Earnings call transcript Q4 2022

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Operator

Good morning, ladies and gentlemen. Welcome to Village Farms International's Fourth Quarter and Year-end 2022 Financial Results Conference Call. This morning, Village Farms issued a news release reporting its financial results for the third quarter ended December 31, 2022. 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 completion of the call. access available to release. today's how on replays in are news Details

subject part call. we you in during made formal remind in from let that which providing or this actual could of forward-looking are the Before results beyond forward-looking those of number to control. me our a be are these that materially expressed statements, cause begin, implied or were risks statements. statements differ material Certain These assumptions statements to and uncertainties many may after of applied conference today

A EDGAR. uncertainties MD&A securities XX-K summary the Regulators, of fillings these of These contained made such revise various required Form XXXX, underlying on are statements. no we its as except for assumptions, the Canadian or available risks company's today's and and including is and year applicable to statements with as securities by law, any obligation ended SEC the undertake XX, in December forward-looking be will update date publicly which

would to Officer Michael the International. DeGiglio, call DeGigilio. now over Please Executive Village Farms of turn Chief like I ahead, go Mr. to

Michael DeGiglio

Chief you, Farms Officer, Executive Thank morning. you Farms' thank joining Steve today. of Corporate and President Good Vice Lefever. With Cannabis, Village are Ruffini; Gillin And us Village Mandesh Canadian Head me Farms of for Dosanjh; Chris. Financial Village Ann Affairs,

be then will will operating and highlights we for for the quarter, and review As for usual, and I Steve our financial results questions. the available

Let for fourth me our quarter. first begin the with takeaways key

ranks nationally year. steady number throughout and two market our after First, growth cannabis business share the now Canadian

That's market branded while retail that market. sales year-over-year, our the In of grew XX%. just over twice XX% nearly fact, grew

we quarter Fraser brands, Promenade notably company, XX EBITDA. the of consecutive launched generated weed and Valley adjusted multiple We original Soar positive and

the our into in Importantly, getting to past access asked Many LifeSciences times grew while integrating market, the Quebec we we Rose were platform. about we did.

share, it in Israel, ranked and after markets additional is This shipments quarter now expect just in in other a market we of order. late countries ranks in XXXX, to short just great export terms Rose expanded Quebec acquired we And it shipment and achievement second. first further very XXth When year. one to our with our

U.S. a the a brand in track less in business, on one to launch. in be Synergy+ $X Second is year Cannabis than year since million retail

performance Another And balanced health. team's outstanding in the has achievement. QX again once made

One very the companies we positive of. of few CBD EBITDA that know

XXXX my in was Third, years around. the of career one most Fresh long Produce business. Produce is difficult turning of the

Rugose Texas over Brown crop us XXXX does year ‘XX that's yield. the cycle had Canadian million include It not impact production we only calendar costs the ‘XX not previously the include virus cost virus does In has in $XX customer of relationships, and our fact, facility, and not it on and which in the in alone. impact And in experienced.

for AI technology demonstrate Brown on including innovations success resulted on of ending is the Fresh. including and much in started turnaround we improvements, for footing it Produce first this encouraging stronger year surgical the strength horizon significant much investments, Rugose Fresh made strategy, the A with XXXX, of we demonstrated than operational in our which in which the as driven, the QX quarter protocols. being XXXX, will a

products And built an exist this other leader? for an with enviable what all current Despite this, say growth With Actually, with challenges, hear business consumer are industry Canadian and read of is all to favor cannabis with favor same investors. North America investors. is news demonstrated have hard worked the respect -- we -- have of cannabis, proven our our have operational kind and industry articles of Canadian out same investment the that out position. all we does we in excellence of cannabis that and pundits

I don't capture it we will claim one, better in growth industry. and will It does, of and to know get can our depth leadership future of the when have experience who clearer position. a

a since expanded one, expected expertise about to our we launch cannabis me a basis and chose strategy. markets for model. and cultivation in profitable we few clarifying competitive be sequence the When our to Let spend where We be, minutes the business country would to cannabis Canada. for produce We broke value the which assets even. assigned number U.S. real a Texas opportunity. more, Two, market, optionality a maintain worth the as much a very market huge enter as is one optionality to assuming space single

we done it, is the which proven strong were our us have with sequence, me in to the of convert permissible, brings U.S. three, permits to Which by Canada. assets number event Than legally enter as the legally last case space the when have preference U.S. starting in NASDAQ in scratch a we market and Texas as from in and permissible to our Canada. done some in

profitable efforts, On vast I what out? of built we despite can majority us you see, regulatory XXXX have when happened one our difficult grade a have and built number in results So especially which market M&A. and give organically, A in conditions very through Canada, player’s very have how the a this we profitability, as working have is business competitive not we all solid model. for built our

to the factors costing more in up XXXX proven ended hurt option the terms, XXXX. discussed expected three U.S. quarters. than have simple last I the options more the for market due Number two, value. enter difficult In has to

D of last for I'd give year. strategy a us the this So part

later at session ending year. actions and A latest, our the number by restrictions would which in we this the lame duck original three, on in January at that legislative the were extended to expectations the of Washington midterms XXXX, least after addressed be

itself. But was to Washington that guessed run as C the never efforts our regulated also probably in the You a to F would assign market well, as I we us business give it's a job an manage in I'd a would way Washington.

