What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-08 · 447 added, 196 removed, 324 unchanged (66% of the section changed)

32 unchanged sentences

Canadian Cannabis Segment

Our Canadian Cannabis segment is comprised of Pure Sunfarms and 70% owned Rose LifeScience.

Our Canadian Cannabis segment is comprised of Pure Sunfarms and an 80% ownership in Rose LifeScience.

Pure Sunfarms is one of the single largest cannabis cultivation and processing operations in the world, one of the lowest-cost greenhouse producers and has developed four of the best-selling flower brands in Canada.

14 unchanged sentences

Our Energy segment is comprised of VF Clean Energy Inc.

VFCE, which has partnered with Terreva Renewables (formerly Mas Energy) for the Delta RNG Project based on VFCE’s 20-year contract (including a five-year option to extend) with the City of Vancouver to capture landfill gas at the Delta, B.C.

VFCE has partnered with Terreva Renewables (formerly Mas Energy) for the Delta RNG Project based on VFCE’s 20-year contract (including a five-year option to extend) with the City of Vancouver to capture landfill gas at the Delta, B.C.

landfill site (the "Delta RNG Project").

1 unchanged sentence

Terreva Renewables sells the renewable natural gas and VFCE receives a portion of the revenue in the form of a royalty.

The facility also provides food-grade CO2 that can be used in both our cannabis and produce growing operations in Delta.

Recent Developments and Updates

Canadian Cannabis

• Is the fastest growing producer among the top five LPs in Canada 1 , expanding its number two market share position nationally to a new record in April, gaining share for nine consecutive months 2 ;

• Moved into the number two national market share position in the pre-roll category and expanded its number one national market share position in dried flower, achieving a record 18% share in April 2 ;

• Regained the top market share position in Ontario (Canada’s largest provincial market) for the first time since 2022 2 ;

• Achieved record market share in Alberta 3 ;

• Further expanded its number two national market share position 1 , further narrowing the gap to the number one position and achieving our highest national market share position to date;

• Was the only LP among the top five to expand its national market share position sequentially 1 ;

• Further expanded its number one national market share position in dried flower 1 ;

• Expanded its number two national market share position in the pre-roll category 1 ;

• Continued to achieve steady market share gains in British Columbia (moving up two positions to be tied for the number two position) and Alberta (moving up four positions to the number four position) in the last year 1 ;

• The Supertoast brand was the third fastest growing brand nationally for the first half of 2024 with 20% market share in the milled category nationally 2 , despite being sold in only four provinces;

• Village Farms' SKUs held the number one position in the flower category during both the first and second quarters of 2024 2 ;

• Launched Hi-Def Pre-Rolls, a first-of-its-kind pre-roll, featuring pure ground flower optimized for high potency, with THC content between 36-44%, with no concentrates, infusions or kief.

Initial demand is exceeding expectations;

• Expanded share of the milled category with the Super Toast brand in Ontario every month since its August 2023 launch, reaching the number two position with more than 20% share 1 .

1.For the first quarter of 2024.

1.For the second quarter of 2024.

Based on estimated retail sales from HiFyre, other third parties and provincial boards.

For the first quarter of 2024.

Calculated from sales information provided by Alberta Gaming, Liquor and Cannabis (AGLC).

International Cannabis

• In January 2024, the Company started the build-out of its first indoor cannabis production facility in Drachten, The Netherlands, targeting start of production for the fourth quarter of 2024.

• Germany passed legislation partially legalizing cannabis for personal use beginning April 1, 2024.

The new legislation will provide patients with greater access to high quality, legal products, which will be beneficial to further growth of the German medicinal cannabis market.

Village Farms holds EU GMP certification from the District Government of Dusseldorf in 2022 and began shipping its best-selling Canadian strains to Germany in the second quarter of 2023.

• Continued the build-out of the Company’s first indoor cannabis production facility in Drachten, The Netherlands for the Dutch recreational cannabis program, with production on track to begin in the fourth quarter of 2024.

The Dutch Program recently completed its start-up phase and expanded the number of municipalities in which regulated cannabis can be sold in “coffee shops” from two to ten.

• The proliferation of unregulated hemp-derived products in the U.S.

market, continues to challenge market share for the CBD industry and is causing certain states to impose significant restrictions on intoxicating hemp derived products;

• Completed internalization of gummy production, which will support consistency of supply and gross profit;

• Balanced Health’s CBDistillery reported study results demonstrating its shhh+ Distilled THC + CBN Deep Sleep Gummies help users to achieve better-quality rest, fall back to sleep during the night and wake up feeling refreshed;

• Completion of internalization of gummy production on track for the second quarter of 2024, which will support consistency of supply and gross profit;

• William Stoufer was appointed President of Balanced Health.

Stoufer joined BHB as Chief Operating Officer in 2019 and played a key role in establishing strong business processes with a focus on customer excellence, which contributed positive adjusted EBITDA and cash flow to Village Farms since acquisition;

• The Company’s application for a Texas medicinal marijuana license remains pending review by the Department of Public Services.

1 unchanged sentence

VF Fresh (Produce)

• Production of tomatoes started in half of the Delta 2 facility;

• Continued improvement in our Texas greenhouse operations resulting in a year-over-year decrease in cost per pound due to ongoing labor efficiencies and increased yields;

• Entered into a strategic agreement to expand third-party supply;

• Implementing new cultivation t echnologies, including artificial intelligence, to drive further operational improvements;

• Amended and extended the credit agreement for the Company’s C$10 million revolving line of credit with a Canadian chartered bank.

Amendments include the expansion of the Company’s borrowing options to provide additional financial flexibility and the maturity date was extended from May 24, 2024 to May 24, 2027;

• The Company has an ongoing sale process for its Monahans (Permian Basin, Texas) greenhouse facility.

1 unchanged sentence

Village Farms Clean Energy

• In April 2024, the Delta, British Columbia Renewable Natural Gas Project began operations, which immediately began contributing incremental profitability to the Company.

• The Company ranked as one of the fastest growing companies in the Americas by The Financial Times and Statista for the second consecutive year.

The Company ranked first among cannabis companies, 10 th among agriculture, forestry and fishing companies, 32 nd among Canadian companies and 355 th overall, improving its overall ranking by 72 positions from last year.

• On April 24, 2024, the Company expanded its executive team by appointing Ann Gillin Lefever as the Company’s Chief Operating Officer.

Previously, Ms.

Gillen Lefever served as Executive Vice President, Corporate Affairs, and has been promoted after leading the Company’s communications, strategy, governmental affairs and capital markets functions.

• In addition, on April 24, 2024, the Company also announced the following internal appointments to newly created roles, reflecting the Company’s proven business model and significant growth potential:

• President, Global Medical Cannabis – Paul Furfaro;

• General Counsel, Global Cannabis – John Harloe, J.D., Ph.D.

• In April 2024, the Delta, British Columbia Renewable Natural Gas Project began operations, which immediately began contributing incremental profit to the Company.

• Increased ownership of Rose by 10% to hold an 80% interest, with the purchase being immediately accretive to adjusted EBITDA and net income;

• Appointed finance and operations veteran, Carolyn Hauger, to the Board of Directors;

Presentation of Financial Results

Our consolidated results of operations (prior to net income) for the three months ended March 31, 2024 and March 31, 2023 presented below reflect the operations of our consolidated wholly-owned subsidiaries, our 70% ownership in Rose LifeScience, and our 85% ownership in Leli.

Our consolidated results of operations (prior to net income) for the three and six months ended June 30, 2024 and 2023 presented below reflect the operations of our consolidated wholly-owned subsidiaries, our 70% ownership in Rose LifeScience through March 31, 2024, our 80% ownership in Rose LifeScience beginning on April 1, 2024, and our 85% ownership in Leli.

Foreign currency exchange rates

2 unchanged sentences

All references to “dollars” or “$” are to U.S.

The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of March 31, 2024, March 31, 2023, and December 31, 2023.

The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of June 30, 2024, June 30, 2023, and December 31, 2023.

Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates.

1 unchanged sentence

The exchange rates used to translate from Canadian dollars ("C") to dollars is shown below:

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

December 31, 2023

Three-month period ended

Six-month period ended

RESULTS OF OPERATIONS

2 unchanged sentences

dollars, except per share amounts, and unless otherwise noted)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of sales

2 unchanged sentences

Interest income

Foreign exchange loss

Other income (expense), net

Foreign exchange (loss) gain

Goodwill and intangible asset impairments (1)

Loss before taxes

1 unchanged sentence

Loss including non-controlling interests

net (income) loss attributable to non-controlling interests, net of tax

net loss (income) attributable to non-controlling interests, net of tax

Net loss attributable to Village Farms International Inc.

