Publicly traded cannabis manufacturer producing products for global CPG companies. One of the largest producers of cannabis products is Canada is expanding their distribution globally. Everett Knight, Executive Vice President at publicly traded The Valens Company (TSX:VLNS) joins Dan Humiston to talk about their manufacturing capacity and their proprietary IP that has positioned them as a leading supplier for CPG companies throughout the world. Produced by podCONX
Publicly traded cannabis manufacturer producing products for global CPG companies.
One of the largest producers of cannabis products is Canada is expanding their distribution globally. Everett Knight, Executive Vice President at publicly traded The Valens Company (TSX:VLNS) joins Dan Humiston to talk about their manufacturing capacity and their proprietary IP that has positioned them as a leading supplier for CPG companies throughout the world.
[00:00:00] Dan Humiston: Today in raising cannabis capital, we are joined by Dan Humiston, the executive vice-president of valence Everett. Welcome the show.
Everett Knight: Thanks for having me, Dan.
Dan Humiston: Looking forward to learning about valence for our listeners who don't know, valence is not only custom manufacturer of cannabis products in Canada. They're also the largest third party vape manufacturer in Canada. I read in your brochure that you've launched.
85 different skews. Can you give our listeners a scope of the different type of products that you produce?
Everett Knight: Yeah, we do everything. Yeah. In the 2.0 cannabis space. So if you think about 2.0 cannabis products, it's really derivative based products are oil based products. When you think about it. It vape pens, it's beverages, it's the concentrates, which are the shatter waxes live resin. That, that portfolio we do edibles topicals.
We kind of are that end to end manufacturing footprint for that 2.0 product space. And you said 85 fuse, but right. Even if you [00:01:00] look at it per province we're now over 185. If you look at across the provinces
Dan Humiston: that is so cool. That is so cool. Just to make sure I get this right. Vail is just produces products for other brands. So you don't have your own retail brand. You don't sell your products direct to consumers. Why is it important for valence to remain on the manufacturing side of the supply chain?
Everett Knight: Well, If you look at this space, I would say that what's missing in it is the quality of the products and the consumer trust. And I think for our expertise, I think focus has been. Really what has made us so successful. And in this part of the space today we think the most value add is that manufacturing space.
If you look at the 2.0 products that were launched in 2020, I think we can all agree. A lot of them were sub par for the first day pens only tasting, like dislet not having that terpene flavor profile. The first beverage is having that, that cannabis taste that you don't really enjoy, or the edible that has a cannabis tape.
The next generation products that we're [00:02:00] now taking market share for our customers is really that next generation of product. It's not about brands today. It's about product quality. So I think as the market grows we wanted to focus on this part of the value chain because we see the biggest upside in it.
Dan Humiston: Right track. I really do. I think it also gives you an opportunity to really perfect your craft and , I saw that you have , a lot of cutting edge technology. Can you maybe explain the source emulsion technology?
Everett Knight: Yeah. So this is a really cool technology. We've looked at over 120 different emulsion technologies. So if you think about a mulching technologies in general and cannabis oil, I call it in a beverage oil. Naturally floats the top of water liquid. You can see it, you can mix it up, but it'll naturally separate now with source by Valens emulsion technology.
This makes it completely water compatible. Now what's the difference of this technology versus others is that it's consistent with every step. So the first step is the same dose of the last step, as [00:03:00] well as if you look at the overall shelf stability of it. We have shelf stability studies for over two years.
So you can now have that on the shelf. You can buy it from the store, put it in the fridge, save it for rainy day. And it's, that's really important because consumers want to trust the products. And if you look at the reviews on the summit 10, that are going across Canada right now the taste and smell, everyone loves that the source knowledge in tech by Valens can really mask that taste and smell.
So if you have a CPG customer now coming on to our platform that wants to customize that for a Coca-Cola taste, right? They want to customize that for a different fruit flavor profile, or they wanted to make it. Into kind of a more I would say more pop type beverage with a carbonation. We can really manufacture any of that and customize that accordingly.
And the biggest difference of this technology is the onset and offset. So today we really have a problem with cannabis infused beverage. If you and I had a cannabis infused beverage on this call and just the normal one today, we'd have to wait 30 minutes [00:04:00] to two hours to feel the high on that one beverage.
