Village Farms International, Inc. (VFF) Q2 2021 Earnings Call Transcript

Village Farms International, Inc. (VFF -3.65%)
Q2 2021 Earnings Call
Aug 09, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to Village Farms International's second-quarter 2021 financial results conference call. This morning, Village Farms issued a news release reporting its financial results for the second quarter ended June 30th, 2021. 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 intent and will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. Details of how to access the replays are available in yesterday's news release. Before we begin, let me remind you that forward-looking statements may be made today during and after the formal part of this conference call. Certain material assumptions were applied in providing these statements, many of which are beyond our control.

These statements are subject to number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward-looking statements. A summary of these underlying assumptions, risks, and uncertainties is contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10-K, MD&A for the year ended December 31st, 2021, on Form 10-Q for the quarter ended June 30th, 2021, which are available on EDGAR. These forward-looking statements are made as of today's date and, except as required by applicable securities law, we undertake no obligation to publicly update or revise any such statements. I would now like to turn the call over to Michael DeGiglio, chief executive officer of Village Farms International.

Please go ahead, Mr. DeGiglio.

Michael DeGiglio -- Chief Executive Officer

Hey. Thanks, Ennis. Good morning, everyone. With me for today's call is Village Farms' chief financial officer, Steve Ruffini.

And I'm very pleased to have with me Pure Sunfarms president and CEO, Mandesh Dosanjh, who is at our corporate headquarters here in Orlando for management meetings and will join us for Q&A at the end of the call. So I would encourage anyone who has some questions for Mandesh to ask them on this Q&A portion of the call. Excited to have you here. For today's call, I'll spend a few minutes highlighting the key takeaways for the quarter, most notably the continued strong sales momentum at Pure Sunfarms as well as the benefit to our bottom line of operating at scale.

Steve will then review the financial results, and I'll return with some concluding thoughts about why, as Village Farms' largest shareholder, I continue to be so confident in our ability to drive continued value near term, medium, and long term. And then we'll open the call to your questions. So starting with Pure Sunfarms. Q2 was a record quarter since entering the retail branded market for the fourth quarter -- in the fourth quarter of 2019, so almost two years ago.

Record retail branded sales were up 22% sequentially, our fourth consecutive quarter of 20-plus percent growth and 135% up year over year. Record total sales -- net sales were up 38% sequentially and 70% year over year. And a record adjusted EBITDA since launching our retail branded products in October '19, up 165% sequentially and 264% year over year to CA$9.1 million. At the top line, the same two drivers that I've discussed on prior calls continued to propel our growth, which continues to outpace the broader cannabis market.

Each of these drivers are the result of conscious decisions as part of our go-to-market strategy under the leadership of the Pure Sunfarms management team, which continues to prove itself to be the best in the industry without any doubt. The first is our decision to initially focus on the dried flower segment of the market, in which we knew we would have a significant competitive advantage and could excel out of the gate to establish our everyday premium brand with consumers and generate near-term cash flow and profit. So using Ontario as a proxy, dry flower, including pre-roll products still account for more than 70% of all recreational sales on a dollar basis, and that has been remarkably stable for the past several quarters. But what's even more compelling is the continued dollar growth in these categories.

Combined, dry flower and pre-roll products grew $30.2 million just from Q1 to Q2. That's 5 times or 6 million in growth from the three largest 2.0 categories combined. Even on a percentage basis, dried flower and pre-rolls meaningfully outpaced the major 2.0 categories. On top of this, industry profit returns in this category are still sorting themselves up.

All of this is not to diminish the importance of size of the opportunity in the 2.0 market, but these market trends support our calculated decision to focus first on flower, the biggest opportunity with the biggest return where we can -- believe we can dominate to build consumer and customer loyalty going forward and hit our 20% goal. The second driver of top-line growth is the overwhelming consumer response to everyday premium products, the foundation of our market share leadership in the dry flower category. For the second quarter, Pure Sunfarms was once again the top dried flower brand within the Ontario cannabis store, and remain the top-selling brand of dried flower for the 21-month period beginning October 2019 by both dollar and kilograms. And I'm very pleased to report that in the month of June, for the first time, Pure Sunfarms is a top-selling licensed producer of dried flower in Ontario by both kilograms and dollar value, a performance repeated in July as well.

I'd like to say that again, Pure Sunfarms as a single brand, so more dry flower in Ontario in June and July of this year than any other licensed producer. We know there has been plenty of discussion about consolidation and owning multiple brands to achieve market share in Canada. But as a Village Farms shareholder, I like the economics of growing market share organically, especially with these results and the valuations others are paying for the consolidation. I'm also pleased for the first time to comment publicly about the market share performance for Pure Sunfarms for both Alberta and British Columbia, our second and third largest provincial markets.

We are comfortable sharing that particular data, which is from a group called Buddi cannabis retail solutions provider because it is compiled from actual sales data from a broad sampling of retail stores in each province, providing an accurate reflection of overall performance in each province. It is the same data we use to manage the business in each of these provinces. The Buddi data shows that Pure Sunfarms is also the No. 1 flower brand by dollar sales in each of Alberta and British Columbia.

And not only for the second quarter of this year, but in every month going back to October of last year, which is as far as back as we have the data. Not surprisingly, our brand and product strategy, which has been so successful in Ontario, is also successful in Alberta and BC. Our Q2 results also benefited from a good quarter for non-branded sales as we took advantage of a number of strong margin generating sales opportunity in the quarter. As a reminder, our nonbranded sales must meet our profitability threshold as well as make sense within the contents of our retail branded strategy and competitive strategy.

As many Canadian cannabis businesses are still shifting strategies and trying to find their place in the ecosystem, we expect to continue to see more variability in our non-branded sales from quarter to quarter, but we like how we are positioned and we like the returns from this business. Perhaps most importantly, Q2 was also a quarter that clearly demonstrated the earnings power of Pure Sunfarms as we benefited from the delta three facility operating at full capacity throughout the quarter, in a quarter that I will remind you benefited from the longer spring and summer days in both terms of yield and lower energy costs. But it's not just about economies of scale. With each quarter, we continue to get better and more efficient to continue to strengthen our everyday premium experience for consumers.

In cultivation, we are engaging and enhancing bud size flower quality through improved cultivation and processing techniques, and we continue to learn, refine, and leverage our improvements. And around processes, we are doing proprietary work in key areas such as drying at scale, as well as enhancing controls and consistency of execution. And we are extending our competitive advantage through innovation. We recently made technology advancements in pre-roll production, enabling us to significantly increase output, which contributed to a threefold increase in our pre-roll sales within the Ontario cannabis store from Q1 to Q2.

