The Valens Company is set for its US spotlight, says ATB Capital

The Valens Company (The Valens Company Stock Quote, Chart, News, Analysts, Financials TSX:VLNS) just performed a 3-for-1 share consolidation on the TSX in preparation for its listing on the NASDAQ exchange. Commenting on the move was ATB Capital Markets analyst Frederico Gomes who maintained an “Outperform” rating in an update to clients on Friday.

Once an cannabis extraction operation based in Kelowna, B.C., under the name Valens Groworks, Valens is now headquartered in Toronto and is a cannabinoid-based products developer and manufacturer with cannabis operations in extraction, post processing and white label manufacturing under standard processing and cultivation licenses.

The share consolidation occurred on November 18 and was announced on November 15 as a move that presents the company with a number of new opportunities in the sector.

“This announcement represents a milestone towards the listing of Valens’ Common Shares on NASDAQ,” said Tyler Robson, CEO of The Valens Company in the company’s November 15 press release. “With the recent progress in our application, paired with the share consolidation to meet minimum listing requirements, Valens expects to commence trading on NASDAQ before the end of 2021.”

Valens also recently formalized another big move, officially completing the acquisition of Citizen Stash Cannabis Corp., a licensed producer of premium craft cannabis, on November 8, joining LYF Technologies, Verse Cannabis and Florida-based Green Roads, which marked Valens’ initial foray into the United States market, as companies acquired by Valens in 2021 alone.

Commenting on the share consolidation, Gomes said, “A NASDAQ listing is positive for Valens as we expect it to increase trading liquidity and expand access to a broader range of investors. In our view, this increased liquidity could ultimately lower Valens’ cost of capital and be a catalyst for the stock,” Gomes said.

Gomes predicted the Green Roads segment to be vital in Valens’ overall growth, combining with the B2C segment to account for a projected 70 per cent of sales in 2022 compared to approximately 50 per cent in 2021.

Gomes’s financial projections remained unchanged with the announcement, as he still projects revenue to come in at $82.9 million in 2021, a one per cent drop from the $83.8 million reported in 2020. After the relatively flat 2021, Gomes projects a steep jump to $149.2 million in 2022 for potential year-over-year growth of 80 per cent, followed by a potential jump of 38 per cent to a projected $205.3 million in 2023.

Meanwhile, following projected losses of $20.1 million in 2021 and $14.6 million in 2022, Gomes projects the company’s EBITDA to return to positive status in 2023 at a projected $17.4 million for a margin of eight per cent.

Gross margin also projects to take a dip to $20.5 million and a 25 per cent margin in 2021 (2020 reported at $25.7 million and a 31 per cent margin), though he projects a rebound to $43.9 million and a 29 per cent margin in 2022, with another jump to a projected $74.9 million and a 36 per cent margin in 2023.

Despite positioning itself for better prosperity in the near future, Gomes noted a number of risks still associated with the Valens Company price target, including a continuously changing regulatory environment for Canadian cannabis producers, the possibility of industry and company growth not developing as expected, a limited amount of human clinical trials to assess the overall impact of cannabis, plenty of competition under the Cannabis Act, the potential for adverse events leading to recalls for pharmaceutical and related companies, along with standard risks in operations and financing, along with the ongoing COVID-19 pandemic.

Overall, with the NASDAQ listing potentially on the horizon, Gomes continues to believe the Valens Company has a solid forecasting future.

“We believe that growth in Canada will be driven by improved distribution, new products, and premium dried flower sales,” Gomes said. “In the US, we believe that the long-term outlook for the US CBD market is compelling, offering growth opportunities and optionality in the event of favorable regulatory developments in the CBD and THC markets. As Valens integrates its supply chain and drives operational efficiencies, we believe that margins will gradually expand.”

Overall, The Valens Company’s stock price has tumbled to a 68.6 per cent loss over the course of the year, its value freefalling by 73.3 per cent since Monday, the day it made the share consolidation announcement, to its lowest point of 2021 at $4.84/share.

With his maintained “Outperform” rating, Gomes has set a new target price on scale with the consolidation, tripling the target to $11.25/share for a potential return of 124 per cent.