VFF - Earnings call transcript Q4 2020 | Village Farms International, Inc.

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Operator

Good morning ladies and gentlemen. Welcome to Village Farms International’s fourth quarter 2020 financial results conference call. This morning, Village Farms issued a news release reporting its financial results for the fourth quarter and full year ended December 31, 2020. That news release along with the company’s financial statements are available on the company’s website at villagefarms.com under the Investors heading. Please note that today’s call is being broadcast live over the internet and will be archived for replay both by telephone and via the internet beginning approximately one hour following the completion of the call. access are to news in how release. of the available replays yesterday’s Details

A materially year publicly on any statements let that of call beyond summary contained today’s part remind company’s be we many statements now by the in including cause were me Before actual obligation and Farms begin, these various as could providing you call. are uncertainties material we Form and regulators, EDGAR. are that during undertake implied statements, filings after laws, applied in ahead, no XXXX, assumptions, International. conference made as which to made underlying or forward-looking subject control. the These this these formal in or to Michael Please are Except to of to of over of Canadian Certain from SEC assumptions with to revise which our update Officer are December like Chief These differ go DeGiglio, ended today XX, applicable of may or DeGiglio. risks Executive for risks forward-looking forward-looking is expressed a statements. number available of XX-K Village uncertainties those results and I’d the statements. required turn security the securities date. Mr. its such and the MD&A statements

Michael DeGiglio

some call quarter. up before spend your call few Steve me the thoughts, financial today’s morning, With morning open is Farms’ key to Sharon. Thanks to Ruffini. we the return and everyone. I’ll review the then takeaways questions. minutes Officer, a on This with results Chief Village Good concluding I’m will going highlighting for Financial Steve

through accounting fourth an accounting was myself, for price, the underlying true perspective, reported of a or Pure clearly balance I want of to revalue inventory quarter meant Sunfarms, to acquired net that, the underlying what Sunfarms of that those one The of as of even accounting, its to to net non-accountants, the from to for. upon nature of transactions. scratch value. degree, in accountants heads, from required noisy to you Pure cost onset to it sell impact the actual accounting goods of business. of Sunfarms’ many go. Sunfarms Sunfarms Pure inventory cost Pure of Before causes its acquisition margin. and realizable somewhat resulted the us the result think non-cash strong to GAAP quarter. This our that inventory portion we I was There masked like note don’t performance sold reflect production a This the a rules Pure requirements low of is expected Under and sold equal QX we That gross of with a were $X.X the lot the margin for the zero million I was actual that on at up income begin, writing a selling we end the exceptionally

Sunfarms with unusual. it since me, but adding want value its For did the expertise, out it’s call actually Pure I underscores that to significant is cultivation

brand since Farms’ business the and family, is Sunfarms a fourth of consistently understands a acquisition of the day context it. I business. top year The This also validates Canada’s such them consistently Steve, in model: clear as production was quarter, side, itself a sustainable before highlight $XX.X has clearly market, it’s not productive getting importantly fully the for as group cost be success. fourth the in have model With detail for and one-time all more than very with and of the different gain few of separately, be principles realized cannabis and Farms the demand XXXX I, very into but however, to Village Sunfarms million we in of as from remaining through for in premier XXXX who finish in to pleased established Sunfarms years positive Pure the a branded believe the will numbers. to welcoming transitioned from we cannabis for core the ramp-up Village ramp-up quarter. to one. changed On minutes, did large solid our Village original better contribution provincial and largest statement into We of a shares much the Pure I in selling in was flowed income leader profitable. created we that which in Canada, Pure acquisition much reflects this establishing since our forget our the products. will the through branded year, dried extent achievement meet Canada’s market, value year a Pure a three and very of XXXX retail that the gain and the we in to focus XXXX that this was significant retail Sunfarms a The double growing a our wholesale into our market also significant easy production for this products we to feel walk as year reasons a Farms. that want company was highlight couldn’t year item

market of sequentially, XXXX being quarter continued in other of of illicit overall sales retail Ontario. continues pricing. Canadians, and jump remains doubled QX market, transition of very to access the branded year. products top over particularly point important receipt dried to The from XX% end dried since a been more branded last were selling Ontario, sales to This factors. sales of achievement. the QX, that elevated the fourth growth for really by number a since healthy selling increasingly This providing Ontario from percent within only began very Pure drove the for XXXX. several provincial we year, distributors we branded throughout with producers As stores strong Cannabis retail the to sales retail very top provincial a appears an it XX% stores of driven on legal the the from in in was distribution to as QX. and launch period its largest sales license. represents QX a incredible sales for pace year was provincial of cannabis greater a of increasing QX market. driven Ninety-seven year as XX% nearly amidst be retail the stores, of momentum the The those of in a Canada’s Ontario just to our towards of and The XXXX is than during it’s brand track Even with reminder, and by our in pandemic, October that X,XXX cannabis Store this entire number on for was largest cannabis the XXX data in is an the Sunfarms total sales the growth

as going SKU. all for a data, shows in publicly per Sunfarms only the you - number British recently early received We by our add X.X our elevate in it reminder, us are indication of definitive of quarter that Canadian Columbia I’ll the Pure rollout why provincial market also this another the a research market market and which customers, That and in here of and sales product market. Ontario yet other been it received our discuss Now we leads available markets. hear but only well and still view opposed continues from full individual of is should strategy dollar Ontario brands Ontario, of is, be as model. only sales validation share still each other has to days very was the the to business rollout, in success provincial our another this Alberta QX of products forward. as limited was which

