far suggests that cannabis shops have been doing brisk business. Piotrowski reported much the same from talking with Valens, saying that while the impact on operations of COVID-19 has so far been negligible, sales of Valens-produced products have been strong in March, prominently featuring strong vape pen volumes and the introduction of the company’s Basecamp CBD beverages, the first cannabis drinks in Ontario.
Where Valens is feeling some effects from the pandemic is in procurement of packaging and vape inputs from China and from the company’s international strategy, although Piotrowski assures that Valens has enough inventory to meet demand for “at least the next couple of months.”
On exports, Valens will be shipping its previously announced 3,000 tincture bottles to Australia, but Piotrowski said the company is being more cautious on the international front.
Importantly, Piotrowski pointed to Valens strategy of ensuring that no customer accounts for more than ten per cent of its 2020 revenue, meaning that if any aren’t able to meet the terms of their contract (Valens has 22 — 11 extraction and 11 white label), the impact would not be major.
Overall, Piotrowski said that Valens’ expertise in the extraction field, its intellectual property and its flexibility regarding contracts differentiate it from its peers.
“We continue to view Valens as a leader in the Canadian cannabis industry,” Piotrowski wrote. “The Company’s differentiated product manufacturing expertise and IP make it an attractive partner for high quality international brands. We believe the agreement with Shoppers Drug Mart was only the beginning and we anticipate further partnerships with high quality brands in the future.”
Valens on Tuesday announced on receipt of conditional approval from the Toronto Stock Exchange to up-list to the senior board, with CEO Tyler Robson saying the move represented a major milestone for the company.
“Coming off a record year of growth for the company, this up-listing will work to enhance the liquidity of our stock and enable us to continue building long-term shareholder value,” Robson said.
Piotrowski said graduating to the TSX will broaden Valens’ shareholder base and enhance liquidity.
Valens had a bang-up year in 2019, rising 127 per cent in a poor year for cannabis. The stock was continuing to do well before the bottom fell out and VLNS lost over half of its value in less than a month.
For fiscal 2020, Piotrowski is calling for revenue and adjusted EBITDA of $161.8 million and $67.6 million, respectively, and for fiscal 2021 revenue and adjusted EBITDA of $219.8 million and $82.2 million, respectively.