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

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

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

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

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 ~~November 12, 2020, 66,059,810~~August 8, 2021, 80,964,491 shares of common stock were ~~issued and~~ outstanding.

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 Pure Sunfarms and our ~~start-up~~ operations of growing hemp in the United States; the legal status of 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 Pure Sunfarms to cultivate and distribute cannabis in Canada; existing and new governmental regulations, including risks related to regulatory compliance and licenses (e.g., 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 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.

	September 30, 2020			December 31, 2019			June 30, 2021		December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	$	54,666		$	11,989		$	114,029	$	21,640
Restricted cash								9,157		4,039
Trade receivables		10,498			8,997			41,303		23,222
Inventories		15,301			15,918			48,607		46,599
Amounts due from joint ventures		10,954			15,418
Other receivables		637			342			756		145
Income tax receivable		440			713			21		18
Prepaid expenses and deposits		934			1,259			8,127		6,145
Total current assets		93,430			54,636			222,000		101,808
Non-current assets
Property, plant and equipment		59,663			63,158			196,236		187,020
Investment in joint ventures		63,164			41,334
Investment in in minority interests		1,226			—
Notes receivable - joint ventures		10,713			10,865
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		9,693			7,999			15,869		13,312
Right-of-use assets		4,111			3,582
Operating right-of-use assets								3,267		3,797
Finance right-of-use assets								—		35
Other assets		1,827			1,834			2,432		1,950
Total assets	$	243,827		$	183,408		$	487,384	$	354,031
LIABILITIES
Current liabilities
Line of credit	$	3,000		$	2,000		$	—	$	2,000
Trade payables		9,667			12,653			19,425		15,064
Current maturities of long-term debt		2,294			3,423			10,889		10,166
Note payable								—		15,314
Accrued liabilities		6,676			3,017			28,818		22,438
Operating lease liabilities - current		1,711			875			1,134		1,107
Finance lease liabilities - current		34			61			15		27
Income tax payable								1,760		4,523
Other current liabilities								4,752		1,641
Total current liabilities		23,382			22,029			66,793		72,280
Non-current liabilities
Long-term debt		27,793			28,966			54,583		53,913
Deferred tax liability		2,211			1,873			18,292		18,059
Operating lease liabilities - non-current		2,465			2,690			2,284		2,855
Finance lease liabilities - non-current		12			34			1		8
Other liabilities		1,437			1,357			1,895		1,633
Total liabilities		57,300			56,949			143,848		148,748
Commitments and contingencies (note 15)
Commitments and contingencies (note 17)
SHAREHOLDERS’ EQUITY
Common stock, no par value per share - unlimited shares authorized; 65,959,810 shares issued and outstanding at September 30, 2020 and 52,656,669 shares issued and outstanding at December 31, 2019.		141,310			98,333
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		16,892			4,351			6,748		17,502
Accumulated other comprehensive loss		(516	)		(475	)
Accumulated other comprehensive income								10,332		6,255
Retained earnings		28,841			24,250			23,959		35,858
Total shareholders’ equity		186,527			126,459			343,536		205,283
Total liabilities and shareholders’ equity	$	243,827		$	183,408		$	487,384	$	354,031

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

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)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Sales

$
43,037

$
38,293

$
122,722

$
111,512

Cost of sales

(37,418
)

(38,904
)

(112,809
)

(114,418
)
Gross margin

5,619

(611
)

9,913

(2,906
)
Selling, general and administrative expenses

(4,942
)

(3,739
)

(12,676
)

(11,899
)
Share-based compensation

(472
)

(666
)

(1,329
)

(2,663
)
Interest expense

(299
)

(655
)

(1,273
)

(2,018
)
Interest income

101

304

577

651

Foreign exchange (loss) gain

(484
)

(183
)

(880
)

338

Gain on settlement agreement

—

—

4,681

—

Other income

27

69

92

219

(Loss) gain on disposal of assets

—

(8
)

(6
)

13,558

Loss before taxes and earnings from unconsolidated
entities

(450
)

(5,489
)

(901
)

(4,720
)
(Provision for) recovery of income taxes

(336
)

1,266

607

114

Loss from consolidated entities after income taxes

(786
)

(4,223
)

(294
)

(4,606
)
Equity earnings from unconsolidated entities

1,306

3,519

4,885

14,115

Net income (loss)

$
520

$
(704
)

$
4,591

$
9,509

Basic income (loss) per share

$
0.01

$
(0.01
)

$
0.08

$
0.20

Diluted income (loss) per share

$
0.01

$
(0.01
)

$
0.08

$
0.19

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

Basic

58,536

48,845

55,946

48,650

Diluted

60,440

48,845

57,778

50,451

Net income (loss)

$
520

$
(704
)

$
4,591

$
9,509

Other comprehensive income (loss):

Foreign currency translation adjustment

31

(22
)

(41
)

58

Comprehensive income (loss)

$
551

$
(726
)

$
4,550

$
9,567

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
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	)
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	$	(4,517	)	$	(119	)	$	(11,899	)	$	4,071
Basic (loss) income per share	$	(0.06	)	$	(0.00	)	$	(0.15	)	$	0.07
Diluted (loss) income per share	$	(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		81,071			56,339			78,560			54,636
Diluted		81,071			56,339			78,560			55,756
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

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

Three Months Ended September 30, 2020

Number of
Common
Shares

Common
Stock

Additional
paid in
capital

Accumulated
Other
Comprehensive
(Loss) Income

Retained
Earnings

Total
Shareholders’
Equity

Balance at July 1, 2020

56,402,418

$
105,829

$
5,128

$
(547
)

$
28,321

$
138,731

Shares issued in public offering, net of issuance costs

9,396,226

35,275

—

—

—

35,275

Warrants issued in public offering

—

—

11,369

—

—

11,369

Shares issued on exercise of stock options

161,166

206

(77
)

—

—

129

Share-based compensation

—

—

472

—

—

472

Cumulative translation adjustment

—

—

—

31

—

31

Net income

—

—

—

—

520

520

Balance at September 30, 2020

65,959,810

$
141,310

$
16,892

$
(516
)

$
28,841

$
186,527

	Three Months Ended June 30, 2021
	Number of Common Shares (in thousands)			Common Stock		Additional Paid in Capital			Accumulated Other Comprehensive (Loss) Income		Retained Earnings			Total Shareholders’ Equity
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		58			98		(37	)		—		—			61
Share re-purchases		(428	)		—		(3,980	)		—		—			(3,980	)
Share-based compensation		—			—		1,887			—		—			1,887
Cumulative translation adjustment		—			—		—			2,366		—			2,366
Net loss		—			—		—			—		(4,517	)		(4,517	)
Balance at June 30, 2021		80,964		$	302,497	$	6,748		$	10,332	$	23,959		$	343,536

	Three Months Ended September 30, 2019																	Three Months Ended June 30, 2020
	Number of Common Shares		Common Stock			Additional paid in capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Shareholders’ Equity			Number of Common Shares (in thousands)		Common Stock			Additional paid in capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Shareholders’ Equity
Balance at July 1, 2019		49,273,786	$	76,435		$	3,101		$	(482	)	$	32,138		$	111,192
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		—		(60	)		—			—			—			(60	)		—		(29	)		—			—			—			(29	)
Shares issued on exercise of stock options		31,216		109			(78	)		—			—			31			152		202			(80	)								122
Share-based compensation		35,333		—			666			—			—			666			—		—			328			—			—			328
Cumulative translation adjustment		—		—			—			(22	)		—			(22	)		—		—			—			55			—			55
Net loss		—		—			—			—			(704	)		(704	)		—		—			—			—			(119	)		(119	)
Balance at September 30, 2019		49,340,335	$	76,484		$	3,689		$	(504	)	$	31,434		$	111,103
Balance at June 30, 2020																			56,402	$	105,829		$	5,128		$	(547	)	$	28,321		$	138,731

	Nine Months Ended September 30, 2020															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			Number of Common Shares			Common Stock		Additional paid in capital			Accumulated Other Comprehensive Loss		Retained Earnings			Total Shareholders’ Equity
Balance at January 1, 2020		52,656,669	$	98,333	$	4,351		$	(475	)	$	24,250	$	126,459
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		12,989,976		42,569		—			—			—		42,569			10,887			127,489		—			—		—			127,489
Warrants issued in public offering		—		—		11,369			—			—		11,369			3,188			29,050		(10,555	)		—		—			18,495
Shares issued on exercise of stock options		313,165		408		(157	)		—			—		251			162			290		(104	)		—		—			186
Share re-purchases																	(428	)		—		(3,980	)		—		—			(3,980	)
Share-based compensation		—		—		1,329			—			—		1,329			243			—		3,885			—		—			3,885
Cumulative translation adjustment		—		—		—			(41	)		—		(41	)		—			—		—			4,077		—			4,077
Net income		—		—		—			—			4,591		4,591
Balance at September 30, 2020		65,959,810	$	141,310	$	16,892		$	(516	)	$	28,841	$	186,527
Net loss																	—			—		—			—		(11,899	)		(11,899	)
Balance at June 30, 2021																	80,964		$	302,497	$	6,748		$	10,332	$	23,959		$	343,536

	Nine Months Ended September 30, 2019														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		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
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		1,000,000		13,866		—			—			—		13,866		3,593		7,294		—			—			—		7,294
Shares issued on exercise of stock options		83,998		224		(116	)		—			—		108		152		202		(80	)		—			—		122
Share-based compensation		313,665		908		1,755			—			—		2,663		—		—		857			—			—		857
Shares issued on exercise of warrants		300,000		614		(148	)		—			—		466
Cumulative translation adjustment		—		—		—			58			—		58		—		—		—			(72	)		—		(72	)
Net income		—		—		—			—			9,509		9,509		—		—		—			—			4,071		4,071
Balance at September 30, 2019		49,340,335	$	76,484	$	3,689		$	(504	)	$	31,434	$	111,103
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.

	Nine Months Ended September 30,						Six Months Ended June 30,
	2020			2019			2021			2020
Cash flows provided by (used in) operating activities:
Net income	$	4,591		$	9,509
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		4,540			5,587			6,536			3,021
Amortization of deferred charges		57			57			166			38
Share of income from joint ventures		(4,885	)		(14,115	)
Share of loss (income) from joint ventures								213			(3,579	)
Interest expense		1,273			2,018			1,339			974
Interest income		(577	)		(651	)		(49	)		(476	)
Interest paid on long-term debt		(1,318	)		(2,013	)		(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			(13,558	)
Loss on disposal of assets								40			6
Non-cash lease expense		(935	)		(778	)		(254	)		(627	)
Interest paid on finance leases		(3	)		(6	)
Interest paid on finance lease								(1	)		(2	)
Share-based compensation		1,329			2,663			3,885			857
Deferred income taxes		(321	)		(749	)		(3,199	)		(400	)
Changes in non-cash working capital items		4,938			4,149			(10,239	)		3,961
Net cash provided by (used) in operating activities		4,014			(7,887	)
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		(1,076	)		(1,630	)
Purchases of property, plant and equipment								(11,355	)		(452	)
Advances to joint ventures		(133	)		(9,499	)		(12	)		(125	)
Proceeds from sale of asset		—			52
Investment in joint ventures		(11,713	)		(13	)		—			(11,713	)
Investment in minority interests		(1,226	)		—			(1,001	)		—
Net cash used in investing activities		(14,148	)		(11,090	)		(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		(4,326	)		(3,591	)		(6,026	)		(2,652	)
Proceeds from issuance of common stock		46,388			13,868
Proceeds from issuance of common stock and warrants								135,000			7,957
Issuance costs		(3,819	)		—			(7,511	)		(663	)
Proceeds from exercise of stock options		251			109			186			122
Proceeds from exercise of warrants								18,495			—
Share re-purchases								(3,980	)		—
Payments on capital lease obligations		(51	)		(69	)		(310	)		(39	)
Proceeds from exercise of warrants		11,369			466
Payment of note payable related to acquisition								(15,498	)		—
Net cash provided by financing activities		52,812			13,783			124,583			7,725
Effect of exchange rate changes on cash and cash equivalents		(1	)		—			502			(1	)
Net increase (decrease) in cash and cash equivalents		42,677			(5,194	)
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	$	54,666		$	6,726		$	123,186		$	9,568

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

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

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 ~~September~~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 an equity ~~investments~~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 ~~(“B.C.”)~~ 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 venture, VF Hemp is~~Company, through VFCE, owns and operates a ~~cultivator of high cannabidiol (“CBD”) hemp in multiple states throughout the United States.~~

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 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 developments7.0 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.