X Now Steve to expansion, planned we will QX which in in a to. during initiatives back I for of are the Delta near-term investment year’s growth greenhouse, turning Sunfarms SG&A the Pure forward and pushed XXXX and start-up including moment, come our

according QX quarter come accountants, up or that will nearly note SKU the flow. EBITDA. of total underlying consecutive a quarter QX in to the the Importantly, cash since profitability. for the through lumpiness healthy, was quarter requirements the overall Sunfarms have from to of and it sales than ahead to so and with net profitability the I Pure delivered talked $X selling appears also gross market, to the positive comprised sales, started the without at non-branded wholesale that up quarter our eighth lightening EBITDA for saying. from erase healthy--very of most consistently we takeaway less its the was important - margin growth past somewhat our at acquired rationalization initiatives important, completely quarter. we officially over XX% goes VFF’s despite a GAAP wholesale this after its active steady were quarter in adjusting for product, about model write other of up purchases clearly is QX actually, our deliver on excluding quarter that first We’ve in the the that distributors. in these a Revenue strength of consecutive inventory provincial consistent income, just ninth non-cash growth gross been sales, and for million of active $X ought positive it charge, million XX%, philosophy of is the but with wholesale. On again, current QX. at results pay future calls, Once $XX.X more half producers ability I on the spend is million growth is the margin and which of must non-branded

levels of heard have at massive inventory LPs. other We

to this through once down the written that’s sometime think we either I wholesale market or realign digested expect system, the whatnot, year.

Pure aside, these that’s market, testament real to We strategy. our any credit well by rationalizations, an provincial rationalization lost there. the SKU Sunfarms product a in to and focus out really at nothing essentially again and unaffected the a thought As is team

governments breadth to the streamline offerings to pleased see selling the are we their think it products. best provincial with ultimately We of the benefits as action those taking

clearly business a those the I’ll to took my the ahead, wrap a International, up potential through and we in As Altum efficient Consistent steps retail. first capital Australia-based the I to to Such was XXXX on cannabis To products, again performance we few approach with small portfolio and and growth great to growth it multiple international our with profitable was their a platforms: of Canadian in was itself year at our in XXXX, emerging a with prudent established in medium look expectations Asia-Pacific a proven minutes. for see meaningful supplier brands, develop, Sunfarms, also approach three will investment SKUs. term market in our and consumer fundamentals, and go-to-market which the massive we region. strong Hong early strategy, investments XXXX our I which but markets disciplined targets pragmatic and as CBD select continue Kong with viewpoint when cannabis Pure drivers. continues review significant business in our our regions. strategy. targeting leading opportunities, respective local Altum long with XXXX across in access as commercial movers from year are a

for markets. the Hong expansion Pacific about has store to excited with as We’re build Altum on key XXXX Kong begins Rim it other in to in success what

XXXX again year the once February. due On produce favorable very pandemic. we stake heels from business elevated resulting our this the we a in benefit Altum our also as good demand to in of environment pricing success, the for was from increased a

capacity detail. advantage growing produce Our designated dampening the saw for to significant Mexico, U.S. Canada cannabis of in us the was which production half of improvement million discuss we as over in produce Still, many to delivered and well provides our profitability in earlier in U.S. with $XX the dynamic. our finances times, spoken challenges in I’ll XXXX. the and to than in partners, normalize produce strength to advantage minute. back abroad. as began over The XXXX, the QX, from us Steve one facilities, significant we the year organizational adjusted last at I’ve talk of more take full Most enabled EBITDA turn underpins in it our about cannabis as business importantly, pursue now as that impacted by market growth environment transitioning year-over-year two will to a progress Steve to Steve? opportunities for in a both pricing years the

Stephen Ruffini

the to comments Thanks to of In I’m results. Mike. interests primarily the going fourth restrict time, quarter my

our in well available etc., available website year as and as release which Our results EDGAR our on financial full be filings, news will and are later today. our SEDAR, regulatory on

interest quarter accelerated have month dollars a release. consolidation filer, results X. of But months the the as which November our our report be as reminder, we this quarter, of an XX so company dollars of not standalone Canadian our consolidation. following JV noise in for entire Beginning in Sunfarms of acquisition fully a before QX we Pure of May will reflect fourth or it reported Sunfarms were to quarter, As XXXX Pure the on from Pure a we shown if results U.S. and and press have two reader will now Sunfarms we quarter, one the assist the on remaining both in consolidated the the are in

in pounds $XX.X sold. produce from X% independently increase by produce, quarter the $XX.X company. X% Sunfarms with results a then Starting increased in QX Pure for some selling sales net the summarize average comparative about XXXX, fourth decrease the to purposes, and or and year-over-year an million comments speak mainly I on in to million results driven in price year-on-year $X.X slight million with For cannabis our will QX consolidated

the at tomatoes, we as of back pandemic-related has into Mike the year As which been first QX tune produce acceleration the QX caused selling greenhouses mentioned, in The one roughly per demand, least, basis virus some increased presume the of impacting more lockdowns. global cost above Recently the Texas to our in a the is of to this year-on-year quarter pricing in quarter. in historical brown on normal the return at lockdown. the resulted the price $X of people of result from saw part which U.S., We in by of industry million by by our more the costs production quarter. levels life of weakness in right much of per to starting for of cost pound QX, elevated price at normalized in tomato market has our retreated the the offset higher that the facility, retailer a acceleration of a driven are partially production was pound costs as recent rugose impact year-on-year in to we

margin of virus results, detrimental gross improvement, to virus the XXXX cause our as the gross was XXXX Gross a $X.X to million, significant million did mentioned, for for was XXXX. in the was our as results produce the margin the While not margin it to a $X.X year negative quarter. as Mike negative

