Village Farms Aims to Grow Its Cannabis Business in North America and Beyond

Exclusive Interview with Village Farms President and CEO Michael DeGiglio

When Michael DeGiglio, President and CEO of Village Farms (NASDAQ: VFF), last spoke with New Cannabis Ventures in 2022, the vertically integrated controlled environment agriculture company was on its 15th quarter of positive EBITDA. In 2023, the company has hit 17 quarters of positive EBITDA, despite the challenging conditions in the Canadian cannabis market.

The company has produce and cannabis operations. Cannabis now makes up 50 percent of its business, and DeGiglio expects that number to increase this year. He spoke with New Cannabis Ventures about the company’s Canadian cannabis operations, its U.S. footprint and international exports.

Listen to the entire interview or read the summary below:

Canadian Operations

Village Farms has been steadily holding the number two position in the Canadian cannabis market. This year, it is budgeting approximately C$90 million for taxes in the Canadian market this year, a number that nears 40 percent of its gross revenue. Managing to maintain positive EBITDA in that environment is a clear indication that the company’s business model is working, according to DeGiglio.

The majority of the company’s growth in Canada has been organic. In British Columbia, it converted owned assets used for its produce operations to cannabis. In November 2021, it did acquire Rose LifeScience to enter the Québec market. Since then, that company has gone from 12th in market share to second, according to DeGiglio.

The company began its cannabis operations in Canada with one brand: Pure Sunfarms. It began its operations with a flower-first strategy. Now, it is a top LP with a top flower brand. Last year, it launched more brands including Promenade, The Original Fraser Valley Weed Co. and Soar.

The Company’s Pure Sunfarms Brand Is a Leading Flower Brand in Canada.

International Expansion

It took Village Farms time to achieve its EU GMP certification. Now, it is leaning into its ability to export medicinal cannabis to international markets. The margins on exports are much higher, helping the margin profile for its Canadian cannabis business, according to DeGiglio.

The company has been shipping product to Australia for more than a year with steady increases each quarter. It recently made its first shipment to Israel. It has been working on shipping to Germany for years, and it is now on the cusp of being able to do so. The company is also working on signing a supply agreement with a partner in the UK.

Village Farms is also one of 10 companies, and the only North American company, to receive a license in the Netherlands. It plans to start production for the recreational market there by 2024.

U.S. Market Presence

The company has a presence in the U.S. market via its wholly owned subsidiary Balanced Health Botanicals. While regulations still require clarification, DeGiglio believes in the potential of CBD. He points to the strong management team at Balanced Health Botanicals and the company’s positive EBITDA. He anticipates large market potential once the FDA does provide clarification and the company can pursue mass market retail.

Village Farms has assets in Texas under the umbrella of its produce operations. In 2022, DeGiglio told New Cannabis Ventures that those assets could be converted to cannabis when federal legalization comes to pass in the U.S. That strategy has not changed, but the company has opted to reduce its footprint in the state. It is divesting a facility in the Permian Basin.

That decision was driven in part by the facility’s distance from its core operations in Texas and by challenges in the produce business. In 2022, the brown rugose virus impacted tomatoes. Seed companies are working on resistant varieties. In the meantime, the company has had to manage the impact it has had on its produce business.

M&A Outlook

The need for M&A in Canada is unlikely, but the company is open to the possibilities in other markets. The company could consider M&A as it evaluates its entry points into the U.S. market. As more recreational markets open in Europe, it will also consider its options there.

A Diversified Entity

DeGiglio believes in the importance of a diversified entity. He remains bullish on both produce and cannabis. As a NASDAQ-listed company, Village Farms cannot participate in the U.S. cannabis market. It is considering different structures for the company going forward, but the company is not planning to spin out its cannabis assets into a separate entity.

Funding Position

The capital markets continue to be challenging for the cannabis industry. When DeGiglio last spoke with New Cannabis Ventures, institutional investors accounted for roughly 30 to 35 percent of the company’s investor pool. That number has since declined.

Village Farms did complete a $25 million direct offering at the beginning of the year. Its ability to do a straight equity raise in this environment points to the company’s track record, according to DeGiglio. The company ultimately sold stock for below tangible book value. It was a tough decision, but the company was concerned about macroeconomic issues. Its primary goal was to protect its shareholders.

Going forward, the company does not need more capital for its Canadian operations, even if it opts to expand its second facility in Delta, British Columbia. Outside of the Netherlands, the company does not have much use for capital, according to DeGiglio.

The Future of Village Farms

The company places focuses on its year-over-year growth versus quarterly growth. DeGiglio points to the seasonality of the cannabis industry. While the company has experienced flat sales and quarter-over-quarter decreases, it did deliver 25 percent year-over-year growth, outpacing market growth. The company is focused on navigating today’s challenges and emerging as a top-three Canadian LP.

In 2023, DeGiglio is anticipating high single-digit growth in the Canadian cannabis market, and the company’s goal is to keep pace with that growth. Beyond that, international exports could be a significant driver of growth over the next three years. The company is planning to leverage its abilities as a low-cost, high-quality producer as it continues to build its brands across its footprint. It is also focused on achieving positive cashflow.

DeGiglio Considers the Company’s Cultivation One of Its Pillars of Excellence.

Regulatory uncertainty still poses the greatest challenge to the company. Its difficult to make bets in markets where the rules remain unclear, according to DeGiglio. The company is betting big in the Netherlands because the rules have been clarified. He is confident the company will be able to operate in any environment once it knows how to manage the regulations.

To learn more, visit the Village Farms website. Listen to the entire interview:

Exclusive article by Carrie Pallardy
Carrie Pallardy, a Chicago-based writer and editor, began her career covering the healthcare industry and now writes, edits and interviews subject matter experts across multiple industries. As a published writer, Carrie continues to tell compelling, undiscovered stories to her network of readers. For more information contact us.

Get Our Sunday Newsletter