Valens Establishes Operations in the Greater Toronto Area with the Acquisition of a Leading Beverage Company
Valens GroWorks Corp. (TSXV:VGW, OTCQX:VGWCF) (the “Company” or “Valens”), a vertically integrated provider of industry leading extraction products and services, including a diverse suite of extraction methodologies, next generation cannabinoid delivery formats and an ISO 17025 accredited analytical lab, is pleased to announce that it has acquired all of the issued and outstanding shares of Southern Cliff Brands Inc. (d/b/a Pommies Cider Co.) (“Pommies”) in a cash and stock deal (the “Acquisition”). The Acquisition and all planned capital expenditures are fully funded with cash on hand and current and projected cash flow from operations.
Overview of Pommies
Pommies is a leading hard cider manufacturer in the Greater Toronto Area and operates a 32,000 sq. ft. facility currently used to manufacture the company’s existing line of Pommies-branded cider. The facility is equipped with industrial scale fermentation and mixing tanks, canning and bottling lines, labeling equipment, and a commercial shipping and receiving bay. In December 2018, Pommies submitted its Health Canada application for a micro-processing licence. The former owners and founders of Pommies, Nick and Lindsay Sutcliffe (collectively, the “Vendors”), will be joining Valens following the Acquisition, bringing with them more than 20 combined years of experience in the beverage alcohol industry, having founded Pommies in 2010 as one of the first alcoholic cider beverages in the market and grown it to a highly successful, multi-million dollar business. The team’s knowledge and expertise will be a significant asset moving forward. In conjunction with the Acquisition, Valens expects to enter into a lease for the Pommies facility with a 10-year term and a subsequent renewal option for an additional 10 years.
Platform for Infused Beverages and Edibles
The Acquisition adds a new platform to the Valens portfolio that will bolster the Company’s white label product offerings in categories such as beverages and edibles. Initially, Valens intends to leverage the beverage manufacturing infrastructure of the Pommies facility and the know-how of its founders to capitalize on cannabis-infused beverage white labeling opportunities, including Valens’ existing agreement with the cannabis division of Iconic Brewing and multiple ongoing discussions with other potential partners. Valens has pilot-scale capacity for cannabis-infused beverages today and expects to produce beverages at mass scale in the first half of 2020. The Company is leveraging existing beverage infrastructure at the Pommies facility and is budgeting for approximately C$10 million of capital expenditures at the facility over the next 12 months, following which Valens expects the facility to have a 40 million unit capacity for beverages alone, not including edibles. The planned capital expenditures to bring the facility into full operation are fully funded with cash on hand and projected cash flow from operations.
“We are thrilled to add Pommies to our growing Canadian platform,” said Tyler Robson, CEO of Valens. “In Canada, alcoholic beverages generated nearly C$24 billion of retail sales in 2018. 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. Adding the Pommies facility and team to our platform gives Valens the tools and expertise needed to bring competitive beverage alcohol substitutes to market and capitalize on this massive market opportunity.”
Valens chose Ontario as the province to establish its second operating facility as it brings a number of strategic advantages. First, the geographic expansion to Eastern Canada will allow the Company to better serve its growing customer base across Canada as the Pommies facility is located a short distance from Highway 400 in the northern portion of the Greater Toronto Area and is a 30-minute drive from Toronto Pearson International Airport. Second, Ontario is Canada’s most populous province and currently the largest market for legal cannabis consumption based on recent sales data from Statistics Canada. The geographic diversification and co-location of Valens’ beverage, edibles and extraction capabilities will also provide cost and efficiency advantages, allowing Valens to be more responsive to both its licensed and unlicensed customers.
Speed to Market
With the existing facility and beverage infrastructure, the beverage expertise of the Pommies team, and the pending micro-processing licence application, Valens expects that the Acquisition provides the Company with a 9-month head start towards the launch of operations at the new facility and the production of cannabis-infused beverages. Furthermore, upon receiving a micro-processing licence at the facility, Valens intends to amend it to a standard processing licence over time, providing optionality for the facility to scale with demand.
The purchase price at closing was C$6.0 million, comprised of C$3.5 million in cash (net of certain closing indebtedness of Pommies) and C$2.5 million in value of common shares of the Company (the “Common Shares”) (being 604,052 Common Shares), of which C$750,000 in value of Common Shares (being 258,880 Common Shares) were placed into escrow for indemnity purposes. Up to C$1.5 million (C$0.5 million in cash and C$1 million in value of Common Shares, being 345,172 Common Shares) of further consideration was placed into escrow and is subject to release upon the achievement of certain earn-out milestones relating to licensing, operational and financial performance (the “Milestones Consideration”). All Common Shares pursuant to the Acquisition were issued at a price representing the ten (10) day volume-weighted average price of the Common Shares on the TSX Venture Exchange (“TSXV”) as of the close of trading on November 7, 2019. The Acquisition remains subject to approval from the TSXV and is expected to constitute an “expedited acquisition” in accordance with Policy 5.3 of the TSXV. All Common Shares issued in connection with the Acquisition will be subject to a restricted period of four months and one day. There are no finders’ fees payable by the Company in connection with the Acquisition. The Vendors are each arm’s length parties to the Company.
The existing Pommies business and branded products will continue to service its existing markets. Valens intends to establish a co-manufacturing agreement at a partner facility to continue supplying the market with Pommies’ line of hard ciders as the Pommies facility transitions to producing cannabis-infused beverages and edibles.
About Valens GroWorks
Valens GroWorks Corp. (TSXV:VGW) (OTCQX:VGWCF) is a multi-licensed, vertically-integrated cannabis company focused on being the partner of choice for leading Canadian and international cannabis brands by providing best-in-class, proprietary services including CO2, ethanol, hydrocarbon, solvent-less and terpene extraction, analytical testing, formulation and white label product development. Valens is the largest third-party extraction Company in Canada with an annual capacity of 425,000 kg of dried cannabis and hemp biomass at our purpose-built facility in Kelowna, British Columbia which is in the process of becoming European Union (EU) Good Manufacturing Practices (GMP) compliant. Additionally, our subsidiary Valens Labs is a Health Canada licensed ISO 17025 accredited cannabis testing lab providing sector-leading analytical services and has partnered with Thermo Fisher Scientific to develop a Centre of Excellence in Plant-Based Science. For more information, please visit http://valensgroworks.com. The Company’s investor deck can be found at http://valensgroworks.com/investors/.
Forward Looking Statements
This news release contains certain “forward-looking statements” within the meaning of such statements under applicable securities law. Forward-looking statements are frequently characterized by words such as “anticipates”, “plan”, “continue”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “may”, “will”, “potential”, “proposed”, “positioned” and other similar words, or statements that certain events or conditions “may” or “will” occur. These statements are only predictions. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this news release. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. The Corporation is under no obligation, and expressly disclaims any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.