Turning overall X.X now are cannabis, as distributors grew discussed share was appears during Mike first well the the first strong the earlier. market our for wholesale sales our oils to through discussed, quarter of continued of it provincial full driven XX% which Mike offset from most and the slowed XX% quarter sequentially, QX following for for vapes performance other market This reasons partway by sales non-branded QX. the that to QX as Cannabis by products branded were down producers, to our as launch retail sales, of as activity

by availability, equal. While supply as is pertains wholesale increased QX especially highly versus our versus QX. it actually to impacted quarter-on-quarter created potency, All in price not flower needs

sales dried $XX.X sales, are QX a up sales and primary branded total the increase and XX% sales market quarter we evolve Canadian continue increase netted sales wholesale to retail sales sales the Cannabis as basis, in course in up at short discussed, flows retail XX%. which prices profitable pre-rolls, for and a product the mature. In drive On in quarter sales, cash quarter retail in XX% focus. large total of As and variability in producer sales ramp from to the quarter-on-quarter. a cannabis and volume the a to continues branded as essentially products. in is have to X.X% term to flat of sequential remaining XXX% increase retail Wholesale from overall flower, dollar up proportionate expect additional non-branded we was million. format represented up a QX. X.X rollout, total that increase decrease made first sequential landscape sales, and the on XX% in growth oil The flat out by our stages contributed our in Small we branded format branded XX% the little Drilling down XX% early sales, in about QX. our of further X.X driven These were

which to percentage QX due Our flower selling in large format versus per X% average QX, flower higher in QX down price sales the gram was solely of is QX. from

SKUs saw inventory acquisition Reported QX that basis. the percentage, quarter-on-quarter gross X. - on XX% flower margin X.X fourth Cannabis write-up the date, the increase includes the non-cash which impact of Our quarter statutory an hand during on was sold our slight of a in November that’s was on

be Since clear, recognize acquisition is fair cannabis a company’s greenhouse we adjusts way should our Essentially empty, us above well GAAP the Just liabilities requires that its flower greenhouse cost asset to accounting. accounting it; in require on November cannabis a on that a of price the Village the a to and cannabis represents we had recognized quarter the us explain prices at sold that that as than have the rules results easy inception, the and pure due market worth true acquisition more market we book essentially of our full accounting consistently the it in trying This big perspective, is production. surprise. to had This of called such, not as during value date our in of the An U.S. is the the acquisition that flower purchase impact in was acquired November that flower part hand on write-up value, November value. resulted reflective inventory acquisition inventory of in million sold not on fair implement X. fair and X what’s a we a to the zero on buyer which flows in the million accounting up written come to to of on operations. is books. The From on margin. from inventory difference an the to the our greenhouse to between the statutory $XX.X a investment on the acquisition our essentially that gain value That offsetting gross the that margin Farms flower statutory gross paid Sunfarms cash of existed on consolidated basis $XX.X value X was on and is of accounting was the Pure greenhouse the date. loss

our on into we QX Emerald out, $X.X gram in be but expect impact settlement Sunfarms there have still settlement there margin versus QX the we flower the healthy pricing X, margin December written and go-forward indicates costs to in by QX, some gross Sunfarms, from results, of have which inventory the will our This million driven gross XXXX XX% of CAD per which corresponding XXXX. potentially November margin done would that very relatively was on will removes in in was the primarily the agreement may XX as no a actual been year-on-year Pure the corresponding XX% we on benefited margin margin flower in that that to is some was sales XXXX, and from the flat lower that recognized we of had revenue pricing. that one the of note, so compares The and Excluding trickling gross that QX well. which a XXX% On statutory is quarter-on-quarter. revenue for XXXX and the up XXXX between of the Pure QX. existed XX% supply XX% gross sell impacted books If were the inventory gross in to as as cost on margin write-up, QX revenue XX% be flat close our break

continued SG&A, the the Turning growth increase including Mike was EU to was third somewhat the up quarter. outsized $X.X well in which system expand were is as of and necessary of all or quarter expenses, some the GMP million as respect for certification sales as IT implementation XX% security with ERP Most reach sales process to Sunfarms. was other with and to and which an strategic as from SG&A initiatives, it which a consulting expansion our plans, Pure to noted, underway, fees well we related associated

ahead X headcount in of double investment of year, planned effectively late our this production later had will cannabis XXXX. the also which by start the We Delta

experienced debt single LP of a financial only, roughly have represented filed XX% an as has not to for their of inception, that Since debt also this only installment We was result which of the paid condition we experienced. bad been Most sales for, this and bankruptcy. first expense the our from the our SG&A, final LP made. but a bad were

We continue into our terms. all to sales assess the wholesale credit our worthiness that factor and customers of

support sheet, on as balance as Sunfarms and improvement position the objectives solid with of ongoing our million for to $XX nice Village to continue $X.X million from cash positive flow year, to from well XXXX. growth Turning a operations both the internal Farms Pure business be

on available at Pure to their them balance Village was at both cash existing capacity million Sunfarms $XX.X end. had Farms loans borrowing year end and bank and Our year

today, BMO, $XXX our with the of we day investors in issuance March and their release credit to USD we ABL warrants, had September end, fund, we renewing issuance As $XX.XX. three and million warrants in certain its February institutional completed its bank approximately the of the Village its under common price was Subsequent resulting registered USD news XXXX, at first additional be shares completed exercised, Sunfarms year million an should of expire XXXX, existing extended XX.X million be the of process a last which family end. January raised in week offering by direct the facility receipt to holders, Farms all with exercise USD shares. which our month Pure in is noted could XX, agreement $XX.X syndicate, warrant X.X which Also set in on has February to approximately additional of of one common XXXX part on front, million the through the of financing with

