Village Farms International Inc: Pot Stock With 440% Upside Reports Q1 Revenue Beat

Village Farms Stock a Great Contrarian Play

Those who follow the cannabis stock market know it has been taking a beating lately. The broader stock market has also been bearish—hobbled by rising interest rates, record-high inflation, a looming recession, the COVID-19 pandemic, and the war in Ukraine.

Pot stocks have been facing additional headwinds, most notably the stalled federal legalization of recreational cannabis. Most Americans (68%) support the legalization of marijuana; it’s the politicians who’ve been dragging their feet on the issue. And this has helped drag pot stocks significantly lower.

The S&P 500 is in bear-market territory, down by 15.7% year-to-date. Grim indeed, but the cannabis industry has it beat.

The ETFMG Alternative Harvest ETF (NYSEARCA:MJ), which is the world’s largest cannabis exchange-traded fund (ETF), is deep in correction territory, down by 34% year-to-date. Meanwhile, the AdvisorShares Pure US Cannabis ETF (NYSEARCA:MSOS) is down by 46% year-to-date.

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In this economic environment, it’s tough to find pot stocks that are doing well. What’s not difficult to find are strong pot stocks being sold at a discount. That’s what you get with Village Farms International Inc (NASDAQ:VFF).

VFF stock has been getting hammered lately, which makes it a great contrarian play for when the marijuana sector recovers (and we know it will).

As of this writing, Village Farms stock is down by:

  • 35% over the last month
  • 41% over the last three months
  • 51% year-to-date
  • 62% year-over-year

Conservative Wall Street analysts are confident that VFF stock will recover in a serious way, with 83% issuing a “Buy” rating and 17% issuing a “Hold” rating.

Of the analysts providing a 12-month price target for Village Farms International Inc, their consensus estimate is $10.47 and their high estimate is $17.00. This points to upside of approximately 232% to 440%. Even the low estimate of $5.00 points to a potential gain of 58% from Village Farms stock.

Chart courtesy of Stockcharts.com

About VFF Stock

A non-pure-play cannabis company, Village Farms International cut its teeth in the agricultural industry growing tomatoes, peppers, and cucumbers. For decades, the BC, Canada-based company was one of the largest and longest-running producers of greenhouse vegetables in North America.

The 2018 legalization of recreational cannabis in Canada changed all that. Starting in 2017, the company took its years of agricultural experience and turned its attention to cannabis.

Village Farms International Inc operates controlled-environment agriculture (CEA) greenhouses in BC and Texas. The company’s total capacity is more than nine million square feet, with about 69% of that in Texas. (Source: “Investor Presentation,” Village Farms International Inc, May 10, 2022.)

In Canada, the company’s wholly owned Canadian subsidiary, Pure Sunfarms Corporation, is one of the largest pot operators in the world, the lowest-cost greenhouse pot producer, and one of Canada’s best-selling pot brands.

Village Farms International Inc also owns 70% of Quebec-based Rose LifeScience, a leading third-party marijuana product commercialization expert.

In August 2021, the company made a push into the U.S. cannabidiol (CBD) market through the $75.0-million acquisition of Balanced Health Botanicals, one of the leading CBD brands and e-commerce platforms in the nation. (Source: “Village Farms International Acquires 100% of Balanced Health Botanicals,” Village Farms International Inc, August 16, 2021.)

Looking ahead, subject to U.S. federal and state laws, Village Farms expects to enter the high-tetrahydrocannabinol (THC) market. The company will leverage its West Texas property, which is one of the largest greenhouse operations in the U.S., covering more than 5.5 million square feet (95.5 NFL football fields).

Internationally, Village Farms International Inc is targeting select cannabis and CBD opportunities, with an initial focus on the Asia-Pacific region and Europe.

Q1 Revenue Beat; Net Loss Improves

For the first quarter of 2022 ended March 31, Village Farms announced that its revenue increased by 34% year-over-year to $70.2 million. (Source: “Village Farms International Reports First Quarter 2022 Financial Results,” Village Farms International Inc, May 10, 2022.)

The company reported a first-quarter net loss of $6.5 million, or $0.07 per share. That was an improvement over its first-quarter 2021 net loss of $7.4 million, or $0.10 per share.

During the first quarter of 2022, sales from Village Farms International Inc’s cannabis segment increased by 65% to $28.8 million, accounting for 41% of the company’s total sales.

Michael DeGiglio, Village Farms International Inc’s CEO, said the following:

In what is a typically soft season for retail sales in Canada, both Pure Sunfarms and Rose gained share in their respective focus markets, and delivered a 14th consecutive quarter of positive adjusted [earnings before interest, taxes, depreciation, and amortization (EBITDA)] for Canadian Cannabis.

(Source: Ibid.)

During the first quarter of 2022, divisions of Village Farms International Inc made the following business accomplishments:

  • Pure Sunfarms received EU good manufacturing practice (GMP) certification for its 1.1-million-square-foot Delta 3 marijuana production facility, allowing it to export medical marijuana to international markets that require the certification
  • Pure Sunfarms launched 29 new stock-keeping units (SKUs) in four product categories
  • Pure Sunfarms remained the top-selling brand of dried cannabis flower products in the key Canadian provinces of Ontario, Alberta, and BC
  • Balanced Health Botanical’s brand “CBDistillery” launched its hemp extract in more than 1,000 “PetSmart” stores in the U.S.
  • Rose LifeScience launched 14 new cannabis SKUs
  • Rose LifeScience’s shipments of its own brands increased by 85% compared to the fourth quarter of 2021

Analyst Take

Village Farms International Inc used to be known for its peppers and tomatoes, but in 2017, the company expanded its focus to become a leading producer of recreational cannabis. Through various acquisitions, it has taken steps to become one of the top pot companies in Canada and make serious headways in the U.S.

In spite of some of the most difficult macroeconomic conditions in its history, Village Farms has continued to deliver significant financial growth and ongoing profitability. Management said it expects the company’s momentum to continue throughout 2022 and beyond.

All this makes Village Farms stock worth watching.