The accompanying unaudited Condensed Consolidated Interim Financial Statements for the three and ~~nine~~six months ended ~~September~~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 ~~nine~~six months ended ~~September~~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.~~2019.

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.

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.”~~ ~~The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance~~Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying ~~United States Generally Accepted Accounting Principles (“GAAP”)~~GAAP to ~~contracts, hedging relationships~~debt instruments, derivatives, and other ~~transactions affected by reference rate reform if certain criteria are met. The amendments apply only to~~ contracts ~~and hedging relationships~~ that reference ~~London Interbank Offered Rate (“LIBOR”)~~LIBOR or ~~another~~other reference ~~rate~~rates expected to be discontinued ~~due to~~as a result of reference rate reform. ~~These amendments are effective immediately~~This guidance is optional and may be ~~applied prospectively to contract modification made and hedging relationships entered into or evaluated on or before~~elected through December 31, ~~2022.~~2022 using a prospective application on all eligible contract modifications. The Company ~~believes this guidance will not~~has a line of 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 its financial statements.~~

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

~~In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (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 end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020. The adoption of this standard did not 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.~~

~~Inventories, consisting of crop inventory, purchased produce inventory and spare parts inventory, are valued at the lower of cost~~any such expedients 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.

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. Land is not depreciated. 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. The estimated useful lives of the class of assets for the current and comparative periods are as follows:

~~Construction in process reflects the cost of assets under construction, which are not depreciated until placed into service.~~

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

~~The Company leases a parcel~~Intangibles consisted of ~~land in Marfa, Texas that one of its greenhouses resides on~~the following as well as two distribution centers located in Fort Worth, Texas and Surrey, British Columbia. The Company also leases production related equipment at its greenhouses in Texas and British Columbia. In January 2020, the Company commenced leasing of an office building located in Lake Mary, Florida for its corporate headquarters.of:

The ~~components~~expected future amortization expense for definite-lived intangible assets as of ~~lease related expenses are~~June 30, 2021 was as follows:

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

~~Summarized Equity Earnings (Losses) from Unconsolidated Entities~~The Company leases a parcel of land in Marfa, Texas where one of its greenhouses resides, as well as two distribution centers located in Fort Worth, Texas and Surrey, British Columbia. The Company leases production-related equipment at its greenhouses in Texas and British Columbia. The Company also leases an office building located in Lake Mary, Florida for its corporate headquarters.

Three months ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Pure Sunfarms

$
1,443

$
3,748

$
5,437

$
14,493

VF Hemp

(137
)

(211
)

(552
)

(343
)
AVGG Hemp

—

(18
)

—

(35
)
Total

$
1,306

$
3,519

$
4,885

$
14,115

	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

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 and internationally.

~~The Company accounts for its investment in Pure Sunfarms, in accordance with 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 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 September 30, 2020 relates primarily to the Company’s investment of $63,164 and the recovery of the outstanding loan to Pure Sunfarms of $10,954.

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.

Under the hypothetical liquidation method, the Company received 58.7% and 56.1% of Pure Sunfarms’ earnings for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, the Company received 57.8% and 60.1% 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$25.0 million) at the date of contribution. The Company recognized a gain of $13.6 million on the contribution of the fixed assets.

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

On ~~March~~November 2, 2020, ~~pursuant to the settlement~~Village Farms consummated a definitive purchase and sale agreement with Emerald ~~(the “Settlement Agreement”~~Health Therapeutics Inc. (“Emerald”), acquiring 36,958,500 common shares in the capital of Pure Sunfarms owned by Emerald, ~~transferred~~and increasing Village Farms’ ownership of Pure Sunfarms to 100%. The shares were acquired for a total purchase price of C$79.9 million (US$60.0 million), satisfied through an initial C$60.0 million (US$45.0 million) cash payment and a C$19.9 million (US$15.0 million) secured promissory note that was payable to Emerald, which promissory note was repaid in full on February 8, 2021.

The 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 ~~Company 2.5%~~assets acquired and liabilities assumed in a business combination based upon their estimated fair values at the date of ~~additional equity in Pure Sunfarms.~~acquisition. The purchase price has been allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The Company used information available to make fair value determinations and engaged independent valuation specialists to assist in the fair value determination of acquired intangible assets. The estimated fair value of licenses was determined using a multi-period excess earnings method. This earnings-based method considers the 85 net present value of the licenses’ cash flows discounted at an 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 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 equivalent utility at prices available at the time of the valuation analysis, with adjustments in value for physical deterioration and functional and economic obsolescence. Upon the acquisition of Pure Sunfarms, the Company identified goodwill of C$30,618 (US$24,698). This goodwill was calculated as the difference between the fair value of the ~~equity received from Emerald~~consideration issued for the acquisition of Pure Sunfarms and the fair value of all assets and liabilities acquired. The goodwill is attributable to ~~be $4.7 million (CA$6.5 million).~~the acquired workforce and potential for growth through the conversion of the Delta 1 greenhouse facility and future accretive acquisitions. The Company ~~recorded this amount as~~is required to 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 also recognized a gain ~~on settlement agreement in~~of $23.6 million due to the ~~Condensed Consolidated Interim Statement~~revaluation of ~~Income (Loss) and Comprehensive Income (Loss) for the nine months ended September 30, 2020.~~

~~As of September 30, 2020, and December 31, 2019, the total~~its previously held investment in Pure Sunfarms ~~of $63.2 million and $41.3 million, respectively,~~to its fair value at the acquisition date. The initial accounting for the business combination was ~~recorded in~~considered complete for the ~~consolidated statements of financial position.~~year ended December 31, 2020.

The ~~Company’s share~~following table shows the allocation of the ~~joint venture consisted~~purchase price to assets acquired and liabilities assumed, based on estimates of fair value, including a summary of the ~~following:~~

~~Summarized financial information~~identifiable classes of ~~Pure Sunfarms:~~consideration transferred, and amounts by category of assets acquired and liabilities assumed at the acquisition date:

September 30,
2020

December 31,
2019

Current assets

Cash and cash equivalents

$
6,751

$
7,356

Trade receivables

13,543

8,687

Inventory

33,676

21,745

Other current assets

5,759

6,964

Non-current assets

115,720

108,652

Current liabilities

Trade payables

(3,422
)

(4,938
)
Borrowings due to joint ventures

(11,022
)

(26,413
)
Income taxes payable

—

(8,489
)
Borrowings – current

(2,291
)

(1,423
)
Other current liabilities

(10,156
)

(5,021
)
Non-current liabilities

Borrowings – long term

(23,709
)

(13,089
)
Deferred tax liabilities

(13,742
)

(2,473
)
Net assets

$
111,107

$
91,558

Reconciliation of net assets:

Accumulated retained earnings

$
36,091

$
26,679

Contributions from joint venture partners

75,738

63,481

Currency translation adjustment

(722
)

1,398

Net assets

$
111,107

91,558

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

Three months ended September 30,

Nine months ended September 30,

2020

2019

2020

2019

Sales

$
17,048

$
18,084

$
39,571

$
53,128

Cost of sales*

(11,154
)

(5,689
)

(23,678
)

(13,463
)
Gross Margin

5,894

12,395

15,893

39,665

Selling, general and administrative expenses

(2,447
)

(2,830
)

(6,731
)

(5,616
)
Income from operations

3,447

9,565

9,162

34,049

Interest expense

(386
)

(302
)

(734
)

(596
)
Foreign exchange (loss) gain

(56
)

14

(207
)

28

Other income, net**

(131
)

8

4,202

22

Income before taxes

2,874

9,285

12,423

33,503

Provision for income taxes

(417
)

(2,600
)

(3,012
)

(9,397
)
Net Income

$
2,457

$
6,685

$
9,411

$
24,106

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

~~On February 27, 2019,~~ the Company entered into a joint venture with Nature Crisp, LLC (“Nature Crisp”) to form VF Hemp for the objective 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 $15 million to VF Hemp for start-up costs and working capital.

~~The Company accounts~~accounted for its investment in ~~VF Hemp,~~Pure Sunfarms, in accordance with ASC Topic 323,Equity Method and Joint Ventures (“ASC Topic 323”), using the equity ~~method~~method. The Company determined that Pure Sunfarms was a variable interest entity (“VIE”), however the Company did not consolidate Pure Sunfarms because the Company iswas not the primary beneficiary. Although the Company was able to exercise significant influence over the operating and financial policies of ~~VF Hemp~~Pure Sunfarms through its ~~65% ownership~~then 58.7% majority interest, the Company shared joint control of the board of directors and ~~joint power arrangement with Nature Crisp.~~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’s maximum exposure~~Company determined the fair value of the equity received from Emerald to ~~loss~~be C$6.5 million (US$4.7 million). The Company recorded this amount as a ~~result~~gain and included it as a gain on settlement agreement on the Condensed Consolidated Statement of ~~its involvement with VF Hemp is directly related to~~Income (Loss) and Comprehensive Income (Loss) for the ~~recovery of the $10,713 loan outstanding to VF Hemp.~~

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

September 30, 2020

December 31, 2019

Current assets

Inventory

$
9,268

$
9,308

Other current assets

242

546

Non-current assets

989

1,476

Current liabilities

(1,433
)

(1,788
)
Non-current liabilities

(13,697
)

(13,323
)
Net assets

$
(4,631
)

$
(3,781
)
Reconciliation of net assets:

Accumulated retained earnings

$
(3,791
)

$
(3,791
)
Net loss for the nine months ended September 30, 2020

(850
)

—

Contributions from joint venture partners

10

10

Net assets

$
(4,631
)

$
(3,781
)

	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

In July 2020, the Company invested $226, for an approximately 16% minority interest ownership in DutchCanGrow Inc. (“DCG”), a Netherlands-based cannabis enterprise. DCG is pursuing the opportunity to become one** Includes gain recognized on settlement of ~~a limited number~~net liabilities of licensed cannabis growers (up to a maximum of 10) when the Dutch government permits the first legal recreational cannabis market in Europe under its 10-city Experiment to Investigate Closed Cannabis Supply Chains.$4,348.

