Valens Groworks Corp (OTCMKTS: VGWCF) has taken the market by storm depicted by a 200%-plus spike from one-year lows. The excellent start to the year follows a harrowing crash late last year as the stock succumbed to soaring short selling pressure.
VGWCF Catalysts and Price Analysis
The confirmation that the company has received organic certification for cannabis oil production is one of the developments fuelling the upward momentum. The delivery of positive financial results for Q1 has also continued to strengthen investors’ confidence in the stock thus supporting further upside action.
The closing of a $43 million bought deal-financing leaves the company in a stable financial position to pursue growth initiatives, a development that also continues to shore the stock’s market sentiments. The stock attracting a buy rating from equity, research firm, GMP Securities, also continues to strengthen investor’s sentiments in the market.
Shares of Valens GroWorks have since taken a flight on investors pushing the stock up in response to the underlying developments. After spiking to the $3.4 level, the stock has started pulling lower in what appears to be a minor correction pending further upside action. Immediate support on the ongoing pullback is seen at the $3 level.
Failure to stabilize above the $3 support level could result in the stock plunging back to the $2.40 level, seen as the next support level. Above the $2.40 mark, Valens GroWorks remains supported for further upside action. However, a breach of the support level could result in the stock plunging back to this year lows.
What Does Valens GroWorks Do?
Valens GroWorks casts itself as research driven and vertically integrated cannabis company. The company is focused on downstream secondary extraction methodology as well as distillation and cannabinoid isolation and purification.
Q1 Record Revenues
Shares of Valens GroWorks are skyrocketing on the company delivering record revenues of $2.2 million for the first quarter of 2019, compared to nil the previous year. Gross profit in the quarter was also up to $850,525 or 38.3% of revenue. The company ended the quarter with a strong balance sheet made up of $20.6 million in cash and short-term investments.
During the quarter, the company achieved significant milestone key among them being the addition of four new extraction partnerships with The Green Organic Dutchman Holdings and Organigram Inc. The company also increased its annual extraction capacity to 240,000kg of dried cannabis and hemp biomass.
“This initial momentum was driven by contracts signed late in 2018 to provide cannabis extraction services to leading licensed producers, including Canopy Growth and Harvest One. The growth in the size and frequency of shipments from these contracts increased throughout the quarter and into the second quarter of fiscal 2019,” said CEO Tyler Robson.
Buoyed by Q1 performance, Valens GroWorks is seeking to become a leader when it comes to cannabis extraction as well as post-processing and white label product development. Plans are already underway to increase extraction capacity at the Kelowna facility.
Cannabis Oil Production
Valens GroWorks has since secured an organic certification for cannabis oil production from proprietary CO2 and ethanol extraction processing methods. The company will now be able to produce certified cannabis oil from hemp and cannabis biomass.
“We expect to see increased demand for organic cannabis and hemp products in the future. With certified organic processes in place, Valens is now in a position to work with these cultivators to bring certified organic cannabis oil-based products to market, an achievement which demonstrates our commitment to supporting our current and future clients’ needs,” explained Mr. Robson.
The certification comes on the heels of the company securing a multiyear extraction contract that will see it provide cannabis and hemp extraction services to Hexo Corp. Under the terms of the agreement, Valens GroWorks is to supply an annual minimum of 30,000kg of cannabis and hemp biomass expected to increase to 50,000kg in the second year.
What Next For Valens GroWorks
Valens GroWorks Corp is in a phase of robust growth having transitioned into a revenue-generating entity. Robust sales growth is a development that should continue to excite investors given the expanding gross margins.
The stock is currently rated as a ‘buy’ with a share price target of between $8 and $10, signaling growing confidence about its long-term prospects. That said Valens GroWorks is an ideal play as partnerships, as well as international expansion, are potential catalysts that could fuel further upside action.
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Disclosure: We have no position in any of the securities mentioned and have not been compensated for this article.