Valens GroWorks (TSXV: VGW) is increasing its focus on the cannabis beverage market. The extraction-focused firm announced after hours today that they had acquired Southern Cliff Brands, who operates under the trade name of Pommies Cider Co. Total consideration amounted to $7.5 million for the craft producer, in a cash and stock deal.
The acquisition of Pommies enables Valens to establish a presence in the eastern portion of Canada. Previously, their heavy presence on the western coast did not lend well to establishing eastern Canadian operations where the majority of licensed producers reside. Pommies currently operates out of a 32,000 square foot manufacturing facility in the Greater Toronto Area.
Part of the justification for purchasing the alcohol-infused cider beverage firm is the fact that Pommies has previously applied for a micro processing license that will speed up Valens ability to get product to market. The beverage firm originally applied for licensing in December 2018, which when awarded will allow the facility to process up to 600 kilograms of cannabis per annum. Valens indicated within this evenings release that they intend to eventually transfer the licensing to that of a standard processing license, to remove restrictions on annual capacity.
Valens intends to utilize the facility for the production of edibles and cannabis infused beverages upon its licensing from Health Canada. The acquisition of the facility will further expand the firms ability to offer white label solutions to those firms that wish to have branded cannabis beverages but don’t currently have the required licensing. Without the acquisition, Valens identified that it only had “pilot-scale capacity” for cannabis infused beverages, and the Pommies facility will enable the firm to be able to capitalize on its recently signed white label agreement with Iconic Brewing.
Valens paid $7.5 million to acquire Pommies Cider, of which $6.0 million was paid at closing. $3.5 million was paid in cash, while $2.5 million was paid via common shares of Valens GroWorks. An additional $0.5 million in cash and $1.o million in shares was placed into escrow for future earn-out payments. The firm also intends to budget for capital expenditures of $10 million to upgrade the current capacity of the facility, bringing total annual bottling capacity to 40 million units. Those capital expenditures are expected to take place within the next 12 months.
At Valens, we expect that extract-based cannabis products, and infused beverages in particular, could disrupt beverage alcohol sales where monthly per capita spend is roughly 16 times higher compared to legal cannabis. We will be able to leverage our purification and formulation knowledge, as well as the SoRSETM emulsion technology to create an exciting new adult beverage category that rivals alcohol, soft drinks and water with our current and future partners.Tyler Robson, CEO of Valens
Upon licensing, Valens expects the entire Pommies facility to be focused on cannabis-infused beverage production. The current Pommies product lines as a result will be white label manufactured with an undisclosed partner facility.
Valens GroWorks closed today’s session at $3.49 on the TSX Venture.
Information for this briefing was found via Sedar and Valens GroWorks. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.