In August 2020, the Company invested $1,000 for a 6.6% minority interest ownership in Australia-based Altum International Pty Ltd (“Altum”), with an option to increase its ownership in Altum on similar terms. Altum is a cannabinoid platform with a focus on the distribution and marketing of CBD products in the Asia-Pacific region.

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 ~~Company had a term loan financing agreement with a Canadian creditor (“FCC Loan”). The non-revolving variable rate term loan has a maturity date of April 1, 2025~~six months ended June 30, 2021 and ~~a balance of $29,182 as of September 30, 2020. The outstanding balance is repayable by way of monthly installments of principal~~2020 were ($213) 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 September 30, 2020, and December 31, 2019, borrowings under the FCC Loan agreement were subject to an interest rate of 4.388% and 6.391%($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 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 September 30, 2020, and December 31, 2019, the balance was US$830 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 behalfshare of the ~~Company, with a maximum term~~joint venture consisted 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$250 in October 2017. Each advance is to be repaid on a five-year, straight-line amortization of principal, repaid in monthly installments of principal plus interest at an interest rate of CA$ prime rate plus 200 basis points. As of September 30, 2020, and December 31, 2019, the ~~balance was US$75 and US$106, respectively.~~following:

~~The weighted average interest rate on short-term borrowings as of September 30, 2020 and December 31, 2019 was 4.5% and 6.2%, respectively.~~

The Company has a line 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 September 30, 2020, and December 31, 2019, the amount drawn on this facility was US$3,000 and US$2,000, respectively.

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

~~The Company’s borrowings (“Credit Facilities”) are subject to certain positive and negative covenants, including debt ratios, and~~

During the six months ended June 30, 2021, the Company ~~is required~~exercised a portion of its option to ~~maintain certain minimum working capital.~~make an additional equity investment in Australia-based Altum International Pty Ltd (“Altum”). In ~~December 2019,~~February 2021, the Company ~~received~~exercised 204,000 options at a ~~waiver~~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%.

The carrying value of the assets and securities pledged as collateral for ~~its annual debt service coverage and debt to EBITDA covenants under its~~the FCC ~~Loan. The Company amended the terms~~Loan as of ~~its covenants with respect to its term loan in August, effective~~ June 30, ~~2020, applicable to its annual fiscal year end~~2021 and December 31, ~~2020. As~~2020 was $196,536 and $86,664, respectively.

The carrying value of ~~September~~the assets pledged as collateral for the Operating Loan as of June 30, 2021 and December 31, 2020 ~~the~~was $28,149 and $23,443, respectively.

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

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 ~~covenants under its~~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 ~~Facilities.~~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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$29~~$79 and ~~$162,~~$189, respectively, and these amounts are included in accrued liabilities in the ~~interim statements~~Condensed Interim Statements of ~~financial position.~~

As collateral for the FCC Loan, the Company has provided promissory notes, a first mortgage on the VFF-owned greenhouse properties (excluding the Delta 3 and Delta 2 greenhouse facilities), and general security agreements over its assets. In addition, the Company has provided full recourse guarantees and has granted security therein. The carrying value of the assets and securities pledged as collateral as of September 30, 2020 and December 31, 2019 was $215,581 and 155,548, 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 as of September 30, 2020 and December 31, 2019 was $25,799 and $24,915, respectively.Financial Position.

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

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.

On July 5, 2018, the Company entered into a Shareholder Loan Agreement (the “Loan Agreement”) with Pure Sunfarms, whereby, as of September 30, 2020, the Company had contributed $9,959 (CA$13,000) in the form of a demand loan to Pure Sunfarms. As of September 30, 2020, the loan amount bears simple interest at the rate of 4.2% per annum, calculated semi-annually. Interest will accrue and be payable upon demand. The balance of the loan, including interest, was $10,840 as of September 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, respect of a CA$20 million secured non-revolver term loan (“Credit Facility”). 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. 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%. 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. On November 2, 2020, in conjunction with the closing of the acquisition of the remaining shares of Pure Sunfarms, Pure Sunfarms expanded the Credit Facility to CA$59.0 million, including accordion provisions of CA$22.5 million, and the Company increased its guarantee to a total of CA$20 million.

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

As of September 30, 2020, the Company had $114 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 ~~September~~June 30, ~~2020,~~2021 and December 31, ~~2019~~2020, the Grid Loan balance was ~~$10,713~~ $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 ~~$84~~$67 and ~~$86~~$55 in salary and benefits during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

During ~~the nine months ended September 30,~~ 2020, the Company advanced a loan of $249 to an employee in connection with a relocation at the request of the Company. AsDuring the six months ended June 30, 2021, the employee repaid $124 of ~~September 30, 2020, this amount was included in other assets on~~ the ~~Condensed Consolidated Interim Statement of Financial Position.~~

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

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 ~~nine~~six months ended ~~September~~June 30, 2021 and June 30, 2020 ~~and September 30, 2019~~ 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 ~~$607~~a recovery of income taxes of $3,620 and $943 for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~compared~~respectively.

Notes to ~~$114 for the nine months ended September 30, 2019. The income tax provision for September 30, 2019 includes deferred tax liabilities arising from the contribution~~Condensed Consolidated Interim Financial Statements

(In thousands of ~~the Delta 2 assets to Pure Sunfarms.~~United States dollars, except per share amounts, unless otherwise noted)

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 business refer to Note 7 – Investments in Joint Ventures and Minority Interests.~~

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

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

	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Sales
Produce	$	42,939		$	37,806		$	122,356		$	110,468		$	45,539		$	47,455		$	80,406		$	79,417
Energy – Canada		98			487			366			1,044
Cannabis														24,761			—			42,221			—
Energy														74			118			143			268
	$	43,037		$	38,293		$	122,722		$	111,512		$	70,374		$	47,573		$	122,770		$	79,685
Gross margin
Produce	$	5,828		$	(500	)	$	10,494		$	(2,499	)	$	(3,814	)	$	3,723		$	(3,097	)	$	4,666
Energy – Canada		(209	)		(111	)		(581	)		(407	)
Cannabis														9,820			—			12,032			—
Energy														(741	)		(194	)		(1,363	)		(372	)
	$	5,619		$	(611	)	$	9,913		$	(2,906	)	$	5,265		$	3,529		$	7,572		$	4,294

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

	Three months ended September 30,					Nine months ended September 30,				Three months ended June 30,						Six months ended June 30,
	2020		2019			2020		2019		2021			2020			2021			2020
Numerator:
Net (loss) income	$	520	$	(704	)	$	4,591	$	9,509	$	(4,517	)	$	(119	)	$	(11,899	)	$	4,071
Denominator:
Weighted average number of common shares - Basic		58,536		48,845			55,946		48,650
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		1,904		—			1,832		1,801		—			—			—			1,120
Weighted average number of common shares - Diluted		60,440		48,845			57,778		50,451
Weighted average number of common shares - diluted											81,071			56,339			78,560			55,756
Antidilutive options and awards		865		310			865		310		4,535			2,479			4,535			650
Net (loss) income per ordinary share:
Net (loss) income per common share:
Basic	$	0.01	$	(0.01	)	$	0.08	$	0.20	$	(0.06	)	$	(0.00	)	$	(0.15	)	$	0.07
Diluted	$	0.01	$	(0.01	)	$	0.08	$	0.19	$	(0.06	)	$	(0.00	)	$	(0.15	)	$	0.07

On ~~September 10, 2020~~May 21, 2021, the Company ~~closed~~announced that the Toronto Stock Exchange (“TSX”) had accepted a ~~registered direct offering with certain institutional investors for~~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 ~~and sale~~up to 4,062,309 of ~~an aggregate of 9,396,226 units at a purchase price of $5.30 per unit for gross proceeds of~~its common shares, representing approximately ~~$49.8 million before placement agent fees and other offering expenses.~~

~~Each unit that was sold consists of one common share~~5% of the ~~Company~~Company’s issued and ~~a one-half (0.5)~~outstanding common shares, by way of a ~~warrant to purchase a common share~~NCIB over the facilities of the ~~Company at an exercise price of $5.80. The warrants will be exercisable beginning on March 10,~~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, 2021, ~~and will expire on September 10, 2025. ASC 480,~~ ~~Distinguishing Liabilities from Equity, requires that these warrants are classified as equity. The fair value of these warrants was determined using~~ the ~~Black-Scholes Merton valuation model.~~

(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 ~~nine~~six months ended ~~September~~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 December 31, 2019

2,452,666

CA$

5.12

5.60

$
11,435

Granted

661,488

CA$

6.65

9.87

$
—

Exercised

(273,165
)

CA$

1.27

1.76

$
—

Forfeited

(36,666
)

CA$

7.06

—

$
—

Outstanding at September 30, 2020

2,804,323

CA$

5.83

6.31

$
6,120

Exercisable at September 30, 2020

1,726,839

CA$

3.65

4.51

$
6,100

	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

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

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

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 can be reasonably 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.

(In ~~thousands~~July 2021, the Company re-purchased an additional 107,955 common shares for a total cost of ~~United States dollars, except per share amounts, unless otherwise noted)~~$1,020.

On November 2, 2020, the Company, consummated the previously announced definitive purchase and sale agreement with Emerald, acquiring 36,958,500 common shares in the capital of Pure Sunfarms owned by Emerald, and increasing the Company’s ownership of Pure Sunfarms to 100%. The shares were acquired for a total purchase price of C$79.9 million (US$60.0 million), satisfied through a C$60.0 million (US$45.0 million) cash payment and a C$19.9 million (US$14.5 million) secured promissory note payable to Emerald due on May 2, 2021 (the “Pure Sunfarms Acquisition”).

In connection with the Pure Sunfarms Acquisition, the previous shareholders’ agreement dated as of June 6, 2017, by and between the Company and Emerald was terminated as at the closing date of the Pure Sunfarms Acquisition and certain intellectual property was assigned to Pure Sunfarms and licensed to Emerald. Pure Sunfarms’ management and employees became part of the Company as of the closing date of the Pure Sunfarms Acquisition, and the Company will begin fully consolidating the financial results of Pure Sunfarms as a wholly owned subsidiary as of November 2, 2020. The transaction will be immediately accretive to the Company’s net income.

For Q3 2020, the financial statements of the Company continue to reflect the 58.7% ownership held prior to the Pure Sunfarms Acquisition. For summarized financial information of Pure Sunfarms refer to Note 7.

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 September 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”.

~~Through our subsidiary,~~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. On November 2, 2020, we completed the acquisition of the remaining 41.3% interest in Pure Sunfarms from Emerald Health Therapeutics, Inc. (“Emerald”), following which we became the 100% owner of Pure Sunfarms (the “Pure Sunfarms Transaction”). See “Acquisition of Remaining Interest in Pure Sunfarms” below. 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 and investments in cannabis opportunities in Asia and Holland.~~

Pure Sunfarms ~~has leveraged~~leverages our 30 years of experience as a vertically integrated greenhouse ~~produce~~ 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 six largest 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 and internationally.~~Canada.

In our ~~produce~~ greenhouse operations, we produce ~~market~~ and ~~sell~~distribute fresh, premium-quality produce with consistency 365 days a year ~~to national grocers in the United States (“U.S.”) and Canada~~ from more than 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 B.C., Ontario, and Mexico.

