Village Farms(VFF) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's analysis Item 1. Financial Statements This section presents Village Farms International's unaudited condensed consolidated financial statements and notes Condensed Consolidated Statements of Financial Position This statement provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates | ASSETS (in thousands of USD) | June 30, 2025 | December 31, 2024 | | :----------------------------- | :------------ | :---------------- | | Total current assets | $137,573 | $116,019 | | Total assets | $403,744 | $389,306 | | Total current liabilities | $51,820 | $62,219 | | Total liabilities | $109,552 | $125,348 | | Total shareholders' equity | $284,337 | $254,005 | - Total assets increased by $14.4 million (3.7%) from December 31, 2024, to June 30, 2025, primarily driven by an increase in cash and cash equivalents[15] - Total current liabilities decreased by $10.4 million (16.7%) over the six-month period, contributing to an improved current asset to current liability ratio[15] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This statement details the company's revenues, expenses, and net income or loss over specific reporting periods | Metric (in thousands of USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Sales | $59,899 | $53,597 | $99,579 | $95,584 | | Gross profit | $22,342 | $13,637 | $36,522 | $24,854 | | Income (loss) from continuing operations | $9,945 | $(16,555) | $7,833 | $(21,390) | | Income (loss) from discontinued operations, net of tax | $16,294 | $(7,003) | $11,291 | $(4,847) | | Net income (loss) attributable to Village Farms International, Inc. shareholders | $26,497 | $(23,549) | $19,794 | $(26,401) | | Basic EPS (Continuing Operations) | $0.09 | $(0.15) | $0.08 | $(0.20) | | Basic EPS (Discontinued Operations) | $0.15 | $(0.06) | $0.10 | $(0.04) | | Basic EPS (Total) | $0.24 | $(0.21) | $0.18 | $(0.24) | - Net income attributable to shareholders significantly improved to $26,497 thousand for the three months ended June 30, 2025, from a loss of $(23,549) thousand in the prior year, driven by improved gross profit and income from discontinued operations[17] - Sales from continuing operations increased by 11.8% for the three months ended June 30, 2025, compared to the same period in 2024[17] Condensed Consolidated Statements of Changes in Shareholders' Equity and Mezzanine Equity This statement tracks changes in the company's equity components, including common stock and retained earnings | Equity Item (in thousands of USD) | Balance at Dec 31, 2024 | Balance at Jun 30, 2025 | | :-------------------------------- | :---------------------- | :---------------------- | | Common Stock | $387,349 | $387,350 | | Additional Paid in Capital | $30,604 | $30,878 | | Accumulated Other Comprehensive Loss | $(18,932) | $(8,669) | | Retained Earnings | $(145,016) | $(125,222) | | Total Shareholders' Equity | $254,005 | $284,337 | | Redeemable Non-controlling Interest | $9,953 | $9,855 | - Total shareholders' equity increased by $30,332 thousand from December 31, 2024, to June 30, 2025, primarily due to net income and a positive cumulative translation adjustment[18] - Accumulated other comprehensive loss improved significantly, reducing from $(18,932) thousand to $(8,669) thousand, largely due to foreign currency translation adjustments[18] Condensed Consolidated Statements of Cash Flows This statement reports the cash generated and used by operating, investing, and financing activities over a period | Cash Flow Activity (in thousands of USD) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :------------------------------- | | Operating activities (continuing) | $22,265 | $(3,713) | | Investing activities (continuing) | $(5,289) | $(2,813) | | Financing activities (continuing) | $(4,986) | $(5,886) | | Discontinued Operations | $27,892 | $7,219 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $40,357 | $(5,634) | | Cash, cash equivalents and restricted cash, end of period | $64,988 | $29,657 | - Net cash provided by operating activities from continuing operations significantly improved to $22,265 thousand for the six months ended June 30, 2025, compared to a use of $(3,713) thousand in the prior year[20] - Cash flows from discontinued operations provided $27,892 thousand, a substantial increase from $7,219 thousand in the prior year, primarily due to the sale of certain Produce segment assets[20] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and additional information for the financial statements 1. BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES This section outlines the company's business segments, financial presentation, and key accounting policies - Village Farms International, Inc. operates through subsidiaries including Pure Sunfarms (Canadian cannabis), Balanced Health (U.S. CBD), Rose LifeScience (Quebec cannabis), Leli Holland (Netherlands cannabis), VF Clean Energy (clean energy), and Village Farms, L.P. (produce)[22][24][97] - The company reclassified certain disposed assets as discontinued operations as of June 30, 2025, reflecting a strategic shift in its business model[26][60] Exchange Rate (C$ to US$) | Exchange Rate (C$ to US$) | June 30, 2025 | June 30, 2024 | December 31, 2024 | | :------------------------ | :------------ | :------------ | :---------------- | | Spot rate | 0.7324 | 0.7310 | 0.6957 | | Three-month period ended | 0.7226 | 0.7308 | N/A | | Six-month period ended | 0.7096 | 0.7363 | N/A | 2. INVENTORIES This section details the composition and changes in the company's inventory balances Inventory Classification (in thousands of USD) | Inventory Classification (in thousands of USD) | June 30, 2025 | December 31, 2024 | | :--------------------------------------------- | :------------ | :---------------- | | Cannabis: Raw materials | $6,191 | $6,372 | | Cannabis: Work-in-progress | $9,766 | $7,052 | | Cannabis: Finished goods | $14,225 | $21,872 | | Cannabis: Packaging | $5,000 | $3,100 | | Produce: Crop inventory | $4,294 | $2,860 | | Total Inventory, net | $39,476 | $41,256 | - Total inventories decreased by $1,780 thousand (4.3%) from December 31, 2024, to June 30, 2025, primarily due to a reduction in cannabis finished goods[36] - Cannabis work-in-progress increased by $2,714 thousand (38.5%), while finished goods decreased by $7,647 thousand (34.9%)[36] 3. REVENUES This section provides a breakdown of the company's revenue streams by classification and segment Revenue Classification (in thousands of USD) | Revenue Classification (in thousands of USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Cannabis: Branded | $24,962 | $30,535 | $47,713 | $59,555 | | Cannabis: Non-Branded | $7,077 | $8,266 | $13,367 | $14,736 | | Cannabis: International | $11,980 | $1,505 | $17,368 | $3,003 | | Cannabis: U.S. Cannabis | $3,841 | $4,297 | $7,745 | $8,834 | | Cannabis: Netherlands Cannabis | $2,483 | — | $2,969 | — | | Produce | $8,574 | $8,434 | $8,601 | $8,438 | | Clean Energy | $483 | $121 | $909 | $121 | | Total Revenue | $59,899 | $53,597 | $99,579 | $95,584 | - Total revenue from continuing operations increased by $6,302 thousand (11.8%) for the three months ended June 30, 2025, and by $3,995 thousand (4.2%) for the six months ended June 30, 2025, compared to the prior year periods[39] - International Cannabis sales saw a significant increase, growing by $10,475 thousand (696%) for the three months and $14,365 thousand (478%) for the six months ended June 30, 2025, driven by new customer relationships and increased sales from existing customers[39] 4. PROPERTY, PLANT AND EQUIPMENT This section details the company's property, plant, and equipment, including changes and depreciation expense Property, Plant and Equipment (in thousands of USD) | Classification (in thousands of USD) | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Land | $14,082 | $13,451 | | Buildings | $187,102 | $180,091 | | Construction in progress | $13,624 | $10,971 | | Property, plant and equipment, net | $181,837 | $175,226 | - Net property, plant and equipment increased by $6,611 thousand (3.8%) from December 31, 2024, to June 30, 2025, primarily due to an increase in buildings and construction in progress[40] Depreciation Expense (in thousands of USD) | Depreciation Expense (in thousands of USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Depreciation expense | $3,796 | $3,494 | $6,779 | $6,706 | 5. GOODWILL AND INTANGIBLE ASSETS This section provides information on the company's goodwill and intangible assets, including impairment assessments Goodwill (in thousands of USD) | Goodwill (in thousands of USD) | December 31, 2024 | June 30, 2025 | | :----------------------------- | :---------------- | :------------ | | Cannabis - Canada | $42,315 | $44,544 | Intangible Assets (in thousands of USD) | Intangible Assets (in thousands of USD) | June 30, 2025 | December 31, 2024 | | :-------------------------------------- | :------------ | :---------------- | | Licenses | $18,560 | $17,196 | | Brand and trademarks | $3,442 | $12,520 | | Customer relationships | $13,190 | $12,530 | | Intangibles, net | $24,980 | $25,105 | - Goodwill for Cannabis - Canada increased by $2,229 thousand due to foreign currency translation adjustment[42] - The Company recorded a goodwill and brand intangible asset impairment charge of $11,939 thousand for its U.S. Cannabis segment as of June 30, 2024, due to underperformance and market challenges, with no impairment indicators identified at June 30, 2025[47][48][51] 6. LINE OF CREDIT AND LONG-TERM DEBT This section details the company's credit facilities and long-term debt obligations, including refinancing Debt Classification (in thousands of USD) | Debt Classification (in thousands of USD) | June 30, 2025 | December 31, 2024 | | :---------------------------------------- | :------------ | :---------------- | | FCC Term Loan | $19,837 | $20,821 | | Pure Sunfarms Term Loan Facility | $19,266 | — | | Total Long-Term Debt | $31,206 | $32,420 | | Current maturities of long-term debt | $7,897 | $8,142 | - The Company refinanced its Pure Sunfarms Term Loans on April 17, 2025, consolidating previous facilities into a new secured credit facility with an aggregate borrowing capacity of C$37.4 million, including a C$10.0 million revolving credit facility and a C$27.4 million term loan