Pacific Trader: Pot products maker The Valens Company is getting higher at last

Unlike larger cannabis players, The Valens Company stands to benefit rather than suffer from the continued decline in pot prices per gram in Canada.

Credit: The Valens Company

Valens has transitioned from contract manufacturer to consumer packaged goods company

The Kelowna-based manufacturer enjoyed a 34-percent bounce last week

The stock: The markets are feeling the fear these days. Some sense we’re in an “everything bubble” that’s about to pop. If that’s you, one strategy to limit your downside while still seeking outlying growth opportunities is to pick a bubble that’s already popped, like cannabis. And one pot stock already experiencing a bounce is The Valens Company (TSXV:VLNS, NASDAQ:VLNS), a Kelowna-based maker of cannabis oils, vaping pens, drinks, edibles and even skincare products. Up 34 percent last week alone, it closed Tuesday at $3.30 on the Toronto Stock Exchange.

The drivers: Recording a 37-percent share price decline in 2021, Valens was in the middle of the pack among Canadian pot stocks. But while most of these other equities are primarily pot growers, the company is strictly a processor of cannabis products—a user of raw weed, if you will. So unlike larger players such as Tilray (TSX:TLRY), Aurora Cannabis (TSX:ACB) and Canopy Growth Corp. (TSX:WEED), it stands to benefit rather than suffer from the continued decline in pot prices per gram in Canada.

Previously focused on extracting active ingredients from cannabis plants to make products under contract to larger brands, Valens has mostly made the transition to a marketer of its own branded products under names including Versus, Contraband and Vacay. In 2021, it acquired the Citizen Stash line in Canada and the CBD brand Green Roads in the U.S. It also ramped up a new plant in Kelowna and a beverage facility in Greater Toronto.

And despite the sector’s stock-market swoon, Canada’s legal cannabis market continues to bud, hitting $3.9 billion in revenue in 2021, up from $2.6 billion a year earlier. Over the three months ended in January, Valens’s retail sales grew a whopping 374 percent year-over-year. The firm expects to break even on an EBITDA (earnings before interest, taxes, depreciation and amortization) basis in the fourth quarter of this year. For 2023, it’s aiming for minimum 10-percent EBITDA margins on sales of $225 million.

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Word on the street: “We have updated our model, lowering our estimates in the near-term quarters,” wrote Haywood Capital Markets analyst Neal Gilmer following the company’s investor day on February 7. Still, he maintained a “buy” rating with a revised target price of $7.50.

Coming and going: Burnaby-based quantum computing pioneer D-Wave Systems is going public via a merger with a U.S.-based special purpose acquisition company (SPAC), DPCM Capital, in a deal expected to close in the second quarter of this year. The company, to be renamed D-Wave Quantum, will trade on the New York Stock Exchange under the symbol XPOA.