~~We are pursuing opportunities~~ The Company primarily markets and distributes under its Village Farms^® brand name and proprietary trademarks to ~~become a vertically integrated leader in the U.S. hemp-derived CBD market, subject to compliance with all applicable U.S. federal~~retail supermarkets and state laws and will pursue controlled environment hemp production at one of our Texas greenhouse operations, once the current CBD regulatory environment becomes clearer due to the restrictive rulings of the Food and Drug Administration, U.S. Department of Agriculture and U.S. Drug Enforcement Administration. Our U.S. multi-state outdoor cultivation business is operated through our 65% interest in Village Fields Hemp USA, LLC (“VF Hemp” or “VFH”) in multiple statesdedicated fresh food distribution companies throughout the United ~~States.~~States and Canada.

~~Our~~The Company, through its subsidiary VF Clean Energy, Inc. (“VFCE”), owns and operates a ~~7.0 MW~~7.0-megawatt power plant from landfill gas that generates ~~electricity.~~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~~renewable natural gas facility (“~~RNG”~~Delta RNG Project”) ~~operation~~ in conjunction with Mas Energy, LLC (“Mas Energy”) which ~~will~~is expected to enhance our financial return as well as provide food-grade CO₂ ,CO2, which can be used in both our cannabis and produce growing operations in Delta, B.C.

InThe Company entered the ~~third quarter of 2020, the Company acquired minority interests in two international companies, DutchCanGrow (“DCG”)~~U.S. hemp business in the ~~Netherlands~~spring of 2019 after the passing of the 2018 Farm Bill. We established a joint venture with a 65% interest in Village Fields Hemp USA, LLC (“VFH”) for multi-state outdoor hemp cultivation and ~~Asia-based~~cannabidiol (“CBD”) extraction, and initiated plans to pursue controlled environment hemp production at our Texas greenhouse 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 ~~order~~various stages of negotiations and due diligence in respect to ~~leverage our experience and expand into international cannabis and CBD opportunities.~~

~~On September 8, 2020, we entered into a purchase agreement (the “Purchase Agreement”) with Emerald to purchase from Emerald 36,958,500 common shares~~potential opportunities in the capital of Pure Sunfarms, representing 41.3% of the issued and outstanding common shares of Pure Sunfarms and all of the remaining common shares of Pure Sunfarms not held by the Company. On November 2, 2020, we consummated the Pure Sunfarms Transaction for a total aggregate purchase price of C$79.9 million (US$60.0 million), satisfied through a C$60.0 million (US $45.0 million) cash payment and a C$19.9 million (US$14.5 million) secured promissory note payable to Emerald due on May 2, 2021 (the “Promissory Note”). Interest on the principal amount owed under the Promissory Notedeveloping cannabis industry. There can be no assurance that these negotiations will accrue at the lower of (i) the maximum non-usurious rate of interest under applicable law or (ii) 12% per annum. In order to secure our obligations under the Promissory Note, on November 2, 2020, we entered into a share pledge agreement (the “Share Pledge Agreement”) with Emerald and Computershare Trust Company of Canada, as collateral agent, in order to pledge 9,239,625 common shares of Pure Sunfarms to Emerald as collateral for the amounts owed by us under the Promissory Note. Also, on November 2, 2020, in connection with the consummation of the Pure Sunfarms Transaction, the Company and Emerald terminated the shareholders

~~agreement, dated as of June 6, 2017, by and between the Company and Emerald, which had governed the business and affairs of Pure Sunfarms.~~

The Purchase Agreement contains representations and warranties customary for transactions of this nature negotiated between sophisticated purchasers and sellers acting at arm’s length, certain of which are qualified as to materiality and knowledge and subject to reasonable exceptions. Subject to certain exceptions, the representations and warranties of the Company and Emeraldresult in the ~~Purchase Agreement will survive for a period~~completion of ~~18 months from~~any such acquisitions or, if they do, what the ~~closing date~~final terms or timing of ~~the Pure Sunfarms Transaction. Certain “fundamental” representations, however, will survive the closing of the Pure Sunfarms Transaction for a period of six years.~~any such acquisitions would be.

~~Pursuant~~Our Response to the Purchase Agreement, each of the Company and Emerald have agreed, following closing, to indemnify the other party and its affiliates against any loss arising from a breach of a representation, warranty, or covenant given by the Company or Emerald, respectively, under the Purchase Agreement. The indemnity is subject to certain limitations, including that neither the Company nor Emerald are required to indemnify the other party unless and until losses exceed C$500,000, at which point Village Farms or Emerald, as the case may be, will be entitled to recover the full amount of such losses from the first dollar. The indemnity is also capped at 100% of the purchase price under the Purchase Agreement and no party is liable for any losses resulting from any breach of any representation or warranty in the Purchase Agreement if the party seeking indemnification knew about the inaccuracy or breach before closing.

In addition, the Company and Emerald entered into a non-solicitation agreement on the closing date of the Pure Sunfarms Transaction pursuant to which Emerald has agreed not to solicit or hire any employees of Pure Sunfarms or the Company for a period of three years following the closing date, subject to customary exceptions.

On September 10, 2020, we completed a registered direct offering (the “Registered Direct Offering”) of 9,396,226 units (each, a “Unit”), with each Unit consisting of one common share in the capital stock of the Company (each, a “Common Share”) and 0.50 of a warrant to purchase one Common Share (each, a “Warrant”). Each Unit was sold at a public offering price of $5.30 per Unit. The Warrants included in the Units will initially be exercisable on March 10, 2021, at an exercise price of $5.80 per share, subject to adjustment in certain circumstances, and will expire five years from the date of issuance (subject to the call right provided for in the Warrants).

The net proceeds to the Company after deducting placement agent fees were approximately $46.8 million, excluding the proceeds, if any, from the exercise of the Warrants, and prior to deducting estimated offering expenses payable by the Company. We used approximately $37.5 million of the net proceeds from the Registered Direct Offering to finance the Pure Sunfarms Transaction.

~~Recent developments relating 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.

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.

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.

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.

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”.

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.

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.

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.

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

For the three months
ended September 30,

For the nine months
ended September 30,

2020

2019

2020

2019

Sales

$
43,037

$
38,293

$
122,722

$
111,512

Cost of sales

(37,418
)

(38,904
)

(112,809
)

(114,418
)
Gross margin

5,619

(611
)

9,913

(2,906
)
Selling, general and administrative expenses

(4,942
)

(3,739
)

(12,676
)

(11,899
)
Stock compensation expense

(472
)

(666
)

(1,329
)

(2,663
)
Interest expense

(299
)

(655
)

(1,273
)

(2,018
)
Interest income

101

304

577

651

Foreign exchange (loss) gain

(484
)

(183
)

(880
)

338

Gain on settlement agreement

—

—

4,681

—

Other income, net

27

69

92

219

(Loss) gain on disposal of assets

—

(8
)

(6
)

13,558

(Provision for) recovery of income taxes

(336
)

1,266

607

114

Net Loss from consolidated entities after income taxes

(786
)

(4,223
)

(294
)

(4,606
)
Equity earnings of unconsolidated entities

1,306

3,519

4,885

14,115

Net income (loss)

$
520

$
(704
)

$
4,591

$
9,509

Adjusted EBITDA (1)

$
4,556

$
2,881

$
7,921

$
8,326

Earnings (loss) per share - basic

$
0.01

$
(0.01
)

$
0.08

$
0.20

Earnings (loss) per share – diluted

$
0.01

$
(0.01
)

$
0.08

$
0.19

	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

~~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.

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 ~~(USD)~~was acquired by Village Farms on November 2, 2020; for the three and six months ended June 30, 2021, the operating results of 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).

~~Set forth below are~~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 for the three and ~~nine~~six months ended ~~September~~June 30, 2020 ~~and 2019~~but were consolidated in ~~accordance with GAAP. Subsequent to September 30, 2020, we completed the Pure Sunfarms Transaction, and we will consolidate Pure Sunfarms in~~ our ~~operating results for future periods. A discussion of our consolidated~~ results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~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 ~~2019, including our Produce Segment,~~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 ~~included further below.~~a non-cash accounting charge to cost of sales and should be adjusted for when analyzing the actual operational results of Pure Sunfarms.

Three ~~months ended September~~Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 ~~compared to~~

~~Sales~~2021 were $70,374 as compared to $47,573 for the three months ended ~~September~~June 30, 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, 2021 versus June 30, 2020, ~~increased to $17,048~~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 for the three months ended June 30, 2021 were $65,109 as compared to ~~$9,386,~~$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 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 for the three months ended June 30, 2021 increased $1,736 to $5,265, or ~~an 81% quarter on quarter increase~~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 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 ~~driven by a 148%~~due to the inclusion of Pure Sunfarms’ expenses of $4,370, higher produce related legal fees and an increase in ~~sales in the wholesale channel, a 22% quarter on quarter increase in sales~~corporate expenses, primarily related to ~~provincial (retail) boards~~public company costs such as investor relations, legal and ~~the September launch~~regulatory fees and incremental costs of Pure Sunfarms Cannabis 2.0 derivative products, which includes cannabis oil and vape pens. The quarter on quarter growth in retail sales is directly attributable to a 165.7% increase in Pure Sunfarms retail small format, a 29.7% quarter on quarter increase in pre-rolls and a (42.7%) decrease in Pure Sunfarms retail large format as the large format was launched in the second quarter of 2020 and the third quarter retail large format sales consisted of ongoing reorder sales.U.S. reporting compliance.

The channel makeup of the third quarter sales was 54% to the retail channel and 46% to the wholesale channel. The channel makeup of the second quarter sales was 69% to the retail channel and 31% to the wholesale channel. Cannabis 2.0 derivative products were 4.4% of third quarter sales.Share-Based Compensation

~~The net average selling price for the three months ended September 30, 2020 was higher than the net average selling price~~Share-based compensation expenses for the three months ended June 30, ~~2020 by 17.4%,~~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.

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.

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 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 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”.

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.

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 ~~small format retail~~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 ~~large format retail sales,~~June 30, 2020, partially offset by a ~~quarter on quarter~~23% increase in ~~sales~~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 ~~retail flower SKUs~~a market supply overage caused by an increase in Canadian winter production and a ~~slight increase~~change in ~~wholesale pricing, which is impacted by the makeup~~retailer buying habits to more specialty tomatoes. The tomato produce industry experienced one of the ~~potency~~lowest pricing environments for tomatoes-on-the-vine and beefsteak varieties in the past ten years through late Q2 2021 with signs of ~~flower biomass sold to various wholesale customers.~~pricing moving back into historical ranges towards the end of Q2 2021.

Cost of sales for the ~~three~~six months ended ~~September~~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 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 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 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.

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.

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.

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 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 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”.

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.

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

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.

Pure Sunfarms’ net sales for the three months ended June 30, ~~2020~~2021 were $24,761 as compared to $17,460 for the three months ended March 31, 2021. The sequential net sales increase was ~~$11,154~~comprised of a 22% increase in branded sales and ~~$6,266, respectively, an~~a 121% increase in non-branded sales. For the three months ended June 30, 2021, 66% of ~~78%.~~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 ~~third quarter~~increase in branded sales between sequential periods was largely attributable to increased production of ~~2020~~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 market.