facility[55][229] - The weighted average annual interest rate on short-term borrowings decreased from 9.4% at December 31, 2024, to 6.9% at June 30, 2025[58] 7. DISCONTINUED OPERATIONS AND DISPOSALS This section outlines the financial impact of the company's discontinued operations and asset disposals - On May 30, 2025, the Company privatized certain assets and operations of its Fresh Produce segment through a transaction with Vanguard Food, LP, receiving $40 million in cash proceeds and a 37.9% equity ownership interest in Vanguard[60] Discontinued Operations (in thousands of USD) | Discontinued Operations (in thousands of USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Sales | $25,358 | $38,586 | $62,753 | $74,675 | | Net income (loss) from discontinued operations, net of tax | $16,294 | $(7,003) | $11,291 | $(4,847) | | Gain on sale of assets | $19,985 | — | $19,985 | — | - The transaction resulted in a gain on sale of $19,985 thousand and led to the reclassification of the Produce segment's historical results as discontinued operations[60][63] 8. EQUITY INVESTMENTS This section describes the company's equity investments and their accounting treatment - The Company holds a 37.9% equity ownership interest in Vanguard Food LP, valued at an estimated $3,530 thousand, and accounts for this investment using the Hypothetical Liquidation Book Value (HLBV) method[64] - No income on equity method investments attributable to Vanguard was recorded for the three and six months ended June 30, 2025[64] 9. FINANCIAL INSTRUMENTS This section discusses the fair value and classification of the company's financial instruments - The carrying values of cash and cash equivalents, trade receivables, trade payables, accrued liabilities, line of credit, lease liabilities, notes payable, and debt approximate their fair values due to their short-term maturity or the use of market interest rates[66] - No financial instruments were categorized as Level 3 at June 30, 2025, and December 31, 2024, other than minority investments, and no transfers between levels occurred[67] 10. RELATED PARTY TRANSACTIONS AND BALANCES This section outlines transactions and balances with related parties, including lease payments Related Party Transaction (in thousands of USD) | Related Party Transaction (in thousands of USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Lease payments to Company employee (C$) | $78 | $151 | $114 | $190 | | Salary and benefits to related employee | $63 | $24 | $99 | $54 | - Lease payments to a related party for the Rose office building decreased by 48.3% for the three months and 40% for the six months ended June 30, 2025, compared to the prior year[68] 11. INCOME TAXES This section details the company's income tax provision, deferred tax assets, and valuation allowances Income Tax Provision (in thousands of USD) | Income Tax Provision (in thousands of USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Provision for income taxes | $2,503 | $260 | $3,486 | $580 | - The provision for income taxes significantly increased for both the three and six months ended June 30, 2025, compared to the prior year, reflecting improved profitability[70] - The Company established a valuation allowance of $44,084 thousand as of June 30, 2025, against its deferred tax assets, concluding it is unlikely to fully utilize the benefits in future periods[73] 12. SEGMENT AND GEOGRAPHIC INFORMATION This section provides financial data broken down by the company's operating segments and geography - The Company operates in five reportable segments: Cannabis-Canada, Cannabis-U.S., Cannabis-Netherlands, Produce, and Clean Energy, with Leli Holland (Cannabis-Netherlands) becoming a reportable segment in Q4 2024[75][77] - Segment performance is evaluated based on segment operating (loss) income, a change from gross margin in Q4 2024[75][78] Segment Operating Income (Loss) (in thousands of USD) | Segment Operating Income (Loss) (in thousands of USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Cannabis - Canada | $8,864 | $1,956 | $12,577 | $3,760 | | Cannabis - U.S. | $(9) | $(331) | $49 | $(1,042) | | Cannabis - Netherlands | $879 | $(341) | $641 | $(704) | | Produce | $(271) | $(778) | $(2,428) | $(2,320) | | Clean Energy | $430 | $61 | $755 | $41 | | Total Segment Operating Income (Loss) | $9,893 | $567 | $11,594 | $(265) | Total Assets by Geographic Location (in thousands of USD) | Total Assets by Geographic Location (in thousands of USD) | June 30, 2025 | December 31, 2024 | | :-------------------------------------------------------- | :------------ | :---------------- | | United States | $55,684 | $46,922 | | Canada | $330,528 | $285,942 | | Netherlands | $17,024 | $11,093 | | Total assets from continuing operations | $403,236 | $343,957 | 13. INCOME (LOSS) PER SHARE This section presents the basic and diluted earnings per share for continuing and discontinued operations EPS (USD) | EPS (USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------- | :------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Basic EPS (Continuing) | $0.09 | $(0.15) | $0.08 | $(0.20) | | Basic EPS (Discontinued) | $0.15 | $(0.06) | $0.10 | $(0.04) | | Basic EPS (Total) | $0.24 | $(0.21) | $0.18 | $(0.24) | | Diluted EPS (Continuing) | $0.10 | $(0.15) | $0.08 | $(0.20) | | Diluted EPS (Discontinued) | $0.14 | $(0.06) | $0.10 | $(0.04) | | Diluted EPS (Total) | $0.24 | $(0.21) | $0.18 | $(0.24) | - Basic and diluted EPS significantly improved across both continuing and discontinued operations for the three and six months ended June 30, 2025, compared to the prior year periods[86] 14. SHAREHOLDERS' EQUITY AND SHARE-BASED COMPENSATION This section details changes in shareholders' equity and share-based compensation expense Share-based Compensation (in thousands of USD) | Share-based Compensation (in thousands of USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Share-based compensation expense | $123 | $2,196 | $268 | $2,601 | - Share-based compensation expense decreased significantly by 94.4% for the three months and 89.7% for the six months ended June 30, 2025, compared to the prior year periods[87] Stock Option Activity | Stock Option Activity | Outstanding at Dec 31, 2024 | Granted | Forfeited/Expired | Outstanding at Jun 30, 2025 | | :-------------------- | :-------------------------- | :------ | :---------------- | :-------------------------- | | Number of Options | 6,968,409 | 450,000 | (78,000) | 7,340,409 | | Avg Exercise Price | $3.30 | $0.76 | $3.41 | $3.15 | 15. CHANGES IN NON-CASH WORKING CAPITAL ITEMS AND SUPPLEMENTAL CASH FLOW INFORMATION This section outlines the impact of non-cash working capital changes on the company's cash flows Non-Cash Working Capital Items (in thousands of USD) | Non-Cash Working Capital Items (in thousands of USD) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------------------- | :----------------------------- | :------------------------------- | | Trade receivables | $(4,180) | $(6,549) | | Inventories | $3,473 | $7,946 | | Accrued liabilities | $9,788 | $(1,278) | | Total changes in non-cash working capital items | $6,207 | $(6,021) | - Changes in non-cash working capital items provided $6,207 thousand for the six months ended June 30, 2025, a significant improvement from a use of $(6,021) thousand in the prior year, primarily driven by an increase in accrued liabilities[89] 16. SUBSEQUENT EVENTS This section discloses significant events that occurred after the reporting period but before issuance - On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted in the U.S., which includes tax provisions that the Company is currently assessing for impact on its financial statements[92] - On August 4, 2025, the Company made a principal payment of approximately $3 million on the FCC Term Loan[93] - On August 4, 2025, the Company announced plans to convert the remaining 550,000 sq. ft. of its Delta 2 greenhouse to cannabis production to meet increasing demand[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, and strategic shifts for Q2 2025 EXECUTIVE OVERVIEW This overview highlights the company's strategic goals, operational expansions, and recent business model shifts - Village Farms International aims to be a global leader in plant-derived consumer products, leveraging its cultivation expertise in branded and wholesale cannabis[98][103] - The company has expanded its Canadian cannabis operations, achieved EU GMP certification for international medical cannabis exports, and acquired full ownership of Leli Holland for Netherlands cannabis distribution[99][100][101] - The Produce segment underwent a privatization transaction in May 2025, reclassifying certain operations as discontinued, allowing the company to focus on its growing international cannabis business[102][111] Our Operating Segments This section describes the company's diverse operating segments, including cannabis, produce, and clean energy - The Canadian Cannabis segment, including Pure Sunfarms and Rose LifeScience, focuses on low-cost, high-quality cannabis production for Canadian and international markets[104][105][107] - The Netherlands Cannabis segment (Leli Holland) holds one of ten licenses for legal recreational cannabis cultivation and distribution in the Netherlands, with sales commencing in February 2025[108] - The U.S. Cannabis segment, Balanced Health, specializes in CBD and hemp-based health and wellness products distributed via e-commerce[109] - The Produce segment, now primarily VFCLP, grows greenhouse produce in British Columbia, with certain assets privatized in May 2025[110][111] - The Clean Energy segment (VFCE) converts landfill gas into renewable natural gas (RNG) through the Delta RNG Project, generating royalty revenue[113] Recent Developments and Updates This section highlights key operational achievements, market share performance, and strategic transactions - Canadian Cannabis maintained a top-three market share in Canada and achieved high-end gross margins (30-40%) and strongest adjusted EBITDA in six years, while refinancing its term loans at a lower interest rate[114] - International export sales increased by 690% year-over-year in Q2 2025, with the company becoming one of Europe's largest medical cannabis importers[115] - Netherlands Cannabis operations are ramping up, with products in 82.5% of