Exclusive interview with Village Farms President and CEO Michael DeGiglio
Village Farms (NASDAQ: VFF) (TSX: VFF) has over 30 years of greenhouse growing experience from cut flowers to produce. When cannabis became legal in Canada, the US-based company saw an opportunity to leverage its greenhouse experience and gain more shareholder value by entering this new market. Now the company is offering a premium brand at an everyday price in the Canadian market and is considering how to expand its cannabis business to include the US President and CEO. Michael DeGiglio spoke to New Cannabis Ventures about Village Farm’s Canadian market position in the US strategy and growth path. The audio of the entire conversation can be found at the end of this written summary.
Decades of experience
Starting up a greenhouse is an enormous task. Village Farms has built several mega-projects across North America over the years it has been in operation. That experience helped him thrive in the cannabis room. While other Canadian operators have had to shut down assets, Village Farms is doubling its capacity, according to DeGiglio.
Village Farms is now well established as a greenhouse grower, but DeGiglio hasn’t always been involved in agriculture. His background is in aeronautical science; He spent years as a tactical jet pilot for the Navy. After retiring as a naval captain, he decided to do business and ended up in agriculture. He initially focused on greenhouse technology in Europe and eventually founded Village Farms.
The stock was publicly traded on NASDAQ years ago. The company was privatized in 2000 and floated back on the stock exchange in 2006 when it bought a large greenhouse company in Canada.
Moving to cannabis
Over the course of its history, the company has learned to adapt to changing market dynamics. Years ago the company focused on cut flowers, but this industry has largely been relocated to other countries such as Colombia. So village farms emigrated to produce. Now it has to compete with the lower labor costs of countries like Mexico. Today, cannabis offers the company the opportunity to create shareholder value. Canada currently does not allow the import of cannabis. According to DeGiglio, Village Farms can leverage its decades of experience just to compete with other Canadian producers.
Village Farms analyzed the Canadian cannabis market for a year and a half before entering. The team wanted to make sure it had a sustainable business model. Now, Pure Sunfarms, its cannabis-focused subsidiary, is focused on becoming one of the largest growers in North America.
Pure Sunfarms team members
Canadian market position
The company’s cannabis grow operations are based in British Columbia. For the past five to six quarters, his flower has been a top seller in the Ontario market. According to DeGiglio, Village Farms plans to continue to dominate the flower and achieve a 20 percent market share in Canada.
Flower remains a priority for the company; The Pure Sunfarms team is researching new strains and higher potency to further meet consumer demand. Additionally, the company has entered other product categories such as vape pens, prerolls, gums, and oils. DeGiglio believes it will take time to grow in these categories, but the company is committed.
The company offers products such as flowers, prerolls, and oils.
The company does not belong to the confectionery or beverage categories. DeGiglio doesn’t necessarily want to explore the confectionery category, and when it comes to drinks, Village Farms chooses to wait for that category to gain traction.
Village Farms is carefully reviewing its US marketing strategy. As a TSX and NASDAQ listed company, it will not participate in the U.S. cannabis industry until some form of federal legalization advances. The company has a significant institutional shareholder base and, according to DeGiglio, does not want to risk being delisted.
While the company has to wait, it keeps an eye on the legislative landscape and prepares to enter the market in a number of ways. First, the company has six million square feet of high-tech greenhouse space in southwest Texas. No major MSO in Texas currently competes with very limited medical licenses in that state, according to DeGiglio. When the time comes, the company will be ready to convert that asset and become a competitive, low-cost producer in that market.
When full legalization is complete, the Village Farms team expects interstate trade to become part of the industry at some point. This change could allow the company to reach more states.
After all, Village Farms in the US has been growing hemp since it was legalized in 2018. While awaiting further clarification from the FDA, the health and wellness market represents a third potential entry point into the US market.
Outside of North America, Village Farms has its eye on the European market. The company is actively trying to move forward on the leisure side in the Netherlands. However, DeGiglio admits that the European market is still emerging and growing slowly. Village Farms will carefully watch how it enters this market.
In Canada, Village Farms is a low cost producer with consistently positive cash flow and positive EBITDA. It also has the ability to scale its current footprint to double or even triple its capacity. With this in mind, mergers and acquisitions are not a priority in the Canadian market. DeGiglio remains the company’s largest shareholder and aligns it with other shareholders. In his view, any dilution from M&A would have to be very positive for the company.
Any technology or intellectual property mergers and acquisitions would certainly be of interest. The company is open for business in the US or internationally. The company already has a stake in Altum International, a company in the Asia-Pacific market. Village Farms plans to start exporting to Australia and could expand its position in Altum in the future.
According to DeGiglio, Village Farms has $ 135 million in cash and an incoming warrant that increases that liquidity position to $ 150 million. Currently, he sees a share buyback as a great use of the proceeds and the best return for shareholders. The company recently announced a normal offer from a price issuer for up to 5% of its shares.
The company is currently in a position where it does not need additional capital. The company has sufficient cash to convert its Texas assets at this point in time and to review potential mergers and acquisitions.
If Village Farms later needs to raise more capital, DeGiglio recommends looking at the company’s track record. It has made a number of small capital increases and put that equity into action.
Village Farms is expanding its capacity in Canada. The company expects that by then next year it will increase from 90 million grams of production to 180 million grams of production. According to DeGiglio, it never grows what it can’t sell. The company had $ 13 million in inventory in the fourth quarter and the same amount in the first quarter.
Village Farms plans to double its capacity in Canada.
The company has 16 to 17 grow rooms per location. It always works with the ability to reduce or ramp up production depending on market needs. For example, the company cut production due to the COVID-19 pandemic and shutdown orders. It is now fully productive again.
While the pandemic has been challenging in the Canadian market, the company is steadily pursuing its goal of achieving a 20 percent market share. In the US, Village Farms is waiting for a change in regulations. Although the cannabis industry continues to evolve, the company is looking for ways to capitalize on this tremendous CPG opportunity in North America and in international markets.
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Carrie Pallardy, a Chicago-based writer and editor, began her career in the healthcare industry writing, editing, and interviewing subject matter experts from a variety of industries. As a published author, Carrie continues to tell her network of readers compelling, undiscovered stories. Contact us for further information.