Pure Sunfarms’ cost of sales ~~includes~~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 result of the Pure Sunfarms Acquisition, Pure Sunfarms recognized an ~~inventory write down of $1,042 for distillate inventory purchased from third party extraction companies for which the market value had dropped since the initial purchase. The quarter on quarter~~ increase in ~~costs, excluding~~ the ~~distillate~~fair value of its inventory ~~write down~~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 ~~61.4%,~~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 ~~a 143% increase~~increased yields in wholesale kilograms sold, a 120% increase in retail small format kilograms sold which has higher overhead and labor cost compared to retail large format, and the launch of recently approved Cannabis 2.0 derivative products which are co-manufactured by another licensed producer.cultivation.

Gross margin for the three months ended ~~September~~June 30, ~~2020 and~~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, ~~2020 was 34.6% and 33.2%, respectively,~~2021 increased $4,817 to $9,954, or a 40% gross margin, in comparison to $5,137, or a 29% gross margin, excluding the ~~distillate~~purchase price inventory ~~write down,~~adjustment of $2,925 for the three months ended March 31, 2021. The increase in gross margin between sequential periods was ~~40.7%, The quarter on quarter improvement was due~~attributable to an increase in ~~wholesale sell price and an increase in small format retail~~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 ~~compared to higher sales~~a percentage of ~~Pure Sunfarms retail large format products in the second quarter of 2020, which have a lower gross margin.~~net sales.

~~Selling,~~Pure Sunfarms’ selling, general and administrative expenses for the three months ended ~~September~~June 30, ~~2020~~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, ~~2020 were $2,447 and $1,850, respectively, an increase of 32.3%. The increase~~2021 in comparison to the three months ended March 31, 2021 was ~~primarily~~ due to ~~investments~~general cost containment efforts initiated by management to effectively keep expenses relatively constant as sales increased 38%.

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 ~~retail sales, marketing, and staffing.~~share-based compensation is largely due to performance shares granted to Pure Sunfarms’ management that vested in the first quarter of 2021.

~~Net~~Pure Sunfarms’ net income for the three months ended ~~September~~June 30, ~~2020 and~~2021 was $3,221 as compared to a net loss of ($2,834) for the three months ended ~~June 30, 2020 was $2,457 and $790 respectively, an increase of 211%.~~March 31, 2021. The ~~increase~~higher net income between periods was primarily driven by a higher gross margin due to ~~the increase in gross margin.~~increased sales volume while decreasing cost of sales and selling, general and administrative expenses as a percentage of revenue.

Adjusted EBITDA for the three months ended ~~September~~June 30, ~~2020~~2021 and March 31, 2021 was $7,369 and $2,534, respectively, representing an increase ~~133.2% to $4,277 from $1,835 for the second quarter.~~of 191%. The ~~third quarter~~increase in Adjusted EBITDA ~~figure does include~~was driven by higher net sales, gross margin and operating profit in the ~~third party distillate inventory write down of $1,042.~~

~~Three~~three months ended ~~September~~June 30, ~~2020~~2021 as compared to the three months ended ~~September~~March 31, 2021.

Three Months Ended June 30, ~~2019.~~2021 Compared to Three Months Ended June 30, 2020

~~Sales~~Pure Sunfarms’ net sales for the three months ended ~~September~~June 30, ~~2020 and 2019 was $17,048 and $18,084, respectively, a decrease of (5.7%). The change was due~~2021 were $24,761 as compared to ~~a 362% increase in provincial (retail) sales and a (51.6%) decrease in wholesale selling price~~$9,386 for the three months ended ~~September~~June 30, ~~2020~~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 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.

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 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.

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 ~~September~~June 30, ~~2019. The net average selling price~~2020 was primarily due to additional headcount to support the growth of Pure Sunfarms.

Share-based compensation expenses for the three months ended ~~September~~June 30, ~~2020 was lower than the net average selling price~~2021 were $191 as compared to nil for the three months ended ~~September~~June 30, ~~2019 by (35.8%).~~2020. The increase in share-based compensation is due to the cost of stock options for Pure Sunfarms’ management.

Pure Sunfarms’ net income for the three months ended ~~September~~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 lower selling, general and administrative costs as a percentage of net revenue.

Adjusted EBITDA for the three months ended June 30, 2021 and June 30, 2020 ~~approximately 4.4%~~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.

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 ~~its recently launched~~branded flower and pre-rolls and 10% of revenue was generated from Cannabis ~~2.0 derivative products,~~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 ~~includes cannabis oil~~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 ~~vape pens, 49.6% of dried flower sales to provincial (retail) boards, with the remaining 46% through the wholesale channel, including nonmonetary~~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. ~~Pure Sunfarms will use the distillate in future Cannabis 2.0 products.~~

~~Cost~~Pure Sunfarms’ cost of sales for the ~~three~~six months ended ~~September~~June 30, ~~2020 and 2019~~2021 was ~~$11,154 and $5,689, respectively, an increase of 96.1%.~~$30,189 as compared to $12,524 for the six months ended June 30, 2020. The ~~third quarter 2020~~2021 cost of sales for Pure Sunfarms includes ana $3,058 charge from the revaluation of inventory ~~write down of ($1,042) for distillate inventory purchased from third party extraction companies for which the market~~to fair value ~~has dropped since the initial purchase.~~at acquisition date. The ~~year on year~~ increase in ~~costs, excluding the distillate inventory write down~~cost of sales between periods was ~~77.7%, was due to 553%~~driven by an increase in ~~retail kilograms sold~~net sales, including the higher volume of branded sales which require incremental costs for manufacturing, packaging ~~overhead~~ and ~~logistics expenses compared to product sold through the wholesale channel, as well as higher depreciation expense charge (a year on year increase of 91%) due to higher volumes.~~distribution.

Gross margin for the ~~three~~six months ended ~~September~~June 30, ~~2020~~2021 increased $2,033 to $12,032, or a 28% gross margin, in comparison to $9,999, or a 44% gross margin, for the six months ended June 30, 2020. Excluding the purchase price inventory adjustment of $3,058, gross margin for the six months ended June 30, 2021 increased $5,091 to $15,090, or a 36% gross margin. The increase in gross margin was driven by the increase in branded sales. However, branded sales have a higher cost associated with packaging and ~~2019 was 34.6% and 68.5%, respectively. The decline was due~~distribution which led to a decrease in gross margin as a percentage of revenue between the ~~$1,042 inventory write down for distillate inventory,~~periods. In addition, Pure Sunfarms entered into certain co-manufacturing agreements to assist in ~~2020,~~the production of Cannabis Derivative Products which have a lower ~~price environment for the wholesale channel in 2020 as compared~~margin relative to the third quarter of 2019, as well as an increase in costs as a result of Pure Sunfarms’ increase in provincial retail sales in 2020, as the majority of sales in the third quarter of 2019 were made through the wholesale channel.in-house production.

~~Selling,~~Pure Sunfarms’ selling, general and administrative expenses for the ~~three~~six months ended ~~September~~June 30, ~~2020 and 2019~~2021 were ~~$2,447 and $2,830, respectively, a decrease of 13.5%. The decrease was primarily due~~$8,336 compared to wage subsidies received from the Government of Canada as a result of the federal COVID-19 program, without the subsidy the year on year selling, general and administrative expenses were essentially flat.

~~Net income~~$4,284 for the ~~three~~six months ended ~~September~~June 30, ~~2020 and 2019 was $2,457 and $6,685 respectively, a decrease of (63.2%). The decrease was primarily due to the decrease in gross margin.~~

~~Adjusted EBITDA for the three months ended September 30, 2020 declined (57.5%) to $4,277 from $10,075 for the same prior year period. The decrease was primarily due to the decrease in gross margin.~~

~~Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.~~

Sales for the nine months ended September 30, 2020 and 2019 was $39,571 and $53,128, respectively, a decrease of (25.5%). The decrease was due to a lower average selling price for the nine months ended September 30, 2020, compared to 2019, when 95% of Pure Sunfarms’ sales were being made through its wholesale channel during a period of elevated wholesale market pricing. For the nine months ended September 30, 2020, 54.4% of dried flower sales were to provincial (retail) boards, with the remaining 45.6% of sales 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. Pure Sunfarms will use the distillate in future Cannabis 2.0 products.

Net sales for nine months ended September 30, 2020 as compared to net sales for the nine months ended September 30, 2019 were impacted by lower retail pricing, partially due to the introduction of retail large format products, in the second quarter of 2020 as well as lower pricing on both pre-rolls and small format dried flower, in 2020.

~~Cost of sales for the nine months ended September 30, 2020 and 2019 was $23,678 and $13,463, respectively, an increase of 75.9%.~~ The increase ~~was primarily due to an increase~~ in kgs sold of 59.5% and a transition to higher costing provincial (retail) sales products which require incremental packaging and logistics expenses compared to products sold through the wholesale market, as well as higher year on year depreciation expense as a result of higher kgs sold.

Gross margin percentage for the nine months ended September 30, 2020 was 40.2% and 74.7%, respectively. The decline was due to a lower price environment in 2020, partly driven by the market place acceptance of the larger format SKUs, as well as the increase in cost of sales resulting from Pure Sunfarms’ change in product mix to retail sales in 2020, as the majority of sales for the nine months ended September 30, 2019 were made through the wholesale channel.

~~Selling,~~selling, general and administrative expenses for the ~~nine~~six months ended ~~September~~June 30, 2021 in comparison to the six months ended June 30, 2020 ~~and 2019 was $6,731 and $5,616, respectively, an increase of 19.9%. The increase~~ was primarily due to ~~higher Health Canada regulatory fees, which are based on provincial kgs sold,~~additional headcount to support the growth of Pure Sunfarms. Selling, general and administrative expenses remained approximately 20% of net sales as ~~well as incremental year over year~~revenues increased 87% between the six months ended June 30, 2021 and June 30, 2020, respectively.

Share-based compensation expenses for ~~marketing~~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 ~~staffing as a direct result~~cost of ~~the provincial (retail) sales in 2020, as~~ stock options for Pure Sunfarms’ management.

Pure Sunfarms ~~did not have its provincial (retail) sales license for the first eight months~~recognized income of ~~2019.~~

~~Other income, net for the nine months ended September 30, 2020 and 2019 was $4,201 and $22, respectively. During~~$4,348 in the first quarter of 2020 ~~Pure Sunfarms recognized a $4,348 gain on settlement~~as an outcome of ~~net liabilities resulting from~~ the March 2, 2020 Settlement Agreement between Pure Sunfarms, Emerald ~~Health~~ and ~~Village Farms.~~the Company. This gain is ~~derived from~~ Pure Sunfarms’ forgiveness of ~~Emerald’s~~a shareholder loan ~~including~~and accrued interest owed by Emerald offset by the extinguishment of the ~~Supply Agreement~~supply agreement and any amounts receivable thereunder, which included a ~~$457~~C$8,100 receivable ~~due~~ from Emerald for sales made in ~~the first quarter of 2020 and $5.4 million for sales made in~~ 2019.

~~Net~~Pure Sunfarms’ net income for the ~~nine~~six months ended ~~September~~June 30, ~~2020 and 2019~~2021 was ~~$9,412 and $24,106, respectively, a decrease~~$387 as compared to net income of ~~(61.0%).~~$6,954 for the six months ended June 30, 2020. The decrease in net income was ~~primarily due~~largely attributable to the ~~decrease in gross margin.~~

~~Adjusted EBITDA, which excludes the~~one-time gain on settlement of net liabilities ~~and includes the distillate inventory write down~~ of ~~$1,042, was $10,980 for the nine months ended September 30,~~$4,348 in 2020 a (69.0%) decrease from $35,419 for the nine months ended September 30, 2019. The decrease was primarily due to a lower grow margin and an increase in selling, general and administrative expenses for the nine months ended September 30, 2020 compared to the same prior year period.