our the need de to with Starting and U.S. do improve results. of attacking entering business Fresh improve to it recognize are the average. assumptions risk we market. so about To We all

to have in undertaken the cultivation to We profitability following, Texas in customers. one focus profitable be service region our team improve assets and of will And on the better Texas we reducing assets. our footprint

identified every lower for started And implementing have improvements, focused so will that on those and can us, relationship profitable deliver reviewing multiple we're operational which costs. most yields which We over customers. enhance and accounts we to key are

only reason factors Regarding across on -- inflation, control when putting of factors in our cannabis real can the Over have sure but I'm agricultural they things virus history our dealing is and operators out when these they the that appreciate top pressure are operation we you world. model, discuss built business businesses. one are XX-year experience the cultivation very with all climate these

of months the puts pressure and virus, As in XXXX, of inflation tremendous Brown our profitability in the which few Rugose abating. XXXX first are

who I input victory Fresh pricing call but me in cautiously business have the I'm not virus call those ready on been costs and optimistic. will to our have attacked yet opportunities. They made

summarize, profitability. launched to and de the of by to have consumer -- plan attacking operations risk Fresh customer asset So a we base costs

must the we goal any Village to EBITDA event. deliver to others can stay economic Fresh understand safely until cozy, as that climate absent major growth business we Our these fronts Farms. of contribute We a keep or contribution, a to positive is attacking

of it financials. the I will turn detailed Steve? to more over review Steve for

Stephen Ruffini

Thanks, Mike.

on LifeScience XX% just last I the impact results, the results get comparisons. a Rose therefore, of acquisition only November And and XX year's reminder of quick Before fourth of the annual of reflect in six on quarter weeks XXXX into XXXX. contribution

X% constant Village year-on-year Farms for were sales all to consolidated due XXXX cannabis offset results. a XXXX. business which On the QX versus currency weaker from or sales million from close dollar basis, primarily flat, $XX.X were to were for a decrease essentially constant sales were of from of X%. Fresh Consolidated U.S. a to down results. Higher On sales XX% Turning the Canadian fourth basis year, sales cannabis a year-on-year quarter currency by dollar Produce. last lower the our in our was Canadian

of share, per million a Consolidated $XX.X or $X share year. the net per $X.XX last or for same for was loss $X.XX with net quarter period compared income million the

QX million. an balance adjustments, Our charges following net to sheet XXXX income $XX.X non-operational specifically included the significant loss additional due to

Impairment in in to on prices of the our value million as $XX.X balance to a to This significant quarter of focused impairment traded other the the balance addition acquisition health appear of result botanicals. the direct the sheet related valuations the goodwill June in charge publicly in companies. XX XXXX decline CBD

our year a is $XX.X total of of driver loss statutory significant impairment $XXX.X The full reported million. year for million the of

the potency charge -- down in quarter business U.S. for or fourth cannabis an million lower We Canadian took in inventory. the flower wrote $XX million Canadian $XX aged also

to creating $XX.X Consolidated totaled million asset resulting EBITDA valuation significant a tax in a earnings Produce. quarter. EBITDA in in loss by million adjustment allowance $XXX,XXX. million balance took breakeven was $XX.X $XX.X in positive this These was $X.X our U.S. we adjusted QX year for was near adjusted our The in our at of adjustments EBITDA XXXX to to of sheet Compared driven tax deferred QX QX negative XXXX. loss. million charge -- the Fresh reported XXXX provision change of Additionally,

Although we QX. saw compared a improvement considerable to

year Corporate year. costs relatively on flat are

amidst provide refer period-to-period Canadian to exchange I’ll of As performance accurate to more I in shift Canadian fluctuations. gauge a results dollars results, cannabis the our rate

This quarter. significant the million. This year-over-year, XX% Retail year erosion on operations Wholesale QX. producers branded growth down price outpaced inventories. for in quarter for a QX can liquidate in was however, channel we're cannabis from QX CADXX.X QX meaningfully market of due sales widely to the vary Canadian sales at Our in market to especially year the to XX% as case delivered continued XX% distress year-over-year. growth continued revenue

to write flower contributed inventory. CADXX environment to potency of pricing our wholesale lower The million and decision aged down

relative realizable its wholesale to market expected reassessed pricing. value As was current

target to As XX% it gross range it will is margin of our sold, pressure XX%.

down write cost of XX%. priced top for stated QX as high margin to gross we from for at target Without our everyday of this the was the to in QX which continue and our sold QX cannabis range purposes. statutory charge, for XX% Canadian QX both recorded quality goods on end execute in providing of our Top this Excluding is XX% products.

XXXX. of administrative XXXX publicly quarter was the bring of improvement or track into of in XX% XXXX. back compared net QX. QX end of headcount general expenses We million sequential And announced reduction severance remain of XX% first XX% costs following sales in range the our were million in or proportion fourth Canadian the lower SG&A our sales operations the our includes sales in as XXXX. CADX.X early half on in CADX.X to SG&A of the to XXXX Selling QX in investments for and for net cannabis

XXXX. QX consecutive cannabis CADX.X at Canadian their quarter million, operations EBITDA to up adjusted in Our positive CADX.X from XXth of million

move revert U.S. were and year. million now quarter, QX to which of U.S. sales balance to Cannabis dollars. XX%. generated our will Cannabis the to review I U.S. entirely million, compares last continued be sales gross gross a of XX% That with operations generated $X.X of for health back fourth a margin margin my and in which $X.X by

primarily although are that With the industry sales peers. decreased our the of driven the indications outperforming are challenges, we majority by wide

half with QX were Our million plus of EBITDA adjusted part U.S. hemp was synergy in our $XXX,XXX XXXX products. driven $X.X for Adjusted THC of results line compared of cannabis back derived in by of XXXX. success EBITDA the

due financial improvements Fresh loss year coupled pricing. for XXXX on to Texas are in and freight driven virus, by pressures, we although other by which Brown our a stronger continuing our improved performance early are with production Rugose turning especially be and to significantly inflationary Produce, into operations, continued the inputs, QX the predominantly year quarter and to impacted volume delivered Now

half story million $X.X really of negative half the with for QX. with improvement improving $XX.X positive a and first expected back negative months was it to the second EBITDA of sequential as XXXX. from from year compared half $X million the $X.X negative EBITDA QX million a adjusted And million first in Adjusted considerable negative XXXX, $XXX,XXX the a notably a in six a was of for

at sheet in working million had balance in the approximately XX, $XX.X $XX.X and XXXX, we flows and cash cash December to now capital. Turning million

in price During our additional decision through common offering made $X.XX at to the of in of to XX.X million direct Together warrants same up $X.X registered to quarter their had we our of believe cash prudent of end a Subsequent Board of just the generate to million million all under Farms a operational with exercise proceeds. to at a the Management, net and we quarter U.S. raise be million will of capital what and financing $XX advisors purchase shares net $XX shares, number which quarter. Village price $X.XX. outflow expenditures

last month the made decision two factors. capital raise based upon to We

factors our of control. the best informed outside XXXX assessment First, all our of

efficient second had We on shareholders, we The to federal all a door distraction that capital have the our operational agenda market fundraising. without legislative might so our responsibility that stakeholders more could sheet cannabis up delivered our failed indeed plan. executing to we felt balance focus

to now I'll back And turn it Mike.

