Home Uncategorized The Valens Company CEO Tyler Robson on Creating a One-Stop-Shop for Cannabis

The Valens Company CEO Tyler Robson on Creating a One-Stop-Shop for Cannabis

1329
0
SHARE

The Valens Company (NASDAQ/TSX: VLNS) is a Kelowna, BC-based cannabis multi-state company with a very distinctive structure and objective. At first glance, it may look like just another extraction company but look again and its shape shifts into that of a global distributor and then again into a creator and manufacturer of best-in-class products and brands and then again into a world-class testing lab. Valens is, in fact, all of these things and much more. It is finally fulfilling its destiny to become a multifaceted amalgam of specialized B2B and now B2C services with a mission to “create with purpose,” per the company brochure. As CEO Tyler Robson put it during a recent interview with CBE, “We’re the one-stop-shop for cannabis.”

Valens has been on an acquisition and collaboration tear of late as it integrates into its portfolio companies that fill specific roles in Robson’s plan for Valens, which he co-founded in 2012 following several years learning the cannabis trade in Canada and the U.S. “If you look at my background,” he said, “it’s more diverse than people think. I already had four or five years of cannabis experience before we started [Valens]. I got most of my experience from two licensing programs in Canada, the MMAR (Marihuana Medical Access Regulations) and the MMPR (Marihuana for Medical Purposes Regulations). At MMAR, I was basically under cultivation and eventually it turned into what I call a medical infused products (MIP) license. That’s where I learned about extraction derivatives, and that’s what really shaped Valens.

“I basically cut my teeth on that before going down to Colorado [in 2011] to participate in the very early days of legalization there,” he continued. “I ended up becoming the largest cultivator in the state “We had 156,000 square feet of indoor grow, 96,000 square feet of greenhouse, four hectares of outdoor grow, and a retail chain under a few different banners. I learned a lot, and one thing I learned quicker than most people [was] how quickly flower commoditized, and how important distribution and manufacturing and brands were. So, we really took the learnings from there and brought them back to Canada upon federal legalization. We knew it was coming and went after the first narcotics license in the world using cannabis derivatives as our matrix. We got the license and bypassed cultivation altogether in Canada and went right into manufacturing and distribution.”

I asked Robson to elaborate on the decision to essentially bypass cultivation. “When you really understand cannabis and the way the sector moves,” he said, “I didn’t believe in flower being commoditized, and when you really look at standardization, or the cleanest way of ingestion, the worst way is smoking cannabis. A lot of people don’t realize the carcinogenic [risks], or even the parts per million of butane when you light a joint and take a puff. So, we went for the cleanest methods of ingestion, through absorption and digestion; anything that can go on your skin or can be basically eaten, which is not only more stable but it’s a more consistent delivery mechanism. So that’s the way we shaped Valens, to bypass smokeable flower and go into derivatives.”

Colorado was a learning curve for Robson, and it also set the stage for Valens, providing “the building blocks of where we wanted to go,” according to Robson. “It was just my experience, but it kind of paved the way.” At Valens, which had just over a dozen employees in the beginning compared with the 400 it says it has now, Robson was more or less forced to step up. “I was fairly young when I became COO, and to be blunt, I didn’t really want to do it,” he said. “I thought it was too much to take on at the age, and I wanted to be more involved with the operation and kind of do exactly what I did in Colorado. But as we continued to build, we saw the lack of experience. You can hire an accountant, you can hire a lawyer, you can hire a lot of people, but cannabis IP and experience were few and far between, so I kind of worked my way up the ranks until finally the board of directors asked me to take over the helm as CEO.”

One-Stop-Shop

At Valens, it seemed obvious that extraction was the mainstay of the company, what its reputation is based on, and that its SōRSE Emulsion Technology was the foundation of Valens business. “It is the backbone of all our product development,” said Robson. “When you look at extraction, basically you’re changing the molecule compounds from a solid to a liquid, and that really affects the end consumer product. What we do at Valens, which is very different than most people, is we look at the product we’re trying to make and tailor the manufacturing process to put the best product on the shelf. So, there’s a time and place to do subcritical or supercritical co2, there’s a time and place to do ethyl alcohol, or we also offer hydrocarbon extraction: hexane, pentane, butane. When you really tailor your extraction process, it greatly affects your final product, and we’re one of the only companies out there that looks at it like that. If people understood better what those [processes] meant or did, they would never again buy a product from one single source of extraction, because it doesn’t make sense.

