Village Farms International Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 11 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to the Village Farms International's Second Quarter 2024 Financial Results Conference Call. This morning, Village Farms issued a news release reporting its financial results for the Q2 ended June 30, 2024. That news release along with the company's financial statements are available on the company's website at villagefarms.com under the Investors heading. Please note that today's call is being broadcast live over the Internet and will be archived for replay both by telephone and via the Internet beginning approximately 1 hour following completion of the call.

Operator

Details of how to access the replays are available in today's news release. Before we begin, let me remind you that forward looking statements may be made today during or after the formal part of this conference call. Certain material assumptions were applied in providing these statements, which of which are beyond our control. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward looking statements. A summary of those underlying assumptions, risks and uncertainties is contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10 ks MD and A for the year ended December 31, 2023 and 10 Q for the quarter ended June 30, 2024, which will be available on EDGAR and Cedar Plus.

Operator

Those forward looking statements are made at today's date and except as required by applicable securities law, we undertake no obligation to publicly update or revise any such statements. I would now like to turn the call over to Michael Digilio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DeGiglio.

Speaker 1

Thank you, Tonya. Good morning and thank you for joining us today. With me are Steve Ruffini, Chief Financial Officer Ann Gillan Lefebvre, Chief Operating Officer and Patti Smith, Corporate Controller. So Q2 was another strong quarter for Village Farms with record consolidated sales driven by Canadian cannabis, which reported a new quarterly sales record and fresh produce, which tied its 2nd highest quarterly sales in the last 5 years. I'm very pleased with the continued growth in Canadian cannabis, which is broad based across our brands, form factors and geographies.

Speaker 1

Total net sales grew 45% year over year, all organically without acquisitions to $56,000,000 Branded retail sales grew 35 percent and we were once again profitable with positive cash flow from operations of CAD7.2 million. In Q1, we noted that we had the fastest growing market share of the top 5 Canadian LPs. In Q2, we were the only top 5 producer to grow share, the only one. We are now less than 2 percentage points from the number one market share rank in Canada. Importantly, our market growth is diversified across leading brands, multiple cannabis form factors, consumer segments and geographies.

Speaker 1

Let me give you a few examples, which show the depth of our business model. We are the fastest growing producer in pre rolls year to date. In just the last 12 months, with investment in innovation and a renewed focus on assortment and pricing, our brilliant team has expanded our share on the national pre roll market by just under 3 percentage points to nearly 8% of the market. Our game changing high def pre rolls remain a true innovation in the category and we are also gaining share through our focus on quality inputs across all of our pre rolls. Super Toast, our mill flower brand continues its outstanding performance despite the mill category being very competitive with a well entrenched leader.

Speaker 1

It's the 3rd fastest growing brand nationally despite selling in just 4 provinces and growth is accelerating. We have 20% share of the mill category nationally, 25% in Ontario, and that's despite launching just 1 year ago. We have a 94% repeat purchase rate among our consumers. In May, Super Toast Sergeant Pineapple took over as the top mill skew in Ontario. This is a great example of extending our quality and into new categories that resonate with our consumers.

Speaker 1

We are also building share across different consumer price points. In the premium segment, our store brand continues to excel. Strong performance in flower is being complemented by innovation in the infused pre roll category. SORRIS Pineapple God is the 4th best selling premium SKU nationally. Finally, we continue to innovate in flower with new strains that delight our consumers.

Speaker 1

We had the number one flower products nationally in both Q1 and Q2 of this year. Our Fraser Valley, Donnie Berger and Pure Lane Big Pleasures were in that category. We recently launched 3 new cultivars in British Columbia under our Grower led, Trials by Pure Sun Farm strategy, with its unique limited release small batch offerings. In addition, our new in house bred Pure Sunfarms Cushkat strain derived from 2 Village Farms iconic parent strains, Pink Cush and Pineapple God and our new Pure Sunfarms Gold Face drain have each added meaningful to market share with demand outstripping initial expectations. Another important metric is the geographical ranking, which tells us our products are resonating across Canada's many consumer preferences.

