Village Farms International (TSX: VFF) is one of the largest and longest-operating greenhouse growers in North America. The Company leverages decades of experience in large-scale, low-cost intensive agriculture as a vertically integrated produce supplier to pursue high-value, high-growth plant-based Consumer Packaged Goods opportunities in cannabis and CBD in North America and select markets internationally.

Key Highlights

• Acquired Balanced Health Botanicals: On August 16, 2021, the company reported the acquisition of Balanced Health Botanicals including its established e-commerce platform, CBDistillery™ at a price consideration of   USD 75 million, through USD 30 million in cash and the rest through common shares of VFF. The above would provide immediate access to the US retail CBD market through its well-established brands, profitable business, prominent E-commerce platform, established retail channels and a growing customer base.
  

• Encouraging Top-line performance: In H1 2021 the company reported strong top-line growth of USD 122.7 million, as compared to USD 79.6 million a year ago. The growth was driven by the positive impact of store openings across Canada coupled with favorable brand performance and higher market share.

• Favoring conditions in the United States: The company is encouraged by the federal cannabis bill recently brought forward by Senate leadership and view it as an integral step in the process of regulatory change that would allow it to participate in the high-THC cannabis market in the U.S.

• Launch of Cannabis Products: The recent launch of Cannabis Derivate Products also supported the growth. Within the non-branded segment, the operations were benefited from store openings and the growth of the Cannabis Derivate Products, which in turn increased demand for cannabis biomass sold to other licensed producers (LPs). We believe the above momentum to continue in the coming days, supported by higher traction from high-potency flower, trim and Cannabis Derivate Products. 
  

Financial overview of Q2 2021 (In thousands of USD)

Source: Company

• VFF announced its quarterly results, wherein the group reported sales of USD 70.3 million, jumped from USD 5 million in pcp. The increase was driven by strong growth from the Cannabis segment amounting to USD 24.7 million v/s USD 9.3 million in pcp.
• Gross margin stood at USD 5.2 million, climbed from USD 3.5 million in pcp, supported by elevated sales, partially offset by higher cost of sales.
• The quarter was marked by significantly higher selling, general and administrative expenses, an increase in interest expense, and higher share-based compensation.
• Net loss widened to USD 4.5million, from USD 0.1 million in pcp.
  

Risks associated with investment

Despite a surge in income, the company reported higher loss, and continuation of the above trend would dampen the overall performance of the company.

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation 

VFF is one of Canada’s best Selling Cannabis Brands, which offers products like dried flower, vapes, bottled oil etc. Moreover, the recent acquisition of BHB would expands the company’s footprint across the US market, wherein the opportunity for hemp-derived CBD products remains very high.  We have valued the stock using EV to Sales based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). Hence considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 9.70 on October 15, 2021. We have considered Trulieve Cannabis Corp, Valens Company Inc, Agrify Corp, etc. as the peer group for comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

One-Year Technical Price Chart (as on October 15, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.