Most marijuana stocks have fared well over the past one-and-half-years. So if you have already picked up a few of them, well and fine. But there is one small pot stock that has been doing exceptionally well and has attained a growth of 285% in the year-to-date period. Whether you buy it or not, it is necessary that you be aware of it.
Village Farms International (NASDAQ: VFF) has existed for a long time without much fanfare. The Delta, Canada-based company founded in 1989 produced vegetables in its greenhouses – until in 2017 when it signed a game-changing deal with Emerald Health Therapeutics, a cannabis producer.
Today, the joint venture between the two companies – Pure Sunfarms – operates one of the world’s largest cannabis greenhouses, Delta 3, at East Ladner in British Columbia. With over 1 million square feet of growing space, the greenhouse has an annual production capacity of 75,000 kilograms.
The 50-50 JV is also developing another similar facility called Delta 2, which is expected to double the production capacity to 150,000 kilograms. This sister facility is expected to be fully operational by the end of fiscal 2020, thus propelling Village Farms into the elite club of top producers.
There has been no stopping the company since the JV with Emerald Health; it has been rampantly increasing production by means of inking joint ventures and partnerships. In March, the company announced a deal with South Georgia-based Nature Crisp to expand operations into the US cannabidiol (CBD) market. The JV plans to expand hemp cultivation into more states in the future.
The company today inked another deal, with Arkansas Valley Hemp to form a JV for the outdoor cultivation of CBD hemp and CBD extraction in Colorado.
What makes it worthy of consideration?
The first reason is that it is pretty cheap, as compared to other high-flying pot stocks. Despite the soaring stock price, the company still has a market cap of only around $660 million. The rapid production expansions give the company plenty of headspace to grow in the budding marijuana industry.
Village Farms’ ability to create profits is another reason that makes this stock attractive. During the first-quarter of 2019, Pure Sunfarms reported $8.6 million in profits. This was the second consecutive profitable quarter for the JV. Even though there were over $6 million in one-time gains, the company still posted bottom-line in the green side.
Revenues for this period tripled to $10.8 million, sending the stock up almost 15%.
That said, VFF should not be seen as a low-risk stock. As it goes with all high-growth stocks, Village Farms comes with its own share of associated risk factors. Since the stock has shown the ability to make big gains in a short span, you may expect to see a free fall if things go terribly wrong.
Perhaps the biggest failure on the side of Village Farms is its inability to seal many supplier deals. Besides its parent company Emerald Health, Pure Sunfarms has supplier deals with the Ontario Cannabis Store and a couple of others.
Keep in mind that the cannabis industry is prone to oversupply and long-term uncertainty. Unless and until the JV secures enough supplier deals, it would remain vulnerable in the event of a supply glut.