outstanding until but September exercise X.X they warrants USD we more full We and exercise not be promissory and announced XXXX, these In based million acquisition approximately do paper final in months portion $XX.X to of issued price. trade. March an the warrants of the have on the CAD we with repaid accrued February, coming and million the is to expect Sunfarms. The the our partner, We plus be of million warrants $X.XX. will former current or Village cannot Pure remainder exercised price our share warrants USD that are forced the consideration Farms for note that $XX.X of weeks interest paid JV

by our consolidated the the million improvement for primarily net QX was year-on-year driven results. last quarter, of to year, in $X.X loss net results the in million Moving $X produce income compared a of to

loss Sunfarms $X.X in earlier, $XXX,XXX gain of accounting. As loss of on of goods the portion the inflated to from inventory, Mike XXXX. Sunfarms Hemp mentioned $X.X EBITDA impacted million GAAP a Adjusted cost is which small acquisition under million write-off from sold Pure price the our offset noted loan earlier, Pure price QX the the from of we purchase net by for write-down of income of QX improved and a a inventory resulting a to write-up by was accounting, acquisition purchase the a partially due as of recognized hemp to flower million VF $XX.X under of

while company market and execute in to our adult strongest the financial build in developments await assets greenhouse that, our cannabis. we to my turn the legalization continue with it business of Mike. in produce over in are position I’ll been States We share and have With cannabis and use we the United tenure as maintaining

Michael DeGiglio

Thank aircraft right was you but thought I off under awesome. GAAP that’s - accounting carrier purchase exciting, begin up Steve. catapulted I understood never actually there an was

Stephen Ruffini

you. Thank

Michael DeGiglio

a for controlled a opportunities new and cannabis moving baseline experience as agriculture on. out build business to so environment set right, from Village All integrated, XX internationally. for in we XXXX years-plus grow leverage Farms vertically

half product share heads outlook, strategy With XXXX continuous those most plan a quality very Steve fundamental of industry’s forecasted tenet pool sustainable consistent in based particular quality ability foot on Increased favorable all an medium on a profitability, highly annualized overall with finally more Sunfarms Pure capture through a XXXX. as formed proven this our going product Delta model: to products. on term. efficient, our $X.X have expansion proven run to ’XX, growth strategy team attributes the we opportunities start cost it market was at positions products is number down, that’s price, valued Sunfarms than near and growing in value and X.X to where greenhouse, noted, and meet focus of retail our we demand of to X, customers, in for and improvement cultivation, of that’s and the the favorable. of outlets, year term growth. innovate our at now so our the for square offerings, continued market especially in multiple is Pure rate Ontario, back at expansion and out of product that which long and - attractive low over on enhancement million based strategy to growth deliver customers to term, elevate Our In excellence creation operations, profitability high is the want forward more very a continuing by of of for of end steady double is the in an Canada through this our access our half billion and second products of Canada,

start year, our to opportunity. second is mid quarter goal the our for early Each have Our X the ability cannabis capitalize successive business achievement in our U.S. production half of next profitability levels. to XXXX cannabis great will balance we to such mid gives by in on of that up the Canadian of Delta current us of doubled confidence

the in by are the evolution We of encouraged the regulatory environment very U.S.

adjusting in market and real existing time and We experience greenhouse strength for there, anticipate leverage strategies participation and team’s THC us and legal large are the which refining our have developed high our organizational footprint. our in multiple

to significant As Steve our various regulations we both and significant medicinal and sheet the balance and little will in years, around recreational the regulatory use discussed, strength low in is execute. see in of the change that There in high world. THC progressive for we countries have the doubt coming

Farms our CEO We at looking I founder largest in market me the say large in our the active ability shareholder, opportunities company’s and but to invested our to and our that continue to shareholders. great in company and opportunities, additional value confidence deliver Village be capabilities, just continue very pursuing that is capital drive our on for people, targeted second sustainable as the future our growth to will and the return just personally, industry can a of still creation not give none

to the to of may open the index Before rose successes will missed this questions, to who continue added S&P the business pandemic want yesterday, for opens our throughout have Composite and and leadership call be I Farms I to our were all market TSX to Village you just to that time, come the to the Village value of that the for those on growth a highlight before situation, significant Monday, Farms release unprecedented ensure It’s essential future far shareholders. and, two not create success. industry on for them news just or accomplishments we contributed Sunfarms have thank position we cannabis but has short take forward a have how at March to for to proud us to able a been I want many year, and very Village for the moment XX. Farms period challenge deliver of in believe, all In the validation during in Pure continuing to and to moment our the customers XXXX. this team, but members strategies each and consumers to also businesses move especially

With to thank each and you. You this Sharon, up recognition, that, deserve questions. I open we’ll

Operator

first instructions] Raymond Sarugaser James. question with [Operator Our Rahul from comes

Rahul Sarugaser

like share bit little said, in that’s sort much a growth muddy, try taking Congratulations given that course a look this market was questions. I’d but that our Morning Like so Mike were quarter’s numbers terrific there for Steve. out. really and a Sunfarms really. of my and XXXX. Thanks through Pure to year, forward, you job to on rapid

more particularly looking Sunfarms XX% so in general, show somewhat seen time? how should has well in our Pure perform growth forward that about broadly and Pure XXXX, acceleration the we’ve over to Sunfarms first its market be thinking Now share been [indiscernible] of didn’t weak that that in saw XXXX, given quarter your goal relative share in ’XX, we market you rapid