~~Three months ended September 30, 2020 compared to the three months ended September 30, 2019.~~

Produce sales for the three months ended September 30, 2020 increased $4,744, or 12.4%, to $43,037 compared to $38,293 for the three months ended September 30, 2019. The improvement in sales is due to an increase in pricing for tomatoes during the three months ended September 30, 2020 compared to the same prior year period. The average net selling price for total tomato pounds sold increased 30% for the three months ended September 30, 2020 compared to the three months ended September 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 the result of a supply shortage throughout most of 2020, due to an increase in grocery store traffic, driven by COVID-19 measures, as well as ~~a global tomato virus that is negatively impacting tomato supplies. Pepper prices increased 19% and pepper pounds sold increased 47% when compared to~~ the ~~same prior year period, due to an increase in our third-party pepper contracts. Cucumber prices increased 1% and cucumber pieces sold decreased (12%)~~lower operating profit for the ~~three~~six months ended ~~September~~June 30, ~~2020 as compared to the three months ended September 30, 2019.~~

Cost of sales for the three months ended September 30, 2020 decreased ($1,486), or (3.8%), to $37,418 from $38,904 for the three months ended September 30, 2019, as the Company produced less tomatoes at its facilities in the third quarter of 2020 compared to the same period in 2019 due to the transition of the Delta 2 facility, which converted from tomato production in 2019 to cannabis production for Pure Sunfarms in 2020.

Selling, general and administrative expenses for the three months ended September 30, 2020 increased $1,203, or 32.2%, to $4,942 from $3,739 for the three months ended September 30, 2019 driven by incremental legal, acquisition and regulatory expenses related primarily to the Pure Sunfarms negotiations and acquisition and year over year incremental public company filings, and an increase in employee compensation.

Share-based compensation expense for the three months ended September 30, 2020 was $472 compared to $666 for the three months ended September 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. Due to the closing of the Pure Sunfarms acquisition in November 2020, there will be incremental share-based compensation expense in the fourth quarter of 2020 due the vesting of performance shares earned relating to the acquisition of Pure Sunfarms and its management team.

Interest expense for the three months ended September 30, 2020 decreased ($356) to $299 from $655 for the three months ended September 30, 2019. The decrease is primarily due to lower interest rates as well as lower debt balances.

~~Interest income for the three months ended September 30, 2020 and 2019 was $101 and $304, respectively. We are no longer accruing interest associated with the VF Hemp Grid Loan Agreement.~~

For the three months ended September 30, 2020, we recorded an income tax provision of ($336) compared to an income tax recovery of $1,266 for the three months ended September 30, 2019. The difference is primarily due to a higher gross margin in the 2020 period. Pure Sunfarms and VF Hemp are both reported post-tax and therefore do not factor into the Company’s tax calculation.

Equity earnings from our unconsolidated entities decreased of ($2,213), or (62.9%). The decrease was primarily due to an impairment loss taken on Pure Sunfarms’ inventory of ($1,042), as well as a lower Pure Sunfarms’ gross margin as a result of a lower selling price environment, as well as our share of VF Hemp’s third quarter losses of ($137). For information regarding the results of operation from our joint ventures, refer to “JV Cannabis Business” above and “Reconciliation of U.S. GAAP Results to Proportionate Results” below.

Net income (loss) for the three months ended September 30, 2020 and 2019 was $520 and ($704), respectively. The improvement was primarily due to an increase in our produce gross margin, partially offset by higher selling, general and administrative expenses and a decrease in equity earnings from Pure Sunfarms.2021.

Adjusted EBITDA for the ~~three~~six months ended ~~September~~June 30, 2021 and June 30, 2020 increased 58.1% to $4,556 from $2,881 for the three months ended September 30, 2019 due primarily to a decrease in losses from consolidated entities of $3,437, offset by a decrease in equity earnings from our joint ventures. See the reconciliation ofwas $9,903 and $6,703, respectively. Adjusted EBITDA ~~to net income in “Non-GAAP Measures - Reconciliation of Net Earnings to Adjusted EBITDA”.~~

~~Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.~~

~~Produce sales for the nine months ended September 30, 2020~~ increased ~~$11,210, or 10.1%, to $122,722 compared to $111,512 for the nine months ended September 30, 2019. The increase in produce sales was~~33% between periods primarily due to higher ~~selling prices for tomatoes and a higher volume of supply partner produce during the nine months ended September 30, 2020 compared to the same prior year period.~~

Village Farms’ greenhouse production revenues were consistent with the prior year period even though production volume decreased due to the transition of the Delta 2 facility to Pure Sunfarms and a year over year decline in the overall production generated from our Texas facilities. The decrease in production volume was offset by an increase of 32% in the average selling price of Village Farms’ own production. The increase in selling pricesgross margin for the commodity items was primarily due to a market supply shortage, largely stemming from changes in consumer buying habits affected by COVID-19. Pepper prices increased 19% and pepper pounds sold increased 37% when compared to the same prior year period. Cucumber prices increased 1% and cucumber pieces sold decreased (13%) for the nine monthsperiod ended ~~September~~June 30, ~~2020~~2021 as compared to ~~the same prior year period.~~

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

Cost of sales for the nine months ended September 30, 2020 decreased ($1,609), or (1.4%), to $112,809 from $114,418 for the nine months ended September 30, 2019. This decrease is primarily due to the transition of our Delta 2 facility to Pure Sunfarms and lower production costs at our Texas facilities, offset by an increase in supply partner purchases.

Selling, general and administrative expenses for the nine months ended September 30, 2020 increased $777, or 6.5%, to $12,676 from $11,899 for the nine months ended September 30, 2019. The increase was primarily related to an increase in legal and regulatory expenses related to incremental public company filings, the Pure Sunfarms acquisition and the first quarter Settlement Agreement, and an increase in employee compensation, which in turn were offset by reductions in accounting fees and travel expenses.

Share-based compensation expense for the nine months ended September 30, 2020 decreased ($1,334), or (50.1%), to $1,329 from $2,663 for the nine months ended September 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 for the nine months ended September 30, 2020 decreased ($745), or (36.9%), to $1,273 from $2,018 for the nine months ended September 30, 2019. The decrease was due to lower interest rates as well as lower debt balances.

~~Interest income for the nine months ended September 30, 2020 and 2019 was $577 and $651, respectively. During 2020 we stopped accruing interest income for the VFH Grid Loan.~~

We recognized a loss on disposal of assets of ($6) for the nine months ended September 30, 2020 compared to a gain of $13,558 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 Pure Sunfarms.

For the nine months ended September 30, 2020, we recorded an income tax recovery of $607 compared to $114 for the nine months ended September 30, 2019. In 2020, we experienced a significant increase in its produce gross margin compared to the prior year period, along with a gain of $4,681 on the Settlement Agreement with Emerald. During 2019, we had a $13,558 gain on disposal of assets arising from the contribution of our Delta 2 assets to Pure Sunfarms. Pure Sunfarms and VF Hemp are both reported post-tax and therefore do not factor into our tax calculation.

Equity earnings from our unconsolidated entities decreased ($9,230) or (65.4%) to $4,885 for the nine months ended September 30, 2020, from $14,115 for the same prior year period. The decrease was primarily due to a decrease in earnings from Pure Sunfarms’ of ($8,678), caused by an increase in the sales of lower margin large format products sold through the provincial (retail) boards and an overall decrease in the wholesale market in 2020 as compared to elevated pricing in the wholesale channel in 2019. In addition, Pure Sunfarms’ net income for the nine months ended September 30, 2020 includes a $4,348 gain resulting from the Settlement Agreement, of which $2,496 was our share. 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) for the nine months ended September 30, 2020 and 2019 was $4,591 and $9,509, respectively. The decrease was primarily the result of a decline in our equity earnings from unconsolidated entities of ($9,230) and, a $13,588 gain on disposal recorded during the nine months ended September 30, 2019, offset by an increase in our gross margin of $12,819 and a gain on settlement of $4,681 recognized during the nine months ended SeptemberJune 30, 2020.

Adjusted EBITDA for the nine months ended September 30, 2020 decreased ($405), or (4.9%), to $7,921 from $8,326 for the nine months ended September 30, 2019 due primarily to the decrease in net income from joint ventures and the add back of the gains related to the Settlement Agreement, offset by the add back of the contribution of Delta 2 assets during the nine months ended September 30, 2019. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures - Reconciliation of Net Earnings to Adjusted EBITDA”.

~~At September~~As at June 30, 2021, we had $114,029 in cash and $155,207 of working capital, and as at December 31, 2020, we had ~~$54,666~~$21,640 in cash and ~~$70,048~~$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.

The 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.

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

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 ~~$29,182~~$27,706 on June 30, 2021 and $28,690 as of ~~September 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 ~~September~~June 30, ~~2020,~~2021 and December 31, ~~2019,~~2020, borrowings under the FCC Term Loan agreement were subject to an interest rate of ~~4.388%~~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 September 30, 2020 and 2019 there was $3,000 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 at a fixed interest rate of 4.98%. As of September 30, 2020, and December 31, 2019, the balance was CA$1,210 (US$830) and CA$1,526 (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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$215,581~~$196,536 and ~~$155,548,~~$86,664, respectively.

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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$25,799~~$28,149 and ~~$24,915,~~$23,443, respectively.

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 FCC Loan.~~fixed interest rate of 4.98% per annum. As of ~~September~~June 30, ~~2020, the Company was in compliance with all of its other Credit Facility covenants under its Credit Facilities.~~

~~Accrued interest payable on the Credit Facilities and loans as of September 30, 2020~~2021 and December 31, ~~2019~~2020, the balance of the VFCE Loan was ~~$29~~C$822 and ~~$162,~~C$1,103, respectively. ~~These amounts are included in accrued liabilities~~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 paid off the outstanding balance of the VFCE Credit Facility in the ~~unaudited Condensed Consolidated Interim Statements~~second quarter of ~~Financial Position.~~2021. As of June 30, 2021 and December 31, 2020, the outstanding borrowings under the VFCE Credit Facility were nil and C$88, respectively (such borrowings, together with the VFCE Loan, the ”VFCE Borrowings”).

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 at the 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, 2021 and December 31, 2020.

The second loan facility is a credit agreement with ~~BMO,~~a Canadian chartered bank, as agent and lead lender, and ~~Farm Credit Canada,~~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 June 2020, Pure Sunfarms expanded the PSF Credit Facility with its existing lenders, and the addition of the Canadian Imperial Bank of Commerce, to CA$59.0 million, including accordion provisions of up to CA$22.5 million. As of September 30, 2020, the outstanding amount on the loan was CA$35.0 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$10.0 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. On~~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.

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 ~~in conjunction with the closing of the~~ acquisition of ~~the remaining shares of~~ Pure ~~Sunfarms, the~~Sunfarms. The note and accrued interest were repaid to Emerald in full on February 5, 2021.

