Village Farms International, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report and the Management’s Discussion and Analysis of Financial Condition and Results of Operations and consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2023 (our "Annual Report on Form 10-K"). This discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on assumptions and estimates that are inherently subject to significant risks and uncertainties, and our actual results could differ materially from the results anticipated by our forward-looking statements. We encourage you to review the risks and uncertainties described in “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K, and in Part II, Item 1A of this Quarterly Report. These risks and uncertainties could cause actual results to differ materially from those projected or implied by our forward-looking statements contained in this report. These forward-looking statements are made as of the date of this management’s discussion and analysis, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law. EXECUTIVE OVERVIEW Village Farms International, Inc. (“VFF”, together with its subsidiaries, the “Company”, “Village Farms”, “we” “us” or “our”) is a corporation existing under the Business Corporations Act (Ontario). The Company’s principal operating subsidiaries are Village Farms Canada LP ("VFCLP"), Village Farms LP ("VFLP"), Pure Sunfarms Corp. (“Pure Sunfarms” or "PSF"), Balanced Health Botanicals, LLC (“Balanced Health”), Rose LifeScience Inc. ("Rose LifeScience” or “Rose”), and VF Clean Energy, Inc. (“VFCE”). The Company’s vision is to be recognized as an international leader in consumer products developed from plants, whereby we produce and market value-added products that are consistently preferred by consumers. To do so, we leverage decades of cultivation expertise, investment, and experience in fresh produce into branded and wholesale cannabis products within markets with legally permissible opportunities. In Canada, we converted two produce facilities to grow cannabis for the Canadian legal adult use (recreational) market. Our focus for our Canadian Cannabis segment is to produce high quality cannabis, leveraging our low-cost production to provide preferred products at an attractive price that address the preferred consumer segments in the market. This market positioning, combined with our cultivation expertise, has enabled us to evolve into the second best-selling producer nationally and one of the few Canadian LPs with consistently strong operating results. Additionally, through organic growth, exports and/or acquisitions, we have a strategy to participate in other international markets where cannabis attains legal status. In September 2021, our Canadian Cannabis business began exporting cannabis products to Australia for that country’s medical market. In March 2022, our Canadian Cannabis business received European Union Good Manufacturing Practice (“EU GMP”) certification for Pure Sunfarms’ 1.1 million square foot Delta 3 cannabis facility located in Delta, British Columbia (“B.C.”) which permits Pure Sunfarms to export EU GMP-certified medical cannabis to importers and distributors in international markets that require EU GMP certification. In late 2022, Pure Sunfarms commenced exports to Israel and in 2023, Pure Sunfarms began exporting cannabis products to Germany and the United Kingdom for the medical markets in those countries. As a result of the typically higher margins in international medical markets, we expect international expansion to enhance our profitability while expanding our brand and experience into emerging legal cannabis markets. Through our 85% ownership of Leli Holland, we hold one of ten licenses to cultivate cannabis legally in the Netherlands under that country’s Closed Supply Chain Experiment program, with production targeted to start in the fourth quarter of 2024. In the U.S., Balanced Health is our industry-leading cannabinoid business, extending our portfolio into cannabidiol (“CBD”) consumer products. We also operate a large, well-established, produce business (primarily tomatoes) under the Village Farms Fresh (“VF Fresh”) brand which sells to food distribution companies and mass retail stores. We own and operate produce cultivation assets in Texas and Delta, B.C. and source produce from our growing partners, in Mexico and Canada. Our intention is to use our assets, expertise and experience (across cannabis, CBD and produce) to participate in the U.S. Cannabis market subject to compliance with applicable U.S. federal and state laws and applicable stock exchange rules. Our Operating Segments Canadian Cannabis Segment Our Canadian Cannabis segment is comprised of Pure Sunfarms and an 80% ownership in Rose LifeScience. 