Michael DeGiglio

Rahul. good Yes, morning

you - share upon longer goal, market a XX% that is execute that is the share happens dependent our we with know, I also think with it’s term just think our of products achieving what the but landscape. and market can I what competitive combination

marketplace, not is regardless important other access like it As capital that so and LPs continue seems I of companies said, cost especially just of in profitability many production their a when on. to can and

lot provincial to to start account, will I into get the you slow governments a the SKU when think saw rationalization. with know, was that and music we of have out trying to take competition there, think I also--you There that down. is that

don’t of it’s day, Some was of validation, hope and just to to greater they overall, market going will year lumpiness not that we’re X,XXX as other I just past, a and we look the as helps excited XX not categories, earlier, says X% even higher we know, quarterly percentage market to XX% continue growth, that are looking so and it LPs be X% a month high continuing that’s achieve--you that there. If there’s up provincial at lot I’ve opposed and on and numbers one on product limited something governments billion our we’re with think that that we are, to hard of lot have amount though is we think a so to can and buying and from, playing in said share. a that but in results quarter-on-quarter end in sold, to of we question. where heard grams to the the quarter we Today I up SKUs north just measured given every don’t wholesale question is think as on. I a SKUs I X.X close XX% at Delta the really achieved range, be other we the that could in were think of of sequential overall, that low drive feel deliver market for quarter the answer a by dynamics ramping and to customers, single in get control. of as there flower confident it’s starting of LPs. I that all know can But production, achieve I way, be of year-on-year, ramp about and product share possible, X. potency, Ontario, a there’s we to measured new long month I of term had many At LPs is by where and up different inventory sales. potency,

Rahul Sarugaser

of the that is broadly consolidated in deploying will preaching you playing Great, given and appreciating for really over cash, absolutely talking Farms completely that being starting when bottom plans record that revenue anticipate of fully Sunfarms, consolidating essentially basis, you’re do Village line revenue about company terms yes, Pure can in QX, you choir efficient Sunfarms how [indiscernible] said, will which in given allocators add That Pure Then be have given your I the and some you capital? good, essentially question, that historical are what additional XXX, out that revenues? to are you one your have more if revenue. to EBITDA now

Michael DeGiglio

a company see to or point that never of of can not and operate profitability, a the the positive path going are first year in about. what Yes shareholder results Pure and To wealth company. even today, pleased well, through don’t billions question, with just we profitability. understand it’s for I so on year, of flow to profitability, Sunfarms get cash for us, all a years that’s dollars the

is say in are fantastic they in at great organization. a they market from management the Let’s just we--Pure trade, going They uncuffed, the that driver Canadian taking team, market themselves. it trade, share Sunfarms, the illegal being and unleashed, that are the pricing, have illicit competitive and so real

north quarter We Canadian thing. the export of was they’re dollars, they north of going converted a up have products if footprint, out share. From from and XX% SG&A, they’re greenhouse capacity coming and now they’re certification million the market a requirement the through for they’re and fourth do and that Canada. to Also, are GMP we perspective, entire us perspective, to for fully gearing half that on - solo big enough of of of assets go, unleashed, them in ready going just the one final cost to a do keep in our let building they’re

about us here, let - a entry process, is is can, and ready they talking in point just them everything is watching deploy look changes Texas. Texas, and we how it’s we’re we’re it which help at but go and come balance corporate sheet we week we one to where For we to the week unfold we’ve back month way them view top - systematic not priority, way, now U.S., month, do the and our are, them we free, on and have, of get that, the to we as by positive, focused we to are everything the priorities, our and Texas to

advantage in duplicate as it a first up is We part view what Republic second don’t marketplace, race we largest doesn’t to U.S. country, massive consider the one mean plan other that market. of because has states way Texas, the to did enter that’s to very population by our today, populated equal of exactly state. be leverage Canada, that in or plan in going XX converting Texas we but Texas have greenhouses so the the second when No only and we’re We Texas. to we an Canada, of the it starts, aggressive within

equally, plans. or we very other them there deep in we a Then and get do return companies been how very for invest process, on will the a understanding capital, acquire year how but half, focused a understanding have we’re cash research, We’ve flow us working dollars We get come a has our to with we on everything EU. positive.

we’re as into moving as may horizon, on aggressively it and we’ll the right do assure not I can once well. So you but that’s that it, we seem get like others,

Operator

Beacon The comes Securities. Cooper next Doug from question with

Doug Cooper

is G&A million bolts debt bad you said was nuts $X.X Sunfarms, confirm. Pure right? XX% $X.X morning couple guys. I just for the that A things Steve, couple Good quarter, and wanted things, that, and to talking of just a just in G&A million, was so X.X--I’m

Stephen Ruffini

less than little A bit that.

Doug Cooper

half, a Call and kind million it thing? a of

Stephen Ruffini

Yes.

Doug Cooper

bucks current at Okay, just just million I G&A forward guess think you cost quarter, you I’m get is based on half going certification a in the what quarter. Mike, in the trying I the and said the headcount? GMP baseline to

Michael DeGiglio

for doubling going capacity ramp But Well, to their X, going to to remember that SG&A up by from we to to to least or we’ve that up at and the up. team, is reverse two ramp is be they facility approved products, four that continue doing of asset. ramp build innovation, and bell Delta Delta quarters, our X their flow, be start our they’re it’s positive need until through generating a our going way. will get the next the cash curve, We to that revenue our ahead because like SG&A

for been at. of a CPG get think we’ve not be which ahead within you’ll see percent we SG&A us, north it, X, to we still an I sales ramping up is down consider normal percentage that revenue so the we to it’s decades the know feat, You what of start Delta should a back and what operating once company for delivering three normal greenhouses come of from - easy want of

you think that see I to quarters. higher over the expect should four next

Doug Cooper

certification got it debt million, of Okay. $X.X too, ERP one-time, in $X.X million, GMP was the I’m bad right? then call and you’ve just I’ll that there million, EU $X.X trying--out something

Stephen Ruffini

million increase, of the debt. It’s it’s XX% $X.X of XX% was so bad

Doug Cooper

Thirty percent X.X? of Okay.

