Village Farms(US:VFF)2022-08-09 19:13Financial Data and Key Metrics Changes - Consolidated sales increased 18% year-over-year to $82.9 million from $70.4 million in Q2 2021, driven by higher sales from both Canadian Cannabis and Fresh produce, along with contributions from the acquisition of Balanced Health [37][41] - Consolidated net loss for the quarter was $36.6 million or negative $0.41 per share, compared to a net loss of $4.5 million or negative $0.06 per share in the same period last year [38] - Consolidated adjusted EBITDA was negative $10.3 million, down from a positive adjusted EBITDA of $1.5 million in Q2 2021, primarily due to the Fresh produce division [39] Business Line Data and Key Metrics Changes - Canadian Cannabis operations net sales grew 25% year-over-year to $38 million, achieving a new quarterly record, with 48% from retail branded sales and 29% from non-branded sales [44] - U.S. Cannabis sales from Balanced Health Botanicals were $5.8 million, with a gross margin of 66% [50] - Fresh produce experienced a negative gross margin of $8.9 million, leading to a negative adjusted EBITDA of $10.4 million, compared to a negative adjusted EBITDA of $4 million in Q2 last year [54] Market Data and Key Metrics Changes - Canadian Cannabis market showed robust growth of 20% year-over-year in May, with the company positioned to benefit from emerging consumer preferences and innovation [59] - The company noted challenges in the Canadian Cannabis industry, including oversupply and price compression, but remains optimistic about its market position [15][59] Company Strategy and Development Direction - The company is focusing on operational efficiency in its Fresh produce business while maintaining optionality for U.S. Cannabis expansion [14][92] - The launch of the Fraser Valley Weed Company brand targets the value segment of the market, aiming to capture market share without significantly cannibalizing the Pure Sunfarms brand [21][87] - The company is investing in innovation and expanding its product offerings, including new strains and product formats, to drive growth in the cannabis sector [23][100] Management Comments on Operating Environment and Future Outlook - Management expressed frustration over the slow progress in U.S. Cannabis regulation but remains confident in the potential for significant growth once comprehensive legislation is enacted [14][92] - The company anticipates that the Canadian Cannabis business will generate positive cash flow moving forward, despite recent challenges in the Fresh produce segment [76] Other Important Information - The company filed a prospectus supplement for an aftermarket offering of up to $50 million to access additional capital as needed [57] - The company is actively reviewing its Fresh produce operations with third-party experts to optimize profitability amid ongoing industry challenges [12] Q&A Session Questions and Answers Question: Insights on Canadian Cannabis retail sales growth - Management is encouraged about the second half of 2022, expecting stronger sales based on historical seasonal trends [64] Question: Details on Fraser Valley brand positioning - The Fraser Valley brand targets price-sensitive consumers in the value segment, with a focus on large format offerings at competitive price points [67][68] Question: Clarification on Cannabis segment EBITDA trends - The downward trend in EBITDA is attributed to increased SG&A expenses related to innovation and operational investments, but management expects improvements moving forward [72][73] Question: Future cash flow generation outlook - Management is optimistic about generating positive cash flow from both Canadian and U.S. Cannabis operations in the near future [76]