14 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. Pure Sunfarms leverages our 30 years of experience as a vertically integrated greenhouse grower to grow, produce and sell cannabis products throughout Canada and for export to markets where permissible by law. Rose is the second best-selling licensed producer of cannabis in the Province of Quebec, as well as a prominent cannabis products commercialization expert in Quebec, acting as the exclusive, direct-to-retail sales, marketing and distribution entity for some of the best-known brands in Canada, as well as Quebec-based micro and craft growers. Our long-term objective for our Canadian Cannabis segment is to garner and sustain the leading retail market share in Canada stemming from our leading position as the low-cost, high-quality cannabis producer in Canada and expand our Canadian success into the growing foreign cannabis medicinal markets across the globe. U.S. Cannabis Segment Our U.S. Cannabis segment is comprised of Balanced Health. Balanced Health is one of the leading cannabinoid brands and e-commerce platforms in the United States. Balanced Health develops and sells high-quality CBD and hemp-based health and wellness products, distributing its diverse portfolio of consumer products through its top-ranked e-commerce platform, CBDistillery™ and third-party retailers. Produce Segment Our Produce segment is comprised of VF Fresh, which currently consists of Village Farms LP and Village Farms Canada LP. VF Fresh, grows, markets and distributes premium-quality, greenhouse-grown produce in North America. These premium products are grown in sophisticated, highly intensive agricultural greenhouse facilities located in British Columbia and Texas. We also market and distribute premium tomatoes, peppers and cucumbers produced under exclusive and non-exclusive arrangements from our greenhouse supply partners located in Mexico, B.C. and Ontario. We primarily market and distribute under our Village Farms® brand name to retail supermarkets and dedicated fresh food distribution companies throughout the United States and Canada. Energy Segment Our Energy segment is comprised of VF Clean Energy Inc. 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"). The Delta RNG Project, which commenced operations in 2024, converts VFCE’s previous landfill gas-to-electricity business into a state-of-the-art landfill gas to high-demand renewable natural gas ("RNG") facility. Terreva Renewables sells the renewable natural gas and VFCE receives a portion of the revenue in the form of a royalty. Recent Developments and Updates Canadian Cannabis • 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. 1.For the second quarter of 2024. Based on estimated retail sales from HiFyre, other third parties and provincial boards. 2. Based on estimated retail sales from HiFyre, other third parties and provincial boards. 15 International Cannabis • 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. U.S. Cannabis • 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; and, • The Company’s application for a Texas medicinal marijuana license remains pending review by the Department of Public Services. If awarded, the Company plans to work with its listing authority to structure an acceptable ownership structure. VF Fresh (Produce) • 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$10 million revolving line of credit with a Canadian chartered bank. Amendments include the expansion of the Company’s borrowing options to provide additional financial flexibility and the maturity date was extended from May 24, 2024 to May 24, 2027; and, • The Company has an ongoing sale process for its Monahans (Permian Basin, Texas) greenhouse facility. It is also evaluating other uses for the site and facility, some of which are outside its historical produce business. Village Farms Clean Energy • In April 2024, the Delta, British Columbia Renewable Natural Gas Project began operations, which immediately began contributing incremental profit to the Company. Corporate • Increased ownership of Rose by 10% to hold an 80% interest, with the purchase being immediately accretive to adjusted EBITDA and net income; • Appointed finance and operations veteran, Carolyn Hauger, to the Board of Directors; Presentation of Financial Results Our consolidated results of operations (prior to net income) for the three and six months ended June 30, 2024 and 2023 presented below reflect the operations of our consolidated wholly-owned subsidiaries, our 70% ownership in Rose LifeScience through March 31, 2024, our 80% ownership in Rose LifeScience beginning on April 1, 2024, and our 85% ownership in Leli. Foreign currency exchange rates All currency amounts in this Quarterly Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. 