Speaker 1

We are strengthening our number 1 and 2 position in Ontario and Quebec. We are now tied to the number 2 rank in British Columbia moving up 2 positions in the last year. And in Alberta, we improved our rank to 4th, that's up 4 positions from 8 this time last year. And we are also growing our international export business. Q2 was another good quarter with solid contributions from Germany and the United Kingdom as these countries ramp up and become an increasingly bigger proportion of our export sales.

Speaker 1

Notably, in Germany, we have seen higher demand following the regulatory change there in April. Sales to Australia overall are growing. While those reported as international sales decreased from Q2 last year, total Australian sales including those that get reported as non branded due to the nature of the customer grew fourfold from Q2 last year. Our flower strategy has proven successful in Canada and is now doing the same internationally. In the Netherlands, we are just months away from the start of production for our Dutch consumers.

Speaker 1

The program recently completed its start up phase, expanding the number of municipalities in the Netherlands which legal cannabis can be sold in coffee shops from 2 to 10. I just returned from there and I am so impressed with the build out. It's an incredible facility and I'm very excited about our future in the Netherlands. We look forward to our first sales in Q1 2025. Now turn to fresh produce, which also delivered strong sales growth despite temporary pricing pressure on the back half of the quarter.

Speaker 1

Steve is going to provide more detail, but I would like to highlight a couple of trends that set this business up for an improved second half as pricing recovers. First, our gross margin for the 1st 6 months of the year has improved by over 150 basis points despite the pricing challenge. The underlying cost structure continues to improve and second volumes are stronger, which will drive improved results as pricing recovers. This quarter, we added more partner sales than we had and we had higher yields in our Texas operations. Both are important to maintaining the value of our fresh business with our customers and consumers to be able to share assets with our cannabis strategy.

Speaker 1

In short, we are expanding our asset light growth strategy in fresh to supplement our cannabis plans. A question I get asked is why invest in fresh produce? The answer is simple. The business has great value as a top 5 North American produce marketer and a rollout of permissible cannabis in the U. S.

Speaker 1

Either NASDAQ permitted or Texas based is taking longer than we predicted in the last 4 years. Our excellence as operators stem from our deep cultivation expertise. I'll turn the call over to Steve now to review the financials and come back. Steve? Thanks, Mike.

Speaker 1

Starting with our consolidated results. Total sales grew 19% year

Speaker 2

over year to 92 point $1,000,000 strong top line growth in both Canadian cannabis and fresh produce. Net loss was $23,500,000 or $0.21 per share compared with a net loss of $1,400,000 last year. This quarter's net loss breakdowns as follows: approximately half or $12,000,000 was a non cash impairment charge on our U. S. Cannabis business.

Speaker 2

Roughly a third or $8,300,000 was driven by our produce business due to poor market pricing, which I will give more color on. And $2,100,000 was due to incentive stock compensation issued in the quarter. Consolidated adjusted EBITDA was negative $3,600,000 compared with negative $1,100,000 for Q2 last year, excluding the $5,600,000 settlement of a legal matter that contributed to our prior period produce results. Let's look at the business segments starting with Fresh Produce. Q2 sales increased 7% year over year to $47,000,000 equaling our 2nd best quarter in the last 5 years due to higher volumes at our Texas greenhouses and the strategic addition of third party volume, which were partially offset by pricing.

Speaker 2

Tomato pricing swung dramatically lower in the back half of the quarter, driving a larger than expected operating loss. Adjusted EBITDA was negative $6,400,000 For context, prices in May June were 31% lower than January in the January to April period and 11% below our forecast. Historically, May June pricing is around 20% lower in the 1st 4 months of the year due to the seasonality of industry supply. Our ongoing focus efficiencies and yield expansion drove a meaningful improvement in our gross loss for the first half of the year. In fact, on our own produce facilities, without an incremental Q2 third party supply loss, we would have been very close to breakeven a breakeven gross margin for the 1st 6 months of the year.

Speaker 2

Just a reminder that we strongly encourage analysts and investors to look at our produce business the way we do on a full year basis. As quarterly adjustments in cost of sales can distort any quarter due to the accounting for our annual crop cycle. With the current improved pricing environment, partially due to seasonality and partly due to supply issues within the industry, coupled with further improvements in our cultivation technologies, including AI, we expect significantly improved performance for fresh produce for the balance of 2024. Canadian cannabis delivered another quarter of record sales record retail branded sales and a strong quarter for non branded sales. These drove another quarter of positive adjusted EBITDA and operating cash flow of CAD 7,200,000 Importantly, this cash flow is enabling us to self fund our 1st Netherlands facility and funded the acquisition of the additional 10% ownership of Rose during the quarter.

