AU: Canadian company enters Australian market through distribution agreement

Valens GroWorks has signed a distribution agreement with Cannvalate, one of the Australia’s largest medicinal cannabis distributors and clinical research organizations, with a current estimated market share of almost 50% of cannabis prescriptions in the country.

"The five-year, non-exclusive agreement is based on an asset-light revenue-generating pay for performance model, providing Cannvalate achieves milestones based on certain financial targets and facility construction and licensing timelines outlined in the agreement," the team with the company explains. "Under the terms of the agreement, The Valens Company is also in the process of finalizing a long-term lease on a property in Australia with an independent third party. This is expected to be built out by the landlord as a small-sized extraction and manufacturing facility designed to be scalable, forming the hub of The Valens Company’s operations in the country. Construction on the facility is expected to commence on signing the lease and is expected to be fully operational halfway through 2021, subject to applicable licensing and regulatory approvals."

In the near term, The Valens Company is expected to monetize the agreement with Cannvalate through shipments of a broad range of products from its facility in Canada to Australia. As such, the terms of the agreement require minimal upfront capital investment by The Valens Company. The company is targeting initial revenue from this agreement in Q3 2020 subject to receiving the necessary import and export permits.

“This partnership provides Valens with strategic access to Australia’s strong and fast-growing cannabis market,” said Tyler Robson, CEO of The Valens Company. “With a proven track record, strong knowledge of the local market, and a leading distribution platform in Australia, Cannvalate is an excellent partner for us to build our presence in this pivotal hub with significant long term growth opportunity.”

“The agreement allows us to maximize incremental revenue potential, while spending minimal capital upfront and scaling our operations as the opportunity expands,” added Jeff Fallows, president of The Valens Company. “Australia’s medical patient base, similar to the early stages of medical patient growth in Canada, offers an attractive return for our shareholders with potential upside as this also positions us strongly in a market that is expected to ease regulations around CBD products in early 2021.”

“The Australian market is the fastest growing, pure-play medicinal cannabis market in the world and is unique in that oil-based derivatives represent over 95% of the total products sold. This opportunity provides the platform for The Valens Company to become the primary extractor and contract manufacturer for licensed producers throughout Australia and Asia-Pacific,” said Dr. Sud Agarwal, CEO of Cannvalate.

In 2019, there were over 25,000 prescription approvals for medicinal cannabis products in Australia. This is nearly a nine-fold increase over the number of prescription approvals in 2018. Furthermore, the growth of the Australian medical market has continued into 2020 with over 14,000 prescription approvals from January to April. The Australian Therapeutics Goods Administration’s proposal to relax the scheduling of CBD could make certain types and amounts of CBD products available to adult patients without a prescription. The new regulations could take effect in early 2021, further expanding the opportunity. Currently the Australian medical cannabis market is estimated at US$40 million and is expected to have tremendous growth in coming years and jump past the US$1 billion mark by 2020. Australia has a higher GDP per capita as compared to Canada, and a high propensity to consume cannabis products across numerous age groups, with The Valens Company in a strong position to take advantage of this growth.