Michael DeGiglio

Steve. with to would start like respect of insights Thanks, with. are that couple the I There a XXXX close to

First, were cannabis we in on dynamics, for team price be regard should as In the industry. this what do. a consumer will increase impact market current If assessment, positive the the know, our through been implementing inflection select evaluating in a could you have which demand innovation point successful, this products always is competitive I monitor This communicated preferences. leader initiative. is market. team And Canadian the a and know comfortable leadership our

Second, insights of of our stakeholders. Sunfarms participated senior we have government. an Recently share meetings Canadian in expertise all to Management of Pure with leader, industry obligation as with an members a our series and

legalization, the a legislative on cannabis taxation message hands keeping out operators of is promise contrary and to to support to profits by was are taxes of excessive key is out regulated hands Our of to the government's the low other youth Canadians a the the as shared initiative cannabis keep availability own LP safe of of criminals, of excise objectives product. which

be industry, approaching the industries is XX% estimated exists revise efforts are consumption, investments very support taxation tax and market at critical illicit we much levels driven to price to market billion, businesses, communities employees, still The legal products all the model taxation excise other appropriate our largely due to in of the risk. huge consumable with of in immediately. differential. Mission the even Yet X

operator, you. we'll open up with Thank questions. And that, to

Operator

Aaron Our come first will Alliance Partners. Global question [Operator Instructions] of from Grey

Your line is open.

Aaron Grey

some going? you price the So me a Hey, indicated questions. just of on Hi, you more it how's in the for of good get want for color morning. that question to thank bit And little terms first willing or products, in provide? any Select are share could that on maybe you profits what cede on the you to And how to much order and And brands? then color more potentially that? then products margin improve increases some

that you kind for maybe price just market a do increases deleting following comfort market? the fragmented maybe given some maybe brand, know, you. pricing implement what you but So not the and then rather others of comfort someone gave of you you And to see versus from you waiting gave seeing some those lot to guys What the now returning still the now aren't, still Thank share? pressure?

Michael DeGiglio

Well, thanks, Aaron.

question. one turn was became it I Mandesh, time Before of the that first your over last that's to

want So to I just do think, you on give color Mandesh, some that.

Mandesh Dosanjh

answer detail it's was the we're but points is. don't amount of I'll some share, not there's seeding the give share one not of set, at absolutely. from question. around because bigger of huge a first we Yes, lot And Good mean, margin. I -- going about a for purposes we improving looked a competitive to your

at robust what's We of have what's making analytics, understand pretty a and and consumer the where we understanding driving there's demand, just opportunities. level, pricing sure happening

think, without opportunity mean, we're And see margin is impacting share. I right improve I evaluating. key we to now a always what

some just a dynamics of as sharpening various assortment sets market demand pricing growth are within the or And and just unfolding. really improve of share and opportunity regions brands to our the was dynamics and about in the is trying where the strategy. couple margin, we of market maintain always kind key share, supply, outstripping opportunity of It's all see across So, there. our across profitable implemented the kind improving

pencil we comfortable? of of in did strength just why consistency to and I ability the going our -- And sharpen to the products, And know, quality brand, compete for strong think I time feel it's I the it's any market. And analytics our think the the of when strong the pricing the is is now. we think right CPG always time us they is their right think company right. with

Aaron Grey

that. of color. XXXX. you the unravel will that biomass that, how that any just mentioned, terms in for Thanks going really terms on I of then some you great. of kind in that of color kind just Okay, in of top appreciate sale And of think of distressed

be to lot looks out a So of there? inventory

comfortable earlier that contract the So and that how Thanks. And in there do just feel leveraging value as might more with color you impact? sales and guys? are market, from the the get Valley how expect you pricing to compete other about to of a we Obviously, just -- be in you just happen, distressed the lingering so terms some to talked comfortable you're Fraser broader want impact wanted segment?

Michael DeGiglio

Mandesh?

Mandesh Dosanjh

Yes, of I'll order there, maybe a Aaron. reverse bit a it take in

represented your and last So space in We was space of We compete not solid we across Fraser competes launched out Valley everyday as that's niche limited that market premium. wildly assortment was a to And continues part flowers, one, Valley. around a second with did led taking it's every Sunfarms, and leading a market index Valley and Fraser Berger Fraser strain year share a the in, where like Donnie very, popular felt two, to by really an under Pure carving the emerging while country. being or very were value three, it in value in that. position

inflationary And across we we economic see thought that still segment, So happen a would, tough in opportunity, we it times think as of country. pressures consumers. as then the there's that brand, growing lot with

continue And us. and we take in market love part of things Valley, year, leverage our It's think share a Valley. this strategy profitable well. the growing and doing definitely is more it's more innovative, exciting we with extremely of within play Valley some Fraser to share ability and for happening market to So Fraser amount significant Fraser

first a us based affordability definitely it long into Valley, your for and inventory? SKU, gives on we and might a part meant will that be Absolutely. be value some Dovetailing great to source it. leverage of extra the gives which have and incorrect to will great inventory chain Fraser be our offerings was, and inventory is it us consumers supply forecasting where gotten question, allow or

long So on inventory that we're it is an for outlet us on.