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. The condensed consolidated statements of operations and comprehensive income (loss) and condensed consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period. The exchange rates used to translate from Canadian dollars ("C") to dollars is shown below: As of June 30, 2024 June 30, 2023 December 31, 2023 Spot rate 0.7310 0.7547 0.7543 Three-month period ended 0.7308 0.7445 N/A Six-month period ended 0.7363 0.7420 N/A 16 RESULTS OF OPERATIONS Consolidated Financial Performance (In thousands of U.S. dollars, except per share amounts, and unless otherwise noted) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Sales $ 92,182 $ 77,212 $ 170,259 $ 141,868 Cost of sales (82,934 ) (65,713 ) (145,498 ) (118,069 ) Gross profit 9,248 11,499 24,761 23,799 Selling, general and administrative expenses (19,666 ) (16,753 ) (36,053 ) (34,158 ) Interest expense (905 ) (1,411 ) (1,822 ) (2,544 ) Interest income 322 283 528 479 Foreign exchange (loss) gain (403 ) 738 (1,281 ) 669 Other income 45 5,602 149 5,632 Goodwill and intangible asset impairments (1) (11,939 ) — (11,939 ) — Loss before taxes (23,298 ) (42 ) (25,657 ) (6,123 ) Provision for income taxes (260 ) (1,299 ) (580 ) (1,933 ) Loss including non-controlling interests (23,558 ) (1,341 ) (26,237 ) (8,056 ) Less: net loss (income) attributable to non-controlling interests, net of tax 9 (39 ) (164 ) 40 Net loss attributable to Village Farms International Inc. shareholders $ (23,549 ) $ (1,380 ) $ (26,401 ) $ (8,016 ) Adjusted EBITDA (2) $ (3,559 ) $ 4,475 $ 32 $ 4,994 Basic loss per share $ (0.21 ) $ (0.01 ) $ (0.24 ) $ (0.07 ) Diluted loss per share $ (0.21 ) $ (0.01 ) $ (0.24 ) $ (0.07 ) (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 may not be comparable to similar measures presented by other issuers. 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 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 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. S. 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 June 30, 2024 Compared to Three Months Ended June 30, 2023 Sales 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. For additional information, refer to "Segmented Results of Operations" below. Cost of Sales 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 17 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 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. For additional information, refer to "Segmented Results of Operations" below. Selling, General and Administrative Expenses 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 June 30, 2024 2023 Selling, general and administrative expenses $ 17,470 $ 16,097 Share-based compensation 2,196 656 Total selling, general and administrative expenses $ 19,666 $ 16,753 Interest Expense 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 June 30, 2024 was $322 compared with $283 for the three months ended June 30, 2023. Other Income 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 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. Shareholders Net loss attributable to Village Farms International, Inc. 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 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”. 18 Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023 Sales 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 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, 2024 2023 Selling, general and administrative expenses $ 33,452 $ 31,770 Share-based compensation 2,601 2,388 Total selling, general and administrative expenses $ 36,053 $ 34,158 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 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. S. 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. Shareholders 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. 