Valens also does solventless extraction, but Robson said its cost makes it prohibitive for the time being. “Solventless is definitely one of the bigger ones coming,” he said. “Right now, the most popular one in Canada is ethyl alcohol, just for the cost basis, but that will eventually shift to hydrocarbon. We’re at a weird inflection point. Solventless is definitely the best, but it’s not the most cost effective right now.”

See also  Yes, Good Corporate Governance is Critical

Valens also has seen the extreme shifts in the market for cannabis oil, albeit foreseeable shifts. “It’s definitely seen rock bottom, which we all knew was coming,” said Robson. “When you look at flower, it commoditized exactly like we assumed it would, and in the early days of cannabis legalization, people were getting rewarded. The bigger your cultivation center, the higher your market cap or the more your company was worth. So, there was a great influx in bottom-end biomass, which then can be turned to a distillate, because when you remove all your impurities, you’re basically salvaging the cannabinoid content. So, distillate is at an all-time low, which we always expected it to be, and there’s very little value-add and or science associated with distillate. All you’re doing is isolating the THC molecule.”

To make its high-end oil, Valens uses multiple producers to source. “We source from probably a dozen different vendors, and then depending on the type of product, if there’s different routes to go,” explained Robson. “If you’re looking at a high-end concentrate, you obviously want flash frozen. If you’re looking for a topical, you can absolutely use a distillate; vape pen, we tend to lean towards a winterized Co2 oil that has a full spectrum component. So, depending on the product you’re trying to make, we source all the way back to basically benefit the end product.

The plan was always to get into extraction, and then white labeling, and then eventually get into our own branded products when the time was appropriate, and the market was stable,” he added of Valens’ core strategy. “When we look at our expansion, it’s not as granular as some people might think. It’s really Canada and the U.S. We do have distribution in 17 or 18 different countries, but all the products are made in North America, so we’re a little bit more focused than some of our industry peers. One thing we do at Valens is we don’t try to do everything for everybody. We focus on our core competencies, like the lab, manufacturing, and distribution. That’s kind of the way we play in the cannabis space. A few people have asked us to make some products for them, but unless they’re directly in our wheelhouse, we usually say no.”

I asked Robson how many brands they currently carry. “In total, including Valens brands, manufacturing, and derivatives, we actually only have 43 different products, or 43 SKUs with different variations,” he said. “Some have different sizes, some different flavors, but there’s only 43 SKUs available today, and any innovation coming down the pipe will be a Valens product backfilled with B2B relationships with strategic names behind them. So not just any average Joe, and you’ll see in the upcoming months some of those names that we’ve been working with for a number of years or months come to fruition.”

A stock market analyst referred to Valens as a CMO, a contract manufacturing organization, but Robson does not believe the term is applicable. “I personally don’t think so,” he said. “I think we’re the one-stop-shop for cannabis. When you look at our partnerships, when you look at the brand not only in cannabis but out of cannabis, we can basically do the one-stop-shop. We offer analytical testing, product development, manufacturing, and distribution, I wouldn’t say we’re just a CMO, because we do much more than that.

The same analyst said Valens exemplified a Cannabis 2.0 company, a statement Robson did not dispute. “Cannabis 2.0 is basically anything in Canada that isn’t flower or an oil, because we had two different waves of legalization,” he explained. “We are the most dominant player in the 2.0 categories, including beverages, edibles, concentrates, topicals. We definitely have a meaningful role there, and we’ll continue to do it. So yes, we do offer some manufacturing to our partners, but we also do distribution, we also do our own branded play. So, I do think that CMO term is dated, but I think the one thing people have a hard time doing is knowing how to understand Valens, because we are so unique. We’re not just a cultivator, we’re not just an extractor, we’re not just the CMO, and that’s why we call ourselves the one-stop-shop for cannabis. If you look at the analytical side of the business, understanding what’s going on within the plant and the products, very few people have our capabilities.”

One of the fastest growing licensed producers in Canada, with brands spanning several product categories, Valens plans include further expansion into B2C sales “with new product innovation, key B2B clients, and geographic diversification,” which includes expansion into Quebec. Key to the plans was the acquisition in November of Canadian craft producer, Citizen Stash.

