Village Farms International Inc (NASDAQ:VFF) is an excellent pot stock that just got even better.
Back in August, the company announced solid second-quarter results, with its majority-owned (58.7%) Pure Sunfarms reporting its sixth consecutive quarter of net income and seventh consecutive quarter of positive earnings before interest, taxes, depreciation, and amortization (EBITDA).
Pure Sunfarms is the lowest-cost greenhouse cannabis producer in Canada and one of the single largest cannabis growing operations in the world.
Village Farms has been slowly acquiring a larger stake in Pure Sunfarms from Emerald Health Therapeutics Inc (OTCMKTS:EMHTF, TSX:EMH).
On Tuesday, September 8, Village Farms announced that it entered into a definitive agreement to acquire all outstanding shares in Pure Sunfarms for $61.0 million.
In addition to being a cash cow, owning Pure Sunfarms outright will help Village Farms penetrate the U.S. cannabis and cannabidiol (CBD) market and select international markets.
VFF Stock Overview
Village Farms International’s foray into the world of cannabis was a no-brainer.
Before recreational cannabis became legal in Canada, Village Farm International Inc was known for being one of the largest and longest-running producers of greenhouse vegetables 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 September 8, 2020.)
Those same greenhouses are also ideal for growing pot. VFF has more than nine million square feet of Controlled Environment Agriculture (CEA) greenhouses in British Columbia and Texas. That’s equal to more than 156 football fields. It also has partner greenhouses in British Columbia and Ontario, Canada, and Mexico.
It is also the sole owner of Pure Sunfarms, one of the single largest cannabis-growing operations in the world.
In addition to being one of Canada’s top retail cannabis suppliers, Pure Sunfarms has the lowest “all in” cultivation costs reported by a Canadian Limited Partnership at $0.61 per gram. To put that into perspective, most growers struggle to get their costs below $1.00 per gram.
Pure Sunfarms products (dried flower, vapes, bottled oils, gummies, beverages, etc.) are currently available in four of the five largest provinces in Canada: British Columbia, Alberta, Saskatchewan, and Ontario.
Village Farms International Inc’s Latest Aquisition
On September 8, Village Farms announced plans to acquire all of the outstanding shares (41.3%) of Pure Sunfarms, giving it 100% ownership. The total purchase price is $61.0 million.
Once the transaction is complete in late October, Pure Sunfarms will be immediately accretive to Village Farms’ net income. (Source: “Village Farms International to Acquire All Pure Sunfarms’ Shares it Does Not Currently Own – Will Own 100% of Canada’s Premier Cannabis Supplier Upon Completion of Transaction,” Village Farms International Inc, September 8, 2020.)
“With this transaction, Village Farms and its shareholders will fully participate in the financial success of Canada’s premier cannabis supplier,” said Michael DeGiglio, CEO. “Our ownership of all of Pure Sunfarms is a major next step in building on Village Farms’ foundation as one of North America’s leading, vertically-integrated produce suppliers to become a diversified, plant-based consumer packaged goods business to expand into high value, high-growth opportunities in legal cannabis and CBD.”
For the second quarter ended June 30, 2020, Pure Sunfarms reported total net sales of $9.4 million, with gross margin of 33%, net income of $0.8 million, and EBITDA of $1.8 million.
For the six-month period ended June 30, 2020, Pure Sunfarms generated total net sales of $22.5 million, with gross margin of 44%, net income of $7.0 million, and EBITDA of $6.7 million. Retail branded sales volumes for the second quarter of 2020 increased 89% from the first quarter of 2020.
In August 2020, Pure Sunfarms was the top-selling brand of dried flower products with the Ontario Cannabis Store (OCS), the provincial wholesaler and only online retailer in Canada’s most populous province. Since launching its retail branded products last fall, Pure Sunfarms is the top-selling brand of dried flower products with the OCS, capturing a 13.4% market share.
With the acquisition of Pure Sunfarms, Village Farms International Inc has taken another further step to becoming one of the top pot stocks. The transaction will be, management said, immediately accretive to Village Farms’ bottom line.
Pure Sunfarms has generated seven consecutive quarters of positive EBITDA and six consecutive quarters of net income. With its property in the U.S., the company is also well positioned to take advantage of the lucrative American market once recreational cannabis becomes legal in the U.S.
All of this bodes well for Village Farms International Inc stock going forward.