And bXb being and sustainable. are board. And I then think spot you're just the prices over all market mean, I the of yes, And there. it's right. in absolutely Aaron, see selling out desperate kinds people we not

We have a with to deal on side. actually to coming that's with. available mean, of we like great bevy we that's And it's I good allowed us And domestic simplify, that that's consistent buy customers the customers who it's with us. bXb consistently grow dealing to what product they're quality. want

do lot kind of a or of the are spot its things on as to we going And a people kind of we dry there. don't out calls feast see So irregularity think then be famine, And lot inbound sustainable. see I it's And or pricing desperate. come of market. just

you other of on color Mike, producers or more the sure, desperation not there. I'm want any to add if what's happening

Michael DeGiglio

said, Yes, we you in XX% it's well, sustainable. not just call. the the numbers see long yes, focused durable Mandy we year-over-year, I But not mentioned as and it side in we're can mean, term. on really you It's know, as retail the

that think for, by is know it's other and real are the we just the sustainable. selling We of and have handle cost what costs not our well many solid pretty production on prices a LPs

a It's Now, be value the diminishes, it may is really we'll into say. product But just patient. it and at point, ‘XX. to even ‘XX may all go some last perishable hard

So, that. that's the on color Thanks.

Aaron Grey

get back Great. I’ll Thanks in the queue. color. the for

Operator

Thank you.

line Gomes will of question Capital ATB Frederico next Markets, open. your Our come is from

Frederico Gomes

to questions. Thank for first Thanks color in my you on How any you. that divestment of for, taking facility Texas. will your the and on is morning. question it expect how long take process you that think much front? that do Good My sales do sell

Michael DeGiglio

comment we're too today take think on process started. expect we going probably asset, it'll what has we not the to for Yes, long, don't that

a asset. So, I what would months great probably It's four to guess. six is

team majority As a is location, where its three. on top is one we the there, believe sort just where it’s have most I And the own. management one ideal of our of the the expandable are in our we large of footprint we are States call, That's assets location, are the Basin United The mentioned, on Texas is. of footprint. most out, out which Permian an in there

So footprint. we whole our want to team on that focus larger

look asset and those optimistic really we where I assets But, it to ability think very very the process can as Texas, think that this, is will Texas, asset you so in have as an it's be, for quickly, big that at asset, fairly like limited we're Texas, when the Frederico. it's a valuable an move

Frederico Gomes

on question details automation, the you expect Canadian have the of in then investment any you Can place But right for especially obviously I in initiatives categories, year, your you flower. remains products, for some sales thanks pre now side, Okay, in category, uptick on that? other color. do is and And most could about more my any provide rolls, exposure cetera? the think cannabis you from talk other new this et that that

Michael DeGiglio

as as for and it we huge a it by capital we is color. And Well, I'll some flower pre raw in investment, sure. rolls. But just classify -- we will market as rolls start really it's I pre over made we internally, of growing a another saying that Mandesh part speak, turn to add consider very to investment

we're market. in and win we're to focused it, very focused So, on that

Mandy, some that? color on

Mandesh Dosanjh

the add kind the about strain a are into products that was And in market of SKUs flower, looking rolls. in and after. Pre pre flower, to then our Yes, derivative that thanks huge from did other expanding question. to based aren't pre point our expenditure strategy. convenience strains point, capacity, and of of we’re I'll talk whole and our match we yes, part offerings roll increase consumer new conversion the some more there, pre roll. absolutely roll. And continue see Mike's for additional Mike. starting And to the wanting I mean, that then appreciate Frederico, pre the capital launching our and new new And at we assortment just

in So, premium and Pure but our coming with line, the then our with not with eventually, sorry then Fraser big just Valley. now our road store down Sunfarms, Valley. cannabis And focus, also Fraser --

the opportunity category, And you'll huge see I innovation listings. and think getting pre-roll for in assortment us. more we're there continually managing So, more

then And vapes. story similar a in on

the share in an the where consumers right vape with each in the figuring infused of and So category the process meaningful us, profitable main offerings. share. now just definitely portfolio doing, and our we then and expand looking for the top interesting on way And that great key sustainable that's mind about can And right refresh way, with grow a to line growing out pre-roll it's category, of obviously, market doing a markets. right of SKU

not we're But going do ones be so right it the always to way. And there. first we're to the going

to laurels. So our resting just We're not more on lots come.

part our looking one number about company Canada, opportunities, beyond at and strategy. of will the know be in other you XXXX As it it's flower

Frederico Gomes

Thanks queue. Thank for that. the I’ll you. back in

Michael DeGiglio

Thanks, Frederico.

Operator

next will Scott line come question Our is your Fortune MKM, ROTH open. of from

Unidentified Analyst

hold? of Hey, morning, little segments. color on This just kind how of just within Thank category as launches some the you you provide value expect Wondering evolve morning. mix specifically premium that and Scott. to the mainstream Nick you. kind on is good Good take And of between a guys. could new for product these flower if

Michael DeGiglio

Mandesh?

Mandesh Dosanjh

that to there. of core still there group, talking real know, XX% Fraser was or and and launched really the are mute this offering. premium. the were of of clear you that flower see we of I the on kind Valley, year, full so we when Thank a into in but kind Last just premium more course and being analysts value market And you. we in value, to being starting the XX% shift of separation Sorry, group bit

XX%, the So, category XX% of then bulk in to of those in and kind you value. XX% XX% another in of of XX% XX% see any sales core, kind premium,

index. of in Valley, we're shaking company, Fraser kind how with might over in being segments, so core Alberta, that's it of regions, those weed out value squarely kind British certain And each brands. store playing great in now and positioned be under Columbia, our it's of three And cannabis slightly whether Sunfarms Pure so Premium. Ontario And

our that all a what expectation three. for year growth I piece. seeing that's the we're seeing across And not And we're is think key in cannibalization

with the our getting launch so saw core we Sunfarms of impacting Valley share, Fraser profitable, without and we're again, market meaningful as Pure offering. So