And then we had a record month in July as well. And I will note, with expanded margin due to production efficiencies, we have developed a new proprietary vape formulation through extensive sensory evaluation work to specifically address consumer wants, and we are consistently focused on strain development through pheno-hunting and our 1.1 -- 2.2 million square foot of greenhouse area with a particular focus on high-THC strains, some of which will be launched in the coming months. All in, Q2 is an outstanding quarter for Pure Sunfarms, not only for its continued strong operational, financial, and market share performance but for the investment groundwork that this performance means for the quarters to come. So before I turn to our produce results, I want to take a moment to be clear about the importance and value of those operations to the future of Village Farms, especially in light of the variation in the produce finances over the past 18 months.

Our U.S. produce operations include four high-tech controlled environmental greenhouses, more than 5.5 million square feet with a replacement value greater than $300 million, an exceptional, experienced growing team, and labor force and years of operational experience with the specific facilities, not dissimilar to our Canadian assets. They are located in one of the best growing climates for cannabis in the continent of the United States. They can, and I firmly believe they'll become one of the largest and lowest-cost cannabis production facilities when we are permitted to operate in the high-THC cannabis market in the U.S.

This is right out of the strategic playbook and you can see how we are executing the strategy in Canada. With the benefit of our Canadian experience, our internal modeling forecast that these four U.S. facilities are capable of generating at least $1 billion in annual revenue for Village Farms in the high-THC product category. Strategically, we like the underlying value of this option and manage the produce business, targeting breakeven EBITDA to preserve this optionality.

Turning to product performance. Q2 was another strong quarter operationally, and we continue to see the benefits of improvements that we have made in the past year and a half or so. We are also benefiting from our experience and learnings we have gained also so important in agriculture in managing the brown rugose fruit virus that has impacted tomato crops worldwide, which has negatively impacted our production in the last two years. And multiple breeding programs are underway by multiple seed companies to build in resistance in the short term ahead.

Still, we are -- we continue to see with some of the weakest tomato pricing for certain key categories in the past decade as grocery store traffic dwindled and the reopening of away-from-home dining. Industrywide demand dropped off while supply reflected planning decisions made during the lockdown period. There are signs, however, that tomato pricing is trending back toward normalized pre-pandemic levels and with our operational improvements and additional leadership, I remain confident that the produce business will achieve its targeted breakeven EBITDA contribution and maintain optionality to leverage this business for higher returns in cannabis in the future. Recently, we had a new leadership in our produce business, appointing industry veteran, Eric Janke, as executive vice president of sales and marketing.

Eric will be responsible for overall productivity and effectiveness of the produce sales and marketing team with a particular focus on driving overall sales performance and will also support the corporate team in capitalizing emerging opportunities in the broader controlled environmental agriculture sector. Eric brings to us more than four decades of experience in fresh produce and grocery industry, including more than 20 years at an executive position. I'm thrilled to have Eric on board. I'd now like to turn the call over to Steve to talk through financial results in summary.

Steve?

Steve Ruffini -- Chief Financial Officer

Thank you, Mike. Before I begin discussing results, I would like to remind everyone that our Q2 2021 results reflect the full consolidation of the Pure Sunfarms business, which we fully acquired in November 2020. As we did in Q1, we have provided segment reporting historical 2020 and current 2021, too. A reminder that as we have done in prior quarters, we have provided the Pure Sunfarms results on a stand-alone basis, which is helpful context as we discuss current business trends throughout this call.

Turning to results. Consolidated sales for the quarter were $70.4 million, which compared to $47.6 million in the year-ago period. The 48% increase in sales was primarily driven by the addition of Pure Sunfarms revenues, offset by a slight decrease in produce sales. Net loss for the quarter was 4.5 million, as the positive contribution from Pure Sunfarms was more than offset by ongoing pricing pressures in the produce business, as well as a 1.4 million one-time incremental electricity charge resulting from the text ice storm in February, which I will discuss in more detail shortly.

Adjusted EBITDA of 1.6 million was driven by a close to 200% sequential increase in adjusted EBITDA for Pure Sunfarms to $7.4 million for the quarter. Our adjusted EBITDA loss of 3.9 million in the Produce business fell short of our breakeven EBITDA target and masked our more positive trends in cannabis. Turning to business segment results. As Mike has previewed, Pure Sunfarms had an excellent quarter.

Q2 sales were $24.7 million or CA$30.4 million, which were up 136% from Q2 2020 and up 38% versus Q1 2021 using Pure Sunfarms functional currency Canadian dollars. For the fourth consecutive quarter, Pure Sunfarms retail branded sales grew more than 20%, actually 22% sequentially. So in one year, retail branded sales more than quadrupled to $18.3 million or CA$22.5 million for this quarter. The increase in retail branded sales between sequential periods was largely attributable to continued demand for our everyday premium products.

Additionally, many provinces began their COVID-19 reopening plans and capacity restrictions decreased, particularly in Ontario, which helps spur demand in the latter part of Q2 2021. Large format comprised roughly 52% of our flower sales in Q2 versus large format of 48%, essentially the inverse percentages of Q1, which, in part, is the reason for our improved quarter-on-quarter gross margin as small format has a higher gross profit than large format. Wholesale or non-branded sales also increased this quarter to $6.4 million or CA$7.9 million, 121% sequential increase versus Q1 2021. As we have noted before, as Mike has mentioned, wholesale sales are opportunistic and most make economic and strategic sense for our branded business, so they will vary from quarter to quarter depending on available supply and demand from other LPs.

Pure Sunfarms gross margin was a strong 40% in the quarter at the top end of our target range. Benefiting from an increase in retail branded sales at higher margins due to a percentage increase in small format, the delta three greenhouse facility operating at full capacity for the entire quarter, which reduced our cost per gram produced and a nice gross profit on our non-branded revenues in Q2 as compared to Q1. Since completing the acquisition of the entirety of Pure Sunfarms, we have been required to record a large inventory, noncash write-up in cost of sales for Pure Sunfarms in our statutory results in order to comply with acquisition-related to fair value accounting rules. The right of impact was meaningful -- has meaningfully decreased in this quarter to 133,000 versus 2.8 million in Q1 2021, essentially as we've worked through all of the flower inventory that existed on the acquisition date in November 2020.