19 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 (In thousands of U.S. dollars, except per share amounts, and unless otherwise noted) For The Three Months Ended June 30, 2024 VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Sales $ 47,019 $ 40,745 $ 4,297 $ 121 $ — $ 92,182 Cost of sales (51,183 ) (30,040 ) (1,668 ) (43 ) — (82,934 ) Selling, general and administrative expenses (3,613 ) (8,749 ) (2,960 ) (17 ) (4,327 ) (19,666 ) Other expense, net (527 ) (270 ) — — (144 ) (941 ) Goodwill and intangible asset impairments (1) — — (11,939 ) — — (11,939 ) Operating (loss) income (8,304 ) 1,686 (12,270 ) 61 (4,471 ) (23,298 ) Recovery of (provision for) income taxes 4 (259 ) — — (5 ) (260 ) (Loss) income from consolidated entities (8,300 ) 1,427 (12,270 ) 61 (4,476 ) (23,558 ) Less: net (income) loss attributable to non-controlling interests, net of tax — (43 ) — — 52 9 Net (loss) income $ (8,300 ) $ 1,384 $ (12,270 ) $ 61 $ (4,424 ) $ (23,549 ) Adjusted EBITDA (2) $ (6,350 ) $ 4,818 $ (240 ) $ 61 $ (1,848 ) $ (3,559 ) Basic (loss) income per share $ (0.07 ) $ 0.01 $ (0.11 ) $ 0.00 $ (0.04 ) $ (0.21 ) Diluted (loss) income per share $ (0.07 ) $ 0.01 $ (0.11 ) $ 0.00 $ (0.04 ) $ (0.21 ) For The Three Months Ended June 30, 2023 VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Sales $ 43,846 $ 28,065 $ 5,301 $ — $ — $ 77,212 Cost of sales (46,607 ) (17,349 ) (1,743 ) (14 ) — (65,713 ) Selling, general and administrative expenses (2,854 ) (7,827 ) (3,386 ) (1 ) (2,685 ) (16,753 ) Other income (expense), net 5,135 (806 ) — (19 ) 902 5,212 Operating (loss) income (480 ) 2,083 172 (34 ) (1,783 ) (42 ) Provision for income taxes (218 ) (818 ) — — (263 ) (1,299 ) (Loss) income from consolidated entities (698 ) 1,265 172 (34 ) (2,046 ) (1,341 ) Less: net (income) loss attributable to non-controlling interests, net of tax — (91 ) — — 52 (39 ) Net (loss) income $ (698 ) $ 1,174 $ 172 $ (34 ) $ (1,994 ) $ (1,380 ) Adjusted EBITDA (2) $ 1,330 $ 4,778 $ 354 $ (35 ) $ (1,952 ) $ 4,475 Basic (loss) income per share $ (0.01 ) $ 0.01 $ 0.00 $ (0.00 ) $ (0.02 ) $ (0.01 ) Diluted (loss) income per share $ (0.01 ) $ 0.01 $ 0.00 $ (0.00 ) $ (0.02 ) $ (0.01 ) For The Six Months Ended June 30, 2024 VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Sales $ 83,113 $ 78,191 $ 8,834 $ 121 $ — $ 170,259 Cost of sales (83,967 ) (57,978 ) (3,510 ) (43 ) — (145,498 ) Selling, general and administrative expenses (6,306 ) (16,453 ) (6,366 ) (37 ) (6,891 ) (36,053 ) Other expense, net (1,030 ) (671 ) — — (725 ) (2,426 ) Goodwill and intangible asset impairments (1) — — (11,939 ) — — (11,939 ) Operating (loss) income (8,190 ) 3,089 (12,981 ) 41 (7,616 ) (25,657 ) Recovery of (provision for) income taxes 4 (588 ) — — 4 (580 ) (Loss) income from consolidated entities (8,186 ) 2,501 (12,981 ) 41 (7,612 ) (26,237 ) Less: net (income) loss attributable to non-controlling interests, net of tax — (270 ) — — 106 (164 ) Net (loss) income $ (8,186 ) $ 2,231 $ (12,981 ) $ 41 $ (7,506 ) $ (26,401 ) Adjusted EBITDA (2) $ (4,322 ) $ 8,891 $ (855 ) $ 41 $ (3,723 ) $ 32 Basic (loss) income per share $ (0.07 ) $ 0.02 $ (0.12 ) $ 0.00 $ (0.07 ) $ (0.24 ) Diluted (loss) income per share $ (0.07 ) $ 0.02 $ (0.12 ) $ 0.00 $ (0.07 ) $ (0.24 ) 20 For The Six Months Ended June 30, 2023 VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Sales $ 78,413 $ 53,177 $ 10,278 $ — $ — $ 141,868 Cost of sales (80,559 ) (34,007 ) (3,482 ) (21 ) — (118,069 ) Selling, general and administrative expenses (5,770 ) (14,675 ) (7,003 ) (30 ) (6,680 ) (34,158 ) Other income (expense) net 4,591 (1,410 ) 3 (19 ) 1,071 4,236 Operating (loss) income (3,325 ) 3,085 (204 ) (70 ) (5,609 ) (6,123 ) Recovery of (provision for) income taxes 8 (1,956 ) — — 15 (1,933 ) (Loss) income from consolidated entities (3,317 ) 1,129 (204 ) (70 ) (5,594 ) (8,056 ) Less: net (income) loss attributable to non-controlling interests, net of tax — (60 ) — — 100 40 Net (loss) income $ (3,317 ) $ 1,069 $ (204 ) $ (70 ) $ (5,494 ) $ (8,016 ) Adjusted EBITDA (2) $ 335 $ 8,688 $ 203 $ (71 ) $ (4,161 ) $ 4,994 Basic (loss) income per share $ (0.03 ) $ 0.01 $ (0.00 ) $ (0.00 ) $ (0.05 ) $ (0.07 ) Diluted (loss) income per share $ (0.03 ) $ 0.01 $ (0.00 ) $ (0.00 ) $ (0.05 ) $ (0.07 ) (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 may not be comparable to similar measures presented by other issuers. 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 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 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 Sales 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 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: 21 For the Three Months Ended June 30, (in thousands of U.S. dollars) 2024 2023 Branded sales $ 50,350 $ 37,164 Non-branded sales 8,266 2,933 International sales 1,505 1,377 Other 439 557 Less: excise taxes (19,815 ) (13,966 ) Net Sales $ 40,745 $ 28,065 For the Three Months Ended June 30, (in thousands of Canadian dollars) 2024 2023 Branded sales $ 68,896 $ 49,895 Non-branded sales 11,314 3,940 International sales 2,059 1,849 Other 601 749 Less: excise taxes (27,114 ) (18,760 ) Net Sales $ 55,756 $ 37,673 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. Net Income 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 Sales 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. 