Village Farms gets the spotlight on CNBC with Jim Cramer
Relatively small farm produce grower turned cannabis grower with outstanding results, have a read of the earnings call transcript (source Seeking Alpha.)which paints a very healthy financial picture.
So, let's start with the results under concept of Delta 3 still being in production wrap-up during this quarter as the two remaining quadrants were only planted out in April. As we announce Delta 3 reached full production on schedule post-Q2. And I'll discuss that in a moment. Total sales in Pure Sunfarms for Q2 and a lot of the numbers I discuss here are before Village Farms' 50% share. They increased 125% sequentially from Q1 to $32.4 million in Canadian dollars. I want to note here that Pure Sunfarms continues to wait on its license amendment permitting sales directly to provincial territorial and other retailers. Q2 sales were almost entirely the other licensed producers. So, we realized somewhat lower pricing than we expect to achieve selling directly to providences in the future.
For competitive reasons, I won't be providing specifics around the selling price.But I will note that spot market demand remains strong. And spot market pricing continues to be attractive. And Pure Sunfarms continue to sell everything it's producing. With respect to the cost of production, from day one, we have stated our belief that Pure Sunfarms can be a low-cost producer in Canada. And the Q2 results are now providing us with the continued confidence here going forward. All in all, cost of goods sold were $0.65 per gram in Canadian currency. Again, that is all in production costs. That's down meaningful from approximately $1.35 in Q1 and works out to $0.82 for the first half of the year. Steve will provide more contexts around this number when he discusses the financials. You've heard me say that in the end, the only production cost that really matters is on the last day of the fiscal year. And that's due to variations that are seasonal. While I believe this is still the case, giving the intense focus on this metric by our competitors, we are providing it now for additional content for the market.
As the Canadian markets develop and mature, it's become increasingly evident as we have said all along that being a low-cost producer of high quality, safe cannabis will be a significant advantage. Drivers primarily by the lower cost of production, Pure Sunfarms' growth margin for Q2 expanded significantly to 84% from 65% in Q1. Q2 marked the third consecutive quarter of profitability for Pure Sunfarms. And that's third consecutive quarter of sales and profitability. That's every quarter since our first full quarter of sales with total net income, again, before Village Farms' 50% share increasing 226% sequentially to $37.2 million Canadian. And finally, total Pure Sunfarms EBITDA, which most notably excludes the benefit of the change in biological asset increased 194%, again, sequentially to $25.29 Canadian dollars. That equates to an EBIDTA margin of 78%, an increase of 1,900 basis points from an EBITDA margin of 59% in Q1 of this year.
I want to be clear that this is true profitability based on cannabis production and sales of only cannabis products. There is nothing in these numbers artificially inflated to cost of this quarter. Pure Sunfarms Q2 financial results clearly rank among the largest, most efficient, most profitable license producers in Canada. That was our initial goal before we continued on to other initiatives including brand strategy and product development. In fact, Pure Sunfarms remains one of the few major license producers in Canada report profitability, let alone consistent profitability. And I wish to reiterate my comments about this on our last call. Based on my 30-plus years in the business, achieving profitability this quickly while still in production is a great achievement. But it's not luck. The harder we work, the luckier we get.But on the other hand, this is based on experience and know-how and everything we've communicated recently in driving these numbers.
For us, the Village Farms, Pure Sunfarms Q2 operational financial performance and achieving such levels in just 24 months since Village Farms first announced our intention to enter the cannabis space in Canada is all the more satisfying because we see it as a clear validation of a differentiated strategy, a strategy that was dismissed by many when we first announced our intention to enter the space. Village Farms has dealt in best-in-class cannabis operation, evidenced by these Q2 results. We have achieved this with a foundation of exceptional assets and the understanding of the value of converting existing high-performance greenhouse operations with decades of sight-specific operating history, years of chronological data, and most importantly, an established and trained labor workforce. Village Farms transferred our own exceptional growing and operation of personnel to Pure Sunfarms.