“It was the number one premium brand in Canada,” said Robson of the deal. “Our M&A strategy is to buy the best of the best and bring it into the fold. We were the best at manufacturing, testing and distribution. When we wanted to participate in the flower market, we went and bought the best premium player out there, which was Citizen Stash. And even when you look at our edibles strategy, early last year we ended up acquiring a company called Lyf Food Technologies, which was the most diverse and flexible food platform for cannabis in Canada, and it’s done extremely well for us. So, if it’s not one our core competencies, we will acquire the core competency and have people stick to doing what they do best.” Another recent acquisition was for manufacturer Verse Cannabis. In a September press release announcing the deal, Robson is quoted as saying, “The acquisitions of Verse and Citizen Stash were motivated by an underlying desire to become an ally to both our customers and consumers. We believe in creating best-in-class products that consumers deserve in the right way, without ever cutting corners.”

See also  Will recreational marijuana be legalized in Connecticut this year? Here’s what could happen in the General Assembly.

The company has no need to buy any more companies in Canada, said Robson. “Right now, we’ve done all the acquisitions we want to do in Canada. We believe we have the most dominant and flexible platform in cannabis in Canada, and now we’re mostly looking at the U.S. to do the exact same thing we did here. It’s really about optimizing the facilities and the processes we currently have in Canada, and then maximizing the opportunity.”

Valens is a company that likes to stay a step ahead of the pack, like it did at the beginning, leaping over cultivation directly into extraction. “I think we’ve always been ahead of the curve and will continue to push the envelope,” Robson agreed. “The next wave of innovation out of Valens is what you could potentially call 3.0. So, when you look at rare cannabinoids, different delivery systems, product innovation, fast absorption, like quick onset, the next wave of products coming out of Valens will be again ahead of its time, and it’ll take time for the market to catch up and even understand what it is.

“When you look at what I’ll call an active pharmaceutical ingredient,” he continued,” we can isolate different cannabinoids and then either sell them in bulk, which we do, or add them to products. For example, if you look at anxiety, there’s a cannabinoid for that; there’s a cannabinoid for sleep, which is CBN. There are different isolations of molecule compounds found in cannabis that we can basically go into, so when you look at medical and or over the counter sleep aids, we have the best position platform to take advantage of that opportunity.”

Challenges do exist. A recent New York Times article calling out an edible company’s claims that a new product aids in weight loss in essence questioned the science underpinning many of the claims made by cannabis producers. “100 percent, I think it’s a challenge for the entire sector, because there’s no standardized testing methodologies,” Robson responded fervently. “And even if you look at our lab, we were the first ones in the world to get ISO 17025 accredited for cannabis testing, so we were the first to have a standardized method. But I think there’s a lot of what I’ll call snake oil opportunities with cannabis, and the weight loss is not factual, it’s just not realistic. You can do stuff like lower caloric intake and have no refined sugars, but cannabis does not actually aid in weight loss. There are medical benefits that do come from cannabis, like anxiety and stress [reduction], pain relief, sleep aid, but taking it alone won’t do much for sleeping, because you need the entourage effect of different compounds. There is some stuff that is factual that has real data behind it from the University of Miami, the University of McGill, there are multiple studies out there, but there’s also a lot of misinformation being spread, and cannabis just isn’t old enough to really be credible yet. It takes 3-5-10 years to have the studies that people are claiming today, and very few people have invested in the research side of cannabis to date.”

Valens’ answer is to be hands-on. “We’re really investing in partnerships and research,” said Robson. “When you look at our partnership with Thermo Fisher, they have about $100 billion U.S. market cap, and they named us the center of excellence in plant-based science because we’re so much further ahead of everybody else. So, when we really look at industry experts in their respective fields, we partner with them to bring the best in class forward to cannabis. We don’t do it on our own. We partner with people like Thermo Fisher, we just partnered with PMI, the pharmacy chain in Mexico, looking at doing studies out of there, whether it’s oxidization rates, stability, absorption. So, we’re spending the time and energy in research and fundamentals. Like you said, when the market shifts in three to five years, and it really becomes an over-the-counter product that can make label claims with concrete evidence, we will be ahead of the curve.”

A Transitional Year

As explained by Robson, the past year or so has been an intense period of transition for Valens, and one that is expected to pay off handsomely as the company increases its position in Canada, reinforces its relationships abroad, and strategizes for its conquest of the States, where it now has a firm footprint in the CBD arena. “We did an acquisition last year for Green Roads, which was the largest privately held CBD company,” said Robson. “We have manufacturing in Florida for all of our products, we have two different facilities down there where we do 100 percent of our own products, and then we do distribution nationally in the U.S. to every state that is legal.”

