Village Farms International Q2 2025 Earnings Report

Village Farms International EPS Results

• Actual EPS: $0.10
• Consensus EPS: -$0.02
• Beat/Miss: Beat by +$0.12
• One Year Ago EPS: N/A

Village Farms International Revenue Results

• Actual Revenue: $59.90 million
• Expected Revenue: $48.86 million
• Beat/Miss: Beat by +$11.04 million
• YoY Revenue Growth: N/A

Village Farms International Announcement Details

• Quarter: Q2 2025
• Date: 8/11/2025
• Time: Before Market Opens
• Conference Call Date: Monday, August 11, 2025
• Conference Call Time: 8:30AM ET

Village Farms International (NASDAQ:VFF), together with its subsidiaries, produces, markets, and sells greenhouse-grown tomatoes, bell peppers, and cucumbers in North America. It operates through four segments: Produce, Cannabis-Canada, Cannabis-U.S., and Energy. The company also produces and supplies cannabis products to other licensed providers and provincial governments in Canada and internationally; develops and sells cannabinoid-based health and wellness products, including ingestible, edibles, and topical applications; and produces power. It markets and distributes its products under the Village Farms brand name to retail supermarkets and fresh food distribution companies, as well as products produced under exclusive and non-exclusive arrangements from greenhouse supply partners. The company was formerly known as Village Farms Canada Inc. and changed its name to Village Farms International, Inc. in December 2009. Village Farms International, Inc. was founded in 1989 and is headquartered in Delta, Canada.

Village Farms International Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Village Farms achieved record Q2 profitability, reporting $9.9 million in net income from continuing operations and $17.1 million in adjusted EBITDA, a 29% margin and the highest in its nearly 20-year public history.
• Positive Sentiment: The company closed a partnership to privatize one-third of its produce assets, generating $40 million in cash proceeds and strengthening its balance sheet for future growth investments.
• Positive Sentiment: International cannabis exports surged 690% year-over-year, surpassing H1 targets to triple 2024 export sales, driven by strong demand in Germany, the UK and new market certifications (EU GMP, Israeli GACP).
• Positive Sentiment: Canadian cannabis gross margin reached 39%, at the top of the 30–40% target range, and adjusted EBITDA margin doubled to 27% after realigning SKUs toward higher-margin products.
• Positive Sentiment: The board approved converting 550,000 sq ft of greenhouse space in Delta 2 to cannabis cultivation, adding 40 metric tons of annual capacity by 2027 with a CA$10 million investment funded from cash on hand.

Presentation

[Operator]

Good morning, ladies and gentlemen. Welcome to the Village Farms International Second Quarter twenty twenty five Financial Results Call. This morning, Village Farms issued a news release reporting its financial results for the second quarter ended 06/30/2025. That news release, along with the company's financial statements, are available on the company's website at villagefarms.com under the Investor setting. 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 one 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, many 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 these underlying assumptions, risks and uncertainties are contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10 ks and D and A for the year ended 12/31/2024, and 10 Q for the quarter ended 06/30/2025, which will be available on EDGAR and SEDAR plus These forward looking statements are made as of today's date, and except as required by applicable securities law, we undertake no obligation to publicly update or revise any such statements.

[Operator]

I would now like to turn the call over to Michael DiGiglio, Chief Executive Officer of Village Farms International. Please go ahead.

[Michael Degiglio, CEO, President & Director at Village Farms International]

Well, thank you, Tanya, and good morning, and thank you for joining us today. With me are Steve Raffini, our chief financial officer Anne Gillen Lefevo, our chief operating officer Patty Smith, Corporate Controller and Sam Gibbons, Senior Vice President of Corporate Affairs. I'll begin with a brief summary of recent events and our second quarter highlights, and then I'll hand the call over to Steve before some last closing comments. The second quarter was transformational. It was a transformational quarter for Village Farms, just to be clear, operationally and financially with record levels of profitability that demonstrate the improving earnings power of our business and continued success in scaling a profitable global cannabis enterprise.

[Michael Degiglio, CEO, President & Director at Village Farms International]

During the quarter, we announced and then quickly closed the transaction to privatize about one third of our produce assets and operations through the formation of a new partnership with proven private investment partners. Most on this call are familiar with the details of the new Vanguard partnership and they are available in our various communications and filings, so I won't repeat them here. But I do want to take the opportunity to reiterate what all this means for Village Farms, our future prospects, our partners and team members, and of course, our shareholders. First, we believe we have dramatically improved the long term upside potential of our thirty six year legacy in the produce industry. As a private company with access to significant financial resources that will add additional acquisitions in the future.

[Michael Degiglio, CEO, President & Director at Village Farms International]

Our commitment and experienced partners have created significant value for their shareholders in the past, and we are positioned to participate in this renewed opportunity throughout near 38% equity ownership interest. Second, we believe Village Farms has transformed into one of the most attractive platforms for revenue growth and margin expansion across the global cannabis industry. With proven operational capabilities, we can now focus on our various cannabis opportunities around the world. Third, the transaction generated $40,000,000 in cash proceeds, further strengthening our balance sheet, which along with our improving cash flow generation profile, we will support additional growth investments across the platform. And finally, our shareholders and prospective investors can now see the improving earnings potential of our remaining global cannabis business, with significantly improved forward visibility into our financial performance that is evident in our second quarter results.