2 unchanged sentences

Diluted loss per share

(1) Reflects impairment to goodwill and intangibles of $11,939 in U.S.

Cannabis that was based on recent historical performance, near-term forecasts, and the state of the CBD industry in the United States.

See “Critical Accounting Estimates and Judgments” below for more information .

(2) Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP.

1 unchanged sentence

Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recurring and other items that do not reflect our business performance.

Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience and 85% interest in Leli.

We caution that our results of operations for the three months ended March 31, 2024 and 2023 may not be indicative of our future performance.

Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience through March 31, 2024, 80% interest in Rose LifeScience beginning on April 1, 2024 and 85% interest in Leli.

We caution that our results of operations for the three and six months ended June 30, 2024 and 2023 may not be indicative of our future performance.

Discussion of Financial Results

A discussion of our consolidated results for the three months ended March 31, 2024 and 2023 is included below.

A discussion of our consolidated results for the three and six months ended June 30, 2024 and 2023 is included below.

The consolidated results include all four of our operating segments:

Produce, Canadian Cannabis, U.

Cannabis, and Energy, along with all public company expenses.

Cannabis, and Energy, along with public company expenses.

For a discussion of our segmented results, please see “Segmented Results of Operations” below.

CONSOLIDATED RESULTS

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Sales for the three months ended March 31, 2024 were $78,077 compared with $64,656 for the three months ended March 31, 2023.

The increase in sales of $13,421, or 21% ,was primarily due to an increase in Canadian Cannabis sales of $12,334 and an increase in VF Fresh sales of $1,527, partially offset by a decrease in U.S.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Sales for the three months ended June 30, 2024 were $92,182 compared with $77,212 for the three months ended June 30, 2023.

The increase of $14,970, or 19%, was primarily due to an increase in Canadian Cannabis sales of $12,680 and an increase in VF Fresh sales of $3,173, partially offset by a decrease in U.S.

Cannabis sales of $1,004.

1 unchanged sentence

Cost of Sales

Cost of sales for the three months ended March 31, 2024 were $62,564 compared with $52,356 for the three months ended March 31, 2023.

The increase in cost of sales of $10,208, or 19%, was primarily attributable to an increase in Canadian Cannabis cost of sales of $11,280 and U.S Cannabis cost of sales of $103, partially offset by a decrease in the cost of sales at VF Fresh of ($1,168).

Cost of sales for the three months ended June 30, 2024 was ($82,934) compared with ($65,713) for the three months ended June 30, 2023.

The increase of $17,221, or 26%, was primarily due to an increase in Canadian Cannabis of $12,691 and VF Fresh cost

of sales of $4,576, partially offset by a decrease in U.S.

Cannabis cost of sales of $75.

For additional information, refer to "Segmented Results of Operations" below.

Gross profit for the three months ended March 31, 2024 was $15,513, compared with $12,300 for the three months ended March 31, 2023.

The increase in gross profit of $3,213, or 26%, was primarily attributable to an increase in gross profit at VF Fresh of $2,695 and Canadian Cannabis of $1,054, partially offset by a decrease in gross profit at U.S.

Gross profit for the three months ended June 30, 2024 was $9,248 compared with $11,499 for the three months ended June 30, 2023.

The decrease of $2,251, or 20%, was primarily due to a decrease in gross profit at VF Fresh of $1,403 and U.S.

Cannabis of $929.

1 unchanged sentence

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2024 decreased $1,018, or 6%, to $16,387 (21% of sales), compared with $17,405 (27% of sales), for the three months ended March 31, 2023.

The decrease in sales, general and administrative expenses was due to lower share-based compensation of $1,327, partially offset by an increase in operating expenses of ($309).

Selling, general and administrative expenses for the three months ended June 30, 2024 were ($19,666) (21% of sales) compared with ($16,753) (22% of sales) for the three months ended June 30, 2023.

The increase of $2,913, or 17%, was primarily due to an increase in share-based compensation of $1,540 and operating expenses for Canadian Cannabis of $922 and VF Fresh of $759, partially offset by a decrease in U.S.

Cannabis operating expenses of $426.

For additional information, refer to "Segmented Results of Operations" below.

For the Three Months Ended March 31,

For the Three Months Ended June 30,

Selling, general and administrative expenses

2 unchanged sentences

Interest Expense

Interest expense for the three months ended March 31, 2024 was $917 compared with $1,133 for the three months ended March 31, 2023.

Interest expense for the three months ended June 30, 2024 was ($905) compared with ($1,411) for the three months ended June 30, 2023.

The decrease of $506, or 36%, was due to a decrease in the average outstanding debt balance under our credit facilities.

Interest Income

Interest income for the three months ended March 31, 2024 was $206 compared with $196 for the three months ended March 31, 2023.

Other Income (Expense)

Other income (expense) for the three months ended March 31, 2024 was $104 compared with $30 for the three months ended March 31, 2023.

Interest income for the three months ended June 30, 2024 was $322 compared with $283 for the three months ended June 30, 2023.

Other income for the three months ended June 30, 2024 was $45 compared with $5,602 for the three months ended June 30, 2023.

The decrease was primarily attributable to a favorable legal settlement at VF Fresh of $5,584 in the three months ended June 30, 2023 relating to the partial recovery of operational losses from the Tomato Brown Rugose Fruit Virus ("ToBRFV") infestation (the "ToBRFV Legal Settlement"), which was recorded only in prior-year periods.

Loss Before Taxes

Loss before taxes for the three months ended March 31, 2024 was ($2,359) compared with ($6,081) for the three months ended March 31, 2023, an improvement of $3,722, or 61%.

The improvement in the three months ended March 31, 2024 compared with the three months ended March 31, 2023 was primarily due to improved operating performance from VF Fresh and lower selling, general and administrative expenses.

Loss before taxes for the three months ended June 30, 2024 was ($23,298) compared with ($42) for the three months ended June 30, 2023.

The change of ($23,256) was primarily due to the impairment of goodwill and intangible assets within the U.S.

Cannabis segment during the three months ended June 30, 2024 of ($11,939) (see "Critical Accounting Estimates and Judgments" below), lower gross margins in VF Fresh and U.S.

Cannabis, and higher selling, general, and administrative expenses.

The three months ended June 30, 2023 also included the ToBRFV Legal Settlement, which was recorded in prior-year periods.

Net Loss Attributable to Village Farms International, Inc.

Net loss attributable to Village Farms International, Inc.

shareholders for the three months ended March 31, 2024 was ($2,852) as compared with ($6,636) for the three months ended March 31, 2023, an improvement of $3,784, or 57%, due to improved operating performance from VF Fresh and lower selling, general and administrative expenses in all segments.

shareholders for the three months ended June 30, 2024 was ($23,549) compared with ($1,380) for the three months ended June 30, 2023.

The change of ($22,169) was primarily due to the impairment of U.S.

Cannabis goodwill and intangible assets incurred during the three months ended June 30, 2024 of ($11,939), a lower operating margin, and higher selling, general, and administrative expenses.

The change as compared to the three months ended June 30, 2023 also reflected the ToBRFV Legal Settlement in prior-year periods.

Adjusted EBITDA

Adjusted EBITDA for the three months ended March 31, 2024 was $3,591 compared with $519 for the three months ended March 31, 2023.

The improvement was mainly driven by a stronger performance from VF Fresh.

See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

Adjusted EBITDA for the three months ended June 30, 2024 was ($3,559) compared with $4,475 for the three months ended June 30, 2023.

The change was primarily due to the inclusion of the ToBRFV Legal Settlement at VF Fresh of $5,584 for the three months ended June 30, 2023, lower gross margins, and higher non-share-based compensation selling, general, and administrative costs.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Sales for the six months ended June 30, 2024 were $170,259 compared with $141,868 for the six months ended June 30, 2023.

The increase of $28,391, or 20%, was primarily due to an increase in Canadian Cannabis sales of $25,014 and an increase in VF Fresh sales of $4,700, partially offset by a decrease in U.S.

Cannabis sales of $1,444.

For additional information, refer to "Segmented Results of Operations" below.

Cost of Sales

Cost of sales for the six months ended June 30, 2024 were ($145,498) compared with ($118,069) for the six months ended June 30, 2023.

The increase of $27,429, or 23%, was primarily attributable to an increase in Canadian Cannabis cost of sales of $23,971 on higher volume, and VF Fresh cost of sales of $3,408.

For additional information, refer to "Segmented Results of Operations" below.

Gross profit for the six months ended June 30, 2024 was $24,761, compared with $23,799 for the six months ended June 30, 2023.

