10-Q 1 vff-20240331.htm 10-Q 10-Q
falseQ10001584549--12-31UnlimitedUnlimited0001584549vff:PureSunfarmsMembervff:TermLoanTwoMember2023-01-012023-12-310001584549us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-310001584549us-gaap:CommonStockMember2023-01-012023-03-310001584549vff:ProduceAndEnergyMembervff:CropInventoryMember2023-12-310001584549vff:RevolvingOperatingLoanMember2023-12-3100015845492023-01-012023-12-310001584549us-gaap:RetainedEarningsMember2024-01-012024-03-3100015845492023-01-012023-09-300001584549us-gaap:NoncontrollingInterestMember2024-03-310001584549us-gaap:MachineryAndEquipmentMember2023-12-310001584549vff:RevolvingOperatingLoanMember2023-01-012023-12-3100015845492023-12-310001584549vff:OtherMember2023-12-310001584549us-gaap:RetainedEarningsMember2024-03-310001584549us-gaap:BuildingMember2023-12-310001584549vff:CannabisUnitedStatesSegmentMember2024-01-012024-03-310001584549vff:RoseLifeScienceIncMember2023-01-012023-03-310001584549vff:ProduceAndEnergyMembervff:CropInventoryMember2024-03-310001584549vff:RoseLifeScienceIncMember2024-01-012024-03-310001584549us-gaap:ConstructionInProgressMember2023-12-310001584549vff:CanadianCreditorMembervff:TwoThousandTwentyOneNonRevolvingVariableRateTermLoanMember2024-03-310001584549vff:PureSunfarmsMembervff:TermLoanOneMember2024-01-012024-03-3100015845492023-03-310001584549vff:RevolvingOperatingLoanMember2024-01-012024-03-310001584549vff:BrandAndTrademarksMember2024-03-310001584549us-gaap:ComputerSoftwareIntangibleAssetMember2024-03-310001584549us-gaap:LandMember2023-12-310001584549us-gaap:RetainedEarningsMember2023-03-310001584549vff:ProduceBusinessMember2023-01-012023-03-310001584549us-gaap:NoncontrollingInterestMember2024-01-012024-03-310001584549vff:ProduceBusinessMember2024-01-012024-03-310001584549us-gaap:CustomerRelationshipsMember2023-12-310001584549vff:OtherMember2024-03-310001584549us-gaap:CommonStockMember2022-12-310001584549us-gaap:AccountsPayableAndAccruedLiabilitiesMember2024-03-310001584549us-gaap:EmployeeStockOptionMember2024-03-310001584549us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310001584549vff:PureSunfarmsMembervff:RevolvingOperatingLoanMember2023-12-310001584549vff:CannabisBusinessMembercountry:CA2024-01-012024-03-3100015845492024-01-012024-03-310001584549us-gaap:EmployeeStockOptionMember2023-12-310001584549us-gaap:ConstructionInProgressMember2024-03-310001584549us-gaap:NoncontrollingInterestMember2022-12-310001584549us-gaap:AdditionalPaidInCapitalMember2023-03-310001584549vff:CannabisCanadaSegmentMember2023-01-012023-03-310001584549us-gaap:AdditionalPaidInCapitalMember2023-12-3100015845492024-03-310001584549vff:PurchasedProduceMembervff:ProduceAndEnergyMember2023-12-310001584549vff:PurchasedProduceMembervff:ProduceAndEnergyMember2024-03-310001584549us-gaap:EmployeeStockOptionMember2023-01-012023-12-310001584549us-gaap:LicensingAgreementsMember2023-12-3100015845492024-05-060001584549vff:CannabisBusinessMembervff:PublicUtilitiesInventoryFinishedGoodsMember2023-12-310001584549us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-03-310001584549vff:LeliHollandBVLeliMember2024-03-310001584549vff:RevolvingOperatingLoanMember2024-03-310001584549us-gaap:LandMember2024-03-3100015845492022-12-310001584549us-gaap:MachineryAndEquipmentMember2024-03-310001584549us-gaap:AdditionalPaidInCapitalMember2024-01-012024-03-310001584549us-gaap:AdditionalPaidInCapitalMember2024-03-310001584549vff:CanadianCreditorMembervff:TwoThousandTwentyOneNonRevolvingVariableRateTermLoanMember2023-12-310001584549vff:CannabisBusinessMembervff:PublicUtilitiesInventoryFinishedGoodsMember2024-03-310001584549vff:CannabisBusinessMembervff:PublicUtilitiesInventoryWorkInProgressMember2024-03-310001584549us-gaap:LeaseholdsAndLeaseholdImprovementsMember2024-03-310001584549vff:PureSunfarmsMembervff:BDCLoanMember2024-01-012024-03-310001584549us-gaap:ComputerSoftwareIntangibleAssetMember2023-12-310001584549vff:EmployeeMember2024-01-012024-03-310001584549us-gaap:BuildingMember2024-03-310001584549vff:PureSunfarmsMembervff:TermLoanTwoMember2024-01-012024-03-310001584549vff:CannabisBusinessMembervff:PublicUtilitiesInventoryWorkInProgressMember2023-12-310001584549vff:TermLoanFCCLoanMember2023-01-012023-12-310001584549us-gaap:CommonStockMember2023-03-310001584549vff:PureSunfarmsMembervff:BDCFacilityMember2023-01-012023-12-3100015845492023-01-012023-03-310001584549us-gaap:RetainedEarningsMember2023-01-012023-03-310001584549vff:CannabisUnitedStatesSegmentMember2023-01-012023-03-310001584549us-gaap:LeaseholdsAndLeaseholdImprovementsMember2023-12-310001584549vff:CannabisBusinessMembervff:PublicUtilitiesInventoryPackagingMember2023-12-310001584549us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310001584549us-gaap:AdditionalPaidInCapitalMember2022-12-310001584549vff:CannabisBusinessMembercountry:CA2023-12-310001584549us-gaap:CommonStockMember2024-03-310001584549vff:CannabisBusinessMembercountry:US2024-03-310001584549us-gaap:NoncontrollingInterestMember2023-01-012023-03-310001584549vff:TermLoanFCCLoanMember2024-01-012024-03-310001584549vff:CannabisBusinessMembercountry:US2023-12-310001584549us-gaap:CommonStockMember2023-12-310001584549us-gaap:RetainedEarningsMember2022-12-310001584549us-gaap:AccountsPayableAndAccruedLiabilitiesMember2023-12-310001584549us-gaap:CustomerRelationshipsMember2024-03-310001584549us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310001584549vff:PureSunfarmsMembervff:BDCFacilityMember2024-01-012024-03-310001584549vff:CannabisBusinessMemberus-gaap:PublicUtilitiesInventoryRawMaterialsMember2024-03-310001584549us-gaap:LicensingAgreementsMember2024-03-310001584549vff:CannabisBusinessMembercountry:CA2024-03-310001584549vff:EmployeeMember2023-01-012023-03-310001584549vff:CannabisCanadaSegmentMember2024-01-012024-03-310001584549us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-01-012024-03-310001584549vff:PureSunfarmsMembervff:RevolvingOperatingLoanMember2024-03-310001584549us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310001584549vff:EnergyBusinessMember2023-01-012023-03-310001584549us-gaap:RetainedEarningsMember2023-12-310001584549us-gaap:NoncontrollingInterestMember2023-03-310001584549vff:BrandAndTrademarksMember2023-12-310001584549vff:RoseLifeScienceIncorporationMember2024-03-310001584549us-gaap:EmployeeStockOptionMember2024-01-012024-03-310001584549vff:CannabisBusinessMemberus-gaap:PublicUtilitiesInventoryRawMaterialsMember2023-12-310001584549vff:PureSunfarmsMembervff:TermLoanOneMember2023-01-012023-12-310001584549us-gaap:NoncontrollingInterestMember2023-12-310001584549vff:CannabisBusinessMembervff:PublicUtilitiesInventoryPackagingMember2024-03-31xbrli:purexbrli:sharesiso4217:CADiso4217:USDxbrli:sharesiso4217:USDvff:Segment

