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 June 30, ~~2020~~2021

☐	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)

Canada

~~Canada~~

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 ~~past~~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.

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 August ~~12, 2020, 56,474,084~~8, 2021, 80,964,491 shares of common stock were ~~issued and~~ outstanding.

TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Interim Financial Statements (Unaudited)
	Condensed Consolidated Interim Statements of Financial Position		1	2
	Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss)		2	3
	Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity		3	4
	Condensed Consolidated Interim Statements of Cash Flows		4	5
	Notes to Condensed Consolidated Interim Financial Statements		5	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		27	34
Item 4.	Controls and Procedures		27	34

PART II - OTHER INFORMATION			28	35
Item 1.	Legal Proceedings		28	35
Item 1A.	Risk Factors		28
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~35		28
~~Item 5.~~	~~Other information~~		28
Item 6.	Exhibits		28	36

	Signatures		30	37

PART 1 – FINANCIAL STATEMENTS

Item 1. Financial Statements

Forward Looking Statement

As used in this Quarterly Report on Form 10-Q, the terms “Village ~~Farms,”~~Farms”, “Village Farms ~~International,”~~International”, the ~~“Company,” “we,” “us,”~~“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 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 law. 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 industry or the cannabis industry are forward-looking statements. In some cases, forward-looking information can be identified by such terms as “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, including that of ~~our~~ Pure Sunfarms ~~Corp. joint venture for the production of cannabis in Canada (our “Joint Venture”)~~ and our~~start-up~~ operations of growing hemp in the United States; the legal status of ~~our Joint Venture;~~Pure Sunfarms cannabis business; risks relating to obtaining additional financing, including our dependence upon credit facilities; potential difficulties in achieving and/or maintaining profitability; variability of product pricing; risks inherent in the cannabis, hemp and agricultural businesses; the ability of ~~our Joint Venture~~Pure Sunfarms to cultivate and distribute cannabis in Canada; existing and new governmental regulations, including risks related to regulatory compliance and licenses (e.g., ~~our Joint Venture’s~~Pure Sunfarms ability to ~~obtain~~maintain licenses for its Delta 2 and Delta 3 greenhouse ~~facility as well as additional licenses~~facilities under the Canadian act respecting cannabis to amend to the Controlled Drugs and Substances Act, the Criminal Code and other Acts, S.C. 2018, c. 16 (Canada) ~~for its Delta 3 greenhouse facility)~~), and changes in our regulatory requirements; risks relating to conversion of our greenhouses to cannabis production for ~~our Joint Venture;~~Pure Sunfarms; risks related to rules and regulations at the U.S. federal ~~(Food~~(including Food and Drug Administration and United States Department of Agriculture), state and municipal levels with respect to produce and hemp; 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; 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; the ongoing and developing COVID-19 pandemic; 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, that 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. In particular, we caution you that our forward-looking statements are subject to the ongoing and developing circumstances related to the COVID-19 pandemic, which may have a material adverse effect on our business, operations and future financial results.

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.

Village Farms International, Inc.

Condensed Consolidated Interim Statements of Financial Position

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

(Unaudited)

   June 30, 2020 December 31, 2019
ASSETS

Current assets

Cash and cash equivalents
   $ 9,568 $ 11,989
Trade receivables
   13,912 8,997
Inventories
   13,123 15,918
Amounts due from joint ventures
   10,661 15,418
Other receivables
   589 342
Income tax receivable
   841 713
Prepaid expenses and deposits
   1,136 1,259


Total current assets
   49,830 54,636


Non-current assets

Property, plant and equipment
   60,498 63,158
Investment in joint ventures
   61,721 41,334
Notes receivable - joint ventures
   10,841 10,865
Deferred tax asset
   8,885 7,999
Right-of-use assets
   4,387 3,582
Other assets
   1,779 1,834


Total assets
   $ 197,941 $ 183,408


LIABILITIES

Current liabilities

Line of credit
   $ 4,000 $ 2,000
Trade payables
   9,849 12,653
Current maturities of long-term debt
   2,377 3,423
Accrued liabilities
   7,037 3,017
Operating lease liabilities - current
   1,741 875
Finance lease liabilities - current
   40 61


Total current liabilities
   25,044 22,029


Non-current liabilities

Long-term debt
   28,354 28,966
Deferred tax liability
   1,728 1,873
Operating lease liabilities - non-current
   2,746 2,690
Finance lease liabilities - non-current
   16 34
Other liabilities
   1,322 1,357


Total liabilities
   59,210 56,949


Commitments and contingencies (note 15)

SHAREHOLDERS’ EQUITY

Common stock, no par value per share - unlimited shares authorized; 56,402,418 shares issued and outstanding at June 30, 2020 and 52,656,669 shares issued and outstanding at December 31, 2019.
   105,829 98,333
Additional paid in capital
   5,128 4,351
Accumulated other comprehensive loss
   (547 ) (475 )
Retained earnings
   28,321 24,250


Total shareholders’ equity
   138,731 126,459


Total liabilities and shareholders’ equity
   $ 197,941 $ 183,408

June 30, 2021

December 31, 2020

ASSETS

Current assets

Cash and cash equivalents

$
114,029

$
21,640

Restricted cash

9,157

4,039

Trade receivables

41,303

23,222

Inventories

48,607

46,599

Other receivables

756

145

Income tax receivable

21

18

Prepaid expenses and deposits

8,127

6,145

Total current assets

222,000

101,808

Non-current assets

Property, plant and equipment

196,236

187,020

Investment in minority interests

2,227

1,226

Note receivable - joint venture

3,344

3,545

Goodwill

24,698

24,027

Intangibles

17,311

17,311

Deferred tax asset

15,869

13,312

Operating right-of-use assets

3,267

3,797

Finance right-of-use assets

—

35

Other assets

2,432

1,950

Total assets

$
487,384

$
354,031

LIABILITIES

Current liabilities

Line of credit

$
—

$
2,000

Trade payables

19,425

15,064

Current maturities of long-term debt

10,889

10,166

Note payable

—

15,314

Accrued liabilities

28,818

22,438

Operating lease liabilities - current

1,134

1,107

Finance lease liabilities - current

15

27

Income tax payable

1,760

4,523

Other current liabilities

4,752

1,641

Total current liabilities

66,793

72,280

Non-current liabilities

Long-term debt

54,583

53,913

Deferred tax liability

18,292

18,059

Operating lease liabilities - non-current

2,284

2,855

Finance lease liabilities - non-current

1

8

Other liabilities

1,895

1,633

Total liabilities

143,848

148,748

Commitments and contingencies (note 17)

SHAREHOLDERS’ EQUITY

Common stock, no par value per share - unlimited shares authorized; 81,392,588 shares issued and 80,964,491 shares outstanding at June 30, 2021, and 66,911,811 shares issued and outstanding at December 31, 2020.

302,497

145,668

Additional paid in capital

6,748

17,502

Accumulated other comprehensive income

10,332

6,255

Retained earnings

23,959

35,858

Total shareholders’ equity

343,536

205,283

Total liabilities and shareholders’ equity

$
487,384

$
354,031

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

Village Farms International, Inc.

Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss)

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

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			Three Months Ended June 30,						Six Months Ended June 30,
													2021			2020			2021			2020
Sales	$	47,573		$	41,329		$	79,685		$	73,219		$	70,374		$	47,573		$	122,770		$	79,685
Cost of sales		(44,044	)		(44,299	)		(75,391	)		(75,514	)		(65,109	)		(44,044	)		(115,198	)		(75,391	)

Gross margin		3,529			(2,970	)		4,294			(2,295	)		5,265			3,529			7,572			4,294
Selling, general and administrative expenses		(3,813	)		(3,949	)		(7,734	)		(8,188	)		(9,025	)		(3,813	)		(17,117	)		(7,734	)
Share-based compensation		(328	)		(701	)		(857	)		(1,997	)		(1,887	)		(328	)		(3,885	)		(857	)
Interest expense		(437	)		(669	)		(974	)		(1,363	)		(598	)		(437	)		(1,339	)		(974	)
Interest income		93			211			476			347			46			93			49			476
Foreign exchange gain (loss)		530			243			(396	)		521			193			530			(311	)		(396	)
Gain on settlement agreement (note 7)		—			—			4,681			—
Other income		26			282			65			152
(Loss) gain on disposal of assets		—			—			(6	)		13,564

(Loss) income before taxes and earnings from unconsolidated entities		(400	)		(7,553	)		(451	)		741
(Provision for) recovery of income taxes		(69	)		3,284			943			(1,152	)

Loss (income) from consolidated entities after income taxes		(469	)		(4,269	)		492			(411	)
Equity earnings from unconsolidated entities		350			7,985			3,579			10,593

Gain on settlement agreement														—			—			—			4,681
Other (expense) income														(166	)		26			(235	)		65
Loss on disposal of assets														(40	)		—			(40	)		(6	)
Loss before taxes and earnings of unconsolidated entities														(6,212	)		(400	)		(15,306	)		(451	)
Recovery of (provision for) income taxes														1,781			(69	)		3,620			943
(Loss) income from consolidated entities after income taxes														(4,431	)		(469	)		(11,686	)		492
Equity (losses) earnings from unconsolidated entities														(86	)		350			(213	)		3,579
Net (loss) income	$	(119	)	$	3,716		$	4,071		$	10,182		$	(4,517	)	$	(119	)	$	(11,899	)	$	4,071


Basic (loss) income per share	$	(0.00	)	$	0.08		$	0.07		$	0.21		$	(0.06	)	$	(0.00	)	$	(0.15	)	$	0.07

Diluted (loss) income per share	$	(0.00	)	$	0.07		$	0.07		$	0.20		$	(0.06	)	$	(0.00	)	$	(0.15	)	$	0.07


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

Basic		56,339			48,825			54,636			48,322			81,071			56,339			78,560			54,636

Diluted		56,339			50,712			55,756			50,159			81,071			56,339			78,560			55,756


Net (loss) income	$	(119	)	$	3,716		$	4,071		$	10,182		$	(4,517	)	$	(119	)	$	(11,899	)	$	4,071
Other comprehensive (loss) income:
Other comprehensive income (loss):
Foreign currency translation adjustment		55			36			(72	)		80			2,366			55			4,077			(72	)

Comprehensive (loss) income	$	(64	)	$	3,752		$	3,999		$	10,262		$	(2,151	)	$	(64	)	$	(7,822	)	$	3,999

The accompanying notes are an integral part of these Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss).

Village Farms International, Inc.

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity

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

(Unaudited)

																		Three Months Ended June 30, 2021
	Three Months Ended June 30, 2020																	Number of Common Shares (in thousands)			Common Stock		Additional Paid in Capital			Accumulated Other Comprehensive (Loss) Income		Retained Earnings			Total Shareholders’ Equity
	Number of Common Shares		Common Stock			Additional paid in capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Total Shareholders’ Equity
Balance at April 1, 2020		56,250,419	$	105,656		$	4,880		$	(602	)	$	28,440		$	138,374
Shares issued in pubic offering, net of issuance costs		—		(29	)		—			—			—			(29	)
Balance at April 1, 2021																			81,191		$	301,092	$	9,353		$	7,966	$	28,476		$	346,887
Shares issued on exercise of warrants																			143			1,307		(475	)		—		—			832
Shares issued on exercise of stock options		151,999		202			(80	)		—			—			122			58			98		(37	)		—		—			61
Share re-purchases																			(428	)		—		(3,980	)		—		—			(3,980	)
Share-based compensation		—		—			328			—			—			328			—			—		1,887			—		—			1,887
Cumulative translation adjustment		—		—			—			55			—			55			—			—		—			2,366		—			2,366
Net loss		—		—			—			—			(119	)		(119	)		—			—		—			—		(4,517	)		(4,517	)

Balance at June 30, 2020		56,402,418	$	105,829		$	5,128		$	(547	)	$	28,321		$	138,731

Balance at June 30, 2021																			80,964		$	302,497	$	6,748		$	10,332	$	23,959		$	343,536

   Three Months Ended June 30, 2019
   Number of
Common
Shares    Common
Stock    Additional paid
in capital Accumulated Other
Comprehensive
(Loss) Income Retained
Earnings    Total
Shareholders’
Equity
Balance at April 1, 2019
   47,812,003    $ 61,832    $ 2,568 $ (518 ) $ 28,391    $ 92,273
Shares issued in pubic offering, net of issuance costs
   1,000,000    13,928    —   —   —      13,928
Shares issued on exercise of stock options
   36,783    61    (20 ) —   —      41
Share-based compensation
   125,000    —      701 —   —      701
Shares issued on exercise of warrants
   300,000    614    (148 ) —   —      466
Cumulative translation adjustment
   —      —      —   36 —      36
Net income
   —      —      —   —   3,716    3,716








Balance at June 30, 2019
   49,273,786    $ 76,435    $ 3,101 $ (482 ) $ 32,107    $ 111,161

	Three Months Ended June 30, 2020
	Number of Common Shares (in thousands)		Common Stock			Additional paid in capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Shareholders’ Equity
Balance at April 1, 2020		56,250	$	105,656		$	4,880		$	(602	)	$	28,440		$	138,374
Shares issued in public offering, net of issuance costs		—		(29	)		—			—			—			(29	)
Shares issued on exercise of stock options		152		202			(80	)								122
Share-based compensation		—		—			328			—			—			328
Cumulative translation adjustment		—		—			—			55			—			55
Net loss		—		—			—			—			(119	)		(119	)
Balance at June 30, 2020		56,402	$	105,829		$	5,128		$	(547	)	$	28,321		$	138,731

   Six Months Ended June 30, 2020
   Number of
Common
Shares    Common
Stock    Additional paid
in capital Accumulated Other
Comprehensive
(Loss) Income Retained
Earnings    Total
Shareholders’
Equity
Balance at January 1, 2020
   52,656,669    $ 98,333    $ 4,351 $ (475 ) $ 24,250    $ 126,459
Shares issued in pubic offering, net of issuance costs
   3,593,750    7,294    —   —   —      7,294
Shares issued on exercise of stock options
   151,999    202    (80 ) —   —      122
Share-based compensation
   —      —      857 —   —      857
Cumulative translation adjustment
   —      —      —   (72 ) —      (72 )
Net income
   —      —      —   —   4,071    4,071








Balance at June 30, 2020
   56,402,418    $ 105,829    $ 5,128 $ (547 ) $ 28,321    $ 138,731

	Six Months Ended June 30, 2021
	Number of Common Shares			Common Stock		Additional paid in capital			Accumulated Other Comprehensive Loss		Retained Earnings			Total Shareholders’ Equity
Balance at January 1, 2021		66,912		$	145,668	$	17,502		$	6,255	$	35,858		$	205,283
Shares issued in public offering, net of issuance costs		10,887			127,489		—			—		—			127,489
Warrants issued in public offering		3,188			29,050		(10,555	)		—		—			18,495
Shares issued on exercise of stock options		162			290		(104	)		—		—			186
Share re-purchases		(428	)		—		(3,980	)		—		—			(3,980	)
Share-based compensation		243			—		3,885			—		—			3,885
Cumulative translation adjustment		—			—		—			4,077		—			4,077
Net loss		—			—		—			—		(11,899	)		(11,899	)
Balance at June 30, 2021		80,964		$	302,497	$	6,748		$	10,332	$	23,959		$	343,536

															Six Months Ended June 30, 2020
	Six Months Ended June 30, 2019														Number of Common Shares		Common Stock		Additional paid in capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings		Total Shareholders’ Equity
	Number of Common Shares		Common Stock		Additional paid in capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings		Total Shareholders’ Equity
Balance at January 1, 2019		47,642,672	$	60,872	$	2,198		$	(562	)	$	21,925	$	84,433
Shares issued in pubic offering, net of issuance costs		1,000,000		13,928		—			—			—		13,928
Balance at January 1, 2020																52,657	$	98,333	$	4,351		$	(475	)	$	24,250	$	126,459
Shares issued in public offering, net of issuance costs																3,593		7,294		—			—			—		7,294
Shares issued on exercise of stock options		52,782		113		(38	)		—			—		75		152		202		(80	)		—			—		122
Share-based compensation		278,332		908		1,089			—			—		1,997		—		—		857			—			—		857
Shares issued on exercise of warrants		300,000		614		(148	)		—			—		466
Cumulative translation adjustment		—		—		—			80			—		80		—		—		—			(72	)		—		(72	)
Net income		—		—		—			—			10,182		10,182		—		—		—			—			4,071		4,071

Balance at June 30, 2019		49,273,786	$	76,435	$	3,101		$	(482	)	$	32,107	$	111,161

Balance at June 30, 2020																56,402	$	105,829	$	5,128		$	(547	)	$	28,321	$	138,731

The accompanying notes are an integral part of these Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity.

Village Farms International, Inc.

Condensed Consolidated Interim Statements of Cash Flows

(In thousands of United States dollars)

(Unaudited)

							Six Months Ended June 30,
	Six Months Ended June 30,						2021			2020
	2020			2019
Cash flows used in operating activities:
Net income	$	4,071		$	10,182
Adjustments to reconcile net income to net cash provided by operating activities:
Cash flows (used in) provided by operating activities:
Net (loss) income							$	(11,899	)	$	4,071
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		3,021			3,766			6,536			3,021
Amortization of deferred charges		38			38			166			38
Share of income from joint ventures		(3,579	)		(10,593	)
Share of loss (income) from joint ventures								213			(3,579	)
Interest expense		974			1,363			1,339			974
Interest income		(476	)		(347	)		(49	)		(476	)
Interest paid on long-term debt		(1,018	)		(1,063	)		(1,909	)		(1,018	)
Unrealized foreign exchange gain/loss								161			—
Gain on settlement agreement		(4,681	)		—			—			(4,681	)
Loss (gain) on disposal of assets		6			(13,564	)
Loss on disposal of assets								40			6
Non-cash lease expense		(627	)		(513	)		(254	)		(627	)
Interest paid on finance leases		(2	)		(4	)
Interest paid on finance lease								(1	)		(2	)
Share-based compensation		857			1,997			3,885			857
Deferred income taxes		(400	)		1,144			(3,199	)		(400	)
Changes in non-cash working capital items		3,961			(1,843	)		(10,239	)		3,961

Net cash provided by (used) in operating activities		2,145			(9,437	)


Net cash (used in) provided by operating activities								(15,210	)		2,145
Cash flows used in investing activities:
Purchases of property, plant and equipment, net of rebate		(452	)		(730	)
Purchases of property, plant and equipment								(11,355	)		(452	)
Advances to joint ventures		(125	)		(5,806	)		(12	)		(125	)
Proceeds from sale of asset		—			60
Investment in joint ventures		(11,713	)		(13	)		—			(11,713	)

Investment in minority interests								(1,001	)		—
Net cash used in investing activities		(12,290	)		(6,489	)		(12,368	)		(12,290	)


Cash flows from financing activities:
Cash flows provided by financing activities:
Proceeds from borrowings		3,000			3,000			4,227			3,000
Repayments on borrowings		(2,652	)		(1,709	)		(6,026	)		(2,652	)
Proceeds from issuance of common stock		7,957			13,928
Proceeds from issuance of common stock and warrants								135,000			7,957
Issuance costs		(663	)		—			(7,511	)		(663	)
Proceeds from exercise of stock options		122			75			186			122
Proceeds from exercise of warrants								18,495			—
Share re-purchases								(3,980	)		—
Payments on capital lease obligations		(39	)		(48	)		(310	)		(39	)
Proceeds from exercise of warrants		—			466

Payment of note payable related to acquisition								(15,498	)		—
Net cash provided by financing activities		7,725			15,712			124,583			7,725


Effect of exchange rate changes on cash and cash equivalents		(1	)		—			502			(1	)


Net decrease in cash and cash equivalents		(2,421	)		(214	)
Net increase in cash and cash equivalents								97,507			(2,421	)
Cash and cash equivalents, beginning of period		11,989			11,920			25,679			11,989

Cash and cash equivalents, end of period	$	9,568		$	11,706		$	123,186		$	9,568

The accompanying notes are an integral part of these Condensed Consolidated Interim Statements of Cash Flows.

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

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

1	NATURE OF OPERATIONS

Village Farms International, Inc. (“VFF” ~~the parent company,~~and, together with its subsidiaries, the “Company”, “we”, “us”, or “our”) is incorporated under the Canada Business ~~Corporation~~Corporations Act. VFF’s principal operating subsidiaries as of June 30, ~~2020~~2021 are Village Farms Canada Limited Partnership (“VFCLP”), Village Farms, L.P. (“VFLP”), ~~and~~ VF Clean Energy, Inc. (“VFCE”), and Pure Sunfarms Corp. (“Pure Sunfarms” or “PSF”). The address of the registered office of VFF is ~~4700 80th~~4700-80th Street, Delta, British Columbia, Canada, V4K 3N3. VFF also owns a 65% equity interest in Village Fields Hemp USA LLC (“VF Hemp”) ~~and a 58.7% equity interest in Pure Sunfarms Corp. (“Pure Sunfarms”)~~, ~~both of~~ which ~~are~~is recorded as ~~Investments in Joint Ventures~~an equity investment (note 7)9).

The Company’s shares are listed on both the Toronto Stock Exchange ~~under the symbol VFF~~ and ~~are also listed in the United States on the~~ Nasdaq Capital Market (“Nasdaq”), in each case, under the symbol ~~VFF.~~“VFF”.