And we have continued to play an integral role to support Pure Sunfarms' success and added the exceptional senior manager and our CEO, Mandesh Dosanjh and his team that he's building to drive our product and branding strategy, process and product development, and all downstream verticals. It's quite a team and very impressive. And Village Farms has played, again, an integral role throughout our three decades of experience in large-scale, low-cost decision agriculture to bear. We were disruptors. In fact, when looking for a partner in entering the space to help us expedite licensing process, we carried down a number of large producers as partners, names you would well recognize because they didn't share our vision on the way to grow and the cultural side.
Today, just two years later, Pure Sunfarms has not only caught up to the rest of the industry but has propelled itself past most of its peers in terms of production and capacity, sales, and production costs and consistent, meaningful profitability despite most others having a significant headstart, many, many years, some even as much as nine years, and having spent tens or even hundreds of millions dollars more to start up their operations. Pure Sunfarms has set a new bar for the industry going forward. We very much look forward to Pure Sunfarms building on a success in a number of value-driving milestones throughout the remainder of 2019 and 2020. As we announced at the beginning of July, subsequent to the quarter and year-end on schedule, Pure Sunfarms achieved its full run-rate production at 75,000 kilograms annually, which should be reflected in higher production sales volume for Q3 and Q4.
We're very proud to note that Pure Sunfarms Delta 3 facility is the first and only single site fully operational cannabis facility in the world in excess of one million square feet. According to Health Canada data as of March 31st of this year, Pure Sunfarms' 1.03 million square feet represented 14% of the current cultivation capacity in Canada, tied for the largest in the country. Earlier, I mentioned license amendment. Some refer to it as a packaging license, that it will now allow Pure Sunfarms to sell dry cannabis products directly providential and private retailers in Canada. The process has taken longer than expected. We filed in December of 2018. And while frustrating, we respect the tremendous workload of the folks at Health Canada these days. To our understanding, Pure Sunfarms has met all Health Canada criteria regarding the amendment and continues to prepare for sales and distribution to the Ontario Cannabis Store, which it has a supply agreement in place. Expect to realize higher selling prices going forward.
Pure Sunfarms is also actively engaged in discussions with other providences around sales and distribution with plans to rapidly expand grounded sales well beyond Ontario. Yet another opportunity for sales and earnings growth going forward at Pure Sunfarms is evolution of its product offering, most importantly, the addition of oils and other derivative products. Pure Sunfarms is making steady progress on a 65,000 square foot state of the art process that are located within the Delta 3 facility. The processing center, which will include on-site extraction capabilities and design for full GMP compliance and certification and remains on schedule to be completed by the end of 2019, in operation as soon as possible, thereafter subject to Health Canada licensing. I mentioned earlier that pricing in the spot market remains quite favorable.
Recently, Pure Sunfarms has been benefiting to an even greater degree as Emerald Health Therapeutics within Pure Sunfarms has a supply agreement onto which it committed to 40% of Pure Sunfarms' output has, since the last part of Q2 been electing not to fully exercise its right to purchase 40% under the agreement. Pure Sunfarms is committed to and has been selling all outfit that Emerald committed to. But it's not purchased to other licensed producers in the spot market. This is clearly beneficial to Pure Sunfarms. And it's realizing a price and a spot market in excess of the predetermined selling prices to Emerald and the supply agreement. As a reminder, the supply agreement -- this particular one concludes at the end of the year when we transition to a new agreement for up to 25% Pure Sunfarms' production and prevailing market prices.
The unmitigated success of Pure Sunfarms today gives us tremendous amount of confidence as Pure Sunfarms moves forward with the conversion of Delta 2, the next 1.1 million square foot sister facility to Delta 3, which is expected to, at a minimum, double Pure Sunfarms' production output. Conversion of the external infrastructure at Delta 2 is now under way. All design and planning has been completed. And mobilization of equipment and all the technologies we need to start the process is on site. And we expect to start pulling the first half of the current crop in two weeks and start an internal conversion. Delta 2 should begin contributing revenues as early as Q2 2020 next year and be operating at full run-rate of production with an additional 75,000 kilograms minimum in Q4, taking Pure Sunfarms totally to at least 150,000 kilograms next year.