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

 

FORM 10-Q

 

(Mark One)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended March 31, 2024

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from to

Commission File Number 001-38783

 

VILLAGE FARMS INTERNATIONAL, INC.

(Exact name of Registrant as Specified in its Charter)

 

Ontario

98-1007671

(State or other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

4700-80th Street

Delta, British Columbia Canada

V4K 3N3

(Address of Principal Executive Offices) (Zip Code)

(604) 940-6012

Issuer’s phone number, including area code

N/A

(Former name, former address and former fiscal year, if changed since last report).

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, without par value

VFF

The Nasdaq Stock Market LLC

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes No Not Applicable

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “small reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 6, 2024, 110,248,929 common shares of the registrant were outstanding.

 

 


 

 

TABLE OF CONTENTS

 

 

 

Page

PART I - FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements

 

 

 

 

Condensed Consolidated Statements of Financial Position

 

2

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

 

3

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity and Mezzanine Equity

 

4

 

 

Condensed Consolidated Statements of Cash Flows

 

5

 

 

Notes to Condensed Consolidated Financial Statements

 

6

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

12

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

26

Item 4.

 

Controls and Procedures

 

26

 

PART II - OTHER INFORMATION

 

28

Item 1.

 

Legal Proceedings

 

28

Item 1A.

 

Risk Factors

 

28

Item 2.

 

Unregistered Sale of Securities and Use of Proceeds

 

28

Item 3.

 

Defaults Upon Senior Securities

 

28

Item 4.

 

Mine Safety Disclosures

 

28

Item 5.

 

Other Information

 

28

Item 6.

 

Exhibits

 

29

 

 

 

 

 

 

 

Signatures

 

30

 

 

 


 

Forward Looking Statements

 

As used in this Quarterly Report on Form 10-Q, the terms “Village Farms”, “Village Farms International”, the “Company”, “we”, “us”, “our” and similar references refer to Village Farms International, Inc. and our consolidated subsidiaries, and the term “Common Shares” refers to our common shares, no par value. Our financial information is presented in U.S. dollars and all references in this Quarterly Report on Form 10-Q to “$” means U.S. dollars and all references to “C$” means Canadian dollars.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the U.S. Securities Act of 1933, as amended, (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is subject to the safe harbor created by those sections. This Quarterly Report on Form 10-Q also contains "forward-looking information" within the meaning of applicable Canadian securities laws. We refer to such forward-looking statements and forward-looking information collectively as "forward-looking statements". Forward-looking statements may relate to the Company's future outlook or financial position and anticipated events or results and may include statements regarding the financial position, business strategy, budgets, expansion plans, litigation, projected production, projected costs, capital expenditures, financial results, taxes, plans and objectives of or involving the Company. Particularly, statements regarding future results, performance, achievements, prospects or opportunities for the Company, the greenhouse vegetable or produce industry, the cannabis industry and market and our energy segment are forward-looking statements. In some cases, forward-looking information can be identified by such terms as "can", "outlook", "may", "might", "will", "could", "should", "would", "occur", "expect", "plan", "anticipate", "believe", "intend", "try", "estimate", "predict", "potential", "continue", "likely", "schedule", "objectives", or the negative or grammatical variation thereof or other similar expressions concerning matters that are not historical facts. The forward-looking statements in this Quarterly Report on Form 10-Q are subject to risks that may include, but are not limited to: our limited operating history in the cannabis and cannabinoids industry, including that of Pure Sunfarms, Inc. (“Pure Sunfarms”), Rose LifeScience Inc. (“Rose” or “Rose LifeScience”) and Balanced Health Botanicals, LLC (“Balanced Health”); the limited operational history of the Delta RNG Project in our energy segment; the legal status of the cannabis business of Pure Sunfarms and Rose and the hemp business of Balanced Health and uncertainty regarding the legality and regulatory status of cannabis in the United States; risks relating to the integration of Balanced Health and Rose into our consolidated business; risks relating to obtaining additional financing on acceptable terms, including our dependence upon credit facilities and dilutive transactions; potential difficulties in achieving and/or maintaining profitability; variability of product pricing; risks inherent in the cannabis, hemp, CBD, cannabinoids, and agricultural businesses; our market position and competitive position; our ability to leverage current business relationships for future business involving hemp and cannabinoids; the ability of Pure Sunfarms and Rose to cultivate and distribute cannabis in Canada; existing and new governmental regulations, including risks related to regulatory compliance and regarding obtaining and maintaining licenses required under the Cannabis Act (Canada), the Criminal Code and other Acts, S.C. 2018, C. 16 (Canada) for its Canadian operational facilities, and changes in our regulatory requirements; legal and operational risks relating to expected conversion of our greenhouses to cannabis production in Canada and in the United States; risks related to rules and regulations at the U.S. Federal (Food and Drug Administration and United States Department of Agriculture), state and municipal levels with respect to produce and hemp, cannabidiol-based products commercialization; retail consolidation, technological advances and other forms of competition; transportation disruptions; product liability and other potential litigation; retention of key executives; labor issues; uninsured and underinsured losses; vulnerability to rising energy costs; inflationary effects on costs of cultivation and transportation; recessionary effects on demand of our products; environmental, health and safety risks, foreign exchange exposure, risks associated with cross-border trade; difficulties in managing our growth; restrictive covenants under our credit facilities; natural catastrophes; rising interest rates; and tax risks.

The Company has based these forward-looking statements on factors and assumptions about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. Although the forward-looking statements contained in this Quarterly Report on Form 10-Q are based upon assumptions that management believes are reasonable based on information currently available to management, there can be no assurance that actual results will be consistent with these forward-looking statements. Forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond the Company's control, which may cause the Company's or the industry's actual results, performance, achievements, prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the factors contained in the Company's filings with securities regulators, including this Quarterly Report on Form 10-Q and the Company’s most recently filed annual report on Form 10-K.

