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Q&A with The Valens Company President

Published on October 1, 2021 by David Wylie

The Valens Company will leave 2021 looking much different than when the year began.

It’s now grown to more than 370 employees. Most work at the Kelowna campus, which encompasses its headquarters and the LYF Edibles facility. There are about 40 working in Toronto and more at Green Roads in the US.

The company has also announced acquisitions of Citizen Stash and Verse.

We spoke recently to the president of The Valens Company, Jeff Fallows.

Q&A

the oz. — Can you offer a glimpse into how all of these recent announcements are fitting together into the overall strategy at Valens?

Fallows — Ultimately, all of these pieces were many, many months in the works. There’s been lots of work behind the scenes that we’ve been doing to make sure that we’re ready for these announcements and ready for these changes in our business.

From a strategic perspective, Valens has been very clear that we don’t like cultivation. The big infrastructure that others in the industry have put in place, we do not believe it is the best way to earn a return for our shareholders. We’ve been focused on the 2.0 and the oil-based, extract-based products and we’ve been making our mark in the market with that.

But there was always a view that there may be select flower segments that we could play in as a company, and that first came to fruition through, interestingly enough, Verse cannabis. They came to us and asked us—based on our ability to procure biomass (we are the largest buyer of biomass in the Canadian market)—whether we could source some quality but inexpensive product that they could put in at the value-price point into the market. We were very successful at doing that through them and they’ve got a couple SKUs out on the market doing well in that regard. That sort of opened the door to us and we started entertaining a number of conversations and came across Citizen Stash.

Acquiring Citizen Stash

We say buying Citizen Stash was entering the flower space the Valens way. First and foremost they don’t have the big growing infrastructure. They control the genetics and they control the quality in the agreements they have with their contract growers to say that if it doesn’t meet the specs then there’s no requirement to buy. So they get really the best of both worlds—they get quality products from quality craft growers and there’s none of the infrastructure costs of the risk associated with that. We like that model a lot. That really aligns with how we view the space and the opportunity.

The second thing was if Valens was going to do it, we really liked the premium end of the flower market. That’s where there’s margin and opportunity, that’s where the brands seem to be developing first. We think over the long term, if you look at markets in the US, that’s really the way to maintain that margin, maintain that presence in the market going forward. Citizen Stash is well positioned in the premium space. They are the No. 1 performing SKU above $13 (per gram) in Canada. So it’s a very attractive acquisition opportunity and the last step for us in that regard was: Are they really likeminded? Are they cannabis individuals that are interested in delivering quality cannabis and growing a cannabis business that we, at Valens, see as the right way to do it? And they are. We like the team there, we like the vision, we think it’s going to be a very seamless integration.

From a strategy perspective, we saw the opportunity to go out and get a larger market opportunity for our shareholders. We saw it in the premium flower space. And we found what we believe to be the ideal puzzle piece to fill that hole.

We’ve also been very clear that as we’ve we were going through as a contract manufacturer, that was our primary focus. We do that better than anybody. You’ll start to see a number of announcements as things start to get more and more in the LP space leveraging us for all the work that we’ve done in the contract custom manufacturing arena. As we were looking at the Canadian space, we’ve always been clear that if there’s select opportunities for us where we believe that Valens can play that we would not be shy about putting a brand into the market.

Acquiring Verse Cannabis

What happened with us with Verse cannabis was they came to us very early on, right in the early days of planning their strategy as a company, and came to us with a value-oriented pitch that they thought they could establish a brand position at the value end of the market. They said with your infrastructure, you can provide us the broadest segment of products at that lower price-point. They’ve been very successful at penetrating on that strategy. At Valens, when we saw that happening, we started to keep a close eye on it because it really fits in with Valens as well. We’ve only just scratched the surface of our low-cost infrastructure with this brand. What could we do if we were to bring that brand in-house and manage from soup to nuts everything about where that brand plays, what product portfolio it has, how that plays off against Citizen Stash in this context, and how we can really manage those two brands against each other. We really wanted that opportunity for our shareholders and made the decision to bring it in-house.

With those two we overnight jumpstart our strategy of being very selective and picking our spots with brands, but doing it in ways that are fully aligned with everything that our shareholders should be expecting with Valens: that’s flexible infrastructure, focused on return on investment, focused on margin, and focused where we believe we are best to come in.

A large majority of our LP partners would play in the core, which would be in between the premium and value segment. An ancillary benefit for us is minimizing the overlap. Again, we’re not trying to boil the ocean here, we’re not trying to take over all segments. What we’re trying to do is target the areas where we think we think we can add the most value.

the oz. — Valens balances being a global player in cannabis and yet still continues to uphold its reputation in the community as a large and growing employer in the region. How do you continue to maintain those local connections?

Fallows — This is a very big focus of Tyler’s. He believes in the Kelowna culture. He believes in the West Coast culture and what that means for cannabis and what that’s done for cannabis. That really is core in the Valens brand. We spend a lot of time in terms of our strategy in terms of how we’re bringing our products to market and those sorts of things—even with respect to our hiring and who we’re hiring and what mentality and focus they bring to make sure we are a Kelowna-first culture even as we open an office here in Toronto and even as we made and acquisition in the US and as we look into Australia and other markets, that we approach that as much as possible with that Kelowna mentality, which is ‘we love cannabis, we take passion in providing the high-quality products, and we’re only bringing people on board who would share that same kind of passion.’

the oz. — What part does Toronto have to play in the strategy?

