Village Farms International Inc: Pot Stock Up 227%, Could Double Again

Village Farms International Inc Poised to Become Top Canadian Supplier of Recreational Cannabis

Village Farms International Inc (NASDAQ:VFF) continues to be one of the best Canadian pot stocks, up 227% year-to-date. Fortunately for American investors, the company trades on the Nasdaq. Despite Village Farms stock’s meteoric growth in 2019, it could still double by the end of the year.

Once a name associated with tomatoes, Village Farms International has transitioned into one of the largest seed-to-sale cannabis producers in North America, thanks in part to its huge greenhouse facilities in both Canada and the United States.

Village Farms just reported strong second-quarter financial results and ongoing profitability, a rarity in the world of cannabis stocks.

Pure Sunfarms Corporation, the company’s 50/50 joint venture, achieved full run-rate annual production of 75,000 kilograms (165,347 pounds) of dried cannabis at its 1.1-million-square-foot “Delta 3” greenhouse in Delta, British Columbia. (Source: “Village Farms International Reports Strong Second Quarter 2019 Results,” Village Farms International Inc, August 12, 2019.)

The company has begun to convert its second 1.1-million-square-foot greenhouse facility, “Delta 2.” Once completed, Delta 2 will double Pure Sunfarms Corporation’s annual production to over 150,000 kilograms (330,693 pounds) by the end of the fourth quarter of 2020.

Village Farms has also been busy with its U.S.-based hemp/cannabidiol (CBD) program. In June, it became legal to cultivate and process hemp and hemp-derived products in the United States. To help meet the growing demand for hemp, Village Farms began to convert half of its 1.3-million-square-foot facility in Texas.

The company’s other joint venture, to grow and process hemp in the eastern U.S., Village Fields Hemp USA, LLC, planted around 600 acres in North Carolina, South Carolina, and Virginia. The first harvest was expected in August, with the first sales coming in the fourth quarter of 2019.

Furthermore, Village Farms International expanded its outdoor hemp and CBD extraction program in Colorado via its new joint venture, Arkansas Valley Green and Gold Hemp LLC. Through this venture, Village Farms planted 120 acres of hemp, with the first harvest expected this October.

VFF Stock Overview

Village Farms International Inc was known as being one of the largest producers of greenhouse vegetables in North America. It didn’t take long for the team at Village Farms to realize that those greenhouses could be better used to grow cannabis.

In just two years, Village Farms has transitioned into one of the top cannabis producers in North America. (Source: “An Unmatched Platform for the Global Cannabis Opportunity,” Village Farms International, last accessed September 3, 2019.)

Few, if any, cannabis producers can match Village Farms when it comes to its greenhouses. The company has 8.3 million square feet of greenhouse assets in Canada and the United States. This includes the 2.6-million-square-foot Delta 1 facility and 5.7 million square feet in West Texas.

Through its Pure Sunfarms joint venture, it operates 2.2 million square feet at its Delta 2 and Delta 3 facilities (1.1 million square feet each).

Pure Sunfarms will have the only two single-site cannabis operations in the world exceeding one million square feet once Delta 2 is operational in late 2020.

(Source: “Village Farms International, Inc. (VFF),” Yahoo! Finance, last accessed September 3, 2019)

Village Farms stock has retreated a little since hitting a 52-week high of $18.10 on March 22. But compared to the massive sell-off that hit the broader cannabis industry, the stock has done considerably well this year.

VFF stock was one of the best-performing cannabis stocks in the first half of the year and it continues to be one of the best pot stocks out there. Currently trading at $10.37 per share, the stock is up about 225% year-to-date.

Chart courtesy of StockCharts.com

Another Strong Quarter

On August 12, Village Farms International Inc announced its financial results for the second quarter ended June 30, 2019. Second-quarter revenue slipped 1.7% year-over-year to $41.3 million.

The company swung to second-quarter net income before tax of $9.9 million, compared to a net loss of $2.3 million in the same prior-year period. Earnings before interest, tax, depreciation, and amortization (EBITDA) improved to $4.6 million, from an EBITDA loss of $1.3 million in the same period last year.

Revenue from Pure Sunfarms soared 125% on a sequential basis to $24.2 million. Pure Sunfarms’ net income for the period (before Village Farms International’s 50% take) advanced 226% to $27.9 million, making this Pure Sunfarms’ third consecutive quarter of profitability.

Pure Sunfarms’ EBITDA (before Village Farms’ 50% share) increased sequentially by 194% to $18.9 million.

CEO Michael DeGiglio commented,

Pure Sunfarms’ second quarter financial results firmly rank it among the largest, most efficient and most profitable licensed cannabis producers in Canada, and clearly demonstrates that we have built a best in class cannabis operation setting a new bar for industry performance.

(Source: Village Farms International Inc, August 12, 2019, op. cit.)

Analyst Take

Village Farms International Inc is continuing to have an excellent year. The company reported strong revenue growth, and its Pure Sunfarms joint venture announced its third quarter of profitability.

What’s makes this an even more impressive feat is that the company’s Delta 3 greenhouse was not at full production during the second quarter. Moreover, sales came from other licensed producers at prices below what Pure Sunfarms expects it will charge when it sells directly to provincial/territorial retailers.

Village Farms expects to deliver consistent revenue growth throughout this year and next. That will be fueled by direct sales to Canadian retailers, expansion of its product sales, and the doubling of its growing capacity.

These kinds of developments could help catapult Village Farms into the No. 1 position as the top Canadian supplier to the recreational cannabis market over the coming quarters.