The Company 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. The Company, through ~~its subsidiary VFCE, owns and operates a 7.0 MW power plant that generates electricity. The Company’s joint venture,~~ Pure Sunfarms, is a licensed producer and supplier of cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally. The ~~Company’s joint ventures, VF Hemp~~Company, through VFCE, owns and ~~AVGG Hemp, are cultivators of high cannabidiol (“CBD”) hemp in multiple states throughout the United States.~~

~~Coronavirus pandemic~~ ~~(“COVID-19”)~~

~~In March 2020, the World Health Organization declared the outbreak of the~~ ~~COVID-19~~ ~~virus~~operates a global pandemic. This outbreak continues to cause major disruptions to businesses and markets worldwide as the virus continues to spread. A number of countries as well as certain states and cities within the United States and Canada have enacted temporary closures of businesses, issued quarantine or ~~shelter-in-place~~ ~~orders and taken other restrictive measures in response to~~ ~~COVID-19.~~

~~To date, all of the Company’s operations are operating normally, however, the extent to which~~ ~~COVID-19~~ ~~and the related global economic crisis affect the Company’s business, results of operations and financial condition, will depend on future developments~~7.0 MW power plant that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties (including new financial regulation and other regulatory reform) in response to the pandemic, and the effects on our produce, clients, vendors and employees. Village Farms continues to service its customers amid uncertainty and disruption linked to ~~COVID-19~~ ~~and is actively managing its business to respond to the impact.~~generates electricity.

2	BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, ~~2020~~2021 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for fair presentation have been included. Operating results for the three and six months ended June 30, ~~2020~~2021 are subject to seasonal variations and accordingly are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021. For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal years ended December 31, ~~2019~~2020 and ~~2018.~~

Other than as described below, there were no changes to our significant accounting policies described in our annual financial statements that had a material impact on our financial statements and related notes.

~~VILLAGE FARMS INTERNATIONAL, INC.~~

~~Notes to Condensed Consolidated Interim Financial Statements~~

~~(In thousands of United States dollars, except per share amounts, unless otherwise noted)~~2019.

3	NEW ACCOUNTING PRONOUNCEMENTS ~~ADOPTED~~

In ~~August 2018,~~March 2020, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2018-13,~~ “~~Fair Value Measurement~~2020-04, Reference Rate Reform (Topic ~~820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement~~~~.” ASU~~ ~~2018-13~~ removes the disclosure requirement for the amount and reasons for transfers between Level 1 and Level 2 fair value measurements as well as the process for Level 3 fair value measurements. In addition, the ASU adds the disclosure requirements for changes in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end848): Facilitation of the ~~reporting period~~Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to debt instruments, derivatives, and other contracts that reference LIBOR or other reference rates expected to be discontinued as ~~well as the range~~a result of reference rate reform. This guidance is optional and ~~weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.~~may be elected through December 31, 2022 using a prospective application on all eligible contract modifications. The Company ~~adopted ASU~~ ~~2018-13~~ ~~on January 1, 2020. The adoption~~has a line of ~~this standard did not~~credit that incorporates LIBOR as a referenced interest rate. It is difficult to predict what effect, if any, the phase-out of LIBOR and the use of alternative benchmarks may have ~~a material impact~~ on the Company’s ~~consolidated~~business or on the overall financial ~~statements and related disclosures.~~

~~In June 2016, the FASB issued ASU~~ ~~2016-13,~~ “~~Financial Instruments—Credit Losses~~.”markets. The standard, including subsequently issued amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectabilityCompany has not adopted any of the ~~reported amount. The Company adopted ASU~~ ~~2016-13~~ ~~on January 1, 2020. The~~optional expedients or exceptions through June 30, 2021 but will continue to evaluate the possible adoption of ~~this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.~~any such expedients or exceptions.

4	~~INVENTORIES~~

Inventories, consisting of crop inventory, purchased produce inventory and spare parts inventory are valued at the lower of cost or net realizable value. Cost is determined using the weighted average cost method. Costs included in crop inventory include but are not limited to raw material, packaging, direct labor, overhead, and the depreciation of growing equipment and facilities determined at normal capacity. These costs are expensed as cost of sales when the crops are sold.6

~~Inventories consisted of the following as of June 30, 2020 and December 31, 2019:~~

Classification    June 30, 2020    December 31, 2019
Crop inventory
   $ 12,103    $ 15,281
Purchased produce inventory
   916    530
Spare parts inventory
   104    107




Inventories
   $ 13,123    $ 15,918

5	~~PROPERTY, PLANT AND EQUIPMENT~~

Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is allocated between cost of sales and selling, general and administrative expenses depending on the type of asset and is determined using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the remaining life of the lease or useful life of the asset, whichever is shorter. Maintenance and repairs are charged to cost of sales when incurred. Significant expenditures, which extend the useful lives of assets, are capitalized. Land is not depreciated. The estimated useful lives of the class of assets for the current and comparative periods are as follows:


~~Classification~~		~~Estimated Useful Lives~~
~~Leasehold and land improvements~~		~~5-20~~ ~~years~~
~~Greenhouses and other buildings~~		~~4-30~~ ~~years~~
~~Greenhouse equipment~~		~~3-30~~ ~~years~~
~~Machinery and equipment~~		~~3-12~~ ~~years~~

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

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

~~Construction in process reflects~~

4	INVENTORIES

Inventories consisted of the ~~cost of assets under construction, which are not depreciated until placed into service.~~following as of:

Classification	June 30, 2021		December 31, 2020
Cannabis:
Available for sale - flower and trim	$	14,347	$	12,720
Distilled oil		15,530		13,511
Capitalized production costs		978		3,438
Other		4,342		2,552
Produce and Energy:
Crop inventory		11,909		13,441
Purchased produce inventory		1,371		810
Spare parts inventory		130		127
Inventory	$	48,607	$	46,599

5	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

Classification	June 30, 2021			December 31, 2020
Land	$	10,650		$	10,447
Leasehold and land improvements		4,164			4,154
Buildings		144,389			142,060
Machinery and equipment		71,130			69,390
Construction in progress		64,262			52,960
Less: Accumulated depreciation		(98,359	)		(91,991	)
Property, plant and equipment, net	$	196,236		$	187,020

6	INTANGIBLES

Intangibles consisted of the following as of:

Classification	June 30, 2021			December 31, 2020
Licenses	$	13,148		$	12,870
Branding		3,792			3,688
Computer Software		971			945
Less: Accumulated amortization		(600	)		(192	)
Intangibles, net	$	17,311		$	17,311

The expected future amortization expense for definite-lived intangible assets as of June 30, ~~2020 and December 31, 2019:~~

Classification
   June 30, 2020    December 31, 2019
Land
   $ 3,204    $ 3,204
Leasehold and land improvements
   3,820    3,820
Greenhouses and other buildings
   72,870    72,772
Machinery and equipment
   61,841    61,871
Construction in progress
   1,787    1,697
Less: Accumulated depreciation
   (83,024 )    (80,206 )




Property, plant and equipment
   $ 60,498    $ 63,158

6	~~LEASES~~

On August 7, 2019, the Company entered into an operating lease agreement for office space located in Lake Mary, Florida. The lease commenced on January 1, 2020 and has a lease term of 88 months with an option to extend for five years. The base rent for the lease will be adjusted annually by multiplying the base rent by 1.025. The initial lease liability2021 was ~~calculated as the present value of the lease payments using an incremental borrowing rate of 4.98%. The~~ ~~right-of-use~~ asset was calculated as the initial amount of the lease liability, plus any lease payments made before lease commencement, plus initial direct costs, less any lease incentives. The lease liability and the ~~right-of-use~~ ~~asset are recorded in the consolidated statements of financial position~~.

~~The components of lease related expenses are~~ as follows:

   Three months ended June 30,    Six months ended June 30,
   2020    2019    2020    2019
Operating lease expense ^(a)
   $ 508    $ 563    $ 1,116    $ 1,174








Finance lease expense:

Amortization of right-of-use assets
   $ 18    $ 20    $ 39    $ 40
Interest on lease liabilities
   1    2    2    5








Total finance lease expense
   $ 19    $ 22    $ 41    $ 45

Fiscal period
Remainder of 2021	$	393
2022		786
2023		780
2024		780
2025		688
Thereafter		10,092
Intangibles, net	$	13,519

^(a)	~~Includes short-term lease costs of $302 and $317 for the three months ended June 30, 2020 and 2019, and $502 and $628 for the six months ended June 30, 2020 and 2019, respectively.~~

~~Cash paid for amounts included in the measurement of lease liabilities:~~

   Three months ended June 30,    Six months ended June 30,
   2020    2019    2020    2019
Operating cash flows from operating leases
   $ 356    $ 259    $ 627    $ 513
Operating cash flows from finance leases
   $ 1    $ 1    $ 2    $ 4
Finance cash flows from finance leases
   $ 18    $ 30    $ 39    $ 48

~~VILLAGE FARMS INTERNATIONAL, INC.~~

~~Notes to Condensed Consolidated Interim Financial Statements~~

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


	~~June 30, 2020~~
~~Weighted average remaining lease term:~~
~~Operating leases~~		~~4.6~~
~~Finance leases~~		~~1.5~~

~~Weighted average discount rate:~~
~~Operating leases~~		~~5.78~~	%
~~Finance leases~~		~~6.25~~	%

~~Maturities of lease liabilities are as follows:~~

   Operating
leases    Finance
leases
Remainder of 2020
   $ 630    $ 23
2021
   1,305    30
2022
   1,090    9
2023
   870    —
2024
   512    —
Thereafter
   691    —




Undiscounted lease cash flow commitments
   5,098    62
Reconciling impact from discounting
   (611 )    (6 )




Lease liabilities on consolidated statement of financial position as of June 30, 2020
   $ 4,487    $ 56

7	~~INVESTMENT IN JOINT VENTURES~~

~~Summarized Equity Earnings (Losses) from Unconsolidated Entities~~

   Three months ended June 30,    Six months ended June 30,
   2020    2019    2020    2019
Pure Sunfarms
   $ 463    $ 8,105    $ 3,994    $ 10,747
VF Hemp
   (113 )    (104 )    (415 )    (133 )
AVGG Hemp
   —      (16 )    —      (21 )








Total
   $ 350    $ 7,985    $ 3,579    $ 10,593

~~Pure Sunfarms Corp.~~

On June 6, 2017, the Company entered into an agreement to form Pure Sunfarms, a B.C. corporation, with Emerald Health Therapeutics Inc. (“Emerald”). The purpose of Pure Sunfarms is to produce, market and distribute cannabis in Canada.

The Company accounts for its investment in Pure Sunfarms, in accordance with Accounting Standards Codification (ASC) 323, Equity Method and Joint Ventures (“ASC 323”), using the equity method. The Company has determined that Pure Sunfarms is a variable interest entity (“VIE”), however the Company does not consolidate Pure Sunfarms because the Company is not the primary beneficiary. Although the Company is able to exercise significant influence over the operating and financial policies of Pure Sunfarms through its 58.7% majority ownership interest, the Company shares joint control of the Board of Directors and therefore is not the primary beneficiary. The Company’s maximum exposure to loss as a result of its involvement with Pure Sunfarms as of June 30, 2020 relates primarily to the Company’s investment of $61,721 and the recovery of the outstanding loan to Pure Sunfarms of $10,661.

The Company is required to apply the hypothetical liquidation at book value (“HLBV”) method to determine its allocation of the profits and losses in Pure Sunfarms. When determining its allocation of profits and losses, the HLBV method only considers shares that have been fully paid for. Therefore, due to the monthly escrow payments made by Emerald in 2019 in accordance with the Delta 2 Option and Escrow Agreements, the ownership changed each month in 2019 as escrow payment(s) were made.

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

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

Under the hypothetical liquidation method, the Company received 58.7% and 62.3% of Pure Sunfarms’ earnings for the three months ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020 and 2019, the Company received 57.5% and 61.7% of Pure Sunfarms’ earnings, respectively.

On March 31, 2019, Pure Sunfarms exercised its option to utilize the Delta 2 assets and operations. The contribution of the assets has been accounted for as a disposal of the land, greenhouse facility and other assets in exchange for 25,000,000 common shares of Pure Sunfarms. This was a ~~non-cash~~ ~~transaction, and it was estimated that the fair value of the land, building and other assets was $18.7 million (CA$25 million) at the date of contribution.~~

LEASES

The Company ~~recognized~~leases a ~~gain~~parcel of ~~$13.6 million on the contribution~~land in Marfa, Texas where one of ~~the fixed assets.~~

~~On March 2, 2020, pursuant to the settlement agreement with Emerald (the “Settlement Agreement”), Emerald transferred to the Company 2.5% of additional equity~~its greenhouses resides, as well as two distribution centers located in ~~Pure Sunfarms.~~Fort Worth, Texas and Surrey, British Columbia. The Company ~~determined the fair value of the equity received from Emerald to be CA$6.5 million (US$4.7 million).~~leases production-related equipment at its greenhouses in Texas and British Columbia. The Company ~~recorded this amount as a gain on settlement agreement~~also leases an office building located in ~~the condensed consolidated statement of income (loss) and comprehensive income (loss)~~Lake Mary, Florida for ~~the six months ended June 30, 2020.~~

As of June 30, 2020, and December 31, 2019, the total investment in Pure Sunfarms of $61.7 million and $41.3 million, respectively, was recorded in the consolidated statements of financial position.its corporate headquarters.

The ~~Company’s share~~components of ~~the joint venture consists of the following:~~lease related expenses are as follows:

Balance, January 1, 2019
   $ 6,341
Investments in joint venture
   18,717
Share of net income for the year
   16,276


Balance, December 31, 2019
   $ 41,334

	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Operating lease expense^(a)	$	600	$	508	$	1,222	$	1,116
Finance lease expense:
Amortization of right-of-use assets	$	6	$	18	$	17	$	39
Interest on lease liabilities		1		1		1		2
Total finance lease expense	$	7	$	19	$	18	$	41

Balance, January 1, 2020
   $ 41,334
Investments in joint venture
   16,393
Share of net income for the period
   3,994


Balance, June 30, 2020
   $ 61,721

~~Summarized financial information of Pure Sunfarms:~~

   June 30, 2020    December 31, 2019
Current assets

Cash and cash equivalents
   $ 6,472    $ 7,356
Trade receivables
   10,934    8,687
Inventory
   36,000    21,745
Other current assets
   5,950    6,964
Non-current assets
   112,167    108,652
Current liabilities

Trade payables
   (10,291 )    (4,938 )
Borrowings due to joint ventures
   (10,703 )    (26,413 )
Income taxes payable
   —      (8,489 )
Borrowings – current
   (1,798 )    (1,423 )
Other current liabilities
   (8,765 )    (5,021 )
Non-current liabilities

Borrowings – long term
   (20,431 )    (13,089 )
Deferred tax liabilities
   (13,068 )    (2,473 )




Net assets
   $ 106,467    $ 91,558




Reconciliation of net assets:

Accumulated retained earnings
   $ 33,635    $ 26,679
Contributions from joint venture partners
   75,738    63,481
Currency translation adjustment
   (2,906 )    1,398




Net assets
   $ 106,467    91,558

~~VILLAGE FARMS INTERNATIONAL, INC.~~

~~Notes to Condensed Consolidated Interim Financial Statements~~

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

   Three months ended June 30,    Six months ended June 30,
   2020    2019    2020    2019
Revenue
   $ 9,386    $ 24,244    $ 22,523    $ 35,045
Cost of sales*
   (6,266 )    (3,956 )    (12,524 )    (7,774 )








Gross Margin
   3,120    20,288    9,999    27,271
Selling, general and administrative expenses
   (1,850 )    (1,786 )    (4,284 )    (2,785 )








Income from operations
   1,270    18,502    5,715    24,486
Interest expense
   (131 )    (293 )    (348 )    (293 )
Foreign exchange (loss) gain
   28    (25 )    (151 )    14
Other income, net**
   1    4    4,333    13








Income before taxes
   1,168    18,188    9,549    24,220
Provision for income taxes
   (379 )    (5,169 )    (2,595 )    (6,798 )








Net Income
   $ 789    $ 13,019    $ 6,954    $ 17,422

^(a)

~~Included in cost~~Includes short-term lease costs of ~~sales~~$155 and $302 for the three months ended June 30, 2021 and 2020, respectively, and ~~2019 is $563~~$303 and ~~$387, and~~$502 for the six months ended June 30, 2021 and 2020, ~~and 2019 is $1,012 and $845 respectively, of depreciation expense.~~respectively.

**	~~Includes gain recognized on settlement of net liabilities of $4,348.~~

~~Village Fields Hemp USA LLC~~

~~On February 27, 2019,~~Cash paid for amounts included in the ~~Company entered into a joint venture with Nature Crisp, LLC (“Nature Crisp”) to form VF Hemp for the objective~~measurement of outdoor cultivation of high percentage cannabidiol (“CBD”) hemp and CBD extraction in multiple states throughout the United States. VF Hemp is 65% owned by the Company and 35% owned by Nature Crisp. Under the terms of the VF Hemp Joint Venture Agreement, the Company will lend up to approximately US$15 million to VF Hemp for ~~start-up~~ ~~costs and working capital.~~

The Company accounts for its investment in VF Hemp, in accordance with ASC 323, using the equity method because the Company is able to exercise significant influence over the operating and financial policies of VF Hemp through its 65% ownership interest and joint power arrangement with Nature Crisp. The Company’s maximum exposure to loss as a result of its involvement with VF Hemp is directly related to the recovery of the $10,841 loan outstanding to VF Hemp.

~~The Company’s share of the joint venture consists of the following:~~lease liabilities:

	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Operating cash flows from operating leases	$	126	$	356	$	254	$	627
Operating cash flows from finance leases	$	1	$	1	$	1	$	2
Finance cash flows from finance leases	$	155	$	18	$	310	$	39

	June 30, 2021
~~Balance, beginning of the period~~Weighted average remaining lease term:	$	—
~~Investments in joint venture~~		7
~~Share of net loss~~		~~(2,464~~	)
~~Losses applied against joint venture note receivable~~		~~2,457~~

~~Balance, December 31, 2019~~Operating leases	$	—

3.5
~~Balance, beginning of the period~~Finance leases	$	—
~~Investments in joint venture~~		—
~~Share of net loss~~		~~(415~~	)
~~Losses applied against joint venture note receivable~~		~~415~~
			1.0
~~Balance, June 30, 2020~~Weighted average discount rate:	$	—

Operating leases		5.94	%
Finance leases		6.25	%

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

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

~~Summarized financial information~~

Maturities of ~~VF Hemp:~~lease liabilities are as follows:

   June 30, 2020    December 31, 2019
Current assets

Inventory
   $ 9,268    $ 9,308
Other current assets
   314    546
Non-current assets
   1,336    1,476
Current liabilities
   (1,642 )    (1,788 )
Non-current liabilities
   (13,697 )    (13,323 )




Net assets
   $ (4,421 )    $ (3,781 )




Reconciliation of net assets:

Accumulated retained earnings
   $ (3,791 )    $ (3,791 )
Net loss for the six months ended June 30, 2020
   (640 )    —
Contributions from joint venture partners
   10    10




Net assets
   $ (4,421 )    $ (3,781 )

	Operating leases			Finance leases
Remainder of 2021	$	654		$	9
2022		1,090			9
2023		870			—
2024		512			—
2025		258			—
Thereafter		433			—
Undiscounted lease cash flow commitments		3,817			18
Reconciling impact from discounting		(399	)		(2	)
Lease liabilities on consolidated statement of financial position as of June 30, 2021	$	3,418		$	16

8	~~DEBT~~PURE SUNFARMS ACQUISITION

~~At June 30,~~On November 2, 2020, ~~the Company had~~Village Farms consummated a ~~Term Loan financing~~definitive purchase and sale agreement with ~~a Canadian creditor~~Emerald Health Therapeutics Inc. (“~~FCC Loan”~~Emerald”), acquiring 36,958,500 common shares in the capital of Pure Sunfarms owned by Emerald, and increasing Village Farms’ ownership of Pure Sunfarms to 100%. The ~~non-revolving~~ ~~variable rate term loan has~~shares were acquired for a ~~maturity date~~total purchase price of ~~April 1, 2025~~C$79.9 million (US$60.0 million), satisfied through an initial C$60.0 million (US$45.0 million) cash payment and a ~~balance of $29,766 as of June 30, 2020. The outstanding balance is repayable by way of monthly installments of principal and interest, with the balance and any accrued interest~~C$19.9 million (US$15.0 million) secured promissory note that was payable to ~~be paid~~Emerald, which promissory note was repaid in full on April 1, 2025. Effective August 1, 2020, monthly principal payments are reduced to $164 from $257. As of June 30, 2020, and December 31, 2019, borrowings under the FCC Loan agreement were subject to an interest rate of 4.68% and 6.391%, respectively.February 8, 2021.