As we stated in prior quarters, this is a noncash charge that should be adjusted for when analyzing the actual operational results of Pure Sunfarms. Adjusted EBITDA of 7.4 million or CA$9.1 million was the 11th consecutive quarter of positive EBITDA and also was a record since the launch of retail branded sales in late 2019. I commend Mandesh and the Pure Sunfarms team as they drove this record profitability from the combination of higher net sales, a stronger gross margin, and good cost control management. As they say in hockey, that's a hat trick.

Going forward, as our retail partners return to more normalized selling environments, I would expect SG&A to trend higher in order to support our point of purchase sales and to continue our increasing market share, especially in flower. Turning to produce. Mike has mentioned the difficult pricing environment for tomatoes, which certainly impacted results. In addition, in late May, we were presented with an extraordinary electricity bill related to the unprecedented Texas storm.

You might remember that in February, these storms caused major problems with the electricity grid, leaving the Texas regulator, ERCOT, to declare an emergency alert level. During the five-day emergency period, the real-time pricing for electricity was more than hundred times higher than normalized February pricing. Our Texas operations use a small amount of power to run our operational systems, but the maximum pricing of $9,000 per kilowatt-hour resulted in incremental electricity expense of 1.4 million over our normal electricity rates for this period. The original invoice, which we received in late May, was for a considerably higher amount.

But after a complete audit and negotiations with our power provider, it was settled and paid in late July -- late June. We were -- We've included more background about this extraordinary expense, including our plans to mitigate future price instability in the MD&A filed today. As Mike mentioned, our Texas-based operations are strategically important to us, and we want to commend the team for maintaining and operating facilities during those five days, which was no small feat. During the quarter, produce sales decreased 4% year over year, with higher production volumes offset by lower pricing as the tomato industry experienced one of the lowest pricing environments in the past 10 years.

While pricing is driving lower sales and profitability this quarter, we are seeing higher production volumes as a result of ongoing efforts to improve growing efficiencies. There are also indications that pricing is moving back to historical levels. However, year-over-year comparisons remain challenging through Q3 2021 as Q3 2020 pricing benefited from the 2020 COVID impact on tomato demand with retailers. That said, we are expecting to be back to breakeven produce EBITDA for the back half of 2021.

Produce adjusted EBITDA was a loss of 3.9 million, which excludes the 1.4 million incremental electricity expense in Texas. While this is a wider margin than we target, the team continues to work on efficiencies, including increasing partner grown produce, which sets us up for the strategic redeployment of the Texas greenhouses when appropriate. I want to underscore Mike's comments relating to the significant cannabis optionality in our Texas operations. These are assets that the team is managing with an ongoing target of breakeven EBITDA.

Some periods by 2020, when demand and pricing were favorable, will be better than breakeven. Other periods like Q2 2021 when pricing is at 10-year lows will be more challenging to hit this EBITDA target. That said, the team manages for production efficiencies every day, which continues to position both our growing capabilities and our Texas operations as one of the best options for us to enter high-THC in the U.S. when legally allowed.

Finally, a few other highlights. In May, we experienced -- we exercised our remaining option to increase our equity investment in Altum to just under 12%. The investment in Altum, one of Asia Pacific's leading CBD platforms, represents an efficient means for Village Farms to participate in opportunities in this region. During the quarter, we purchased 428,000 common shares at an average price of $9.30.

Under our normal course issuer bid, which we announced in May, as a reminder, our decision to purchase shares under this program is opportunistic and consistent with our broader capital allocation strategy. As of June 30, 2021, we had 155 million of working capital on the balance sheet, of which 114 million is readily available cash. We've also extended the duration of our operating line of credit. And filed a universal shelf registration to take advantage of benefits only available to well-known seasoned issuers when strategically prudent.

The combination of a strong balance sheet, continued growth, operational efficiencies, and a very committed workforce and management team put Village Farms in a position for a strong and prosperous future. And now I'll turn the call back over to Mike.

Michael DeGiglio -- Chief Executive Officer

Thank you, Steve. Village Farms remains firmly on track to continue the successful execution of our strategies for near-term, medium, and long-term growth and value creation, always in the context of prudent capital allocation decisions and a focus on return on investment. In the near term, Pure Sunfarms business clearly has momentum, sales, profitability, market share, and has quickly established so as a leader in the Canadian retail cannabis market. But Pure Sunfarms is really just getting started.

Importantly, our growth over the past year has been achieved without adding any new provincial markets. Adding Quebec, the second-largest provincial market remains our top priority. And let me just say that we would not have added that until we turned on delta two because we need to satisfy our customers day in and day out. And with all of our products moving to the other provincial governments, we really need the delta two to come on, which it is next month.

This has only been achieved with very modest contribution from 2.0 products as well. And that category is still very small, but with exciting long-term growth and profitability in which we are and will participate. It has been achieved in a very congested market in which marketing and advertising is not permitted, and we have achieved our results against the backdrop of the most difficult retail environment in our lifetimes. All of this is what continues to give us great confidence in our decision to expand production.

To this end, during the quarter, we received approval from Health Canada to begin cultivation of delta two. The license increases our capacity of nearly 1.7 million square feet from the 1.1 million when we continue now with the second half of delta as completed, we'll increase our capacity to 2.2 million square feet. We will begin planning the first half of delta two next month with our first harvest targeted for November. As we ramp delta two production up, as always, we'll be prudent in our production decisions growing what we can sell to continue to effectively manage inventories.

Now I'll take this opportunity to remind you that as we look longer term, we have an additional 2.4 million square feet of production area on the same side as our delta one greenhouse, which we can rapidly convert to grow cannabis to meet future demand as the cannabis legal market continues to grow and as international opportunities continue to develop. Importantly, for our future cannabis endeavors, Pure Sunfarms business has performed very much as we planned and expected it to. The results of our decades of experience in controlled environmental agricultural growing, leveraging our existing high-performance operations, and approaching the retail market in a prudent, thoughtful, and strategic manner. Our unmatched performance in Canada provides us with an undeniable advantage as we pursue our opportunities in strategically targeted markets around the world.

In the United States, we're encouraged by the federal cannabis recently brought forward by the Senate leadership. We view it as an integral step in the process of regulatory change that will allow Village Farms to participate in the high-THC cannabis market in the U.S. As I've discussed on prior calls, we have identified potential pathways to participate in the high-THC market in the U.S., and we continue to refine multiple strategies that will enable us to move swiftly and aggressively to leverage our success in Canada for the largest cannabis market in the world. These include specific strategies that will enable us to participate in the cannabis market ahead of any conversion of our Texas assets.

