8-K: Village Farms International Reports Strong Q3 2024 Results Driven by Cannabis and Fresh Produce Growth

Village Farms International saw a 20% year-over-year increase in total sales in Q3 2024, fueled by growth in Canadian cannabis, fresh produce, and international medicinal cannabis.

Summary

• Village Farms International reported a 20% increase in total sales to $83.4 million in the third quarter of 2024, compared to $69.5 million in the same period last year.
• The company's Canadian cannabis business experienced a 27% increase in net sales, reaching $36.5 million, with retail branded sales up 22% and international medicinal sales soaring by 111%.
• Fresh produce sales also grew by 20% to $42.8 million, and the international medicinal cannabis segment saw a 111% increase in sales.
• Consolidated adjusted EBITDA increased by 63% to $5.3 million, up from $3.2 million in the prior year.
• The company reported a consolidated net loss of $0.8 million, or $0.01 per share, compared to a net loss of $1.3 million, or $0.01 per share, in the third quarter of 2023.
• Village Farms' Canadian cannabis operations achieved positive adjusted EBITDA, operating cash flow, and net income.
• The fresh produce segment also delivered positive adjusted EBITDA and net income.
• The company commenced cultivation in the Netherlands and expects sales to begin in the first quarter of 2025.

Sentiment

Score: 8

Explanation: The document presents a generally positive outlook with strong growth in key segments and improved profitability. While there are some challenges, the overall tone is optimistic and suggests a positive trajectory for the company.

Positives

• The company experienced strong growth in total sales, driven by its cannabis and fresh produce segments.
• The Canadian cannabis business showed significant growth in retail branded sales and international medicinal sales.
• The company achieved positive adjusted EBITDA and cash flow from operations.
• The fresh produce segment demonstrated a recovery from softer pricing in the previous quarter.
• The company is expanding its international presence with the commencement of cultivation in the Netherlands.
• Village Farms is the fastest growing producer in Canada by market share.
• The company achieved the number one market share in Quebec.

Negatives

• Consolidated net loss was ($0.8 million), although this was an improvement from the previous year.
• Canadian cannabis gross margin decreased to 26% due to non-branded spec inventory sales, although it returned to the target range of 30-40% when excluding these sales.
• U.S. cannabis (Balanced Health Botanicals) saw a decrease in net sales and adjusted EBITDA.
• Consolidated cash flow from operations decreased to $4.3 million from $12.1 million.

Risks

• The company faces challenges from the proliferation of unregulated hemp-derived products in the U.S. market.
• The company's application for a Texas medicinal marijuana license is still pending review.
• The company experienced out-of-stocks in some cannabis cultivars, impacting sales growth.
• The company's U.S. cannabis business is facing challenges due to the state of the CBD industry.
• The company is managing inventory levels with evolving supply dynamics in the Canadian cannabis market.

Future Outlook

The company anticipates more exciting catalysts in fiscal year 2025, including continued international expansion and contributions from sales in the Netherlands. They believe their Netherlands business has the potential to become a strong contributor of profitability and cash flow generation.

Management Comments

• Strong performance in our Fresh Produce business, continued growth in Canadian Cannabis and a doubling of International Medicinal Cannabis Sales drove 20% year-over-year growth in consolidated sales, with both positive Adjusted EBITDA and cash flow from operations during the third quarter, said Michael DeGiglio, President and Chief Executive Officer, Village Farms International.
• Our Canadian Cannabis business continues to deliver strong growth with leading market share as we realized revenue growth in all sales channels and positive EBITDA and operating cash flow.
• We were once again the fastest growing producer in Canada over the last year in terms of market share and, for the first time ever, were number one in Quebec, making us the top producer in Canadas two most populus provinces.
• We are also increasingly benefitting from our international cannabis focus.
• We are looking forward to more exciting catalysts for our business in fiscal year 2025, with continued international expansion and contributions from sales in the Netherlands.

Industry Context

The results reflect a growing trend in the cannabis industry towards international expansion and the importance of diversified revenue streams, with Village Farms leveraging its expertise in both cannabis and fresh produce. The company's success in the Canadian market and its expansion into the Netherlands positions it well to capitalize on the global cannabis market.

Comparison to Industry Standards

• Village Farms' 20% sales growth is strong compared to some of its peers in the cannabis and fresh produce sectors, though specific competitor data is not provided in this document.
• The company's achievement of the number one market share in Quebec is a significant milestone, indicating strong competitive positioning in a key Canadian market.
• The positive adjusted EBITDA in both the Canadian cannabis and fresh produce segments is a positive sign, as many companies in the cannabis sector struggle with profitability.
• The 111% growth in international medicinal cannabis sales highlights the company's success in expanding its global reach, which is a key strategy for many cannabis companies.
• Compared to other Canadian LPs, Village Farms' ability to achieve positive EBITDA and operating cash flow in its cannabis segment is a notable achievement, as many struggle with profitability.

Legal Proceedings

• The company is one of 25 participants selected to participate in the DEA's upcoming Administrative Law Judge hearing regarding the proposed rescheduling of marijuana in the United States.

Stakeholder Impact

• Shareholders should be encouraged by the strong sales growth and improved profitability.
• Employees may benefit from the company's growth and expansion.
• Customers will have access to a wider range of products and services.
• Suppliers may see increased demand for their products.
• Creditors may view the company as a lower risk due to its improved financial performance.

Next Steps

• The company plans to continue driving profitable sales in Canadian Cannabis.
• The company will prioritize profitable growth while managing inventory levels.
• The company will focus on increasing international demand.
• The company expects sales to begin in the Netherlands in the first quarter of 2025.
• The company plans new category launches through the remainder of Q4 2024 and Q1 2025.
• The company is evaluating other uses for its Monahans greenhouse facility.

Key Dates

Keywords

cannabis, fresh produce, international medicinal cannabis, adjusted EBITDA, net sales, market share, cultivation, Netherlands, Canada, CBD, greenhouse