The ~~Company’s subsidiary VFCE~~acquisition was a business combination and has been accounted for in accordance with the measurement and recognition provisions of Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (ASC Topic 850”). ASC Topic 805 requires that the purchase consideration be allocated to the assets acquired and liabilities assumed in a ~~loan agreement with a Canadian Chartered Bank that includes a~~ ~~non-revolving~~ ~~fixed rate loan of CA$3.0 million with a maturity~~business combination based upon their estimated fair values at the date of ~~June 2023~~acquisition. The purchase price has been allocated to the underlying assets acquired and ~~fixed interest rate~~liabilities assumed based upon their estimated fair values at the date of ~~4.98%. As~~acquisition. The Company used information available to make fair value determinations and engaged independent valuation specialists to assist in the fair value determination of ~~June 30, 2020, and December 31, 2019,~~acquired intangible assets. The estimated fair value of licenses was determined using a multi-period excess earnings method. This earnings-based method considers the ~~balance was US$882 and US$1,066, respectively. The loan agreement also includes an uncommitted,~~ ~~non-revolving~~ ~~credit facility for up to CA$300 to cover Letters of Guarantee issued by the bank on behalf~~85 net present value of the Company, with a maximum term of 365 days, renewable annually. The loan agreement also includes an uncommitted credit facility for up to CA$700 to support financing of certain capital expenditures. The Company received an initial advance of CA$250 in October 2017. Each advance is to be repaid on a five-year, straight-line amortization of principal, repaid in monthly installments of principal plus interestlicenses’ cash flows discounted at an ~~interest~~asset specific discount rate. The net present value attributable to the licenses deducts the contributory asset charges used in connection with the licenses. The estimated fair value of the brand was determined using the relief-from-royalty method. This method assumes that the brand has value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires the Company to estimate the future revenues for the related brand, the appropriate royalty rate, and an asset specific discount rate. This measure of ~~CA$ prime rate plus 200 basis points. As~~fair value requires considerable judgment about the value a market participant would be willing to pay to achieve the benefits associated with the brand. Acquired property, plant and equipment and software were valued using the replacement cost method, which requires the Company to estimate the costs to construct an asset of ~~June 30, 2020,~~equivalent utility at prices available at the time of the valuation analysis, with adjustments in value for physical deterioration and ~~December 31, 2019,~~functional and economic obsolescence. Upon the ~~balance~~acquisition of Pure Sunfarms, the Company identified goodwill of C$30,618 (US$24,698). This goodwill was ~~US$83 and US$106, respectively.~~

~~The weighted average interest rate on short-term borrowings~~calculated as the difference between the fair value of ~~June 30, 2020 and December 31, 2019 was 4.7% and 6.2%, respectively.~~

~~The Company has a line~~the consideration issued for the acquisition of credit agreement with a Canadian Chartered Bank (“Operating Loan”). The revolving Operating Loan has a line of credit up to CA$13,000, less outstanding letters of credit totaling US$150 and CA$38, and variable interest rates with a maturity date on May 31, 2021. The Operating Loan is subject to margin requirements stipulated by the bank. As of June 30, 2020, and December 31, 2019, the amount drawn on this facility was US$4,000 and US$2,000, respectively.

~~The Company’s borrowings (“Credit Facilities”) are subject to certain positive and negative covenants, including debt ratios,~~Pure Sunfarms and the fair value of all assets and liabilities acquired. The goodwill is attributable to the acquired workforce and potential for growth through the conversion of the Delta 1 greenhouse facility and future accretive acquisitions. The Company is required to ~~maintain certain minimum working capital. In December 2019,~~record a deferred tax liability for the difference between the assigned values and the tax bases of assets acquired and liabilities assumed. None of the goodwill is deductible for tax purposes. As a result of the acquisition, the Company ~~received~~also recognized a ~~waiver for its annual debt service coverage and debt~~gain of $23.6 million due to ~~EBITDA covenants under its Term Loan. The Company amended~~ the ~~terms~~revaluation of its ~~covenants with respect~~previously held investment in Pure Sunfarms to its ~~term loan in August, effective June 30, 2020, applicable to its annual fiscal~~fair value at the acquisition date. The initial accounting for the business combination was considered complete for the year ~~end~~ended December 31, 2020. As

The following table shows the allocation of ~~June 30, 2020,~~ the ~~Company was in compliance with all~~purchase price to assets acquired and liabilities assumed, based on estimates of ~~its other Credit Facility covenants under its Credit Facilities.~~fair value, including a summary of the identifiable classes of consideration transferred, and amounts by category of assets acquired and liabilities assumed at the acquisition date:

Accrued interest payable on the credit facilities and loans as of June 30, 2020 and December 31, 2019 was $111 and $162, respectively, and these amounts are included in accrued liabilities in the interim statements of financial position.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)

~~As collateral~~

Consideration paid	Shares		Share Price		Amount
Cash					$	45,259
Promissory note						15,011
Shareholder loan						4,529
Promissory note owed to PSF from Emerald						439
Due to related party						61
Fair value of previously held investment shares held by Village Farms		52,569,197	$	1.767		92,881
Total fair value of consideration					$	158,180

	November 2, 2020
ASSETS
Cash and cash equivalents	$	10,860
Trade receivables, net		10,553
Inventories		32,393
Prepaid expenses and deposits		3,572
Property, plant and equipment		122,831
Goodwill		23,095
Intangibles		16,670
Total assets		219,974
LIABILITIES
Trade payables		3,849
Accrued liabilities		13,062
Income taxes payable		2,173
Current maturities of long-term debt		2,306
Deferred revenue		77
Long-term debt		23,903
Deferred tax liabilities		16,424
Total liabilities		61,794
Net assets acquired	$	158,180

Prior to its acquisition on November 2, 2020, the Company accounted for its investment in Pure Sunfarms, in accordance with ASC Topic 323, Equity Method and Joint Ventures (“ASC Topic 323”), using the equity method. The Company determined that Pure Sunfarms was a variable interest entity (“VIE”), however the Company did not consolidate Pure Sunfarms because the Company was not the primary beneficiary. Although the Company was able to exercise significant influence over the operating and financial policies of Pure Sunfarms through its then 58.7% majority interest, the Company shared joint control of the board of directors and therefore was not the primary beneficiary. For the three and six months ended June 30, 2021 and 2020, the Company’s equity earnings from Pure Sunfarms were $463 and $3,994, respectively.

On March 2, 2020, pursuant to the Settlement Agreement, Emerald transferred to the Company 2.5% of additional equity in Pure Sunfarms. The Company determined the fair value of the equity received from Emerald to be C$6.5 million (US$4.7 million). The Company recorded this amount as a gain and included it as a gain on settlement agreement on the Condensed Consolidated Statement of Income (Loss) and Comprehensive Income (Loss) for the ~~FCC Loan,~~six months ended June 30, 2020.

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

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

Summarized financial information of Pure Sunfarms:

	Three months ended June 30,						Six months ended June 30,
	2021			2020			2021			2020
Sales	$	24,762		$	9,386		$	42,221		$	22,523
Cost of sales*		(17,867	)		(6,266	)		(30,189	)		(12,524	)
Gross Margin		6,895			3,120			12,032			9,999
Selling, general and administrative expenses		(4,502	)		(1,850	)		(9,621	)		(4,284	)
Income from operations		2,393			1,270			2,411			5,715
Interest expense, net		(427	)		(131	)		(799	)		(348	)
Foreign exchange (loss) gain		(87	)		28			(236	)		(151	)
Loss on disposal		(40	)		—			(40	)		—
Other income, net**		(269	)		1			(319	)		4,333
Income before taxes		1,570			1,168			1,017			9,549
Provision for income taxes		(779	)		(379	)		(630	)		(2,595	)
Net income	$	791		$	789		$	387		$	6,954

Included in cost of sales for the three months ended June 30, 2021 and 2020, respectively is$1,327 and $563, and six months ended June 30, 2021 and 2020 is$2,591 and $1,012 respectively, of depreciation expense.

** Includes gain recognized on settlement of net liabilities of $4,348.

9	INVESTMENT IN JOINT VENTURES AND MINORITY INTERESTS

Village Fields Hemp USA LLC

The Company’s equity losses from VF Hemp for the three months ended June 30, 2021 and 2020 were ($86) and ($113), respectively, and for the six months ended June 30, 2021 and 2020 were ($213) and ($415), respectively. The Company’s maximum exposure to loss as a result of its involvement with VF Hemp is directly related to the recovery of the $3,344 loan outstanding to VF Hemp.

The Company’s share of the joint venture consisted of the following:

Balance, January 1, 2020	$	—
Share of net loss		(3,975	)
Losses applied against joint venture note receivable		3,975
Balance, December 31, 2020	$	—
Balance, January 1, 2021	$	—
Share of net loss		(213	)
Losses applied against joint venture note receivable		213
Balance, June 30, 2021	$	—

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

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

Summarized financial information of VF Hemp:

	June 30, 2021			December 31, 2020
Current assets
Inventory	$	4,035		$	4,035
Other current assets		202			302
Non-current assets		758			937
Current liabilities		(1,508	)		(1,472	)
Non-current liabilities		(13,709	)		(13,697	)
Net assets	$	(10,222	)	$	(9,895	)
Reconciliation of net assets:
Accumulated retained earnings	$	(9,905	)	$	(3,791	)
Net loss		(327	)		(6,114	)
Contributions from joint venture partners		10			10
Net assets	$	(10,222	)	$	(9,895	)

During the six months ended June 30, 2021, the Company ~~has provided promissory notes,~~exercised a ~~first mortgage on the~~ ~~VFF-owned~~ ~~greenhouse properties (excluding the Delta 3 and Delta 2 greenhouse facilities), and general security agreements over~~portion of its ~~assets.~~option to make an additional equity investment in Australia-based Altum International Pty Ltd (“Altum”). In ~~addition,~~February 2021, the Company ~~has provided full recourse guarantees and has granted security therein.~~ exercised 204,000 options at a price of $2.45 per option, thereby increasing its ownership to just under 10.0%. In May 2021, the Company exercised the remaining 204,570 options at a price of $2.45 per option, thereby further increasing its ownership to 12.2%.

DEBT

	June 30, 2021		December 31, 2020
Term Loan - FCC Loan - repayable by monthly principle of payments of $164 and accrued interest at a rate of 3.746%; matures April 1, 2025	$	27,706	$	28,690
Term Loan - VFCE: C$3.0M - non-revolving fixed rate loan with fixed interest rate of 4.98%; matures June 2023		663		797
Advance on term loan - VFCE: C$250 - repayable in monthly installments of principal plus interest rate of C$ prime rate plus 200 basis points - paid in full June 2021		—		69
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 4.2%; matures February, 2024		12,895		13,385
Term loan - Pure Sunfarms - C$25.0 - 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 4.2%; matures February 2024		19,141		16,535
BDC Facility - Pure Sunfarms - non-revolving demand loan at prime interest plus 3.75%, matures December 31, 2031		5,067		4,905
Unamortized deferred financing fees		—		(302	)
Total	$	65,472	$	64,079

The Company’s line of credit (“Operating Loan”) had 0 amount drawn on the facility as of June 30, 2021,while there was $2,000 drawn as of December 31, 2020.

The carrying value of the assets and securities pledged as collateral for the FCC Loan as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$168,378~~$196,536 and ~~155,548,~~$86,664, respectively.

As collateral for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory. In addition, the Company has granted full recourse guarantees and security therein. The carrying value of the assets pledged as collateral for the Operating Loan as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$27,035~~$28,149 and ~~$24,915,~~$23,443, respectively.

The Company was in compliance with all of its credit facility covenants as of June 30, 2021.

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

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

On March 15, 2021, Pure Sunfarms entered into the Third Amended and Restated Credit Agreement (the “Third Amended and Restated PSF Credit Agreement) with Farm Credit Canada and two Canadian chartered banks, which extended the maturity date of each of the PSF Revolving Line of Credit, PSF Non-Revolving Facility and the PSF Term Loan through February 7, 2024, included an unlimited guarantee from Village Farms and changed certain financial covenants. The Third Amended and Restated PSF Credit Agreement amends and updates the previous three loan facilities. The PSF Revolving Line of Credit had 0 balance as of June 30, 2021 and December 31, 2020, respectively.

The weighted average annual interest rate on short-term borrowings as of June 30, 2021 and December 31, 2020 was 5.07%and 5.11%, respectively.

Accrued interest payable on the Credit Facilities and loans as of June 30, 2021 and December 31, 2020 was $79 and $189, respectively, and these amounts are included in accrued liabilities in the Condensed Interim Statements of Financial Position.

The aggregate annual maturities of long-term debt for the ~~next five years~~remainder of 2021 and thereafter are as follows:


Remainder of 2020	$	1,307
2021		2,418
Remainder of 2021			$	3,879
2022		2,406		8,033
2023		2,219		7,675
2024		2,059		26,663
2025				22,307
Thereafter		21,795		3,579

	$	32,204

Total			$	72,136

9 11	FINANCIAL INSTRUMENTS

The ~~Company records accounts receivable, accounts payable,~~Company’s financial instrumentsinclude cash and cash equivalents, trade receivables, note receivables, minority investments, trade payables, accrued liabilities, lease liabilities, note payables and ~~debt at amortized cost.~~debt. The carrying ~~values~~value of ~~these instruments~~cash and cash equivalents, trade receivables, trade payables, and accrued liabilities approximate their fair ~~value~~values due to the short-term maturity of these financial instruments. The carrying value of lease liabilities, notes payable, and debt approximate their ~~short-term maturities.~~fair values due to insignificant changes in credit risk. For its minority investments, the Company has elected 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.

RELATED PARTY TRANSACTIONS AND BALANCES

On July 5, 2018, the Company entered into a Shareholder Loan Agreement (the “Loan Agreement”) with Pure Sunfarms, whereby, as of June 30, 2020, the Company had contributed $9,959 (CA$13,000) in the form of a demand loan to Pure Sunfarms. As of June 30, 2020, the loan amount bears simple interest at the rate of 3.95% per annum, calculated semi-annually. Interest will accrue and be payable upon demand. The balance of the loan, including interest, was $10,522 as of June 30, 2020.

On February 13, 2019, the Company announced that Pure Sunfarms had entered into a credit agreement with Bank of Montreal, as agent and lead lender, and Farm Credit Canada, as lender, in respect of a CA$20 million secured ~~non-revolver~~ ~~term loan “Credit Facility”). In April 2020, Pure Sunfarms expanded its Credit Facility to CA$59.0 million, including accordion provisions of CA$22.5 million. As a~~ ~~pre-condition~~ to complete the debt facility, the Company made an additional contribution of CA$8.0 (US$5.7) million in Pure Sunfarms, further increasing its majority ownership of Pure Sunfarms to 58.7% from 57.4%. Each component of the Credit Facility matures on February 7, 2022, is secured by the Delta 3 facility, and contains customary financial and restrictive covenants. The Company is not a party to the Credit Facility but has provided a limited guarantee in the amount of CA$10 million in connection with the Credit Facility.

As of June 30, 2020, the Company had $139 due from its joint venture, Pure Sunfarms, primarily for consulting services and the reimbursement of expenses which mainly occurred in the year. As of December 31, 2019, the Company had $4,610 due from Pure Sunfarms, primarily relating to an equity contribution of CA$5,940 (US$4,494) to Pure Sunfarms made by the Company, on November 19, 2019 when Emerald failed to make a required escrow equity payment to Pure Sunfarms on November 1, 2019. Emerald disputed the Company’s additional November equity contribution, as well as the cancellation of 5.94 million common shares of Pure Sunfarms that related to the failure to pay the CA$5,940 equity contribution. In an effort to narrow the issues in dispute and accelerate the resolution of this shareholder dispute, which occurred on March 2, 2020 with the Settlement Agreement, Village Farms unwound its November equity contribution in January with Pure Sunfarms providing Village Farms with a CA$5,940 (US$4,554) refund.

On March 25, 2019, the Company entered into a Grid Loan Agreement (the “Grid Loan”) with VF Hemp. The Grid Loan has a maturity date of March 25, 2022 and bears simple interest at the rate of 8% per annum, calculated monthly. As of June 30, ~~2020,~~2021 and December 31, ~~2019~~2020, the Grid Loan balance was ~~$10,841~~ $3,344and ~~$10,865,~~$3,545, respectively.

One of the Company’s employees is related to a member of the Company’s executive management team and received approximately ~~$55~~$67 and ~~$56~~$55 in salary and benefits during the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

During ~~the three months ended June 30,~~ 2020, the Company advanced ~~$20~~a loan of $249 to an employee in connection with a relocation at the request of the Company. ~~As of~~During the six months ended June 30, ~~2020, this amount was included in other assets on~~2021, the ~~condensed consolidated interim statement~~employee repaid $124 of ~~financial position.~~

~~VILLAGE FARMS INTERNATIONAL, INC.~~

~~Notes to Condensed Consolidated Interim Financial Statements~~

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

~~Summary of amounts due from~~ the ~~joint ventures, including interest and included in~~outstanding loan balance. On July 7, 2021, the ~~interim statements of financial position:~~Company forgave the remaining balance.

   June 30, 2020    December 31, 2019
Pure Sunfarms
   $ 10,661    $ 15,418
VF Hemp
   10,841    10,865




Total
   $ 21,502    $ 26,283

INCOME TAXES

A provision for income taxes is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual rate used for the six months ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020 was 24%.

~~The~~For the three months ended June 30, 2021 and 2020, there was a recovery of income taxes of $1,781 and provision for income taxes of $(69), respectively. There was a recovery of income taxes of $3,620 and $943 for the six months ended June 30, 2021 and 2020, ~~compared~~respectively.

VILLAGE FARMS INTERNATIONAL, INC.

Notes to ~~provision for income taxes~~Condensed Consolidated Interim Financial Statements

(In thousands of ~~($1,152) for the six months ended June 30, 2019. The income tax provision for June 30, 2019 includes deferred tax liabilities arising from the contribution of the Delta 2 assets to Pure Sunfarms.~~United States dollars, except per share amounts, unless otherwise noted)

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. Management has determined that the Company operates in ~~three~~3 segments. The Company’s three segments include ~~the~~Cannabis, Produce ~~business, the Energy business~~ and ~~the Company’s~~Energy. The Cannabis segment produces and supplies cannabis products to be sold to other licensed providers and ~~hemp segment.~~provincial governments across Canada and internationally. The Produce business produces, markets and sells ~~the product group which consists of~~ premium quality tomatoes, bell peppers and cucumbers. The Energy business produces power that it sells ~~per~~pursuant to a long-term contract to its one customer. ~~For segment information regarding the Company’s cannabis and hemp segment refer to Note 7 – Investments – Equity Method and Joint Ventures.~~

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

	Three months ended June 30,						Six months ended June 30,
	2021			2020			2021			2020
Sales
Produce	$	45,539		$	47,455		$	80,406		$	79,417
Cannabis		24,761			—			42,221			—
Energy		74			118			143			268
	$	70,374		$	47,573		$	122,770		$	79,685
Gross margin
Produce	$	(3,814	)	$	3,723		$	(3,097	)	$	4,666
Cannabis		9,820			—			12,032			—
Energy		(741	)		(194	)		(1,363	)		(372	)
	$	5,265		$	3,529		$	7,572		$	4,294

15	INCOME (LOSS) PER SHARE

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

	Three months ended June 30,						Six months ended June 30,
	2021			2020			2021			2020
Numerator:
Net (loss) income	$	(4,517	)	$	(119	)	$	(11,899	)	$	4,071
Denominator:
Weighted average number of common shares - basic		81,071			56,339			78,560			54,636
Effect of dilutive securities- share-based employee options and awards		—			—			—			1,120
Weighted average number of common shares - diluted		81,071			56,339			78,560			55,756
Antidilutive options and awards		4,535			2,479			4,535			650
Net (loss) income per common share:
Basic	$	(0.06	)	$	(0.00	)	$	(0.15	)	$	0.07
Diluted	$	(0.06	)	$	(0.00	)	$	(0.15	)	$	0.07

16	SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

On May 21, 2021, the Company announced that the Toronto Stock Exchange (“TSX”) had accepted a notice filed by the Company of its intention to make a normal course issuer bid (“NCIB”). The NCIB notice provides that Village Farms may, during the 12-month period commencing May 26, 2021 and terminating May 25, 2022, purchase up to 4,062,309 of its common shares, representing approximately 5% of the Company’s issued and outstanding common shares, by way of a NCIB over the facilities of the TSX, the NASDAQ Stock Market and/or through alternative trading systems in Canada and the United States. For the three and six months ended June 30, ~~2020 and 2019:~~2021, the

   Three months ended June 30,    Six months ended June 30,
   2020    2019    2020    2019
Sales

Produce – U.S.
   $ 40,281    $ 33,661    $ 69,596    $ 61,860
Produce – Canada
   7,174    7,423    9,821    10,802
Energy – Canada
   118    245    268    557








   $ 47,573    $ 41,329    $ 79,685    $ 73,219








Interest expense

Produce – U.S.
   $ 5    $ 32    $ 12    $ 65
Produce – Canada
   418    618    933    1,261
Energy – Canada
   14    19    29    37








   $ 437    $ 669    $ 974    $ 1,363








Interest income

Corporate
   $ 93    $ 211    $ 476    $ 347








   $ 93    $ 211    $ 476    $ 347








Depreciation

Produce – U.S.
   $ 1,040    $ 1,005    $ 2,086    $ 2,025
Produce – Canada
   298    328    599    747
Energy – Canada
   153    227    336    455








   $ 1,491    $ 1,560    $ 3,021    $ 3,227








Gross margin

Produce – U.S.
   $ (99 )    $ (5,441 )    $ 1,218    $ (4,736 )
Produce – Canada
   3,822    2,678    3,448    2,738
Energy – Canada
   (194 )    (207 )    (372 )    (297 )








   $ 3,529    $ (2,970 )    $ 4,294    $ (2,295 )

   June 30, 2020    December 31, 2019
Total assets

United States
   $ 89,716    $ 88,395
Canada
   105,697    92,067
Energy – Canada
   2,528    2,946




   $ 197,941    $ 183,408

   June 30, 2020    December 31, 2019
Property, plant and equipment, net

United States
   $ 39,488    $ 41,656
Canada
   18,669    18,759
Energy – Canada
   2,341    2,743




   $ 60,498    $ 63,158

13	~~INCOME PER SHARE~~

~~Basic and diluted net income per ordinary share is calculated as follows:~~

   Three months ended June 30,    Six months ended June 30,
   2020    2019    2020    2019
Numerator:

Net (loss) income
   $ (119 )    $ 3,716    $ 4,071    $ 10,182








Denominator:

Weighted average number of common shares - Basic
   56,339    48,825    54,636    48,322
Effect of dilutive securities- share-based employee options and awards
   —      1,887    1,120    1,837








Weighted average number of common shares - Diluted
   56,339    50,712    55,756    50,159








Antidilutive options and awards
   2,479    2,612    650    310
Net (loss) income per ordinary share:

Basic
   $ (0.00 )    $ 0.08    $ 0.07    $ 0.21








Diluted
   $ (0.00 )    $ 0.07    $ 0.07    $ 0.20

14	~~SHARE-BASED COMPENSATION PLAN~~

~~Share-based compensation expense for the three and six months ended June 30, 2020 was $328 and $857, and $701 and $1,997 for the three and six months ended June 30, 2019, respectively.~~

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

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

Company had re-purchased 428,097 common shares for a total cost $3,980. On January 20, 2021, the Company closed a registered direct offering with certain institutional investors for the purchase and sale of an aggregate of 10,887,097 common shares at a purchase price of $12.40per common share for gross proceeds of approximately $135 millionbefore placement agent fees and other offering expenses.

