Village Farms to Expand Cannabis Business in North America and Beyond – New Cannabis Ventures
Exclusive interview with Village Farms President and CEO Michael DeGiglio
When Michael DeGiglio, president and CEO of Village Farms (NASDAQ:VFF), last spoke to New Cannabis Ventures in 2022, the vertically integrated controlled environment agriculture company reported positive EBITDA in the 15th quarter. In 2023, the Company delivered 17 quarters of positive EBITDA despite challenging conditions in the Canadian cannabis market.
The Company has manufacturing and cannabis operations. Cannabis now makes up 50 percent of its business, and DeGiglio expects that number to increase this year. He spoke to New Cannabis Ventures about the company’s Canadian cannabis operations, its US presence and international exports.
Listen to the entire interview or read the synopsis below:
Village Farms has always been number two in the Canadian cannabis market. As of this year, the company projects approximately CA$90 million in taxes in the Canadian market for the year, a figure that accounts for nearly 40 percent of its gross income. Managing to sustain positive EBITDA in this environment is a clear indication that the company’s business model is working, according to DeGiglio.
Most of Canada’s corporate growth has been organic. In British Columbia, it converted proprietary assets used for its manufacturing operations into cannabis. In November 2021, the company acquired Rose LifeScience to enter the Quebec market. Since then, this company has gone from 12th to 2nd in market share, according to DeGiglio.
The company started its cannabis operations in Canada with one brand: Pure Sunfarms. It began its operations with a flower-first strategy. Now it’s a top LP with a top flower brand. Last year it launched additional brands including Promenade, The Original Fraser Valley Weed Co. and Soar.
Village Farms took time to achieve its EU GMP certification. It now relies on its ability to export medicinal cannabis to international markets. Margins on exports are much higher, which DeGiglio says benefits the margin profile for Canada’s cannabis business.
The company has been supplying products to Australia for more than a year, with steady increases every quarter. It recently made its first shipment to Israel. It has been working on shipping to Germany for years and is now about to implement it. The company is also working towards signing a supply deal with a partner in the UK.
Village Farms is also one of 10 companies and the only North American company to be licensed in the Netherlands. Production for the leisure market is scheduled to start there by 2024.
US market presence
The Company has a presence in the US market through its wholly owned subsidiary, Balanced Health Botanicals. While regulations have yet to be worked out, DeGiglio believes in CBD’s potential. He points to Balanced Health Botanicals’ strong management team and the company’s positive EBITDA. He reckons there’s huge market potential once the FDA provides clarification and the company can retail mass-market.
Village Farms has assets located in Texas under its manufacturing operations umbrella. In 2022, DeGiglio told New Cannabis Ventures that those assets could be converted to cannabis when federal legalization in the US materializes. That strategy hasn’t changed, but the company has decided to reduce its presence in the state. It is divesting a plant in the Permian Basin.
This decision was driven in part by the facility’s removal from its core Texas operations and challenges in the fruit and vegetable business. In 2022, brown rugose virus attacked tomatoes. Seed companies are working on resistant varieties. In the meantime, the company had to manage the impact on its fruit and vegetable business.
The need for mergers and acquisitions in Canada is unlikely, but the company is open to opportunities in other markets. The company could consider mergers and acquisitions as it evaluates its entry points into the U.S. market. As more leisure markets open up in Europe, it will review its options there as well.
A diversified entity
DeGiglio believes in the importance of a diversified business. He remains bullish on both products and cannabis. As a NASDAQ-listed company, Village Farms cannot participate in the US cannabis market. It’s considering other structures for the company going forward, but the company has no plans to spin off its cannabis assets into a separate entity.
The capital markets remain challenging for the cannabis industry. When DeGiglio last spoke to New Cannabis Ventures, institutional investors made up about 30 to 35 percent of the company’s investor pool. That number has since declined.
Village Farms closed a $25 million direct offer earlier this year. Its ability to conduct an outright capital raise in this environment is indicative of the company’s track record, according to DeGiglio. The company eventually sold shares below tangible book value. It was a difficult decision, but the company was concerned about macroeconomic issues. Their main goal was to protect their shareholders.
Going forward, the Company will not require additional capital for its Canadian operations even if it decides to expand its second facility in Delta, British Columbia. Outside of the Netherlands, the company doesn’t have much use for capital, according to DeGiglio.
The future of village farms
The company focuses on annual growth versus quarterly growth. DeGiglio points to the seasonal nature of the cannabis industry. While the company saw flat sales and declines from quarter to quarter, it delivered year-over-year growth of 25 percent, outpacing market growth. The company is focused on overcoming today’s challenges and becoming one of Canada’s top three LPs.
For 2023, DeGiglio anticipates high single-digit growth in the Canadian cannabis market, and the company’s goal is to keep pace with that growth. In addition, international exports could be a key growth driver over the next three years. The company plans to leverage its capabilities as a low-cost, quality manufacturer while continuing to expand its brands across its footprint. It also focuses on generating positive cash flow.
The biggest challenge for the company continues to be regulatory uncertainty. According to DeGiglio, it’s difficult to place bets in markets where the rules remain unclear. The company is making big bets in the Netherlands because the rules have been clarified. He is confident that the company can operate in any environment once it knows how to deal with the regulations.
To learn more, visit the Village Farms website. Listen to the entire interview:
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