And that high would last for four to eight hours. So now with this technology, is that it speeds up the onset to five to 15 minutes. So you feel it right away and it starts to go away in 45 minutes to two hours. So what does that remind you of that reminds you of a beer. Exactly. And why is beer sold in the six pack?
It's because not only alcohol companies want to make more money. But because it's social and what we need to do as firms, we have a responsibility to make this more convenient, to make this socially acceptable and that where you can actually go and buy that cannabis infused beverage six pack. And I was on an article the other day free the six pack.
And I think that's exactly what this technology does. And instead of sitting around the Christmas dinner table, or maybe this year, it was a zoom dinner table that of rolling a joint. You can do is then bring out a cannabis beverage for the group and really enjoy it. And that's, our goal is to create that quality product and source of motion is only one of some of the IP [00:05:00] initiatives we have
Dan Humiston: I suspect, but I guess I'm going to ask you, are you seeing a lot of beverage manufacturers reaching out to you asking for, to use this technology?
Everett Knight: Oh, yeah. Like we get calls every day and I think that it's a unique thing. If you want to come on our platform, we can customize that towards you. I think if you want that quality and kind of differentiation on the shelf too, as you get more and more products, how do you differentiate.
That technology immediately differentiates. And in 2020, I think consumers just tried everything on the shelf. It was a novelty to have these new products, but now what you're seeing is the reviews are dictating the repeat buying. And , this is something we have in our platform to really enhance our customers on that backend and just to another service offering and we can do to differentiate their
brands.
Dan Humiston: You mentioned a tasting like Coca Cola, you weren't giving me a with some of the bigger brands. That'd be pretty cool.
Everett Knight: No. What I can say is that what I can tell you is that CPG companies are focused, right? [00:06:00] And I can't tell you which ones we're working with or are looking to work with, but we have a clear pathway and a clear focus on getting them on our platform and it starts with shelf stability studies.
So all of these companies are looking to launch products and what we have been running whether you're a large CPG company or a smaller CPG company, we can run those shelf stability studies in the background, whether it's 12 to 24 months create that product profile. Okay. You guys want a more citric acid base to your beverage.
You want it more Cola tasting or do you guys want it more like a vitamin water? We can really customize it, but. Every acid, Bates, different pH levels, you really have to customize. So the science behind cannabis and juice beverage is in the early innings, but I think we're far ahead of the pack. And I think that part of the process is where our team has the most fun creating these with these companies.
So we're just building a pipeline. So if they choose to go commercial, we hope that they come on our blog.
Dan Humiston: That's really exciting. I want to switch gears here for a second. Cause if I remember correctly, the Canadian export [00:07:00] laws were very favorable and I see that you have customers in Europe and recently were granted a license to import and export into Australia is expanding your global reach part of the growth strategy.
Everett Knight: A hundred percent. We focused really on our Canadian footprint. And now we're looking globally for all this IP that we built here to the global marketplace. And we haven't looked at it very differently than other players. We don't want to build a massive facility. In a marketplace, we really want to leverage our Canadian facility.
So we built our facilities, GMP compliant here, our new K2 facility, state-of-the-art manufacturing facility, where we can now ship products internationally. So if you look at Australia, as you mentioned, it's a great example of how we look. At expanding globally. So we looked at the distribution in Australia and we said, okay, why don't we partner with the best company there?
So we partnered with Campbell a, which is the largest cannabis distributor there. And what we did is now we're leveraging our Canadian assets to shift into Australia, [00:08:00] build the brand of quality behind those customers there. And then what we're going to be doing is, as it comes online with CBD coming online this year, there.
As it was as well as hopefully recreational in future years, what we can do is build the right scale facility. But for investors listening, what that does is it's the highest return on invested capital in our opinion, where we're not having a whole capital outlay, we're getting revenue first generating.
And it's a great example of how we're expanding internationally. And now with that, I think the Australian market is an exciting market where we can generate. Some great returns, but also now we're turning to Latin America. We're turning to Europe on the same strategy. And as well as recently, we're shifting more and more focused to the U S as regulations here recently with the Senate going blue and a whole bunch of regulatory changes for quality with the FDA.