As we did with Delta 3 facility, personnel from the existing Village Farms' growing maintenance teams and most critical skilled labor force will be transitioned to Pure Sunfarms December 1st. Those who are regular to these calls have often heard me speak often about the necessity of a best-in-class growing operation to build an exceptional agriculture product brand. That was our goal for Pure Sunfarms. And I'm proud to say that we have achieved that goal. Pure Sunfarms is a best-in-class growing operation. It provides the requisite rock-solid foundation upon which Pure Sunfarms can build a differentiated market-leading brand and so forth.
New hires under Mandesh's leadership brought in deep CPG experience on board VP of ops, Mike Lattimer out of Labbats, Honda, PwC, Maria Guest, VP Brand Commercial already had a year or so in cannabis and 12 years of AB Inbev and Labbats, which is land sweeping quality, 14 years now through health products and three former companies. Zach Barr, Director of Production, 12 years at Pepsi and so on. Adam Patterson, Spot Supply Chain Director, previous in cannabis, 10 years retail CBD companies. David Satite. So on. And Bill Hayer, Director of Engineering. Great mechanical engineer. Ran his own firm. These are just a few of the key executives that are on board Pure Sunfarms recently and now will take the company to an even greater level of profitability, I'm sure.
Turning to United States and the hemp/CBD business; to our U.S. hemp program where, as a reminder, our goal is to build a vertically integrated consumer packaged goods company growing, extracting, producing our own CBD products for big box retail market. On our last call, I talked about our aggressive pursuit of this huge opportunity. We announced it right after legislation was passed in December, purchased $2.5 million worth of seed and went to work with a great, great partner informing Village Field hemp for outdoor cultivation and CBD extraction in the southeast of the United States to start with.
During Q2we took two additional major steps forward. First, we expanded our outdoor hemp cultivation program to Colorado through a joint venture with Arkansas Valley Green and Gold Hemp. That's the name of the company for the excellent growing area that's located adjacent to the Arkansas river in southern Colorado.We have an outstanding partner there as well who is the founder of one of Colorado's largest licensed outdoor cannabis growing operations. Arkansas Valley has already planted out 120 acres to start this year. And we expect to be in harvesting in October. It will have its own on-site extraction operations expected to be operational processing crude CBD oil by early 2020 and looking at smokable CBD flower as well. Our other JV Village Fields Hemp has approximately 600 acres in production in Virginia, North Carolina, South Carolina, which will begin harvesting in the coming weeks with initial sales of hemp biomass to commence in the fourth quarter '19.
Village Fields Hemp is now well in advance planning and engineering work on its large-scale extraction operation in Georgia, which will be located in Soperton and serve the southeast U.S. operations. These are also scheduled to be operational by the end of Q1 next year. So, that's about 720 acres total production outdoors for this year.
Second major milestone with the legalization of hemp and CBD in Texas;we move forward in earnest our greenhouse hemp cultivation program and started conversion and advancement of half of our 1.3 million square foot ultra-high-tech permanent base and greenhouse cultivation extraction. So, we plan to start growing, extracting as soon as possible. That just sets up regulatory framework. And we can obtain the requisite licenses. So, we're waiting on Texas. And with Texas, waiting on the USDA as all the other states that were not approved under 2014 still are. We are off to a great start with our hemp and CBD programs. We're building a rock-solid foundation, exceptional growing operations as we did in Canada with Pure Sunfarms that will enable Village Farms to build an exceptional brand in the CBD market. Hemp biomass sales will start this year. CBD crude sales will start early next year.