As I mentioned earlier, our Texas greenhouse operations represent at least $1 billion of high-THC cannabis sales to Village Farms when we can enter that market. We are optimistic that we can continue to see this progress in the months to come and are planning accordingly. Also, internationally, we believe our capabilities and experience in Canada, the first federally legal recreational cannabis market in the world, will be invaluable as we strategically target selected emerging high-growth potential markets for investment, again, with a focus on return on investment. Our Asia Pacific-focused partner, Altum International, which recently we increased our investment and continues to build its initial market in Hong Kong expects to move into new markets in the near term.

Europe, of course, continues to be a major focus area for us. And to support the pursuit of that opportunity, we recently added Orville Bovenschen to lead our European cannabis business in the newly created position of vice president of European business development operations. Orville joined Village Farms' business development operations team with specific responsibility for new business and operational activities in Europe in the cannabis sector. Orville is originally from the Netherlands has deep cannabis experience, including operational expertise honed in Canada through a large part of the Pure Sunfarms team.

And he has extensive relationships in the sector in Europe as well. It is very early days for the European market. Returns are still challenging for the early players, but we do think this market has a significant opportunity, and we expect to be a meaningful participant in that market. I'm also pleased to welcome Cynthia [Inaudible] to our corporate team in the newly created position of Corporate Legal Counsel.

Cynthia has a critical role as we continue to grow and expand our business, especially as we pursue our U.S. and International cannabis opportunities. She has -- brings public experience, both on New York Stock and TSX listed companies having overseen legal responsibilities for M&A, public financing transactions, and joint venture agreements among others. Before I open the call to questions, I'd like to take an opportunity to properly introduce Mandesh.

As many of you know, Mandesh joined Village Farms after working for the Ontario liquor board where he played a key role in establishing Ontario cannabis store, which as you know, manage the distribution of cannabis for the retail market in Canada's largest province. I suspect he may have had many opportunities when he decided to join Village Farms, which speaks to our mutual collaboration. We owe a great deal of the success of Pure Sunfarms to Mandesh and an exceptional team. Their knowledge of the Canadian consumer, the market, the competitive landscape of what we have enabled us to translate to the best growing operations in the country into the best brand in the country.

I live by the credo that results matter, and Mandesh and his team have delivered those results. So operator, we can turn it over to questions now.

Questions & Answers:

Operator

Thank you. [Operator instructions] Your first question comes from Aaron Grey with Alliance Global Partners. Please go ahead.

Aaron Grey -- Alliance Global Partners -- Analyst

Hi. Good morning, and congrats on the very nice quarter. And Mandesh, great to have you on, and congrats to your success over at Pure Sunfarms. So first question for me.

So nice job with market share and increasing that with flower, especially with the growing flower segment that we have been seeing. Now we're starting to hear a number of peers looking to increase their offerings of high-THC strain-specific products. So through that lens, I want to get your input in terms of where you see the flower category evolving over the next six to 12 months and how you see your guys positioned as other people look to see your success and try to replicate some of those things? Thank you.

Michael DeGiglio -- Chief Executive Officer

OK. I'm going to let Mandesh answer that call. Go ahead, Mandesh.

Mandesh Dosanjh -- CEO, Pure Sunfarms

Thanks, Mike. Appreciate it. Thanks for the question, Aaron. So where do I see the flower industry going? I think the trends you're seeing today will carry on, and those are high-THC for sure, pricing is still going to be an important factor, and consumers like newness, and they like variety.

So I think what's important for us is to keep doing what we're doing. It's probably not an overly glamified answer, but it's just staying in the course, consistently executing, making sure our products are readily available and we're getting national distribution, and just continuing to work with our retail partners to make sure our product is on shelf and available. And so to give customers high-THC everyday pricing, and then what do I continue to see is you've got to be in stock and you've got to have the product available. And we got to follow that up with new strains and new availabilities and we've been doing that.

We've launched a few new strain-specific products in the last couple of quarters. We just launched some things this past week, and we're going to continue to do that. So it's going to be a mix for us of being in stock every day with some of our leading SKUs as they look at Pink Kush being the No. 1 product in Canada.

We've got to continue to make sure that's available. But then following that up with great strains that customers want. So it's still going to be price and potency and all the factors that go into making a great product from terpene levels to moisture content to bud size and density, making sure you're really giving that bag appeal to customers. So those are the trends we're seeing.

That's what customers are valuing and we're going to continue to be there. So hopefully, that answers your question.

Aaron Grey -- Alliance Global Partners -- Analyst

No, that's great. That's really helpful. Thanks for that. Second question for me then, just to kind of continue on that, particularly for Ontario.

A market where you guys are doing really well and we had a couple of weeks ago that apparently, they're pushing out in order to laying somewhere they were taking new products for some time, given your existing SKUs seems to be performing very well with your market share. Can you speak to how that might put you in an advantaged position in the near term as Pure Sunfarms Farms continues to have products outperforming there might be limited opportunity for others to introduce new SKUs? Thanks.

Mandesh Dosanjh -- CEO, Pure Sunfarms

Yes. Aaron. Mike sent it back over to me. Absolutely.

OCS has adjusted their product call, which we know. At the end of the day, they're trying to run the business like a regular retailer and a regular CPG business. I think the amount of product calls and how often they were looking at assortment and changing things in and out, to be honest, it causes havoc, causes habit with their systems and their processes, listing things to the warehouse. Even on the retailer side, their buy sheets, their order sheets, understanding what's available, what's not, what's new.

It just creates a lot of havoc in the supply chain. So we fully expected and are aligned with what the OCS is doing. And it's how regular CPG and regular retail works. I think looking at launching a bunch of new SKUs going into holiday just never works for anybody.

It's just not the way regular retailer businesses run. So we commend them. We are working in lockstep with them. How does it impact us? For sure, I think you made a comment, our SKUs that perform well there are going to remain performing well, and we're going to keep them in stock.

So there's -- our base business isn't affected by it. It doesn't limit opportunities for new SKUs to go in. I mean, we always think six, 12 months out. We're continually looking at the pipeline and communicating with all of our customers at all the provinces about what's coming.

So for us, it's just keeping that communication and dialogue open. Alberta and BC have different -- and Saskatchewan and Manitoba obviously has different protocols on how you list products. So for us, it's just planning correctly and making sure we're in locks up with how Ontario is doing their product calls and when those new dates are. But we don't anticipate any impacts to our business, and there's definitely some benefits in that our base SKUs will continue to perform and sell-through.

Operator

Thank you. Your next question comes from Andrea Partheniou with Stifel GMP. Please go ahead.

Andrew Partheniou -- Stifel Financial Corp. -- Analyst

Hi. Good morning. Congrats on the great quarter and thank you for taking my question.