The increase of $962, or 4%, was primarily attributable to an increase in gross profit at VF Fresh of $1,292 and Canadian Cannabis of $1,043, partially offset by a decrease in gross profit at U.S.

Cannabis of $1,472.

For additional information, refer to "Segmented Results of Operations" below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended June 30, 2024 increased $1,895, or 6%, to ($36,053) (21% of sales), compared with ($34,158) (24% of sales), for the six months ended June 30, 2023.

The increase was primarily attributable to an increase in Canadian Cannabis of $1,778 and VF Fresh of $536, partially offset by a decrease in U.S.

Cannabis of $637.

For additional information, refer to "Segmented Results of Operations" below.

For the Six Months Ended June 30,

Selling, general and administrative expenses

Share-based compensation

Total selling, general and administrative expenses

Interest Expense

Interest expense for the six months ended June 30, 2024 was ($1,822) compared with ($2,544) for the six months ended June 30, 2023.

The decrease of $722, or 28%, was due to a decrease in the average outstanding debt balance under our credit facilities.

Interest Income

Interest income for the six months ended June 30, 2024 was $528 compared with $479 for the six months ended June 30, 2023.

Other income for the six months ended June 30, 2024 was $149 compared with $5,632 for the six months ended June 30, 2023.

The decrease in other income was primarily due to the ToBRFV Legal Settlement that was recorded in the six months ended June 30, 2023 within VF Fresh.

Loss Before Taxes

Loss before taxes for six months ended June 30, 2024 was ($25,657) compared with ($6,123) for the six months ended June 30, 2023.

The change of ($19,534), or (319%), was primarily due to an impairment of goodwill and intangible assets of ($11,939) in the U.S.

Cannabis segment during the six months ended June 30, 2024, lower gross margin in VF Fresh and U.

Cannabis, and higher selling, general, and administrative expenses.

The six months ended June 30, 2023 also included the ToBRFV Legal Settlement, which was not present in current-year periods.

Net Loss Attributable to Village Farms International, Inc.

Net loss attributable to Village Farms International, Inc.

shareholders for the six months ended June 30, 2024 was ($26,401) as compared with ($8,016) for the six months ended June 30, 2023, a change of ($18,385), or (229%), primarily due to an impairment of goodwill and intangible assets of ($11,939) in the U.S.

Cannabis segment during the six months ended June 30, 2024, lower operating margin in VF Fresh and U.S.

Cannabis, and higher selling, general, and administrative expenses.

The six months ended June 30, 2023 also included the ToBRFV Legal Settlement of $5,584 for VF Fresh that was not present in current-year periods.

Adjusted EBITDA

Adjusted EBITDA for the six months ended June 30, 2024 was $32 compared with $4,994 for the six months ended June 30, 2023.

The change was mainly driven by the inclusion of the ToBRFV Legal Settlement of $5,584 at VF Fresh during the six months ended June 30, 2023, lower gross margins and higher non-share-based compensation selling, general, and administrative costs for the six months ended June 30, 2024.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

SEGMENTED RESULTS OF OPERATIONS

1 unchanged sentence

dollars, except per share amounts, and unless otherwise noted)

For The Three Months Ended March 31, 2024

For The Three Months Ended June 30, 2024

Cannabis Canada

2 unchanged sentences

Selling, general and administrative expenses

Other (expense) income, net

Operating income (loss)

(Provision for) recovery of income taxes

Income (loss) from consolidated entities

Other expense, net

Goodwill and intangible asset impairments (1)

Operating (loss) income

Recovery of (provision for) income taxes

(Loss) income from consolidated entities

net (income) loss attributable to non-controlling interests, net of tax

Net income (loss)

Net (loss) income

Adjusted EBITDA (2)

Basic income (loss) per share

Diluted income (loss) per share

For The Three Months Ended March 31, 2023

Basic (loss) income per share

Diluted (loss) income per share

For The Three Months Ended June 30, 2023

Cannabis Canada

2 unchanged sentences

Selling, general and administrative expenses

Other (expense) income, net

Other income (expense), net

Operating (loss) income

Provision for income taxes

(Loss) income from consolidated entities

net (income) loss attributable to non-controlling interests, net of tax

Net (loss) income

Adjusted EBITDA (2)

Basic (loss) income per share

Diluted (loss) income per share

For The Six Months Ended June 30, 2024

Cannabis Canada

Cannabis U.S.

Cost of sales

Selling, general and administrative expenses

Other expense, net

Goodwill and intangible asset impairments (1)

Operating (loss) income

Recovery of (provision for) income taxes

Loss from consolidated entities

net loss attributable to non-controlling interests, net of tax

(Loss) income from consolidated entities

net (income) loss attributable to non-controlling interests, net of tax

Net (loss) income

Adjusted EBITDA (2)

Basic loss per share

Diluted loss per share

Basic (loss) income per share

Diluted (loss) income per share

For The Six Months Ended June 30, 2023

Cannabis Canada

Cannabis U.S.

Cost of sales

Selling, general and administrative expenses

Other income (expense) net

Operating (loss) income

Recovery of (provision for) income taxes

(Loss) income from consolidated entities

net (income) loss attributable to non-controlling interests, net of tax

Net (loss) income

Adjusted EBITDA (2)

Basic (loss) income per share

Diluted (loss) income per share

(1) Reflects impairment to goodwill and intangibles of $11,939 in U.S.

Cannabis that was based on recent historical performance, near-term forecasts, and the state of the CBD industry in the United States.

See “Critical Accounting Estimates and Judgments” below for more information .

(2) Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP.

1 unchanged sentence

Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience and 85% interest in Leli.

Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience through March 31, 2024, 80% interest in Rose LifeScience beginning on April 1, 2024 and 85% interest in Leli.

CANADIAN CANNABIS SEGMENT RESULTS

The Canadian Cannabis segment consists of Pure Sunfarms and Rose LifeScience.

The comparative analysis for Canadian Cannabis is based on the consolidated results of Pure Sunfarms and Rose LifeScience for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Canadian Cannabis net sales for the three months ended March 31, 2024 were $37,446 compared with $25,112 for the three months ended March 31, 2023.

The comparative analysis for Canadian Cannabis is based on the consolidated results of Pure Sunfarms and our interest in Rose LifeScience for the three and six months ended June 30, 2024 and 2023.

Beginning on April 1, 2024, our interest in Rose LifeScience increased from 70% to 80%, which is reflected in the results presented below.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Canadian Cannabis net sales for the three months ended June 30, 2024 were $40,745 compared with $28,065 for the three months ended June 30, 2023.

The increase of $12,680, or 45%, was due primarily to a 32% increase in net branded sales and a 182% increase in non-branded sales.

The increase in Canadian Cannabis branded sales was primarily due to higher sales of large format flower, pre-rolls and milled products.

The increase in non-branded sales resulted from taking advantage of improved supply conditions and pricing created by the shift of many producers to asset light models, including sales of non-brand-spec inventory.

International sales decreased by (11%) due primarily to lower sales to Australia.

The Canadian Cannabis business continues to pay a burdensome excise duty (also known as an excise tax) on its branded sales (provincial sales).

For the three months ended March 31, 2024, the Company incurred excise duties of $15,222 (C$20,523) versus $13,758 (C$18,602) for the three months ended March 31, 2023.

The increase of ($1,464) (C$1,921) in excise duties was due to an increase in kilograms sold in the provincial (branded) channel in the first quarter of 2024 versus the first quarter of 2023.

The increase in net branded sales was due to market share gain across the flower, pre-roll and milled categories, driven by high quality cultivation and new product launches.

The increase in non-branded sales resulted from improved supply conditions and pricing created by the shift of many producers to asset light models, including sales of non-brand-spec inventory.

International sales increased by 9% primarily due to higher sales to Germany and UK, partially offset by lower sales to Australia.

The Canadian Cannabis business continues to pay a burdensome excise duty (also known as excise tax) on its branded sales (sales to provincial distributors).

For the three months ended June 30, 2024, the Company incurred excise duties of $19,815 (C$27,114), or 39% of gross branded sales, compared with $13,966 (C$18,760), or 38% of gross branded sales, for the three months ended June 30, 2023.

The increase of $5,849 (C$8,354), or 42%, was due to an increase in kilograms sold in the branded channel.

The Canadian excise duty is our single largest cost of participating in the branded adult-use market in Canada.

For the three months ended June 30, 2024, 75% of net sales were generated from branded flower, pre-rolls and cannabis derivative products compared with 83% for the three months ended June 30, 2023.

Non-branded, international, and other sales accounted for 25% of Canadian Cannabis net sales for the three months ended June 30, 2024, as compared with 17% for the three months ended June 30, 2023.