22 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 six months ended June 30, 2024 and 2023: For the Six Months Ended June 30, (in thousands of U.S. dollars) 2024 2023 Branded sales $ 99,073 $ 71,663 Non-branded sales 14,737 5,242 International sales 3,003 3,064 Other 896 932 Less: excise taxes (39,518 ) (27,724 ) Net Sales $ 78,191 $ 53,177 For the Six Months Ended June 30, (in thousands of Canadian dollars) 2024 2023 Branded sales $ 134,589 $ 96,571 Non-branded sales 20,046 7,061 International sales 4,080 4,131 Other 1,218 1,255 Less: excise taxes (53,679 ) (37,361 ) Net Sales $ 106,254 $ 71,657 Cost of Sales 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 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 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. Net Income 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 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”. U.S. CANNABIS SEGMENT RESULTS The U.S. Cannabis segment consists of Balanced Health. 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. 23 Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 Sales U.S. 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. All U.S. 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 U.S. 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 U.S. 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 U.S. 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 U.S. 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 Sales U.S. 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. All U.S. Cannabis sales were generated in the United States, with gross sales composed of 90% e-commerce sales, 7% retail sales and 3% miscellaneous. Cost of Sales U.S. 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 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 U.S. 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. Net Loss U.S. 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. 24 Adjusted EBITDA U.S. 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 and six months ended June 30, 2024 and 2023. Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 Sales 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 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. 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 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. Net Loss 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 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”. 25 Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023 Sales 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. Net Loss 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 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. We intend to use our cash on hand for daily operational funding requirements. (in thousands of U.S. dollars unless otherwise noted) Maximum Availability Outstanding as of June 30, 2024 Operating Loan $ 7,283 $ 4,000 FCC Term Loan $ 21,804 $ 21,804 Pure Sunfarms Loans C$ 30,938 $ 22,615 Pure Sunfarms Revolving Line of Credit C$ 15,000 $ — 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 26 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. FCC measures our financial covenants once a year on the last calendar day of the year and our next annual testing date will be on December 31, 2024. 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 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. FCC Term Loan 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 $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 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 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 Bank of Montreal (the "Operating Loan"). On March 13, 2023, the Company entered into a Note Modification Agreement (the “Modification”) to the Operating Loan. The Modification eliminated the use of LIBOR as a basis to determine certain interest rates under the Operating Loan and transitioned to the Secured Overnight Financing Rate (“SOFR”) for such purposes. 