Speaker 2

Total net sales grew 45% year over year to CAD55,800,000 Retail branded sales grew 38 percent to CAD41,800,000 Non branded sales tripled to CAD11,300,000 as we continue to be opportunistic in the improved B2B pricing environment to reduce non branded spec biomass inventory and generate cash. This has become an interesting opportunity as other operators continue to shutter production and move to asset light models. We will continue to take advantage as long as it makes sense for our branded and international sales channels, which will always come first. It was another good quarter for international export sales, which were $2,100,000 up 11% from Q2 last year. The first half of this year has been our best period for ongoing international sales to date, excluding those periods with load in to new countries.

Speaker 2

We remain on track to deliver solid year over year growth this year. Canadian cannabis gross margin improved from Q1 to 26%. Excluding low margin non branded spec B2B sales, gross margin for Q2 was 28%, reflecting a higher proportion of value brand sales, mostly Fraser Valley and Pureline as compared to prior year. SG and A expense as a percentage of sales for Q2 improved to 20 2% or 28% driven by higher sales. Q2 adjusted EBITDA for Canadian cannabis was $6,600,000 was in line with Q2 last year.

Speaker 2

Before moving on from Canadian cannabis, I would be remiss if I didn't point out the significant excise taxes we are paying as we expand our branded business. Our excise tax for Q2 was CAD 27,000,000 and for the 6 months was CAD 54,000,000 by far our largest single expenditure for our cannabis business. Very few can build sustainable profitable business in Canada with such a tax. An excise tax of 30% to 40% is a burdensome tax in any industry, let alone a young and developing industry. Until there is change, we will continue to see CCAA activity occurring within the industry with thousands of jobs lost or continued creative ways for some to try to circumvent their unpaid excise taxes.

Speaker 2

Supply is not only drying up in Canada due to some moving to asset light models, but others are simply going dark due to the burdensome excise tax. Turning to our U. S. Cannabis business. Q2 sales were $4,300,000 with a gross margin of 61%.

Speaker 2

Our sales continue to be impacted by the proliferation of unregulated hemp based products, most notably synthetic products, and in response a growing number of states that are severely restricting intoxicating hemp based products to essentially ban synthetic hemp products, which in turn has negatively impacted our responsible GMP produced natural hemp products sold under our CB distillery brand. During Q2, we completed the internalization of gummy production to support margin, quality and future innovation for this consumer preferred format. We are progressing on multiple initiatives to reinvigorate our sales, recognizing the consumer needs clear messaging about the use of synthetic cannabinoids. Q2 adjusted EBITDA was negative $240,000 with a net loss excluding the $11,900,000 intangible asset impairment of $303,000 both were improvements over Q1. Turning to consolidated cash flows sheet.

Speaker 2

We generated cash flow from operations of $5,700,000 compared with the use of cash in operations of $5,200,000 in Q2 last year. The primary driver of the improvement was the reduction in our cannabis inventory. For those that read our financial statements, our finished goods cannabis inventory is down 30% since the end of last year. We ended Q2 with cash of $29,700,000 and working capital of 6 $100,000 Total term debt at the end of Q2 was $44,000,000 split approximately equally between fresh produce debt due May 2027 and cannabis debt with maturity starting in February 2026. During the quarter, we amended and extended the agreement for our $10,000,000 revolving line for fresh produce, which has a current balance of $4,000,000 with a May 2027 maturity date.

Speaker 2

We also have in place a Canadian $15,000,000 canvas line of credit, which is currently not drawn on. We remain comfortable with our net debt level at $18,700,000 And with that, I will now turn the call back to Mike.

Speaker 1

Hey, thanks. At the half year mark, I'd like to close with a few thoughts before we take your questions. We are delivering on our cannabis strategy, specifically revenue growth, market share, profits and cash flow in our Canadian operations. We're in the early stages of replicating that strategy in emerging markets. Our flower is increasingly being sought out by international partners and consumers based on the reputation and success of our brands and cultivars in Canada.