The Company ~~increased its guarantee to a total of CA$20 million in connection with the Pure Sunfarms Credit Facility.~~

We closed equity offerings on ~~October 22, 2019,~~ March 24, 2020, ~~and~~ September 10, ~~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, 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 ~~Registered Direct Offering, which closed on~~ September 10, 2020 offering raised ~~net~~gross proceeds of ~~approximately US$46,800 (after placement agent fees, but before estimated offering expenses)~~$49,800 through the issuance of 9,396,226 Units with each Unit consisting of one Common Share at a ~~public offering~~ price of ~~US$5.30~~$5.30 per ~~Unit. Each Unit that was sold consists of one~~ Common Share and one-half of a Warrant at an exercise price of ~~US$5.80. The Warrants will be exercisable beginning~~$5.80, and on ~~March 10,~~January 20, 2021, ~~and will expire on September 10, 2025. For more information, see “Executive Overview—Registered Direct Offering” above.~~

After quarter end, on November 2, 2020, in connection with the consummation of the Pure Sunfarms Transaction, we entered into the Promissory Note with Emerald, in the amount of C$19.9 million (US$14.5 million), payable to Emerald on May 2, 2021, or six months from the consummation of the Pure Sunfarms Transaction. Interest on the principal amount owed under the Promissory Note will accrue at the lower of (i) the maximum non-usurious rate of interest under applicable law or (ii) 12% per annum. In order to secure our obligations under the Promissory Note, on November 2, 2020, we entered into the Share Pledge Agreement with Emerald and Computershare Trust Company of Canada, as collateral agent, in order to pledge 9,239,625 common shares of Pure Sunfarms to Emerald as collateralVillage Farms completed a registered direct offering for the ~~amounts owed by us under the Promissory Note.~~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.

For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, cash flows used in operating activities before changes in non-cash working capital totaled ($~~924)~~5,051) and ($~~12,036)~~1,816), respectively. The ~~improvement is~~decline in cash flows from operating activities between periods was primarily ~~attributable~~due to ~~a $12,819 increase in year over year gross margin which contributed to an increase in our net income, adjusted~~lower operating results of both the produce business and Pure Sunfarms for ~~non-cash expenses.~~the six months ended June 30, 2021.

For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, cash flows used in investing activities were ($~~14,148)~~12,368) and ($~~11,090)~~12,290), respectively. The ~~2020~~ investing activities for the six months ended June 30, 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 consist primarily of ~~$11,713 invested~~($11,713) of additional investment in Pure Sunfarms and ($452) of capital expenditures for ~~its Delta 2 facility conversion and $1,226 invested in~~ our ~~two minority cannabis investments, DCG and Altum. In 2019, our investing activities were focused on U.S. Hemp with loans totaling $9,133 to our U.S. joint ventures.~~produce operations.

For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, cash flows provided by financing activities were ~~$52,812~~$124,583 and ~~$13,783,~~$7,725, respectively. ~~The year over year increase is~~For the six months ended June 30, 2021, cash flows provided by financing activities primarily ~~due to a $49,800 unit~~consisted of $127,489 of net proceeds from the issuance of Common Shares, $18,494 in proceeds from the exercise of warrants from the September 2020 ~~predominately used to finance~~registered direct offering, the ~~acquisition~~($15,498) payment of ~~remaining shares~~the Emerald Promissory Note, share repurchases of ~~Pure Sunfarms.~~ ($3,980) and payments on borrowings net of proceeds of ($1,799). For the six months ended June 30, 2020, cash flows provided by financing activities primarily consisted of the $7,294 generated from the issuance of Common Shares, net of issuance costs, and $348 of proceeds from borrowings net of repayments.

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

Information regarding our contractual obligations as of ~~September~~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	$	31,436	$	2,310	$	4,566	$	3,935	$	20,625	$	72,137	$	6,241	$	37,565	$	23,851	$	4,480
Line of credit		3,000		3,000		—		—		—
Trade payables		9,667		9,667		—		—		—		19,425		19,425		—		—		—
Accrued liabilities		6,676		6,676		—		—		—		28,818		28,818		—		—		—
Operating lease liabilities		4,176		1,076		1,851		1,143		106
Capital lease liabilities		46		34		12
Lease liabilities												3,434		663		1,568		770		433
Other liabilities												26,699		—		26,699		—		—
Total	$	55,001	$	22,763	$	6,429	$	5,078	$	20,731	$	150,513	$	55,147	$	65,832	$	24,621	$	4,913

~~After September~~As of June 30, ~~2020, we entered into the Promissory Note in the amount of C$19.9 million (US$14.5 million), payable to Emerald on May 2,~~ 2021, ~~or six months from the consummation of the Purchase Agreement for the~~ Pure Sunfarms ~~Transaction.~~

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

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 ~~U.S.~~ GAAP ~~Results~~ 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.

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

	For the three months ended September 30,						For the nine months ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
(in thousands of U.S. dollars)													2021 ⁽¹⁾			2020 ⁽¹⁾			2021 ⁽¹⁾			2020 ⁽¹⁾
Net (loss) income	$	520		$	(704	)	$	4,591		$	9,509		$	(4,517	)	$	(119	)	$	(11,899	)	$	4,071
Add:	��
Amortization		1,518			2,360			4,540			5,587			3,898			1,491			7,310			3,021
Foreign currency exchange loss (gain)		484			183			880			(338	)
Foreign currency exchange loss														(269	)		(530	)		235			396
Interest expense, net		198			351			696			1,367			552			344			1,290			498
Provision for (recovery of) income taxes		336			(1,266	)		(607	)		(114	)
Stock based compensation		472			666			1,329			2,663
Recovery of income taxes														(1,781	)		69			(3,620	)		(943	)
Share-based compensation														1,887			328			3,885			857
Interest expense for JVs		240			276			636			506			13			103			27			396
Amortization for JVs		598			414			1,276			1,125			30			377			64			678
Foreign currency exchange loss (gain) for JVs		33			(8	)		118			(21	)
Provision for income taxes from JVs		245			1,355			1,736			5,572
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		(88	)		8			(97	)		(13,558	)		35			—			35			(9	)
Adjustment to reflect true economic value for Pure Sunfarms⁽¹⁾		—			(754	)		—			(3,972	)
Adjusted EBITDA	$	4,556		$	2,881		$	7,921		$	8,326
Adjusted EBITDA ⁽⁴⁾													$	1,547		$	2,268		$	1,951		$	3,364
Adjusted EBITDA for JVs ^{(See table below)}	$	2,333		$	4,826		$	6,050		$	17,346		$	(48	)	$	1,034		$	(127	)	$	3,717
Adjusted EBITDA excluding JVs^(produce)	$	2,223		$	(1,945	)	$	1,871		$	(9,020	)
Adjusted EBITDA excluding JVs													$	1,595		$	1,234		$	2,078		$	(353	)

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 September 30, 2020

Produce

Pure
Sunfarms ⁽¹⁾

Hemp⁽¹⁾

Total

Sales

$
43,037

$
10,007

$
—

$
53,044

Cost of sales

(37,418
)

(6,547
)

—

(43,965
)
Selling, general and administrative expenses

(4,942
)

(1,436
)

(213
)

(6,591
)
Stock compensation expense

(472
)

—

—

(472
)
Gain on disposal of assets

—

—

89

89

Other expense, net

(655
)

(336
)

(13
)

(1,004
)
Provision for income taxes

(336
)

(245
)

—

(581
)
Net (loss) income

$
(786
)

$
1,443

$
(137
)

520

Adjusted EBITDA⁽²⁾

$
2,223

$
2,511

$
(178
)

$
4,556

(Loss) income per share – basic

$
(0.01
)

$
0.02

$
(0.00
)

$
0.01

(Loss) income per share – diluted

$
(0.01
)

$
0.02

$
(0.00
)

$
0.01

	For the Three months ended June 30, 2021
	Produce			Clean Energy			Corporate			Cannabis ⁽¹⁾			Hemp⁽¹⁾			Total
Sales	$	45,539		$	74		$	—		$	24,761		$	—		$	70,374
Cost of sales		(49,321	)		(847	)		—			(14,941	)		(42	)		(65,151	)
Selling, general and administrative expenses		(2,946	)		(52	)		(1,657	)		(4,370	)		(36	)		(9,061	)
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	$	(4,018	)	$	(835	)	$	(2,800	)	$	3,222		$	(86	)		(4,517	)
Adjusted EBITDA⁽²⁾	$	(3,981	)	$	(135	)	$	(1,658	)	$	7,369		$	(48	)	$	1,547
(Loss) earnings per share – basic	$	(0.05	)	$	(0.01	)	$	(0.04	)	$	0.04		$	(0.00	)	$	(0.06	)
(Loss) earnings per share – diluted	$	(0.05	)	$	(0.01	)	$	(0.04	)	$	0.04		$	(0.00	)	$	(0.06	)

For the three months ended September 30, 2019

Produce

Pure
Sunfarms⁽¹⁾

Hemp ⁽¹⁾

Total

Sales

$
38,293

$
10,217

$
—

$
48,510

Cost of sales

(38,904
)

(3,211
)

—

(42,115
)
Selling, general and administrative expenses

(3,739
)

(1,635
)

(229
)

(5,603
)
Stock compensation expense

(666
)

—

—

(666
)
Loss on disposal of assets

(8
)

—

—

(8
)
Other expense, net

(465
)

(162
)

—

(627
)
Recovery of (provision for) income taxes

1,266

(1,461
)

—

(195
)
Net (loss) income

$
(4,223
)

$
3,748

$
(229
)

$
(704
)
Adjusted EBITDA ⁽²⁾

$
(1,945
)

$
5,035

$
(209
)

$
2,881

(Loss) income per share – basic

$
(0.09
)

$
0.08

$
(0.00
)

$
(0.01
)
(Loss) income per share – diluted

$
(0.09
)

$
0.08

$
(0.00
)

$
(0.01
)

	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, 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	)

For the nine months ended September 30, 2020

Produce

Pure
Sunfarms ⁽¹⁾

Hemp ⁽¹⁾

Total

Sales

$
122,722

$
22,958

$
98

$
145,778

Cost of sales

(112,809
)

(13,782
)

(120
)

(126,711
)
Selling, general and administrative expenses

(12,676
)

(3,870
)

(500
)

(17,046
)
Stock compensation expense

(1,329
)

—

—

(1,329
)
Gain on settlement agreement

4,681

—

—

4,681

Gain on settlement of net liabilities

—

2,496

—

2,496

Loss on disposal of assets

(6
)

5

99

98

Other expense, net

(1,484
)

(634
)

(129
)

(2,247
)
Recovery of (provision for) income taxes

607

(1,736
)

—

(1,129
)
Net (loss) income

$
(294
)

$
5,437

$
(552
)

$
4,591

Adjusted EBITDA ⁽²⁾

$
1,871

$
6,365

$
(315
)

$
7,921

(Loss) income per share – basic

$
(0.00
)

$
0.09

$
(0.01
)

$
0.08

(Loss) income per share – diluted

$
(0.00
)

$
0.09

$
(0.01
)

$
0.08

	For the nine months ended September 30, 2019												For the six months ended June 30, 2020
	Produce			Pure Sunfarms ⁽¹⁾			Hemp ⁽¹⁾			Total			Produce			Clean Energy			Corporate			Cannabis⁽¹⁾			Hemp ⁽¹⁾			Total
Sales	$	111,512		$	32,011		$	—		$	143,523		$	79,417		$	268		$	—		$	12,951		$	98		$	92,734
Cost of sales		(114,418	)		(8,137	)		—			(122,555	)		(74,644	)		(747	)		—			(7,235	)		(120	)		(82,746	)
Selling, general and administrative expenses		(11,899	)		(3,334	)		(378	)		(15,611	)		(4,854	)		(110	)		(2,770	)		(2,434	)		(287	)		(10,455	)
Stock compensation expense		(2,663	)		—			—			(2,663	)
Gain on disposal of assets		13,558			—			—			13,558
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		(810	)		(322	)		—			(1,132	)		—			(31	)		(798	)		(298	)		(116	)		(1,243	)
Recovery of (provision for) income taxes		114			(5,725	)		—			(5,611	)		1,401			—			(458	)		(1,491	)		—			(548	)
Net (loss) income	$	(4,606	)	$	14,493		$	(378	)	$	9,509
Net income (loss)													$	1,320		$	(620	)	$	(208	)	$	3,994		$	(415	)	$	4,071
Adjusted EBITDA (2)	$	(9,020	)	$	17,710		$	(364	)	$	8,326		$	2,565		$	(146	)	$	(2,772	)	$	3,854		$	(137	)	$	3,364
(Loss) income per share – basic	$	(0.09	)	$	0.30		$	(0.01	)	$	0.20
(Loss) income per share – diluted	$	(0.09	)	$	0.29		$	(0.01	)	$	0.19
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

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.

