Village Farms (NASDAQ:VFF) has had a good run lately. In the last year, the share price has risen by over 500% to around $13 a share from a low of $2.07. Since November 2020 when the firm completed its acquisition of Pure Sunfarms from Emerald Health Therapeutics, shares have more than doubled in value.
Village Farms is one of the largest and longest-operating greenhouse growers in North America. It operates over nine million square feet of greenhouses in British Columbia and Texas as well as partner greenhouses in Ontario and Mexico. The firm has over 30 years’ experience cultivating and distributing fresh produce to national grocers in the US and Canada.
In 2018, Village Farms changed tack from its core fruit and veg business – converting existing greenhouses from crops such as tomatoes and flowers – and started producing cannabis in a joint venture (Pure Sunfarms) with Emerald Health Therapeutics. Emerald would purchase 40% of Pure Sunfarms’ production for the years 2018 and 2019, subsequently completing its acquisition in November 2020.
Sales on the rise at Village Farms
Since receiving its retail licence in Q3 2019, Pure Sunfarms sales have been on a consistent upward trend. By Q3 2020, it was the top-selling brand of dried flower products in Ontario, Canada’s largest provincial market. According to Ontario Cannabis Store (OCS), Village Farms had a 15% dried flower market share by volume.
For the nine months to 30th September 2020, both Village Farms and Pure Sunfarms consolidated sales were $162.3 million. However, Pure Sunfarms accounted for around 25% of sales, with gross margins of just under 40%. Pure SunFarms has been profitable on a net income basis for seven consecutive quarters.
The company believes that it can sustain this profitability because not only is the physical infrastructure already in place, but many of the greenhouses effectively hold 20 years of climate data.
Positioned for growth in the US and beyond
Village Farms is positioning itself as a high tech, low cost vertically integrated, agricultural consumer-driven business and it is aggressively pursuing high-growth opportunities in emerging legal cannabis and related markets in the United States, Canada and Australia.
The firm’s Texas site is ready for hemp production when it receives the go-ahead from the US Food and Drug Administration (FDA). In Canada it is aiming to grow the number of stores in Ontario from 300 to 1000 in the next year. The firm also has a foothold in Europe – last year it became one of six equal shareholders in a Netherlands-based cannabis business.
Canada’s legalisation of cannabis in 2018 as well as the prospect of four years’ Democrat government in the US and the possible legalisation of cannabis has had a significant effect on the share price. As Village Farms’ CEO, Michael DeGiglio said at a recent investor conference: “The big focus is on cannabis.” But he also emphasised that they are well-positioned for long-term growth.
With the US considered to be one of the largest potential marketplaces for cannabis, and Goldman Sachs and Marshall Wace already dipping their toes in, he may be right.