When relying on forward-looking statements to make decisions, the Company cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties and should not be read as guarantees of future results, performance, achievements, prospects and opportunities. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events or information as of the date on which the statements are made in this Quarterly Report on Form 10-Q. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

 

 

1


 

 

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Village Farms International, Inc.

Condensed Consolidated Statements of Financial Position

(In thousands of United States dollars, except share data)

(Unaudited)

 

 

 

 

March 31, 2024

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

26,685

 

 

$

30,291

 

Restricted cash

 

 

5,000

 

 

 

5,000

 

Trade receivables

 

 

38,826

 

 

 

30,561

 

Inventories

 

 

74,029

 

 

 

78,472

 

Other receivables

 

 

115

 

 

 

294

 

Prepaid expenses and deposits

 

 

6,197

 

 

 

7,150

 

Total current assets

 

 

150,852

 

 

 

151,768

 

Non-current assets

 

 

 

 

 

 

Property, plant and equipment

 

 

201,020

 

 

 

205,613

 

Investments

 

 

2,656

 

 

 

2,656

 

Goodwill

 

 

54,942

 

 

 

55,918

 

Intangibles

 

 

30,778

 

 

 

32,275

 

Deferred tax asset

 

 

4,201

 

 

 

4,201

 

Right-of-use assets

 

 

11,944

 

 

 

12,596

 

Other assets

 

 

2,046

 

 

 

1,962

 

Total assets

 

$

458,439

 

 

$

466,989

 

LIABILITIES

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Line of credit

 

$

4,000

 

 

$

4,000

 

Trade payables

 

 

19,935

 

 

 

21,753

 

Current maturities of long-term debt

 

 

8,866

 

 

 

9,133

 

Accrued sales taxes

 

 

21,331

 

 

 

15,941

 

Accrued loyalty program

 

 

1,668

 

 

 

1,773

 

Accrued liabilities

 

 

12,024

 

 

 

15,076

 

Lease liabilities - current

 

 

2,243

 

 

 

2,112

 

Income tax payable

 

 

47

 

 

 

28

 

Other current liabilities

 

 

2,561

 

 

 

2,340

 

Total current liabilities

 

 

72,675

 

 

 

72,156

 

Non-current liabilities

 

 

 

 

 

 

Long-term debt

 

 

37,217

 

 

 

38,925

 

Deferred tax liability

 

 

23,553

 

 

 

23,730

 

Lease liabilities - non-current

 

 

10,534

 

 

 

11,335

 

Other liabilities

 

 

2,044

 

 

 

1,902

 

Total liabilities

 

 

146,023

 

 

 

148,048

 

Commitments and contingencies

 

 

 

 

 

 

MEZZANINE EQUITY

 

 

 

 

 

 

Redeemable non-controlling interest

 

 

15,627

 

 

 

15,667

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Common stock, no par value per share - unlimited shares authorized;
110,248,929 shares issued and outstanding at March 31, 2024 and December 31, 2023.

 

 

386,719

 

 

 

386,719

 

Additional paid in capital

 

 

26,016

 

 

 

25,611

 

Accumulated other comprehensive loss

 

 

(7,503

)

 

 

(3,540

)

Retained earnings

 

 

(109,017

)

 

 

(106,165

)

Total Village Farms International, Inc. shareholders’ equity

 

 

296,215

 

 

 

302,625

 

Non-controlling interest

 

 

574

 

 

 

649

 

Total shareholders’ equity

 

 

296,789

 

 

 

303,274

 

Total liabilities, mezzanine equity and shareholders’ equity

 

$

458,439

 

 

$

466,989

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2


 

 

Village Farms International, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands of United States dollars, except per share data)

(Unaudited)

 

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Sales

 

$

78,077

 

 

$

64,656

 

Cost of sales

 

 

(62,564

)

 

 

(52,356

)

Gross profit

 

 

15,513

 

 

 

12,300

 

Selling, general and administrative expenses

 

 

(16,387

)

 

 

(17,405

)

Interest expense

 

 

(917

)

 

 

(1,133

)

Interest income

 

 

206

 

 

 

196

 

Foreign exchange loss, net

 

 

(878

)

 

 

(69

)

Other income (expense)

 

 

104

 

 

 

30

 

Loss before taxes

 

 

(2,359

)

 

 

(6,081

)

Provision for income taxes

 

 

(320

)

 

 

(634

)

Loss including non-controlling interests

 

 

(2,679

)

 

 

(6,715

)

Less: net (income) loss attributable to non-controlling interests, net of tax

 

 

(173

)

 

 

79

 

Net loss attributable to Village Farms International, Inc. shareholders

 

$

(2,852

)

 

$

(6,636

)

Basic loss per share attributable to Village Farms International, Inc. shareholders

 

$

(0.03

)

 

$

(0.06

)

Diluted loss per share attributable to Village Farms International, Inc. shareholders

 

$

(0.03

)

 

$

(0.06

)

Weighted average number of common shares used
   in the computation of net loss per share (in thousands):

 

 

 

 

 

 

Basic

 

 

110,249

 

 

 

104,097

 

Diluted

 

 

110,249

 

 

 

104,097

 

Loss including non-controlling interests

 

$

(2,679

)

 

$

(6,715

)

Other comprehensive (loss) income:

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(4,251

)

 

 

862

 

Comprehensive loss including non-controlling interests

 

 

(6,930

)

 

 

(5,853

)

Comprehensive loss (income) attributable to non-controlling interests

 

 

115

 

 

 

(42

)

Comprehensive loss attributable to Village Farms International, Inc. shareholders

 

$

(6,815

)

 

$

(5,895

)

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3


 

 

Village Farms International, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity and Mezzanine Equity

(In thousands of United States dollars, except for shares outstanding)

(Unaudited)

 

 

 

 

Three Months Ended March 31, 2024

 

 

 

Number of Common
Shares (in thousands)

 

 

Common Stock

 

 

Additional Paid in Capital

 

 

Accumulated Other Comprehensive Loss

 

 

Retained Earnings

 

 

Non-controlling Interest

 

 

Total Shareholders’ Equity

 

 

Mezzanine Equity

 

Balance January 1, 2024

 

 

110,249

 

 

$

386,719

 

 

$

25,611

 

 

$

(3,540

)

 

$

(106,165

)

 

$

649

 

 

$

303,274

 

 

$

15,667

 

Share-based compensation

 

 

 

 

 

 

 

 

405

 

 

 

 

 

 

 

 

 

 

 

 

405

 

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(3,963

)

 

 

 

 

 

(21

)

 

 

(3,984

)

 

 

(267

)

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,852

)

 

 

(54

)

 

 

(2,906

)

 

 

227

 

Balance at March 31, 2024

 

 

110,249

 

 

$

386,719

 

 

$

26,016

 

 

$

(7,503

)

 

$

(109,017

)

 

$

574

 

 

$

296,789

 

 

$

15,627

 

 

 

 

Three Months Ended March 31, 2023

 

 

 

Number of Common
Shares (in thousands)

 

 

Common Stock

 

 