[Michael Degiglio, CEO, President & Director at Village Farms International]

Before I get into the second quarter highlights, I want to make clear that the strength of our Q2 performance is not simply a result of us privatizing our produce business. The closing of that transaction has happened to coincide with several other powerful catalysts, including our recent commencement of sales in Holland's adult use market, success of recent initiatives to align our product portfolio in Canada towards higher margin SKUs, and finally, a continuing wave of additional countries around the world following Canada's lead with pragmatic approaches to regulating cannabis. All of these events are coinciding with near impeccable timing, yet it is the competitive strengths we've established over 36 in controlled environmental agriculture that we are leveraging to deliver as one of the world's largest and most trusted scaled cannabis operators. So now I'll shift to a review of our second quarter highlights, which I'll focus on our performance from continuing operations excluding the impact of the gain of our sale of produce assets during the quarter. As we disclosed in this morning's press release, second quarter results reflected record levels of profitability for the company.

[Michael Degiglio, CEO, President & Director at Village Farms International]

And not just record since we expanded in the cannabis in 2017, but record performance in our near twenty year history as a publicly traded company. While consolidated sales increased 12% year over year, consolidated net income from continuing operations improved to $9,900,000 or $09 per share. Adjusted EBITDA from continuing operations was $17,100,000 or roughly 29% of sales, both of which reflect record performance and improved sustainability from Q2 of last year. And adjusted EBITDA margin was up over 2,300 basis points. In our flagship market in Canadian cannabis business, retail branded sales in Q2 were in line with our expectations, given our planned reduction in several low margin domestic SKUs.

[Michael Degiglio, CEO, President & Director at Village Farms International]

We are not yet seeing the types of price increases that one might expect given the changing supply dynamic in the retail market, but we have been pleased to see stronger contribution margin from our retail branded sales in Q2, which demonstrates the success of our recent margin improvement initiatives. In our wholesale channel, we continue to be optimistic in the contents of our focus on profitable sales. Q2 wholesale sales were consistent with the levels of last year or so. However, gross margin on these sales were up significantly on a year over year basis, as we believe supply and demand dynamics are driving more favorable outcomes in the wholesale channel. These dynamics resulted in another quarter of improvement in overall Canadian cannabis gross margin, which was at the top of our target range at 39% and our best quarterly gross margin in three years.

[Michael Degiglio, CEO, President & Director at Village Farms International]

We now delivered two consecutive quarters of gross margin within the targeted 30% to 40% range, and we are optimistic about our ability to sustain gross margin at the upper end of this range for the foreseeable future. Continued growth in Q2 was driven mainly by the successful execution of our international growth strategy. International exports increased almost 700% year over year and were up over 120% sequentially from the first quarter. We have proven that our international model works and we are now scaling it with purpose and precision. At just the halfway point a year, we have achieved our full year target of tripling out twenty twenty four international export sales.

[Michael Degiglio, CEO, President & Director at Village Farms International]

And given continued strength in the third quarter, we expect similar levels of sales through the remainder of this year as compared to the first half. International prescribers and patients are constantly choosing our flower and we are seeing a strong preference for many of the strains that have been our most successful in Canada. During Q2, we increased deliveries to existing customers and also onboarded several new partners. Most of this growth is being driven by continued strength of demand from Germany along with further increases in The UK and steady performance across our other markets. Despite recent headlines about Germany's proposed telemedicine reforms potentially limiting growth, our sales in Germany are to partners operating within the traditional pharmacy network, and we do not currently work with any telemedicine platforms.

[Michael Degiglio, CEO, President & Director at Village Farms International]

We have not experienced any impact to existing patients or disruption with our pharmacy model customers and distributors. I would also note that recent measures in Portugal to implement more stringent standards are also not impacting our business. We have been pleased to see more effective enforcement to ensure product quality coming through this channel into Europe, which has contributed to our improving position as one of the world's premier providers of consistent and trusted sources of quality product. Operational integrity and adherence to import standards are core to our success internationally. And I'm pleased to also report that we passed inspection in July for GACP and certification inspection against revised Israeli medical cannabis good agricultural practice requirements.

[Michael Degiglio, CEO, President & Director at Village Farms International]

These are in addition to our EU GMP certification and will enable us to continue exporting bulk flower to Israel and continue to provide additional GACP flower and GMP finished product to international customers. We also benefit from our first quarter recreational cannabis sales in The Netherlands, where we are seeing strong momentum as our Phase one facility has begun to reach its full operational capacity. We now have product in 66 of the 80 participating coffee shops, reflecting a marked penetration of 82.5%. And we're consistently hearing that Outflower's earning preference with such consumers. The Holland market will be an incredibly exciting one for the company where new opportunities will emerge.

[Michael Degiglio, CEO, President & Director at Village Farms International]

The realms of product innovation and consumer experience in coffee shops with a rich history of legacy in the cannabis industry. We are pleased to have the opportunity to participate in this dynamic market and look forward to launching additional products during the second half of the year beginning with the launch of our hash offerings during the third quarter. We are also making steady progress on our state of the art Phase two facility in The Netherlands, which we expect to be operational during the first quarter of next year and will quadruple our annual production capacity, helping drive continued profitability growth in 2026 and beyond. We'd like to thank all of our global business partners for the continued trust and support of Village Farms. We are looking forward to continued success together in the years ahead.

