Village Farms International Inc (NASDAQ:VFF) is arguably one of the better pot stocks out there, but it’s not garnering the same kind of attention as its peers. That might be because Village Farms International stock hasn’t advanced quite as quickly as some more well-known pot stocks.
While VFF stock is down 45.9% year-over-year and down 13.5% since the start of 2020, the company’s share price is up 160% since hitting March lows.
Those recent gains come on the heels of solid first- and second-quarter results, the roll-out of new products in select Canadian provinces, partnerships that open up the European and Asia/Pacific markets, and the launch of derivative products. Management also said it expects the back half of 2020 to be even stronger.
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VFF Stock Overview
Before recreational cannabis became legal in Canada in October 2019, Village Farms International Inc was known as being one of the largest producers of greenhouse vegetables in North America. In fact, Village Farms is one of the largest and longest-operating greenhouse growers in North America. It is also the only publicly traded greenhouse produce company in Canada. (Source: “Investor Presentation, July 2020,” Village Farms International Inc, last accessed August 26, 2020.)
The company has more than nine million square feet of Controlled Environment Agriculture (CEA) greenhouses in British Columbia and Texas. It also has partner greenhouses in British Columbia and Ontario, Canada, and Mexico.
These unmatched North American greenhouse assets make Village Farms’ transition to a grower of cannabis a no-brainer.
It is also the majority owner (58.7%) of Pure Sunfarms, one of the single largest cannabis growing operations in the world.
Pure Sunfarms is one of Canada’s top retail cannabis suppliers, with the lowest “all in” cultivation costs reported by a Canadian Limited Partnership of $0.61 per gram; most growers struggle to get their costs below $1.00 per gram. You can find its products in four of the five largest provinces in Canada: Ontario, Alberta, British Columbia, and Saskatchewan.
Known primarily for its dried flower products, Village Farms’ goal is to capture more than 20% of Canada’s dried flower market and selectively enter new retail product categories in which it can be the #1 or #2 brand.
To that end, Pure Farms launched bottled oils and vapes in the summer of 2020. The first shipments, which started hitting shelves in British Columbia in August, will soon be in stores in Alberta and Ontario. Other derivative products (gummies, beverages, etc.) will enter the Canadian market in late 2020.
Derivative products, like vapes and gummies, are a financial windfall for cannabis companies, mostly because they carry higher margins than the sale of dried flower products.
On top of that, not everyone likes to smoke pot; cannabis-infused gummies, chocolates, and beverages are an entirely different story.
Pure Sunfarms Achieves Sixth Consecutive Profitable Quarter
On August 5, Village Farms International Inc announced that revenue, for the second quarter ended June 30, had increased 15.1% year-over-year to $47.5 million. (Source: “Village Farms International Reports Second Quarter 2020 Financial Results – Pure Sunfarms Achieves Sixth Consecutive Profitable Quarter on 89% Sequential Increase in Retail Branded Sales Volume – Produce Business Generates Positive Adjusted EBITDA,” Village Farms International Inc, August 5, 2020.)
The company reported a second quarter net loss of $119,000, or breakeven per share. In the second quarter of 2019, it reported net income of $3.7 million, or $0.08 per share. Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) was $2.3 million, compared to adjusted EBITDA of $4.6 million in the same prior-year period.
Pure Sunfarms reported second-quarter revenue of $14.0 million, with retail branded sales volumes for the second quarter increasing 89% sequentially. Net income came in at $0.8 million, with adjusted EBITDA of $1.8 million. All-in costs per gram were $0.61, compared to $0.49 in the same period last year.
During the quarter, Pure Sunfarms:
- Remained the top-selling brand of dried flower products with the Ontario Cannabis Store, by kilograms sold, for the year-to-date ended July 31, 2020, with a market share of 13.8%;
- Had two of the top four selling dried cannabis products (by kilograms sold);
- Achieved record sales (by kilograms) in Ontario, Alberta, and British Columbia in aggregate for the month of July;
- Launched multiple new dried cannabis products, including additional large-format (28-gram) packages, two new strains, additional pre-rolls and seeds; and
- Launched its dried cannabis products in its fourth and fifth provincial markets (Saskatchewan and Manitoba).
Pure Sunfarms’ products are now available in five of Canada’s six most populous provinces, which in aggregate represent more than 70% of the total Canadian population.
“The second quarter continues to demonstrate the earnings capacity of Pure Sunfarms as it delivered its sixth consecutive quarter of net income and seventh consecutive quarter of positive EBITDA,” said Michael DeGiglio, CEO of Village Farms International Inc.
“Although retail branded sales were level compared to the first quarter on a dollar basis, retail sales volume increased 89% as Pure Sunfarms’ continued to have great success with its large-format, value offerings, which have consistently ranked among the best-selling dried cannabis products with the Ontario Cannabis Store since launch,” DeGiglio added.
Village Farms International Inc has the makings of being one of the top pot stocks in the coming quarters and years. It has the lowest all-in costs, is adding new provincial markets, is increasing the number of its retail stores throughout Canada, and has launched its first “Cannabis 2.0” products and bottled oils.
Pure Sunfarms delivered its sixth consecutive quarter of net income and its seventh consecutive quarter of positive EBITDA.
On top of that, VFF is expanding its international footprint, having recently announced strategic investments for the Asia-Pacific region and Europe.
All of this bodes well for investors in the back half of 2020.