Speaker 1

We are proud to participate in the Netherlands limited license country market as well as Germany, the United Kingdom and Australia and other markets as they open up. So we've been working hard over the last 4 years and we've been ready to replicate these successes in the United States, but remain quite frustrated. I really feel much stronger about what I could say here, but I've been edited back to just saying I'm frustrated. And I'm frustrated by the lack of regulatory direction, further compounded by an environment of non enforcement even where there are regulations. It has created a race to the bottom.

Speaker 1

And as a result, consumers, employees and an entire industry are in limbo. Virtually, it also is dividing the industry rather than uniting us. We see this currently within the hemp segment, where our subsidiary, CB and Sealy, has developed responsible hemp based products. Yet adjacent businesses are lobbying to ban all hemp. By the way, hemp is the deregulated model that I would conjecture we would all like marijuana to follow in the United States.

Speaker 1

So why are we lobbying against ourselves? At Village Farms, we believe these industries can coexist and prosper together and that both forms of cannabis, hemp and marijuana have their roles to play in benefiting consumers. We would welcome any other LPs or MSOs or beverage industry participants to all work together with us to speak as one voice with federal agencies and legislatures and at the state level as well. I'm sure we have confused lawmakers without differences rather than uniting over commonalities like other industries. Our door is always open to discuss this.

Speaker 1

Within Village Farms, we have strong regulatory cannabis and hemp talent. If we don't unite our basic messaging, we can only hold ourselves responsible for the regulatory abyss that just ends up hurting all participants and consumers. Operator, we'll take any calls at this point.

Operator

Thank Our first question will be coming from Aaron Grey of Alliance Global Partners. Your line is open, Aaron.

Speaker 1

Hi, good morning and thank

Speaker 3

you for the questions. So first question for me, I want to talk about retail branded sales, really nice to see that growth both year over year and sequentially. So I wanted to say, could you give any color in terms of whether or not those impact in terms of the timing of provincial boards that might have pulled forward some revenue? Or do you feel this reflects normalized purchase habits? And then on that front, have you seen a change in the buying habits from the boards amid garnishing of payments or some of the boards just looking for LPs that can really supply quality products on a normalized basis?

Speaker 3

Thank you.

Speaker 1

Yes. No, I would say it's totally based on our performance, our quality, our innovation, our genetics, all combined is what's driving those numbers, which are pretty incredible. We feel really strong about it. It's not really tied to timing or boards. Just as it's pure execution that the Canadian cannabis level.

Speaker 4

In fact, Aaron, if anything, we hit some out of stocks this quarter. So because we outsold our initial expectations on some of our better selling strains in particular. So it really is just straight sales for the quarter.

Speaker 3

Okay, great. Thanks for that. That's great to hear on the implied velocity there. The second question for me then in terms of gross margins, Steve, I believe you said 28% ex the spec impact. So just as we look going forward, how do we think about gross margin evolution?

Speaker 3

Historically, you've been saying 30% to 40% in that range. It sounds like some of the value products like Fraser Valley weighed a little bit more on margins in the quarter. So part of that might have been higher cultivation costs, which I believe you have in the season as well. So just want to get some color in terms of gross margin expectations going forward as we think about format mix both in terms of Canadian adult use as well as international and the B2B business? Thank you.

Speaker 2

Yes. The branded gross margin, 28% was lower due to the higher as I said, the higher percentage of value brand. We still support our the range of guidance of 30% to 40%, And we are actively analyzing our current SKU in market.

Speaker 4

Yes. So Aaron, I'll add here too that we have some very strong positions in that segment right now and that is due to the hard work by all of our teams. That is where the consumer has moved to. I think the number right now is about 30 4% by volume of consumers are in that price segment. And so as now a clear leader across the board, it's our job to work very carefully on profitability at that segment with our partners at the provincial borders and our retail customers.

Speaker 3

Okay, great. Thank you very much for the color. I'll jump back in the queue.

Operator

Thank you. Our next question will coming from Eric De L'Oreal of Craig Hallum Capital Group. Your line is open, Eric. Again, Eric, your line is open.

