Village Farms International’s Resilient Growth Signals Encouragement for Investors Village Farms International’s Resilient Growth Signals Encouragement for Investors

By: Alex Freidmen

With dynamics at play in the cannabis sector, Village Farms International (VFF) emerges as a sturdy contender, readying for substantial expansion. Pablo Zuanic, a senior analyst at Zuanic & Associates, spotlights key drivers propelling VFF amidst an ever-evolving cannabis market.

“From a stock perspective, we continue to believe the stock is attractively valued at 0.5x EV/current sales on the aggregate, and with the cannabis unit valued at 3.3x EBITDA our CY25 estimates,” Zuanic wrote.

Promising Growth And Favorable Prospects

VFF stands out with consistent high cannabis EBITDA margins, signaling robust operational performance.

The company demonstrates sustainable free cash flow generation, a trend reaffirmed in 3Q23 following a period of flux.

Rejuvenated Domestic Market Presence

A promising revival in domestic recreational market share positions VFF advantageously. Momentum has surged since July ’23, with VFF showcasing formidable sales growth in 4Q23, surpassing leading competitors.

As per Hifyre scanner data, VFF’s 4Q23 sales growth reached $89.5 million, marking a significant feat amid the competitive cannabis sector.

Analyzing Canadian Market Dynamics

While market challenges persist, VFF retains a resilient standing. The report also spotlights several other prominent cannabis entities, including Tilray Inc. (TLRY), Decibel Cannabis Company Inc. (DBCCF), Organigram Holdings Inc. (OGI), Cronos Group Inc. (CRON), and Auxly Cannabis Group Inc. (CBWTF).

Regional Performance And Product Mix

  • VFF’s sales distribution across provinces underscores its versatile market penetration strategy, adeptly tailored to regional preferences for a competitive edge.
  • In 4Q23, the format mix comprised 78% flower, 18% pre-rolls, 4% vape, and 1% edibles, inclusive of QC, consistent with 4Q22.
  • Flower sales saw a 12% sequential increase, with VFF experiencing a 9% rise, while pre-roll sales noted a 3% uptick.
  • In Quebec, flower sales accounted for 89% of total sales, while pre-rolls constituted 11%.
  • Pure Sunfarms’ format mix comprised 73% flower, 21% pre-rolls, 5% vape, and 1% edibles.
  • As per Hifyre data, Quebec represents approximately one-third of VFF’s flower business and only 17% of its national pre-roll business.
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Pricing Trends

  • The average price for the Pure Sunfarms (PSF) portfolio in 4Q23 stood at $4.12 per gram, a 22% decline over two years, in line with the overall market flower price downtrend.
  • Year-over-year, VFF’s prices dropped by 7%, diverging from the market’s 10% decrease.
  • VFF’s price dip is attributed to brand mix-related factors, with specific brand prices remaining relatively stable amid market fluctuations.

Pre-Roll Segment Challenges And Opportunities

Despite obstacles in the pre-roll segment, VFF displays resilience, steadily augmenting its market share. However, the absence of an infused pre-roll presence highlights a potential growth area for the company.

Strategic Product Portfolio Enhancement

VFF’s strategic approach to product diversification and brand expansion reflects its commitment to meeting evolving consumer demands. The introduction of new brands and SKUs signifies a proactive stance to capture market share.

Anticipating International Expansion

Anticipation builds around favorable international developments, including export growth momentum and strategic investments, promising broader market access for VFF.

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