Michael DeGiglio -- Chief Executive Officer

Good morning.

Andrew Partheniou -- Stifel Financial Corp. -- Analyst

Maybe just to start off on the home province of Quebec here. Could you talk a little bit more about how that conversation is going? To the extent that you can maybe provide some timing on when do you think that you could enter being it's your top priority? And lastly, assuming you do enter, could you talk a little bit about your strategy, maybe both on products and pricing? Will you -- do you see yourself doing anything differently in Quebec than you do in your other provinces?

Michael DeGiglio -- Chief Executive Officer

I'll start out and then I'll ask for some color from Mandesh as well. So look, Quebec has been a top priority. And clearly, the only reason we haven't pursued it prior was that when we -- we want to sort of dominate the areas we're in. We want to provide our customers with all the products they need and never be short.

And with the delta three greenhouse, you can see in the numbers that across Canada, including Ontario, Alberta, British Columbia, that really takes the bulk of our capacity. So to go into Quebec and not really have that horsepower behind us, so to speak, with delta two would have just been premature. Now that delta two is up and running, we start planning out next month. That just doesn't make Quebec a priority.

It makes it a reality. And I would just say we're going to coincide being in Quebec as our plan with first cultivation of delta two and are limited to that. As you know, Quebec is a limited market compared to other provincial governments as far as product -- the products that can be sold. There's no edibles and so on.

So flower really dominates in Quebec, and it dominates with us as we just discussed. Mandesh, do you want to provide some color?

Mandesh Dosanjh -- CEO, Pure Sunfarms

Yes. So I can answer the second part to your question, which was around what would be our strategy and approach. Our approach has been very national. And so parts of it won't change for Quebec.

However, we also need to be very cognizant that Quebec is a different marketplace. And before we do anything, we'll work -- obviously, we've established the plan and what our plan is, and Mike has given some color around that. But whenever that time comes, we'll then work with our partners, the board, whoever we decide to work with there in the province and making sure that we're rightsized on assortment, on price, on offering, and branding, of course. So lots to come, but I would tell you not to expect something drastically different, but we want to make sure that we connect with consumers and we do the right thing for the customer, in this case, the SQDC, and have the right approach there.

Andrew Partheniou -- Stifel Financial Corp. -- Analyst

Thanks for that great color. And maybe just switching gears on the existing market that you guys have now. We've heard recently from other producers that there's been a trend toward more flower recently. How do you see that going forward? Do you think that's sustainable? And obviously, perhaps tying that back with your production increase.

You mentioned that a big part of that strategy is with Quebec. But obviously, there's ongoing market expansion in Ontario as well with the stores coming online. Just a little bit of color there, please.

Michael DeGiglio -- Chief Executive Officer

Well, one, with ramping up to another one -- so we're doubling our capacity by this time next year, we'll be at 2.2 million square feet from 1.1. So -- and for those saying that flowers selling more, I don't understand that. I mean flower has always been dominant. These numbers have always been there.

So I'm not sure what others are saying. Those numbers have been north of 70% nationally all along. So we are in -- we have an array of 2.0 products, as I mentioned on my remarks. And we will and are participating, and we see some traction.

But regarding Ontario specifically, Mandesh, do you want to make some comments on that?

Mandesh Dosanjh -- CEO, Pure Sunfarms

Yes. And I just want to make a comment on the statement about flower. I think where -- and remain potentially going is we're seeing more people, more competitors, offer flower SKUs. And you're asking us what do we view on that? I mean, I think people are just realizing what we've always known.

That this game, cannabis, this industry, it's all about flower. I mean, cannabis is flower. And we've looked at mature markets across North America and seeing that, yes, concentrate some of these 2.0 products, they make up some sizable amounts of the business. But flower will always be king or queen, however, you want to term it.

So I'm not surprised that other companies and people are moving into the flower space because it's where the puck has always been and will be. And so that's always been our strategy. So for me, for us to see other people doing more things around flower, it's not surprising. And it's, I think, also proving that there's not enough money to be made in some of those other derivative-based products and pricing will commoditize out on those as well.

In Ontario, absolutely. Seeing the store growth, seeing the store count go up, it's very promising, continues to put -- give us good wind in our sales. And at the same time, there's still a huge opportunity in Ontario. There's no significant swaps of what I call retail deserts.

Mississauga open stores, Vaughan, Markham, millions of consumers still don't have access to stores in their areas. So we're excited. We're excited to continue to see what's happening in Ontario and the ongoing store growth. And we think that a lot of those stores will hit with flower and we'll continue to see pull-through and sell-through of our products.

So excited for what's ahead.

Michael DeGiglio -- Chief Executive Officer

Yes. And Mandesh was smiling as he was making those remarks on flower because that's providing validation to us that we always knew and others may, I guess, just didn't have their model right to begin with. So thanks, Andrew.

Operator

Thank you. Your next question comes from Rahul Sarugaser with Raymond James. Please go ahead.

Rahul Sarugaser -- Raymond James -- Analyst

Morning, Mike, Steve, Mandesh.

Michael DeGiglio -- Chief Executive Officer

Morning.

Rahul Sarugaser -- Raymond James -- Analyst

Morning. Thanks so much for taking my question and Mandesh, great to have you on the call. And congrats on all of you gentlemen. Terrific, terrific quarter.

So yes, I'll start to take the opportunity to ask them Mandesh a question. So a few of my questions have already been asked, but really now with the 40% gross margins, this flower that you're talking about is really dominating the market. And as competition starts to really build, even though they are behind you, they will sort of try to nip at your yield. How are you trying to really be defensive in the space and keep your elbow out, defend your market share, particularly given, Mike, you mentioned that many of your competitors are growing by acquisition, whereas you have opted to do the more valuable organic growth.

So I guess my question really is how are you planning to really defend your space, particularly as retail opens?

Mandesh Dosanjh -- CEO, Pure Sunfarms

Thanks for the question, Rahul. I think it's a good question. How do we defend what's ours and how do we continue to grow. I mean at the end of the, we look at what the consumer wants.

And to us, it's -- we got to make sure we're continuing to execute on product quality. So all the things that Mike mentioned in his opening dialogue about things we're doing around drying, looking for new strains, trialing those strains. We have a great quarter. We're happy with the macro results, but we never stop pushing ourselves and looking at what's possible.

So quality, strains, products, we have to continue to do those things and we will keep doing them and giving the consumer what they desire. So that's the first part is around product and product quality. We'll never stop innovating and looking at what consumers want. I think the other piece is on retail sell-through.