Additional Paid in Capital

 

 

Accumulated Other
Comprehensive (Loss) Income

 

 

Retained Earnings

 

 

Non-controlling Interest

 

 

Total Shareholders’
Equity

 

 

Mezzanine Equity

 

Balance at January 1, 2023

 

 

91,789

 

 

$

372,429

 

 

$

13,372

 

 

$

(8,371

)

 

$

(74,367

)

 

$

767

 

 

$

303,830

 

 

$

16,164

 

Shares issued in public offering, net of issuance costs

 

 

18,350

 

 

 

14,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,207

 

 

 

 

Warrants issued in public offering

 

 

 

 

 

 

 

 

9,128

 

 

 

 

 

 

 

 

 

 

 

 

9,128

 

 

 

 

Shares issued on exercise of stock options

 

 

100

 

 

 

83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

83

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

1,732

 

 

 

 

 

 

 

 

 

 

 

 

1,732

 

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

 

 

 

862

 

 

 

 

 

 

 

 

 

862

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,636

)

 

 

(49

)

 

 

(6,685

)

 

 

(30

)

Balance at March 31, 2023

 

 

110,239

 

 

$

386,719

 

 

$

24,232

 

 

$

(7,509

)

 

$

(81,003

)

 

$

718

 

 

$

323,157

 

 

$

16,134

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4


 

 

Village Farms International, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands of United States dollars)

(Unaudited)

 

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows provided by (used in) operating activities:

 

 

 

 

 

 

Net loss attributable to Village Farms International, Inc. shareholders

 

$

(2,852

)

 

$

(6,636

)

Adjustments to reconcile net loss attributable to Village Farms International, Inc. shareholders to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

4,558

 

 

 

3,986

 

Amortization of deferred charges

 

 

10

 

 

 

34

 

Net loss attributable to non-controlling interest

 

 

173

 

 

 

(79

)

Interest expense

 

 

917

 

 

 

1,133

 

Interest paid on long-term debt

 

 

(1,062

)

 

 

(1,511

)

Unrealized foreign exchange loss

 

 

130

 

 

 

(13

)

Loss on disposal of assets

 

 

 

 

 

4

 

Non-cash lease expense

 

 

631

 

 

 

(4

)

Share-based compensation

 

 

405

 

 

 

1,732

 

Deferred income taxes

 

 

330

 

 

 

(734

)

Changes in non-cash working capital items

 

 

(3,290

)

 

 

(1,580

)

Net cash used in operating activities

 

 

(50

)

 

 

(3,668

)

Cash flows used in investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(1,876

)

 

 

(1,076

)

Net cash used in investing activities

 

 

(1,876

)

 

 

(1,076

)

Cash flows (used in) provided by financing activities:

 

 

 

 

 

 

Repayments on borrowings

 

 

(1,442

)

 

 

(4,788

)

Proceeds from issuance of common stock and warrants

 

 

 

 

 

24,772

 

Issuance costs

 

 

 

 

 

(1,437

)

Proceeds from exercise of stock options

 

 

 

 

 

83

 

Net cash (used in) provided by financing activities

 

 

(1,442

)

 

 

18,630

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(238

)

 

 

(678

)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(3,606

)

 

 

13,208

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

35,291

 

 

 

21,676

 

Cash, cash equivalents and restricted cash, end of period

 

$

31,685

 

 

$

34,884

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5


 

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

1.
BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Village Farms International, Inc. (“VFF” and, together with its subsidiaries, the “Company”, “we”, “us”, or “our”) is a corporation existing under the Ontario Business Corporations Act. VFF’s principal operating subsidiaries as of March 31, 2024 are Village Farms Canada Limited Partnership, Village Farms, L.P., Pure Sunfarms Corp. (“Pure Sunfarms”), and Balanced Health Botanicals, LLC (“Balanced Health”) and VF Clean Energy, Inc. ("VFCE"). VFF also owns a 70% interest in Rose LifeScience Inc. (“Rose”) and an 85% interest in Leli Holland B.V. ("Leli").

The address of the registered office of VFF is 4700-80th Street, Delta, British Columbia, Canada, V4K 3N3.

The Company’s shares are listed on Nasdaq Capital Market (“Nasdaq”) under the symbol “VFF”.

Village Farms owns and operates sophisticated, highly intensive agricultural greenhouse facilities in British Columbia and Texas, where it produces, markets and sells premium-quality tomatoes, bell peppers and cucumbers. Its wholly owned subsidiary, Pure Sunfarms, is a vertically integrated Licensed Producer ("LP") and supplier of cannabis products sold to customers throughout Canada and internationally. The Company’s wholly owned subsidiary, Balanced Health, develops and sells high-quality, cannabidiol (“CBD”) based products including ingestible, edible and topical applications within the US. Through its 70% ownership of Rose, the Company has a substantial presence in the Province of Quebec as a cannabis supplier, producer and commercialization expert.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and footnote disclosures normally included in the annual audited consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated statement of financial position as of December 31, 2023 is derived from the Company’s audited financial statements as of that date. Because certain information and footnote disclosures have been condensed or omitted, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2023 contained in the Company’s 2023 Annual Report on Form 10-K. In management’s opinion, all normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented have been included. When necessary, certain prior year amounts have been reclassified to conform with the current period presentation. Interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. The Company believes that the disclosures made in these consolidated financial statements are adequate to make the information not misleading.

Principals of Consolidation

The accompanying condensed consolidated financial statements include Village Farms International, Inc. and its subsidiaries and include the accounts of all majority-owned subsidiaries over which the Company exercises control and, when applicable, entities in which the Company has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. Other parties’ interests in entities that the Company consolidates are reported as non-controlling interests within equity, except for mandatorily redeemable non-controlling interests, which are recorded within mezzanine equity. Net income or loss attributable to non-controlling interests is reported as a separate line item below net income or loss. The Company applies the equity method of accounting for its investments in entities for which it does not have a controlling financial interest, but over which it has the ability to exert significant influence. For equity investees in which the Company has an undivided interest in the assets, liabilities and profits or losses of an unconsolidated entity, but does not exercise control over the entity, the Company consolidates its proportional interest in the accounts of the entity.

Translations of Foreign Currencies

The assets and liabilities of foreign subsidiaries with a functional currency other than the U.S. dollar are translated into U.S. dollars at period-end exchange rates, with resulting translation gains or losses included within other comprehensive income or loss. Revenue and expenses are translated into U.S. dollars at average rates of exchange during the applicable period. Substantially all of the Company’s foreign operations use their local currency as their functional currency. For foreign operations for which the local currency is not the functional currency, the operation’s non-monetary assets are remeasured into U.S. dollars at historical exchange rates. All other accounts are remeasured at current exchange rates. Gains or losses from remeasurement are included in foreign exchange loss, net. Currency gains or losses resulting from transactions executed in currencies other than the functional currency are included in foreign exchange gain (loss).

In these condensed consolidated financial statements, “$” means U.S. dollars unless otherwise noted.