On September 10, 2020, the Company sold 9,396,226 units through a registered direct offering. Each unit that was sold consisted of one common share of the Company and one-half (0.5) of a warrant to purchase a common share of the Company at a price of $5.80. On March 10, 2021, the warrants became exercisable and will expire on September 10, 2025. As of June 30, 2021, 3,188,680 of the warrants have been exercised.

Share-based compensation expense for the three and six months ended June 30, 2021 was $1,887 and $3,885, respectively, and $328 and $857 for the three and six months ended June 30, 2020, respectively.

Stock option activity for the six months ended June 30, ~~2020 is~~2021 was as follows:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2021		3,067,322		C$	6.91		6.82	$	20,051
Granted		120,000		C$	12.91		9.88	$	—
Exercised		(162,000	)	C$	1.36		1.31	$	2,116
Outstanding at June 30, 2021		3,025,322		C$	7.44		6.74	$	19,222
Exercisable at June 30, 2021		1,793,834		C$	5.66		5.04	$	14,685

   Number of
Options    Weighted
Average
Exercise Price    Weighted
Average
Remaining
Contractual
Term (years)    Aggregate
Intrinsic
Value
Outstanding at December 31, 2019
�� 2,452,666    CA$ 5.12    5.60    $ 11,435
Granted
   200,000    CA$ 7.29    9.92    $ —
Exercised
   (141,999 )    CA$ 1.27    1.74    $ —
Forfeited
   (31,667 )    CA$ 5.94    —      $ —



Outstanding at June 30, 2020
   2,479,000    CA$ 5.51    5.69    $ 7,497



Exercisable at June 30, 2020
   1,861,338    CA$ 3.51    4.62    $ 7,426

Performance-based shares activity for the six months ended June 30, ~~2020~~2021 was as follows:

   Number of
Performance-based
Shares    Weighted Average
Grant Date Fair
Value
Outstanding at December 31, 2019
   739,000    CA$ 7.92
Granted
   10,000    CA$ 7.16
Received
   (10,000 )    CA$ 7.16
Forfeited/expired
   (54,000 )    CA$ 8.09



Outstanding at June 30, 2020
   685,000    CA$ 7.91



Exercisable at June 30, 2020
   30,000    CA$ 12.87

	Number of Performance-based Restricted Share Units			Weighted Average Grant Date Fair Value
Outstanding at January 1, 2021		869,000		C$	7.51
Received		(243,000	)	C$	6.53
Outstanding at June 30, 2021		626,000		C$	7.89
Exercisable at June 30, 2021		201,000		C$	5.79

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

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

COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company and its subsidiaries may become defendants in certain employment claims and other litigation. The Company records a liability when it is probable that a loss has been incurred and the amount iscan be reasonably ~~estimable.~~estimated. The Company is not involved in any legal proceedings other than routine litigation arising in the normal course of business, none of which the Company believes will have a material adverse effect on the Company’s business, financial condition or results of the operations.

As of June 30, 2021, Pure Sunfarms had a commitment of $1,000 in the event of a service agreement break up.

18	SUBSEQUENT EVENTS

In July 2021, the Company re-purchased an additional 107,955 common shares for a total cost of $1,020.

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 interim 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, ~~2019. The June 30, 2019 figures are based on the Company’s recently restated U.S. Generally Accepted Accounting Principles (“GAAP”) results filed on Form~~ ~~8-K~~ on April 22, 2020 and not the Company’s financial statements, prepared in accordance with International Accounting Standard 34 – Interim Financial Reporting as issued by the International Accounting Standards Board, filed in August 2019. 2020.This discussion and analysis contain forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of 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, particularly in light of the ongoing and developing COVID-19 pandemic. In particular, we encourage you to review the risks and uncertainties described in “Risk Factors” in Part I, Item 1A in the Annual Report on Form 10-K for the year ended December 31, 2020. 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. See “Forward-Looking Statements”.

EXECUTIVE OVERVIEW

~~Through our majority ownership position in our joint venture,~~Village Farms International, Inc. (“VFF”), (together with its subsidiaries, the ~~British Columbia-based Pure Sunfarms Corp. (“PSF”~~“Company”, “Village Farms”, “we”, “us”, or ~~“Pure Sunfarms”~~“our”)~~, we have one of the single largest cannabis growing operations in the world. We are also~~ is one of the largest and longest-operating vertically integrated greenhouse growers in North ~~America~~America. Following our acquisition of the remaining 41.3% interest in British Columbia-based Pure Sunfarms Corp. (“Pure Sunfarms” or “PSF”) that was completed on November 2, 2020 (the “Pure Sunfarms Acquisition”), we wholly own one of the single largest cannabis growing operations in the world which is one of the lowest-cost greenhouse producers and one of the ~~only publicly traded greenhouse produce company~~best-selling brands in Canada. ~~Further, we have joint venture operations in hemp and high cannabidiol (“CBD”) products.~~

Pure Sunfarms leverages our 30 years of experience as a vertically integrated greenhouse grower for the rapidly ~~emerging~~developing cannabis opportunity ~~following legalization of cannabis in Canada. Pure Sunfarms is currently one of the largest producers of cannabis~~ in Canada with distribution in five ~~of the provinces. Its~~Canadian provinces: British Columbia, Ontario, Alberta, Saskatchewan, and Manitoba. Our long-term objective for Pure Sunfarms is to be the leading ~~low cost, high quality~~low-cost, high-quality cannabis producer in Canada.

In our greenhouse operations, we produce and distribute fresh, premium-quality produce with consistency 365 days a year ~~to national grocers in the U.S. and Canada~~ from more than ~~nine~~eight million square feet of Controlled Environment Agriculture (“CEA”) greenhouses in British Columbia (“B.C.”) and Texas, as well as from our partner greenhouses in ~~British Columbia,~~B.C., Ontario, and Mexico. ~~We are also pursuing opportunities~~The Company primarily markets and distributes under its Village Farms^® brand name and proprietary trademarks to ~~become~~retail supermarkets and dedicated fresh food distribution companies throughout the United States and Canada.

The Company, through its subsidiary VF Clean Energy, Inc. (“VFCE”), owns and operates a ~~vertically integrated leader~~7.0-megawatt power plant from landfill gas that generates electricity and provides thermal heat to one of the Company’s adjacent B.C. greenhouse facilities and sells electricity to British Columbia Hydro and Power Authority (“BC Hydro”). On November 10, 2020 we announced that we will be transitioning this operation to a renewable natural gas facility (“Delta RNG Project”) in conjunction with Mas Energy, LLC (“Mas Energy”) which is expected to enhance our financial return as well as provide food-grade CO2, which can be used in both our cannabis and produce growing operations in Delta, B.C.

The Company entered the U.S. hemp business in the ~~U.S. hemp-derived CBD market, subject to compliance~~spring of 2019 after the passing of the 2018 Farm Bill. We established a joint venture with ~~all applicable U.S. federal and state laws. We have established two joint ventures,~~a 65% interest in Village Fields Hemp USA, LLC (“~~VF Hemp” or “VFH”~~VFH”)~~, and Arkansas Valley Green and Gold Hemp LLC (“AVGG Hemp”),~~ for multi-state outdoor hemp cultivation and ~~CBD~~cannabidiol (“CBD”) extraction, and initiated plans to pursue controlled environment hemp production at our Texas greenhouse ~~operations, which total 5.7 million square feet~~operations.

Internationally, we evaluate, and target select, nascent, legal cannabis and CBD opportunities with significant long-term potential, with an initial focus on the Asia-Pacific region through our investment in Australia-based Altum International Pty Ltd (“Altum”).

We are in various stages of ~~production area, subject~~negotiations and due diligence in respect to ~~legalization~~potential opportunities in the developing cannabis industry. There can be no assurance that these negotiations will result in the completion of ~~hemp in Texas.~~ any such acquisitions or, if they do, what the final terms or timing of any such acquisitions would be.

Our ~~subsidiary VF Clean Energy, Inc. (“VFCE”), owns and operates a 7.0 MW power plant that generates electricity.~~

~~Recent developments relating~~Response to the ~~outbreak of the~~Ongoing Coronavirus ~~pandemic~~ ~~(“COVID-19”)~~Pandemic

In March 2020, the World Health Organization declared the outbreak of the COVID-19 virus a global pandemic. This outbreak continues to cause major disruptions to businesses and markets worldwide as the virus continues to spread. A number of countries as well as certain states and cities within the United States and Canada have enacted temporary closures of businesses, issued quarantine or shelter-in-place orders, and taken other restrictive measures in response to COVID-19.

To date, all of our operations are operating normally, however, the extent to which COVID-19 and the related global economic crisis affect our business, results of operations and financial condition, will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties (including new financial regulation and other regulatory reform) in response to the pandemic, and the effects on our produce,

clients, vendors and employees. We continue to service our customers amid uncertainty and disruption linked to COVID-19 and we are actively managing our business to respond to the impact.

Update Relating to the Texas Winter Storm of February 2021

From February 13-17, 2021, a major winter and ice storm with extremely cold temperatures impacted parts of the United States and Canada and in particular Texas. The unprecedented winter storm caused electricity demand in Texas to increase dramatically as Texas facilities were not built for such climate conditions. The storm caused major problems with sources of electricity, due to frozen wind turbines, natural gas production losses, and power generator outages, leading to a short-term situation in which demand vastly exceeded supply within the Texas power grid, which is not connected to the larger U.S. power grid. The loss of fuel supply and power generating capacity forced the Electric Reliability Council of Texas (“ERCOT”), the nonprofit grid operator, to declare an Energy Emergency Alert Level 3 and begin rotating power outages. Throughout the 5-day emergency period, the real-time price for electricity elevated to the maximum allowable price of $9,000 per MWh, which is more than 100 times higher than the prices observed in early February 2021 and historical February pricing.

The impact on Texas from the winter storm and rolling blackouts led to a number of deaths and billions of dollars in damages, making the weather event one of the costliest in Texas history. Since Texas has a deregulated electricity market, all customers from large industrial companies to residential customers purchase their electricity from third-party power suppliers, at the prevailing market price, which fluctuates by the hour. The Texas legislature was analyzing this event to determine necessary changes to the current structure of its power grid as well as the oversight provided by the Public Utility Commission of Texas and ERCOT, but no measures were passed by the Texas legislature to address the astronomical rate increases for the 2021 freeze, nor to implement measures or regulations to address the demand/supply situation, should such an event reoccur.

Our Texas operations, including the four greenhouses and distribution center, use a small amount of power to run its operational systems, but due to the more than 100 times increase in rates, we were financially impacted by the winter storm. The Company incurred an incremental electricity expense in Q2 2021 for the February 5-day period of $1,400, solely due to the significant temporary increase in electricity pricing. The freeze itself had no impact on our operations, nor our use of electricity. Due to the overall impact on many Texas businesses, utility companies and retail customers had expectations that the Texas legislature would address the incremental costs to users. Due to this expectation of legislative involvement, the electricity invoices that included the activity of February 13-17 were not sent until late May when it became evident that the Texas legislature was not going to address the issue. As such, the Company received its initial invoices for the freeze period in late May and after reviews, audits of all facility meters and material invoice corrections with the power companies, the invoices were finalized and paid in June 2021.

Our Texas operations are designed with back-up and redundant systems to handle temporary systems or weather events. Our facilities have back-up diesel generators that can run our heating systems. We hold two to three days of diesel to run the back-up generators, but due to the effect of the freeze and resulting Texas highway closures, additional diesel supply was unavailable and could not be transported to our Texas sites, so we could not take the Texas facilities off the grid to avoid a potential price surge. Our decision not to utilize our back-up systems was due to the rotating power outages and the risk of running out of diesel for our back-up systems, which in turn would have led to the loss of the crops in all four greenhouses.

In order to mitigate future price instability, in winter months, the Company has initiated fixed contracts for a significant portion of its anticipated electricity requirements at all our Texas facilities to mitigate future surcharges. In addition, the Company is reassessing its back-up systems to ensure that the greenhouses have enough capacity to produce the required electrical output if an outage occurs again in the future.

Recent Developments

Normal Course Issuer Bid for Common Shares

On May 26, 2021, the Toronto Stock Exchange accepted a notice of normal course issuer bid filed by the Company. Village Farms may purchase up to 4,062,309 of its Common Shares commencing May 26, 2021 and terminating May 25, 2022. As of June 30, 2021, the Company had purchased 428,097 Common Shares with an average price of $9.2972 per Common Share and a gross value of $3,980. As of the date of this filing, the Company had purchased 536,052 Common Shares with an average price of $9.3272 per Common Share and a gross value of $5,000.

Exercise of Warrants

In the first half of 2021, warrants issued as part of the September 2020 registered direct offering were exercised and resulted in proceeds to the Company of $18,494 and the issuance of 3,188,680 additional Common Shares. There are 1,509,433 remaining warrants from the September 2020 registered direct offering as of the date of this filing.

Amendment of the Company’s Operating Loan

On May 7, 2021, Village Farms amended the Operating Loan terms to extend the credit agreement with an amended line of credit of C$10,000 and maturity date of May 7, 2024. See “Liquidity and Capital Resources – Operating Loan”.

Pure Sunfarms

Pure Sunfarms’ recent developments include the following:

•

On July 22, 2021, Village Farms amended the Shareholder Loan Agreement with Pure Sunfarms, originally dated July 5, 2018. The Company provided an additional loan of C$5,000, increasing the Shareholder Loan balance to C$22,145. The additional funds will be utilized for capital improvements for the Delta 2 and Delta 3 facilities and working capital purposes.

•

On July 19, 2021, Village Farms amended the Shareholder Loan Agreement with Pure Sunfarms, originally dated July 5, 2018. The Company provided an additional loan of C$4,145, increasing the Shareholder Loan balance to C$17,145. The additional funds will be utilized for a BC Hydro security deposit for utility enhancements necessary for the Delta 2 facility upgrade.

•

On June 30, 2021, Pure Sunfarms received from Health Canada an amendment to the cultivation license for its 1.1 million square foot Delta 2 greenhouse facility, permitting Pure Sunfarms to cultivate cannabis in the half of the facility which has completed conversion. Pure Sunfarms expects to begin planting in September with the first harvest anticipated for November of this year.

Village Farms Clean Energy

In November 2020, VFCE entered into a partnership with Mas Energy to convert the current landfill gas to electricity business into a state-of-the-art landfill gas to high-demand renewable natural gas facility. Mas Energy will design, build, finance, own and operate the Delta RNG Project. VFCE renewed and extended the existing contract with the City of Vancouver to capture the landfill gas at its Delta, B.C. site. The 20-year extension, with an option for an additional five-year extension period, commences upon the start-up of the commercial operations of the Delta RNG Project.

When announced in November 2020, we anticipated attaining all regulatory approvals in the first half of 2021 with an expected operational start up as early as the first half of 2022. However, COVID-19 continues to adversely impact the bureaucratic processes in Canada surrounding permitting and zoning requirements necessary to break ground on the Delta RNG Project. We now anticipate attaining all regulatory approvals in the fall of 2021 with an expected operational start up as early as the fall of 2022. We expect the project to capture the CO2 from the renewable natural gas production process for use in our three Delta, B.C. vegetable and cannabis greenhouse facilities. The reduction in natural gas requirements is expected to decrease the total carbon footprint of Village Farms.

International

On May 5, 2021, Village Farms exercised its remaining option to increase its equity investment in Altum to just under 12%. The investment in Altum, one of Asia-Pacific’s leading CBD platforms, represents a capital efficient means for Village Farms to participate in opportunities in this region.

Presentation of Financial Results

Our consolidated results of operations (prior to net income) for the three and six months ended June 30, 2021 and 2020 presented below reflect the operations of our consolidated wholly owned subsidiaries, which does not include our VFH joint venture. The equity in earnings from VFH is reflected in our net income for the three and six months ended June 30, 2021 and 2020 presented below. Due to the acquisition of the remaining 41.3% interest in Pure Sunfarms, on November 2, 2020, the equity earnings from Pure Sunfarms are reflected in our net income for the three and six months ended June 30, 2020. However, for the three and six months ended June 30, 2021, the results of Pure Sunfarms are presented in the operations of our consolidated wholly owned subsidiaries. For information regarding the results of operations from our joint ventures, see “Reconciliation of Generally Accepted Accounting Practices (“GAAP”) Results to Proportionate Results” below.

RESULTS OF OPERATIONS

~~Consolidated Financial Performance~~

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

Consolidated Financial Performance

	Three Months Ended June 30,						Six Months Ended June 30,
	2021 ⁽¹⁾			2020⁽¹⁾			2021 ⁽¹⁾			2020⁽¹⁾
Sales	$	70,374		$	47,573		$	122,770		$	79,685
Cost of sales		(65,109	)		(44,044	)		(115,198	)		(75,391	)
Gross margin		5,265			3,529			7,572			4,294
Selling, general and administrative expenses		(9,025	)		(3,813	)		(17,117	)		(7,734	)
Share-based compensation		(1,887	)		(328	)		(3,885	)		(857	)
Interest expense		(598	)		(437	)		(1,339	)		(974	)
Interest income		46			93			49			476
Foreign exchange gain (loss)		193			530			(311	)		(396	)
Gain on settlement agreement		—			—			—			4,681
Other (expense) income		(166	)		26			(235	)		65
Loss on disposal of assets		(40	)		—			(40	)		(6	)
Recovery of (provision for) income taxes		1,781			(69	)		3,620			943
(Loss) income from consolidated entities after income taxes		(4,431	)		(469	)		(11,686	)		492
Equity (losses) earnings of unconsolidated entities		(86	)		350			(213	)		3,579
Net (loss) income	$	(4,517	)	$	(119	)	$	(11,899	)	$	4,071
Adjusted EBITDA ⁽²⁾	$	1,547		$	2,268		$	1,951		$	3,364
(Loss) earnings per share - basic	$	(0.06	)	$	(0.00	)	$	(0.15	)	$	0.07
(Loss) earnings per share - diluted	$	(0.06	)	$	(0.00	)	$	(0.15	)	$	0.07
Net (loss) income	$	(4,517	)	$	(119	)	$	(11,899	)	$	4,071
Other comprehensive income (loss):
Foreign currency translation adjustment		2,366			55			4,077			(72	)
Comprehensive (loss) income	$	(2,151	)	$	(64	)	$	(7,822	)	$	3,999

   For the three months ended
June 30,    For the six months ended
June 30,
   2020    2019    2020    2019
Sales
   $ 47,573    $ 41,329    $ 79,685    $ 73,219
Cost of sales
   (44,044 )    (44,299 )    (75,391 )    (75,514 )
Gross margin
   3,529    (2,970 )    4,294    (2,295 )
Selling, general and administrative expenses
   (3,813 )    (3,949 )    (7,734 )    (8,188 )
Stock compensation expense
   (328 )    (701 )    (857 )    (1,997 )
Interest expense
   (437 )    (669 )    (974 )    (1,363 )
Interest income
   93    211    476    347
Foreign exchange gain (loss)
   530    243    (396 )    521
Gain on settlement agreement
   —      —      4,681    —
Other income, net
   26    282    65    152
(Loss) gain on disposal of assets
   —      —      (6 )    13,564
(Provision for) recovery of income taxes
   (69 )    3,284    943    (1,152 )
Net (loss) income from consolidated entities
   (469 )    (4,269 )    492    (411 )
Equity earnings of unconsolidated entities
   350    7,985    3,579    10,593
Net (loss) income
   $ (119 )    $ 3,716    $ 4,071    $ 10,182
Adjusted EBITDA (1)
   $ 2,268    $ 4,644    $ 3,364    $ 5,990
Earnings per share - basic
   $ (0.00 )    $ 0.08    $ 0.07    $ 0.21
Earnings per share – diluted
   $ (0.00 )    $ 0.07    $ 0.07    $ 0.20

(1)	For the three and six months ended June 30, 2021, Pure Sunfarms is fully consolidated in the financial results of the Company. For the three and six months ended June 30, 2020, Village Farms share of Pure Sunfarms earnings are reflected in equity (losses) earnings of unconsolidated entities.

(2)

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. See ~~“Non-GAAP~~“Non-GAAP Measures” for a definition and reconciliation of Adjusted EBITDA to net (loss) income, the nearest comparable measurement under GAAP. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company. Adjusted EBITDA includes the Company’s majority non-controlling interest in Pure Sunfarms (through November 1, 2020), and 65% interest in VFH.