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 $3,283 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 June 30, 2024 and December 31, 2023 was $23,359 and $28,034, respectively. Pure Sunfarms Loans Pure Sunfarms has a credit facility with the Business Development Bank of Canada (the "BDC Credit Facility"), a non-revolving credit facility (the “PSF Non-Revolving Facility”) and a term loan (the “PSF Term Loan”) with two Canadian chartered banks (collectively, with the BDC Credit Facility, the PSF Non-Revolving Facility, and the PSF Term Loan the “Pure Sunfarms Loans”). 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 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 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 $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, 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. 27 Equity Offerings On January 30, 2023, the Company issued and sold 18,350,000 Common Shares under a registered direct equity offering, at a price of $1.35 per share, resulting in net proceeds for approximately $23,300 after deducting commissions and offering expenses (the "January 2023 Equity Offering"). As part of the January 2023 Equity Offering the Company also issued 18,350,000 Common Warrants at an exercise price of $1.65 per share. The Common Warrants became exercisable on July 31, 2023, and expire on July 30, 2028. Summary of Cash Flows For the Six Months Ended June 30, (in Thousands) 2024 2023 Cash, beginning of period $ 35,291 $ 21,676 Net cash flow provided by (used in): Operating activities 5,652 (5,247 ) Investing activities (4,959 ) (1,713 ) Financing activities (5,886 ) 17,012 Net cash (decrease) increase for the period (5,193 ) 10,052 Effect of exchange rate changes on cash (441 ) (69 ) Cash, end of the period $ 29,657 $ 31,659 Operating Activities 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 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. Financing Activities 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 We expect to meet our contractual obligations and commitments using our working capital and our other resources described under “Capital Resources” above. Other than with respect to our long-term debt described above, we currently do not have any material cash requirements in the near future. Non-GAAP Measures References in this Management’s Discussion and Analysis to “Adjusted EBITDA” are to earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as further adjusted to exclude foreign currency exchange gains and losses on translation of long-term debt, share-based compensation, gains and losses on asset sales and the other adjustments set forth in the table below. In addition, we present below and “Adjusted EBITDA – Constant Currency” which excludes the effect of foreign currency rate fluctuations. See “—Constant Currency” below. Adjusted EBITDA and Adjusted EBITDA - Constant Currency are measures of operating performance that are not recognized under GAAP and do not have a standardized meaning prescribed by GAAP. Therefore, these non-GAAP measures may not be comparable to similar measures presented by other issuers. Investors are cautioned that our non-GAAP measures should not be construed as an alternative to net income or loss determined in accordance with GAAP as an indicator of our performance. Our non-GAAP measures are used as additional measures to evaluate the operating and financial performance of our segments. Management believes that our non-GAAP measures are important measures in evaluating the historical performance of the Company because it excludes non-recurring and other items that do not reflect our business performance. 28 Reconciliation of Net Loss to Adjusted EBITDA The following table reflects a reconciliation of net loss to Adjusted EBITDA, as presented by the Company: For the Three Months Ended June 30, For the Six Months Ended June 30, (in thousands of U.S. dollars) 2024 2023 2024 2023 Net loss $ (23,549 ) $ (1,380 ) $ (26,401 ) $ (8,016 ) Add: Amortization 3,988 2,946 7,707 6,190 Foreign currency exchange gain (loss) 346 (766 ) 1,117 (733 ) Interest expense, net 611 1,079 1,334 2,016 Provision for income taxes 260 1,299 580 1,933 Provision for income taxes attributable to non-controlling interest (51 ) — (150 ) — Share-based compensation 2,172 599 2,544 2,282 Interest expense for JV's (23 ) 34 (31 ) 34 Amortization for JVs 698 598 1,332 1,158 Foreign currency exchange gain for JVs 2 1 5 2 Share-based compensation for JV's 19 40 42 74 Other expense, net for JV's 29 (9 ) 4 (15 ) Deferred financing fees — 34 10 68 Goodwill and intangible asset impairments (1) 11,939 — 11,939 — Other expense, net — — — 1 Adjusted EBITDA (2) $ (3,559 ) $ 4,475 $ 32 $ 4,994 (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 by other issuers. 