10-Q: Village Farms International Reports Q3 2024 Results, Revenue Up 20% Year-Over-Year

Village Farms International saw a 20% increase in revenue year-over-year in Q3 2024, driven by growth in its Canadian cannabis and produce segments, despite a net loss.

Summary

• Village Farms International reported a 20% increase in sales for the third quarter of 2024, reaching $83.4 million, compared to $69.5 million in the same period last year.
• The company's Canadian cannabis segment saw a 27% increase in sales, while the produce segment experienced a 20% increase.
• However, the U.S. cannabis segment experienced a 21% decrease in sales due to new restrictions on CBD sales and competition from unregulated hemp products.
• The company reported a net loss of $820,000 for the quarter, compared to a net loss of $1.3 million in Q3 2023.
• Adjusted EBITDA for the quarter was $5.3 million, up from $3.2 million in the prior year, primarily driven by stronger performance from the produce segment.
• For the nine months ended September 30, 2024, the company's sales were $253.6 million, a 20% increase compared to $211.4 million in the same period last year.
• The net loss for the nine-month period was $27.2 million, compared to a net loss of $9.3 million in the same period last year, impacted by a $11.9 million impairment in the U.S. cannabis segment.
• Adjusted EBITDA for the nine-month period was $5.3 million, down from $8.2 million in the prior year, due to the absence of a one-time legal settlement gain in the produce segment and higher selling, general, and administrative costs.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While there is strong revenue growth and positive developments in some segments, the net losses, impairment charges, and challenges in the U.S. cannabis market temper the overall sentiment. The company's non-compliance with Nasdaq listing rules also adds a negative element.

Positives

• The company experienced significant revenue growth in both its Canadian cannabis and produce segments.
• Adjusted EBITDA improved in Q3 2024, indicating better operational performance.
• The acquisition of the remaining stake in Leli Holland strengthens the company's position in the European cannabis market.
• The commencement of operations at the Delta RNG project provides a new revenue stream.
• The company's participation in the DEA hearing could positively impact its U.S. cannabis business.

Negatives

• The U.S. cannabis segment experienced a significant decline in sales due to market challenges.
• The company reported a net loss for both the quarter and the nine-month period.
• The company recorded a $11.9 million impairment charge in the U.S. cannabis segment.
• Adjusted EBITDA for the nine-month period decreased compared to the previous year.
• The company is not in compliance with the Nasdaq minimum bid price requirement.

Risks

• The company faces risks related to the legal status of cannabis in the United States and the proliferation of unregulated hemp products.
• The company's ability to regain compliance with Nasdaq listing rules is uncertain.
• The company is exposed to risks related to regulatory compliance, obtaining and maintaining licenses, and changes in regulatory requirements.
• The company is vulnerable to rising energy costs, inflationary effects on costs, and recessionary effects on demand.
• The company faces risks related to maintaining an active, liquid, and orderly trading market for its common shares.
• The company has identified a material weakness in its internal controls related to information technology general controls.

Future Outlook

The company expects its first sales from its Netherlands-based cannabis production facility to begin during the first quarter of 2025. The company also plans new category launches through the remainder of Q4 2024 and Q1 2025. The company intends to use its assets, expertise and experience to participate in the U.S. Cannabis market subject to compliance with applicable U.S. federal and state laws and applicable stock exchange rules.

Management Comments

• The company's vision is to be recognized as an international leader in consumer products developed from plants.
• The company leverages decades of cultivation expertise, investment, and experience in fresh produce into branded and wholesale cannabis products.
• The company's focus for its Canadian Cannabis segment is to produce high quality cannabis, leveraging its low-cost production to provide preferred products at an attractive price.
• The company has a strategy to participate in other international markets where cannabis attains legal status.
• The company intends to use its assets, expertise and experience to participate in the U.S. Cannabis market subject to compliance with applicable U.S. federal and state laws and applicable stock exchange rules.

Industry Context

The company's performance is influenced by broader industry trends, including the growth of the cannabis market in Canada and internationally, the challenges faced by the CBD industry in the U.S. due to unregulated hemp products, and the increasing demand for renewable natural gas. The company's expansion into international markets and its focus on low-cost production are aligned with industry trends.

Comparison to Industry Standards

• Village Farms' Canadian cannabis segment is the second best-selling producer nationally, indicating a strong market position compared to other Canadian licensed producers.
• The company's low-cost greenhouse production model is a competitive advantage in the cannabis industry.
• The company's expansion into international medical markets, such as Germany and the United Kingdom, is in line with the trend of Canadian cannabis companies seeking growth opportunities outside of Canada.
• The company's U.S. cannabis segment, Balanced Health, is facing challenges similar to other CBD companies due to the proliferation of unregulated hemp-derived products.
• The company's produce segment is competing in a mature market with established players, but its focus on premium-quality, greenhouse-grown produce provides a differentiation.
• The company's entry into the Dutch recreational cannabis program through Leli Holland is a significant step, as it is one of only ten companies licensed to participate in the program.

Management Changes

Corporate Governance

Legal Proceedings

• The company is engaged in legal proceedings in the ordinary course of business, but none are considered material.

Related Party Transactions

• The company leases its Rose office building from a company employee who also owns a minority interest in Rose.
• One of the company's employees is related to a member of the company's executive management team and received salary and benefits.
• The company entered into a Share Purchase Agreement with Rose and non-controlling shareholders, which includes two company employees, for the acquisition of an additional 10% interest in Rose.

Stakeholder Impact

• Shareholders are impacted by the company's net losses and the non-compliance with Nasdaq listing rules.
• Employees are impacted by the company's performance and any potential changes in strategy.
• Customers are impacted by the company's ability to provide high-quality products and services.
• Suppliers are impacted by the company's financial performance and its ability to meet its obligations.
• Creditors are impacted by the company's debt levels and its ability to repay its obligations.

Next Steps

• The company will continue to implement its remediation plan to improve internal controls.
• The company will focus on regaining compliance with Nasdaq listing rules.
• The company will continue to expand its presence in international cannabis markets.
• The company will continue to evaluate other uses for its Monahans (Permian Basin, Texas) greenhouse facility.
• The company will continue to monitor the regulatory landscape in the U.S. and adapt its strategy accordingly.

Key Dates

Keywords

cannabis, produce, CBD, greenhouse, revenue, EBITDA, impairment, Leli Holland, Pure Sunfarms, Balanced Health, renewable natural gas, Nasdaq, internal controls