So we love the position we're in. The brand is getting a ton more traction than it ever has. I spend as much time as I can in stores and going into dispensaries and talking to budtenders. You say Pure Sunfarms and their eyes light up and they smile because they love the brand, they love the product.

Where I think we have some opportunity is making sure that brand awareness and product awareness is in more stores, but also making sure stores are taking advantage of our full product offerings. I think we have opportunities to make sure the stores know what's coming, what's available, but also just recommending some products and making sure they get more of our offering in stores. And so our win -- our next steps are more on the micro-adjustments and making sure we're following up with those stores, really working with the board to make sure we're getting distribution and following up with the stores to make sure they're ordering the right inventory levels. The brand, the product quality, the price, everything is there.

Steve talked about hat tricks. I think we're checking all the boxes in the eyes of the consumer and the customer because of our strength of supply chain and our strengthened product quality. We just got to keep executing on that and following through. So our build and path forward is much different than our competitors, but it's just continued execution in our supply chain.

Rahul Sarugaser -- Raymond James -- Analyst

Thanks a lot, Mandesh. So now my second question is sort of panning out and looking sort of Canada U.S., particularly one thing we try to do is really illustrate to our clients how the cannabis business is really the growing business. For those less familiar with the story, the produce business can be a little confounding. Steve, you talked a lot about how those costs this quarter are likely to settle over the next half of the year.

So I guess, one important factor or reflection point will be when cannabis sort of transcend -- cannabis revenue transcends produce revenue. Do you have an estimate of approximately when that will be? And I'll squeeze in a part B to that question, given that your Produce business has really, really strong retail connections in the U.S. like Trader Joe's, Walmart, Whole Foods, leveraging those relationships as and when the U.S. opens up to be able and drive it to those channels.

Michael DeGiglio -- Chief Executive Officer

Well, so as I mentioned, we've been working diligently on entering the U.S. market, which is not going to wait for the conversion of the Texas assets. We see that as a huge advantage for us. We don't think we're behind because unlike Canada, U.S.

market has established itself without being federally legal. And we think that's going to drive change in the supply chain. And when that happens, we truly believe large-scale, low-cost, premium quality, shipping it interstate will eventually rule in that market. And that won't happen overnight, but we're patient about it.

Not to mention, as I said, Texas is behind by far the other states, but it still represents a market as large as Canada in and of itself. That said, upon legalization, there will be other ways that the supply chain will work, including online commerce. And cannabis to us is as much a segment of health and wellness where we want to participate in as well as high-THC. All under the cannabis umbrella.

So for us, we will be looking at how we get ready for that sooner than later, and I'll leave it at that.

Operator

Thank you. Your next question comes from Scott Fortune with ROTH Capital Partners. Please go ahead.

Scott Fortune -- ROTH Capital Partners -- Analyst

Good morning, and thank you for the question. It's great to have you on the call, Mandesh, with Mike and Steve. Mandesh, maybe you can provide a little more color on the 2.0 products and maybe the slowness of the rollout there and update by consumers in Canada and their uptake there. Is it more been the provincial board side of things? Or is the specific 2.0 categories, they have not accelerated as quickly as thought? We know that the flower, obviously -- high-quality flowers' enhanced demand has been tough to get up in Canada, but your thoughts on how 2.0 products roll out and your initiatives in product categories moving forward for Pure Sunfarms.

Mandesh Dosanjh -- CEO, Pure Sunfarms

Sure. Thanks for the question. So specifically on 2.0, maybe I'll just backtrack slightly. Our view has always been -- it's not about being first.

It's about doing something the best and the best way you can. And so like all things, we weren't the first to the party, and we weren't the first on 2.0. So there's definitely some optimization in the works. So when we think about 2.0, obviously vapes, tinctures, as well as edibles, those are our three main products.

And some of our biggest work lately has been around, and Mike commented it earlier, about some reformulation on our vape side of the business. So our first entry was on the full-spectrum side, strain-specific full-spectrum offerings, really flavorful related to the product. That proved to be a smaller segment of the vape market. Full-spectrum is only about 15% or so.

The bigger part of that vape market is on the distillate, which gives you a higher THC percentage. And we launched one of, if not the highest, vape product. It's a 0.5-gram distillate high-THC, close to 90%. So following that up with a larger format of one gram, very simply, what we did there.

And then we're looking at some reformulations of -- on the distillate side to continue that momentum. So for us, on vaping, consumers are still looking at the same things that they look at the flower side, which is high-THC, best price. So we are launching three new formulations, and those should get out to market in the coming months. And so we'll see how those do.

It's nothing super complicated, but just continuing to look at those formulations and seeing how we can start to win better on the vape side of the business. Our tinctures are performing well. We've always done well with our high-CBD tincture. We've launched a balanced product as well, and we're happy with where those go.

On the edibles side, our all-natural BC fruit juice are vegan. Their gummies are doing really well for us, and we're going to do some kind of adjustments there with formulation of flavors and size and offering. But listen, Scott, it's not as huge endeavor that we're doing. We're going to continue to rightsize those product categories.

We've liked how we're positioned there, and we think there's some opportunity for us to grow in each of those segments. We don't have the same market share in tinctures, in vaping, and edibles that we do on flower, but that doesn't mean we're giving up on it. We're continuing to dial those in with formulations and product offerings. But it's not going to become a massive part of our portfolio and -- but we're going to see where we can take it.

And it's the same thing with high-THC, great price, good offering of product and working with customers and consumers to make sure we get the pull-through at stores.

Scott Fortune -- ROTH Capital Partners -- Analyst

Great, and I appreciate the color. And then maybe just overall, to circle back on Ontario. What are you seeing on the competitive front, especially after kind of the provincial boards have come through their rationalizations here? Are we starting to see less SKUs, less LPs now on the shelves, and that's positioning Pure Sunfarms for obtaining its 20% market share over a longer term? And then just maybe a little bit color on this quarter as far as Ontario, with the stores really ramping up their rollout. Are you looking to maintain your share on the shelf space or even growing that from a market share standpoint?

Mandesh Dosanjh -- CEO, Pure Sunfarms

Yes. So Scott, Mandesh again. I think I'll take it in two parts that you asked. Are we seeing the impact? Not quite yet.

I mean there's still over 100 LPs and thousands -- hundreds, if not thousands, of SKUs there. I think that it's going to take some time for that to sort itself out. Every week, Health Canada continues to send out licenses because people are able to get more operations going, and that's up to them. So I don't think we'll see an immediate reduction of LPs and SKUs.

