This Non-Pure-Play Pot Stock Skyrocketed 210% Year-to-Date, More to Come?

Village Farms International Inc This Pot Stock Soared 210% Year-to-date, More to Come
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A Soaring Pot Stock That Also Grows Tomatoes?

For most of its history, Village Farms International Inc (NASDAQ:VFF) was a regular greenhouse operator. Headquartered in Vancouver, British Columbia, Canada, the company specialized in producing greenhouse tomatoes, bell peppers, and cucumbers.

Most recently, though, Village Farms has climbed on board the marijuana profit train. Just take a look at its share price performance and you’ll see what I mean.

Village Farms International Inc (NASDAQ:VFF) Stock Chart

Year-to-date, VFF stock has surged by a staggering 210%.

Needless to say, the rise in Village Farms International stock has been impressive compared to the broader stock market. For example, the S&P 500 index only climbed 20.1% during the same period.

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Chart courtesy of Stockcharts.com

At the same time, VFF stands out among pot stocks. This is because, while many marijuana companies enjoyed a strong rally in their share prices in the first quarter of 2019, the trend reversed in the second quarter.

As a matter of fact, the North American Marijuana Index—which tracks the leading cannabis stocks in the U.S. and Canada—is up just 5.2% year-to-date. (Source: “North American Marijuana Index,” The Marijuana Index, last accessed July 15, 2019.)

Now, you might be wondering whether there’s any further upside left in VFF stock after such as strong rally. Well, based on what the company has been doing, the answer could be “yes.”

Village Farms International Inc Is Capitalizing on Booming Marijuana Industry

Obviously, growing greenhouse tomatoes and cucumbers is probably not going to be enough to drive a stock up triple-digits in this day and age. The main catalyst behind VFF stock’s rally was the company’s exposure to the booming marijuana industry.

You see, Village Farms International owns 50% of Pure Sunfarms Corporation, a joint venture (JV) with Emerald Health Therapeutics Inc (OTCMKTS:EMHTF, CVE:EMH).

Also based in the Canadian province of British Columbia, Pure Sunfarms is a cannabis producer with a 1.1-million-square-foot greenhouse facility. While the JV is a relatively new player in the Canadian cannabis market, it plans to become one of the country’s largest cultivators for the recreational pot market.

By now, we have profiled plenty of marijuana producers at Profit Confidential. While many of them have been churning out solid earnings growth rates, most of them are not yet profitable.

And that’s where VFF’s JV stands out: in the fourth quarter of 2018, the first full quarter of sales at Pure Sunfarms, it delivered a positive net income of $5.5 million. Village Farms International’s share of that profit was $2.8 million.  (Source: “Village Farms International Reports Fourth Quarter and Year End 2018 Financial Results,” Village Farms International Inc, March 13, 2019.)

Fast forward three months and we see that, in the first quarter of 2019, Pure Sunfarms turned a profit again. For the quarter, the JV earned a net income of $8.6 million on $10.8 million in sales. That gave Village Farms $4.3 million. (Source: “Village Farms International Reports First Quarter 2019 Results,” Village Farms International Inc, May 9, 2019.)

Two straight quarters of profitability at Pure Sunfarms is certainly good news for VFF stock.

And it gets even better. Just recently, Village Farms International announced that Pure Sunfarms has achieved a run rate production of 75,000 kilograms (165,347 pounds) of dried cannabis annually. (Source: “Village Farms International Announces that Pure Sunfarms Achieves Full Run-Rate Annual Production at Delta 3 Operation,” Village Farms International Inc, July 11, 2019.)

The JV has started converting its second 1.1-million-square-foot greenhouse facility for cannabis production. Once completed, it should double Pure Sunfarms’ annual production capacity to 150,000 kilograms (330,693 pounds).

Management expects Pure Sunfarms to complete the first harvest at its second greenhouse facility by mid-2020.

Mind you, growing weed is not the only way through which Village Farms can capitalize on the booming cannabis industry. Following the legalization of hemp and hemp-derived products in the U.S. last year, the company has also decided to move into America’s hemp business.

The reason why Village Farms can make this move is that, despite being based in Canada, it also has greenhouse operations in the United States. And by making some changes to its existing facilities, the company will be able to become a hemp producer.

In May, Village Farms started the conversion of half of its 1.3-million-square-foot Permian Basin greenhouse. The facility will be used for growing high-cannabidiol (CBD) hemp and for CBD extraction. (Source: “Village Farms International Begins Conversion of Half of 1.3 Million Square Foot Permian Basin GATES Facility,” Village Farms International Inc, May 23, 2019.)

Analyst Take

Ultimately, keep in mind that by being a non-pure-play pot stock, Village Farms International Inc’s investor appeal doesn’t depend entirely on its cannabis operations.

This also implies that, even if sentiment turns bearish toward the pot industry, the company’s regular greenhouse operations—which already generate tens of millions of dollars in sales every quarter—will give investors a reason to hold on to their shares.

And if sentiment turns more bullish toward pot stocks, the company’s expanding cannabis, hemp, and CBD exposure will likely lead to more upside in VFF stock.