Exclusive Interview with Village Farms President and CEO Michael DeGiglio
Village Farms (NASDAQ: VFF) President and CEO Michael DeGiglio Last Talked to New Cannabis Ventures in 2022 . In 2023, the company posted positive EBITDA for its 17th quarter despite tough conditions in the Canadian cannabis market.
The company has agricultural products and cannabis businesses. Cannabis now makes up 50% of his business, and DeGiglio expects that number to grow this year. He spoke to New Cannabis Ventures about the company’s cannabis operations in Canada, its operations in the United States, and its international exports.
Listen to the full interview or read the summary below.
Village Farms firmly holds the #2 position in the Canadian cannabis market. This year, the company budgeted about C$90 million in taxes in the Canadian market, which is close to 40% of its total revenue. According to DeGiglio, his ability to maintain positive EBITDA in that environment is a clear sign that the company’s business model is working.
Most of the company’s growth in Canada is organic. British Columbia converted property holdings used in production operations to cannabis. In November 2021, we acquired Rose LifeScience and entered the Quebec market. According to DeGiglio, the company has since gone from 12th to 2nd in market share.
The company started its cannabis business in Canada under one brand, Pure Sunfarms. We started our business with a flower-first strategy. It is now the top LP of the top flower brand. Last year, the company launched more brands, including Promenade, Original Fraser Valley Weed Company and Soar.
It took a long time for Village Farms to obtain EU GMP certification. We are now leaning towards our ability to export medical cannabis to international markets. According to DeGiglio, export profit margins are much higher, contributing to the profit margin profile of Canadian cannabis businesses.
The company has been shipping products to Australia for over a year and is steadily increasing every quarter. We recently made our first shipment to Israel. For years it has been working to ship to Germany and is now on the verge of doing so.
Village Farms is also one of ten companies and the only North American company licensed in the Netherlands. We plan to start production for the recreational market by 2024.
Presence in the US market
The company has a presence in the US market through its wholly owned subsidiary, Balanced Health Botanicals. Regulations still need to be clarified, but DeGiglio believes in the potential of his CBD. He points to Balanced Health Botanicals’ strong management team and his EBITDA positive for the company. He sees great market potential if the FDA can provide a clear explanation and the company can pursue mass-market retail.
Village Farms has assets in Texas under the Agricultural Products Business umbrella. In 2022, DeGiglio told New Cannabis Ventures that these assets could be converted to cannabis once federal legalization takes place in the United States. We are selling our Permian Basin facilities.
That decision was partly due to the facility’s remoteness from its core business in Texas and challenges in the produce business. In 2022, the brown wrinkle virus affected tomatoes. Seed companies are working on resistant varieties. Meanwhile, the company had to manage the impact on its agricultural business.
Outlook for M&A
Although there is little need for M&A in Canada, the company is open to potential in other markets. The company may consider M&A for him as it evaluates its entry point into the US market. As more recreational markets open up in Europe, we’ll look at options there as well.
DeGiglio believes in the importance of diverse entities. He is bullish on both agricultural products and cannabis. As a Nasdaq-listed company, Village Farms cannot participate in the U.S. cannabis market. The company has no plans to spin out its cannabis assets into a separate entity, although it is considering a different structure for the company going forward.
Capital markets continue to be tough for the cannabis industry. When DeGiglio last spoke with New Cannabis Ventures, institutional investors made up about 30-35% of the company’s investor pool. Since then, their numbers have declined.
Village Farms completed a $25 million direct offering earlier in the year. According to DeGiglio, the company’s ability to raise equity straight in this environment is indicative of the company’s track record. The company ultimately sold its shares at a price below its tangible book value. It was a tough decision, but the company was concerned about macroeconomic issues. Its main purpose was to protect shareholders.
Going forward, the company will not need more capital for its Canadian operations, even if it chooses to expand its second facility in Delta, British Columbia. Outside of the Netherlands, DeGiglio said the company has not used its capital much.
The future of village farms
The company focuses on year-over-year growth versus quarterly growth. DeGiglio points to the seasonality of the cannabis industry. Although the company’s sales are flat and declining quarter by quarter, year-over-year he delivered 25% growth, outpacing market growth. The company is focused on solving today’s challenges and emerging as Canada’s top three LP.
DeGiglio expects the Canadian cannabis market to grow in the high single digits in 2023, and the company’s goal is to keep pace with that growth. Beyond that, international exports are likely to be a key driver of growth over the next three years. We plan to leverage our capabilities as a business owner.We are also focused on achieving positive cash flow.
Regulatory uncertainty remains the biggest challenge for the company. According to DeGiglio, it’s difficult to bet on a market with unclear rules. Now that the rules are clear, the company is betting big in Holland. He believes that companies can operate in any environment if they understand how to manage regulations.
For more information, visit the Village Farms website. Listen to the full interview:
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