[Michael Degiglio, CEO, President & Director at Village Farms International]

So given the improving performance of our business, increasing demand in Canada and from international partners, our strong cash position, we announced last week that our Board of Directors has unanimously approved the conversion of the remaining 550,000 square feet of our Delta 2 greenhouse in British Columbia to cannabis cultivation. This equates to about 40 additional metric tons of annual production once fully ramped. And as we always have, we will continue to prudently monitor demand as we onboard new supply and carefully match our allocation of inventory with profitable sales. Physical conversion is expected to begin in November year with the first planning of new grow rooms expected this coming spring. The additional capacity will come online in phases with a target for the full 550,000 square feet to be in full production by the 2027.

[Michael Degiglio, CEO, President & Director at Village Farms International]

The total investment for this expansion project is expected to be approximately CAD10 million and will be funded through cash on hand and ongoing operational cash flows and will be incurred mainly in 2026. Given the improving profitability profile of our business and our visibility into continued strength of demand from our international partners, as well as improving supply and demand dynamics in Canada, we believe this expansion will provide a substantial return on our investment. In stark contrast to the majority of our peers, our team has a proven track record of consistently matching our supply with demand from both our Canadian and international customers. And given our prudent and disciplined approach to CapEx, there is no clear indication of our confidence in the future of our cannabis business than our decision to make this investment. We have always taken a crawl, walk, run approach to scaling our business.

[Michael Degiglio, CEO, President & Director at Village Farms International]

Our facilities and grow rooms have been designed to vary production capacity relatively quickly. We have also always enjoyed the strategic advantage of already owning our advanced greenhouse assets in The United States and Canada through our legacy in the produce business. This has helped us be more efficient with our capital than many operators who build their facilities from scratch. And we've also benefited from having an existing labor force in our greenhouses, which has been another important strategic advantage that limits execution risk when we convert additional growing space to cannabis. So in summary, we are growing organically, profitably and generating positive free cash flow, and the strength of our balance sheet and asset portfolio is enabling us to make additional growth investments that we believe will drive strong returns for shareholders.

[Michael Degiglio, CEO, President & Director at Village Farms International]

So this concludes my initial prepared remarks, and I'll turn the call over to Steve to review financials before I make some closing remarks. Steve?

[Stephen Ruffini, EVP & CFO at Village Farms International]

Thanks, Mike. With the produce privatization transaction closing on May 30, some of our produce assets were privatized and are now classified as discontinued operations. The reported financial results for comparative prior periods have been adjusted accordingly. Our ongoing investment in the new produce partnership is recorded as an investment on our balance sheet and the operational results of the produce partnership are not included in our financial results. We recorded a gain on the sale of these produce assets net of tax of 19,100,000.0 during the quarter.

[Stephen Ruffini, EVP & CFO at Village Farms International]

Results from continuing operations are composed of our cannabis and clean energy businesses, neither of which neither of which changed following transaction, as well as the results of our Canadian produce operations that we retained. I'll start with a review of our consolidated results. Consolidated net sales increased 12% to 59,900,000.0, mainly due to growth in our Canadian cannabis segment and the first full quarter of sales from our recreational cannabis sales in The Netherlands. The increase in sales was matched by improved profitability across all segments. On the continuing operations basis, net income improved to $19,900,000 or $09 per share compared to a net loss of $16,600,000 or $0.15 per share in Q2 of last year.

[Stephen Ruffini, EVP & CFO at Village Farms International]

Consolidated adjusted EBITDA from continuing operations excluding our gain on sale was $17,100,000 compared with $2,900,000 in Q2 of last year. Our adjusted EBITDA margin of 28.6% of sales compared to 5.4% of sales in Q2 of last year, which as Mike mentioned is a record performance for the company. Turning now to our cannabis businesses. I will start with our Canadian cannabis segment, which I will discuss in Canadian dollars for comparative purposes. Total net sales were 61,400,000.0 or for a 10% increase versus q two last year, driven mainly by the very strong growth in international sales as we continue to take share in these growing markets with increased sales from existing customers, as well as contributions from onboarding several new customers.

[Stephen Ruffini, EVP & CFO at Village Farms International]

Export sales to our five international medicinal markets increased 690% from Q2 last year to 16,600,000.0 and are now roughly one half the size of our retail branded sales net of excise tax. As Mike stated, we have hit our full year target of tripling twenty twenty four international export sales just halfway through the year. With our focus on profitable sales, our Canadian retail branded sales were 20% lower than q two last year at 34,500,000. However, with an improved gross margin as we have realigned our SKU portfolio towards higher margin opportunities. Canadian cannabis gross margin was 39%, up from 26% in Q2 last year and at the high end of our target range of 30 to 40%, which provides clear evidence of success in both growing higher margin international export sales and our focus on higher margin products in Canada.