And then we'll move to production of branded and white label CBD products formulation to existing model to national big box pharmaceutical companies, grocery companies, as well as other retailers throughout the country. So, with Pure Sunfarms, numerous milestones throughout this year and next to drive growth in revenue profitability in the USA. There's a considerable opportunity. And we are doing a lot of work in the backgrounds of sport house strategy. We're very active in moving forward quickly in R&D and a number of areas including genetic seed, development of advanced growing techniques for greater plant health, and working with a number of universities in that endeavor. Plant health is key. And I would say that's probably at the top echelon of why we're successful. Cannabis a very nascent industry, as we all know. And the tools available for our growing operations are not there may be years before the regulatory process allows that.So, integral with keeping your plant health up. And I firmly believe that with solid plant health, you can avoid all diseases, including mild, which many don't believe. So, enough of that for now.
To conclude, Pure Sunfarms is indicative of the value of our strategy to pivot toward new, outsized growth opportunities and transform the earnings potential of Village Farms. We are only able to capitalize in these significant high-growth opportunities in cannabis and hemp and CBD because of the organization's strength and know-how we've amassed is one of the largest and longest operating greenhouse growth produce businesses in North America. As I have discussed on prior calls, produce business has been challenged in recent years, primarily due to imports from Mexico, which have significant labor cost advantages. We are pivoting with this business to moving production in Mexico, as we try to send off America greenhouse and assets of cannabis and hemp toward significantly better economic returns.
There will be some short-term pain but it will be long-term gain in our produce business. We work through this transition. We've already increased some of our sales 18% this quarter out of Mexico as we start to replace that capacity like Delta 3 and soon to be Delta 2 and the Permian Basin facility. And you can see that in our results. But our produce business will emerge significantly stronger down the road, more competitive, and more valuable. And clearly, financial returns and the shareholder value both short- and long-term that are being generated by our transition to cannabis and hemp are worth it.
ANALYSTS RECOMMENDATION BUY
ANALYSTS PRICE TARGET $35
P/E RATIO 42
SHORT INTEREST 14%
COMPANY PROFILE
Village Farms International, Inc. engages in the management and operation of agricultural greenhouse facilities. It operates through the Produce Business, and Energy Business segments. The Produce Business segment produces, markets, and sells the product group which consists of premium quality tomatoes, bell peppers and cucumber. The Energy Business segment offers power that it sells per a long-term contract to its one customer. The company was founded by Michael A. DeGiglio and Albert W. Vanzeyst in November 1990 and is headquartered in Delta, Canada.
So, let's start with the results under concept of Delta 3 still being in production wrap-up during this quarter as the two remaining quadrants were only planted out in April. As we announce Delta 3 reached full production on schedule post-Q2. And I'll discuss that in a moment. Total sales in Pure Sunfarms for Q2 and a lot of the numbers I discuss here are before Village Farms' 50% share. They increased 125% sequentially from Q1 to $32.4 million in Canadian dollars. I want to note here that Pure Sunfarms continues to wait on its license amendment permitting sales directly to provincial territorial and other retailers. Q2 sales were almost entirely the other licensed producers. So, we realized somewhat lower pricing than we expect to achieve selling directly to providences in the future.
For competitive reasons, I won't be providing specifics around the selling price.But I will note that spot market demand remains strong. And spot market pricing continues to be attractive. And Pure Sunfarms continue to sell everything it's producing. With respect to the cost of production, from day one, we have stated our belief that Pure Sunfarms can be a low-cost producer in Canada. And the Q2 results are now providing us with the continued confidence here going forward. All in all, cost of goods sold were $0.65 per gram in Canadian currency. Again, that is all in production costs. That's down meaningful from approximately $1.35 in Q1 and works out to $0.82 for the first half of the year. Steve will provide more contexts around this number when he discusses the financials. You've heard me say that in the end, the only production cost that really matters is on the last day of the fiscal year. And that's due to variations that are seasonal. While I believe this is still the case, giving the intense focus on this metric by our competitors, we are providing it now for additional content for the market.