6


VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

 

General Economic, Regulatory and Market Conditions

The Company has experienced, and may continue to experience, direct and indirect negative effects on its business and operations from negative economic, regulatory and market conditions, including recent inflationary effects on fuel prices, labor and materials costs, rising interest rates, potential recessionary impacts and supply chain disruptions that could negatively affect demand for new projects and/or delay existing project timing or cause increased project costs. The extent to which general economic, regulatory and market conditions could affect the Company’s business, operations and financial results is uncertain as it will depend upon numerous evolving factors that management may not be able to accurately predict, and, therefore, any future impacts on the Company’s business, financial condition and/or results of operations cannot be quantified or predicted with specificity.

Recent Accounting Pronouncements

No accounting pronouncements recently issued or newly effective have had, or are expected to have, a material impact on the Company’s condensed consolidated financial statements.

2. INVENTORIES

Inventories consisted of the following as of:

Classification

 

March 31, 2024

 

 

December 31, 2023

 

Cannabis:

 

 

 

 

 

 

Raw materials

 

$

1,017

 

 

$

985

 

Work-in-progress

 

 

8,014

 

 

 

6,543

 

Finished goods

 

 

38,058

 

 

 

47,084

 

Packaging

 

 

8,291

 

 

 

7,641

 

Produce:

 

 

 

 

 

 

Crop inventory

 

 

18,057

 

 

 

15,492

 

Purchased produce inventory

 

 

592

 

 

 

727

 

Inventory

 

$

74,029

 

 

$

78,472

 

 

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following as of:

Classification

 

March 31, 2024

 

 

December 31, 2023

 

Land

 

$

14,397

 

 

$

14,641

 

Leasehold and land improvements

 

 

5,510

 

 

 

5,525

 

Buildings

 

 

214,838

 

 

 

217,384

 

Machinery and equipment

 

 

90,061

 

 

 

86,674

 

Construction in progress

 

 

11,289

 

 

 

13,619

 

Less: Accumulated depreciation

 

 

(135,075

)

 

 

(132,230

)

Property, plant and equipment, net

 

$

201,020

 

 

$

205,613

 

Depreciation expense on property, plant and equipment, was $3,728 and $3,204 for the three months ended March 31, 2024 and 2023, respectively.

4. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table presents the changes in the carrying value of goodwill by reportable segment for the three months ended March 31, 2024:

 

Cannabis - Canada

 

 

Cannabis - United States

 

 

Total

 

Balance as of January 1, 2024

$

45,879

 

 

$

10,039

 

 

$

55,918

 

Foreign currency translation adjustment

 

(976

)

 

 

 

 

 

(976

)

Balance as of March 31, 2024

$

44,903

 

 

$

10,039

 

 

$

54,942

 

 

7


VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

 

Intangible Assets

Intangibles consisted of the following as of:

Classification

 

March 31, 2024

 

 

December 31, 2023

 

Licenses

 

$

18,118

 

 

$

18,540

 

Brand and trademarks*

 

 

12,720

 

 

 

12,795

 

Customer relationships

 

 

13,296

 

 

 

13,586

 

Computer software

 

 

1,955

 

 

 

1,974

 

Other*

 

 

144

 

 

 

144

 

Less: Accumulated amortization

 

 

(8,105

)

 

 

(7,414

)

Less: Impairments

 

 

(7,350

)

 

 

(7,350

)

Intangibles, net

 

$

30,778

 

 

$

32,275

 

* Indefinite-lived intangible assets

The expected future amortization expense for definite-lived intangible assets as of March 31, 2024 was as follows:

Fiscal period

 

 

 

Remainder of 2024

 

$

2,480

 

2025

 

 

3,220

 

2026

 

 

3,131

 

2027

 

 

3,131

 

2028

 

 

1,880

 

Thereafter

 

 

11,422

 

Intangibles, net

 

$

25,264

 

Assessment for Indicators of Impairment

During the three months ended March 31, 2024 and 2023, the Company considered qualitative factors in assessing for impairment indicators for the Company’s U.S. and Canadian Cannabis segments. As part of this assessment, the Company considered both external and internal factors, including overall financial performance and outlook. At March 31, 2024, the Company concluded that no impairment indicators existed as no events or circumstances occurred that would, more likely than not, reduce the fair value of the reporting units to be below their carrying amounts.

5. LINE OF CREDIT AND LONG-TERM DEBT

The following table provides details for the carrying values of debt as of:

 

 

March 31, 2024

 

 

December 31, 2023

 

Term Loan - ("FCC Loan") - repayable by monthly principal payments of $164 and accrued interest at a rate of 8.84%; matures May 3, 2027

 

$

22,296

 

 

$

22,788

 

Term Loan - Pure Sunfarms - C$19.0M - Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50% of the outstanding principal amount, interest rate of 8.95%; matures February 7, 2026

 

 

7,752

 

 

 

8,298

 

Term loan - Pure Sunfarms - C$25.0M - Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50% of the outstanding principal amount starting June 30, 2021, interest rate of 8.95%; matures February 7, 2026

 

 

12,458

 

 

 

13,201

 

BDC Facility - Pure Sunfarms - non-revolving demand loan repayable by monthly principal payments of C$52 and accrued interest at a rate of 10.95%, matures December 31, 2031

 

 

3,577

 

 

 

3,771

 

Total

 

$

46,083

 

 

$

48,058

 

 

8


VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

 

The Company’s line of credit ("Operating Loan") had $4,000 amount drawn on the facility as of March 31, 2024 and December 31, 2023.

The carrying value of the assets and securities pledged as collateral for the FCC Loan as of March 31, 2024 and December 31, 2023 was $97,614 and $117,293, respectively.

The carrying value of the assets pledged as collateral for the Operating Loan as of March 31, 2024 and December 31, 2023 was $30,032 and $28,034, respectively.

The Pure Sunfarms line of credit had a balance of $0 as of March 31, 2024 and December 31, 2023, respectively.

The Company is required to comply with financial covenants, measured either quarterly or annually depending on the covenant. The Company was in compliance with all its credit facility covenants as of March 31, 2024.

The weighted average annual interest rate on short-term borrowings as of March 31, 2024 and December 31, 2023 was 9.73% and 9.44%, respectively.

Accrued interest payable on all long-term debt as of March 31, 2024 and December 31, 2023 was $442 and $390, respectively, and these amounts are included in accrued liabilities in the Condensed Consolidated Statements of Financial Position.

The aggregate annual principal maturities of long-term debt for the remainder of 2024 and thereafter are as follows:

Remainder of 2024

 

$

4,313

 

2025

 

 

5,751

 

2026

 

 

16,825

 

2027

 

 

17,347

 

2028

 

 

461

 

Thereafter

 

 

1,386

 

Total

 

$

46,083

 

 

6. FINANCIAL INSTRUMENTS

The Company’s financial instruments include cash and cash equivalents, trade receivables, minority investments, line of credit, trade payables, accrued liabilities, lease liabilities, note payables and debt. The carrying value of cash and cash equivalents, trade receivables, trade payables, and accrued liabilities approximate their fair values due to the short-term maturity of these financial instruments. The carrying value of line of credit, lease liabilities, notes payable, and debt approximate their fair values due to insignificant changes in credit risk. For its investments, the Company has selected the practicability election to fair value measurement, under which the investment is measured at cost, less impairment, plus or minus observable price changes of an identical or similar investment.