I for took So meaningful think alongside to time to do Sunfarms. us three that's market that brands Pure key these And our exist we launch And will grew had in the way share. other wanted we the a two brands, as that differentiation. that

seeing the that and this grow. plan year we're So is to

Valley being smaller Soar our Premium And the I much bulk in biggest. second Pure being mean, the Fraser again, And will biggest brand. a it's cannabis, Sunfarms market then market, the the for of growth rule really at come

that we're the be in two take been share already Soar kind flower X% it's will main to and growth. of of has excited on those a X% So done to drivers markets operating. But what able the

Unidentified Analyst

side. appreciate second then Got the it. color. on just international me that I a for And

growth Australia, of Israel. in solid in mentioned sales You commencement

you like the Just in markets. Dutch the of and any ramp wondering market, newer know I commentary Spain had if the on capacity. you're few looking it one looks to

Just internationally you. that Thank at looking just out be kind or color, helpful? of would any there some that evaluating, you're opportunities

Michael DeGiglio

Yes, pleased really well. considerably. in as the Australia ramped New with results up Australia has Zealand and at looking We're very

Canadian to we're on finally we to permits, really the the side. it's it's into our week, process just side, a got long last ready actually up Germany, On get been really go, more and European to hold

XX be crazy, take it. to elaborate But on can XX it's want much forthcoming. Sometimes and that days, I it to should but

shipment. We've Israel happy. in has seen its right gone We're consumers actually pictures well of very that are pharmacies for now.

going And the see that we're we're -- there. then and very UK So to That's excited UK quickly. up ramp can where the done in to ramp up. that be been all has work

in to we hope announce months. the coming something So there

a they're as be kind companies the but there's ‘XX our at all companies different And ’XX. those of because whole countries looking looking countries yes, array not is And well, an as EU, in somewhat different. we in EU the in plan of to forward all looking then surgically at --

the focused on Canada's purposes. Netherlands? the We're for you the far as As out export still of know Netherlands as medicinal all

though with XX a rec are the export know, market And one as the lot there. true the same in license will being of rec the you the a market, even first we're holders. be cannot first strains of cultivation the You Netherlands country large rec,

that up ramping in start facility year generating to revenues hope we So this ’XX. at looking and

Unidentified Analyst

me. it I That's it. appreciate the Got for color.

Operator

Please. Thank you.

Our from is Eric line Craig-Hallum will of your next open. Des come Group, question Lauriers Capital

Eric Des Lauriers

I Good questions. Produce if the for the that forward information in want you Or to just because understand maybe this the get information, your remind sort of just to asset, this financial facility to what on kind morning. overall footprint bit us costs more divestiture that on of you're overall just divestiture? of respect Texas business? And maybe percentage you Thanks. going just don't detailed give have taking your the with that of thoughts to was. maybe was help a impact hoping you expecting Thank us my Texas

Stephen Ruffini

this is Eric, Steve.

demands, growing currently facility current our acres, that our acres XX XX demand. we're consumer based So, on on is retailer

not -- made. footprint in growing that And it's one that on made we've say reasons currently. Texas efficient it's our the third we've not greenhouse, the the the let's of most based So of decision operation

grow who grown been that's that, one won't it’s three in at developing Yes, we looking one I has it to is resistance and -- a growers of in going decided mention what predominantly there. specific our crop not America, crop North have licensed, we company That seed that. the be of probably are

that we actually And capacity, the sure so said, where we But in to what probably that XXX going be as other that. over today more locations expandable, we're forward. was acres, crop predominantly to was do not our that's there. grown on in have going going And I elaborate we're not and have so

Eric Des Lauriers

guys business, cost divestiture perhaps those greater have Okay. implementing? impact and Could that which this us or you on technology you will Produce help a understand, innovations of are some the

Michael DeGiglio

one spent our Texas at of well, really now it growing facilities a facilities, Yes, we it's Canada. the probably in learnmore we're all on and looking about and AI bringing to our proved in pretty system, year that we

how bet the -- really -- U.S. look we when comments at my of on, the One if look you market? to at we were things tied do the I

a back get you'll just been the operational to up. that effort the taking success generating from the of to ground climate. point takes them facility to at rate, excellence, do understanding a for five to training in amount today, to it and understanding take that, over today, were I companies produce up tremendous three we a cost think of in and Canadian attrition cannabis, else, ramping a look think years profitable outcomes the the existing five your not many can to ramp where going years, the see new industry, were new tremendous you're at you people Canadian the huge new assets, new if to -- there's in look converting brand agricultural you a because them who assets market, capital are And used up, besides When but than that the able difficulty to have anyone better I landscape, building tool,

experienced not grow facility being you a on that rely that When to ramp way us existing you can climatological an up organically. able all And team, the resulted in grower compressed. data level, the that the through is but have just very organization, at with tremendous

in that win So, be high large And quality. today will to to we model change comprehensive scale, Texas, States in legalization is commerce. when they would that at model the a experimental cost that we low the very we strong these an position a degree be look upon great and interstate in will eventually assets again, United believe that

for kept So, not our U.S. that's Texas, the again, just for but optionality why we've market.

one we've So this it's outside of assets. reduce of cannabis this would And our last asset for one the main probably we because the hub reasons convert the of would ever to be decided that's asset.

control in the virus I think be is resistance of the built being resistance tomato forward, resistance the is instances mentioned the of somewhat cost So, savings And one all some the varieties. going biggest in level varieties. of -- There today in. constant was there'll comprehensive I

XXXX. has virus the by all this throughout know, affected growers you world And tomato

protocols. some the optionality being thought virus And on more the it wanted these solved, would in be had eventually. no to will Texas point is convert. mean, we I the specific So have assets meantime, when that we But we is in I we mention

capital spend cannabis. another then we case, We this crop, to because a be just our sunk those normal assets, of it would in lot would just in conversion on costs a

Texas. the know those we've federal since legalization in don't what holds So future made corrections for now, we

on think and that operational customer had we attributes to back positive we're combination excellence results drive yields, will assessment, to So focusing we've Fresh. of those start a on our

Not looking a as we crops can have the the what at excel we company. grow of many we to ability always And controlled mention, to alternatives well. in environmental different mean, agricultural are

