Categories Analysis, Cannabis

Village Farms (VFF): Regulatory uncertainty – a major roadblock for US CBD opportunity

The company is preparing to roll out cannabis oil products and new product forms under Cannabis 2.0 in the summer

Village Farms International Inc. (NASDAQ: VFF) reported total sales of $39.6 million for the first quarter of 2020 compared to $38.6 million in the prior-year period. The current quarter results included $98,000 in hemp sales. The company saw a drop in its profitability for the quarter.

With regards to the coronavirus pandemic, Village Farms stated that all its production facilities in the US, Canada and Mexico were operational. However, due to the prevailing uncertainty, the company is unable to estimate the impact of the crisis on its performance going forward.

Pure Sunfarms

As of April 2, Village Farms holds a majority interest of 58.7% in Pure Sunfarms Corp. The company witnessed continued momentum from its joint venture during the quarter.

On its quarterly conference call, the company stated that Pure Sunfarms’ dried cannabis product was favored by consumers in each of the three provinces that it is being sold in. The company sold more dried cannabis in Ontario than any other brand both on a volume and dollar basis.

“The first quarter of 2020 saw significant momentum in Pure Sunfarms’ branded retail sales, with sales to provincial distributors increasing by 118% on a 179% increase in grams sold over the fourth quarter 2019. The significant increase was driven by Pure Sunfarms continued leading dried cannabis market share in Ontario, which was 14.3% for the first four months of 2020 – exceeding 20% in the month of April – as well as expansion into Canada’s second largest province for cannabis sales, Alberta, in late February.” – Michael DeGiglio, CEO, Village Farms. 

In April, Pure Sunfarms increased its share of the Ontario dried cannabis market to 20.4%. The company aims to capture at least 20% of the national dried cannabis market in Canada over the long-term.

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Pure Sunfarms received approval to supply cannabis to the Saskatchewan private retail market and plans to start shipping as soon as possible. Saskatchewan is the fifth largest province in terms of cannabis sales and makes up for over 6% of total Canadian sales. The company is also preparing to roll out cannabis oil products and new product forms under Cannabis 2.0 in the summer.   

US CBD opportunity

In the US, despite the decriminalization of CBD by the federal government, there is a high level of uncertainty with regards to the regulatory environment surrounding the CBD market. Village Farms said that large retail players have put their strategies on hold due to this uncertainty.

The company is disappointed at the lack of clarity from federal and state agencies and believes there is a huge economic opportunity in this market. Despite this roadblock, Village Farms is reviewing market research and product development that will allow it to move forward in the current regulatory environment.

Based on data from Raymond James and Brightfield Group, the global hemp-derived CBD market is estimated to reach $22 billion by 2022 and the US legal cannabis market is projected to reach $30 billion by 2025.

Check out the transcript for Village Farms Q1 2020 earnings conference call here

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