7. RELATED PARTY TRANSACTIONS AND BALANCES

The Company leases its Rose office building from a company employee who also owns a minority interest in Rose. For the three months ended March 31, 2024 and 2023, the Company paid C$39 and C$45, respectively, to lease this office space.

One of the Company’s employees is related to a member of the Company’s executive management team and received approximately $30 in salary and benefits during the three months ended March 31, 2024 and 2023, respectively.

8. INCOME TAXES

The Company has recorded a provision for income taxes of ($320) for the three months ended March 31, 2024, compared with a provision for income taxes of ($634) for the same period last year.

The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax (provision) benefit in any period will be affected by, among other things, permanent, as well as temporary, differences in the deductibility of certain items, changes in the valuation allowance related to net deferred tax assets, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, tax expense divided by pre-tax book income) from period to period.

In order to fully utilize the net deferred tax assets, the Company will need to generate sufficient taxable income in future years.

9


VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

 

The Company analyzed all positive and negative evidence to determine if, based on the weight of available evidence, it is more likely than not to realize the benefit of the net deferred tax assets. The recognition of the net deferred tax assets and related tax benefits is based upon the Company’s conclusions regarding, among other considerations, estimates of future earnings based on information currently available and current and anticipated customers, contracts, and product introductions, as well as historical operating results and certain tax planning strategies.

Based on the analysis of all available evidence, both positive and negative, the Company has concluded that it does not have the ability to generate sufficient taxable income in the necessary period to utilize the entire benefit for the deferred tax assets. Accordingly, the Company established a valuation allowance of $40,203 as of March 31, 2024 and $39,530 as of December 31, 2023. The Company cannot presently estimate what, if any, changes to the valuation of its deferred tax assets may be deemed appropriate in the future. If the Company incurs future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of March 31, 2024.

As of March 31, 2024, the Company’s net deferred tax assets totaled approximately $4,201 and were primarily derived from net operating loss carryforwards.

9. SEGMENT AND GEOGRAPHIC INFORMATION

Segment reporting is prepared on the same basis that the Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker, manages the business, makes operating decisions and assesses performance.

As of March 31, 2024, the Company’s four segments are as follows:

Segment

 

Description

Produce

 

The Produce segment produces, markets, and sells premium quality tomatoes, bell peppers and cucumbers.

Cannabis – Canada

 

The Cannabis – Canada segment produces and supplies cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally.

Cannabis – United States

 

The Cannabis – United States segment develops and sells high-quality, CBD-based health and wellness products including ingestible, edible and topical applications.

Energy

 

The Energy business produces renewable natural gas that it sells per a long-term contract to one customer.

The Company’s primary operations are in the United States and Canada. Segment information is summarized below:

 

Three months ended March 31,

 

 

2024

 

 

2023

 

Sales

 

 

 

 

 

Produce

$

36,094

 

 

$

34,567

 

Cannabis - Canada

 

37,446

 

 

 

25,112

 

Cannabis - United States

 

4,537

 

 

 

4,977

 

$

78,077

 

 

$

64,656

 

Gross profit

 

 

 

 

 

Produce

$

3,310

 

 

$

614

 

Cannabis - Canada

 

9,508

 

 

 

8,455

 

Cannabis - United States

 

2,695

 

 

 

3,238

 

Energy

 

 

 

 

(7

)

$

15,513

 

 

$

12,300

 

 

10


VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

 

 

10. LOSS PER SHARE

Basic and diluted net loss per common share is calculated as follows:

 

 

Three months ended March 31,

 

 

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

Net loss attributable to Village Farms International, Inc. shareholders

 

$

(2,852

)

 

$

(6,636

)

Denominator:

 

 

 

 

 

 

Weighted average number of common shares - basic

 

 

110,249

 

 

 

104,097

 

Effect of dilutive securities- share-based employee options and awards

 

 

 

 

 

 

Weighted average number of common shares - diluted

 

 

110,249

 

 

 

104,097

 

Antidilutive options and awards

 

 

6,572

 

 

 

6,157

 

Net loss per ordinary share:

 

 

 

 

 

 

Basic

 

$

(0.03

)

 

$

(0.06

)

Diluted

 

$

(0.03

)

 

$

(0.06

)

 

11. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Share-based compensation expense for the three months ended March 31, 2024 was $405, and $1,732 for the three months ended March 31, 2023, respectively.

Stock option activity for the three months ended March 31, 2024 was as follows:

 

 

Number of
Options

 

 

Weighted
Average
Exercise Price

 

 

Weighted
Average
Remaining
Contractual
Term (years)

 

 

Aggregate
Intrinsic
Value

 

Outstanding at January 1, 2023

 

 

6,946,576

 

 

$

3.50

 

 

 

7.54

 

 

$

83

 

Granted

 

50,000

 

 

$

0.83

 

 

 

9.80

 

 

$

3

 

Forfeited/expired

 

 

(424,167

)

 

$

3.43

 

 

 

 

 

 

 

Outstanding at March 31, 2024

 

 

6,572,409

 

 

$

3.49

 

 

 

7.64

 

 

$

1,061

 

Exercisable at March 31, 2024

 

3,392,739

 

 

$

5.44

 

 

 

6.32

 

 

$

141

 

 

12. CHANGES IN NON-CASH WORKING CAPITAL ITEMS

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Trade receivables

 

$

(7,095

)

 

$

1,193

 

Inventories

 

 

3,216

 

 

 

(4,169

)

Other receivables

 

 

(1

)

 

 

8

 

Prepaid expenses and deposits

 

 

836

 

 

 

63

 

Trade payables

 

 

(2,993

)

 

 

(5,971

)

Accrued liabilities

 

 

3,431

 

 

 

3,869

 

Lease liabilities

 

 

(664

)

 

 

 

Other assets, net of other liabilities

 

 

(20

)

 

 

3,427

 

 

$

(3,290

)

 

$

(1,580

)

 

11


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report and the Management’s Discussion and Analysis of Financial Condition and Results of Operations and consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2023 (our "Annual Report on Form 10-K"). This discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on assumptions and estimates that are inherently subject to significant risks and uncertainties, and our actual results could differ materially from the results anticipated by our forward-looking statements. We encourage you to review the risks and uncertainties described in “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K, and in Part II, Item 1A of this Quarterly Report. These risks and uncertainties could cause actual results to differ materially from those projected or implied by our forward-looking statements contained in this report. These forward-looking statements are made as of the date of this management’s discussion and analysis, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law.