Speaker 5

Sorry about that. I was on mute. Thank you. Thanks for taking my question and congrats on the strong performance up in Canada. My first question here is kind of a bit of a follow on from Aaron's question.

Speaker 5

Just with the increased mix of value products, I'm just wondering what ability you have to sort of manage margins and costs there as you were kind of touching on there at the end?

Speaker 4

Eric, and no problem being muted. I'm sure it's a busy morning for you. The reality is that we'll be continuing to work on this with all of our customers. We have a pretty strong discipline around return on any of our expenditures across the company and that includes our marketing spend. So when we go into any discussions, we have an expectation of what that looks like and we monitor against that very, very closely.

Speaker 5

All right, great. And then my next question is just on produce supply dynamics. So Steve, you mentioned excluding some supply loss, gross margins would have been roughly breakeven for the first half. Can you expand on that? And then expand on the I think you mentioned some industry wide supply issues that point to some improved profitability in the second half.

Speaker 3

If you could just expand on

Speaker 5

both of those, that would be great. Thank you.

Speaker 2

Yes. What I meant by close to breakeven would be on our own greenhouses for the full 6 months. We have improved significantly on our volumes and labor efficiencies at our Texas operations. My comment about when you look at quarter to quarter can be a bit misleading, simply the way we account for our cost of production. So now that Texas crops are over, for those that follow Village Farms, Texas crop essentially starts in September and ends in June.

Speaker 2

Some of the second quarter costs now that Texas crop is over, high side being 2020 should have been charged in the Q1. But for the full 6 months, the gross margin would have been close to breakeven. We did take on some incremental specialty tomatoes to fulfill winter contracts this coming winter and market pricing was it's as I said, it's always lower in May, June because of industry supply. The U. S.

Speaker 2

Growers and most of the Mexican growers are not in market in the later summer months, which again provides much significantly improved pricing in the July August period. So very confident that we'll have a much improved second half of the year versus the certainly the Q2.

Speaker 5

All right, great. Appreciate your comments. Thank you.

Operator

And our next question will come from Mike Regan of Excelsior Equities. Your line is open, Mike.

Speaker 6

Thanks for the question. So I guess back then the sort of the pricing dynamics in Canada and cannabis, It sounds like a lot of the sort of price pressure and margin pressure was some mix shift. Can you help us sort of understand how the pricing is moving on a like for like basis within categories in Canadian cannabis?

Speaker 4

I can grab that one. Good question and you're correct. I would categorize it as more of a mix shift at this point. At retail, the price per gram declines are starting to very much stabilize, slow down, flat line depending on the segment. So that's the good news.

Speaker 4

We think that the B2B business, which Steve mentioned we're participating in, is one of those leading indicators because pricing at the B2B segment has been increasing and we think that that's got to play through to the retail as well.

Speaker 6

Got it. Okay. Yes, that would also make sense. I I think you know that you're seeing actual declines in supply in Canada as the taxes sort of push people out of business or they just can't make any money at this point. Is that also starting to support pricing?

Speaker 4

I think that's one of the factors for sure. I think the other factor is the move to asset light strategies by some players and that's certainly helping to take out some of the biomass that might have gotten dumped into the market. And the third factor certainly was for those that can export, that's another market drawing down on Canadian supply.

Speaker 6

Okay, great. Thanks a lot.

Speaker 7

You're welcome.

Operator

Now our next question will be coming from Doug Cooper of Beacon Securities. Your line is open Doug.

Speaker 8

Hey, good morning guys. Just a quick one on the produce side, Steve, improved pricing or improved better environment in the second half. Do you think it's enough to get you to breakeven EBITDA for the

Speaker 2

year for the produce segment? Not for the full year. We are expecting good EBITDA in the second half, but not enough to get back get us back to breakeven for the full year.

Speaker 8

Okay. Mike, switching to the Netherlands, you said you were just there. Can you give us some more color about how big you think the market is now that they move from 2 to 10 municipalities? How many people would be captured in those 10 municipalities? And how can we walk through the sort of ramp in revenue there's no excise taxes there.

Speaker 8

And you guys seem, obviously, you don't have to sell through, move into boards and maybe just discuss what do you think the profitability will be like from that facility?