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 the underlying business performance of the Company. Reconciliation of Segmented Net Loss to Adjusted EBITDA The following table reflects a reconciliation of segmented net loss to Adjusted EBITDA, as presented by the Company: For The Three Months Ended June 30, 2024 (in thousands of U.S. dollars) VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Net (loss) income $ (8,300 ) $ 1,384 $ (12,270 ) $ 61 $ (4,424 ) $ (23,549 ) Add: Amortization 1,347 2,545 50 — 46 3,988 Foreign currency exchange gain 29 (12 ) — — 329 346 Interest expense, net 578 216 — — (183 ) 611 (Recovery of) provision for income taxes (4 ) 259 — — 5 260 Provision for income taxes attributable to non-controlling interest — (51 ) — — — (51 ) Share-based compensation — 18 41 — 2,113 2,172 Interest expense for JV's — (23 ) — — — (23 ) Amortization for JVs — 432 — — 266 698 Foreign currency exchange gain for JVs — 2 — — — 2 Share-based compensation for JV's — 19 — — — 19 Other expense, net for JV's — 29 — — — 29 Goodwill and intangible asset impairments (1) — — 11,939 — — 11,939 Adjusted EBITDA (2) $ (6,350 ) $ 4,818 $ (240 ) $ 61 $ (1,848 ) $ (3,559 ) 29 For The Six Months Ended June 30, 2024 (in thousands of U.S. dollars) VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Net (loss) income $ (8,186 ) $ 2,231 $ (12,981 ) $ 41 $ (7,506 ) $ (26,401 ) Add: Amortization 2,681 4,816 104 — 106 7,707 Foreign currency exchange gain 38 15 — — 1,064 1,117 Interest expense, net 1,149 522 — — (337 ) 1,334 (Recovery of) provision for income taxes (4 ) 588 — — (4 ) 580 Provision for income taxes attributable to non-controlling interest — (150 ) — — — (150 ) Share-based compensation — 40 83 — 2,421 2,544 Interest expense for JV's — (31 ) — — — (31 ) Amortization for JVs — 799 — — 533 1,332 Foreign currency exchange gain for JVs — 5 — — — 5 Share-based compensation for JV's — 42 — — — 42 Other expense, net for JV's — 4 — — — 4 Deferred financing fees — 10 — — — 10 Goodwill and intangible asset impairments (1) — — 11,939 — — 11,939 Adjusted EBITDA (2) $ (4,322 ) $ 8,891 $ (855 ) $ 41 $ (3,723 ) $ 32 For The Three Months Ended June 30, 2023 (in thousands of U.S. dollars) VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Net (loss) income $ (698 ) $ 1,174 $ 172 $ (34 ) $ (1,994 ) $ (1,380 ) Add: Amortization 1,302 1,494 87 — 63 2,946 Foreign currency exchange gain (80 ) (22 ) — (1 ) (663 ) (766 ) Interest expense (income), net 588 728 — — (237 ) 1,079 Provision for income taxes 218 818 — — 263 1,299 Share-based compensation — 119 95 — 385 599 Interest expense for JV's — 34 — — — 34 Amortization for JV's — 367 — — 231 598 Foreign currency exchange loss for JV's — 1 — — — 1 Share-based compensation for JV's — 40 — — — 40 Other expenses for JV's — (9 ) — — — (9 ) Deferred financing fees — 34 — — — 34 Adjusted EBITDA (2) $ 1,330 $ 4,778 $ 354 $ (35 ) $ (1,952 ) $ 4,475 For The Six Months Ended June 30, 2023 (in thousands of U.S. dollars) VF Fresh (Produce) Cannabis Canada Cannabis U.S. Clean Energy Corporate Total Net (loss) income $ (3,317 ) $ 1,069 $ (204 ) $ (70 ) $ (5,494 ) $ (8,016 ) Add: Amortization 2,556 3,284 226 — 124 6,190 Foreign currency exchange (gain) loss (27 ) (35 ) 19 (1 ) (689 ) (733 ) Interest expense (income), net 1,131 1,289 (24 ) — (380 ) 2,016 (Recovery of) provision for income taxes (8 ) 1,956 — — (15 ) 1,933 Share-based compensation — 263 185 — 1,834 2,282 Interest expense for JV's — 34 — — — 34 Amortization for JV's — 699 — — 459 1,158 Foreign currency exchange loss for JV's — 2 — — — 2 Share-based compensation for JV's — 74 — — — 74 Other expenses for JV's — (15 ) — — — (15 ) Deferred financing fees — 68 — — — 68 Other expense, net — — 1 — — 1 Adjusted EBITDA (2) $ 335 $ 8,688 $ 203 $ (71 ) $ (4,161 ) $ 4,994 (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 . 30 (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 by other issuers. 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 the underlying business performance of the Company. 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 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. To present this information, current and comparative prior period income statement results in currencies other than U.S. dollars are converted into U.S. 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. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our segments without taking into account the effect of exchange rate fluctuations. 