EXECUTIVE OVERVIEW

Village Farms International, Inc. (“VFF”, together with its subsidiaries, the “Company”, “Village Farms”, “we” “us” or “our”) is a corporation existing under the Business Corporations Act (Ontario). The Company’s principal operating subsidiaries are Village Farms Canada LP ("VFCLP"), Village Farms LP ("VFLP"), Pure Sunfarms Corp. (“Pure Sunfarms” or "PSF"), Balanced Health Botanicals, LLC (“Balanced Health”), Rose LifeScience Inc. ("Rose LifeScience” or “Rose”), and VF Clean Energy, Inc. (“VFCE”).

The Company’s vision is to be recognized as an international leader in consumer products developed from plants, whereby we produce and market value-added products that are consistently preferred by consumers. To do so, we leverage decades of cultivation expertise, investment, and experience in fresh produce into branded and wholesale cannabis products within markets with legally permissible opportunities.

In Canada, we converted two produce facilities to grow cannabis for the Canadian legal adult use (recreational) market. Our focus for our Canadian Cannabis segment is to produce high quality cannabis, leveraging our low-cost production to provide preferred products at an attractive price that address the preferred consumer segments in the market. This market positioning, combined with our cultivation expertise, has enabled us to evolve into the second best-selling producer nationally and one of the few Canadian LPs with consistently strong operating results.

Additionally, through organic growth, exports and/or acquisitions, we have a strategy to participate in other international markets where cannabis attains legal status. In September 2021, our Canadian Cannabis business began exporting cannabis products to Australia for that country’s medical market. In March 2022, our Canadian Cannabis business received European Union Good Manufacturing Practice (“EU GMP”) certification for Pure Sunfarms’ 1.1 million square foot Delta 3 cannabis facility located in Delta, British Columbia (“B.C.”) which permits Pure Sunfarms to export EU GMP-certified medical cannabis to importers and distributors in international markets that require EU GMP certification. In late 2022, Pure Sunfarms commenced exports to Israel and in 2023, Pure Sunfarms began exporting cannabis products to Germany and the United Kingdom for the medical markets in those countries. As a result of the typically higher margins in international medical markets, we expect international expansion to enhance our profitability while expanding our brand and experience into emerging legal cannabis markets. Through our 85% ownership of Leli Holland, we hold one of ten licenses to cultivate cannabis legally in the Netherlands under that country’s Closed Supply Chain Experiment program, with production targeted to start in the fourth quarter of 2024.

In the U.S., Balanced Health is our industry-leading cannabinoid business, extending our portfolio into cannabidiol (“CBD”) consumer products.

We also operate a large, well-established, produce business (primarily tomatoes) under the Village Farms Fresh (“VF Fresh”) brand which sells to food distribution companies and mass retail stores. We own and operate produce cultivation assets in Texas and Delta, B.C. and source produce from our growing partners, in Mexico and Canada.

Our intention is to use our assets, expertise and experience (across cannabis, CBD and produce) to participate in the U.S. Cannabis market subject to compliance with applicable U.S. federal and state laws and applicable stock exchange rules.

Our Operating Segments

Canadian Cannabis Segment

Our Canadian Cannabis segment is comprised of Pure Sunfarms and 70% owned Rose LifeScience.

12


 

Pure Sunfarms is one of the single largest cannabis cultivation and processing operations in the world, one of the lowest-cost greenhouse producers and has developed four of the best-selling flower brands in Canada. Pure Sunfarms leverages our 30 years of experience as a vertically integrated greenhouse grower to grow, produce and sell cannabis products throughout Canada and for export to markets where permissible by law.

Rose is the second best-selling licensed producer of cannabis in the Province of Quebec, as well as a prominent cannabis products commercialization expert in Quebec, acting as the exclusive, direct-to-retail sales, marketing and distribution entity for some of the best-known brands in Canada, as well as Quebec-based micro and craft growers.

Our long-term objective for our Canadian Cannabis segment is to garner and sustain the leading retail market share in Canada stemming from our leading position as the low-cost, high-quality cannabis producer in Canada and expand our Canadian success into the growing foreign cannabis medicinal markets across the globe.

U.S. Cannabis Segment

Our U.S. Cannabis segment is comprised of Balanced Health.

Balanced Health is one of the leading cannabinoid brands and e-commerce platforms in the United States. Balanced Health develops and sells high-quality CBD and hemp-based health and wellness products, distributing its diverse portfolio of consumer products through its top-ranked e-commerce platform, CBDistillery™ and third-party retailers.

Produce Segment

Our Produce segment is comprised of VF Fresh, which currently consists of Village Farms LP and Village Farms Canada LP.

VF Fresh, grows, markets and distributes premium-quality, greenhouse-grown produce in North America. These premium products are grown in sophisticated, highly intensive agricultural greenhouse facilities located in British Columbia and Texas. We also market and distribute premium tomatoes, peppers and cucumbers produced under exclusive and non-exclusive arrangements from our greenhouse supply partners located in Mexico, B.C. and Ontario. We primarily market and distribute under our Village Farms® brand name to retail supermarkets and dedicated fresh food distribution companies throughout the United States and Canada.

Energy Segment

Our Energy segment is comprised of VF Clean Energy Inc.

VFCE, which has partnered with Terreva Renewables (formerly Mas Energy) for the Delta RNG Project based on VFCE’s 20-year contract (including a five-year option to extend) with the City of Vancouver to capture landfill gas at the Delta, B.C. landfill site (the "Delta RNG Project"). The Delta RNG Project, which commenced operations in 2024, converts VFCE’s previous landfill gas-to-electricity business into a state-of-the-art landfill gas to high-demand renewable natural gas ("RNG") facility. Terreva Renewables sells the renewable natural gas and VFCE receives a portion of the revenue in the form of a royalty. The facility also provides food-grade CO2 that can be used in both our cannabis and produce growing operations in Delta.

Recent Developments and Updates

Canadian Cannabis

Is the fastest growing producer among the top five LPs in Canada1, expanding its number two market share position nationally to a new record in April, gaining share for nine consecutive months2;
Moved into the number two national market share position in the pre-roll category and expanded its number one national market share position in dried flower, achieving a record 18% share in April2;
Regained the top market share position in Ontario (Canada’s largest provincial market) for the first time since 20222;
Achieved record market share in Alberta3;
Launched Hi-Def Pre-Rolls, a first-of-its-kind pre-roll, featuring pure ground flower optimized for high potency, with THC content between 36-44%, with no concentrates, infusions or kief. Initial demand is exceeding expectations; and,
Expanded share of the milled category with the Super Toast brand in Ontario every month since its August 2023 launch, reaching the number two position with more than 20% share1.

1.For the first quarter of 2024. Based on estimated retail sales from HiFyre, other third parties and provincial boards.

2. Based on estimated retail sales from HiFyre, other third parties and provincial boards.

3. For the first quarter of 2024. Calculated from sales information provided by Alberta Gaming, Liquor and Cannabis (AGLC).

