VFF Still One of the Best Pot Stocks

While most analysts have been talking about the sky-high valuations of many cannabis stocks and why the industry has been selling off, there are still marijuana companies actually doing well. Village Farms International Inc (NASDAQ:VFF) is one of them.

Even after the broader market sell-off in May, VFF stock is still up 240% year-to-date, and it looks like the stock will continue to be one of the best-performing cannabis stocks in the second half of 2019.

Delta, British Columbia-based Village Farms has successfully transitioned into one of the largest seed-to-sale cannabis producers in North America. The company’s revenues are up and it’s actually profitable. And with the help of its joint ventures (JVs) and partner greenhouses, Village Farms is increasing its production.

With that in mind, Village Farms stock will be one of the most interesting cannabis stocks to watch over the next year or two.




Village Farms International Inc Overview

Village Farms’ “Corporate Profile” page, which starts out describing the company as “one of the largest producers of premium quality greenhouse tomatoes, bell peppers and cucumbers in North America” isn’t very captivating if you’re a cannabis investor. (Source: “Investor Relations,” Village Farms International Inc, last accessed July 24, 2019.)

But keep digging. It’s the company’s decades of experience as a large-scale, low-cost greenhouse grower that is turning it into a cannabis juggernaut.

The company owns 8.3 million square feet of greenhouse assets: 2.6 million square feet in one facility in Delta and 5.7 million square feet at four facilities in Texas.

Through its 50/50 cannabis JV, Pure Sunfarms, Village Farms has two facilities that cover 2.2 million square feet in British Columbia. It also has partner greenhouses in Mexico (more than 1.7 million square feet), British Columbia (3.0 million square feet) and Ontario (3.0 million square feet). (Source: “Village Farms July 2019,” Village Farms International Inc, last accessed July 24, 2019.)

Earlier this month, Village Farms announced that Pure Sunfarms reached a full production rate of 75,000 kilograms (165,347 pounds) of dried cannabis at its 1.1-million-square-foot “Delta 3” greenhouse in British Columbia. (Source: “Village Farms International Announces that Pure Sunfarms Achieves Full Run-Rate Annual Production at Delta 3 Operation,” Village Farms International Inc, July 11, 2019.)

Pure Sunfarms, which is one of the largest cannabis producers on the planet, was profitable in the fourth quarter of 2018 and first quarter of 2019, with the Delta 3 greenhouse far from full production.

Pure Sunfarms has begun converting its second 1.1-million-square-foot greenhouse, “Delta 2.” The first harvest from Delta 2 will be by the middle of 2020, with full production by the fourth quarter of 2020.

Pure Sunfarms’ production is expected to double to 150,000 kilograms (330,700 pounds) in 2021.

What about the “Delta 1” greenhouse? It has a conservative production yield in excess of 180,000 kilograms (396,832 pounds).

Pure Sunfarms has an option on the 2.6-million-square-foot Delta 1 facility, which is actually owned by Village Farms. That option expires in September 2021. (Source: “Village Farms July 2019,” Village Farms International Inc, op. cit.)

On top of that, Village Farms announced that its JV for hemp production, Village Fields Hemp, has planted approximately 600 acres in North Carolina, South Carolina, and Virginia. It expects to begin harvesting in August, with initial sales of hemp biomass in the fourth quarter of 2019.

Village Farms’ JV for hemp production and processing in Arkansas and Colorado, Arkansas Valley Green and Gold Hemp, has planted 120 acres in Arkansas and Colorado, with the first harvest expected in October 2019.

Arkansas Valley Green and Gold Hemp will begin processing crude cannabidiol (CBD) oil in early 2020. (Source: (Source: “Village Farms International Announces that Pure Sunfarms Achieves Full Run-Rate Annual Production at Delta 3 Operation,” Village Farms International Inc, op. cit.)

VFF Stock Information Market Cap $537.9 Million 52-Week High $18.10 52-Week Low $8.50 Shares Outstanding: 49.1 Million Float 38.5 Million 50-Day Moving Average: $11.44 200-Day Moving Average: $12.42

(Source: “Village Farms International, Inc. (VFF),” Yahoo! Finance, last accessed July 24, 2019.)

Village Farms stock was actually one of the best-performing cannabis stocks in the first half of 2019. It entered the year trading at $3.18 and hit a new 52-week high of $18.10 on March 22, for a year-to-date gain of 469.1%.

The stock gave up some well-deserved ground to short-term profit taking, which unfortunately coincided with the marketwide sell-off in May. It might have been the worst May on Wall Street since 2010, with the S&P 500 tumbling 6.7%, but VFF stock ended the month down less than one percent.

Like the broader cannabis industry, Village Farms stock cooled off a little in June, but it has rebounded over the last week or so and is up 240% year-to-date.

Chart courtesy of StockCharts.com

Strong Q1 Results

In May, Village Farms announced that its revenue for the first quarter increased 26.4% year-over-year to $37.3 million. This total includes a $5.4-million contribution from Village Farms’ 50% share of Pure Sunfarms. (Source: “Village Farms International Reports First Quarter 2019 Results,” Village Farms International Inc, May 9, 2019.)

Pure Sunfarms’ net income for the first quarter of 2019 (before Village Farms’ 50% share) was $8.6 million, or $0.15 per share. That compares to a loss of $1.1 million, or $0.03 per share, in the same prior-year period. First-quarter revenue at Pure Sunfarms tripled on a sequential basis to $10.8 million. This represents the second consecutive quarter of profitability at Pure Sunfarms.

Analyst Take

Village Farms International Inc has been having a great year, and VFF stock is bucking the industry trend. The company’s Delta 3 facility will reach its full run rate this year and is expected to deliver strong revenue and ongoing profitability in 2019.

The Delta 2 facility will double Pure Sunfarms’ production output, and Pure Sunfarms’ option on Delta 1 provides Village Farms with even more potential. So too does the company’s JV for outdoor hemp cultivation, Village Fields Hemp.