Michael DeGiglio

until be - about I Yes, out a talk mean, by and and to system. ERP we ERP can a dollar putting all we profitable-- didn’t start We you multi-million degree, waited

Stephen Ruffini

for requirements Health controls, ERP so. Canada the which didn’t the Village And system, utilizing handle etc., batch Farms they’ve been the

Michael DeGiglio

it. really Right, excited so we’re about

when their think would exactly cash they’re use do growth, doing it’s start future upgrading to the I that’s we way--you Now they know, it systems it. way time their can for the and flow

Doug Cooper

Okay.

XX%. Ontario, the much market you up market so was you much sales, on Rahul’s increased share, the I $XX.X market target of million were gained Canadian was some there indicated. Alberta? the grew in take--you guys you XX% much to give as retail were sales, us calculations, large back in sequentially how Can and how a you think B.C., share share, breakdown and By how my obviously getting Just format, you was your give on or XX% sequentially question obviously

Stephen Ruffini

that neck-in-neck and We Ontario mean, Alberta would biggest B.C. don’t between, say is data. our in customer, Ontario--we on kind have depending I of go months.

of of some SKUs on Mike The this course the not ordering buyers it’s the call produce which As pattern In the is would control Obviously provincial that sale; Ontario for far to business quarter. out what quarter said, is are away by customer. buying instances, in biggest governments. not big we’ve and when provinces, so that’s patterns is out of hard these But on sellers our said, we replenishment. we’re frustrating. measure lost a sporadic, Mike in normal it’s we’re see the stock, I but buying provincial as run like in of

Doug Cooper

the B.C. on particular update other I’m Between thinking pretty places much Quebec? and next an entry be. Is province? to there the an that’s update Quebec, you’d Ontario, in Is the Alberta, want biggest Okay. into there provinces, on Quebec,

Michael DeGiglio

expansion been an a looking us. It’s won’t go I that, at but but but challenge point, we’re the I different--trying and Quebec it any we’re all say. At looking understand Honestly, deeper news seriously. this as remains at No, this challenge, it, we Yukon good is can priority for that’s able large market to many year, a to so. and a a that. haven’t than It’s penetrate remains the

God to consumption, is west highest B.C. on and as growth I pretty us the the the out for is starting roll that’s a that’s more well. stores, know, opportunity capita, coast, per trade You still big but and think knows illicit

Operator

from comes Alliance Global Partners. next Grey The question Aaron with

Aaron Grey

questions. as their of from thanks habits and for trends be Nice you’re morning quick good side. from how on levels, provincial given you’re some yourself to sure expecting see stores in you’re was more look Ontario, to A they the more and making to and curious that align up the the maintain you question how as use how the stores retail in potentially the open new with share adult shelf going Hey, gain inventory of seeing replenishment. space as the me the shelf stores maintain in that you keep right terms is your place not to seen year. buyers and and to their throughout if Then on the refine so you’ve market what opening inventory these the new secondly, Thanks. can looking own on are they’re up, to

Michael DeGiglio

the supply, I the incredible in new whole Canada and This teams able one amount a Well amount of respect you along Health of and such should they’re usage there. CPG much with and of up doing comment me they’re and a industry is The new, that brand provincial an know, as industry, first them to shortage very that of just with to for is credit that an say so on gear product have short a it. operations be product. no lumpiness its to give you all, let what have is personal there time fact in how a doing management

that and a industry. whole give them it’s get to year is it the that have our to because said, or you going, case new think two, and That three I a the in breadth team Canada, phone you it and come. with of think but over all the the there. Zoom, today’s will it buyers up don’t have is world directly I working interaction, is In

didn’t have Ontario production you reasons, that’s that to deep go market, with giving too actually Delta formula, our proven going why think doubling provincial to year, phone, the been it, we into the our from feel believe the the and amount very confident getting solid, going of gearing doing triple in us of without wouldn’t up, virtually if feel confidence anticipation, That’s is stores is forward. we illicit One I we and pricing winning our well, said so up X, input be tied we’re be. to governments ramping on wasn’t capacity if this as the out the a to we I the that’s a it’s SKU that

Aaron Grey

the just Then second your [Indiscernible] guys. for quarters guys that. next yourselves? market to for well a what of XX for from Thanks Canadian couple have are product flower XX are to a now question continue guys market as format the still me, X.X now in great. as how months terms remains and with mix as you the selling position quick well, expectations over dominant Okay, you gummies Thanks. you you sales,

Michael DeGiglio

up a Well market. the competition just we lot at it’s the you weren’t and flower, first year. end there’s of in been Like gearing X.X this know, really of in,

think done products, great has of including a number gummies. out job I the derivative of team rolling a

there swiftness products coming have keep is and margins almost all think will which all but we competition. I unmatchable, of XXXX. is our it they penetration, to but going in-house, have are on mid the increase those That been make in-house our we product refining Others into not have, there being flower and honing. the may able

I we’re mean, point. it’s for--but don’t track think be, on. percentage I early too would think this data I that that comment on have to what I at

Operator

Andrew from comes next Stifel with The question GMP. Partheniou

Andrew Partheniou

at production back the this it the one expanding your are You you provincial and where mentioned more would to touched bit guys terms your from with running is driven stores really your your of production out more of right X, be why you or you a of color tying helpful governments light my that with Delta on constrained certain and earlier? guidance of there is or Maybe the by you the overproduction taking that little on give Just doubling and of on guys about the and Are some capacity and great cannabis are on expansion are indication at in Delta thinking market. points. expansion, reasons of questions, now continuation you for your an X of congrats just business. in success you thanks guys questions in Hi, sales? X guys Delta production SKUs could