I think the OCS will take their time on assortment and these protocols. So we're not quite seeing that impact yet. Definitely hopeful that it goes there because I think there's too many to begin with. And it creates a lot of noise in the supply chain and how the OCS buyers need to manage it, the warehouse, even the stores like I mentioned before.

So we're not quite seeing that yet. On the -- how do we continue to grow and win it in OCS? I had mentioned before in one of the previous questions that, for us, it's all about supply chain execution and pull-through at the stores. So we've continued to expand our Ontario sales team. We're still not crazy big like some of our competitors.

We really calculate how much spend and how many heads we hire in the province. But we are expanding our sales team that's on the ground. It's working with retailers day in and day out. And like I said, it's about making sure they understand our full product offering.

Last quarter, we launched a Blue Dream SKU, which everybody said we were crazy to do because it's been in the market forever, yet it was never done our way at our price point and our quality. And now people are realizing that the Blue Dream SKU that we offer is fantastic. But as a good example, some retailers didn't know that. "Oh, Pure Sunfarms has a Blue Dream.

Well, everybody loves your Pink Kush. Let me start ordering that." So those are the type of conversations and dialogues that we continue to have with retailers, to make sure they know what products they can find from Pure Sunfarms. So it's execution on the ground to get that pull-through and get that sell-in because we know that once their customers have tried our products, we continue to be a repeat purchase for them. And then the other piece is just with some digital paid media pieces that we've done.

We did theScore app takeover. We saw some great traction to our website, great traction, and support from our consumers. So it's little things like that as well, Scott is on the digital side. But it's also still in-store, making sure budtenders and the people that are responsible for ordering know what's on the product sheets and that we get the pull-through.

Operator

Thank you. Your next question comes from Doug Cooper with Beacon Securities. Please go ahead.

Doug Cooper -- Beacon Securities -- Analyst

Hi. Good morning, guys and Mandesh, welcome. A lot of stuff has obviously been covered, but -- and I apologize, I have dropped off for a few minutes. Premium pricing, can you talk a little -- premium pricing or everyday pricing -- excuse me, everyday premium excuse me, or that category, can you talk about how the whole industry has moved? How that's impacting the industry? And how much of the market is moving toward that everyday pricing or value price, or however you want to classify it?

Mandesh Dosanjh -- CEO, Pure Sunfarms

Yes. So I'll start off, and then Mike and Steve can chime in. And thanks, Doug. Everyday premium, that's what it's about.

I've been banging the table with the board and my team about people think premium -- just because you price something, doesn't -- higher, it doesn't mean it's a premium product. So what I like to call this is, this is the normalization of pricing. Cannabis pricing was way overinflated from the beginning. And so everybody is talking about this price commoditization.

I call it price normalization. And so I think people are really starting to wake up to the fact that if you want to give customers a product that you're calling premium, it better be worth it. You better have some defining attributes that are highly differentiated to substantiate a price that's above normal pricing. And cannabis has been around for decades, centuries.

People know what eighths and ounces should be costing. They've been buying it from their dealer illicitly. And so to come in with pricing that was completely abnormal, I think, was a slap in the face for many consumers. So you're seeing this price normalization.

I think some people are getting a bit carried away and crazy with it and trying to buy market share, and they're doing it unprofitably. So we like how we're positioned. We've always been leaders in kind of that price-quality ratio that we coin everyday premium. And I think you'll see more of it.

I think you'll start seeing a lot less of people trying to push the boundaries north on pricing. But we know it's coming. We know that there's certain products that will always command a higher price per gram. But we're starting to see this normalization, and we're leading the charge.

And we love how our results are coming together as a result of it. I mean, do you have anything to add to that, Steve?

Steve Ruffini -- Chief Financial Officer

No. It's just the --

Doug Cooper -- Beacon Securities -- Analyst

Sorry, go ahead.

Steve Ruffini -- Chief Financial Officer

No, go ahead.

Doug Cooper -- Beacon Securities -- Analyst

I was just going to wonder if -- maybe not for your price in particular, but if you're seeing the industry, what is the average price for the consumer? From a consumer's perspective, what is the average price per gram done over the past six months?

Steve Ruffini -- Chief Financial Officer

Yes. Doug, I don't have the exact average. But I mean, when I look at our eighth pack of 3.5 grams of just small format, which is a really important SKU for everybody, we've always been in OCS kind of in the mid-20s for an eighth. We've done some small micro price adjustments.

And I think what you were seeing a year ago was everybody kind of being in the upper 20s, if not in the 30s and 40s on the eighth pack -- on the -- yes, on the 3.5-gram pack. And now you're starting to see people move down into that mid-20s, upper 20s, as opposed in the 30s and 40s. And then on the ounce side, we have always been in the kind of 120 -- 119 to $130, depending on whether it was strain-specific or not. And that's another price point that I think LPs are reducing to kind of being south of 150 on an ounce pack.

So whatever that works out to on a per gram basis, that's what we're starting to see is kind of more people play in the 20 to 30, 35 on the 3.5 gram and then everybody kind of be in the 120 to 150 on the ounce pack.

Michael DeGiglio -- Chief Executive Officer

And then profitability is a big part of that, Doug, as you know. Can you be profitable doing that? So --

Mandesh Dosanjh -- CEO, Pure Sunfarms

Yes. And in other provinces, we've seen people get really aggressive. I mean Alberta is a great example, where you're seeing ounces kind of be in that -- as low as 80 or $90. And I just -- it blows me away when I see that because Alberta is actually one of the least profitable provinces because they have additional provincial excise taxes.

And so it's crazy that I see people dropping price that low. I mean we can -- we make healthy margins at all of these price points. I know our competitors do not. So people are out there buying market share and unprofitable in the result of doing it.

Michael DeGiglio -- Chief Executive Officer

That's why they have ATMs.

Operator

Thank you. Your next question comes from Eric Des Lauriers with Craig-Hallum Capital Group.

Eric Des Lauriers -- Craig-Hallum Capital Group -- Analyst

All right. Great. Thanks for taking my question. Congrats on the continued organic market share gains in Canada, and really impressive to see incremental EBITDA margins exceeding 70% with delta three now at full capacity.

So as we look toward the coming quarters, you guys -- delta two coming online. You have those regulators delaying new product calls that we've talked about, and you guys are still looking to enter Quebec. From my view, this should all act as tailwinds to sales and market share gains, but perhaps delta two and Quebec will cause some margin volatility along the way. So was just wondering if you could help us understand how you see all these factors impacting your profitability in the near term.