[Stephen Ruffini, EVP & CFO at Village Farms International]

Our success in expanding gross margin combined with a small year over year decrease in SG and A expenses drove significant improvements in the profitability of our Canadian cannabis segment. SG and A expense as a percentage of sales was 19% compared to 22% last year, primarily due to continuing efficiencies throughout our Canadian cannabis operation. Q two adjusted EBITDA for Canadian cannabis improved a 150% year over year to our strongest performance in six years at 16,500,000.0, resulting in an adjusted EBITDA margin of 27%, which was more than double the 12% last year. Cash flow from operations decreased 233%, 18,000,000, our strongest quarter of operating cash flow since we expanded into Canadian cannabis in 02/2017. Finally, as we do each quarter, I will highlight that in q two, we paid Canadian excise taxes on retail branded sales of 20,500,000.0, nearly 40% of retail branded sales and almost double our s g and a.

[Stephen Ruffini, EVP & CFO at Village Farms International]

I will note, however, that the lower retail branded sales in q two as compared to last year resulted in lower excise taxes, which also contributes to our stronger profitability. Turning now to our recreational cannabis business in The Netherlands. Q two saw our first full quarter of sales from our Lely Holland operations. Sales were 2,500,000.0 and adjusted EBITDA was 1,200,000.0, which are firmly in line with our expectations. Phase one facility has now reached its full operational capacity.

[Stephen Ruffini, EVP & CFO at Village Farms International]

So we expect revenue performance from The Netherlands to be similar in q three and q four with similar profitability until the end of Q4 when we do expect to increase operating expenses ahead of the commencement of operations in the phase two facility, which will be coming online during the first quarter. Our US cannabis business with Q2 sales of 3,800,000 continues to reflect the impact of various state actions trying to deal with the unregulated hemp products by restricting all intoxicating hemp based products. We did however, see gross margin improve year over year to 63%, which benefited from the internalization of our gummy production, resulting in a small positive adjusted EBITDA for the quarter. Having been successful in our efforts to stabilize this business within the regulatory headwinds, we are working on a number of initiatives to reinvigorate sales of our responsible GMP produced natural hemp products. In our remaining produce segment, sales increased 2% to 8,600,000.0.

[Stephen Ruffini, EVP & CFO at Village Farms International]

Our produce operations to q two and through the remainder of this year reflect contributions from our delta one greenhouse and half of our Delta two greenhouse. The Delta two greenhouse tomato crop will be pulled in November at the end of its life cycle to commence our conversion to cannabis production for the entire Delta two facility. Net income from continuing produce operations improved to 4,300,000.0 from a loss of 1,300,000.0 and adjusted EBITDA from continuing produce operations improved 6,400,000.0.

[Stephen Ruffini, EVP & CFO at Village Farms International]

Both of those figures include a 4,300,000.0 vendor settlement related to previous operating losses incurred by our continuing produce operations. Our Canadian produce business is seasonal. Historically, the Delta produce assets report their highest revenue and EBITDA in the third quarter of each calendar year. We will continue to maintain our Permian Basin Texas greenhouse and while not operational at this time, it is reported as part of our continuing produce business segment. Turning to consolidated cash flows and the balance sheet.

[Stephen Ruffini, EVP & CFO at Village Farms International]

Total cash flow from operations was 22,300,000.0 in the first six months of the year. Our free cash flow during the first six months, including all our CapEx and debt service payments was $12,000,000. With 40,000,000 in proceeds from the privatization transaction, we ended QQ with cash of 65,000,000 with a net cash position of 29,000,000. Our total debt at the end of QQ was 39,000,000, but as noted in our 10 Q this morning, we paid down 3,000,000 US of our term debt as part of our produce lenders approval terms for the privatization transaction in August. During the quarter, we refinanced our cannabis loan, consolidating the three previous loans into a single credit facility with two existing lenders.

[Stephen Ruffini, EVP & CFO at Village Farms International]

The new facility has a variable rate, which is currently below 6%, which reflects a two fifty basis point improvement over the previous facilities with additional improved financial covenants and now matures in February 2028. In closing, our Q2 results demonstrate the improving earnings of our Power of Village Farms and our enhanced balance sheet liquidity easily supports our growth investments beginning with our existing capacity expansion projects in both The Netherlands and Canada. I'll now turn the call back to Mike.

[Michael Degiglio, CEO, President & Director at Village Farms International]

Thanks, Steve. So my closing remarks, once again, our Q2 results reflect an exciting beginning for Village's next chapter, which is one we believe we can generate significant value for our shareholders. For anyone listening today's call may be new to our story, I'd like you to know that I am firmly aligned with our largest shareholder, and we are intensely focused on protecting and enhancing our shareholder interests. We have been hypersensitive to dilution and we moved mountains recently to avoid a reverse stock split and retain our compliance with NASDAQ's listing requirements. And by the way, we've done this twice in the last two years without any share consolidation and now our future has never looked brighter.

