Valens Reports Fiscal Year 2018 Results

Valens GroWorks Corp. (CSE:VGW) (OTC:VGWCF) (the “Company” or “Valens”), a multi-licensed, provider of cannabis products and services focused on various proprietary extraction methodologies, distillation, cannabinoid isolation and purification, as well as associated quality testing, today reported financial results for its 2018 fiscal year ended November 30, 2018.

Management Commentary

Tyler Robson, Chief Executive Officer of Valens GroWorks, said, “2018 was a pivotal year for Valens as we achieved several key milestones, including investing in best-in-class infrastructure and establishing proprietary processes that positioned the Company as the industry’s premier extraction company ahead of cannabis legalization. We built out a diversified platform that offers a complete range of extraction services where our team of engineers refined our proprietary processes to generate more consistent, reliable, high quality cannabis products.”

“We scaled our capacity significantly to allow for 240,000KG of dried cannabis and hemp input on an annual basis, relative to 72,000KG in March 2018, thereby securing our position as the largest third-party extraction company in Canada. Being able to compete on both scale and quality of service has enabled us to build a unique and defensible value proposition that distinguishes us in the market and will continue to fuel our growth for many years to come. In November 2018, after receiving the necessary licenses from Health Canada under the Cannabis Act (allowing for business to business (“B2B”) sales) we immediately initiated commercialization activities starting in the first quarter of Fiscal 2019. These efforts resulted in  several multi-year agreements to provide premium extraction services to some of the most well-known players in the industry, including Canopy Growth, Tilray, Organigram and The Green Organic Dutchman and represent initial volumes that have greatly exceeded our initial ramp up expectations. As a result, fiscal 2019 is set to be an exciting year as Valens enters a new phase in its evolution and starts to generate meaningful revenues for the first time.”

The Company’s primary goals for fiscal 2019 are:

• Execute on its existing extraction contracts with industry partners
• Secure additional extraction and product development contracts
• Receive EU GMP certification and enter the international marketplace
• Expand its offerings into the cannabis-infused beverage, edibles and concentrates markets
• Geographic facility and capacity expansion

With edibles and concentrates to become available by October 2019, at a time when an increasing number of cultivation facilities are expected to come online, Valens anticipates an associated ramp up in demand for its services throughout the year. Valens believes there will continue to be a bottleneck in the supply chain as high quality extraction capabilities, such as those provided by the Company, will struggle to keep pace with the increasing quantities of cannabis and hemp being grown. This increase in anticipated demand combined with the Company’s product development initiatives, is expected to drive significant revenue growth. Since Valens provides services to licensed producers on a contractual basis, it has excellent visibility into it’s revenue, and, with no debt, and approximately $25.2 million in cash and short term investments, the Company is confident in its ability to build significant value for shareholders in 2019 and beyond.”

Operational Summary

Licensing

• Health Canada awarded Valens its Licensed Producer (“LP”) license under the ACMPR in October 2018.
• Valens received its standard cultivation and standard processing license (allowing for B2B sales) from Health Canada under  the Cannabis Act in November 2018, enabling the Company to offer its premium extraction services to other licensed producers.
• Health Canada awarded Valens a license for analytical testing under the Cannabis Act.

Product Development

• Secured exclusive Canadian rights to Tarukino’s proven SoRSE technology and Washington’s top selling cannabis beverages and cannabis infused topicals.
• The Company is producing formulations for tinctures and two-piece caps and actively working to finalize various formulations for vaporizer cartridges, beverages and other innovative products to be able to white label and deliver to the market for our industry partners in 2019.

Agreements & Partnerships

• The Company has entered into multiple extraction service agreements with industry partners including: Canopy Growth, Tilray, The Green Organic Dutchman, Organigram, Sundial, Speakeasy, Harvest One and GTEC. While these agreements did not contribute to revenues in Fiscal 2018, they represent significant volume commitments and resulting revenues that the Company expects to ramp up throughout 2019.
• Signed multiple letters of intent and are in negotiations with international companies and organizations to develop and produce cannabis products abroad, with a near term focus on Australia, Colombia and Europe.
• To cement its position as the industry leading provider of best-in-class extraction and value-added services to the cannabis market its wholly-owned subsidiary, Valens Labs established a research collaboration agreement with Thermo Fisher Scientific to strengthen industry testing standards and increase patient safety within the cannabis market.
• Valens Labs obtained ISO 17025 accreditation for cannabis testing, to give producers certainty that they are producing high-quality, safe products. This accreditation makes Valens Labs the first Health Canada licensed laboratory using cannabis as its matrix in Canada to achieve this accreditation.

Extraction Capacity & Capabilities

• In early 2019, Valens announced an increase of its annual extraction capacity of dried cannabis and hemp to 240,000KG per year to ensure it is positioned to meet the anticipated rise in demand for its services.
• Valens increased the ability to service its clients through offering multiple extraction methodologies, all of which are proven to be imperative for different oil-based consumer product offerings.

Management & Finance

• In June 2018, the Company appointed Chris Buysen, MPAcc, CPA, CA as Chief Financial Officer to ensure the efficient and reliable financial management of the Company as it expands and enters new verticals.
• Subsequent to year-end, the Company hired Everett Knight, CFA as Executive Vice President of Strategy & Investments to ensure effective management of all business transactions, investor relations, marketing and sales.
• In early 2018, the Company secured a $13.7 million investment followed by a $27.3M bought deal financing in September 2018, supporting its continued expansion.

Fiscal Year Ended November 30, 2018 Financial Summary

All numbers are in Canadian dollars

• Total revenue for the year ended November 30, 2018 was $51,526, an increase of 26.5%, compared with $40,724 in fiscal year 2017.
• Operating expenses were $13.8 million in Fiscal Year 2018, compared with $5.3 million in Fiscal Year 2017. The increase in operating expenses was due to the Company building up its resources to commence commercial operations in the first quarter of 2019 resulting in increased management and consulting fees, wages and salaries, share-based payment expense, depreciation and amortization.
• Loss and comprehensive loss for the year was $15.9 million, or $0.22 per share, compared with a loss of $4.4 million, or $0.08 per share in fiscal year 2017. Loss and comprehensive loss for the fourth fiscal quarter of 2018 was $7.4 million, or $0.10 per share, compared with a loss of $0.8 million, or $0.01 per share, in the fourth fiscal quarter of 2017.
• Cash and short-term investments as of November 30, 2018 were $25.2 million. The increase in cash and short-term investments was attributed to financing activities throughout the year totaling $41.0 million.

About Valens GroWorks

Valens GroWorks Corp. is a research-driven Canadian cannabis company focused on specialized extraction methodology, distillation and cannabinoid isolation and purification, as well as associated quality testing with three wholly-owned subsidiaries located in and around Kelowna, BC. Subsidiary Valens Agritech (“VAL”) holds a license to cultivate cannabis and produce cannabis oil under the Cannabis Act, as well as a license to conduct analytical testing for the cannabis industry. VAL currently has extraction processing and supply agreements with various leading producers across Canada. 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. Subsidiary Valens Farms is in the process of becoming a purpose-built, greenhouse cultivation facility in compliance with European Union (EU) Good Manufacturing Practices (GMP) standards, ensuring the product from this facility can be exported anywhere in the world where cannabis is nationally legal for medical or recreational purposes. For more information, please visit https://valensgroworks.com. The Company’s investor deck can be found specifically at https://valensgroworks.com/investors/

Notice regarding 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.

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