Hopefully announcing new regulations on CBD. I think that's the right direction and what consumers want is something to trust. And I think we have a [00:09:00] great platform now that can be replicated down there. From an expansion strategy, I think we're just in the beginning
Dan Humiston: . You mentioned investors and for our listeners, valence is a publicly traded company trading on the TSX under symbol V L N S V L N S. And a lot of our listeners got beat up last year in the cannabis stock. Why is now a good time to get back in?
Everett Knight: Last year was a tough time for the entire space. We didn't have enough storefronts. We had 30 storefronts in Ontario and now we have over 300 today. So we've seen the growth from the beginning to now. And for us, it was a really tough time where. We were B2B. We were doing extraction for a large part of our business in Q1, where we had 32 million in revenue.
And in, during COVID it hit our customers really hard, where they had to lay off workforces. Unfortunately they had to actually shut down cultivation facilities. And it really hit their balance sheets. They didn't have the capital to us. So we had to restrict many of our customers from doing extraction with us, which naturally meant that
our extraction [00:10:00] arm of our business, a lot of evaporated quite quickly. So as a management team, I think the one thing we did well in a very tough marketplace in 2020 was we reacted quickly and we said, let's accelerate our manufacturing footprint. Any investor that's been with us for a long time knows that's the vision of the company.
But when our new K2 facility was coming online, the back half of the year, We said, why don't we do more on our K one facility retrofitted, the K one facility that wasn't purpose-built for manufacturing, we retrofitted it literally moved mountains to do packaging and repurpose rooms. And if you look at that now and that facility for the largest vape pen.
Manufacturing in Canada. What we shifted, our focus was away from the LPs since they had balance sheet issues which they're still customers of ours in core. We just had to limit exposure for investors, which I think we've done a great job of but then we focused on provincial shipments.
So the big focus, if you're been invested for a while, you've seen the shift now that we're actually [00:11:00] manufacturing products and distributing in the provincial government. So now we're getting paid by the governments more and more from a revenue standpoint, which is a lot better and we get paid faster.
And the one thing I'd evaluate us on. And I think that what we're really excited to hear going into 2021 is that you've seen us lay the groundwork for the manufacturing. And now we're finally taking market share. We're finally showing some of those steps that we did. And now as an investor, you can look and we almost do one in every five vape pens manufactured in Ontario, almost one in every five vape pens in the biggest market in Canada and that's growing.
And now we're replicating that in other products. So if you're an investor today and you're on the sidelines, what I want you to evaluate us as management team is driving that market share in the future, because I think that will dictate. Who wins and loses. And in 2021, what we really worked on is to make ourselves the lowest cost platform in Canada.
So we're sourcing dry [00:12:00] cannabis now for very attractive pricing where. If you look at some of the licensed producers, some of the lowest cost producers are 86 cents, right? The average licensed producer in Canada grow cannabis is a dollar 50 to two 50 per gram. But with outdoor grow coming online it's a huge aspect where there's going to be more outdoor grow than there is cultivation, Canada, and their costs are eight to 15 cents to grow.
And we're now sourcing cannabis for a lot lower. Then a lot of the licensed producers, meaning we can really enhance our gross margin and decrease our Cox. But also it means that we can be very competitive with our customer base from a pricing standpoint, , as well as we have more money to reinvest back in the company.
So as you look at us, evaluate us overall market share, and to look for this low cost platform because we are now. Sourcing dried cannabis as an input price for lower costs than most LPs can grow for, which makes us the lowest cost provider of dry cannabis in Canada. And we don't even grow. So I think this is an [00:13:00] exciting tailwind for us entering a new year.
Dan Humiston: . Not just for you, but I think for the entire industry, that's why on the sidelines right now, you may want to think this is the time to get back in I see nothing but green lights going down this highway. We have the links to valence website in the show notes.
And if you're interested in learning more about their stock or you're interested in learning more about their white label program, just click the links in the website. . You gotta check out the awesome video on their website is so cool.
It is so cool, Everett. Thanks for being on the show today.
Everett Knight: thanks for having me, Dan. I appreciate it.