[Michael Degiglio, CEO, President & Director at Village Farms International]

I encourage anyone new to our story or our industry to take a look at our comparison of shares outstanding compared to our peers over the past several years. I think you'll find it pretty quickly that we take our fiduciary responsibility to our shareholders quite seriously. In closing, we have transformed our company into a powerful global cannabis platform with a proven team of cannabis leaders and unmatched portfolio of assets, a track record of operational success, steadily expanding exposure to both international medical and recreational markets and the tremendous upside potential from our ownership position and our private equity backed produce partnership an expansive US based greenhouse assets and operations. While we are currently benefiting from multiple catalysts unlocking value for our stakeholders, but we also see significant potential for additional long term value creation through these additional pathways to value creation, which provide investors with a unique upside potential in an investment opportunity. We have retained full control of Canadian greenhouse assets in Delta, British Columbia, as well as our Permian Basin facility, as well as optionality of one of our Marfa Greenhouses should future cannabis market optionality in The US or the state of Texas occur.

[Michael Degiglio, CEO, President & Director at Village Farms International]

We're about continued momentum in The US policy cannabis policy and look forward to having a larger role in this market in the future, and optimistic that our track record as one of the longest tenured operators in the Texas agricultural industry and the regulated cannabis industry, that we are positioned well to replicate our success in Canada, in The US in the future. Our retained greenhouse assets in The United States and Canada represent a combined incremental 4,200,000 square feet of owned advanced greenhouse assets for future expansion potential in cannabis. These critical strategic assets provide a clear runway for us to continue replicating our proven success in operating at scale globally and considerable expansion capacity compared to our current 2,300,000 square feet of operational capacity today. Also not to mention the fact that we are operating and growing this business without violating any federal regulations in The United States and already a NASDAQ listed company that satisfies its tax obligations and generates positive free cash flow and net income. Finally, I would like to take a moment to thank and congratulate our fantastic team members on their recent achievements and the progress they've continued to make to enable our success.

[Michael Degiglio, CEO, President & Director at Village Farms International]

None of this is possible without their determination and focus. We've assembled a world class team of experts in all areas of our business and right now they are firing on all cylinders. We are a global multicultural organization with team members on the ground in The United States, Canada and Europe, and servicing an increasingly complex global supply chain with a growing list of strong international partners. And we are all energized by the many upside opportunities that we see in front of us in virtually all aspects of our business. We are proud to be part of an emerging vibrant global cannabis ecosystem, proud to be leveraging our thirty six years in highly intensive technology driven agriculture to become a partner of choice in the cannabis community and proud to be in a leadership position that is enabling us to self fund our first and now second state of the art cultivation facilities in The Netherlands, as well as the additional 40 metric tons of annual cultivation capacity to serve our Canadian international customers.

[Michael Degiglio, CEO, President & Director at Village Farms International]

Our improving fundamental financial performance from our existing operations, combined with the expansion of our cultivation capacity in Canada and the completion of our Phase two facility in The Netherlands, positions Village with a clear pathway to continued revenue growth and margin expansion in the years ahead. That concludes our prepared remarks and operator, we'll turn it over to you for any questions.

[Operator]

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

[Aaron Grey, MD & Head - Consumer Research at Alliance Global Partners]

Hi, good morning. Thank you for the questions and congrats on the strong quarter on all fronts. First question for me, want to speak to your decision to expand Delta two facility, obviously speaks to your confidence in the market opportunities. So based on the quarter, obviously, it appears a lot of this was driven by potential international market opportunities. But if you could offer some more color in terms of what went into the decision. I know it's something been thinking about for some time. Is it more so a combination of what you're seeing on the international markets also wanting to maintain where you hold within the Canadian market today? Is it more your branded sales versus B2B opportunities?

[Aaron Grey, MD & Head - Consumer Research at Alliance Global Partners]

Then maybe more broadly in terms of pricing expectations that you're seeing going forward for the next few years, given what's coming online until 2027 for a full ramp? Thank you.

[Michael Degiglio, CEO, President & Director at Village Farms International]

Thanks, Aaron. Look, for one, it's a very low dollar investment for us. So we're not building new assets. Our business model was predicated on converting existing assets. So this is not like we're going out and building a new $100,000,000 facility.

[Michael Degiglio, CEO, President & Director at Village Farms International]

This is, you know, a $7,000,000 US investment, the asset is there, and we're just converting it to cannabis. So that risk and investment is fairly low for us. Secondly, the way we've designed our facilities, we have many, many separate grow rooms. So with that, we can alter the amount of capacity coming out, we can decrease grow rooms by three, four or five, we can increase it. And we've demonstrated that we've always been prudent with matching supply with demand, unlike many others.

[Michael Degiglio, CEO, President & Director at Village Farms International]

And you've seen that oversupply in Canada, which is really, you know, from the smoke and mirror days of Canada back in 2019 and '20. We were never really caught up in that. So we're not really worried about it. There's always ebb and flow to supply and demand and we can adjust accordingly. Right now though, we're not fulfilling our commitments.

[Michael Degiglio, CEO, President & Director at Village Farms International]

We're probably leaving around $50,000,000 of revenue on the table right now. So we to manage our business and fulfill our customer needs. And we're not concerned with the risk of being in an oversupply position.

[Aaron Grey, MD & Head - Consumer Research at Alliance Global Partners]

That's really helpful color there. Thank you. And on that front, I will switch to international for a bit. Really strong quarter there, coming in above your expectations already hitting the mark for tripling for the year in the first half. So maybe just some more color in terms of some of the strong drivers in 2Q for international.