Eric Des Lauriers

helpful. That's Last color. one me for that here. Appreciate

to Just on about then various the cost normalized that had had I gross your perhaps in mean, different would guess, hang have there. would well. was impact I have wondering overall cost brands? a dry XX% And negative I has surprised margins, cannabis, can as hanging to if expand talk see implementing Canadian thought I the you specifically impact dry quarter. that on on

differentiated But, we'll seeing of with see or just could hang going overall just we the perhaps ’XX that now? that inventory about through sell of a to there, implementation could Thanks. kind sort you here? bit are in Or dry see more that, drag and product talk more you the of of strong

Michael DeGiglio

that? to want answer you do Mandesh, Yes,

Mandesh Dosanjh

Yes.

yes, operation, So dried totality we summer, rolled last process, entire the across spring, in year. the out hang

been not significant I our point, seen, or obviously all inventory quarter market been from publicizing Soar. It's there. really Fraser especially has consumers it's in two channels, Valley, our and the entire Weed bag the the just hitting been strain we been Wow, very country dried. we've improve And least hang of the consumer mean, this then get behind Co., and and kind Pure have of social peeks Sunfarms really sneak across that consumers and in way, seeing last at fully that's feedback, tenders of low So people put across media, owners remarkable, appeal. over digital as the kind letting of different really it and did it a in bud as And as that kind humble, let we have and store and until just approach offerings, overall through well our portfolio scenes,

And we're for definitely And that. that grateful we're market. seeing

why cost at we the some cost we’re the total this drying, Yes, On side. lot one But about I were us little trays. mean, a and a ownership. you're really out. where reasons When I level to was that are, where facility figure like we prior pieces was kind we took running shag initiative, It on it of, of drying neutral. which of it did bit a cost drying, of hang we different there's think on to doing

lot of to lot kind of cleaning, maintain. parts you a of a moving there's So have that

dry, our of and looking we're areas when hang going natures, of always part way. and carefully, cost to to you're and go really at to our set our structure time But where So the spending get profile. implemented plant labor we were efficiencies. labor you actually be in other the we some even kind yes, to improved up that neutral process more And a that's margin ways improve

to move causing seeing not ongoing our control seeing you're think of dry, margins us not both and continue I strong the environmental of the commitment to to the a in be costs. then kind of industry. the bit So our further continuing just and hang operations, And experiencing to you're efficiency increase sure one make agriculture and driving in best the if best operations

Eric Des Lauriers

to And thanks Great taking for That's hear. execution. my again great questions.

Operator

next Pablo Zuanic Our from Fitzgerald. Cantor question come of will

Your line is open.

Pablo Zuanic

their for impact you the the prices retailer? lower to OCS about margins consumer, Is Any regarding the leading Are Look, the by margin that margins first the can market? you you, structure. share there? seeing the better question for adjusting comment announcement any in to better

the more remind second in convert going light. more cannabis? to us greenhouses I hear you then of your And terms to British automated plans I question, your companies asset Columbia in can of mean

demand share the you and then on You have more continue side. branded side retail on the to wholesale gain

So Thanks. update on just that, an please.

Michael DeGiglio

the and it to then Okay. I'll over one, second first hand answer the Pablo, for one. Mandesh

greenhouse, I adjacent we're that our our mean, -- which is the to footprint -- third So have our are than directly we going combined. in is cannabis', not cannabis greenhouses two other to two bigger that

we're about So in and retail retail, export. building brands our all

to It a BXB. not long So would term. that have we where to be we we wouldn't It's capital share. just investment where we market greenhouse for felt gain going convert want to make were be to

And up, we which of enough XX% if in way, We it for do. we capacity would something have And greenhouse, reported with market by ramping the that imports Canada. to for domestic we based is couldn't one years in the do facility, you actually -- converted can we parts, ago legislation early two that do Canada into is crop. a on broken on can we down single which be have the where

where that happen if Mandesh? change would So that's it did.

Mandesh Dosanjh

Mike. Thanks, Yes.

of kind main reducing be Pablo, they're a it OCS to going on the made things. markup OCS and the And about they fixed So question They announcement going impact to going and that's their the was about OCS, announcement, announced There's webinar said be details -- so some of forthcoming. they're $XX kind a dollars so margins that that consistent. your to of to making two their are the that or was details have some are million view. to to going shared. still was of more at where the occurring a going hasn't be It

has that the on And going annualized to going meaningful producer My impact later out share. the is year. how decide back to basis impacts an are And meaningful to I going producer to is -- those understanding be understanding OCS think up give to any changes it's have a retail be it's rolled up to to that this again, from who the MSRP.

mean you let's is say profile kind million to if an So, $XX OCS basis. million they're margin. $X thereabouts back in of I annualized XX% And that be margin have your the or impact to to coming to it's back just a share. giving going going on a be

it. about I think So excited we're

that's been on markup everything boards, the and I position think the at of know and in leadership understanding happening tax is OCS a market higher their it shows the that was to in over profile with where excise and they margin look the taxation. end the market and

I move. for the plotted So yes

or they're looking to keep the going they the now I that. to think it at margin. price up be it's that to going was in great And producer invest are

for So in both, that's pen of kind do stands, the others and ability invest in to of or we to going and margin the believe about need ourselves We take industry. our be it it. where we pickup but kind where sharpen it's we're a pricing, to excited think on

Pablo Zuanic

Mike. market lessons follow-up, has That's right? good. And for very the I there. people a from investments worked made many out then that the just deal, Any That's understand helpful. CBD

guess, call are to CBD But So able outlook. on produce your alone. capabilities lessons, were you're what's a side sales? to I Just it there we I postmortem, of terms improve where and the in distribution don't you leverage not want the to but

Thanks. you give have the medical then those very But been doesn't going Texas answer, can regarding If on example, it's idea, short Texas comment you about fact for in necessarily a implement edge I the an greenhouses question commerce. And always short interstate program, optionality. right? get the that a was if the future, to you there that?