~~JV Cannabis Business –~~We caution that our results of operations for the three and six months ended June 30, 2021 and 2020 may not be indicative of our future performance, particularly in light of the ongoing COVID-19 pandemic. We are currently unable to assess the ultimate impact of the COVID-19 pandemic on our business and our results of operations for future periods.

Discussion of Financial Results

A discussion of our consolidated results for the three and six months ended June 30, 2021 and 2020 is included below. The consolidated results include all three of our operating segments, which include produce, cannabis and clean energy, along with all public company expenses. The remaining 41.3% interest in Pure Sunfarms

~~Set forth below are~~ was acquired by Village Farms on November 2, 2020; for the three and six months ended June 30, 2021, the operating results of ~~PSF,~~Pure Sunfarms are consolidated in our Consolidated Statements of Income (Loss), and for the three and six months ended June 30, 2020, Pure Sunfarms’ results are included in equity earnings from unconsolidated entities in our Consolidated Statements of Income (Loss).

Under “Cannabis Segment Results”, we also present a discussion of the operating results of Pure Sunfarms, before any allocation to Village Farms, which ~~are~~were not consolidated in our financial results ~~in accordance with GAAP. A discussion of our consolidated results, including our Produce Segment, is included further below.~~

~~For~~for the three and six months ended June 30, 2020 ~~compared to~~but were consolidated in our results for the three and six months ended June 30, ~~2019.~~2021. As a result of the Pure Sunfarms Acquisition, Pure Sunfarms recognized an increase in the fair value of its inventory on-hand on the acquisition date, resulting in a ($133) charge to cost of sales in the second quarter of 2021 and a ($2,925) charge to cost of sales in the first quarter of 2021 from the revaluation of its inventory to fair value. This is a non-cash accounting charge to cost of sales and should be adjusted for when analyzing the actual operational results of Pure Sunfarms.

Consolidated Results

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Sales

Sales for the three months ended June 30, ~~2020 and 2019~~2021 were ~~$9,386 and $24,244, respectively, a decrease of (61.3%). The decrease was a result of lower 2020 average selling price~~$70,374 as compared to $47,573 for the three months ended June 30, ~~2020 versus~~2020. The increase in sales was primarily due to the inclusion of Pure Sunfarms’ Q2 2021 revenues of $24,761 and an increase in produce supply partner sales of $1,867, partially offset by a decrease in our own produce sales of ($3,676) and VFCE power sales of ($151). The produce supply partner sales increase was due to higher volumes of pounds sold of tomatoes, peppers, cucumbers and mini-cucumbers. The decrease in our own produce sales was due to a (42%) decrease in the average selling price of tomatoes in the three months ended June 30, ~~2019 at which time all~~2021 versus June 30, 2020, partially offset by a 33% increase in our own production volume. The price decrease is the result of a market supply overage caused by lower retailer demand along with an increase in Canadian and U.S. tomato production. The tomato produce industry experienced one of the lowest pricing environments for tomatoes-on-the-vine and beefsteak varieties in the past ten years through late Q2 2021 with signs of pricing moving back into historical ranges towards the end of Q2 2021.

Cost of Sales

Cost of sales for the three months ended June 30, 2021 were $65,109 as compared to $44,044 for the three months ended June 30, 2020. The increase in cost of sales was primarily due to the addition of Pure Sunfarms’ Q2 2021 cost of sales of $14,941, an increase in our produce costs of $4,286, higher produce supply partner costs of $1,319 and an increase in clean energy costs of $519. The Q2 2021 cost of sales for Pure Sunfarms includes a $133 charge from the revaluation of its inventory to fair value at acquisition date and our produce costs include the $1,400 incremental utility charges associated with the Texas freeze of February 2021 that was settled and paid in Q2 2021. The increase in our own production costs was driven by the increase in volume as the Texas facilities improved production cost per pound in Q2 2021 through better utilization of our labor, transportation and handling cost, primarily due to greenhouse management efficiency efforts. The increase in produce supply partner cost of sales was driven by higher volumes of pounds sold and the increase in clean energy costs were ~~solely~~driven by higher depreciation charges as the depreciable life of VFCE assets have been accelerated due to the upcoming transition of operations to the Delta RNG Project expected to become operational in the fall of 2022.

Gross Margin

Gross margin for the three months ended June 30, 2021 increased $1,736 to $5,265, or a 7% gross margin, in comparison to $3,529, or a 7% gross margin, for the three months ended June 30, 2020. Excluding the $133 charge from the revaluation of Pure Sunfarms’ inventory to fair value at acquisition date and $1,400 from the incremental Texas freeze utility expenses, gross margin for the three months ended June 30, 2021 increased $3,269 to $6,798, or a 10% gross margin. The positive variance between periods is primarily attributable to Pure Sunfarms’ Q2 2021 gross margin of $9,820 and higher produce supply partner gross margin of $548, partially offset by lower gross margin from our produce operations of ($7,962) and clean energy of ($670).

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30, 2021 increased $5,212 to $9,025 compared to $3,813 for the three months ended June 30, 2020. The increase was primarily due to the inclusion of Pure Sunfarms’ expenses of $4,370, higher produce related legal fees and an increase in corporate expenses, primarily related to public company costs such as investor relations, legal and regulatory fees and incremental costs of U.S. reporting compliance.

Share-Based Compensation

Share-based compensation expenses for the three months ended June 30, 2021 were $1,887 as compared to $328 for the three months ended June 30, 2020. The increase in share-based compensation was primarily due to the vesting of performance shares earned by key corporate and operations employees in Q2 2021 as compared to Q2 2020 and the cost of stock options for Pure Sunfarms’ management of $191 in Q2 2021 versus nil in Q2 2020.

Recovery of (Provision for) Income Taxes

Income taxes for the three months ended June 30, 2021 was a recovery of $1,781 compared to a provision for ($69) for the three months ended June 30, 2020. For the three months ended June 30, 2021 and 2020, our effective tax rate, including both current and deferred income taxes, was (28.6%) and 17.3%, respectively. The equity losses for our unconsolidated entity, VFH, is reported post-tax and therefore does not affect our tax calculation.

Equity (Losses) Earnings from Unconsolidated Entities

Our share of losses from our joint ventures for the three months ended June 30, 2021 was ($86) compared to earnings of $350 for the three months ended June 30, 2020. The Q2 2021 equity loss includes only our proportionate share of the losses of VFH compared to Q2 2020 which includes our proportionate share of the earnings of Pure Sunfarms and VFH. Our share of income from

Pure Sunfarms was presented in equity earnings from unconsolidated entities for the three months ended June 30, 2020. Village Farms began fully consolidating operating results of Pure Sunfarms on November 2, 2020 and its results are presented in the Company’s consolidated operating results for the three months ended June 30, 2021. For information regarding the results of operations from our joint ventures, see “Reconciliation of U.S. GAAP Results to Proportionate Results” below.

Net Loss

Net loss for the three months ended June 30, 2021 was ($4,517) as compared to ($119) for the three months ended June 30, 2020. The increase in net loss was primarily due to a lower gross margin from our produce operations and higher corporate share-based compensation, partially offset by an improved operating profit for Pure Sunfarms in the three months ended June 30, 2021 as compared to June 30, 2020.

Adjusted EBITDA

Adjusted EBITDA for the three months ended June 30, 2021 was $1,547 compared to $2,268 for the three months ended June 30, 2020. The decrease in adjusted EBITDA was primarily due to lower operating results of the produce business, partially offset by the improvement in operating profit for Pure Sunfarms. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

Foreign Currency Translation Adjustment

The foreign currency translation adjustment for the three months ended June 30, 2021 was $2,366 compared to $55 for the three months ended June 30, 2020. Village Farms’ functional currency is the U.S. dollar while Pure Sunfarms’ functional currency is the Canadian dollar. The 2021 currency translation adjustment is due to the Canadian dollar strengthening versus the U.S. dollar during the second quarter of 2021, as Pure Sunfarms has more Canadian dollar assets than Canadian dollar liabilities on its balance sheet, resulting in a gain on its functional currency when converted on its balance sheet to U.S. dollars.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Sales

Sales for the six months ended June 30, 2021 were $122,770 as compared to $79,685 for the six months ended June 30, 2020. The increase in sales was primarily due to the inclusion of Pure Sunfarms’ 2021 revenues of $42,221 and an increase in produce supply partner sales of $6,005, partially offset by a decrease in our own produce sales of ($4,909) and VFCE power sales of ($232). The produce supply partner sales increase was due to higher volumes of pounds sold of tomatoes, peppers, cucumbers and mini-cucumbers, partially offset by lower price per pound for tomatoes and peppers. The decrease in our own produce sales was due to a (30%) decrease in the average selling price of tomatoes in the six months ended June 30, 2021 versus June 30, 2020, partially offset by a 23% increase in our own production volume despite the ongoing virus pressure, primarily from the tomato brown rugose fruit virus, at all of the Texas facilities. The commodity price decrease is the result of a market supply overage caused by an increase in Canadian winter production and a change in retailer buying habits to more specialty tomatoes. The tomato produce industry experienced one of the lowest pricing environments for tomatoes-on-the-vine and beefsteak varieties in the past ten years through late Q2 2021 with signs of pricing moving back into historical ranges towards the end of Q2 2021.

Cost of Sales

Cost of sales for the six months ended June 30, 2021 were $115,198 as compared to $75,391 for the six months ended June 30, 2020. The increase in cost of sales was primarily due to the addition of Pure Sunfarms’ 2021 cost of sales of $30,189, higher produce supply partner costs of $4,600, an increase in our produce costs of $4,143 and higher clean energy costs of $875. The 2021 cost of sales for Pure Sunfarms includes a $3,108 charge from the revaluation of its inventory to fair value at acquisition date and our produce costs include incremental utility charges of $1,400 associated with the Texas freeze of February 2021. The increase in our own production costs was driven by the 23% increase in production volume in the first six months of 2021 versus the first six months of 2020. The increase in produce supply partner cost of sales was driven by higher volumes of pounds sold and the increase in clean energy costs were driven by higher depreciation charges as the depreciable life of VFCE assets have been accelerated due to the upcoming transition of operations to the Delta RNG Project expected to become operational in the fall of 2022.

Gross Margin

Gross margin for the six months ended June 30, 2021 increased $3,278 to $7,572, or a 6% gross margin, in comparison to $4,294, or a 5% gross margin, for the six months ended June 30, 2020. Excluding the $3,108 charge from the revaluation of Pure Sunfarms’ inventory to fair value at acquisition date and $1,400 from the incremental Texas freeze utility expenses, gross margin for the six months ended June 30, 2021 increased $7,786 to $12,080, or a 10% gross margin. The positive variance between periods is primarily attributable to Pure Sunfarms’ 2021 gross margin of $12,032 and higher produce supply partner gross margin of $1,405, partially offset by lower gross margin from our produce operations of ($9,052) and clean energy of ($1,107).

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended June 30, 2021 increased $9,383 to $17,117 compared to $7,734 for the six months ended June 30, 2020. The increase was primarily due to the inclusion of Pure Sunfarms’ expenses of $8,336, higher produce related legal fees and an increase in corporate expenses, primarily related to public company costs such as investor relations, legal and regulatory fees, listing fees for the Toronto Stock Exchange (“TSX”), the January 2021 equity raise and incremental costs of U.S. reporting compliance.

Share-Based Compensation

Share-based compensation expenses for the six months ended June 30, 2021 were $3,885 as compared to $857 for the six months ended June 30, 2020. The increase in share-based compensation was primarily due to the vesting of performance share grants and stock options for Pure Sunfarms’ management of $1,285 in 2021 versus nil in 2020 as well as the vesting of performance shares earned by corporate and operations employees in 2021 as compared to 2020.

Gain on Settlement Agreement

On March 2, 2020, pursuant to the settlement agreement between the Company, Pure Sunfarms and Emerald (“Settlement Agreement”), Emerald transferred to the Company 2.5% of additional equity in Pure Sunfarms. The Company determined the fair value of the equity received from Emerald to be $4,681 (C$6,500). The Company recorded this amount as a gain on non-monetary exchange on the Consolidated Statement of Income (Loss) and Comprehensive Income (Loss) for the six months ended June 30, 2020.

Recovery of Income Taxes

Income taxes for the six months ended June 30, 2021 was a recovery of $3,620 compared to a recovery of $943 for the six months ended June 30, 2020. For the six months ended June 30, 2021 and 2020, our effective tax rate, including both current and deferred income taxes, was (23.6%) and (209.1%), respectively. The equity losses for our unconsolidated entity, VFH, is reported post-tax and therefore does not affect our tax calculation.

Equity (Losses) Earnings from Unconsolidated Entities

Our share of losses from our joint ventures for the six months ended June 30, 2021 was ($213) compared to earnings of $3,579 for the six months ended June 30, 2020. The 2021 equity loss includes only our proportionate share of the losses of VFH compared to 2020 which includes Pure Sunfarms and VFH. Our share of income from Pure Sunfarms was presented in equity earnings from unconsolidated entities for the six months ended June 30, 2020. Village Farms began fully consolidating operating results of Pure Sunfarms on November 2, 2020 and its results are presented in the Company’s consolidated operating results for the six months ended June 30, 2021. For information regarding the results of operations from our joint ventures, see “Reconciliation of U.S. GAAP Results to Proportionate Results” below.

Net (Loss) Income

Net loss for the six months ended June 30, 2021 was ($11,899) as compared to net income of $4,071 for the six months ended June 30, 2020. The decrease in net income in the six months ended June 30, 2021 as compared to June 30, 2020 was primarily due to lower operating profit of the produce operations, higher corporate expenses and accelerating the depreciable life of the clean energy assets due to the upcoming transition of operations to the Delta RNG Project expected to become operational in the fall of 2022.

Adjusted EBITDA

Adjusted EBITDA for the six months ended June 30, 2021 was $1,951 compared to $3,364 for the six months ended June 30, 2020. The decrease in adjusted EBITDA was primarily due to lower operating results from our produce business, partially offset by the improvement in operating profit for Pure Sunfarms. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

Foreign Currency Translation Adjustment

The foreign currency translation adjustment for the six months ended June 30, 2021 was $4,077 compared to ($72) for the six months ended June 30, 2020. Village Farms’ functional currency is the U.S. dollar while Pure Sunfarms’ functional currency is the Canadian dollar. The 2021 currency translation adjustment is due to the Canadian dollar strengthening versus the U.S. dollar during the first six months of 2021, as Pure Sunfarms has more Canadian dollar assets than Canadian dollar liabilities on its balance sheet, resulting in a gain on its functional currency when converted on its balance sheet to U.S. dollars.

Segmented Financial Performance

The following segmented financial information includes the financial results of our cannabis segment (Pure Sunfarms), before any allocation to Village Farms, which were not previously consolidated in our financial results for the three and six months ended June 30, 2020 and consolidated in our financial results for the three and six months ended June 30, 2021.


	Three months ended June 30, 2021	Three months ended June 30, 2020	Six months ended June 30, 2021	Six months ended June 30, 2020
Sales:
Produce	$ 45,539	$47,455	$ 80,406	$79,417
Cannabis	24,761	9,386	42,221	22,523
Clean Energy	74	118	143	268
	$ 70,374	$ 56,959	$ 122,770	$ 102,208
Cost of Sales:
Produce	($ 49,321)	($43,716)	($ 83,387)	($74,644)
Cannabis⁽¹⁾	(14,941)	(6,266)	(30,189)	(12,524)
Clean Energy	(847)	(328)	(1,622)	(747)
	($ 65,109)	($ 50,310)	($ 115,198)	($ 87,915)
Selling, general and administrative expenses:
Produce	($ 2,946)	($ 2,319)	($ 5,497)	($ 4,854)
Cannabis	(4,370)	(1,850)	(8,336)	(4,284)
Clean Energy	(52)	(65)	(84)	(110)
Corporate	(1,657)	(1,429)	(3,200)	(2,770)
	($ 9,025)	($ 5,663)	($ 17,117)	($ 12,018)
Share-based compensation:
Produce	$ -	$ -	$ -	$ -
Cannabis	(191)	-	(1,285)	-
Clean Energy	-	-	-	-
Corporate	(1,696)	(328)	(2,600)	(857)
	($ 1,887)	($ 328)	($ 3,885)	($ 857)
Operating profit/(loss):
Produce	($ 6,728)	$ 1,420	($ 8,478)	($ 81)
Cannabis⁽¹⁾	5,259	1,270	2,411	5,715
Clean Energy	(825)	(275)	(1,563)	(589)
Corporate	(3,353)	(1,757)	(5,800)	(3,627)
	($ 5,647)	$ 658	($ 13,430)	$ 1,418
Adjusted EBITDA⁽²⁾:
Produce	($ 3,981)	$ 2,783	($ 4,472)	$ 2,565
Cannabis⁽¹⁾	7,369	1,835	9,903	6,703
Clean Energy	(135)	(106)	(151)	(146)
Corporate⁽³⁾	(1,706)	(1,485)	(3,329)	(2,909)
	$ 1,547	$ 3,027	$ 1,951	$ 6,213

(1)

For the three months and six months ended June 30, 2021, Pure Sunfarms’ cost of sales included charges of ($133) and ($3,058), respectively from the revaluation of its inventory to fair value at the November 2, 2020 acquisition date.

(2)

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. See “Non-GAAP Measures” for a definition and reconciliation of Adjusted EBITDA to net (loss) income, the nearest comparable measurement under GAAP. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company. Adjusted EBITDA includes the Company’s majority non-controlling interest in Pure Sunfarms (through November 1, 2020), and 65% interest in VFH.

(3)

Corporate Adjusted EBITDA includes Corporate and Hemp Adjusted EBITDA. See “Reconciliation of U.S. GAAP Results to Proportionate Results” below.

Cannabis Segment Results – Pure Sunfarms

Pure Sunfarms’ comparative analysis are based on the consolidated results of Pure Sunfarms for the three and six months ended June 30, 2021 and June 30, 2020, not accounting for the percentage owned by Village Farms. See “Reconciliation of U.S. GAAP Results to Proportionate Results” for a presentation of Pure Sunfarms’ proportionate results for the three and six months ended June 30, 2021 and June 30, 2020.

Three Months Ended June 30, 2021 Compared to Three Months Ended March 31, 2021

Sales

Pure Sunfarms’ net sales for the three months ended June 30, 2021 were $24,761 as compared to $17,460 for the three months ended March 31, 2021. The sequential net sales increase was comprised of a 22% increase in branded sales and a 121% increase in non-branded sales. For the three months ended June 30, 2021, 66% of revenue was generated from branded flower and pre-rolls and 8% of revenue from branded oils, edibles and vapes (“Cannabis Derivate Products”) as compared to 71% of revenue from branded flower and pre-rolls and 13% of revenue from Cannabis Derivative Products for the three months ended March 31, 2021. For the three months ended June 30, 2021, non-branded sales represented 26% of revenues compared to 16% for the three months ended March 31, 2021. The increase in branded sales between sequential periods was largely attributable to increased production of high-potency flower and trim released in the three months ended June 30, 2021. Additionally, many provinces began their COVID-19 re-opening plans as COVID-19 pressures began subsiding and capacity restrictions decreased, particularly in Ontario, which helped spur demand in the latter half of Q2 2021. Similarly, the increase in non-branded sales was largely attributable to the availability of high-potency flower and trim to meet demand from other licensed producers (“LPs”) in the wholesale ~~channel during~~market.

Cost of Sales

Pure Sunfarms’ cost of sales for the three months ended June 30, 2021 was $14,941 as compared to $15,248 for the three months ended March 31, 2021. As a ~~period~~result of ~~elevated~~the Pure Sunfarms Acquisition, Pure Sunfarms recognized an increase in the fair value of its inventory on the acquisition date, resulting in a ($133) charge to cost of sales in the second quarter of 2021 and a ($2,925) charge to cost of sales in the first quarter of 2021 from the revaluation of its inventory to fair value. This is a non-cash accounting charge to cost of sales and should be adjusted for when analyzing the actual operational results of Pure Sunfarms. The decrease in cost of sales between the periods was driven by the lower charge from the revaluation of inventory to fair value at acquisition date. In addition, cost of sales as a percentage of revenue decreased from 71% to 60% for the sequential quarter as our cost of production decreased due to increased yields in cultivation.

Gross Margin

Gross margin for the three months ended June 30, 2021 increased $7,608 to $9,820, or a 40% gross margin, in comparison to $2,212, or a 13% gross margin, for the three months ended March 31, 2021. Excluding the purchase price inventory adjustment of $133, gross margin for the three months ended June 30, 2021 increased $4,817 to $9,954, or a 40% gross margin, in comparison to $5,137, or a 29% gross margin, excluding the purchase price inventory adjustment of $2,925 for the three months ended March 31, 2021. The increase in gross margin between sequential periods was attributable to an increase in branded flower sales at higher margins, an increased demand for high-quality, high-potency flower at higher margins for non-branded revenue and lower cost of sales as a percentage of net sales.

Selling, General and Administrative Expenses

Pure Sunfarms’ selling, general and administrative expenses for the three months ended June 30, 2021 were $4,370, or 18% of sales compared to $3,966, or 23% of sales for the three months ended March 31, 2021. The decrease in selling, general and administrative expenses as a percentage of sales for the three months ended June 30, 2021 in comparison to the three months ended March 31, 2021 was due to general cost containment efforts initiated by management to effectively keep expenses relatively constant as sales increased 38%.

