CanadaCBDEarningsHempNewsStock NewsStocksUSVillage Farms Cannabis JV Posts Third Straight Profitable Quarter

In previous years greenhouse operator Village Farms mainly grew tomatoes, but now the Vancouver-based company cannabis joint venture is helping it turn bigger quarterly profits.
David Jagielski David JagielskiAugust 13, 20198 min

Greenhouse operator and vegetable grower Village Farms International (TSX:VFF) continues to get profits from its cannabis business.

The Vancouver-based company released its second-quarter results late Monday and its overall numbers were less than stellar.

Sales of $41.3 million from its company-wide operations were actually down from a year ago when the company generated more than $42 million in revenue. Net sales in the U.S. were up a modest two-per-cent while sales in the Canadian market were down 15 per cent year-over-year. (All figures in U.S. dollars)

Despite the lack of growth in sales, cost of sales were up by more than seven per cent, and the company’s loss from operations also increased from $2.1 million a year ago to $7.1 million this past quarter.

Cannabis joint venture saves the day

Village Farms Cannabis JV Posts Third Straight Profitable Quarter
Pure Sunfarms 1.1 million square Delta 2 greenhouse located in British Columbia’s lower mainland. (Source: Village Farms)

Village Farms teamed up with Victoria, B.C.-based licensed cannabis producer Emerald Health Therapeutics in June, 2017 to form a 50/50 joint venture called Pure Sunfarms for the cultivation of cannabis. Village Farms oversees the operations of a 1.1 million square foot Delta 3 greenhouse located in the Lower Mainland of B.C.

Pure Sunfarms recorded a record $24.2 million worth of dried cannabis sales on a wholesale basis to other LPs during Q2, which allowed Village Farms to post a profit for the quarter by adding just under $14 million to the company’s bottom line.

While margins may be a bit tight at Village Farms’ main operations, cannabis production at Sunfarms was able to produce gross margins of 84 per cent as its all-in-costs per gram have totaled just $0.49 — nearly the lowest among Canadian cannabis cultivators. That has helped net income at the operations increase by 226 per cent.

Thanks to the bump up from Sunfarms, after-tax profits for Village Farms totalled $9.9 million, up from a loss of $2.3 million in 2018.

Earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $18.9 million for Sunfarms, nearly double its Q1 results, and also the third consecutive profitable quarter for the joint venture.

Village Farms expects continued growth

Pure Sunfarms hit a run-rate production of 75,000 kg of dried cannabis in Q2 and the joint venture’s low-cost per gram production could help add even more income for Village Farms in the future.

Pure Sunfarms’ second quarter financial results firmly rank it among the largest, most efficient and most profitable licensed cannabis producers in Canada, and clearly demonstrates that we have built a best in class cannabis operation setting a new bar for industry performance.

– Michael DeGiglio, CEO of Village Farms

Sunfarms received a Health Canada processing licence in its second quarter for its Delta 3 facility, which will allow the company to extract cannabis to produce derivative products such as edibles, vape oil cartridges, when those products become legal for sale in Canada later this year.

The company also is waiting on a Health Canada sales licence that will allow Sunfarms to sell cannabis products directly to provincial distributors, including to the Ontario Cannabis Store, with which the company already has a supply agreement with. Also, Sunfarms has begun converting its second 1.1 million square foot greenhouse, Delta 2, and expects it will be operational by Q4 of 2020. The new facility is expected to double total production capacity to 150,000 kilgrams.

In addition to Sunfarms, the company also has two joint ventures that focus on hemp production in the U.S., including Arkansas Valley Green and Gold Hemp and Village Fields Hemp USA. Both JVs are expected to harvest hemp later this year and could give the company even more of an increase in income. Village Farms has its sights on the booming hemp derived U.S. CBD market and plans to sell white labeled and branded CBD products to “big box” retailers in the country in early 2020.

With Texas legalizing hemp cultivation last June, Village Farms has begun converting half of its 1.3 million square foot Permian Basin greenhouse in West Texas to produce hemp for its CBD products, once it receives the state licences to do so.

Village Farms’ successful low-cost cannabis cultivation and concerted efforts to gain a foothold in the growing U.S. CBD market, it has been one of the hottest pot stocks on the Toronto Stock Exchange year to date. Shares of Village Farms have climbed more than 300 per cent since January, and were up another two per cent on Tuesday. It’s an overall impressive result given the sector’s scandal-filled summer with many cannabis companies losing market value in the last several months.

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