The following table presents sales by Canadian Cannabis revenue stream, together with the impact of the excise tax, in U.S.

dollars and Canadian dollars, for the three months ended June 30, 2024 and 2023:

For the Three Months Ended June 30,

(in thousands of U.S.

Branded sales

Non-branded sales

International sales

For the Three Months Ended June 30,

(in thousands of Canadian dollars)

Branded sales

Non-branded sales

International sales

Cost of Sales

Canadian Cannabis cost of sales for the three months ended June 30, 2024 was ($30,040) compared with ($17,349) for the three months ended June 30, 2023.

The increase of $12,691, or 73%, was primarily due to an increase in volume (kilograms) packaged and sold of branded products, as well as an increase in non-branded kilograms sold.

Gross Profit/Margin

Canadian Cannabis gross profit for the three months ended June 30, 2024 was $10,705 compared with $10,716 for the three months ended June 30, 2023.

Canadian Cannabis gross margin for the three months ended June 30, 2024 was 26% compared with 38% for the three months ended June 30, 2023.

The decrease in gross margin percentage was due to a significant volume of sales of non-brand-spec inventory within the non-branded sales channel, as well as higher sales of value brands within the branded sales channel.

Selling, General and Administrative Expenses

Canadian Cannabis selling, general and administrative expenses for the three months ended June 30, 2024 were ($8,749), or 21%, of sales compared with ($7,827), or 28%, of sales for the three months ended June 30, 2023.

The increase of $922 was primarily due to higher commercial and marketing expenses.

Canadian Cannabis net income for the three months ended June 30, 2024 was $1,384 compared with net income of $1,174 for the three months ended June 30, 2023.

The improvement in net income was primarily due to a decrease in the tax provision expense of $559, partially offset by an increase in selling, general and administrative expenses.

Adjusted EBITDA

Adjusted EBITDA for Canadian Cannabis for the three months ended June 30, 2024 was $4,818 compared with $4,778 for the three months ended June 30, 2023.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Canadian Cannabis net sales for the six months ended June 30, 2024 were $78,191 compared with $53,177 for the six months ended June 30, 2023.

The increase of $25,014, or 47%, was due primarily to a 36% increase in net branded sales and a 181% increase in non-branded sales.

The increase in net branded sales was due to market share gain across the flower, pre-roll and milled categories, driven by high quality cultivation and new product launches.

The increase in non-branded sales resulted from improved supply conditions and pricing created by the shift of many producers to asset light models and sales of non-brand-spec inventory.

The Canadian Cannabis business continues to pay a burdensome excise duty (also known as excise tax) on its branded sales (sales to provincial distributors).

For the six months ended June 30, 2024, the Company incurred excise duties of $39,518 (C$53,679), or 40% of our gross branded sales, compared to $27,724 (C$37,361), or 39% of our gross branded sales for the six months ended June 30, 2023.

The increase of $11,794 (C$16,318), or 43%, in excise duties was due to an increase in kilograms sold in the branded channel.

The Canadian excise duty is our single largest cost of participating in the adult-use (branded) market in Canada.

For the three months ended March 31, 2024, 77% of net sales were generated from branded flower, pre-rolls and cannabis derivative products compared with 83% for the three months ended March 31, 2023.

Non-branded, international, and other sales accounted for 23% of Canadian Cannabis net sales for the three months ended March 31, 2024, as compared with 17% for the three months ended March 31, 2023.

For the six months ended June 30, 2024, 76% of net sales were generated from branded flower, pre-rolls and cannabis derivative products compared with 83% for the six months ended June 30, 2023.

Non-branded, international, and other sales accounted for 24% of Canadian Cannabis net sales for the six months ended June 30, 2024, as compared with 17% for the six months ended June 30, 2023.

The following table presents sales by Canadian Cannabis revenue stream, together with the impact of the excise tax, in U.S.

dollars and Canadian dollars, for the three months ended March 31, 2024 and 2023:

For the Three Months Ended March 31,

dollars and Canadian dollars, for the six months ended June 30, 2024 and 2023:

For the Six Months Ended June 30,

(in thousands of U.S.

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International sales

For the Three Months Ended March 31,

For the Six Months Ended June 30,

(in thousands of Canadian dollars)

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Cost of Sales

Canadian Cannabis cost of sales for the three months ended March 31, 2024 was $27,938 compared with $16,658 for the three months ended March 31, 2023.

The increase of ($11,280), or (68%), was primarily due to an increase in volume (kilograms) packaged and sold of branded products, as well as an increase in non-branded kilograms sold in the 2024 quarter.

Canadian Cannabis cost of sales for the six months ended June 30, 2024 was ($57,978) compared with ($34,007) for the six months ended June 30, 2023.

The increase of $23,971, or 70%, was primarily due to an increase in volume (kilograms) packaged and sold of branded products, as well as an increase in non-branded kilograms sold.

Gross Profit/Margin

Canadian Cannabis gross profit for the three months ended March 31, 2024 was $9,508 compared with $8,454 for the three months ended March 31, 2023.

The increase of $1,054, or 12%, was driven by higher sales in the 2024 quarter.

Canadian Cannabis gross margin for the three months ended March 31, 2024 was 25% compared with 34% for the three months ended March 31, 2023, with the decrease due to a significant volume of non-brand-spec inventory within non-branded sales, as well as higher sales of our lower margin Fraser Valley brand, in the 2024 quarter.

Canadian Cannabis gross profit for the six months ended June 30, 2024 was $20,213 compared with $19,170 for the six months ended June 30, 2023.

The increase of $1,043, or 5%, was driven by higher sales in the first six months of 2024.

Canadian Cannabis gross margin for the six months ended June 30, 2024 was 26% compared with 36% for the six months ended June 30, 2023, with the decrease due to a significant volume of non-brand-spec inventory within non-branded sales channel as well as higher sales of value brands within the branded sales channel.

Selling, General and Administrative Expenses

Canadian Cannabis selling, general and administrative expenses for the three months ended March 31, 2024 increased ($856) to $7,704, or 21%, of sales compared with $6,848, or 27%, of sales for the three months ended March 31, 2023.

The increase in selling, general and administrative expenses was primarily due to higher commercial and marketing expenses, partially offset by reduced salaries.

Net Income (Loss)

Canadian Cannabis net income for the three months ended March 31, 2024 was $847 compared with a net loss of ($105) for the three months ended March 31, 2023.

The improvement in net income was primarily due to an increase in gross margin, partially offset by a slight increase in selling, general and administrative expenses for the first three months of 2024 as compared to the first three months of 2023.

Canadian Cannabis selling, general and administrative expenses for the six months ended June 30, 2024 increased $1,778 to ($16,453), or 21% of sales compared with ($14,675), or 28% of sales for the six months ended June 30, 2023.

The increase in selling, general and administrative expenses was primarily due to higher commercial and marketing expenses.

Canadian Cannabis net income for the six months ended June 30, 2024 was $2,231 compared with net income of $1,069 for the six months ended June 30, 2023.

The improvement in net income was primarily due to a decrease in the tax provision expense of $1,368, partially offset by an increase in selling, general and administrative expenses for the first six months of 2024 as compared to the first six months of 2023.

Adjusted EBITDA

Adjusted EBITDA for Canadian Cannabis for the three months ended March 31, 2024 was $4,073 compared with $3,910 for the three months ended March 31, 2023.

See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

Adjusted EBITDA for Canadian Cannabis for the six months ended June 30, 2024 was $8,891 compared with $8,688 for the six months ended June 30, 2023.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

CANNABIS SEGMENT RESULTS

Cannabis segment consists of Balanced Health.

For the three months ended March 31, 2024 and 2023, U.S.

Cannabis financial results are based on the consolidated results of Balanced Health.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Cannabis net sales for the three months ended March 31, 2024 decreased ($440), or (9%), to $4,537 compared with $4,977 for the three months ended March 31, 2023.

For the three and six months ended June 30, 2024 and 2023, U.S.

Cannabis financial results are based on the results of Balanced Health.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Cannabis net sales for the three months ended June 30, 2024 was $4,297 compared with $5,301 for the three months ended June 30, 2023.

The decrease of $1,004, or 19%, was primarily due to lower direct-to-consumer sales resulting from the proliferation of unregulated hemp-derived products on the market.

Cannabis sales were generated in the United States, with gross sales composed of 91% e-commerce sales, 8% retail sales and 1% miscellaneous.

Cost of Sales

Cannabis cost of sales for the three months ended June 30, 2024 was ($1,668) compared with ($1,743) for the three months ended June 30, 2023.

The decrease of $75, or 4%, was primarily due to lower sales, partially offset by a shift in product mix as consumers moved to gummies and away from the higher margin tincture products.

