Shares of Village Farms International (VFF), a company that uses hydroponics to grow produce and marijuana, fell a dramatic 20.5% on Monday. The big news was the company's earnings, which were mixed, at best.
From a top-line perspective, Village Farms saw growth of 63% thanks to its move into the cannabis space. That division went from zero revenue to $17.4 million. The core hydroponics produce business, meanwhile, saw revenue grow 9% to roughly $34.9 million. All in, the company's revenue in the first quarter of 2021 was about $52.4 million. None of this would seem to be bad.
The real problem was below the top line, with adjusted EBITDA falling 63% from $1.1 million to just $400,000. The majority of the weakness showed up in the produce operations, based on historically weak tomato prices. In addition, the company's branded marijuana sales were up 20%, but its nonbranded sales fell 49%. So even in the company's fast-growing cannabis operation, the picture was somewhat mixed. On the bottom line, Village Farms lost $0.10 per share in the quarter, down from a profit of $0.08 per share in the same period of the prior year. There were more nuances to the earnings update, but clearly it wasn't good enough to satisfy investors, many of whom obviously chose to sell the shares on the news.
There's one more issue that's important with regard to Village Farms International: investor sentiment. Although even after today's drop, the stock is up around 150% or so over the past year, its gain was as high as 450% at one point in February. A changing view of the marijuana sector is a big piece of that, since the company's hydroponic produce division isn't likely to inspire the huge price gains or losses seen over the past year even though it is still two-thirds of the business.
In other words, Village Farms is a story stock, and it appears prone to the buying and selling of often-mercurial investors. Unless you have strong feelings about the long-term future of the marijuana industry, where the company still plans material investment, it's probably best for most conservative investors to avoid this roller coaster ride for now.