Share-Based Compensation

Share-based compensation expenses for the three months ended June 30, 2021 were $191 as compared to $1,094 for the three months ended March 31, 2021. The decrease in share-based compensation is largely due to performance shares granted to Pure Sunfarms’ management that vested in the first quarter of 2021.

Net Income (Loss)

Pure Sunfarms’ net income for the three months ended June 30, 2021 was $3,221 as compared to a net loss of ($2,834) for the three months ended March 31, 2021. The higher net income between periods was primarily driven by a higher gross margin due to increased sales volume while decreasing cost of sales and selling, general and administrative expenses as a percentage of revenue.

Adjusted EBITDA

Adjusted EBITDA for the three months ended June 30, 2021 and March 31, 2021 was $7,369 and $2,534, respectively, representing an increase of 191%. The increase in Adjusted EBITDA was driven by higher net sales, gross margin and operating profit in the three months ended June 30, 2021 as compared to the three months ended March 31, 2021.

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Sales

Pure Sunfarms’ net sales for the three months ended June 30, 2021 were $24,761 as compared to $9,386 for the three months ended June 30, 2020. The net sales increase was comprised of a 154% increase in branded sales and a 96% increase in non-branded sales. For the three months ended June 30, 2021, 66% of revenue was generated from branded flower and pre-rolls and 8% of revenue from Cannabis Derivate Products as compared to 69% of revenue from branded flower and pre-rolls and no sales from Cannabis Derivate Products as Pure Sunfarms launched these products in Q3 2020. The sales increase was due to the impact of store openings throughout Canada combined with favorable brand performance and market ~~pricing.~~share in addition to the launch of Cannabis Derivate Products. Non-branded sales also benefited from store openings and the growth of the Cannabis Derivate Products which in turn increased demand for cannabis biomass sold to other LPs. For the three months ended June 30, 2021, non-branded sales represented 26% of revenues compared to 31% for the three months ended June 30, 2020.

~~During~~Cost of Sales

Pure Sunfarms’ cost of sales for the three months ended June 30, 2021 was $14,941 as compared to $6,266 for the three months ended June 30, 2020. The Q2 2021 cost of sales for Pure Sunfarms includes a $133 charge from the revaluation of its inventory to fair value at acquisition date. The increase in cost of sales between periods was driven by an increase in net sales, including a higher volume of branded sales which require incremental costs for manufacturing, packaging and distribution. However, cost of sales as a percentage of revenue decreased from 67% to 57% due to increased production efficiencies in 2021.

Gross Margin

Gross margin for the three months ended June 30, 2021 increased $6,700 to $9,820, or a 40% gross margin, in comparison to $3,120, or a 33% gross margin, for the three months ended June 30, 2020. The Q2 2021 gross margin for Pure Sunfarms includes a $133 charge from the revaluation of its inventory to fair value at acquisition date. The increase in gross margin between periods was primarily due to the higher volume of branded flower and pre-roll sales in 2021.

Selling, General and Administrative Expenses

Pure Sunfarms’ selling, general and administrative expenses for the three months ended June 30, 2021 were $4,370 compared to $1,850 for the three months ended June 30, 2020. The increase in selling, general and administrative expenses for the three months ended June 30, 2021 in comparison to the three months ended June 30, 2020 ~~56%~~was primarily due to additional headcount to support the growth of ~~kilograms sold (flower)~~Pure Sunfarms.

Share-Based Compensation

Share-based compensation expenses for the three months ended June 30, 2021 were $191 as compared to ~~provincial boards, with~~nil for the ~~remaining 44%~~three months ended June 30, 2020. The increase in share-based compensation is due to the cost of ~~kilograms sold (flower~~stock options for Pure Sunfarms’ management.

Net Income

Pure Sunfarms’ net income for the three months ended June 30, 2021 was $3,221 as compared to $789 for the three months ended June 30, 2020. The higher net income between periods was driven by higher net sales which includes Cannabis Derivative Products sales and ~~trim) being through~~lower selling, general and administrative costs as a percentage of net revenue.

Adjusted EBITDA

Adjusted EBITDA for the ~~wholesale channel, including nonmonetary~~three months ended June 30, 2021 and June 30, 2020 was $7,369 and $1,835, respectively, representing an increase of 302%. The increase in Adjusted EBITDA was driven by higher net sales, gross margin and lower selling, general and administrative costs as a percentage of net sales.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Sales

Pure Sunfarms’ net sales for the six months ended June 30, 2021 were $42,221 as compared to $22,523 for the six months ended June 30, 2020. Branded sales for the six months ended June 30, 2021 and 2020, were $32,973 and $12,738, respectively, an increase of $20,235, or 159% between periods. Non-branded revenue for the six months ended June 30, 2021 and 2020 was $9,248

and $9,785, respectively, a decrease of ($537), or (5%). For the six months ended June 30, 2021, 68% of revenue was generated from branded flower and pre-rolls and 10% of revenue was generated from Cannabis Derivate Products as compared to 57% of revenue from branded flower and pre-rolls and no revenue from Cannabis Derivative Products for the six months ended June 30, 2020. The increase in branded sales was largely attributable to increased production of high-potency flower, trim and Cannabis Derivate Products relative to the prior period. Additionally, many provinces began their re-opening plans as COVID-19 pressures subsided and capacity restrictions decreased, particularly in Ontario, which helped spur demand in the latter half of Q2 2021. For the six months ended June 30, 2021, non-branded sales represented 22% of revenues compared to 43% for the six months ended June 30, 2020. The decrease in non-branded sales was largely due to opportunistic and material non-monetary transactions that occurred in 2020 with extraction licensed producers in which Pure Sunfarms sold extraction grade dried flower and trim and purchased various forms of distillate from the same ~~counterparties, which will be Pure Sunfarms in future cannabis 2.0 product launches.~~

The net average selling price for the three months ended June 30, 2020 was lower than the net average selling price for the three months ended March 31, 2020 by (48.6%). Kilograms sold to provincial boards for the three months ended June 30, 2020 increased 89% over sales to provincial boards in the first quarter of 2020. Wholesale kilograms sold decreased (39%) in the second quarter for 2020 versus the first quarter of 2020. Total kilogram volume sold for the three months ended June 30, 2020 was consistent with the kilograms sold in the first quarter.

Net sales, and hence net average selling price, for three months ended June 30, 2020 was impacted by price adjustments, cash discounts and increased co-op allowances on small format and pre-roll SKUs in order to continue Pure Sunfarms market leading value priced SKUs, in part due to the success of the Pure Sunfarms large format SKUs. Additionally, an increase in the provision for returns was taken on various strains with a single provincial board that Pure Sunfarms has agreed to accept, and which Pure Sunfarms will utilize of its future cannabis 2.0 products.

~~Cost of Goods~~counterparties.

Cost of goods sold for the three months ended June 30, 2020 and 2019 was $6,266 and $3,956, respectively, an increase of 58.4%. The total cost increase is driven by an increase in retail sales and a period over period increase in grams sold. The ~~all-in~~Sales

Pure Sunfarms’ cost of grams sold in the second quarter of 2020 was $0.61 per gram (CA$0.84), versus $0.49 per gram (CA$0.65) in the second quarter of 2019. The higher cost in 2020 was primarily driven by additional packaging and logistics costs incurred for retail sales versus all sales were made to wholesale channel in 2019.

Costs per gram sold for the three months ended June 30, 2020 were lower than costs per gram sold in the first quarter of 2020, by 5%, even with the significant increase in retail sales quarter over quarter, which is a reflection of the increase in large format SKUs in the product mix and continued low cost of cultivation.

~~Gross Margin~~

Gross margin for the three months ended June 30, 2020 was 33.2% versus 83.7% for the three months ended June 30, 2019. The reduction was due to the lower price environment in 2020 versus 2019 and the change in mix to retail sales in 2020 versus all wholesale sales in the second quarter of 2019. Retail sales involve incremental packaging and logistics costs over bulk wholesale sales.

The gross margin of 33.2% in the second quarter is lower than the 52.2% in the first quarter of 2020 due to a lower pricing environment in the second quarter of 2020 versus the first quarter of 2020 in both the retail and wholesale channels as well as the price adjustments, cash discounts, increased co-op allowances and an increase in the return provision in the second quarter of 2020.

~~Selling, General and Administrative Expense~~

Selling, general and administrative expenses for the three months ended June 30, 2020 and 2019 was $1,850 and $1,786, respectively, an increase of 3.6%. The increase is primarily due to regulatory fees for Health Canada and an increase in staffing. The second quarter 2020 selling, general and administrative expenses decreased by (24.0%) versus the first quarter of 2020 due to a reduction in branding and marketing costs due to decreased retail marketing activity as a result of Covid 19 as well as a one-off wage subsidy that was recognized in the second quarter as a result of a federal Covid 19 program.

~~Net Income~~

Net income for the three months ended June 30, 2020 and 2019 was $789 and $13,019, respectively, a decrease of (93.9%). The decrease was primarily due to the decrease in sales driven by lower market pricing year over year.

~~Adjusted EBITDA~~

Adjusted earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”) for the three months ended June 30, 2020 and 2019 was $1,833 and $18,893, respectively. The decrease is primarily due to lower selling prices for the three months ended June 30, 2020 compared to the same prior year period.

~~For the six months ended June 30, 2020 compared to the six months ended June 30, 2019.~~

~~Sales~~

Sales for the six months ended June 30, 2020 and 2019 were $22,523 and $35,045, respectively, a decrease of (35.7%). The decrease was the result of a higher average selling price for the six months ended June 30, 2019 when all of Pure Sunfarms’ sales were being made through its wholesale channel during a period of elevated market pricing. During the six months ended June 30, 2020, 43% of kilograms sold (flower) were to provincial boards, with the remaining 57% of kilograms sold (flower and trim) being through the Wholesale channel, including nonmonetary transactions with extraction licensed producers in which Pure Sunfarms sold extraction grade dried flower and trim and purchased various forms of distillate from the same counterparties, which will be Pure Sunfarms in future Cannabis 2.0 product launches. Net sales for the six months ended June 30, ~~2020~~2021 was ~~impacted by continued lower retail pricing, a second quarter price adjustment~~$30,189 as compared to various pre-roll and small format SKUs, cash discounts, increased co-op allowances as well as an increase in its sales return provision for the return of products from a single provincial board that Pure Sunfarms has agreed to accept, which will be repurposed for cannabis 2.0 products.

~~Cost of Goods~~

~~Cost of goods sold~~$12,524 for the six months ended June 30, ~~2020 and 2019 was $12,524 and $7,774, respectively, an~~2020. The 2021 cost of sales for Pure Sunfarms includes a $3,058 charge from the revaluation of inventory to fair value at acquisition date. The increase in cost of ~~61.1%. The cost increase~~sales between periods was driven by ~~a period over period~~an increase in ~~grams sold~~net sales, including the higher volume of ~~62.4%~~branded sales which require incremental costs for manufacturing, packaging and ~~a transition to higher costing provincial retail sales products. The cost of grams sold~~distribution.

Gross Margin

Gross margin for the six months ended June 30, ~~2020 was $0.61 per gram (CA$0.83), consistent with $0.62 per gram (CA$0.82) for the first six months ended June 30, 2019.~~

~~Gross Margin~~

~~Gross~~2021 increased $2,033 to $12,032, or a 28% gross margin, ~~percentage~~in comparison to $9,999, or a 44% gross margin, for the six months ended June 30, ~~2020 was 44.4% versus~~2020. Excluding the ~~prior year six month~~purchase price inventory adjustment of $3,058, gross margin ~~percentage of 77.8%.~~for the six months ended June 30, 2021 increased $5,091 to $15,090, or a 36% gross margin. The ~~decrease~~increase in gross margin was ~~due to the substantive year over year decrease in pricing as well as~~driven by the increase in ~~year over year provincial (retail)~~branded sales. However, branded sales ~~which come~~have a higher cost associated with ~~incremental~~ packaging and ~~logistics costs over and above bulk wholesale products.~~distribution which led to a decrease in gross margin as a percentage of revenue between the periods. In addition, Pure Sunfarms entered into certain co-manufacturing agreements to assist in the production of Cannabis Derivative Products which have a lower margin relative to in-house production.

Selling, General and Administrative ~~Expense~~Expenses

~~Selling,~~Pure Sunfarms’ selling, general and administrative expenses for the six months ended June 30, ~~2020 and 2019 was~~2021 were $8,336 compared to $4,284 ~~and $2,785, respectively, an increase of 53.8%.~~for the six months ended June 30, 2020. The increase isin selling, general and administrative expenses for the six months ended June 30, 2021 in comparison to the six months ended June 30, 2020 was primarily due to ~~higher regulatory fees~~additional headcount to ~~Health Canada, which are a based~~support the growth of Pure Sunfarms. Selling, general and administrative expenses remained approximately 20% of net sales as revenues increased 87% between the six months ended June 30, 2021 and June 30, 2020, respectively.

Share-Based Compensation

Share-based compensation expenses for the six months ended June 30, 2021 were $1,285 as compared to nil for the six months ended June 30, 2020. The increase in share-based compensation is due to the vesting of performance share grants and cost of stock options for Pure Sunfarms’ management.

Gain on ~~provincial kilograms sold and incremental year on year costs for marketing and staffing as a direct result~~Settlement of ~~the provincial retail sales in 2020, as~~ Net Liabilities

Pure Sunfarms ~~did not have its provincial sales license in the first six months of 2019.~~

~~Other Income~~

~~PSF~~ recognized ~~a gain on settlement of net liabilities~~income of $4,348 in the first quarter of 2020 as an outcome of the March 2, 2020 Settlement Agreement between ~~PSF,~~Pure Sunfarms, Emerald ~~Health~~ and the Company. This gain is ~~PSF’s~~Pure Sunfarms’ forgiveness of ~~the~~a shareholder loan and accrued interest owed by Emerald offset by the extinguishment of the ~~Supply Agreement~~supply agreement and any amounts receivable ~~under it,~~thereunder, which included ~~an CA$606~~a C$8,100 receivable from Emerald for sales made in ~~the first quarter of 2020 and CA$8.1 million for sales made in~~ 2019.

Net Income

~~Net~~Pure Sunfarms’ net income for the six months ended June 30, ~~2020 and 2019~~2021 was ~~$6,954 and $17,422, respectively, a decrease~~$387 as compared to net income of ~~60.1%. The decrease was primarily due to the $12,522 decrease in sales as a result of lower market pricing in 2020.~~

~~Adjusted EBITDA~~

~~Adjusted EBITDA, which excludes the~~ ~~one-off~~ ~~gain on settlement of net liabilities,~~$6,954 for the six months ended June 30, ~~2020 and 2019 was $6,702 and $25,344, respectively.~~2020. The decrease ~~is primarily due~~in net income was largely attributable to the one-time gain on settlement of net liabilities of $4,348 in 2020 as well as the lower ~~selling prices and higher selling, general and administrative expenses~~operating profit for the six months ended June 30, ~~2020 compared to the same prior year period.~~

~~Consolidated Line Item Results~~

~~Three months ended June 30, 2020 Compared to Three months ended June 30, 2019~~

~~Sales~~

Sales for the three months ended June 30, 2020 increased $6,244, or 15.1%, to $47,573 compared to $41,329 for the three months ended June 30, 2019. The increase in sales is primarily due to higher selling prices for tomatoes during the three months ended June 30, 2020 compared to the same prior year period. The average net selling price for all tomato pounds sold increased 39% for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 generated primarily from our commodity items, which includes beefsteak tomatoes and tomatoes on the vine (“TOVs”). The increase in net selling price in the commodity items was primarily due to a supply shortage throughout most of the first half of 2020, as well as increased grocery store traffic as a direct result of the Coronavirus. Pepper prices increased 28% and pepper pounds increased 44% when compared to the same prior year period. Cucumber prices decreased (2%) and cucumber pieces sold decreased (19%) for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019.

~~Cost of Sales~~

Cost of sales for the three months ended June 30, 2020 decreased ($255), or less than (1%), to $44,044 from $44,299 for the three months ended June 30, 2019 due to a higher cost per pound resulting from fewer pounds sold.

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses for the three months ended June 30, 2020 decreased ($136), or (3.4%), to $3,813 from $3,949 for the three months ended June 30, 2019 as a result of lower produce marketing activities.

~~Share-based Compensation~~

Share-based compensation expense for the three months ended June 30, 2020 was $328 compared to $701 for the three months ended June 30, 2019. The decrease in share-based compensation expense is primarily due to the vesting of performance shares earned related to developments in Pure Sunfarms in 2019.

~~Interest Expense~~

Interest expense for the three months ended June 30, 2020 decreased ($232) to $437 from $669 for the three months ended June 30, 2019. The decrease is due to lower interest rates as well as lower debt balances.

~~Interest Income~~

~~Interest income for the three months ended June 30, 2020 and 2019 was $93 and $211, respectively. Interest is no longer being accrued for the VFH grid loan.~~

~~Equity Earnings from Unconsolidated Entities~~

Equity earnings from our unconsolidated entities decreased ($7,635), or (95.6%) to $350 for the three months ended June 30, 2020, from $7,985 for the prior year period. The decrease is primarily due to a period over period decrease in Pure Sunfarms’ sales of ($14,858) due to market driven price reductions and our share of VF Hemp second quarter losses of ($113). For information regarding the results of operations from our joint ventures, refer to “JV Cannabis Business” above and “Reconciliation of U.S. GAAP Results to Proportionate Results” below.

~~Income Tax (Provision) Recovery~~

For the three months ended June 30, 2020, we recorded an income tax provision of ($69) compared to an income tax recovery of $3,284 for the three months ended June 30, 2019. The difference is primarily due to the increase in sales. Pure Sunfarms and VF Hemp are both reported ~~post-tax~~ ~~and therefore do not factor into our tax calculation.~~

~~Net (Loss) Income~~

Net (loss) income for the three months ended June 30, 2020 and 2019 was ($119) and $3,716, respectively. The decrease was primarily due to the decrease of ($7,635) in our equity earnings from our unconsolidated entities, offset by an increase in tomato sales resulting from higher selling prices.2021.

Adjusted EBITDA

Adjusted EBITDA for the three months ended June 30, 2020 decreased 51.2% to $2,268 from $4,644 for the three months ended June 30, 2019 due primarily to the decrease in equity earnings from Pure Sunfarms offset by higher sales. See the reconciliation of Adjusted EBITDA to net income in ~~“Non-GAAP~~ ~~Measures - Reconciliation of Net Earnings to Adjusted EBITDA”.~~

~~Six months ended June 30, 2020 compared to six months ended June 30, 2019~~

~~Sales~~

Sales for the six months ended June 30, 2020 increased $6,466, or 8.8%, to $79,685 compared to $73,219 for the six months ended June 30, 2019. The increase in sales was primarily due to higher selling prices for tomatoes during the six months ended June 30, 2020 compared to the same prior year period offset by production short falls. The average net selling price for all tomato pounds sold increased 22% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due primarily to an increase in the average selling price of our commodity items, which includes beefsteak tomatoes and TOVs. The increase in selling prices for the commodity items was primarily due to a supply shortage mostly stemming from the effects of ~~COVID-19~~ for most of the first half of 2020. Pepper prices increased 20% and pepper pounds increased 30% when compared to the same prior year period. Cucumber prices remained flat and cucumber pounds decreased (13%) for the six months ended June 30, 2020 as compared to the same prior year period.

~~A summary of sales by product group in our greenhouse produce business, follows:~~

   For the six months ended
June 30,
Percent of Sales by Product Group
   2020 2019
Tomatoes
   86 % 85 %
Peppers
   9 % 5 %
Cucumbers
   5 % 10 %


   100 % 100 %

~~Cost of Sales~~

Cost of sales for the six months ended June 30, 2020 only decreased ($123), or less than (1%), to $75,391 from $75,514 for the six months ended June 30, 2019 due to a higher cost per pound resulting from fewer pounds sold.

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses for the six months ended June 30, 2020 decreased ($454), or (5.5%), to $7,734 from $8,188 for the six months ended June 30, 2019. The decrease was primarily due to reductions in employee related expenses, accounting fees and travel expenses offset by an increase in legal expense related primarily to public company filings and the first quarter Settlement Agreement, as well as increases in other public company expenses.

~~Share-based Compensation~~

Share-based compensation expense for the six months ended June 30, 2020 decreased ($1,140), or (57.1%), to $857 from $1,997 for the six months ended June 30, 2019. The decrease in share-based compensation expense was primarily due to the vesting of performance shares earned related to developments in Pure Sunfarms in 2019.

~~Interest Expense~~

Interest expense for the six months ended June 30, 2020 decreased ($389), or (28.5%), to $974 from $1,363 for the six months ended June 30, 2019. The decrease was due to lower interest rates as well as lower debt balances.

~~Interest Income~~

Interest income for the six months ended June 30, 2020 and 2019 was $476 and $347, respectively. The increase was due to the VFH grid loan having a higher balance at June 30, 2020 as compared to June 30, 2019.

~~(Loss) Gain on Disposal of Assets~~

The Company recognized a loss on disposal of assets of ($6) for the six months ended June 30, 2020 compared to a gain of $13,564 in the prior year period. The 2019 gain was due to the contribution of Delta 2 assets to Pure Sunfarms in March 2019. The gain represents the difference between our book value of the assets contributed and the CA$25,000 fair market value of stock received in PSF.