Gross Profit/Margin

U.S Cannabis gross profit for the three months ended June 30, 2024 decreased $929, or 26%, to $2,629, or a 61% gross margin, compared with $3,558, or a 67% gross margin, for the three months ended June 30, 2023.

Selling, General and Administrative Expenses

Cannabis selling general and administrative expenses for the three months ended June 30, 2024 were ($2,960) compared with ($3,386) for the three months ended June 30, 2023.

The decrease of $426, or 13%, is due to more efficient marketing and brand spending and contract renegotiation.

Net (Loss) Income

Cannabis net loss for the three months ended June 30, 2024 was ($12,270) compared with net income of $172 for the three months ended June 30, 2023.

The change was primarily due to the goodwill and intangible asset impairment charge taken in the three months ended June 30, 2024 of ($11,939).

For more information, see "Critical Accounting Estimates and Judgments" below.

Adjusted EBITDA

Cannabis adjusted EBITDA for the three months ended June 30, 2024 was ($240) compared with $354 for the three months ended June 30, 2023.

The change was due to lower sales and a lower gross margin.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Cannabis net sales for the six months ended June 30, 2024 decreased $1,444, or 14%, to $8,834 compared with $10,278 for the six months ended June 30, 2023.

The decrease was primarily due to lower direct-to-consumer sales due to the proliferation of unregulated hemp-derived products on the market.

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Cost of Sales

Cannabis cost of sales for the three months ended March 31, 2024 was $1,842 compared with $1,739 for the three months ended March 31, 2023.

Cannabis cost of sales for the six months ended June 30, 2024 was ($3,510) compared with ($3,482) for the six months ended June 30, 2023.

The 1% increase was primarily due to a shift in product mix as consumers moved to gummies and away from the higher margin tincture products.

Gross Profit/Margin

U.S Cannabis gross profit for the three months ended March 31, 2024 decreased ($543) to $2,695, or a 59% gross margin, compared with $3,238, or a 65% gross margin, for the three months ended March 31, 2023.

U.S Cannabis gross profit for the six months ended June 30, 2024 decreased $1,472 to $5,324, or a 60% gross margin, compared with $6,796, or a 66% gross margin, for the six months ended June 30, 2023.

Selling, General and Administrative Expenses

Cannabis selling general and administrative expenses for the three months ended March 31, 2024 decreased $211, or 6%, to $3,406 compared with $3,617 for the three months ended March 31, 2023.

The improvement in selling, general and administrative expenses is due to more efficient marketing and brand spending and contract renegotiation.

Cannabis net loss for the three months ended March 31, 2024 was ($711) compared with a net loss of ($376) for the three months ended March 31, 2023.

The decrease in U.S.

Cannabis net loss was driven by lower sales at a lower gross margin.

Cannabis selling general and administrative expenses for the six months ended June 30, 2024 were ($6,366) compared with ($7,003) for the six months ended June 30, 2023.

The decrease of $637, or 9%, is due to more efficient marketing and brand spending and contract renegotiation.

Cannabis net loss for the six months ended June 30, 2024 was ($12,981) compared with a net loss of ($204) for the six months ended June 30, 2023.

The change was primarily due to the 2024 impairment charge of ($11,939) as discussed above, and a decrease in sales at a lower gross margin.

Adjusted EBITDA

Cannabis adjusted EBITDA for the three months ended March 31, 2024 was ($615) compared with ($151) for the three months ended March 31, 2023 due to lower sales and a lower gross margin.

See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

Cannabis adjusted EBITDA for the six months ended June 30, 2024 was ($855) compared with $203 for the six months ended June 30, 2023 due to lower sales and a lower gross margin.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

PRODUCE SEGMENT RESULTS – VF FRESH

The produce segment, VF Fresh, consists of Village Farms LP and Village Farms Canada LP.

VF Fresh’s comparative analysis are based on the consolidated results of Village Farms LP and Village Farms Canada LP for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

VF Fresh sales for the three months ended March 31, 2024 were $36,094, compared with $34,567 for the three months ended March 31, 2023.

The increase in sales of $1,527, or 4%, was primarily due to an increase in supply partner average selling price, partially offset by a decrease in sales from Company-owned greenhouses due to the Permian Basin facility not being used for production.

The average selling price for all produce sold during the three months ended March 31, 2024, compared with the three months ended March 31, 2023 was as follows:

tomatoes increased 6%, peppers increased 51%, cucumbers decreased (13%) and mini cucumbers decreased (8%).

The price changes are due primarily to product mix and higher market pricing in 2024 versus 2023.

VF Fresh’s comparative analysis are based on the consolidated results of Village Farms LP and Village Farms Canada LP for the three and six months ended June 30, 2024 and 2023.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

VF Fresh sales for the three months ended June 30, 2024 were $47,019 compared with $43,846 for the three months ended June 30, 2023.

The increase of $3,173, or 7%, was primarily due to a 16% increase in pounds sold, partially offset by a decrease in average selling price.

The increase in sales from Company-owned greenhouses of 21% was due to an increase in the planted area in 2024 following a (15%) strategic reduction in acres planted in Texas in 2023, as well as additional production from the Delta 2 facility, which was partially converted to produce in 2024.

These were partially offset by the Permian Basin facility not being used for production in 2024.

The average selling price for all produce sold during the three months ended June 30, 2024 compared with the three months ended June 30, 2023 was as follows:

tomatoes changed (9%), peppers changed (2%), cucumbers changed (12%), and mini cucumbers changed (26%).

These price changes are due primarily to weaker market pricing and product mix.

Cost of Sales

VF Fresh cost of sales for the three months ended March 31, 2024 decreased by ($1,168), or (3%), to $32,784 compared with $33,952 for the three months ended March 31, 2023.

The decrease in cost of goods sold is primarily due to an improvement of VF Fresh-owned greenhouses of $2,801 and lower freight expense of $707, partially offset by an increase in supply partner costs of ($2,340).

The decrease in VF Fresh-owned greenhouses cost of goods is due to a 10% improvement in cost per pound and a (5%) decrease in pounds sold due to not cultivating at the Permian Basin facility.

VF Fresh cost of sales for the three months ended June 30, 2024 increased by $4,576, or 10%, to ($51,183) compared with ($46,607) for the three months ended June 30, 2023.

The increase was primarily due to an increase from Company-owned greenhouses of $2,657 and an increase from supply partners of $2,074, partially offset by lower freight expense of $156.

The increase in VF Fresh-owned greenhouses cost of sales was due to a 21% increase in pounds sold and the increase in supply partner cost of sales was due to an increase of 11% in product volume.

The decrease in freight cost is due to increased available drivers and decreases in fuel prices.

The increase in supply partner cost of goods is due to an increase of 5% in product volume.

Gross Profit/Margin

VF Fresh gross profit for the three months ended March 31, 2024 was $3,310 compared with $615 for the three months ended March 31, 2023.

Gross margin for the three months ended March 31, 2024 was 9% compared with 2% for the three months ended March 31, 2023.

The improvements in both gross profit and gross margin percentage were due to a decrease in our per pound cost of sales at the Company's own greenhouses, a decrease in freight costs and an increase in supply partner sales.

Gross Loss/Margin

VF Fresh gross loss for the three months ended June 30, 2024 was ($4,164) compared with ($2,761) for the three months ended June 30, 2023.

Gross margin for the three months ended June 30, 2024 was (9%) compared with (6%) for the three months ended June 30, 2023.

The decreases in both gross loss and gross margin percentage were due to a decrease in average selling price per pound.

Selling, General and Administrative Expenses

VF Fresh selling, general and administrative expenses for the three months ended March 31, 2024 decreased by $223, or 8%, to $2,693 (7% of sales), compared with $2,916 (8% of sales) for the three months ended March 31, 2023.

Net Income (Loss)

As a result of the improvements in costs described above, VF Fresh net income for the three months ended March 31, 2024 was $114 compared with a net loss of ($2,619) for the three months ended March 31, 2023.

VF Fresh selling, general and administrative expenses for the three months ended June 30, 2024 increased by $759, or 27%, to ($3,613) (8% of sales) compared with ($2,854) (7% of sales) for the three months ended June 30, 2023.

VF Fresh net loss for the three months ended June 30, 2024 was ($8,300) compared with a net loss of ($698) for the three months ended June 30, 2023.

The change was primarily due to a weaker gross margin for the three months ended June 30, 2024 and the inclusion of the ToBRFV Legal Settlement of $5,584 for the three months ended June 30, 2023.

Adjusted EBITDA

VF Fresh Adjusted EBITDA increased to $2,028 for the three months ended March 31, 2024 compared with ($995) for the three months ended March 31, 2023.

