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This Junior Cannabis Company Stands Tall Over Its Competitors

By Jeff Little – Oct 30, 2021 at 8:27AM

Key Points

  • The company's 136% sequential quarterly revenue growth leads all cannabis operators.
  • In addition, it had four consecutive quarters of greater than 20% revenue growth.
  • It's also had eleven consecutive quarters of positive adjusted EBITDA.

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Among those with quarterly revenue between $12.5 million to $25 million, Village Farms is the one to watch.

In comparing quarterly revenue among cannabis companies there is a vast range, including smaller dispensaries generating less than $12 million, to the big four vertically-integrated multi-state operators (MSOs), Curaleaf, Green Thumb Industries, Trulieve, and Cresco Labs, with quarterly revenue above $200 million. 

In between the two ends of the spectrum sits a group of cannabis companies that aren't generally noticed by the market and pull in quarterly revenue below $25 million. At the top of this middle category stands Village Farms International (VFF -1.70%). And it's not just the revenue number that makes it the top of its tier. There is plenty more for investors to be excited about.

View of cannabis plants from the ground up.

Image source: Getty Images.

Sequential quarterly revenue growth is a positive sign

Touted as the only publicly traded greenhouse produce company in Canada, Village Farms is primarily known for operating agricultural greenhouse facilities that produce, market, and sell tomatoes, peppers, and cucumbers -- not exactly your run-of-the-mill cannabis company. But in 2017 it took on that role, and now operates one of the largest cannabis grows in the world, under the British Columbia-based Pure Sunfarms brand. 

It also owns two joint ventures targeting multi-state outdoor hemp cultivation and cannabidiol (CBD) extraction, recently bolstered by its acquisition of Balanced Health Botanicals in August. Balanced Health is a profitable leader in the CBD space and provides the company with an additional avenue into the U.S. high-THC-level cannabis market.

According to the Public Cannabis Company Revenue & Income Tracker, managed by New Cannabis Ventures, and based on September financial reports, Village Farms sits atop the junior cannabis companies tier, squeaking in just under the senior grouping -- revenue above $25 million -- with a quarterly revenue of $24.8 million.   

Not only does Village Farms sit at the top of the junior category for quarterly revenue, but the company also boasts the largest increase in quarter-over-quarter sequential revenue growth. What's impressive about the sequential revenue growth rate of 136% is that it is tops for not only the junior category of cannabis companies, but also the senior group including the aforementioned top four.

In its second-quarter results reported on Aug. 9, the company highlighted 22% sequential quarterly revenue growth, marking the fourth consecutive quarter of 20+% growth. The company also reported a 192% sequential increase in earnings before interest, taxes, depreciation, and amortization (EBITDA) -- the eleventh consecutive quarter of positive adjusted EBITDA -- for the Pure Sunfarms brand.

That brought in a company record $7.5 million for the quarter, driven by the dried flower market, which makes up 70% of the brand's total retail sales. Supported by excellent second-quarter growth, it enabled the company to hit 135% year-over-year revenue growth on a same-quarter comparison.

Once obstacles clear, blue skies should provide robust future growth

Using its experience of operating successfully in the Canadian cannabis market, Village Farms is expecting a large boost to its total revenue once the U.S. market for high-level THC opens up -- assuming it does open up. As of now, the regulatory changes necessary to allow the company to take advantage of this market continue to be debated within the Senate and House, though hints of blue skies for federal legalization are shining through as of Oct. 1, when the House judiciary committee approved a bill to federally legalize marijuana.

Village Farms continues to benefit from its strong foothold in the Canadian market. However, it will likely need these regulatory changes in the U.S. to compete with the Curaleafs of the world. In 2020 Village Farms made good progress in preparing for future growth by nearly doubling its cash, going from $11 million in 2019 to $21 million in 2020.

But when compared to the likes of Curaleaf, Trulieve, and the other top names, it pales in comparison. Those companies have cash reserves in the neighborhood of $75 million to $150 million, allowing for faster growth and larger expansion through major acquisitions.

In anticipation of legalization, the company is looking toward a future of legalized hemp cultivation in Texas from which it can produce new revenue using its 5.7 million-square-foot facility, currently used for growing and distributing fresh produce. The expectation is that its Texas greenhouse operations can provide the company with an opportunity to generate $1 billion in cannabis sales in the U.S. market.

Standing strong in the face of growing cannabis 2.0 product launches

Dried flower still accounts for over 70% of consumer spending on cannabis in Canada, though its dominance is dropping from a level closer to 80% as more products are introduced through the lines of edibles, vapes, and extracts. Those three newer cannabis 2.0 segments now account for over 20% of the cannabis market in Canada. 

According to cannabis analytics firm HiFyre, Pure Sunfarms leads the pack in the market share of the Canadian flower market. Village Farms CEO Mandesh Dosanjh sees levels continuing to drop but is confident that the continued growth in the overall market, combined with the largest market share, will allow the company continued success, making it a junior cannabis company standing tall among its competitors.

Jeff Little owns shares of Green Thumb Industries. The Motley Fool owns shares of and recommends Cresco Labs Inc., Green Thumb Industries, Trulieve Cannabis Corp., Village Farms International Inc, and Village Farms International, Inc. The Motley Fool has a disclosure policy.

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