Michael DeGiglio -- Chief Executive Officer

Steve?

Steve Ruffini -- Chief Financial Officer

The impact of delta two in the near term will have no impact as it gears up. The efficiencies of delta two longer term will actually drive down our cost of production. In the interim period, we don't expect to have any negative impact on our cost per gram with the addition of delta two. With respect to our gross margin profile, going forward, as we said, 40% is the high end of our target range.

We try to operate Pure Sunfarms between 30 and 40%. A lot of that is driven. We had a very nice gross profit on our non-branded wholesale sales in this quarter, materially higher than the first quarter. So that will also be a driver of the blended gross margin for any particular quarter.

So we do expect to continue to operate in the 30 to 40% gross profit percentage every single quarter.

Eric Des Lauriers -- Craig-Hallum Capital Group -- Analyst

All right. Great to hear. I appreciate that color. So drilling into your comments on the U.S.

a bit more. So I appreciate you guys calling out that sales capacity of over $1 billion with the assets you already do have and no need to buy your way into the market like your peers. But you also mentioned that you're looking for additional ways to enter the U.S. beyond these impressive Texas assets.

Mike, you kind of mentioned some online commerce. But I guess, first, if we can kind of drill into that a bit more, which parts of the supply chain would you guys look to get into in the U.S., considering you do already have such significant assets in Texas? Is it on this sort of infrastructure side, maybe something e-commerce? Or would you be focusing on brands? And then secondly, would any investment there be in the form of some of these convertible notes or sort of triggering event deals that we've seen? Or are you guys looking at ways to perhaps get more aggressive than that?

Michael DeGiglio -- Chief Executive Officer

Well, I think -- look, Mackey from Whole Foods is a great example. Upon legalization, he will be selling cannabis within the Whole Foods to cash-out registers. So he's made that comment. And every day, the online commerce of movement of cannabis is tremendous, I mean, here in Florida, where it comes into Colorado every day.

So that's like -- that's going to be a huge component of the market. I don't know if the current model of dispensaries will eventually be -- that will be around for a while. But in the end, will that be the surviving supply chain and retail presence? So for us, we've often said, if Texas, based on the second largest, most populated state, when and if it goes, 30 million consumers there, would we go the normal dispensary route and try to be vertically integrated within the state? Yes, absolutely. And that's game on for everybody.

Nobody has an advantage there today so that's why we call it the Republic of Texas, and that's a unique situation for Village Farms. But I think, interstate commerce, as I mentioned earlier, being able to ship outside of Texas at some point in the future is exciting to us. That said, we are looking for another way to enter the market right now, while we're still restricted on high-THC. And how we do that, I don't want to elaborate on that yet, but stand by on that, Eric.

Operator

Thank you. Your next question comes from Adam Buckham with Scotiabank. Please go ahead.

Adam Buckham -- Scotiabank -- Analyst

Hey. Good morning, guys. Thanks for taking my question. I'll try and be brief because I know it's been a fairly long call.

I wanted to touch on the wholesale market in Canada, in particular, with a focus on Q2 commencing -- or sorry, delta two commencing production. Now it sounds like your decision-making there in terms of spot purchases and sales are more geared toward individual decisions, right? Now as you sort of gain production and this market continues to develop, do you think you'll slowly transition to more sort of take-or-pay sort of contracts with less volatility? Or can you maybe -- can you give us some color on that front?

Michael DeGiglio -- Chief Executive Officer

I'll let Mandesh answer that.

Mandesh Dosanjh -- CEO, Pure Sunfarms

Adam, Mandesh here. Thanks for the question. I mean, we're always open to different forms of contracts, whatever works well and favorably for us as well as our customer, in this case. We have done some take or pays in the past.

I think what we've seen on the wholesale side, Adam, is that a lot of other LPs not really certain on what their path looks like. And I think as we were talking earlier with Doug about pricing and where that's going, I think as the market starts to stable out and stabilize a little bit on the flower side, that's how we view it, I think LPs are realizing that their current cost of production just won't meet the demands of where the customer wants pricing to be on-shelf. And so we're actively -- we're always actively speaking to certain customers about take-or-pay contracts or how we can support them through sales. So I think there are certain folks that would like consistency in their supply chain so that as they launch a SKU and they go to shelf, that they're not left without the needed supply.

And in those cases, take-or-pay work really well. So we're not opposed to those type of contracts, Adam. And if they work out, and it makes sense for everybody involved, we'll look at them.

Adam Buckham -- Scotiabank -- Analyst

OK. Yeah. That's a great color. Then just if we think about where the market is sitting currently, you noted that July was a record month for retail.

Have you also -- it seems like it's also a strong market for wholesale currently. Is that the right sort of -- or what you're seeing at least?

Mandesh Dosanjh -- CEO, Pure Sunfarms

Yeah, and it is. It's a strong market right now, and we knew that this would come as soon as COVID restrictions opened up and stores started selling. I mean there was a lot of stores in Ontario that we saw that got approved and licensed, but didn't want to quite open their door in the middle of COVID. Kind of think about March, April, May and invest all the retail -- all the dollars into inventory and then have to just be solely doing click-and-collect and not having an in-store experience.

So we knew that there were dozens upon dozens of retailers that were just waiting for restrictions to open up. And so obviously, that helped on the sell-through side of our retail products. But we also knew that meant that there would be customers looking for product or product to source immediately. So yes, Q2 was strong for that.

And we continue to see kind of -- we expect some of that strength to remain in the market, maybe not as strong, but we continue to see -- we'll continue -- we expect to continue to see some real good strength on the wholesale side moving forward.

Operator

Thank you. There are no further questions at this time. You may proceed.

Michael DeGiglio -- Chief Executive Officer

OK. We just want to thank everybody for participating today and the support for Village Farms. We're working hard here, and we look forward to our next conversation on the third quarter. Have a great day.

Thank you.

Operator

[Operator signoff]

Duration: 68 minutes

Call participants:

Michael DeGiglio -- Chief Executive Officer

Steve Ruffini -- Chief Financial Officer

Aaron Grey -- Alliance Global Partners -- Analyst

Mandesh Dosanjh -- CEO, Pure Sunfarms

Andrew Partheniou -- Stifel Financial Corp. -- Analyst

Rahul Sarugaser -- Raymond James -- Analyst

Scott Fortune -- ROTH Capital Partners -- Analyst

Doug Cooper -- Beacon Securities -- Analyst

Eric Des Lauriers -- Craig-Hallum Capital Group -- Analyst

Adam Buckham -- Scotiabank -- Analyst

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