~~Income Tax Recovery (Provision)~~

For the six months ended June 30, 2020, we recorded an income tax recovery of $943 compared to an income tax provision of ($1,152) for the six months ended June 30, 2019. The improvement was primarily due to a $13,564 gain on disposal of assets arising from the contribution of our Delta 2 assets to Pure Sunfarms during the six months ended June 30, 2019. Pure Sunfarms and VF Hemp are both reported ~~post-tax~~ ~~and therefore do not factor into our tax calculation.~~

~~Equity Earnings from Unconsolidated Entities~~

Equity earnings from our unconsolidated entities decreased (66.2%) to $3,579 for the six months ended June 30, 2020, from $10,593 for the same prior year period. The decrease was primarily due to a period over period decrease in Pure Sunfarms’ sales of ($12,522) offset by a $4,348 gain resulting from the outcome of the March 2, 2020 Settlement Agreement between PSF, Emerald Health and us, of which $2,496 was our share of that income, and our share of VF Hemp losses of ($415). For information regarding the results of operations from our joint ventures, refer to “JV Cannabis Business” above and “Reconciliation of U.S. GAAP Results to Proportionate Results” below.

~~Net Income (Loss)~~

Net income (loss) for the six months ended June 30, 2020 and 2019 was $4,071 and $10,182, respectively. The decrease was mainly due to a decrease of ($7,014) in our equity earnings from our unconsolidated entities offset by an increase in sales of $6,466 and a gain on settlement of $4,681 recognized during the six months ended June 30, 2020, compared to a gain on disposal of assets of $13,564 recognized during the six months ended June 30, 2019.

~~Adjusted EBITDA~~

Adjusted EBITDA for the six months ended June 30, 2021 and June 30, 2020 ~~decreased ($2,626), or (43.8%),~~was $9,903 and $6,703, respectively. Adjusted EBITDA increased 33% between periods primarily due to ~~$3,364 from $5,990~~higher gross margin for the ~~six months~~period ended June 30, ~~2019 due primarily~~2021 as compared to ~~the decrease in equity earnings from Pure Sunfarms offset by higher produce sales and earnings. See the reconciliation of Adjusted EBITDA to net income in~~ ~~“Non-GAAP~~ ~~Measures - Reconciliation of Net Earnings to Adjusted EBITDA”.~~

June 30, 2020.

Liquidity and Capital Resources

Capital Resources

AtAs at June 30, ~~2020, the~~2021, we had ~~$9,568~~$114,029 in cash and ~~$24,788~~$155,207 of working capital, and as at December 31, 2020, we had $21,640 in cash and $29,528 of working capital. We expect to utilize our working capital and provide or obtain adequate financing to maintain

and improve our property, plant and equipment, to fund working capital produce needs and invest in Pure Sunfarms for the next twelve months from cash flows from operations, and, asif needed, from additional borrowings under the Credit Facilities (as defined below) or additional equity or debt financing.

(in thousands of U.S. dollars unless otherwise noted)    Maximum    Outstanding
June 30, 2020
Operating loan
   CA$ 13,000    $ 4,000
Term loan
   $ 29,766    $ 29,766
VFCE loan
   CA$ 1,317    CA$ 1,317

(in thousands of U.S. dollars unless otherwise noted)	Maximum		Outstanding June 30, 2021
Operating Loan⁽¹⁾	C$	10,000	$	—
Term Loan	$	27,706	$	27,706
Pure Sunfarms Loan	C$	45,996	C$	45,996
VFCE Loan	C$	822	C$	822

(1)

The Operating Loan was amended on May 7, 2021 with a maximum line of credit of C$10,000. See “Operating Loan” below.

AtThe Company’s borrowings under the FCC Term Loan, the Operating Loan and VFCE Borrowings (collectively the “Credit Facilities”), excluding Pure Sunfarms borrowings, are subject to certain positive and negative covenants, including debt ratios, and the Company is required to maintain certain minimum working capital. As of June 30, 2021, the Company was in compliance with all of its covenants under its Credit Facilities.

Accrued interest payable on the Credit Facilities and Pure Sunfarms Loans as of June 30, 2021 and December 31, 2020 ~~we had a~~ was $79 and $189, respectively, and these amounts are included in accrued liabilities in the Condensed Consolidated Interim Statements of Financial Position.

Term Loan

The Company has a term loan financing agreement with Farm Credit Canada (“FCC”), a Canadian creditor ~~(“FCC~~(the “FCC Term Loan”). The non-revolving variable rate term loan ~~had~~has a maturity date of April 1, 2025 and a balance of ~~$29,766~~$27,706 on June 30, 2021 and $28,690 as of ~~June 30,~~December 31, 2020. The outstanding balance is repayable by way of monthly installments of principal and interest, with the balance and any accrued interest to be paid in full on April 1, 2025. Effective August 1, 2020, monthly principal payments were reduced to $164 from $257. As of June 30, ~~2020,~~2021 and December 31, ~~2019,~~2020, borrowings under the FCC Term Loan agreement were subject to an interest rate of ~~4.98%~~3.746% and ~~6.391%,~~3.79% per annum, respectively.

~~We are also party to a variable rate line of credit agreement with Bank of Montreal (“BMO”) that has a maturity date of May 31, 2021 (the “Operating Loan” and together with~~As collateral for the FCC Loan, the “Credit Facilities”). The Operating Loan is subject to margin requirements stipulated by the bank based on produce sales. As at June 30, 2020 and 2019 there was $4,000 and $2,000, respectively, drawn on the Operating Loan, which is available to a maximum of CA$13,000, less outstanding letters of credit of US$150 and CA$38.

~~Our subsidiary VFCE has a loan agreement with a Canadian Chartered Bank that includes a~~ ~~non-revolving~~ fixed rate loan of CA$3.0 million with a maturity date of June 2023 and fixed interest rate of 4.98%. As of June 30, 2020, and December 31, 2019, the balance was US$882 and US$1,066, respectively. The loan agreement also includes an uncommitted, ~~non-revolving~~ ~~credit facility for up to CA$300 to cover Letters of Guarantee issued by the bank on behalf of the Company, with a maximum term of 365 days, renewable annually.~~

~~As security for the FCC~~Term Loan, the Company has provided promissory notes, a first mortgage on the VFF-owned Delta 1 and Texas greenhouse ~~properties (excluding the Delta 3 and Delta 2 greenhouse facilities)~~facilities, and general security agreements over its assets. In addition, the Company has provided full recourse guarantees and has granted security ~~therein.~~interests in respect of the FCC Term Loan. The carrying value of the assets and securities pledged as collateral as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$168,378~~$196,536 and ~~$155,548,~~$86,664, respectively.

Operating Loan

The Company has a revolving line of credit agreement with a Canadian chartered bank (the “Operating Loan”). The Operating Loan has a line of credit of up to C$10,000, as amended on May 7, 2021, less outstanding letters of credit totaling $150 and C$38 and includes variable interest rates with a maturity date of May 7, 2024. The Operating Loan is subject to margin requirements stipulated by the lender. As of June 30, 2021, there was no amount drawn on this loan, and as of December 31, 2020, the amount drawn on this facility was $2,000.

As ~~security~~collateral for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory. In addition, the Company has granted full recourse guarantees and security therein. The carrying value of the assets pledged as collateral as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$27,035~~$28,149 and ~~$24,915,~~$23,443, respectively.

~~Our borrowings are subject to certain positive~~VFCE Loan

VFCE has a loan agreement with a Canadian chartered bank that includes a non-revolving fixed rate loan (the “VFCE Loan”) of C$3,000 with a maturity date of June 2023 and ~~negative covenants, including debt ratios, and we are required to maintain certain minimum working capital. In December 2019, we received~~ a ~~waiver for our annual debt service coverage and debt to EBITDA covenants under its Term Loan.~~fixed interest rate of 4.98% per annum. As of June 30, 2021 and December 31, 2020, the balance of the VFCE Loan was C$822 and C$1,103, respectively. The loan agreement also includes an uncommitted credit facility for up to C$700 to support financing of certain capital expenditures (the “VFCE Credit Facility”). The Company ~~was in compliance with all~~paid off the outstanding balance of ~~its other~~the VFCE Credit Facility ~~covenants~~in the second quarter of 2021. As of June 30, 2021 and December 31, 2020, the outstanding borrowings under ~~its~~the VFCE Credit ~~Facilities.~~Facility were nil and C$88, respectively (such borrowings, together with the VFCE Loan, the ”VFCE Borrowings”).

~~Accrued interest~~Pure Sunfarms Loans

On March 15, 2021, Pure Sunfarms entered into the Third Amended and Restated Credit Agreement (the “Third Amended and Restated PSF Credit Agreement) with FCC and two Canadian chartered banks, which extended the maturity date of each of the PSF Revolving Line of Credit, PSF Non-Revolving Facility and the PSF Term Loan (each as defined below) through February 7, 2024

and included a guarantee by Village Farms. The Third Amended and Restated PSF Credit Agreement amends and updates the previous three loan facilities.

The first loan facility is a revolving line of credit (the “PSF Revolving Line of Credit”) with two separate C$7,500 commitments from each of the Canadian chartered banks. Each lender established a revolving line of credit severally and not jointly whereby Pure Sunfarms may receive advances in equal proportionate amounts from each lender. The advances shall be used for working capital purposes, general corporate purposes and capital expenditures, of which capital expenditures may not exceed C$7,500 in aggregate use of the outstanding advances. Interest is payable onat the ~~credit facilities and loans~~Canadian prime rate plus an applicable margin per annum, payable monthly. The PSF Revolving Line of Credit had no outstanding balance as of June 30, ~~2020~~2021 and December 31, ~~2019 was $111 and $162, respectively. These amounts are included in accrued liabilities in the condensed consolidated interim statements of financial position.~~2020.

~~In 2019, Pure Sunfarms entered into~~The second loan facility is a credit agreement with ~~BMO,~~a Canadian chartered bank, as agent and lead lender, and FCC, as lender, in respect of a ~~CA$20,000~~C$17,000 secured non-revolver term loan (the “PSF ~~Credit Facility”)~~Non-Revolving Facility). In April 2020, Pure Sunfarms expanded the PSF Credit Facility with its existing lender to CA$59.0 million, including accordion provisions of CA$22.5 million. As of June 30, 2020, the outstanding amount on the loan was CA$30.5 million.

The PSF ~~Credit~~Non-Revolving Facility, which matures on February 7, ~~2022,~~2024, is secured by the Delta 2 and Delta 3 greenhouse facilities and contains customary financial and restrictive covenants. The ~~Company is not a party to~~purpose of the PSF ~~Credit~~Non-Revolving Facility ~~but has guaranteed up~~is to ~~CA$10 million~~refinance our Delta 3 greenhouse and provide funds to upgrade and retrofit the Delta 2 facility. The outstanding amount on the PSF Non-Revolving Facility was C$15,986 on June 30, 2021 and C$17,057 on December 31, 2020.

The third loan facility is a C$25,000 term loan (the “PSF Term Loan”) at the Canadian prime interest rate plus an applicable margin, repayable in ~~connection~~quarterly payments equal to 2.50% of the outstanding principal amount starting June 30, 2021 and maturing February 7, 2024. Advances under the PSF Term Loan shall be used to finance the upgrade and retrofit of the Delta 2 greenhouse to render it suitable for cannabis cultivation as well as any funds necessary for capital expenditures on the Delta 3 processing facility. The outstanding amount on the PSF Term Loan was C$23,728 on June 30, 2021 and C$21,072 on December 31, 2020.

On December 20, 2020, Pure Sunfarms entered into a C$6,250 non-revolving demand loan at the Canadian prime interest rate plus 3.75% per annum with a Canadian chartered bank with the ~~PSF Credit Facility.~~financial support of the Business Development Bank of Canada (the “BDC Facility”). The BDC Facility, provided as part of COVID-19 government relief, requires interest only payments monthly for the first twelve months and matures on December 31, 2031. Commencing on December 31, 2021, Pure Sunfarms will repay the outstanding principal amount in equal monthly installments. The outstanding amount on the BDC Facility was C$6,282 on June 30, 2021 and C$6,250 on December 31, 2020.

Pure Sunfarms is required to comply with financial covenants measured quarterly. As of June 30, 2021, Pure Sunfarms was in compliance with the financial covenants.

Emerald Promissory Note

The Company had a note payable due to Emerald of C$19,900, plus accrued interest that the Company originally issued to Emerald as partial consideration for the November 2, 2020 acquisition of Pure Sunfarms. The note and accrued interest were repaid to Emerald in full on February 5, 2021.

Equity Offerings

The Company closed equity offerings on ~~October 22, 2019 and~~ March 24, ~~2020. The October 22, 2019 public offering raised net proceeds of CA$26,934 through the issuance of 3,059,000 Common Shares at a price of CA$9.40 per Common Share.~~2020, September 10, 2020, and January 20, 2021. The March 24, 2020 public offering raised ~~net~~gross proceeds of ~~CA$10,711~~C$11,500 through the issuance of 3,593,750 Common Shares at a price of ~~CA$~~C$3.20 per Common Share. The September 10, 2020 offering raised gross proceeds of $49,800 through the issuance of 9,396,226 Units with each Unit consisting of one Common Share at a price of $5.30 per Common Share and one-half of a Warrant at an exercise price of $5.80, and on January 20, 2021, Village Farms completed a registered direct offering for the purchase and sale of an aggregate of 10,887,097 Common Shares at a purchase price of $12.40 per Common Share for gross proceeds of approximately $135,000.

Summary of Cash Flows

	For the six months ended June 30,
(in Thousands)	2021			2020
Cash beginning of period	$	25,679		$	11,989
Net cash flow provided by/(used in):
Operating activities		(15,210	)		2,145
Investing activities		(12,368	)		(12,290	)
Financing activities		124,583			7,725
Net cash increase (decrease) for the period		97,005			(2,420	)
Effect of exchange rate changes on cash		502			(1	)
Cash, end of the period	$	123,186		$	9,568

   For the six months ended
June 30,
(in Thousands)
   2020    2019
Cash beginning of period
   $ 11,989    $ 11,920
Net cash flow provided by (used in):

Operating activities
   2,145    (9,437 )
Investing activities
   (12,290 )    (6,489 )
Financing activities
   7,725    15,712




Net cash increase (decrease) for the period
   (2,420 )    (214 )
Effect of exchange rate changes on cash
   (1 )    —




Cash, end of the period
   $ 9,568    $ 11,706

Operating Activities

For the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, cash flows used in operating activities before changes in non-cash working capital totaled ($~~1,816)~~5,051) and ($~~7,594)~~1,816), respectively. The ~~improvement is~~decline in cash flows from operating activities between periods was primarily due to lower operating results of both the ~~$4,494 repayment of an outstanding receivable due from PSF, a combined increase of $4,962 accounts payable~~produce business and ~~accrued expenses due to an increase in purchasing from our third party suppliers, offset by a ($2,386) increase in accounts receivable due to higher sales and $1,442 decrease in accrued taxes payable.~~Pure Sunfarms for the six months ended June 30, 2021.

Investing Activities

For the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, cash flows used in investing activities were ($~~12,290)~~12,368) and ($~~6,489)~~12,290), respectively. The ~~increase is primarily due to an increase of ($11,700) in additional investments made in Pure Sunfarms offset by $5,608 of loans made to VF Hemp and AVGG Hemp during~~investing activities for the six months ended June 30, ~~2019, as no loans were provided during~~2021 largely consists of a ($1,001) investment in Altum and ($11,355) of capital expenditure expenses, of which ($9,029) was primarily for the Pure Sunfarms Delta 2 greenhouse transition to cannabis and ($2,326) for upgrades to our produce operations. The investing activities for the six months ended June 30, ~~2020.~~2020 consist primarily of ($11,713) of additional investment in Pure Sunfarms and ($452) of capital expenditures for our produce operations.

Financing Activities

For the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, cash flows provided by financing activities were $124,583 and $7,725, ~~and $15,712,~~ respectively. ~~The decrease is~~For the six months ended June 30, 2021, cash flows provided by financing activities primarily ~~due to higher repayments on borrowings~~consisted of ~~($943) and ($5,971)~~$127,489 of ~~lower equity~~net proceeds ~~received~~ from the issuance ~~common stock during~~of Common Shares, $18,494 in proceeds from the exercise of warrants from the September 2020 registered direct offering, the ($15,498) payment of the Emerald Promissory Note, share repurchases of ($3,980) and payments on borrowings net of proceeds of ($1,799). For the six months ended June 30, 2020, ~~when compared to~~cash flows provided by financing activities primarily consisted of the ~~same prior year period.~~$7,294 generated from the issuance of Common Shares, net of issuance costs, and $348 of proceeds from borrowings net of repayments.

Contractual Obligations and Commitments

~~During the six months ended June 30, 2020, we made equity contributions to Pure Sunfarms totaling CA$16,000 (US$11,713).~~

Information regarding our contractual obligations as of June 30, ~~2020~~2021 is set forth in the table below:


Financial liabilities	Total		1 year		2-3 years		4-5 years		More than 5 years		Total		1 year		2-3 years		4-5 years		More than 5 years
Long-term debt	$	32,204	$	2,394	$	4,830	$	4,120	$	20,860	$	72,137	$	6,241	$	37,565	$	23,851	$	4,480
Line of credit		4,000		4,000		—		—		—
Trade payables		9,849		9,849		—		—		—		19,425		19,425		—		—		—
Accrued liabilities		7,037		7,037		—		—		—		28,818		28,818		—		—		—
Operating lease liabilities		5,098		1,282		2,179		1,076		561
Capital lease liabilities		62		44		18

Lease liabilities												3,434		663		1,568		770		433
Other liabilities												26,699		—		26,699		—		—
Total	$	58,250	$	24,606	$	7,027	$	5,196	$	21,421	$	150,513	$	55,147	$	65,832	$	24,621	$	4,913

~~Off-Balance~~ ~~Sheet Arrangements~~As of June 30, 2021, Pure Sunfarms had a service agreement with an unrelated party. In the event Pure Sunfarms terminates the agreement, Pure Sunfarms would be required to pay the counterparty a C$1,000 termination fee. This is considered a commitment.

~~The Company does not have any~~ ~~off-balance~~ ~~sheet arrangements.~~

Non-GAAP Measures

References in this ~~report~~MD&A to “Adjusted EBITDA” are to earnings (including the equity in earnings of ~~the~~ Pure ~~Sunfarms)~~Sunfarms and VFH) before interest, taxes, depreciation, and amortization (“EBITDA”), as further adjusted to exclude foreign currency exchange gains and losses on translation of long-term debt, unrealized gains on the changes in the value of derivative instruments, ~~stock~~share-based compensation, ~~and~~ gains and losses on asset sales and ~~adjusts for~~ the ~~difference~~other adjustments set forth in ~~accounting treatment of Pure Sunfarms, which we believe is necessary to reflect~~ the ~~true economic value of our interest in Pure Sunfarms.~~table below. Adjusted EBITDA is a cash flow measure that is not recognized under GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Investors are cautioned that Adjusted EBITDA should not be construed as an alternative to net income or loss determined in accordance with GAAP as an indicator of our performance or to cash flows from operating, investing, and financing activities as measures of liquidity and cash flows. Management believes that Adjusted EBITDA is an important measure in evaluating the historical performance of the Company.

We also present Adjusted EBITDA, earnings per share and diluted earnings per share on a proportionate segment basis. Each of the components of Adjusted EBITDA, on a proportionate segment basis (which include our proportionate share of the Pure Sunfarms and ~~VF Hemp~~VFH operations), are presented in the table Reconciliation of GAAP to Proportionate Results below. We believe that the ability of investors to assess our overall performance may be improved by the disclosure of proportionate segment Adjusted EBITDA, earnings per share and diluted earnings per share, given that our joint ventures represent a significant percentage of our net income.

Reconciliation of Net Income to Adjusted EBITDA

The following table reflects a reconciliation of net income to Adjusted EBITDA, as presented by the Company:

													Three Months Ended June 30,						Six Months Ended June 30,
(in thousands of U.S. dollars)	For the three months ended June 30,						For the six months ended June 30,						2021 ⁽¹⁾			2020 ⁽¹⁾			2021 ⁽¹⁾			2020 ⁽¹⁾
	2020			2019			2020			2019
Net (loss) income	$	(119	)	$	3,716		$	4,071		$	10,182		$	(4,517	)	$	(119	)	$	(11,899	)	$	4,071
Add:
Amortization		1,491			1,964			3,021			3,804			3,898			1,491			7,310			3,021
Foreign currency exchange (gain) loss		(530	)		(243	)		396			(521	)
Foreign currency exchange loss														(269	)		(530	)		235			396
Interest expense, net		344			458			498			1,016			552			344			1,290			498
Provision for (recovery of) income taxes		69			(3,284	)		(943	)		1,152
Stock based compensation		328			701			857			1,997
Recovery of income taxes														(1,781	)		69			(3,620	)		(943	)
Share-based compensation														1,887			328			3,885			857
Interest expense for JVs		103			230			396			230			13			103			27			396
Amortization for JVs		377			415			678			711			30			377			64			678
Foreign currency exchange (gain) loss for JVs		(17	)		16			85			(13	)
Provision for income taxes from JVs		222			3,178			1,491			4,264
Gain on settlement agreement		—			—			(4,681	)		—
Foreign currency exchange loss for JVs														—			(17	)		—			85
Provision for income taxes for JVs														—			222			—			1,491
Deferred financing fees														166			—			166			—
Incremental utility costs due to storm														1,400			—			1,400			—
Purchase price adjustment ⁽²⁾														133			—			3,058			—
Gain on settlement agreement ⁽³⁾														—			—			—			(4,681	)
Gain on settlement of net liabilities from JV		—			—			(2,496	)		—			—			—			—			(2,496	)
Gain on disposal of assets		—			—			(9	)		(13,564	)		35			—			35			(9	)
Adjustment to reflect true economic value for Pure Sunfarms⁽¹⁾		—			(2,507	)					(3,268	)

Adjusted EBITDA(4)	$	2,268		$	4,644		$	3,364		$	5,990		$	1,547		$	2,268		$	1,951		$	3,364
Adjusted EBITDA for JVs ^{(See table below)}	$	1,034		$	9,317		$	3,717		$	12,520		$	(48	)	$	1,034		$	(127	)	$	3,717
Adjusted EBITDA excluding JVs^(produce)	$	1,234		($	4,673	)	$	(353	)	$	(6,530)
Adjusted EBITDA excluding JVs													$	1,595		$	1,234		$	2,078		$	(353	)

Breakout of JV Adjusted EBITDA
(in thousands of U.S. dollars)
   For the three months
ended June 30,    For the six months
ended June,
   2020    2019    2020    2019
Pure Sunfarms Adjusted EBITDA
   $ 1,076    $ 9,449    $ 3,854    $ 12,675
VFH Adjusted EBITDA
   (42 )    (132 )    (137 )    (155 )








Total JV Adjusted EBITDA
   $ 1,034    $ 9,317    $ 3,717    $ 12,520

Notes:

⁽¹⁾

The GAAP treatment of our equity earning of Pure Sunfarms is different than under International Financial Reporting Standards (“IFRS”). Under GAAP the Emerald shares held in escrow are not considered issued until paid for pursuant to the GAAP concept of ‘hypothetical liquidation’. As a result, our ownership percentage for(1)

For the three and six months ended June 30, ~~2019 was 61.4%~~2021, Pure Sunfarms is fully consolidated in the financial results of the Company. For the three and ~~60.8%, respectively, compared to~~six months ended June 30, 2020, our ~~economic interest under IFRS~~share of ~~50% for the same periods.~~Pure Sunfarms earnings is reflected in equity earnings from unconsolidated entities.