participating coffeeshops, and Phase II facility construction on track to quintuple production capacity by Q1 2026[117] - The Produce segment completed its privatization transaction, receiving $40 million and a 37.9% equity interest in Vanguard Food LP[120] - Subsequent to quarter end, the company announced an investment to expand cannabis cultivation capacity at its Delta, BC campus by 40 metric tonnes annually[121] Presentation of Financial Results This section clarifies the consolidation of financial results and the currency translation methods used - Consolidated results reflect varying ownership interests in Rose LifeScience (70% to 80%) and Leli Holland (85% to 100%) during the reported periods[122] - All financial amounts are stated in U.S. dollars, the reporting currency, with foreign operations' assets and liabilities translated at period-end exchange rates and income statements at average rates[123] Exchange Rate (C$ to US$) | Exchange Rate (C$ to US$) | June 30, 2025 | June 30, 2024 | December 31, 2024 | | :------------------------ | :------------ | :------------ | :---------------- | | Spot rate | 0.7324 | 0.7310 | 0.6957 | | Three-month period ended | 0.7226 | 0.7308 | N/A | | Six-month period ended | 0.7096 | 0.7363 | N/A | RESULTS OF OPERATIONS This section analyzes the company's consolidated and segmented financial performance for the reporting periods Consolidated Financial Performance This section provides an overview of the company's overall sales, gross profit, net income, and Adjusted EBITDA Consolidated Financial Performance (in thousands of USD) | Metric (in thousands of USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Sales | $59,899 | $53,597 | $99,579 | $95,584 | | Gross profit | $22,342 | $13,637 | $36,522 | $24,854 | | Net income (loss) attributable to Village Farms International, Inc. shareholders | $26,497 | $(23,549) | $19,794 | $(26,401) | | Adjusted EBITDA from continuing operations | $17,111 | $2,914 | $20,560 | $3,830 | | Basic EPS | $0.24 | $(0.21) | $0.18 | $(0.24) | - Consolidated sales increased by 12% for the three months and 4% for the six months ended June 30, 2025, compared to the prior year periods[125] - Net income attributable to shareholders saw a significant turnaround, reaching $26,497 thousand for the three months and $19,794 thousand for the six months ended June 30, 2025, from losses in the prior year[125] Discussion of Financial Results This section provides a detailed analysis of the company's financial results, comparing current and prior periods Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 This section compares the company's financial performance for Q2 2025 against the prior year - Sales increased by $6,302 thousand (12%) due to higher Canadian Cannabis sales ($3,773 thousand), initial Leli sales ($2,483 thousand), and increased Produce sales ($140 thousand), partially offset by a decrease in U.S. Cannabis sales ($456 thousand)[129] - Gross profit surged by $8,705 thousand (64%) to $22,342 thousand, driven by improved gross profit in Canadian Cannabis ($6,763 thousand) and Leli's first-year sales ($1,436 thousand)[131] - Net income attributable to shareholders increased by $50,046 thousand, primarily due to improved gross margins, a favorable vendor settlement, and a $11,939 thousand impairment charge in the prior year that did not recur[141] - Adjusted EBITDA improved from $(3,559) thousand to $13,260 thousand, mainly due to better Canadian Cannabis margins and the Produce segment's favorable vendor settlement[142] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 This section compares the company's financial performance for H1 2025 against the prior year - Sales increased by $3,995 thousand (4%) to $99,579 thousand, primarily from Canadian Cannabis ($1,164 thousand) and Leli's first-year sales ($2,969 thousand), partially offset by a decline in U.S. Cannabis sales ($1,089 thousand)[143] - Gross profit increased by $11,668 thousand (47%) to $36,522 thousand, mainly due to higher gross profit in Canadian Cannabis ($9,730 thousand) and Leli's initial sales ($1,637 thousand)[145] - Net income attributable to shareholders improved by $46,195 thousand, driven by better gross margins, a favorable vendor settlement, and the absence of the prior year's $11,939 thousand impairment charge[153] - Adjusted EBITDA rose from $32 thousand to $13,341 thousand, reflecting improved margins in Canadian Cannabis and the Produce segment's favorable vendor settlement[154] SEGMENTED RESULTS OF OPERATIONS This section provides a detailed breakdown of the financial performance for each operating segment CANADIAN CANNABIS SEGMENT RESULTS This section analyzes the financial performance of the Canadian Cannabis segment, including sales and profit Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 This section compares the Canadian Cannabis segment's performance for Q2 2025 against the prior year - Net sales increased by $3,773 thousand (9%) to $44,518 thousand, primarily due to a $10,475 thousand increase in international sales, partially offset by a $5,573 thousand decrease in branded sales[160] - Gross profit increased by 63% to $17,468 thousand, with