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.

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.

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 for the ~~nine~~three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 would have been higher (lower) by ~~$117~~$81 and ~~$128,~~$40, respectively and net income for the six months ended June 30, 2021 and 2020 would have been higher (lower) by $161 and $80, respectively. ~~This represents $117 and $128 in~~These net income effects represent increased (decreased) interest expense for the periods ended ~~September~~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.

As of ~~September~~June 30, ~~2020,~~2021, and ~~2019,~~2020, the Canadian/U.S. foreign exchange rate was C$1.00 = US$~~0.7482~~0.8066 and C$1.00 = US$~~0.7552,~~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 ~~September~~June 30, ~~2020~~2021 and ~~September~~June 30, ~~2019~~2020 with the net foreign exchange gain or loss directly impacting net income (loss).

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 to our market risks from those disclosed in Part II, Item 7A of our Annual Report on Form 10-K.

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 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.

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 ~~September~~June 30, ~~2020~~2021 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.

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 ~~September~~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~~2020.

The following table represents information with respect to purchases by the Company of ~~Operations – Recent developments relating to~~its Common Shares during the ~~outbreak of the Coronavirus pandemic (“COVID-19”)”.~~three months ended June 30, 2021.

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

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.

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

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Interim Financial Statements (Unaudited)
	Condensed Consolidated Interim Statements of Financial Position		1
	~~Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss)~~		2
	Condensed Consolidated Interim Statements of ~~Changes in Shareholders’ Equity~~Income (Loss) and Comprehensive Income (Loss)		3
	Condensed Consolidated Interim Statements of ~~Cash Flows~~Changes in Shareholders’ Equity		4
	Condensed Consolidated Interim Statements of Cash Flows		5
	Notes to Condensed Consolidated Interim Financial Statements		56
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3134
Item 4.	Controls and Procedures		3134

PART II - OTHER INFORMATION			3235
Item 1.	Legal Proceedings		3235
Item 1A.	Risk Factors		3235
Item 6.	Exhibits		3236

	Signatures		33

			37

~~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~~

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

	Three Months Ended September 30, 2020
	Number of Common Shares		Common Stock		Additional paid in capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings		Total Shareholders’ Equity
Balance at July 1, 2020		56,402,418	$	105,829	$	5,128		$	(547	)	$	28,321	$	138,731
Shares issued in public offering, net of issuance costs		9,396,226		35,275		—			—			—		35,275
Warrants issued in public offering		—		—		11,369			—			—		11,369
Shares issued on exercise of stock options		161,166		206		(77	)		—			—		129
Share-based compensation		—		—		472			—			—		472
Cumulative translation adjustment		—		—		—			31			—		31
Net income		—		—		—			—			520		520
Balance at September 30, 2020		65,959,810	$	141,310	$	16,892		$	(516	)	$	28,841	$	186,527

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

	~~September 30, 2020~~
~~Weighted average remaining lease term:~~
~~Operating leases~~		~~4.4~~
~~Finance leases~~		~~1.3~~
~~Weighted average discount rate:~~
~~Operating leases~~		~~5.77~~	%
~~Finance leases~~		~~6.25~~	%

	Operating leases			Finance leases
Remainder of 2020	$	315		$	12
2021		1,305			30
2022		1,090			9
2023		870			—
2024		512			—
Thereafter		691			—
Undiscounted lease cash flow commitments		4,783			51
Reconciling impact from discounting		(607	)		(5	)
Lease liabilities on consolidated statement of financial position as of September 30, 2020	$	4,176		$	46

	June 30, 2021
Weighted average remaining lease term:
Operating leases		3.5
Finance leases		1.0
Weighted average discount rate:
Operating leases		5.94	%
Finance leases		6.25	%

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

Balance, January 1, 2020	$	41,334
Investments in joint venture		16,393
Share of net income for the period		5,437
Balance, September 30, 2020	$	63,164

	September 30, 2020			December 31, 2019
Current assets
Cash and cash equivalents	$	6,751		$	7,356
Trade receivables		13,543			8,687
Inventory		33,676			21,745
Other current assets		5,759			6,964
Non-current assets		115,720			108,652
Current liabilities
Trade payables		(3,422	)		(4,938	)
Borrowings due to joint ventures		(11,022	)		(26,413	)
Income taxes payable		—			(8,489	)
Borrowings – current		(2,291	)		(1,423	)
Other current liabilities		(10,156	)		(5,021	)
Non-current liabilities
Borrowings – long term		(23,709	)		(13,089	)
Deferred tax liabilities		(13,742	)		(2,473	)
Net assets	$	111,107		$	91,558
Reconciliation of net assets:
Accumulated retained earnings	$	36,091		$	26,679
Contributions from joint venture partners		75,738			63,481
Currency translation adjustment		(722	)		1,398
Net assets	$	111,107			91,558

~~Balance, January 1, 2019~~	$	—
~~Investments in joint venture~~		7
~~Share of net loss~~		~~(2,464~~	)
~~Losses applied against joint venture note receivable~~		~~2,457~~
~~Balance, December 31, 2019~~	$	—
~~Balance, January 1, 2020~~	$	—
~~Investments in joint venture~~		—
~~Share of net loss~~		~~(552~~	)
~~Losses applied against joint venture note receivable~~		~~552~~
~~Balance, September 30, 2020~~	$	—

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	$	—

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

	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

Remainder of 2020	$	605
2021		2,420
Remainder of 2021			$	3,879
2022		2,407		8,033
2023		2,216		7,675
2024		2,054		26,663
2025				22,307
Thereafter		21,734		3,579
Total	$	31,436	$	72,136

	September 30, 2020		December 31, 2019
Pure Sunfarms	$	10,954	$	15,418
VF Hemp		10,713		10,865
Total	$	21,667	$	26,283

	Number of Performance -based Shares			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2019		739,000		CA$	7.92
Granted		810,000		CA$	6.26
Received		(40,000	)	CA$	11.44
Forfeited/expired		(98,000	)	CA$	9.59
Outstanding at September 30, 2020		1,411,000		CA$	6.75
Exercisable at September 30, 2020		—		CA$	—

	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

	For the nine months ended September 30,
Percent of Sales by Product Group	2020			2019
Tomatoes		90	%		85	%
Peppers		6	%		6	%
Cucumbers		4	%		9	%
		100	%		100	%

	Maximum		Outstanding September 30, 2020
Operating loan	CA$	13,000	$	3,000
Term loan	$	29,182	$	29,182
VFCE loan	CA$	1,210	CA$	1,210

(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

	For the nine months ended September 30,						For the six months ended June 30,
(in Thousands)	2020			2019			2021			2020
Cash beginning of period	$	11,989		$	11,920		$	25,679		$	11,989
Net cash flow provided by (used in):
Net cash flow provided by/(used in):
Operating activities		4,014			(7,887	)		(15,210	)		2,145
Investing activities		(14,148	)		(11,090	)		(12,368	)		(12,290	)
Financing activities		52,812			13,783			124,583			7,725
Net cash increase (decrease) for the period		42,678			(5,194	)		97,005			(2,420	)
Effect of exchange rate changes on cash		(1	)		—			502			(1	)
Cash, end of the period	$	54,666		$	6,726		$	123,186		$	9,568

Breakout of JV Adjusted EBITDA	For the three months ended September 30,						For the nine months ended September 30,
	2020			2019			2020			2019
Pure Sunfarms Adjusted EBITDA	$	2,511		$	5,035		$	6,365		$	17,710
VFH Adjusted EBITDA		(178	)		(209	)		(315	)		(364	)
Total JV Adjusted EBITDA	$	2,333		$	4,826		$	6,050		$	17,346

	For the three months ended September 30, 2019
	Produce			Pure Sunfarms⁽¹⁾			Hemp ⁽¹⁾			Total
Sales	$	38,293		$	10,217		$	—		$	48,510
Cost of sales		(38,904	)		(3,211	)		—			(42,115	)
Selling, general and administrative expenses		(3,739	)		(1,635	)		(229	)		(5,603	)
Stock compensation expense		(666	)		—			—			(666	)
Loss on disposal of assets		(8	)		—			—			(8	)
Other expense, net		(465	)		(162	)		—			(627	)
Recovery of (provision for) income taxes		1,266			(1,461	)		—			(195	)
Net (loss) income	$	(4,223	)	$	3,748		$	(229	)	$	(704	)
Adjusted EBITDA ⁽²⁾	$	(1,945	)	$	5,035		$	(209	)	$	2,881
(Loss) income per share – basic	$	(0.09	)	$	0.08		$	(0.00	)	$	(0.01	)
(Loss) income per share – diluted	$	(0.09	)	$	0.08		$	(0.00	)	$	(0.01	)

	September 30, 2020			September 30, 2019			June 30, 2021			June 30, 2020
Financial assets
Cash and cash equivalents	$	6,298		$	189		$	1,357		$	260
Trade receivables		340			367			3,701			496
JV notes receivable		1,464			1,387			—			1,455
Inventories								4,380			—
Prepaid and deposits								853			—
Financial liabilities
Trade payables and accrued liabilities		(454	)		(658	)		(5,187	)		(517	)
Loan payable		(121	)		(163	)		(4,682	)		(132	)
Deferred tax liability								(2,283	)		—
Net foreign exchange gain (loss)	$	7,527		$	1,122		$	(1,861	)	$	1,562

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

Exhibit Number		Description of Document

~~4.1~~		~~Form of Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 105, 2020)~~

~~10.1~~		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) +

~~10.2~~		Purchase Agreement, dated September 8, 2020, between Village Farms International Inc. and Emerald Health Therapeutics Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 10, 2020)*

~~10.3~~		Secured Promissory Note by and between the Company and Emerald Health Therapeutics, Inc., dated November 2, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 2, 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*Document

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

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document^*
~~+Indicates management contract or compensatory plan.~~
104		The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101

	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: ~~November 12, 2020~~August 9, 2021

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Non-accelerated filer

Smaller reporting company

Emerging growth company