What happened
Shares of Village Farms International (VFF -4.79%) were moving higher today after the produce grower turned cannabis grower posted a solid first-quarter earnings report. As a result, the stock was up 10.2% as of 11:15 a.m. EDT.
So what
For much of its history Village Farms was a humble fruit-and-vegetable grower, but its network of greenhouses attracted attention from the cannabis industry, and in 2017 the company formed a joint venture with Emerald Health Therapeutics (EMHT.F), known as Pure Sunfarms. Investor enthusiasm for the JV's potential has led the stock to more than triple this year.
Image source: Getty Images.
Today the stock tacked on more gains when the company said Pure Sunfarms' revenue tripled to $10.8 million in the quarter on a sequential basis. Unlike most cannabis companies, Pure Sunfarms is profitable, as the JV reported a profit for its second straight quarter at $8.6 million, though that benefited from a $6.1 million gain on the valuation of its cannabis crop at the end of the period.
Without that gain, the JV still would have had a $6 million operating profit. Overall the company reported a per-share profit of $0.16, driven by a gain on an asset sale; it reported a per-share loss of $0.03 the year before.
Village Farms said the company continues to make progress at its Delta 3 facility, beginning planting in Quadrants 1 and 4, meaning the entire 1.03-million-square-foot facility is in production. It also said it's on track to reach full run rate annual production of 75,000 kilograms by mid-2019, and with the Delta 2 facility, it expects to have 150,000 kilograms of annual production by 2021.
CEO Michael DeGiglio said, "We are thrilled to report that our Canadian cannabis joint venture, Pure Sunfarms, delivered its second
consecutive quarter of profitability. ... The success of the Delta 3 facility, with quality, yield and cost continuing to meet expectations, and the resulting ability to rapidly achieve profitability, is further evidence of the considerable advantage of building a premier, large-scale, vertically integrated grower on the foundation of the people, capabilities and know-how of Village Farms -- a foundation that can only be achieved through decades of operational experience."
Now what
Considering the cannabis venture is profitable, Village Farms shares are arguably cheap, as the company is still only valued at $600 million, much less than some of its rivals. Like much of the cannabis sector, however, it carries plenty of risk, especially considering how high and how quickly the stock has jumped this year, and the long-term uncertainty in the industry, as oversupply could crush prices for growers. And, as my colleague Sean Williams points out, the company's yields look lower than the competition's right now, and it has yet to secure buyers for most of its product.