gross margin improving from 26% to 39%, driven by higher international bulk flower sales and lower sales of value brands[166] - Adjusted EBITDA for Canadian Cannabis increased by $7,042 thousand (146%) to $11,860 thousand, reflecting improved margins[169] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 This section compares the Canadian Cannabis segment's performance for H1 2025 against the prior year - Net sales increased by $1,164 thousand (1%) to $79,355 thousand, driven by a $14,365 thousand increase in international sales, partially offset by a decrease in branded sales[170] - Gross profit increased by 48% to $29,943 thousand, with gross margin improving from 26% to 38%, due to higher international bulk flower sales and a shift away from value brands[176] - Adjusted EBITDA for Canadian Cannabis increased by $9,667 thousand (109%) to $18,558 thousand, primarily due to improved margins[179] U.S. CANNABIS SEGMENT RESULTS This section analyzes the financial performance of the U.S. Cannabis segment, including sales and profit Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 This section compares the U.S. Cannabis segment's performance for Q2 2025 against the prior year - Net sales decreased by $456 thousand (11%) to $3,841 thousand, attributed to new CBD sales restrictions in eight states and increased competition from unregulated hemp-derived products[181] - Gross profit decreased by $193 thousand (7%) to $2,436 thousand, but gross margin improved from 61% to 63% due to cost efficiencies from internalized gummy manufacturing[183] - Net loss significantly improved by $12,044 thousand to $(226) thousand, primarily due to the absence of the prior year's $11,939 thousand goodwill and intangible asset impairment charge[185] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 This section compares the U.S. Cannabis segment's performance for H1 2025 against the prior year - Net sales decreased by $1,089 thousand (12%) to $7,745 thousand, due to new CBD sales restrictions and competition from unregulated hemp-derived products[187][188] - Gross profit decreased by $295 thousand (6%) to $5,029 thousand, but gross margin improved from 60% to 65% due to cost efficiencies[190] - Net loss improved by $12,813 thousand to $(168) thousand, primarily due to the non-recurrence of the prior year's $11,939 thousand impairment charge[192] NETHERLANDS CANNABIS SEGMENT RESULTS This section analyzes the financial performance of the Netherlands Cannabis segment, including sales and profit Three Months Ended June 30, 2025 This section details the Netherlands Cannabis segment's financial performance for Q2 2025 Metric (in thousands of USD) | Metric (in thousands of USD) | Three Months Ended June 30, 2025 | | :----------------------------- | :------------------------------- | | Net sales | $2,483 | | Cost of sales | $1,047 | | Gross profit | $1,436 | | Gross margin | 58% | | Net income | $835 | | Adjusted EBITDA | $1,218 | - Leli Holland commenced sales in Q1 2025, reporting $2,483 thousand in net sales and a gross profit of $1,436 thousand (58% gross margin) for the three months ended June 30, 2025[194][195][197] Six Months Ended June 30, 2025 This section details the Netherlands Cannabis segment's financial performance for H1 2025 Metric (in thousands of USD) | Metric (in thousands of USD) | Six Months Ended June 30, 2025 | | :----------------------------- | :----------------------------- | | Net sales | $2,969 | | Cost of sales | $1,332 | | Gross profit | $1,637 | | Gross margin | 55% | | Net income | $593 | | Adjusted EBITDA | $1,295 | - For the six months ended June 30, 2025, Leli Holland generated $2,969 thousand in net sales, with a gross profit of $1,637 thousand (55% gross margin)[201][204] PRODUCE SEGMENT RESULTS This section analyzes the financial performance of the Produce segment, including sales and profit Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 This section compares the Produce segment's performance for Q2 2025 against the prior year - Produce sales increased by $140 thousand (2%) to $8,574 thousand[209] - Gross profit increased from $225 thousand to $599 thousand, with gross margin improving from 3% to 7%[211] - Net income from continuing operations improved by $5,566 thousand to $4,269 thousand, primarily due to favorable vendor settlements related to the ToBRFV infestation[213] - Adjusted EBITDA for Produce improved by $8,902 thousand to $2,552 thousand, mainly due to the favorable vendor settlement[215] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 This section compares the Produce segment's performance for H1 2025 against the prior year - Produce sales increased by $163 thousand (2%) to $8,601 thousand[216] - Gross loss increased from $761 thousand to $843 thousand, with gross margin slightly declining from (9%) to (10%)[218] - Net income from continuing operations improved by $4,854 thousand to $1,515 thousand, primarily due to favorable vendor settlements related to the ToBRFV infestation[220] - Adjusted EBITDA for Produce improved by $1,752 thousand to $(2,570) thousand, mainly due to the favorable legal settlement[222] Liquidity and Capital Resources This section discusses