[Aaron Grey, MD & Head - Consumer Research at Alliance Global Partners]

I think you mentioned Germany was a standout also within The UK. And then for the back half, guys, I think you said 2H would roughly, you know, match 1H. So maybe sitting towards what you just alluded to in terms of having to allocate, you know, some products. Is that just your need to maybe manage to why, you know, maybe doesn't hold to the 2Q rate, you know, holds to the 1H rate in 2H. Just So any kind of commentary on what drove 2Q and the expectations for 2H for international? Okay.

[Michael Degiglio, CEO, President & Director at Village Farms International]

I'm going to let Ann comment. Erin, go ahead, Ann.

[Ann Gillin Lefever, COO at Village Farms International]

So I think we did purposely say Germany and UK and onboarding new customers has been the driver. Our growth aligns with where the growth of international markets is hottest. So we're there, and the team has done a great job of working very closely with some trusted distributor partners that we've been working with for some time. And, you know, I think it's also important that, you know, Canada is really leading this initiative, Canadian LPs, and we're proud to be part of that group. Your second question with respect to outlook, we're geared up for continued growth.

[Ann Gillin Lefever, COO at Village Farms International]

We're not going to guide as to what it's going to be. We were obviously off on our first half guidance. But the one thing I would just say is, it's an area where a lot of folks are getting involved. And so we're going to continue to participate in the growth of the market, and there will be others that we know are adding capacity to be there with us. So that's important.

[Ann Gillin Lefever, COO at Village Farms International]

And then concurrently, we'll continue to support our retail partners in Canada. That's a critical very much a important channel for us as well.

[Aaron Grey, MD & Head - Consumer Research at Alliance Global Partners]

Really appreciate the color there. I'll jump back in the queue. Congrats again on the quarter.

[Operator]

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

[Doug Cooper, MD & Head - Research at Beacon Securities]

Hey, good morning, everybody, terrific work on the quarter. Steve or Mike, I just want to confirm the numbers by segment, if I could. So Canadian cannabis, US11.9 million of EBITDA, let's call US cannabis, small positive. The Netherlands, 1,200,000.0 US. That gets me 13.1.

[Doug Cooper, MD & Head - Research at Beacon Securities]

You announced 17.1 of EBITDA. So I guess the question is four point what was it? Vendor settlement, 4,300,000.0. Do I exclude that? I'm assuming I exclude that on an ongoing basis, so that would imply EBITDA from the produce sector in Canada was 2,100,000.0? Well,

[Stephen Ruffini, EVP & CFO at Village Farms International]

the adjusted EBITDA from continuing operations to produce was 6.4, and it includes the 4.3. Because that's the vent settlement was higher losses from those continuing asset. And all of our greenhouses experienced the brown regos, and this settlement pertain to the assets that we've retained.

[Doug Cooper, MD & Head - Research at Beacon Securities]

But that's nonrecurring. Correct?

[Stephen Ruffini, EVP & CFO at Village Farms International]

That's nonrecurring. But I also said that these assets that we've retained generally have their highest revenue and highest EBITDA in the third quarter.

[Doug Cooper, MD & Head - Research at Beacon Securities]

Right. Okay. So Justin, maybe you can just in general then, if we're looking to model the company out, it it just has, you know, going forward, it's just gonna be d one, essentially. Right? So on an annual basis, you expect that to

[Stephen Ruffini, EVP & CFO at Village Farms International]

be after in 2026. Yes. For 2025, EQ is a contributor a positive EBITDA contributor to our business.

[Doug Cooper, MD & Head - Research at Beacon Securities]

Yeah. Yeah. I'm just thinking about 2026. So 2026 and beyond, this is a net income positive business on an annual basis. Correct?

[Michael Degiglio, CEO, President & Director at Village Farms International]

Yes.

[Doug Cooper, MD & Head - Research at Beacon Securities]

Okay.

[Stephen Ruffini, EVP & CFO at Village Farms International]

Yep. Okay. It has every year gross year.

[Aaron Grey, MD & Head - Consumer Research at Alliance Global Partners]

Okay.

[Doug Cooper, MD & Head - Research at Beacon Securities]

Yep. And as well, the 9,900,000.0, of profit, and that's pretax. Correct?

[Stephen Ruffini, EVP & CFO at Village Farms International]

Yes.

[Doug Cooper, MD & Head - Research at Beacon Securities]

Okay. And that also includes the the settlement gain. Correct? Yes. Okay.

[Doug Cooper, MD & Head - Research at Beacon Securities]

Okay. I just want to touch on maybe just what Aaron talked about just in the Canadian cannabis market. We've seen a number of your competitors continue to report revenue down year over year in the Canadian cannabis rec market. Like, who's left? And, you know, maybe that speaks to, Mike, your positive supply demand dynamics that you referred to.

[Michael Degiglio, CEO, President & Director at Village Farms International]

Well, Doug, my mom always said if he can't say anything good, don't say anything at all, so I'd rather not talk about our competitors.

[Doug Cooper, MD & Head - Research at Beacon Securities]

Okay. Maybe just a comment about the dynamics, how the Canadian rec market dynamics look right now. Like the $40,000,000 of excess Can

[Ann Gillin Lefever, COO at Village Farms International]

I help you out?