Speaker 1

Well, I think the profitability is going to be solid. In fact, I think we can really produce some outstanding quality that is not typically found in the Netherlands market, maybe with the exception of illicit trade coming in from the United States or Canada from what I've seen. But what's produced in the Netherlands and what comes in from other adjacent countries, that quality has never been great. So with the cultivars we're going forward with from Canada and the cultivation facility we have and our know how, we're expecting some really great things. Now as far as the way the Netherlands has done it, there's not a lot of data because it's been in the illicit market for 50 years both at the cultivation and even at the coffee shop level.

Speaker 1

So there's not a lot of data. There are numbers that talks about the market in the Netherlands. It's about $1,000,000,000 market, but it's not substantiated. However, that's really not important for us. What's important for us is that there are 10 municipalities and about 85 coffee shops that are participating now in the legal side, and that's going to be supplied by just 10 license holders.

Speaker 1

So we see ourselves as being immediately sold out because the capacity of the 10 license holders is just not quite enough to fulfill those 85 coffee shops to start. Secondly, as you mentioned, there is no tax. The prices in the Netherlands are far superior to anything we've seen in Canada or even the U. S. And the government wants to keep it that way.

Speaker 1

So if you really look at we take our hat off to how the Netherlands looked around 5. We will start planting out in October. So we're only about 8 weeks away. So we're on track for that and we should be generating for sure revenues in the Q1.

Speaker 8

Okay. I guess my last one, Steve, you mentioned the drop in inventories.

Speaker 2

What do you think this means,

Speaker 8

the read through? You guys have to do some expansion of your Canadian facilities to keep up with demand. You guys just talked about being sold out. So maybe just talk a little bit about that.

Speaker 2

Yes. We are very actively looking at expanding our cultivation cannabis capacity. Obviously, as you know, we've only converted half of Delta 2 and we are very actively looking at converting the other half. So I'll leave you with that at this stage.

Speaker 8

Okay. Thanks very much.

Speaker 9

Thank you.

Speaker 4

Sonia, we're ready for the next question.

Operator

I'm sorry. Again, our next question comes from Frederico Gomez of ATB Capital Markets. Your line is open.

Speaker 10

Hi, good morning. Thanks for taking my questions. Mike, just to clarify on the Netherlands, just wondering if that other operators, have they already started sales in the Netherlands? And if so, in that pilot program, how is that evolving?

Speaker 1

Yes, I think up to 10, we have already started generating revenue the last couple of quarters, probably 6 more by 5 to 6 more by year end. So I think by year end, it'd be 8 of us at least generating revenue.

Speaker 10

Okay, perfect. Thanks for that. And then in Canada, how sustainable you think those market share gains that we're seeing from you guys is? I think that we've seen in the past LPs gaining share and then losing. Do you think that trend can continue just given the current underlying economics here with the sector trending towards double digit share and being sustainable with that?

Speaker 1

So I think what drives it, what we've found based on our consumer insights is innovation, quality, newness and price and you have to drive that constantly. And as long as you're innovating and providing new strains, new products, new innovation, and you're priced right, then I think you can continue to drive, at least sustain the market share. We feel very positive we can sustain the market share, but our goal is driving. We want to drive to number 1 and continue to do so. So I think we should just look at the numbers over the last 5 months.

Speaker 1

It wasn't just sustaining it, it was actually increasing it. As I said in my opening remarks, we're one of the only top 5 that have done so. And I think that's what's driving at the end of the day is really you have to have products that resonate with the consumer. It's got to be a great quality every single day and you have to innovate, provide newness and that will drive increased sales. So if the market continues to grow single digits over the next 3 to 5 years, mid to high single digits.

Speaker 1

And I think we could see Canada driving to $6,000,000,000 $7,000,000,000 at the retail level in the next 3 to 4 years. And we plan to take that share with us as we go.

Speaker 4

And Fred, the only other thing I would add is, we still have white space that we're not playing in as you look at the universe or where the consumer is. And so we pay attention to that very closely as well as we develop our plans and our products.

Speaker 1

Yes, I agree with that. And we have some exciting things happening that I'll probably talk about on the next call.

Speaker 10

Thank you.