the company's ability to meet its financial obligations and fund operations Capital Resources This section outlines the company's available cash, cash equivalents, and working capital position Capital Resources (in thousands of USD) | Capital Resources (in thousands of USD) | June 30, 2025 | December 31, 2024 | | :-------------------------------------- | :------------ | :---------------- | | Cash, cash equivalents, and restricted cash | $64,988 | $24,631 | | Working capital | $85,753 | $53,800 | - Cash, cash equivalents, and restricted cash increased significantly to $64,988 thousand at June 30, 2025, from $24,631 thousand at December 31, 2024[223] - Working capital improved to $85,753 thousand at June 30, 2025, from $53,800 thousand at December 31, 2024[223] FCC Term Loan This section details the terms, outstanding balance, and recent amendments of the FCC Term Loan - The FCC Term Loan had an outstanding balance of $19,837 thousand at June 30, 2025, with a maturity date of May 3, 2027, and an interest rate of 7.83% per annum[226] - On April 10, 2025, the Company entered into an Amended and Restated Credit Agreement with FCC, adding the Company as a new borrower and VF Clean Energy, Inc. as a new guarantor, and replacing the fixed charge ratio covenant with a more favorable liquidity ratio covenant[228] Pure Sunfarms Loans This section describes the new Pure Sunfarms Secured Credit Facilities, including their terms and capacity - On April 17, 2025, the Company entered into new Pure Sunfarms Secured Credit Facilities with a Canadian chartered bank, providing C$37.4 million in aggregate borrowing capacity, replacing previous Pure Sunfarms Loans and revolving line of credit[229] - The new facilities include a C$10.0 million revolving credit facility and a C$27.4 million term loan facility, secured by the Delta 2 and Delta 3 greenhouse facilities, with the term loan repayable quarterly and maturing on February 7, 2028[229][230] Summary of Cash Flows This section provides a summary of cash flows from operating, investing, and financing activities Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :------------------------------- | | Operating activities | $22,265 | $(3,713) | | Investing activities | $(5,289) | $(2,813) | | Financing activities | $(4,986) | $(5,886) | | Discontinued operations | $27,892 | $7,219 | | Net increase (decrease) in cash | $39,882 | $(5,193) | | Cash, end of the period | $64,988 | $29,657 | Operating Activities - Continuing Operations This section details the cash generated or used by the company's continuing operating activities - Cash provided by operating activities from continuing operations was $22,265 thousand for the six months ended June 30, 2025, a significant improvement from cash used of $(3,713) thousand in the prior year, driven by improved Canadian Cannabis gross margins[237] Investing Activities - Continuing Operations This section details the cash used in the company's continuing investing activities - Cash used in investing activities increased to $(5,289) thousand for the six months ended June 30, 2025, from $(2,813) thousand in the prior year, primarily due to capital expenditures for the Leli Phase II indoor cultivation facility[238] Financing Activities - Continuing Operations This section details the cash generated or used by the company's continuing financing activities - Cash used in financing activities decreased to $(4,986) thousand for the six months ended June 30, 2025, from $(5,886) thousand in the prior year, mainly due to debt repayments[239] Contractual Obligations and Commitments This section outlines the company's expected ability to meet its contractual obligations and commitments - The Company expects to meet its contractual obligations and commitments using existing working capital and other resources, with no material cash requirements in the near future beyond long-term debt[240] Non-GAAP Measures This section provides reconciliations and explanations for the company's non-GAAP financial measures Reconciliation of Net Loss to Adjusted EBITDA This section reconciles net income (loss) from continuing operations to Adjusted EBITDA Reconciliation of Net Loss to Adjusted EBITDA (in thousands of USD) | Metric (in thousands of USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Net income (loss) from continuing operations | $10,203 | $(16,546) | $8,503 | $(21,554) | | Adjusted EBITDA from continuing operations | $17,111 | $2,914 | $20,560 | $3,830 | | Adjusted EBITDA | $13,260 | $(3,559) | $13,341 | $32 | - Adjusted EBITDA from continuing operations significantly increased to $17,111 thousand for the three months and $20,560 thousand for the six months ended June 30, 2025, compared to the prior year periods[242] Reconciliation of Segmented Net Loss to Adjusted EBITDA This section reconciles net income (loss) to Adjusted EBITDA for each operating segment Segment Adjusted EBITDA (in thousands of USD) | Segment Adjusted EBITDA (in thousands of USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Produce | $2,552 | $(6,350) | $(2,570) | $(4,322) | | Cannabis Canada | $11,860 | $4,818 | $18,558 | $8,891 | | Cannabis U.S. | $45 | $(240) | $159 | $(855) | | Clean Energy | $430 | $61 | $755 | $41 | | Cannabis Netherlands | $1,218 | $(23) | $1,295 | $(65) | | Corporate | $(2,845) | $(1,825) | $(4,856) | $(3,658) | | Total Adjusted EBITDA | $13,260 | $(3,559) | $13,341 | $32 | - Canadian Cannabis Adjusted EBITDA increased significantly by 146% for the three months and 109% for the six months ended June 30, 2025, driven by improved margins[243][244][245] - Produce Adjusted EBITDA saw a substantial improvement, turning from a loss of $(6,350) thousand to a gain of $2,552 thousand for the three months ended June 30, 2025, primarily due to a favorable vendor settlement[243][244][245] Adjusted EBITDA – Constant Currency This section presents Adjusted EBITDA on a constant currency basis to isolate operational performance - The Company presents constant currency adjusted financial measures to assess underlying operations performance, excluding foreign currency rate fluctuations[246] Constant Currency Performance (Three Months Ended June 30) (in thousands of USD) | Metric (in thousands of USD) | As Reported (3M 2025) | As Reported (3M 2024) | Constant Currency (3M 2025) | Constant Currency Change ($) | Constant Currency Change (%) | | :----------------------------- | :-------------------- | :-------------------- | :-------------------------- | :--------------------------- | :--------------------------- | | Sales | $59,899 | $53,597 | $60,403 | $6,806 | 13% | | Adjusted EBITDA | $13,260 | $(3,559) | $13,394 | $16,953 | 476% | Constant Currency Performance (Six Months Ended June 30) (in thousands of USD) | Metric (in thousands of USD) | As Reported (6M 2025) | As Reported (6M 2024) | Constant Currency (6M 2025) | Constant Currency Change ($) | Constant Currency Change (%) | | :----------------------------- | :-------------------- | :-------------------- | :-------------------------- | :--------------------------- | :--------------------------- | | Sales | $99,579 | $95,584 | $102,601 | $7,017 | 7% | | Adjusted EBITDA | $13,341 | $32 | $14,068 | $14,036 | 3% | Recent Accounting Pronouncements Not Yet Adopted This section confirms no material impact from recently issued accounting pronouncements - No recently issued or newly effective accounting pronouncements are expected to have a material impact on the Company's condensed consolidated financial statements[250] Critical Accounting Estimates and Judgments This section discusses key accounting estimates and judgments, particularly goodwill impairment - The Company's financial statements rely on estimates and judgments, particularly regarding goodwill and intangible asset impairment assessments[252][253] - At June 30, 2025, no impairment indicators were identified for the U.S. and Canadian Cannabis segments, indicating that the fair value of reporting units was not below their carrying amounts[253] - The carrying value of goodwill for the Cannabis – Canada segment was $44.5 million, and intangible assets were $20.9 million as of June 30, 2025[253] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, including interest rate and foreign exchange Interest Rate Risk This section assesses the company's exposure to interest rate fluctuations and their financial impact - As of June 30, 2025, the Company had approximately $39,103 thousand in variable interest rate term loans with a weighted average interest rate of 6.9%[256] - A 50 basis point increase in applicable interest rates would increase interest expense by approximately $50 thousand for the three months and $100 thousand for the six months ended June 30, 2025[257] Foreign Exchange Risk This section evaluates the company's exposure to foreign currency exchange rate fluctuations Impact of $0.10 Increase in C$ (in thousands of USD) | Impact of $0.10 Increase in C$ (in thousands of USD) | June 30, 2025 | June 30, 2024 | | :--------------------------------------------------- | :------------ | :------------ | | Net foreign exchange gain | $4,846 | $6,286 | - The Company is exposed to foreign exchange risk, particularly with the Canadian/U.S. dollar exchange rate (C$1.00 = US$0.7324 at June 30, 2025)[259] - Management monitors foreign exchange risk and generally aims to match sales and vendor payments to mitigate material net impact[259] Item 4. Controls and Procedures This section details the evaluation of disclosure controls, remediation of material weaknesses, and internal control changes Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that the Company maintained effective disclosure controls and procedures as of June 30, 2025[262] Remediation of Previously Identified Material Weakness This section details the successful remediation of prior material weaknesses in internal control - The Company remediated previously identified material weaknesses related to information technology general controls (ITGCs) and manual journal entry review processes in its Produce segment[264][265] - Remediation actions included enhancing risk assessment, limiting privileged user access, implementing controls for timely identification and review of system access and changes, and strengthening review and approval processes for manual journal entries[265][267] - Management conclu