Michael DeGiglio

couldn't people believe industry, guess the could I'm admitted many clear. and clarifying have And in retailers the leverage self-incriminate they've until because then are waiting saying part going of because the I talk there's the with because products we're Congress their not on. take my issue at clarity, our FDA the the consumers opinion. it it's consumption CBD that of CBD we we myself practitioners some not for And pharma, States, when you you act is in to it's in of to retail of saying life. the on Washington of how Well, made is problem great relationships pockets as CBD in retailers are FDA an until And the look I Yes. astounding just CBD United

that very are that that it on system, people we it take Now human most have retailers some is don't which a enough realize. we put a realize endocannabinoid that -- bold do have

broccoli a have don't we So system.

it system, parts our being, works We very speak. many to and of have for endocannabinoid so well an

in cannabis, the alluded side. to certainly a and So it legalization it is something I problem comes not will our health for recreational the wellness. but for consider come. CBD that We problem. when just the And my health on to comprehensive Washington calls. It's

It's targeted or wellness, time, and umbrella really it health at the envelope of the and at but the same it's wonder. does under cannabis,

So act we once together. be CBD politicians feel our wait product really have get will huge I think we But consumer a their comes. FDA till much that to very that clarity

it where that's So is.

I Texas, for On same business that's believe the out proven think the Canada, model for we've business look, model, I that and proven optionality the our model been U.S. our in has

to the say If that you producing trying going when and U.S.A., at in to It's part currently compression a the bold look grower commerce. pricing quality interstate push if enough happen. question at of it's on. Washington the I of going State, it the good with time of it's good statement disaster make price. come California, And to producing the not they're And see what's don't northern a in indoor already what a question you're you quality, major is right a could will

to years makes than not because optionality low of large So our assuming a scale, assets. talent ramp taken Yes, to it's Fresh cost, that will of mention that be really in and hit Village is going business those year, the the dollars Farms up, will be to create different intent keep existing that and getting cost U.S., others. go millions and we've that of to then hundreds there to clarity on positive capital it our to last but

to but where not to stick losing plan we're we're to really That's costing focused. but not the So money. going try

other our for lack point of Washington And I'm everybody. going XXXX we're mention Now have being to points to a behind fatigued the also and of but constantly we the looking support. at not said, to don't entry be regional an place. by we We getting that where, NASDAQ kind hands U.S. for everything want having like entry our because of back tied we're

Pablo Zuanic

kind on to you want -- here up enter Given TSX from that and are it brought U.S. consider NASDAQ long that take the Mike, and of listing lifting to be I so don't you to saying like you the the up, the just but would able grow to call,

Michael DeGiglio

make there I And find I'll quote ago was way say by that said years or way. it Well, a we either thousands will will this, that. a hundreds, leave Hannibal that at a of

Operator

question Freeman from will Raymond Michael next of Our come James.

Your line is open.

Michael Freeman

international material on the to on really steps Produce This is up question My business. business. Congratulations Fresh encouraging. making first tighten is

be quarter. then of describe in you expect during to segment I first the how the by quarter if the XXXX You picture you us started a shipping international -- cannabis first to impacted sales general? wonder into and and looking during give revenue Israel volumes could

Michael DeGiglio

Australia, Israel, this we and Well, probably revenue about I of Germany budgeted year. XX% our specifically, good think for overall, We feel sub going international XXXX. pretty England. And

think as regulatory as we a a where a things its be product that's could having more, import takes of be It on this because it's permits looking at. to achieving process. is each little want but kind So we Getting tremendous more we're government working together of conservative again, and done effort. for product far amount so

and the going. margins everywhere the said, we're being that are excellent tax But structures

it our will over anywhere So our sales Canada. actually return highest domestic it -- margin in actually

year. sort that's plan this So our of

the on again That's building our in I'm the theater. next our countries the that bullish very team we're number physical assets outside we the look Netherlands. specifically European a a the first footprint of at different really in It's have in over X entry And to Netherlands. production participation points of with years.

stem at greatest leverage for best -- point Canada over opportunity a Netherlands, of across a of great operators, and world, we consumer the we the next understand look insights think from agricultural up, to the decade. Europe roots to and the our brands lot of great growth Netherlands, greatest a even in in the of introduce really have producers And food respect out we'll brands

Michael Freeman

Canada. and Okay. Great. further could quickly I This And implemented products wonder heading increases we comment cannabis write-down if quickly, on is inventory were on the price on very certain in when a And you XXXX. nice just write-downs whether then side. Canadian should new chapter. the into expect the then

Michael DeGiglio

Okay.

first second will part. the Mandesh answer Steve point, So the

Stephen Ruffini

year-end, to it was inventory Michael, we inventory, With inventory aged it's older at smaller than Steve. months the felt write-down, and roughly old, XX lower respect greater potency buds.

essentially because to pricing current that's the do. to we wrote market what what it So is we're trying down

We been down will go go it that and it the We not into of have to some been selling price, hasn't will product. pre-rolls. the just wrote It's that -- like smalls market that selling. into

over just So time, biomass the market it it's will be of for more by pricing comparable current the and course inventory our today. sold Canadian the driven in marketplace

Michael DeGiglio

I Yes. very think, say And most on of write-downs part low have the I -- you to historically other the part the Canada, of would industry. if Mandesh? inventory other also that our in look compared been,

Mandesh Dosanjh

Yes.

question the price timing the So around Michael, your of changes. was

to be over now executed or we've and those So next roll started that'll depending two. out on the region quarter

Michael Freeman

Okay.

at implement you So to of clear, be start these did the March?