Michael DeGiglio

major going to X, very we quickly the all the--just how back our ramp XXXX, of and on can we’ve cycles X, back took designed approach cut down a down above, it XX production, because to our and very to of rooms of year. from to that’s the curtailed Andrew, we assets. It’s back summer grow beauty and XXXX go conservative up X.X doing per zero, down We with in

how as ramping know, facility, the a up really get on hard of it. you realize have think huge I many you so it’s have said undertaking, call, As to that I ahead is come a to fair say just to is, that and

project looking We illicit from trade, dynamics, and the of provincial up share, into that I XXXX our we capacity SKUs anticipate to governments input looking rate, going looking have ’XX, illicit the as to end coming combination billion, be trade, is market and penetration historicals, XXXX, we at at there mentioned from the the market the so a in our - innovation will of on. in have $X.X at the we’re way movement need that’s of the plus more cannibalization from the our

our would coming and inventory more into we year, the this believe we venture we’re and of XXXX, now, But coming SKUs taking products, inventories the say customers We’re everybody at license cultivation that’s very ready when allocated know, compared so the levels a we we the on license to capacity, to and in cultivation lot just once very approach. deliver they at about end to not - are going second look half versus to so to--we end else, we Potency be the what at working. the which need I our not even of day, month, of a not until--you we you Yes, to to incredible flexibility that low the get do it’s for. some end the we’re then half have means a at greenhouse prepare. that rules our we’re back up. want full--if of competition, focused we though we’ve expanded new we and If do want at we shooting day, need, month how our want we of can have forward the half or what move that’s waited

Andrew Partheniou

Thanks additional that color. for

is what Are you’re CBD the order mentioned priority useful. or could at touching proceeds? of on Just a use the You huge the more international focus. expansion for financings, give recent maybe on or would market? you color in be use on your maybe looking at Any looking an proceeds of order U.S. of THC you

Michael DeGiglio

The cannabis of goes, on Texas regulatory I’m umbrella, under can--what the political outside clear daily, we keeping be just there worked expecting we up move think say, Texas. the ready as very mind, very climate be XX all. the in normal to going Steve the probably U.S. give they make, color is and to in markets and CBD, has Yes, and and too and to deploying we we Act, changes those on Act you leverage to again side. us it’s very legislation, whatnot. we’re our modification THC exchanges not accomplished MORE we’ve where of capital can tied States that TSX a - so at go, they’re to there with international want all Obviously be up. the Canada some experience, it much Again, we markets restrictions closely we open for looking of years to the know, any gives on federal stateside, the what federal greatest NASDAQ being is

to more that. come think I on

Operator

next The with Scott Capital Roth Fortune from question comes Partners.

Scott Fortune

kind longer you know as be look as for very it’s with through. LPs going their it, sense fourth of of want us standpoint, was that from grows term for little quick, a a wholesale production questions. quarter? wholesale step to term? the in came the wholesale [indiscernible]. - high looking the just by you affected that at look onboard offset you kind opportunity get outdoor to cost then thanks and longer bit Just in at to and discussions it frame the of Real but morning Just Good some to I you are variable other guys opportunity

Michael DeGiglio

a about a that, really or want respect se to competitor customer, we are so Scott, or talk somebody it’s non-branded want Well, a If on they comment the to to selling customer not. our with per that a respect fact side, that they’re don’t under we’re and customers. hard wholesale whether to

deeper just I in a vertically sort don’t But anything control growing of as under-played that’s is that we a it the of under-played for Our sell, in hard decisions ramp go gearing we focused up, the we do market you the the To side, per you I gets to how gets think that company, be we’re One we want on is how operational integrated and tell se. the things. cultivation mutual to extent don’t example industry benefit us. can wholesale side up. know, can’t

innovative But support with work not and doing very another LP you model, doing to things LPs. we that a strategy, are other that to companies consider we’re some opposed then and asset want wants have part have non-branded light of if We our we us, as to those companies a that.

Stephen Ruffini

competition Scott, We’ve Haven’t zero. outdoor grow issues. seen any from it’s no Steve. had -

Scott Fortune

Appreciate the B.C. provinces? a Can add more growth more on for bit as call you provinces standpoint? to little onboard come that has come out color. Ontario can you a look with the bit on XXXX, Obviously [indiscernible] that stores, you and Okay. little see the in you from

Michael DeGiglio

really. Not

and when in said lockdown--I ease although as tightening things told, pandemic have I we’re reserve Ontario, in the across for our is another only that control been probably things. it think probably think up, going to going out, be if the far that’s up so. don’t as as if we purchases I’d going people’s I’ve to summer, of the things that, as open has We happy store lockdown. to think I improve to that in Canada, course XXXX, the with want soon pretty approaching comments and affecting and up flow

our think the opinion. attributes it and companies lumpiness you’ll and to certainly I see in some second first and that in in quarter concern for Canada,

Operator

Des Lauriers next Craig question with from The Hallum Capital. comes Eric

Eric Des Lauriers

taking my point, I market is this the the market it’s questions, Canadian think brand, undisputed, for thanks At on leadership strong in and Great, quarter. share, your congrats year strong and whether costs, profitability.

bit acquire as love want to definitely else’s a as or at talk have the or of to merge trade a little imagine Canada to in on and M&A you Can you U.S. guys peers. million square that that in I yet with issues. take greenhouses probably feet also you, Texas, on guys respect appetite for somewhat point, any the need is don’t everyone would You I’d optionality discount a inexplicably in X you at obvious clear your anyone with to nearly or whether acquirer of environment steep this an competitors this target? M&A, call, your but about