The improvement in Adjusted EBITDA was primarily due to improvements in gross margin for the reasons identified above.

See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

VF Fresh Adjusted EBITDA for the three months ended June 30, 2024 was ($6,350) compared with $1,330 for the three months ended June 30, 2023.

The change in Adjusted EBITDA was primarily due to a decrease in gross margin for the reasons described above, as well as the inclusion of the ToBRFV Legal Settlement of $5,584 for the three months ended June 30, 2023.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

VF Fresh sales for the six months ended June 30, 2024 was $83,113, compared with $78,413 for the six months ended June 30, 2023.

The increase in sales of $4,700, or 6%, was primarily due to an increase of 12% in pounds sold and an increase in supply partner average selling price, partially offset by a decrease in the average selling price from Company-owned greenhouses.

The average selling price for all produce sold during the six months ended June 30, 2024 compared with the six months ended June 30, 2023 was as follows:

tomatoes changed (4%), peppers changed 15%, cucumbers changed (11%) and mini cucumbers changed (16%).

The price changes are due primarily to product mix and weaker market pricing.

Cost of Sales

VF Fresh cost of sales for the six months ended June 30, 2024 increased by $3,408, or 4%, to ($83,967) compared with ($80,559) for the six months ended June 30, 2023.

The increase is primarily due to an increase from supply partners of $4,416, partially offset by a decrease from Company-owned greenhouses of $143, as well as lower freight expense of $865.

The increase in supply partner costs is due to a 9% increase in pounds sold.

The decrease in freight costs is due to increased available drivers and decreases in fuel prices.

Gross Loss/Margin

VF Fresh gross loss for the six months ended June 30, 2024 was ($854) compared with ($2,146) for the six months ended June 30, 2023.

Gross margin for the six months ended June 30, 2024 was (1%) compared with (3%) for the six months ended June 30, 2023.

The improvements in both gross loss and gross margin percentage were due to an increase from Company-owned greenhouse sales, an increase in supply partner sales, a decrease from Company-owned greenhouse cost per pound, and a decrease in freight costs.

Selling, General and Administrative Expenses

VF Fresh selling, general and administrative expenses for the six months ended June 30, 2024 increased by $536, or 9%, to ($6,306) (8% of sales) compared with ($5,770) (7% of sales) for the six months ended June 30, 2023.

VF Fresh net loss for the six months ended June 30, 2024 was ($8,186) compared with a net loss of ($3,317) for the six months ended June 30, 2023.

The change was primarily due to the ToBRFV Legal Settlement of $5,584 during the six months ended June 30, 2023 that was not present in current-year periods.

Adjusted EBITDA

VF Fresh Adjusted EBITDA decreased to ($4,322) for the six months ended June 30, 2024 compared with $335 for the six months ended June 30, 2023.

The change in Adjusted EBITDA was primarily due to the ToBRFV Legal Settlement during the six months ended June 30, 2023, partially offset by the improved gross margin for the reasons identified above.

For additional information, refer to the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

Liquidity and Capital Resources

Capital Resources

At March 31, 2024, cash, cash equivalents and restricted cash were $31,685 and working capital was $78,177 , compared with $35,291 in cash, cash equivalents and restricted cash and $79,612 of working capital at of December 31, 2023.

We believe that our existing cash, together with cash generated from our operating activities, the remaining availability under our Operating Loan and Pure Sunfarms Loans (each as defined below), will provide us with sufficient liquidity to meet our working capital needs, repayments of our long-term debt and future contractual obligations and fund our planned capital expenditures for the next 12 months.

At June 30, 2024, cash and cash equivalents were $29,657 and working capital was $66,136, compared with cash, cash equivalents and restricted cash of $35,291 and working capital of $79,612 at December 31, 2023.

We believe that our existing cash, cash generated from our operating activities and the availability under our Operating Loan and Pure Sunfarms Loans (each as defined below), will provide us with sufficient liquidity to meet our working capital needs, repayments of our long-term debt and future contractual obligations and fund our planned capital expenditures for the next 12 months.

An additional potential source of liquidity is access to capital markets for additional equity or debt financing.

3 unchanged sentences

Maximum Availability

Outstanding as of March 31, 2024

Outstanding as of June 30, 2024

Operating Loan

2 unchanged sentences

Pure Sunfarms Revolving Line of Credit

The Company’s borrowings under the FCC Term Loan (as defined below) and the Operating Loan (as defined below) (collectively the “Credit Facilities”) are subject to certain positive and negative covenants, including debt ratios, and the Company is required to maintain certain minimum working capital.

As of March 31, 2024, the Company was in compliance with all of its covenants under its Credit Facilities.

required to maintain certain minimum working capital.

As of June 30, 2024, the Company was in compliance with all of its covenants under its Credit Facilities.

The Company was not in compliance with one financial covenant under the FCC Term Loan as of December 31, 2023, for which the Company received a waiver.

1 unchanged sentence

We can provide no assurance that we will be in compliance, or receive a waiver, for any non-compliance as of the next annual testing date.

Accrued interest payable on the Credit Facilities and Pure Sunfarms Loans as of March 31, 2024 and December 31, 2023 was $442 and $390, respectively.

Accrued interest payable on the Credit Facilities and Pure Sunfarms Loans as of June 30, 2024 and December 31, 2023 was $347 and $390, respectively.

These amounts are included in accrued liabilities in the accompanying Condensed Consolidated Statements of Financial Position.

1 unchanged sentence

The Company has a term loan financing agreement with Farm Credit Canada ("FCC"), a Canadian creditor (the “FCC Term Loan”).

The non-revolving variable rate term loan has a maturity date of May 3, 2027 and a balance of $22,296 on March 31, 2024 and $22,788 on December 31, 2023.

The non-revolving variable rate term loan has a maturity date of May 3, 2027 and a balance of $21,804 on June 30, 2024 and $22,788 on December 31, 2023.

The outstanding balance is repayable by way of monthly installments of principal and interest, with the balance and any accrued interest to be paid in full on May 3, 2027.

As of March 31, 2024, borrowings under the FCC Term Loan agreement were subject to an interest rate of 8.84% per annum.

As of June 30, 2024, borrowings under the FCC Term Loan agreement were subject to an interest rate of 8.90% per annum.

As collateral for the FCC Term Loan, the Company has provided promissory notes, a first mortgage on the VFF-owned Delta 1 and Texas greenhouse facilities, and general security agreements over its assets.

In addition, the Company has provided full recourse guarantees and has granted security interests in respect of the FCC Term Loan.

The carrying value of the assets and securities pledged as collateral as of March 31, 2024 and December 31, 2023 was $97,614 and $117,293, respectively.

The carrying value of the assets and securities pledged as collateral as of June 30, 2024 and December 31, 2023 was $80,400 and $117,293, respectively.

Operating Loan

The Company has a revolving line of credit agreement with a Canadian chartered bank (the "Operating Loan").

The Company has a revolving line of credit agreement with Bank of Montreal (the "Operating Loan").

On March 13, 2023, the Company entered into a Note Modification Agreement (the “Modification”) to the Operating Loan.

1 unchanged sentence

The Company does not expect the Modification to materially change the amount of interest payable under the Operating Loan.

On May 24, 2024, the Company entered into an amendment to the Operating Loan, which extended the maturity date of the Operating Loan to May 24, 2027.

The Operating Loan is subject to margin requirements stipulated by the lender.

The Operating Loan had an outstanding balance of $4,000 and future availability of $3,383 on March 31, 2024.

The Operating Loan had an outstanding balance of $4,000 and future availability of $3,283 on June 30, 2024.

As collateral for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory.

In addition, the Company has granted full recourse guarantees and security therein.

The carrying value of the assets pledged as collateral as of March 31, 2024 and December 31, 2023 was $30,032 and $28,034, respectively.

The carrying value of the assets pledged as collateral as of June 30, 2024 and December 31, 2023 was $23,359 and $28,034, respectively.

Pure Sunfarms Loans

1 unchanged sentence

In addition, Pure Sunfarms has a revolving line of credit (the “PSF Revolving Line of Credit”) with a Canadian chartered bank.

The PSF Revolving Line of Credit had an outstanding balance of $0 as of March 31, 2024 and December 31, 2023.

The PSF Revolving Line of Credit had an outstanding balance of $0 as of June 30, 2024 and December 31, 2023.

The PSF Non-Revolving Facility is secured by the Delta 2 and Delta 3 greenhouse facilities and contains customary financial and restrictive covenants.

As of March 31, 2024, Pure Sunfarms was in compliance with these financial covenants.

The outstanding amount on the PSF Non-Revolving Facility was $7,752 on March 31, 2024 and $8,298 on December 31, 2023.