Fallows — It’s about efficiency and it’s about making sure we are getting access to the kind of talent and resources that we need. Obviously from an employment pool and an opportunity perspective, as our needs change internally and we start to get more international exposure it’s not expected that you’d be able to pull all the resource pool from Kelowna, for example. If you think about it, when we start to go more global, a more centralized location, easy fly-in, easy fly-out, time zone differences, all those sorts of things, having a team here in Toronto just made sense.

the oz. — Are we going to see some of the Green Roads products come up to Canada?

Fallows — Absolutely. As we are looking to integrate them, we are looking at the products portfolio they have, which ones are suitable for the Canadian market. As we’re looking at bringing on Citizen Stash and the Verse brand and how that all fits together, we’re not just about throwing any products in the market. We want to make sure it’s a carefully curated portfolio with specific purpose and targeting specific consumers. Our commercialization team is going through that process right now, working with the Green Roads team and crafting that portfolio. We’ll start to expand that brand internationally through the Valens channels as well.

the oz. — Valens is pretty diversified now with LYF Edibles, Green Roads, Citizen Stash, Verse. Do you feel there are any areas in the cannabis market that you’re still trying to develop?

Fallows — No, we’re very happy with our platform and how it’s come together. I think we’ve got a lot of executing to do. We’ve got to bring these pieces together. We’ve got to make sure they’re operating efficiently and cohesively. There’s always a period of adjustment when you’re making an acquisition, so we’re very focused on that. As the space continues to move at light speed on a day-to-day basis, making sure that we’re keeping up with that and staying ahead of that and have the assets we need to get to where we want to get to as a company, there may be other acquisitions, there may be other opportunities that we need to bring on board. We won’t be shy to do that if we think it’s appropriate for our shareholders. In the Canadian context, we’re largely done. We think we’ve got the platform we need to compete and to win in Canada.

From a US perspective, Green Roads was a first step for us. We’re busy integrating, aligning, getting that company on the trajectory we know it can get to and then ultimately we believe there will be some additional opportunities in the US that would make sense from that perspective.

the oz. — What are some of the trends you see on the horizon in the Canadian market?

Fallows — I think there’s a lot of exciting and innovative products to come. I think the health and wellness area is largely untapped at this point. Recreationally focused, we’ve got some new and exciting products coming, particularly coming out of LYF and some of the work we’ve been doing with them. You also start to see some Cannabis 3.0 products, that we’re calling them, which is really consumer focused, delivering targeted benefits to users from the health and wellness side. We’re very excited and we think that’s the next big leg of opportunity in the Canadian market.

the oz. — From the investment side, one of the challenges for investors over the last few years has been volatility in the market. Are you starting to see cannabis investing becoming a safer bet?

Fallows — Yes, I think we are. A lot of that was driven by the messaging that many of the players were putting in the market. Big promises, underdelivering. That creates uncertainty of expectation. It creates the volatility that you’re talking about. In many cases cannabis companies were the makers of that problem for themselves. From a Valens perspective, our challenge has been liquidity, our challenge has been getting the flow of volumes.

“In the noise of the false promises, the conservative and direct message gets lost.”

— Jeff Fallows, President of The Valens Company

Because our message hasn’t been as flashy, it hasn’t caught that much attention from that perspective. As we continue to make announcements and build the company that we were always intending to build, investors are starting to see that.

In the general market, I think it will settle down as people are forced to stop with these big promises and talk really about what they can deliver. From Valens we’re putting the building blocks in place to make sure that our consistent message, which we’ve been discussing for quite some time now, gets the proper ears.

the oz. — It’s hard to ignore those flashing neon signs sometimes.

Fallows — We struggle a lot internally about is that a pathway, is that not a pathway, but we’ve always taken the view that we’re going to be transparent, we’re going to be clear, and we’re going to be direct about what we deliver and what our shareholders can expect because over time it will be that consistency that wins, at least in our view.

the oz. — What would Valens like to see from the incoming federal government?

Fallows — We’ve had cannabis legal for several years now. I think we’ve shown it’s not only an entertaining and exciting products, but it’s also a safe one. We’re only scratching the surface of what we can do from a health and wellness perspective. If there was an opportunity to release some of the reigns a bit and give us an opportunity to show a little bit more of what we can do, clearly we think that would be a benefit to the Canadian consumer and quite frankly society in general as we show there’s lot and lots of benefit out of the cannabis plant that’s yet to be fully ingrained into mainstream society. A little bit more runway, a little bit more room to make things a little bit more efficient on our side, to get products to people, that would clearly be a step in the right direction.

I think we’ve almost earned the right now to say that maybe a little less scrutiny is warranted as we move forward.

Even bifurcating CBD and THC, CBD and the ability to get that into more mainstream channels and various product forms could have a lot of advantages for the consumer.

the oz. — Valens was working with Shopper’s Drug Mart on studies. What’s happening with that?

Fallows — We continue to work with Shopper’s. We have products on their medical cannabis platform. We participated in the traceability study, UHN, delivered on that result, showing that from a medical perspective we could offer, and industry itself was capable of providing, traceability quality consistency in its products.

the oz. — Is there anything else you’d like to talk about?

Fallows — As we entered 2021, we were very clear that we were going to leave 2021 a different company than when we entered. I think we’re well on our way to delivering that to investors and I think we delivered it with high marks. The capabilities that we’ve added and will continue to add for the rest of the year are exactly what our shareholders should be expecting us to do and we’re excited about delivering on the promises we made to them.

Read more Q&As with other key players at The Valens Company

Q&A with CEO Tyler Robson

Q&A with COO Chantel Popoff