But it was not long ago that Valens was for all intents and purposes a different company. “18 months ago, we just took dried cannabis and turned it into oil, and we did that business very strategically because it was a bottleneck in the platform,” said Executive VP for Corporate Development & Capital Markets, Everett Knight, during a separate phone call. “During COVID, a lot of our customers had their own issues, so what we did is accelerate the manufacturing side, and we probably did one of the best transitions in the space from extraction to manufacturing. You’ve seen similar extraction companies’ revenue fall significantly – from $45 million to $3 million – where we’ve transitioned that business.

See also  As more states legalize marijuana, more children accidentally ingest THC-laced edibles

“We were primarily a B2B business, but in this heavy competitive space in Canada, we found that a lot of our customers couldn’t provide the consistency,” he added. “We love them, and we’re still an ally to a lot of them, but when they said, ‘We want to do a 100,000 units with you guys,’ and we got inventory for that, and hired for that, and then they came to us and were, like, ‘Oh, by the way, that’s only going to be 20,000, not 100,000,’ it’s tough to be an ally when that makes it less profitable for shareholders. So, we were already creating a lot of these innovative products, because we have the best manufacturing platform in the Canadian cannabis space, and we’ve just kind of transitioned that B2B part of our business for fewer, bigger, better. We’re targeting I wouldn’t say large players, but more consistent players. So, we’re still an ally, we still have that B2B part of our business, but now [we have] the B2C side with our own brands, whether it’s Citizen Stash, and you’re going to see more brands from us shortly. And with that platform, we can have more consistency with those results, because they make up more of our overall results, I expect our B2C part of our business make up 75 to 85 percent of our revenues next year.”

From a Capex standpoint, Knight added, the tide has turned. “My message for investors is that the hard work is over,” he said. “We’ve spent a lot of money on the business, and I would say there’s only minor automation equipment left [to purchase].”

Valens, as mentioned, currently has access to the largest CBD market in the world in the U.S. and plans to enter the legal cannabis market after federal legalization while keeping its options open. “Whenever I answer the question on what’s next in the U.S., whether it’s an acquisition or partnerships, I think it’s both,” said Robson. “We don’t always have to have assets, but we need to have IP. We already have a lot of the IP built in-house, so as we maneuver, it’s about using that IP and strategic relationships, and once the demand and the products are built, then potentially backfill with the hard assets. But right now, it’s really just relationships and then utilizing the information we already have.”

Is Valens having conversations with people in his target markets in the U.S.? “Absolutely,” said Robson. “We started a long time ago, but we don’t need to be the first mover. We want to be the best, not the first. So, as things develop and when we really see where the dust settles, then we’ll be strategic on where we need to maneuver and how we maneuver. The biggest thing Valens has on our platform is optionality. For now, we can utilize partnerships, relationships, existing ecosystems, and then go in and change the methodology of how they do things. We’re not going to show everybody our trade secrets, but we can work with them to get our desired process. In the end, you can negotiate terms, IP, all of that, to make sure that no one is competing with the way we do things.”

As far as the equity markets go, Valens has seen it all. “We went from CSC to TSX Venture to TSX to NASDAQ, so we’ve been through all the governance policies associated with them,” said Knight. The company currently trades around $2.40 USD on the NASDAQ, with a market cap of just over $208 million, and trades for a tad over $3 CAD on the TSX. Valens saw a substantial increase in revenue in 2020, but relatively small growth in 2021, per company projections. The decline was the result of two factors, said Robson. “COVID absolutely crippled our supply chain, so we couldn’t get products in or out. We couldn’t get packaging; we couldn’t get a lot of the stuff. We even had a hard time getting solvent during COVID. And then the focus on integration also hindered our revenue growth, but now that we’ve finally integrated all four businesses we have acquired, we will absolutely see the revenue significantly grow like it did in 2019, and it’s basically off to the races.”

Did Robson expect to see the company’s valuation rise in 2022, as well? “100 percent,” he said.

And what about Valens’ supply chain situation? Was it getting better? As the one-stop-shop for cannabis, Valens is sort of a one-stop supply chain for the industry. “It’s definitely improved,” said Robson. “We changed a few things to simplify our business and double-down on our own supply chain, and brought a few things in house rather than relying on others. We have the strongest supply chain in the space and we’re extremely confident that we will see that reflected in the upcoming quarters as far as revenue growth goes.”

The post The Valens Company CEO Tyler Robson on Creating a One-Stop-Shop for Cannabis appeared first on Cannabis Business Executive – Cannabis and Marijuana industry news.

LEAVE A REPLY

Please enter your comment!
Please enter your name here