Operator

Our next question will come from Scott Fortune of ROTH Capital Partners. Your line is open.

Speaker 9

Yes, good morning. Just to expand on that kind of white space, you continue to build brands in the different segments of the market, Pure Sun, Fraser Valley and Super Toast. Is there an area that you continue to lean in now going forward and just updating you said you might update it in the future, but update kind of addressing these different categories, kind of timing on that strategy as you look out for continuing to gain market share overall in Canada from that standpoint?

Speaker 1

Well, I think what we've sort of proven is, the way we've operated is let's be 1 let's try to be number 1, number 2 in each market before we go on to something new. And I think we've proven that in flower, been number 1 in flower for the last 2 years. Then as we approached pre rolls, let's drive that to a number 1, number 2 position. And we've done that. In fact, we really didn't want to expand internationally till we felt that we can be a top tier player in Canada on a long term sustainable basis.

Speaker 1

And I think that's true today. And then now we look at what other segments are we not indexing in and let's just take vapes for an example, that's an area that we want to focus on and continue. So I think you'll see that strategy going forward. We don't want to be all things unless we can be in a number 1, number 2 position.

Speaker 9

That makes sense. Strategies worked out. And just a follow-up on the international side, what you're seeing from Germany, the opportunity, what you need to build out to continue to drive and grow that opportunity outside of the Netherlands on the international side going forward here?

Speaker 1

Well, our strategy has always been crawl, walk, run, be the turtle and end the race, not be the hare. And I think we've proven that in Canada and we're going to do the same there. But a lot of people talking great game in the EU, it will get there. I mean, it's a huge market, but it's a hard business to be successful in. And I think that's been proven on both sides of the border here in North America.

Speaker 1

So we're confident that we'll expect price compression in the EU markets over time. That's just natural. And I think the same thing we've leveraged up in one in Canada, we could do the same in Europe. And of course, being on the Netherlands side on rec, being that first rec market, if that expands, I think we can springboard out of the Netherlands to other markets as it opens up. So we really like what the horizon looks like for us in the EU.

Speaker 4

Just specifically on Germany, we are like others have stated in their calls, we are seeing increased inquiries and revenues as that market opens, so confirming the same trend. And on the good news front, we went through a recertification of our EU GMP and of our Canadian greenhouse and we've passed that. So we're in our 2nd term with the German municipality that sponsored us.

Speaker 9

Appreciate the color. Thanks.

Operator

And our next question comes from Pablo Zwaneck of Zwaneck and Associates. Your line is open, Pablo.

Speaker 7

Good morning. This is actually Mohammad Hussain. I'm on for Pablo and we have two questions. One about your Texas produce greenhouses. Can you remind us of the scale and whether all are being utilized or some are idle?

Speaker 7

And also please remind us what benchmarks you are using to determine the value of the Texas greenhouses?

Speaker 1

We're not going to comment on the value since nobody really values our produce business anyway, but we're not going to comment on the values of our Texas greenhouse at this point. But all our facilities are in production with the exception of the Permian Basin, which we had reported as an asset for sale, but all the others are in full production.

Speaker 4

Which means we have 3 in full production and they're really very well detailed in our 10 ks in terms of square footage and the like.

Speaker 2

Thank you.

Speaker 1

I can tell you that the replacement value of those assets are probably

Speaker 4

We're sorry, go ahead.

Speaker 7

And for the second question regarding Holland, we understand some licenses already start to supply the coffee shops. Do you have a sense of how is the market performing so far? And what do you expect to start supplying the market there?

Speaker 1

Yes. I mean, I got to meet with a number of coffee shop owners, both in the legal ones and the current non legal ones. And the comment I received is the quality for the most part is the best they've seen in Holland. So I think it's very positive. It's early stages and probably don't want to add more color to it.

Speaker 1

But I think at this point, I would say it's a positive start.

Speaker 7

Thank you for the information. You can call me back on queue.

Speaker 4

Thank you.

Operator

I would now like to hand the call back to management for closing remarks.

Speaker 1

Thanks everyone. Appreciate being on a call today and we look forward to reporting in November.

Operator

And this concludes today's conference. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Village Farms International Q2 2024
00:00 / 00:00