Village Farms (NASDAQ:VFF) ranks as one of the best-performing marijuana stocks so far this year. While many of its peers have seen their shares plunge into negative territory, Village Farms stock has doubled year to date despite giving up much of its gains from earlier in 2019.

The company announced its third-quarter results after the market closed on Thursday. Here are the highlights from Village Farms' Q3 update -- and why the results might not be quite as bad as they look.

Cannabis growing in a greenhouse

Image source: Getty Images.

By the numbers

Village Farms reported third-quarter revenue of $38.3 million from its core produce business. This reflected a 3.5% year-over-year decline. The company also announced net sales of $18.1 million for its Pure Sunfarms joint venture with Emerald Health Therapeutics (OTC:EMHTF). Village Farms receives 50% of those sales. 

The company's net loss in the third quarter totaled $5.1 million, or $0.10 per share. This was worse than Village Farms' net loss of $2 million, or $0.04 per share, in the prior-year period. In addition, the company absorbed a net loss of $0.9 million from its stake in Pure Sunfarms. 

Village Farms announced an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $2.4 million in the third quarter, including positive EBITDA from Pure Sunfarms of $5 million. In the prior-year period, the company posted an adjusted EBITDA loss of $2 million.  

Behind the numbers

While produce still generates the bulk of Village Farms' total revenue, the company has become increasingly dependent on the contribution from Pure Sunfarms. And with the produce business struggling somewhat, the spotlight definitely is shifting to the cannabis joint venture.

The problem for Village Farms is that Pure Sunfarms' sales went in the wrong direction compared to the previous quarter. This occurred even though Pure Sunfarms began selling cannabis to the Ontario Cannabis Store in the latter part of the third quarter.

There's an asterisk to the decline, however. Emerald's supply agreement with Pure Sunfarms mandates that the company buy 40% of the joint venture's production at a fixed price. This agreement states that Emerald must pay Pure Sunfarms the difference between that fixed price and the price for any of the cannabis that it didn't purchase per the contract.

Pure Sunfarms billed Emerald $7.2 million for the third quarter related to this agreement. If this amount is added into the joint venture's total revenue, Pure Sunfarms would have delivered around 5% quarter-over-quarter revenue growth. But Emerald doesn't think it actually should pay Pure Sunfarms for the difference in the fixed price and the actual selling price. This is causing a major dispute between Village Farms and Emerald.

Looking ahead

Village Farms faces the same challenges that other Canadian cannabis producers are dealing with. Canada's number of retail stores remains lower than expected, which is hurting recreational marijuana sales. On the other hand, Pure Sunfarms, like other companies, should benefit from the cannabis derivatives market that will kick into full swing beginning in mid-December.

Michael DeGiglio, Village Farms' CEO, said that the company is "on track to begin operating profitable hemp sales as early as the fourth quarter of this year" from its U.S. outdoor hemp operations. He added that the company plans to launch its white-label and own brands of hemp-based CBD products next year.