[Michael Degiglio, CEO, President & Director at Village Farms International]

I'll let Anne come.

[Ann Gillin Lefever, COO at Village Farms International]

I'll help you out here, Doug. So funny enough, even though we've seen pricing strengthen in the wholesale markets for well over a year now, we're only seeing it stabilize, which is good news in the Canadian retail environment. But we're not yet seeing pricing at the retail market level, which tells us there's still plenty of supply or suppliers to the market who are probably trying to take cash proceeds out or take market share. I think it is fair, though, that among those that are reporting, you are seeing improving profitability. You're seeing folks focus on the portfolio and where they're making profits versus not.

[Ann Gillin Lefever, COO at Village Farms International]

I think that's, to use an adage, you're starting to see the cream rise to the top within the Canadian producers. So, I think there's a lot of good players that we respect. We love having that group with us in the market. And I think if we can just start to see some normal market dynamics, supply demand and price respond, I think that'll be a positive. And I think that's important as Canada continues to lead the global market.

[Doug Cooper, MD & Head - Research at Beacon Securities]

Okay. Just as we look forward into 2026 or 2027, international sales as a percentage of total Canadian cannabis revenue, would you think it looks somewhat similar to what you just reported in Q2? Or what do you think the SKU is not included in The Netherlands business?

[Ann Gillin Lefever, COO at Village Farms International]

I would say easiest bet is to say it could be where it is. The challenge is that the growth is still a little bit hotter overseas than in Canada. So keeping pace with market growth or exceeding it would mean you'd kind of have a similar mix in 2027.

[Michael Degiglio, CEO, President & Director at Village Farms International]

If I can add some color, I mean, you know, you have to at some point, Canadian LPs have to be profitable. I mean, the day is gonna come when you're measuring fundamentals, and you just can't keep raising capital and continuing to fund operations. Like any other normal business, you have to be profitable at some point. So question is, how long can they go continuing with ATMs and so on to continue to flourish or continue to exist, I should say so. So who knows what the next couple of years, the dynamics will be in Canada. We'll have to wait and see.

[Doug Cooper, MD & Head - Research at Beacon Securities]

Okay. Just on the balance sheet, obviously, a tremendous improvement there. Are you seeing any M and A opportunities, whether it be in The Netherlands or Canada?

[Michael Degiglio, CEO, President & Director at Village Farms International]

Well, we first of all, we are so proud that we are predominantly growing organically. We always have everything we're doing on the international markets we've done organically, we haven't purchased any companies to get where we are in international today, because I think it's easy for companies to purchase a company and then, you know, spend a huge amount on M and A, and then be able to say, well, you know, I'm number one market share, I have these revenues, we don't do that. But that's not to say that M and A isn't on our list, it would have to be very accretive, or very strategic. And so far, we continue to not see that happening. Think, you know, we're the partner of choice for a lot of the European companies we're working with.

[Michael Degiglio, CEO, President & Director at Village Farms International]

So M and A is not off the table, certainly in The Netherlands. If we look at The US, I think M and A will play a role in The US when and if we can enter that market. But right now in Canada, unless there's a very strategic reason tied to maybe technology or something else, I just don't see us looking at that in the near term.

[Doug Cooper, MD & Head - Research at Beacon Securities]

Okay. Final one for me, just on market looks to be up significantly this morning based on some reporting that descheduling is sort of returning to favor in the US administration. Thoughts on that and thoughts on what the implication is for your Texas greenhouse that didn't that remains in the portfolio?

[Michael Degiglio, CEO, President & Director at Village Farms International]

Well, you know, the largest market in the world is The US and I think everyone is feeling the momentum today. It's not if, it's just when. And we have worked very hard the last couple of years to continue to look at option A, B and C for our entry point to The US outside of what we're currently in, which is on the cannabinoid side because that is legal and accepted by the NASDAQ. You know, schedule three comes, I think it's a stepping stone to safe banking. I still believe that a lot of The US model is experimental.

[Michael Degiglio, CEO, President & Director at Village Farms International]

And what I mean by that is if it changes, and at some point, even interstate commerce occurs, I think at that time, large scale, low cost, just like the winning formula in Canada and other places has to prevail. So I think there'll be a change in the market. Again, with our Texas assets, you know, to go out and spend hundreds of millions of dollars to build the capacity we currently have the optionality on, we're ready to go there, whether that's a stepping point in Texas and Texas alone could be a very huge market as our entry point. And as I said earlier, M and A is on the table for The US market, but we, you know, the timing, like we were very frustrated with the last administration making campaign promises and doing nothing. But on the other hand, you know, the timing really worked out for us because it continued to strengthen our position in Canada as a top tier player.

[Michael Degiglio, CEO, President & Director at Village Farms International]

And more importantly, it allowed in those last few years to have a footprint in the first adult use recreational market in Europe, which could be, which we could leverage up, that into other countries in the future, should they go wreck. Secondly, it allowed us to take a very commanding position in the international medicinal market, without being diluted on our US strategy. So that foundation is in place now, we just got to keep executing and building upon it. And the timing is actually better for us as The US looks to open up. So we feel from a timing perspective, we're in a very good place.