13


 

International Cannabis

In January 2024, the Company started the build-out of its first indoor cannabis production facility in Drachten, The Netherlands, targeting start of production for the fourth quarter of 2024.
Germany passed legislation partially legalizing cannabis for personal use beginning April 1, 2024. The new legislation will provide patients with greater access to high quality, legal products, which will be beneficial to further growth of the German medicinal cannabis market. Village Farms holds EU GMP certification from the District Government of Dusseldorf in 2022 and began shipping its best-selling Canadian strains to Germany in the second quarter of 2023.

U.S. Cannabis

Balanced Health’s CBDistillery reported study results demonstrating its shhh+ Distilled THC + CBN Deep Sleep Gummies help users to achieve better-quality rest, fall back to sleep during the night and wake up feeling refreshed.
Completion of internalization of gummy production on track for the second quarter of 2024, which will support consistency of supply and gross profit;
William Stoufer was appointed President of Balanced Health. Mr. Stoufer joined BHB as Chief Operating Officer in 2019 and played a key role in establishing strong business processes with a focus on customer excellence, which contributed positive adjusted EBITDA and cash flow to Village Farms since acquisition; and,
The Company’s application for a Texas medicinal marijuana license remains pending review by the Department of Public Services. If awarded, the Company plans to work with its listing authority to structure an acceptable ownership structure.

VF Fresh (Produce)

Production of tomatoes started in half of the Delta 2 facility; and,
The Company has an ongoing sale process for its Monahans (Permian Basin, Texas) greenhouse facility. It is also evaluating other uses for the site and facility, some of which are outside its historical produce business.

Village Farms Clean Energy

In April 2024, the Delta, British Columbia Renewable Natural Gas Project began operations, which immediately began contributing incremental profitability to the Company.

Corporate

The Company ranked as one of the fastest growing companies in the Americas by The Financial Times and Statista for the second consecutive year. The Company ranked first among cannabis companies, 10th among agriculture, forestry and fishing companies, 32nd among Canadian companies and 355th overall, improving its overall ranking by 72 positions from last year.
On April 24, 2024, the Company expanded its executive team by appointing Ann Gillin Lefever as the Company’s Chief Operating Officer. Previously, Ms. Gillen Lefever served as Executive Vice President, Corporate Affairs, and has been promoted after leading the Company’s communications, strategy, governmental affairs and capital markets functions.
In addition, on April 24, 2024, the Company also announced the following internal appointments to newly created roles, reflecting the Company’s proven business model and significant growth potential:
President, Global Medical Cannabis – Paul Furfaro; and,
General Counsel, Global Cannabis – John Harloe, J.D., Ph.D.

Presentation of Financial Results

Our consolidated results of operations (prior to net income) for the three months ended March 31, 2024 and March 31, 2023 presented below reflect the operations of our consolidated wholly-owned subsidiaries, our 70% ownership in Rose LifeScience, and our 85% ownership in Leli.

14


 

Foreign currency exchange rates

All currency amounts in this Quarterly Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of March 31, 2024, March 31, 2023, and December 31, 2023. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The condensed consolidated statements of operations and comprehensive income (loss) and condensed consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period.

The exchange rates used to translate from Canadian dollars ("C") to dollars is shown below:

 

As of

 

 

March 31, 2024

 

 

March 31, 2023

 

 

December 31, 2023

 

Spot rate

 

0.7383

 

 

 

0.7390

 

 

 

0.7543

 

Three-month period ended

 

0.7417

 

 

 

0.7396

 

 

N/A

 

RESULTS OF OPERATIONS

Consolidated Financial Performance

(In thousands of U.S. dollars, except per share amounts, and unless otherwise noted)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Sales

 

$

78,077

 

 

$

64,656

 

Cost of sales

 

 

(62,564

)

 

 

(52,356

)

Gross profit

 

 

15,513

 

 

 

12,300

 

Selling, general and administrative expenses

 

 

(16,387

)

 

 

(17,405

)

Interest expense

 

 

(917

)

 

 

(1,133

)

Interest income

 

 

206

 

 

 

196

 

Foreign exchange loss

 

 

(878

)

 

 

(69

)

Other income (expense), net

 

 

104

 

 

 

30

 

Loss before taxes

 

 

(2,359

)

 

 

(6,081

)

Provision for income taxes

 

 

(320

)

 

 

(634

)

Loss including non-controlling interests

 

 

(2,679

)

 

 

(6,715

)

Less: net (income) loss attributable to non-controlling interests, net of tax

 

 

(173

)

 

 

79

 

Net loss attributable to Village Farms International Inc.

 

$

(2,852

)

 

$

(6,636

)

Adjusted EBITDA (1)

 

$

3,591

 

 

$

519

 

Basic loss per share

 

$

(0.03

)

 

$

(0.06

)

Diluted loss per share

 

$

(0.03

)

 

$

(0.06

)

 

(1)
Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recurring and other items that do not reflect our business performance. Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience and 85% interest in Leli.

We caution that our results of operations for the three months ended March 31, 2024 and 2023 may not be indicative of our future performance.

Discussion of Financial Results

A discussion of our consolidated results for the three months ended March 31, 2024 and 2023 is included below. The consolidated results include all four of our operating segments: Produce, Canadian Cannabis, U. S. Cannabis, and Energy, along with all public company expenses. For a discussion of our segmented results, please see “Segmented Results of Operations” below.

15


 

CONSOLIDATED RESULTS

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Sales

Sales for the three months ended March 31, 2024 were $78,077 compared with $64,656 for the three months ended March 31, 2023. The increase in sales of $13,421, or 21% ,was primarily due to an increase in Canadian Cannabis sales of $12,334 and an increase in VF Fresh sales of $1,527, partially offset by a decrease in U.S. Cannabis sales of ($440). For additional information, refer to "Segmented Results of Operations" below.

Cost of Sales

Cost of sales for the three months ended March 31, 2024 were $62,564 compared with $52,356 for the three months ended March 31, 2023. The increase in cost of sales of $10,208, or 19%, was primarily attributable to an increase in Canadian Cannabis cost of sales of $11,280 and U.S Cannabis cost of sales of $103, partially offset by a decrease in the cost of sales at VF Fresh of ($1,168). For additional information, refer to "Segmented Results of Operations" below.

Gross Profit

Gross profit for the three months ended March 31, 2024 was $15,513, compared with $12,300 for the three months ended March 31, 2023. The increase in gross profit of $3,213, or 26%, was primarily attributable to an increase in gross profit at VF Fresh of $2,695 and Canadian Cannabis of $1,054, partially offset by a decrease in gross profit at U.S. Cannabis of ($543). For additional information, refer to "Segmented Results of Operations" below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2024 decreased $1,018, or 6%, to $16,387 (21% of sales), compared with $17,405 (27% of sales), for the three months ended March 31, 2023. The decrease in sales, general and administrative expenses was due to lower share-based compensation of $1,327, partially offset by an increase in operating expenses of ($309). For additional information, refer to "Segmented Results of Operations" below.

 

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Selling, general and administrative expenses

 

$

15,982

 

 

$

15,673

 

Share-based compensation

 

 

405

 

 

 

1,732

 

Total selling, general and administrative expenses

 

$

16,387