As the Canadian markets develop and mature, it's become increasingly evident as we have said all along that being a low-cost producer of high quality, safe cannabis will be a significant advantage. Drivers primarily by the lower cost of production, Pure Sunfarms' growth margin for Q2 expanded significantly to 84% from 65% in Q1. Q2 marked the third consecutive quarter of profitability for Pure Sunfarms. And that's third consecutive quarter of sales and profitability. That's every quarter since our first full quarter of sales with total net income, again, before Village Farms' 50% share increasing 226% sequentially to $37.2 million Canadian. And finally, total Pure Sunfarms EBITDA, which most notably excludes the benefit of the change in biological asset increased 194%, again, sequentially to $25.29 Canadian dollars. That equates to an EBIDTA margin of 78%, an increase of 1,900 basis points from an EBITDA margin of 59% in Q1 of this year.
I want to be clear that this is true profitability based on cannabis production and sales of only cannabis products. There is nothing in these numbers artificially inflated to cost of this quarter. Pure Sunfarms Q2 financial results clearly rank among the largest, most efficient, most profitable license producers in Canada. That was our initial goal before we continued on to other initiatives including brand strategy and product development. In fact, Pure Sunfarms remains one of the few major license producers in Canada report profitability, let alone consistent profitability. And I wish to reiterate my comments about this on our last call. Based on my 30-plus years in the business, achieving profitability this quickly while still in production is a great achievement. But it's not luck. The harder we work, the luckier we get.But on the other hand, this is based on experience and know-how and everything we've communicated recently in driving these numbers.
For us, the Village Farms, Pure Sunfarms Q2 operational financial performance and achieving such levels in just 24 months since Village Farms first announced our intention to enter the cannabis space in Canada is all the more satisfying because we see it as a clear validation of a differentiated strategy, a strategy that was dismissed by many when we first announced our intention to enter the space. Village Farms has dealt in best-in-class cannabis operation, evidenced by these Q2 results. We have achieved this with a foundation of exceptional assets and the understanding of the value of converting existing high-performance greenhouse operations with decades of sight-specific operating history, years of chronological data, and most importantly, an established and trained labor workforce. Village Farms transferred our own exceptional growing and operation of personnel to Pure Sunfarms.
And we have continued to play an integral role to support Pure Sunfarms' success and added the exceptional senior manager and our CEO, Mandesh Dosanjh and his team that he's building to drive our product and branding strategy, process and product development, and all downstream verticals. It's quite a team and very impressive. And Village Farms has played, again, an integral role throughout our three decades of experience in large-scale, low-cost decision agriculture to bear. We were disruptors. In fact, when looking for a partner in entering the space to help us expedite licensing process, we carried down a number of large producers as partners, names you would well recognize because they didn't share our vision on the way to grow and the cultural side.
Today, just two years later, Pure Sunfarms has not only caught up to the rest of the industry but has propelled itself past most of its peers in terms of production and capacity, sales, and production costs and consistent, meaningful profitability despite most others having a significant headstart, many, many years, some even as much as nine years, and having spent tens or even hundreds of millions dollars more to start up their operations. Pure Sunfarms has set a new bar for the industry going forward. We very much look forward to Pure Sunfarms building on a success in a number of value-driving milestones throughout the remainder of 2019 and 2020. As we announced at the beginning of July, subsequent to the quarter and year-end on schedule, Pure Sunfarms achieved its full run-rate production at 75,000 kilograms annually, which should be reflected in higher production sales volume for Q3 and Q4.
We're very proud to note that Pure Sunfarms Delta 3 facility is the first and only single site fully operational cannabis facility in the world in excess of one million square feet. According to Health Canada data as of March 31st of this year, Pure Sunfarms' 1.03 million square feet represented 14% of the current cultivation capacity in Canada, tied for the largest in the country. Earlier, I mentioned license amendment. Some refer to it as a packaging license, that it will now allow Pure Sunfarms to sell dry cannabis products directly providential and private retailers in Canada. The process has taken longer than expected. We filed in December of 2018. And while frustrating, we respect the tremendous workload of the folks at Health Canada these days. To our understanding, Pure Sunfarms has met all Health Canada criteria regarding the amendment and continues to prepare for sales and distribution to the Ontario Cannabis Store, which it has a supply agreement in place. Expect to realize higher selling prices going forward.