As of June 30, 2024, Pure Sunfarms was in compliance with these financial covenants.

The outstanding amount on the PSF Non-Revolving Facility was $7,310 on June 30, 2024 and $8,298 on December 31, 2023.

Interest under the PSF Non-Revolving Facility is payable at the Canadian prime rate plus an applicable margin per annum, payable quarterly.

Amounts outstanding under the PSF Non-Revolving Facility mature on February 7, 2026.

The outstanding amount on the PSF Term Loan was $12,458 on March 31, 2024 and $13,201 on December 31, 2023.

The outstanding amount on the PSF Term Loan was $11,879 on June 30, 2024 and $13,201 on December 31, 2023.

Interest under the PSF Term Loan is payable at the Canadian prime rate plus an applicable margin per annum, payable quarterly.

The PSF Term Loan matures on February 7, 2026.

The outstanding amount under the BDC Credit Facility was $3,577 on March 31, 2024 and $3,771 on December 31, 2023.

The outstanding amount under the BDC Credit Facility, a demand loan included in current liabilities as of June 30, 2024 and December 31, 2023, was $3,426 on June 30, 2024 and $3,771 on December 31, 2023.

Interest under the BDC Credit Facility is payable at an interest rate of 10.95%, payable monthly, and the amount outstanding matures on December 31, 2031.

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Summary of Cash Flows

For the Three Months Ended March 31,

For the Six Months Ended June 30,

(in Thousands)

Cash, beginning of period

Net cash flow (used in) provided by:

Net cash flow provided by (used in):

Operating activities

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Operating Activities

For the three months ended March 31, 2024 and 2023, cash used in operating activities were ($50) and ($3,668), respectively.

The operating activities for the three months ended March 31, 2024 consisted of ($3,290) in changes in non-cash working capital items and $3,240 in changes before non-cash working capital items, while operating activities for the three months ended March 31, 2023 consisted of ($1,580) in changes in non-cash working capital items and $2,088 in changes before non-cash working capital items.

The improvement when comparing the change in before non-cash working capital items for 2024 with 2023 was primarily due to improvements in VF Fresh gross margin in 2024 compared with 2023.

For the six months ended June 30, 2024 and 2023, cash provided by (used in) operating activities were $5,652 and ($5,247), respectively.

The operating activities for the six months ended June 30, 2024 consisted of $6,322 in changes in non-cash working capital items and ($670) in changes before non-cash working capital items, while operating activities for the six months ended June 30, 2023 consisted of ($7,825) in changes in non-cash working capital items and $2,578 in changes before non-cash working capital items.

The improvement when comparing the change in before non-cash working capital items for 2024 with 2023 was primarily due to a reduction in Canadian Cannabis inventory as a result of higher sales in 2024 compared with 2023.

Investing Activities

For the three months ended March 31, 2024 and 2023, cash used in investing activities were ($1,876) and ($1,076), respectively.

The increase in investing activities for the three months ended March 31, 2024 was primarily due to capital expenditures to support the build out of our first Netherlands-based cannabis production facility.

For the six months ended June 30, 2024 and 2023, cash used in investing activities were ($4,959) and ($1,713), respectively.

The increase in investing activities for the six months ended June 30, 2024 was primarily due to capital expenditures to support the build out of our first Netherlands-based cannabis production facility.

Additional capital expenditures were made to support VF Fresh, Canadian Cannabis, and U.S.

Cannabis operations in the quarter.

Cannabis operations.

Financing Activities

For the three months ended March 31, 2024, cash used in financing activities were ($1,442) and cash flows provided by financing activities were $18,630 for the three months ended March 31, 2023.

For the three months ended March 31, 2024, cash used in financing activities consisted of debt repayments of ($1,442).

For the three months ended March 31, 2023, cash flows provided by financing activities consisted of $23,335 in net proceeds from the issuance of Common Shares, $83 in proceeds from the exercise of stock options and net repayments of debt of ($4,788) due to repayment of PSF's revolving line of credit.

For the six months ended June 30, 2024 and 2023, cash (used in) provided by financing activities were ($5,886) and $17,012, respectively.

For the six months ended June 30, 2024, cash used in financing activities consisted of debt repayments of ($2,870) and cash used for the acquisition of an additional 10% ownership of Rose LifeScience.

For the six months ended June 30, 2023, cash flows provided by financing activities consisted of $23,335 in net proceeds from the issuance of Common Shares, $83 in proceeds from the exercise of stock options and net repayments of debt of ($6,406) due to repayment of PSF's revolving line of credit.

Contractual Obligations and Commitments

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The following table reflects a reconciliation of net loss to Adjusted EBITDA, as presented by the Company:

For the Three Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(in thousands of U.S.

Foreign currency exchange gain

Foreign currency exchange gain (loss)

Interest expense, net

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Deferred financing fees

Goodwill and intangible asset impairments (1)

Other expense, net

Adjusted EBITDA (2)

(1) Reflects impairment to goodwill and intangibles of $11,939 in U.S.

Cannabis that was based on recent historical performance, near-term forecasts, and the state of the CBD industry in the United States.

See “Critical Accounting Estimates and Judgments” below for more information .

(2) Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP.

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The following table reflects a reconciliation of segmented net loss to Adjusted EBITDA, as presented by the Company:

For The Three Months Ended March 31, 2024

For The Three Months Ended June 30, 2024

(in thousands of U.S.

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Cannabis U.S.

Net income (loss)

Net (loss) income

Foreign currency exchange gain

Interest expense (income), net

Provision for (recovery of) income taxes

Interest expense, net

(Recovery of) provision for income taxes

Provision for income taxes attributable to non-controlling interest

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Amortization for JVs

Foreign currency exchange loss for JVs

Foreign currency exchange gain for JVs

Share-based compensation for JV's

Other expense, net for JV's

Goodwill and intangible asset impairments (1)

Adjusted EBITDA (2)

For The Six Months Ended June 30, 2024

(in thousands of U.S.

Cannabis Canada

Cannabis U.S.

Net (loss) income

Foreign currency exchange gain

Interest expense, net

(Recovery of) provision for income taxes

Provision for income taxes attributable to non-controlling interest

Share-based compensation

Interest expense for JV's

Amortization for JVs

Foreign currency exchange gain for JVs

Share-based compensation for JV's

Other expense, net for JV's

Deferred financing fees

Goodwill and intangible asset impairments (1)

Adjusted EBITDA (2)

For The Three Months Ended June 30, 2023

(in thousands of U.S.

Cannabis Canada

Cannabis U.S.

Net (loss) income

Foreign currency exchange gain

Interest expense (income), net

Provision for income taxes

Share-based compensation

Interest expense for JV's

Amortization for JV's

Foreign currency exchange loss for JV's

Share-based compensation for JV's

Other expenses for JV's

1 unchanged sentence

Adjusted EBITDA (2)

For The Three Months Ended March 31, 2023

For The Six Months Ended June 30, 2023

(in thousands of U.S.

1 unchanged sentence

Cannabis U.S.

Foreign currency exchange loss (gain)

Net (loss) income

Foreign currency exchange (gain) loss

Interest expense (income), net

1 unchanged sentence

Share-based compensation

Amortization for JVs

Foreign currency exchange loss for JVs

Interest expense for JV's

Amortization for JV's

Foreign currency exchange loss for JV's

Share-based compensation for JV's

Other expense, net for JV's

Other expenses for JV's

Deferred financing fees

1 unchanged sentence

Adjusted EBITDA (2)

(1) Reflects impairment to goodwill and intangibles of $11,939 in U.S.

Cannabis that was based on recent historical performance, near-term forecasts, and the state of the CBD industry in the United States.

See “Critical Accounting Estimates and Judgments” below for more information .

(2) Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP.

Therefore, Adjusted EBITDA presented for these segments may not be comparable to similar measures presented for comparable segments by other issuers.

Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company’s segments because it excludes non-recurring and other items that do not reflect the underlying business performance of our segments.

Adjusted EBITDA for Canadian cannabis includes the Company’s 70% interest in Rose LifeScience.

Therefore, Adjusted EBITDA presented for these segments may not be comparable to similar measures presented by other issuers.

Adjusted EBITDA – Constant Currency

To supplement the consolidated financial statements presented in accordance with U.S.

GAAP, we have presented constant currency adjusted financial measures for sales, cost of sales, selling, general and administrative, other income (expense), operating (loss) income, loss from consolidated entities, net loss, and Adjusted EBITDA for the three months ended March 31, 2024, which are considered non-GAAP financial measures.