(2)

The purchase price adjustment primarily reflects the non-cash accounting charge resulting from the revaluation of Pure Sunfarms’ inventory to fair value at the acquisition date.

(3)

See “Results of Operations – Consolidated Results – Gain on Settlement Agreement” above.

(4)

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. Adjusted EBITDA includes the Company’s majority non-controlling interest in Pure Sunfarms (through November 1, 2020), and 65% interest in VFH.

Breakout of JV Adjusted EBITDA	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands of U.S. dollars)	2021			2020			2021			2020
Pure Sunfarms Adjusted EBITDA	$	—		$	1,076		$	—		$	3,854
VFH Adjusted EBITDA		(48	)		(42	)		(127	)		(137	)
Total JV Adjusted EBITDA	$	(48	)	$	1,034		$	(127	)	$	3,717

Reconciliation of U.S. GAAP Results to Proportionate Results

The following tables are a reconciliation of the GAAP results to the proportionate results (which include our proportionate share of Pure Sunfarms and ~~VF Hemp~~VFH operations). The tables reflect the full statements of income for Pure Sunfarms (Cannabis) and VFH (Hemp) multiplied by the ownership percentage of the Company (versus presenting the results of these joint ventures in Equity Earnings from Unconsolidated Entities):


	For the three months ended June 30, 2020												For the Three months ended June 30, 2021
	Produce			Pure Sunfarms⁽¹⁾			Hemp⁽¹⁾			Total			Produce			Clean Energy			Corporate			Cannabis ⁽¹⁾			Hemp⁽¹⁾			Total
Sales	$	47,573		$	5,509		$	—		$	53,082		$	45,539		$	74		$	—		$	24,761		$	—		$	70,374
Cost of sales		(44,044	)		(3,678	)		—			(47,722	)		(49,321	)		(847	)		—			(14,941	)		(42	)		(65,151	)
Selling, general and administrative expenses		(3,813	)		(1,086	)		(170	)		(5,069	)		(2,946	)		(52	)		(1,657	)		(4,370	)		(36	)		(9,061	)
Stock compensation expense		(328	)		—			—			(328	)
Other income (expense) net		212			(60	)		57			209
Provision for income taxes		(69	)		(222	)		—			(291	)
Share-based compensation														—			—			(1,696	)		(191	)		—			(1,887	)
Loss on disposal of assets														—			—			—			(40	)		—			(40	)
Other income (expense), net														—			(10	)		209			(724	)		(8	)		(533	)
Recovery of income taxes														2,710			—			345			(1,274	)		—			1,781
Net (loss) income	$	(469	)	$	463		$	(113	)	$	(119	)	$	(4,018	)	$	(835	)	$	(2,800	)	$	3,222		$	(86	)		(4,517	)
Adjusted EBITDA ⁽²⁾	$	1,234		$	1,076		$	(42	)	$	2,268		$	(3,981	)	$	(135	)	$	(1,658	)	$	7,369		$	(48	)	$	1,547
(Loss) earnings per share – basic	$	(0.01	)	$	0.01		$	(0.00	)	$	(0.00	)	$	(0.05	)	$	(0.01	)	$	(0.04	)	$	0.04		$	(0.00	)	$	(0.06	)
(Loss) earnings per share – diluted	$	(0.01	)	$	0.01		$	(0.00	)	$	(0.00	)	$	(0.05	)	$	(0.01	)	$	(0.04	)	$	0.04		$	(0.00	)	$	(0.06	)

	For the three months ended June 30, 2019
	Produce			Pure Sunfarms ⁽¹⁾			Hemp⁽¹⁾			Total
Sales	$	41,329		$	15,066		$	—		$	56,395
Cost of sales		(44,299	)		(2,474	)		—			(46,773	)
Selling, general and administrative expenses		(3,949	)		(1,115	)		(120	)		(5,184	)
Stock compensation expense		(701	)		—			—			(701	)
Other income (expense) net		67			(194	)		—			(127	)
Recovery of (provision for) income taxes		3,284			(3,178	)		—			106
Net (loss) income	($	4,269	)	$	8,105		($	120	)	$	3,716
Adjusted EBITDA ⁽²⁾	($	4,673	)	$	9,449		($	132	)	$	4,644
(Loss) earnings per share – basic	$	(0.09	)	$	0.17		$	0.00		$	0.08
(Loss) earnings per share – diluted	$	(0.09	)	$	0.16		$	0.00		$	0.07

	For the six months ended June 30, 2020
	Produce			Pure Sunfarms⁽¹⁾			Hemp⁽¹⁾			Total
Sales	$	79,685		$	12,951		$	98		$	92,734
Cost of sales		(75,391	)		(7,235	)		(120	)		(82,746	)
Selling, general and administrative expenses		(7,734	)		(2,434	)		(287	)		(10,455	)
Stock compensation expense		(857	)		—			—			(857	)
Gain on settlement agreement		4,681			—			—			4,681
Gain on settlement of net liabilities		—			2,496			—			2,496
(Loss) gain on disposal of assets		(6	)		5			10			9
Other expense, net		(829	)		(298	)		(116	)		(1,243	)
Recovery of (provision for) income taxes		943			(1,491	)		—			(548	)
Net income (loss)	$	492		$	3,994		$	(415	)	$	4,071
Adjusted EBITDA ⁽²⁾	$	(353	)	$	3,854		$	(137	)	$	3,364
Earnings (loss) per share – basic	$	0.01		$	0.07		$	(0.01	)	$	0.07
Earnings (loss) per share – diluted	$	0.01		$	0.07		$	(0.01	)	$	0.07

	For the six months ended June 30, 2019
	Produce			Pure Sunfarms ⁽¹⁾			Hemp⁽¹⁾			Total
Sales	$	73,219		$	21,794		$	—		$	95,013
Cost of sales		(75,514	)		(4,925	)		—			(80,439	)
Selling, general and administrative expenses		(8,188	)		(1,698	)		(154	)		(10,040	)

	For the three months ended June 30, 2020
	Produce			Clean Energy			Corporate			Cannabis⁽¹⁾			Hemp ⁽¹⁾			Total
Sales	$	47,455		$	118		$	—		$	5,509		$	—		$	53,082
Cost of sales		(43,716	)		(328	)		—			(3,678	)		—			(47,722	)
Selling, general and administrative expenses		(2,319	)		(65	)		(1,429	)		(1,086	)		(170	)		(5,069	)
Share-based compensation		—			—			(328	)		—			—			(328	)
Other (expense) income, net		—			(12	)		224			(60	)		57			209
Recovery of (provision for) income taxes		220			—			(289	)		(222	)		—			(291	)
Net income (loss)	$	1,640		$	(287	)	$	(1,822	)	$	463		$	(113	)	$	(119	)
Adjusted EBITDA ⁽²⁾	$	2,783		$	(106	)	$	(1,443	)	$	1,076		$	(42	)	$	2,268
Earnings (loss) per share - basic	$	0.03		$	(0.01	)	$	(0.03	)	$	0.01		$	(0.00	)	$	(0.00	)
Earnings (loss) per share - diluted	$	0.03		$	(0.01	)	$	(0.03	)	$	0.01		$	(0.00	)	$	(0.00	)

   For the six months ended June 30, 2019
   Produce    Pure
Sunfarms ⁽¹⁾    Hemp⁽¹⁾    Total
Stock compensation expense
   (1,997 )    —      —      (1,997 )
Gain on disposal of assets
   13,564    —      —      13,564
Other expense, net
   (343 )    (160 )    —      (503 )
Provision for income taxes
   (1,152 )    (4,264 )    —      (5,416 )
Net (loss) income
   $ (411 )    $ 10,747    $ (154 )    $ 10,182
Adjusted EBITDA ⁽²⁾
   $ (6,530 )    $ 12,675    $ (155 )    $ 5,990
(Loss) earnings per share – basic
   $ (0.01 )    $ 0.22    $ (0.00 )    $ 0.21
(Loss) earnings per share – diluted
   $ (0.01 )    $ 0.21    $ (0.00 )    $ 0.20

	For the six months ended June 30, 2021
	Produce			Clean Energy			Corporate			Cannabis⁽¹⁾			Hemp ⁽¹⁾			Total
Sales	$	80,406		$	143		$	—		$	42,221		$	—		$	122,770
Cost of sales		(83,387	)		(1,622	)		—			(30,189	)		(90	)		(115,288	)
Selling, general and administrative expenses		(5,497	)		(84	)		(3,200	)		(8,336	)		(101	)		(17,218	)
Share-based compensation		—			—			(2,600	)		(1,285	)		—			(3,885	)
Loss on disposal of assets		—			—			—			(40	)		—			(40	)
Other expense, net		—			(21	)		(461	)		(1,354	)		(22	)		(1,858	)
Recovery of (provision for) income taxes		3,372			—			878			(630	)		—			3,620
Net (loss) income	$	(5,106	)	$	(1,584	)	$	(5,383	)	$	387		$	(213	)	$	(11,899	)
Adjusted EBITDA ⁽²⁾	$	(4,472	)	$	(151	)	$	(3,202	)	$	9,903		$	(127	)	$	1,951
(Loss) income per share – basic	$	(0.06	)	$	(0.02	)	$	(0.07	)	$	0.00		$	(0.00	)	$	(0.15	)
(Loss) income per share – diluted	$	(0.06	)	$	(0.02	)	$	(0.07	)	$	0.00		$	(0.00	)	$	(0.15	)

~~Notes:~~

	For the six months ended June 30, 2020
	Produce			Clean Energy			Corporate			Cannabis⁽¹⁾			Hemp ⁽¹⁾			Total
Sales	$	79,417		$	268		$	—		$	12,951		$	98		$	92,734
Cost of sales		(74,644	)		(747	)		—			(7,235	)		(120	)		(82,746	)
Selling, general and administrative expenses		(4,854	)		(110	)		(2,770	)		(2,434	)		(287	)		(10,455	)
Share-based compensation		—			—			(857	)		—			—			(857	)
Gain on settlement agreement		—			—			4,681			—			—			4,681
Gain on settlement of net liabilities		—			—			—			2,496			—			2,496
(Loss) gain on disposal of assets		—			—			(6	)		5			10			9
Other expense, net		—			(31	)		(798	)		(298	)		(116	)		(1,243	)
Recovery of (provision for) income taxes		1,401			—			(458	)		(1,491	)		—			(548	)
Net income (loss)	$	1,320		$	(620	)	$	(208	)	$	3,994		$	(415	)	$	4,071
Adjusted EBITDA ⁽²⁾	$	2,565		$	(146	)	$	(2,772	)	$	3,854		$	(137	)	$	3,364
Earnings (loss) per share – basic	$	0.02		$	(0.01	)	$	(0.00	)	$	0.07		$	(0.01	)	$	0.07
Earnings (loss) per share – diluted	$	0.02		$	(0.01	)	$	(0.00	)	$	0.07		$	(0.01	)	$	0.07

Notes:

~~(1)~~

(1)

The adjusted consolidated financial results have been adjusted to include our share of sales and expenses from Pure Sunfarms and ~~Hemp~~VFH on a proportionate accounting basis, on which management bases its operating decisions and performance evaluation. GAAP does not allow for the inclusion of the joint ventures on a proportionate basis. These results include additional non-GAAP measures such as Adjusted EBITDA.

The adjusted results are not generally accepted measures of financial performance under GAAP. Our method of calculating these financial performance measures may differ from other companies and accordingly, they may not be comparable to measures used by other companies.

~~(2)~~

(2)

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. ~~See~~ ~~“Non-GAAP~~ ~~Measures”.~~ Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company. Consolidated Adjusted EBITDA includes our majority non-controlling interest Pure Sunfarms (through November 1, 2020), and our 65% interest in ~~VF Hemp.~~VFH.

New Accounting Pronouncements Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to debt instruments, derivatives, and other contracts that reference LIBOR or other reference rates expected to be discontinued as a result of reference rate reform. This guidance is optional and may be elected through December ~~2019,~~31, 2022 using a prospective application on all eligible contract modifications. The Company has a line of credit that incorporates LIBOR as a referenced interest rate. It is difficult to predict what effect, if any, the ~~FASB issued ASU~~ ~~2019-12,~~ “~~Income Taxes (Topic 740): Simplifying~~phase-out of LIBOR and the ~~Accounting for Income Taxes~~~~.” ASU~~ ~~2019-12~~ ~~simplifies~~use of alternative benchmarks may have on the ~~accounting for income taxes by removing~~Company’s business or on the overall financial markets. The Company has not adopted any of the optional expedients or exceptions ~~within~~through June 30, 2021 but will continue to evaluate the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax). which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effectpossible adoption of any ~~enacted changes in tax laws~~such expedients or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020 and will be applied either retrospectively or prospectively based upon the applicable amendments. Early adoption is permitted. We are currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.exceptions.

Critical Accounting Estimates and Judgments

Our discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Interim Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses and related disclosure of contingent assets and liabilities.

We believe that the estimates, assumptions and judgments involved in the accounting policies described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our most recent Annual Report on Form 10-K for the year ended December 31, 2020 have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Actual results could differ from the estimates we use in applying our critical accounting policies. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

~~Item 3.~~

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its long-term debt, for which the interest rates charged fluctuate based on the 90-day LIBOR rate. If interest rates had been 50 basis points higher (lower), the net income ~~during~~for the ~~periods~~three months ended June 30, ~~2020~~2021 and ~~2019~~2020 would have been ~~lower~~higher (lower) by $81 and $40, respectively and ~~$43,~~net income for the six months ended June 30, 2021 and 2020 would have been higher (lower) by $161 and $80, respectively. ~~This represents $40 and $43 in~~These net income effects represent increased (decreased) interest expense for the periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

While we cannot predict our ability to refinance existing debt or the significance of the impact that interest rate movements will have on our existing debt, management evaluates our financial position on an ongoing basis.

Foreign Exchange Risk

As of June 30, ~~2020,~~2021, and ~~2019,~~2020, the Canadian/U.S. foreign exchange rate was C$1.00 = US$~~0.7330~~0.8066 and C$1.00 = US$~~0.7636,~~0.7330, respectively. Assuming that all other variables remain constant, an increase of $0.10 in the Canadian dollar would have the following impact on the ending balances of certain statements of financial position items at June 30, ~~2020~~2021 and June 30, ~~2019~~2020 with the net foreign exchange gain or loss directly impacting net income (loss).


	June 30, 2020			June 30, 2019			June 30, 2021			June 30, 2020
Financial assets
Cash and cash equivalents	$	260		$	837		$	1,357		$	260
Trade receivables		496			504			3,701			496
JV notes receivable		1,455			1,366			—			1,455
Inventories								4,380			—
Prepaid and deposits								853			—
Financial liabilities
Trade payables and accrued liabilities		(517	)		(693	)		(5,187	)		(517	)
Loan payable		(132	)		(176	)		(4,682	)		(132	)

Deferred tax liability								(2,283	)		—
Net foreign exchange gain (loss)	$	1,562		$	1,838		$	(1,861	)	$	1,562

Our exposure to foreign exchange risk and the impact of foreign exchange rates are monitored by the Company’s management but generally the Company tries to match its sales (trade receivables) and vendor payments (trade payables) such that the net impact is not material.

Other than the interest rate risk and foreign exchange risk discussed above, there have been no material changes ~~tour~~to our market risks from those disclosed in Part II, Item 7A of our Annual Report on Form 10-K.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified by the U.S. Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s Chief Executive Officer and Principal Financial and Accounting Officer evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the ~~Securities~~ Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the Chief Executive Officer and the Principal Financial and Accounting Officer concluded that, as of the end of the period covered by this Quarterly Report, the Company’s disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

The Company’s management, including the Chief Executive Officer and Principal Financial and Accounting Officer, has reviewed the Company’s internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, ~~2020~~2021 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. – OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time the Company is engaged in legal proceedings in the ordinary course of business. We do not believe any current legal proceedings are material to our business.

~~Item 1A.~~

Item 1A. Risk Factors

Our business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described in Part I, Item 1A, “Risk Factors” contained in our Annual Report on Form 10K for the year ended December 31, ~~2019,~~2020, as filed with the SEC on ~~April 1, 2020,~~March 15, 2021 and amended on March 18, 2021, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings filed with the SEC in connection with evaluating us, our business, and the forward-looking statements contained in this Quarterly Report on Form 10-Q. During the quarter ended June 30, ~~2020,~~2021, there have been no material changes from the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K, for the year ended December 31, 2019, except as described in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent developments relating to the outbreak of the Coronavirus pandemic ~~(“COVID-19”)”.~~2020.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Repurchases of Equity Securities

The following table represents information with respect to purchases by the Company of its Common Shares during the three months ended June 30, 2021.

ISSUER PURCHASES OF EQUITY SECURITIES⁽³⁾
Period	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share⁽¹⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans⁽¹⁾		Maximum Number of Shares that May Yet Be Purchased Under the Plans⁽²⁾
April 2021		—		—		—		—
May 2021		347,762	$	9.26		347,762		3,714,547
June 2021		80,335	$	9.45		80,335		3,634,212
Total Q2 2021		428,097	$	9.30		428,097		3,634,212

(1)

Includes the Common Shares repurchased and cancelled under the May 2021 normal course issuer bid (“NCIB”) notice as described below in (2).

(2)

On May 21, 2021, the Company announced that the TSX accepted a notice filed by the Company of its intention to make a NCIB. The NCIB notice provides that Village Farms may, during the period commencing May 26, 2021 and terminating May 25, 2022, purchase up to 4,062,309 of its Common Shares by way of a NCIB over the facilities of the TSX, The NASDAQ Stock Market and/or through alternative trading systems in Canada and the U.S. Daily purchases are limited to 233,243 Common Shares, other than block purchase exceptions. The amounts shown in this column represent the maximum number of Common Shares remaining under the NCIB as of the end of each month. Shareholders may obtain a copy of the NCIB notice, without charge, by contacting Village Farms.

(3)

In July 2021, the Company purchased 107,955 Common Shares at an average price of $9.4463 per Common Share. The total Common Shares purchased as of July 31, 2021 are 536,052 with a total repurchase cost of $5,000 and 3,526,257 Common Shares remaining that may be purchased under the NCIB.

Item 6.

Exhibits

The following exhibits are filed as part of, or incorporated by reference into, this report:


Exhibit Number		Description of Document

~~3.1~~ 31.1		~~By-laws~~ ~~amendment (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form~~ ~~8-K~~ ~~filed on June 25, 2020)~~

~~10.1~~		Employment Agreement, dated as of June 1, 2020, by and between Village Farms International, Inc. and Stephen C. Ruffini (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form ~~8-K~~ ~~filed on June 4, 2020)~~

~~10.2~~		Employment Agreement, dated as of July 13, 2020, by and between Village Farms International, Inc. and Michael A. DeGiglio (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form ~~8-K~~ ~~filed on July 14, 2020)~~

~~31.1~~		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002.

31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002.

32.1		Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002.

32.2		Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002.

101.INS		Inline XBRL Instance Document*Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document*Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document*Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document*


~~Exhibit~~ ~~Number~~		~~Description of~~ Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document^*

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document^*

*	~~In accordance with Rule 406T of Regulation~~ ~~S-T,~~
104		The cover page for the ~~XBRL related information in Exhibit 101 to this~~Company’s Quarterly Report on Form 10-Q ~~is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act,~~ has been formatted in Inline XBRL and ~~otherwise is not subject to liability under these sections.~~contained in Exhibit 101

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


	VILLAGE FARMS INTERNATIONAL, INC.

	By:	/s/ Stephen C. Ruffini
		Name:	Stephen C. Ruffini

		Title:	Executive Vice President and Chief Financial Officer

		(Authorized Signatory and Principal Financial and Accounting Officer)
Date: August ~~12, 2020~~9, 2021

3037

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company