Pure Sunfarms is also actively engaged in discussions with other providences around sales and distribution with plans to rapidly expand grounded sales well beyond Ontario. Yet another opportunity for sales and earnings growth going forward at Pure Sunfarms is evolution of its product offering, most importantly, the addition of oils and other derivative products. Pure Sunfarms is making steady progress on a 65,000 square foot state of the art process that are located within the Delta 3 facility. The processing center, which will include on-site extraction capabilities and design for full GMP compliance and certification and remains on schedule to be completed by the end of 2019, in operation as soon as possible, thereafter subject to Health Canada licensing. I mentioned earlier that pricing in the spot market remains quite favorable.
Recently, Pure Sunfarms has been benefiting to an even greater degree as Emerald Health Therapeutics within Pure Sunfarms has a supply agreement onto which it committed to 40% of Pure Sunfarms' output has, since the last part of Q2 been electing not to fully exercise its right to purchase 40% under the agreement. Pure Sunfarms is committed to and has been selling all outfit that Emerald committed to. But it's not purchased to other licensed producers in the spot market. This is clearly beneficial to Pure Sunfarms. And it's realizing a price and a spot market in excess of the predetermined selling prices to Emerald and the supply agreement. As a reminder, the supply agreement -- this particular one concludes at the end of the year when we transition to a new agreement for up to 25% Pure Sunfarms' production and prevailing market prices.
The unmitigated success of Pure Sunfarms today gives us tremendous amount of confidence as Pure Sunfarms moves forward with the conversion of Delta 2, the next 1.1 million square foot sister facility to Delta 3, which is expected to, at a minimum, double Pure Sunfarms' production output. Conversion of the external infrastructure at Delta 2 is now under way. All design and planning has been completed. And mobilization of equipment and all the technologies we need to start the process is on site. And we expect to start pulling the first half of the current crop in two weeks and start an internal conversion. Delta 2 should begin contributing revenues as early as Q2 2020 next year and be operating at full run-rate of production with an additional 75,000 kilograms minimum in Q4, taking Pure Sunfarms totally to at least 150,000 kilograms next year.
As we did with Delta 3 facility, personnel from the existing Village Farms' growing maintenance teams and most critical skilled labor force will be transitioned to Pure Sunfarms December 1st. Those who are regular to these calls have often heard me speak often about the necessity of a best-in-class growing operation to build an exceptional agriculture product brand. That was our goal for Pure Sunfarms. And I'm proud to say that we have achieved that goal. Pure Sunfarms is a best-in-class growing operation. It provides the requisite rock-solid foundation upon which Pure Sunfarms can build a differentiated market-leading brand and so forth.
New hires under Mandesh's leadership brought in deep CPG experience on board VP of ops, Mike Lattimer out of Labbats, Honda, PwC, Maria Guest, VP Brand Commercial already had a year or so in cannabis and 12 years of AB Inbev and Labbats, which is land sweeping quality, 14 years now through health products and three former companies. Zach Barr, Director of Production, 12 years at Pepsi and so on. Adam Patterson, Spot Supply Chain Director, previous in cannabis, 10 years retail CBD companies. David Satite. So on. And Bill Hayer, Director of Engineering. Great mechanical engineer. Ran his own firm. These are just a few of the key executives that are on board Pure Sunfarms recently and now will take the company to an even greater level of profitability, I'm sure.
Turning to United States and the hemp/CBD business; to our U.S. hemp program where, as a reminder, our goal is to build a vertically integrated consumer packaged goods company growing, extracting, producing our own CBD products for big box retail market. On our last call, I talked about our aggressive pursuit of this huge opportunity. We announced it right after legislation was passed in December, purchased $2.5 million worth of seed and went to work with a great, great partner informing Village Field hemp for outdoor cultivation and CBD extraction in the southeast of the United States to start with.