Mandesh Dosanjh

That's They will this correct. rolling start out month.

cut for out you Sorry, a second.

month on the roll ongoing out So be region. and yes, depending they'll starting to then this

Operator

Stifel Our next will Partheniou come GMP. of question from Andrew

Andrew Partheniou

previously, something talked the first about into deeper bit divestment little Produce. in a and profile diving impact could Permian that on and back your going Maybe how cross

talked footprint also of one. its You your one-third you there, Delta but about have

other is very cost heavy fixed On the Produce hand, business. a understanding that

in QX returning any give So any the all quarter putting you if to margin a of quarters seasonal basis. margin typically about could I together, gross in color kind talk positive it you highest know on XXXX? is

given we that Permian see this achieving positive year? next positive gross you margin almost dragging some margin the at point in on results were without quarter, So could gross

Stephen Ruffini

X is impacted rugose. quarter's this fourth the Steve. the primarily Andrew, margin Yes. brown was gross with Delta Yes, by

As over. you now said, it's fixed cost business, and that crop is

operations did costs in It have flush but QX. QX, was in QX. the Permian crop inspection in production The gross which operations in positive in not margins driver. were Texas those the in that Texas So was through QX, Basin was due production, main

the the So gross margin is rugose facility. negative XXX% impact on Delta brown to the X due

Andrew Partheniou

where are going XXX% then of you've about bit capacity right having at amongst cannabis of the on in to a and that on industry you the producing pride was Could Canadian write-downs Canadian now? side is understanding guys yourselves maybe at and And the I talk converted Sorry, amount you you're production at the us, lowest mute cannabis facilities your selling Remind back on all? here. that production already you your little there.

bit have increase a production of Have things like maybe you upwards about different with but Because production. you've your downwards? either taken out write-down that to happening, that adjusting inventory seems there's here, it the an little right? balancing versus thought got also you or X choice You've prices increasing

here. So it together get a just trying picture put and to big all

Michael DeGiglio

Yes.

at our So THC dramatically. to Andrew, the has inventory consumers if changed. changed the write-down It's was in that look last inability market not sell. the capacity-wise want years, X Like levels they've you

that. So as needs, consumers are to And agriculture. changing we to still it’s have adapt their

So in at perfect a the if you and level look perfect attributes in the shape crop. happen the strain just doesn't perfect growing and all those THC

other that behind said, again, we'll products want to and we into put -- if not So name product that's we a do that can as our retail those offerings, Steve put that.

So was regard. price the down that in writing it really

that. than And our X, still at internationally. million our image international of purposely Delta goal here capacity, X, which XX% at we as today X, not X, we then X, where X.X we and never increase felt XX% is did our Delta feet. Delta capacity, greater on went and because we started square greenhouse far that, with with to As Delta a expand But we next of mirror started and full we capacity stand we're Delta to comfortable on

not is the that you we our because retail a know, the we price launched trade, costs with to but at production look and And we compete felt our -- in the a our ability retail and back, them illicit when launched confident years undercut we to point. couple ability, when XX% domestically market Canada, the the under of reason as to for LP highest next was

And our we have advantage we a we cost. think -- it's huge in think

not on to same market, and 'XX, to feel our as first ramp again, in we export that And very always additional market. Mandy, want capacity to want production happening first we're to up. weren't that? do it internationally Mandesh current where but color So that give any to alluded philosophy going think we to, are. 'XX the because levels the use confident we're We we you

Mandesh Dosanjh

Yes. Andrew, question. good

X the So facilities. how crop the cycle, want X and X, align in best that's can as those trying where ongoing to an kind -- we because run plantings the conversation we're to what can the every we sell you we it's It's do about dial to want month you on grow, best out the you can. can. you inventory of of what not assess we months and way And

And now. so some right now, of in operation, year. said, best growing It's at are half. into the we like full facility We're the right conditions full Mike running running, heading tilt all

kind it's of months, given spring yield results. the conditions we arguably in and get Just terms of the best some summer of

So right now. we're peak that hitting

outlets our what And constantly then evaluating we're and it. we're demand our and And sales cycles looking at are.

opportunity believe feel match any we're sit seeing driven an how So meant margin not But our go to And our really growth. to where ability approach yes, confident there's just we or for our and we sales by stunt now. improve we in it's adjustments, demand kind to we and the of profile. we're the demand X. pricing And like us

We'll of to our opportunities look starting production to take sales leverage capacity capabilities side then our up. operate that on advantage to planning are extra ability and domestic and ramp at use for the international

Michael DeGiglio

want we make Quebec. that production we enough meet Yes. insurance we're demand, have decision we when that always to operating sure this But the have capacity X, in as we as you there. took Delta just we other account would mean one know, you that we be now for And have And into Quebec we're we thing. I too. to in I -- a would made know, facility

Andrew Partheniou

on ask If you more Delta like half X? would the X, to Understanding on of this the half question turn still have that follow-up can decide other what one you just other here. of I see you to before Delta

Stephen Ruffini

the if money net same gross Sunfarms Pure Steve. paying more excise We -- with paying this like tax than results. on government, Andrew, and between we're We're tax we're the at our look regime. paying plus, to our the would The difference change see them in you is that's our employees, plus, our a all excise plus.

excise current tax and an ROI regime It's on the as media written is -- the the press, working current have based on very on in government, social for rates. it's basis its as and others a difficult interest moneymaker

If not cash net do you love look on our business, pencil math, it the but in Canadian we'd tax current at to the with cannabis the excise current excise place. and the return at wouldn't tax which you regime can just

Michael DeGiglio

needed -- of already Yes. of we've And that capital to X, we put money. I half would add that spent costs the most Delta second the

for burden that to huge a be in us wouldn't it put So production.

not looking at worthwhile all capital we we're already doing once. was invested it. it really So have on a it And since return

the and to for it's You the don't equipment cheaper want conversion. you to need order all remobilize

margins can that. we justify. up Canada, could just in tax catalyst the much are the there's for could higher. a because do excise no triples, International be international situation hard to be ramping for said, it's So and that But if us as we've

Operator

turn will I end the Michael call. now the to DeGiglio like session Q&A to conference for this closing for back And remarks. would the

Michael DeGiglio

and very feel just to thank for want the I XXXX participation we're for and today, going. direction confident we your everyone

thanks May. today participating Chris. to you, and look everyone Thank with in for chatting So forward

Operator

conclude all will for today's participating. call. This Welcome. you conference Thank

disconnect, you. now pleasant and a Thank may day. have You

Village Farms International (VFF) 9 Mar 232022 Q4 Earnings call transcript