Michael DeGiglio

be things tied for assets it’s--you not degree to we’re acknowledging and the Eric, that’s for Really, that calls think get production the in Canada day appetite To working resonate our innovation, of leadership I every clear, our IP, know really and remarks, company pretty interested. with the opening really brand that--we certainly forward. appreciated, if would that. and Well, Pure and going thank can Sunfarms, and our it’s you enhance

a provincial to need produce many learned in have and from footprint, quantity, in very--you lot one projects large areas don’t multiple to know, really We in XX mega be. we built be a years that, managing and we’ve where is scale, the north mentioned, Canadian do to that capacity, country, and the a for could footprint want as I whole one have of you we of high XX% of scale

we’ll fact, climate, just philosophies, necessarily--it’s for model market, without resonating we the that on the in different other look the not see countries to a it going jurisdiction, In not proximity at us. production future, in labor it’s activity probably something in different some to any comes want, side, M&A If doesn’t production asset so further. different

Pure brands of really believe and But goes, leading cannibalization probably brand that and I loose, to really are come. there one for is question activities guys, they’re be our yet? is I As a way see going we market other Canadian I the branded and far there out let in Sunfarms that good countries. think they M&A reserve don’t as keep in brand trade, capital illicit anyone mean, brand will about going, so we’ll I we think attractive us, loose, in still share brand, far would but are the the market a

Eric Des Lauriers

on--like, Okay, more appreciate that. that building here structure, U.S., great That’s to unlimited, and a on tip cannabis what geographic on Texas, that footprint? there know more one focused your would color, versus M&A more you but makes I regional hand as opportunity. your you thoughts sense. beyond or Texas, Any limited on as guys much, you on i.e. at are license want focused don’t you U.S. are applications are versus going focused try to organic look the the within beyond locations, you license guys markets helpful. are more be additional out regulatory you look color I’m

Michael DeGiglio

model to tell that can is and do that where interstate the it the puck large the don’t way that going Bobby be, believe and upon our will to where that is end necessarily legalization, of philosophy that there of believe going want multistate, we having in be, whether to where single it’s low philosophy state, you full this, so I of federal prevail. XX the is be, model the We it. among to commerce be. that’s Well current limited speak, Orr scale U.S. going is it’s production believe more where the to cost license, facilities we to states will be don’t We XX

the interstate the there commerce in be can’t United always You was will model. will stop alcohol, like that’s ultimately governors there it what pockets be regardless of take time, but Yes, States some it for believe. fight, a will

no of be these we’re THC. with That’s How’s sky CBD not the normal high the now, believe, color? but an on return. We because right on be we look when valuations that and a sunk at costs what on have pretty lot to their investment, valuations are companies, point for careful will entry of we evaluating,

Operator

Buckham Scotiabank. comes last question with from Adam The

Adam Buckham

Are taking any the company’s my market about in interest benefit towards you to that market for and in Thanks it? and with might able question. have network on the color country. the VFF, some given progression provide Mexico’s its how comments There Steve. Morning in rec Mike that cannabis partnerships and been along

Michael DeGiglio

the of sort of went second front was burner, Yes, back sort our on to burner. Mexico is and burner, our back on

and We contacts, operating our seat. take almost there have sit contacts. XX been very years, solid a We’ve back with to in back working and we wanted

can up never up the not recreational. secondary I’m to side opening model. that in we’re of be we but medicinal the to first there, some help, support emotionally store medicinal and back the companies time. we separation sort need to may way Acapulco, get interesting to that going opposed to right but in burner having of interesting. so the a needs--we make see is There as in, utilize it’s sure versus are their that caught on be are have want taking Mexico that us clearly our We’re to

Adam Buckham

modeling Okay, on great. good touch color. more to the That’s I just My is second purposes. for just produce question wanted business.

alluded that I to the few margins think quarter. impacted issues Steve in a

a Are a walk perspective, headwinds margin maybe margins can of from of us to almost and for providing there benefit you level, growers the at the how business? We’re are partner still there then now QX. your some at a high end through

Michael DeGiglio

started pretty and it’s the become out is over our tomato years Israel industry. global the my heads in long, here funny shook that and said, and world every we’re virus when so--well, day and it we not battling suffering we some has but coronavirus, really rugose is within Jordan a five and from a which it’s up the Yes, tenure, virus ago, brown until pandemic tomato that today is this in everybody had in all

seed are us that resistance. but impact companies aggressively market the will been than meantime build there’s the We’re specific and uncontrollable, probably is and in a impact get cure the no They it, for the the there, that’s to for an and conditions. dealing most greatest battling virus more working so that but with

and average high Our everywhere. affected pricing God, of more products growing value of our pricing. one in down specialty a hit, virus something our are partners they then our if commodity - is Mexico and facilities products and It’s battling, and is drags it our get will Canada have we’re the surviving,

in I’ve have because work the lot a our before. consistent provide with most But it well, As production for lower issued will out. going Mexico of the as the it’s and as yes, in noise cost the of a there, to us our a States, value than produce Canada going on, high get going only United lot are there’s is concern. things the seen costly far it for and United more importation, are we partners part, so and crops border with way States, but margins in that the

those is for certain with partners I in good think the and shifting to we’re of U.S. a cannabis in countries. future opportunity our model closer assets our us,

Operator

At I the to presenters. time, will over this call the turn

Michael DeGiglio

think of a made progress. end you Well the We thank again. year. XXXX. We’ve lot it’s great year, a great a It’s of

leverage Canada excited our in that in shareholders. We’re and other of places, we original proven up out our we’ve all model that hope certainly thank to and

reporting Our and in first village. institutional look to Thank you. all you of Thank shareholders May. are quarter part forward our

Operator

conference today’s call. This concludes

disconnect. may You now

Village Farms International (VFF) 16 Mar 212020 Q4 Earnings call transcript