During Q2we took two additional major steps forward. First, we expanded our outdoor hemp cultivation program to Colorado through a joint venture with Arkansas Valley Green and Gold Hemp. That's the name of the company for the excellent growing area that's located adjacent to the Arkansas river in southern Colorado.We have an outstanding partner there as well who is the founder of one of Colorado's largest licensed outdoor cannabis growing operations. Arkansas Valley has already planted out 120 acres to start this year. And we expect to be in harvesting in October. It will have its own on-site extraction operations expected to be operational processing crude CBD oil by early 2020 and looking at smokable CBD flower as well. Our other JV Village Fields Hemp has approximately 600 acres in production in Virginia, North Carolina, South Carolina, which will begin harvesting in the coming weeks with initial sales of hemp biomass to commence in the fourth quarter '19.
Village Fields Hemp is now well in advance planning and engineering work on its large-scale extraction operation in Georgia, which will be located in Soperton and serve the southeast U.S. operations. These are also scheduled to be operational by the end of Q1 next year. So, that's about 720 acres total production outdoors for this year.
Second major milestone with the legalization of hemp and CBD in Texas;we move forward in earnest our greenhouse hemp cultivation program and started conversion and advancement of half of our 1.3 million square foot ultra-high-tech permanent base and greenhouse cultivation extraction. So, we plan to start growing, extracting as soon as possible. That just sets up regulatory framework. And we can obtain the requisite licenses. So, we're waiting on Texas. And with Texas, waiting on the USDA as all the other states that were not approved under 2014 still are. We are off to a great start with our hemp and CBD programs. We're building a rock-solid foundation, exceptional growing operations as we did in Canada with Pure Sunfarms that will enable Village Farms to build an exceptional brand in the CBD market. Hemp biomass sales will start this year. CBD crude sales will start early next year.
And then we'll move to production of branded and white label CBD products formulation to existing model to national big box pharmaceutical companies, grocery companies, as well as other retailers throughout the country. So, with Pure Sunfarms, numerous milestones throughout this year and next to drive growth in revenue profitability in the USA. There's a considerable opportunity. And we are doing a lot of work in the backgrounds of sport house strategy. We're very active in moving forward quickly in R&D and a number of areas including genetic seed, development of advanced growing techniques for greater plant health, and working with a number of universities in that endeavor. Plant health is key. And I would say that's probably at the top echelon of why we're successful. Cannabis a very nascent industry, as we all know. And the tools available for our growing operations are not there may be years before the regulatory process allows that.So, integral with keeping your plant health up. And I firmly believe that with solid plant health, you can avoid all diseases, including mild, which many don't believe. So, enough of that for now.
To conclude, Pure Sunfarms is indicative of the value of our strategy to pivot toward new, outsized growth opportunities and transform the earnings potential of Village Farms. We are only able to capitalize in these significant high-growth opportunities in cannabis and hemp and CBD because of the organization's strength and know-how we've amassed is one of the largest and longest operating greenhouse growth produce businesses in North America. As I have discussed on prior calls, produce business has been challenged in recent years, primarily due to imports from Mexico, which have significant labor cost advantages. We are pivoting with this business to moving production in Mexico, as we try to send off America greenhouse and assets of cannabis and hemp toward significantly better economic returns.
There will be some short-term pain but it will be long-term gain in our produce business. We work through this transition. We've already increased some of our sales 18% this quarter out of Mexico as we start to replace that capacity like Delta 3 and soon to be Delta 2 and the Permian Basin facility. And you can see that in our results. But our produce business will emerge significantly stronger down the road, more competitive, and more valuable. And clearly, financial returns and the shareholder value both short- and long-term that are being generated by our transition to cannabis and hemp are worth it.
ANALYSTS RECOMMENDATION BUY
ANALYSTS PRICE TARGET $35
P/E RATIO 42
SHORT INTEREST 14%
COMPANY PROFILE
Village Farms International, Inc. engages in the management and operation of agricultural greenhouse facilities. It operates through the Produce Business, and Energy Business segments. The Produce Business segment produces, markets, and sells the product group which consists of premium quality tomatoes, bell peppers and cucumber. The Energy Business segment offers power that it sells per a long-term contract to its one customer. The company was founded by Michael A. DeGiglio and Albert W. Vanzeyst in November 1990 and is headquartered in Delta, Canada.