GAAP, we have presented constant currency adjusted financial measures for sales, cost of sales, selling, general and administrative, other income (expense), operating (loss) income, loss from consolidated entities, net loss, and Adjusted EBITDA for the three and six months ended June 30, 2024, which are considered non-GAAP financial measures.

We present constant currency information to provide a framework for assessing how our underlying operations performed excluding the effect of foreign currency rate fluctuations.

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dollars are converted into U.S.

dollars using the average exchange rates from the three month comparative periods in 2023 rather than the actual average exchange rates in effect during the respective current periods.

dollars using the average exchange rates from the three and six month comparative periods in 2023 rather than the actual average exchange rates in effect during the respective current periods.

All growth comparisons relate to the corresponding period in 2023.

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The non-GAAP financial measures presented in this Quarterly Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S.

The table below sets forth certain measures of consolidated results from continuing operations on a constant currency basis for the three months ended March 31, 2024 compared with the three months ended March 31, 2023 on an as reported and constant currency basis (in thousands):

The tables below set forth certain measures of consolidated results from continuing operations on a constant currency basis for the three and six months ended June 30, 2024 compared with the three and six months ended June 30, 2023 on an as reported and constant currency basis (in thousands):

As Adjusted for Constant Currency

For The Three Months Ended March 31,

For the Three Months Ended June 30,

As Reported Change

For The Three Months Ended March 31,

For the Three Months Ended June 30,

Constant Currency Change

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Other (expense) income, net

Goodwill and intangible asset impairments (1)

Operating loss

Loss including non-controlling interests

Adjusted EBITDA - Constant Currency (2)

As Adjusted for Constant Currency

For the Six Months Ended June 30,

As Reported Change

For the Six Months Ended June 30,

Constant Currency Change

Cost of sales

Selling, general and administrative expenses

Other (expense) income, net

Goodwill and intangible asset impairments (1)

Operating (loss) income

1 unchanged sentence

Adjusted EBITDA - Constant Currency (2)

(1) Reflects impairment to goodwill and intangibles of $11,939 in U.S.

Cannabis that was based on recent historical performance, near-term forecasts, and the state of the CBD industry in the United States.

See “Critical Accounting Estimates and Judgments” below for more information .

(2) Adjusted EBITDA - Constant Currency is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP.

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The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses and related disclosure of contingent assets and liabilities.

As described in Note 4, Goodwill and Intangible Assets, in our Unaudited Condensed Consolidated Interim Financial Statements, during the three months ended March 31, 2024 and 2023, the Company considered qualitative factors in assessing for impairment indicators for the Company’s U.S.

As described in Note 5, Goodwill and Intangible Assets, in our Unaudited Condensed Consolidated Interim Financial Statements included in Part 1 of this Quarterly Report on Form 10-Q, during the three and six months ended June 30, 2024 and 2023, the Company considered qualitative factors in assessing for impairment indicators for the Company’s U.S.

and Canadian Cannabis segments.

As part of this assessment, the Company considered both external and internal factors, including overall financial performance and outlook.

At March 31, 2024, the Company concluded that no impairment indicators existed as no events or circumstances occurred that would, more likely than not, reduce the fair value of the goodwill and intangible assets for its reporting units to be below their carrying amounts.

At March 31, 2024, the carrying value of goodwill associated with our Cannabis – U.S.

segment and our Cannabis – Canada segment was $10.0 million and $44.9 million, respectively, and the carrying value of intangible assets associated with our Cannabis – U.S.

segment and our Cannabis – Canada segment was $1.9 million and $24.0 million, respectively.

Cannabis - U.S.

At June 30, 2024, when the Company considered qualitative factors in assessing impairment indicators it concluded that the Company's U.S.

- Cannabis segment more likely than not was impaired.

The Company reviewed the reporting segment's assets, including goodwill and intangible assets.

Based on recent historical performance during the quarter which has underperformed relative to budget, a revised June 30, 2024 forecast which shows a shortfall compared to the March 31, 2024 forecast, the new restrictions on CBD sales in an additional eight states at July 1, 2024, and the proliferation of unregulated hemp-derived products on the market which continues to challenge market share for the CBD industry, the Company concluded that as of June 30, 2024, the fair value of the brand intangible asset and goodwill was fully impaired and an impairment charge to intangibles of $1,900 and goodwill of $10,039 was allocated to the U.S.

Cannabis reporting unit.

Cannabis - U.S.

The fair value of the reporting unit was determined based on a discounted cash flow projection using projections for 2024 to 2028 with an average revenue growth rate of 6% between 2025 to 2028, followed by a terminal growth rate of 2%.

Management concluded that as of June 30, 2024, the fair value was lower than its carrying amount and as a result, an impairment charge to goodwill of $10,030 was allocated to the reporting unit.

The significant assumptions applied to the determination of the fair value are described below:

Post-tax discount rate:

A market participant post-tax discount rate applied to the after-tax forecast cash flows was 12%.

A decrease of 1% to the discount rate, would not result in material change to the impairment charge.

Terminal growth rate:

An increase of 1% in the terminal growth rate would not result in a material change to the impairment charge.

Future cash flows:

An increase in future cash flows by 10% would not result in a material change to the impairment charge.

Cannabis – U.S.

The fair value of the brand was determined based on a discounted cash flow projection.

Specifically, the Company utilized a relief from royalty valuation technique to arrive at the fair value of the brand.

Management concluded that as of June 30, 2024, the fair value was lower than its carrying value of $1,900 as the notional brand maintenance costs exceeded the incremental royalty of 3.5%.

Therefore, an impairment charge to the brand intangible of $1,900 was allocated to the reporting unit.

Cannabis - Canada

When the Company considered qualitative factors in assessing impairment indicators for Canadian Cannabis it concluded that no impairment indicators existed as no events or circumstances occurred that would, more likely than not, reduce the fair value of the reporting units to be below their carrying amounts.

At June 30, 2023, the Company concluded that no impairment indicators existed as no events or circumstances occurred that would, more likely than not, reduce the fair value of the reporting units to be below their carrying amounts.

We believe that the estimates, assumptions and judgments involved in the accounting policies described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies.

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Interest Rate Risk

As of March 31, 2024, our variable interest rate debt was primarily related to our Credit Facilities and Term Loans.

As of June 30, 2024, our variable interest rate debt was primarily related to our Credit Facilities and Term Loans.

Outstanding borrowings under our Credit Facility and Term Loans bear interest at either the (a) Secured Overnight Financing Rate (“SOFR”) or (b) Canadian Prime Rate, as defined in the agreement, plus an applicable margin.

As of March 31, 2024, we had approximately $4,000 aggregate principal amount of outstanding revolving loans under our Operating Loan with an interest rate of 7.1% and we had approximately $46,083 in aggregate principal amounts of our Term Loans with a weighted average interest rate of 9.1%.

As of June 30, 2024, we had approximately $4,000 aggregate principal amount of outstanding revolving loans under our Operating Loan with an interest rate of 7.8% and we had approximately $44,419 in aggregate principal amounts of our Term Loans with a weighted average interest rate of 9.1%.

The current interest rates for outstanding revolving loans under our Credit Facility and Term Loans reflect basis point increases of approximately 0.9% over the comparable period in 2023.

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This risk increases in the current inflationary environment, in which the Federal Reserve has increased interest rates, resulting in an increase in our variable interest rates and related interest expense.

An additional 50 basis point increase in the applicable interest rates under our Credit Facility and Term Loan would have increased our interest expense by approximately $59 for the three months ended March 31, 2024 and $66 for the three months ended March 31, 2023.

An additional 50 basis point increase in the applicable interest rates under our Credit Facility and Term Loan would have increased our interest expense by approximately $58 and $116 for the three and six months ended June 30, 2024 and $65 and $131 for the three and six months ended June 30, 2023.

While we cannot predict our ability to refinance existing debt or the significance of the impact that interest rate movements will have on our existing debt, management evaluates our financial position on an ongoing basis.

Foreign Exchange Risk

As of March 31, 2024 and 2023, the Canadian/U.S.

As of June 30, 2024 and 2023, the Canadian/U.S.

foreign exchange rate was C$1.00 = US$0.7310 and C$1.00 = US$0.7547, respectively.

If all other variables remain constant, an increase of $0.10 in the Canadian dollar would have the following impact on the ending balances of certain statements of financial position items at March 31, 2024 and 2023 with the net foreign exchange gain or loss directly impacting net income (loss):

March 31, 2024

March 31, 2023

If all other variables remain constant, an increase of $0.10 in the Canadian dollar would have the following impact on the ending balances of certain statements of financial position items at June 30, 2024 and 2023 with the net foreign exchange gain or loss directly impacting net income (loss):

June 30, 2024

June 30, 2023

Financial assets

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis