As a result of the above-described $5,940,000 payment default by Emerald, Village Farms has delivered written notice to the escrow agent pursuant to the escrow agreement to release for cancellation 5,940,000 shares in Pure Sunfarms that were being held in escrow for Emerald. Emerald, however, has delivered a written notice to the escrow agent which disputes any release from escrow of such Pure Sunfarms shares. Pending the resolution of Emerald’s dispute under the escrow agreement, these 5,940,000 shares in Pure Sunfarms remain held in escrow. If these shares are ultimately cancelled by Pure Sunfarms, there will be a further increase in Village Farms’ equity interest in Pure Sunfarms and a corresponding decrease in Emerald’s equity interest.
Update on Pure Sunfarms’ Supply Agreement with Emerald Health
As previously announced, pursuant to the terms of a supply agreement that Pure Sunfarms has with Emerald, Emerald has an obligation to purchase 40% of Pure Sunfarms’ cannabis production at a fixed price, subject to the terms and conditions of the supply agreement. To the extent that Emerald does not fulfill its purchase obligation, Pure Sunfarms is able to sell that excess production to other parties in the open market. The supply agreement stipulates that Emerald is required to pay Pure Sunfarms the difference between the fixed price and the selling price realized from other parties. During the quarter ended September 30, 2019, Emerald did not fulfill its purchase obligations and Pure Sunfarms sold the product on the open market to arm’s length parties at prices lower than the fixed price in the supply agreement. As a result, under the terms of the Supply Agreement, Pure Sunfarms billed Emerald for the difference which amounted to approximately C$7.2 million. On October 15, 2019, Emerald issued a press release that indicated they do not agree that they have any liability with respect to these amounts.
Village Farms understands that Emerald is in the process of investigating its supply agreement liability to Pure Sunfarms. If Emerald does not agree to the liability, Pure Sunfarms has reserved the right to take such actions as it considers necessary and appropriate to recover its losses from Emerald fornon-payment of amounts owing by Emerald under the supply agreement.
Village Farms understands from Pure Sunfarms that, as of the close of business today, Emerald has not made any payments to Pure Sunfarms in respect to the C$7.2 million that Pure Sunfarms is seeking from Emerald under the supply agreement.
For greater certainty, Village Farms is not a party to the supply agreement and any amounts owing thereunder are payable by Emerald to Pure Sunfarms.
Forward-Looking Statements
Certain statements contained in this press release constitute forward-looking information within the meaning of applicable securities laws (“forward-looking statements”). Forward-looking statements may relate to Village Farms’ future outlook or financial position and anticipated events or results and may include statements regarding the financial position, business strategy, budgets, litigation, projected production, projected costs, capital expenditures, financial results, taxes, plans and objectives of or involving Village Farms and its equity position in Pure Sunfarms. Particularly, statements regarding future results, performance, achievements, prospects or opportunities for Village Farms (including its equity position in Pure Sunfarms), Pure Sunfarms, the greenhouse vegetable industry or the cannabis and hemp industries 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”, “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.
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