Investment Assessment: North American Vape Market

Investor Intelligence | Investment Assessment: North American Vape Market mjbizdaily.com/investing Copyright 2019, Marijuana Business Daily, a division of Anne Holland Ventures Inc. You may NOT copy this report, or make public the data and facts contained herein, in part or in whole. For more copies or editorial permissions, contact CustomerService@MJBizDaily.com or call 720.213.5992 x1. 9 Canada’s Cannabis 2.0 V alens GroWorks’ shares have largely escaped a negative impact from the vape crisis, down only 14% since Aug. 23. As noted above, Valens’ growth strategy is driven by providing vape products with the launch of Canada Cannabis 2.0, which is expected to start in October 2019 with the main effect expected in 2020. The key question: Will the vape crisis in the United States have any impact on the timing, magnitude or consumer uptake of legal vapes in Canada? Canada has not said anything altering the rollout of vapes yet, and we are merely speculating on the potential risk here. Consensus estimates for Valens basically have remained unchanged through the crisis, and the multiple has contracted slightly. It is theoretically possible that Canada could delay or alter the regulations on vapes, and it is possible that Canadian consumers could shift away from vapes to flower as seen in California and Colorado. Such a scenario would cause a reduction in the consensus estimates for Valens and likely stock declines. A 10% hit to estimates and multiple compression to 1.0X sales would yield a 14% decline in the equity to about CA$2.44 per share (US$1.85). Given that Canada has a thriving illicit market for vapes currently, it is also possible that legal vapes could see a larger than expected uptick in demand as consumers shy away from the illicit market or in government support for the legal industry, either of which would benefit companies like Valens. A 10% rise to estimates and return to 1.45X sales from August would yield a 25% return to the equity to CA$3.56 (US$2.70) Date 8/23/2019 9/30/2019 At Aug Mult. 10% hit to Est 10% Rise to Est VGW Price in USD $2.51 $2.15 $2.52 $1.85 $2.70 Return from current price of $2.15 17% 0% 17% -14% 25% Shares 99.8 99.8 99.8 99.8 99.8 Market Capitalization $251 $215 $252 $185 $269 Net Debt (Cash) $(66) $(66) $(66) $(66) $(66) (Cash) fromWarrants & Options $(8) $(8) $(8) $(8) $(8) Enterprise Value $177 $141 $177 $111 $195 SALES ESTIMATES END AUGUST 2019 $38 $38 $38 $38 $38 2020 $122 $123 $123 $111 $135 2021 $164 $165 $165 $148 $181 EV/SALES 2019 4.68 3.66 4.61 2.87 5.08 2020 1.45 1.15 1.44 1.00 1.45 2021 1.08 0.85 1.08 0.75 1.08