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. GAAP. 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 Reported As Adjusted for Constant Currency For the Three Months Ended June 30, As Reported Change For the Three Months Ended June 30, Constant Currency Change 2024 2023 $ % 2024 $ % Sales $ 92,182 $ 77,212 $ 14,970 19 % $ 93,648 $ 16,436 21 % Cost of sales (82,934 ) (65,713 ) (17,221 ) (26 %) (84,021 ) (18,308 ) (28 %) Selling, general and administrative expenses (19,666 ) (16,753 ) (2,913 ) (17 %) (19,974 ) (3,221 ) (19 %) Other (expense) income, net (941 ) 5,212 (6,153 ) 118 % (954 ) (6,166 ) 118 % Goodwill and intangible asset impairments (1) (11,939 ) — (11,939 ) (11,939 ) (11,939 ) 0 % Operating loss (23,298 ) (42 ) (23,256 ) (55371 %) (23,240 ) (23,198 ) (55234 %) Loss including non-controlling interests (23,558 ) (1,341 ) (22,217 ) (1657 %) (23,511 ) (22,170 ) (1653 %) Net loss (23,549 ) (1,380 ) (22,169 ) (1606 %) (23,507 ) (22,127 ) (1603 %) Adjusted EBITDA - Constant Currency (2) (3,559 ) 4,475 (8,034 ) 180 % (3,392 ) (7,867 ) 176 % As Reported 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 2024 2023 $ % 2024 $ % Sales $ 170,259 $ 141,868 $ 28,391 20 % $ 170,865 $ 28,997 20 % Cost of sales (145,498 ) (118,069 ) (27,429 ) (23 %) (145,947 ) (27,878 ) (24 %) Selling, general and administrative expenses (36,053 ) (34,158 ) (1,895 ) (6 %) (36,181 ) (2,023 ) (6 %) Other (expense) income, net (2,426 ) 4,236 (6,662 ) 157 % (2,431 ) (6,667 ) 157 % Goodwill and intangible asset impairments (1) (11,939 ) — (11,939 ) (11,939 ) (11,939 ) 0 % Operating (loss) income (25,657 ) (6,123 ) (19,534 ) (319 %) (25,633 ) (19,510 ) (319 %) Loss including non-controlling interests (26,237 ) (8,056 ) (18,181 ) (226 %) (26,217 ) (18,161 ) (225 %) Net loss (26,401 ) (8,016 ) (18,385 ) (229 %) (26,383 ) (18,367 ) (229 %) Adjusted EBITDA - Constant Currency (2) 32 4,994 (4,962 ) 99 % 101 (4,893 ) 98 % (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. Therefore, Adjusted EBITDA - Constant Currency presented for these segments may not be comparable to similar measures presented by other issuers. 31 Management believes that Adjusted EBITDA - Constant Currency is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recurring and other items that do not reflect the underlying business performance of the Company. Recent Accounting Pronouncements Not Yet Adopted No accounting pronouncements recently issued or newly effective have had, or are expected to have, a material impact on the Company’s condensed consolidated financial statements. Critical Accounting Estimates and Judgments Our discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Interim Financial Statements, which have been prepared in accordance with U.S. GAAP and are included in Part I of this Quarterly Report on Form 10-Q. 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 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. 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. - Goodwill 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. Brand 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. Actual results could differ from the estimates we use in applying our critical accounting policies. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. 32 Item 3. Quantitative and Qualitati ve Disclosures About Market Risk Interest Rate Risk 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 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. Our interest expense is affected by the overall interest rate environment. Our variable rate interest debt subjects us to risk from increases in prevailing interest rates. 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 $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 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 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 Cash and cash equivalents $ 2,847 $ 1,433 Trade receivables 3,951 2,572 Prepaid and deposits 285 965 Financial liabilities Trade payables and accrued liabilities (4,555 ) (5,776 ) Loan payable (3,153 ) (3,606 ) Net foreign exchange gain $ (625 ) $ (4,412 ) Our exposure to foreign exchange risk and the impact of foreign exchange rates are monitored by the Company’s management but generally the Company tries to match its sales (trade receivables) and vendor payments (trade payables) such that the net impact is not material. Other than the interest rate risk and foreign exchange risk discussed above, there have been no material changes to our market risks from those disclosed in Part II, Item 7A of our Annual Report on Form 10-K.