[Doug Cooper, MD & Head - Research at Beacon Securities]

Thanks, Mike. And just to be clear, The US federal rescheduling, does that have to follow suit in Texas, or can they somehow opt out of that?

[Michael Degiglio, CEO, President & Director at Village Farms International]

Well, it's interesting. You know, Texas as a republican Texas, that they do have a mandate that they have to follow federal guidelines. So, you know, it's been kind of a nebulous for lack of a better term in Texas these days, but, they do have to follow those guidelines. And, you know, there's gonna be a lot of swinging going on till it stabilizes in the next couple of years. Texas would have to follow that.

[Michael Degiglio, CEO, President & Director at Village Farms International]

And, the other thing on, the scheduling to three as medical, it could open up the doors for us to export medical marijuana from Canada to The United States, which is a whole nother conduit that, no one else is really thinking about right now. So, yeah, we think we're in a good way. So, but for Texas, we love Texas. We've been there, as I said in my remarks, twenty years. We'll see what happens with the teacup, licensing here in the next month.

[Michael Degiglio, CEO, President & Director at Village Farms International]

So, and you know, we've always been patient. And I think that's one of the virtues of, villages, we're patient, we don't react to we know what the game rules are, what the regulations are. We just, we're not here to waste money and have some costs. Yeah, I feel like we're in a good position via Texas or The US as a whole.

[Doug Cooper, MD & Head - Research at Beacon Securities]

Great. Thanks very much, Mike.

[Michael Degiglio, CEO, President & Director at Village Farms International]

A reminder You're

[Stephen Ruffini, EVP & CFO at Village Farms International]

welcome, Doug.

[Operator]

As a reminder, to ask a question, please press 11 on your phone and wait for your name to be announced. Our next question will be coming from Frederico Gomes of ATB Capital Markets. Your line is open.

[Frederico Gomes, Director - Institutional Research & Life Sciences at ATB Capital Markets]

Hi, good morning. Thanks for taking my questions. Congrats on the great quarter here. First question on your Canadian cannabis gross margins, very strong there, I guess in the high end of your 30 to 40 range. But do you think there is upside to those margins, considering what you're seeing in international?

[Frederico Gomes, Director - Institutional Research & Life Sciences at ATB Capital Markets]

Could we be at a point here where we could see your target range moving above that 40% level? Thanks.

[Stephen Ruffini, EVP & CFO at Village Farms International]

With with with the SKU mix and and the customer mix, it's possible.

[Michael Degiglio, CEO, President & Director at Village Farms International]

You know, with respect to in

[Stephen Ruffini, EVP & CFO at Village Farms International]

some markets, we believe could be more lucrative like The UK. Again, that's an emerging market, and, you know, we'll see, but that certainly is is possible. We could be reporting our numbers.

[Ann Gillin Lefever, COO at Village Farms International]

I would also just say that, you know, the the as we add unit volume to our existing footprint, that improves our cost base. And so you're seeing some of that in the margins as well. And the team on the ground has worked very hard on continuous improvement as well. So those are also contributing. And just the last thing I would add is the price equation in some of our newer markets is still settling out.

[Ann Gillin Lefever, COO at Village Farms International]

And so, I think we're being prudent by just keeping this price this gross margin range as we know the story of Canadian cannabis price compression and we're prepared for it.

[Frederico Gomes, Director - Institutional Research & Life Sciences at ATB Capital Markets]

Thank you. Appreciate that. And then just talking about growth, guess, for the second half of this year, I guess, just thinking that you're seeing more demand than you can supply at this point, which I think is a good problem to have. But in terms of drivers for growth in the second half, how should we think about that? Thank you.

[Michael Degiglio, CEO, President & Director at Village Farms International]

Well, I think the second half we feel, you know, we just don't want to get ahead of ourselves. That's the main thing. So we're basically saying that for the remainder of the year, we think we'll be tracking pretty similar. And with maybe the exception of Lely, who's continuing to ramp up, as you know, we just got in production, we're approaching fully ramped up and diversifying the SKUs there. So we think we'll see continuous growth there and coupled with quadrupling our capacity for next year, we see that as a strong ramp up internationally.

[Michael Degiglio, CEO, President & Director at Village Farms International]

But I think right now, we're pretty constrained for anything more than we've seen in first half.

[Frederico Gomes, Director - Institutional Research & Life Sciences at ATB Capital Markets]

Thank you very much.

[Michael Degiglio, CEO, President & Director at Village Farms International]

Thanks, Federico.

[Operator]

I would now like to turn the call back to Mike for closing remarks.

[Michael Degiglio, CEO, President & Director at Village Farms International]

Well, thanks everyone for participating today. We really appreciate listening to our second quarter results. We are excited about the future and very much look forward to further communication and reporting our third quarter here in November. Thank you, operator.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Michael Degiglio, CEO, President & Director
• Stephen Ruffini, EVP & CFO
• Ann Gillin Lefever, COO

Analysts

• Aaron Grey, MD & Head - Consumer Research at Alliance Global Partners
• Doug Cooper, MD & Head - Research at Beacon Securities
• Frederico Gomes, Director - Institutional Research & Life Sciences at ATB Capital Markets