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Item 1. Financial Statements

2022-08-09 compared with 2022-05-10 · 568 added, 325 removed, 588 unchanged (60% of the section changed)

Financial Statements

PART I - FINANCIAL INFORMATION

Condensed Consolidated Interim Financial Statements (Unaudited)

Condensed Consolidated Interim Statements of Financial Position

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity and Mezzanine Equity

Condensed Consolidated Interim Statements of Cash Flows

Notes to Condensed Consolidated Interim Financial Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures About Market Risk

Controls and Procedures

PART II - OTHER INFORMATION

Legal Proceedings

PART I – FINANCIAL INFORMATION

FINANCIAL INFORMATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Forward Looking Statement

As used in this Quarterly Report on Form 10-Q, the terms “Village Farms”, “Village Farms International”, the “Company”, “we”, “us”, “our” and similar references refer to Village Farms International, Inc.

3 unchanged sentences

dollars and all references to “C$” means Canadian dollars.

This Quarterly Report on Form 10-Q the following trademarks, trade names and service marks of ours:

Village Farms®, Delectable TOV®, From Our House To Your Home®, Mini Sensations®, Sinfully Sweet Campari®, Heavenly Villagio Marzano®, BC Grown Logo®, Texas Grown Logo®, Good for the Earth ®, Village Farms Greenhouse Grown ®, Village Fields®, Pure SunfarmsTM, Pure Sunfarms BC GrownTM, Farm to FlowerTM, No Sun No FlowerTM, Plants and People FirstTM, Pure ProvisionsTM, Rise with the SunTM, The BakeryTM, Purple Sun GodTM, and Pure Sun CBDTM.

This report also contains trademarks, trade names and service marks that are owned by other persons or entities.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is subject to the safe harbor created by those sections.

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The forward-looking statements in this Quarterly Report on Form 10-Q are subject to risks that may include, but are not limited to:

our limited operating history, including that of Rose LifeScience Inc.

(“Rose”), Balanced Health Botanicals, LLC (“Balanced Health”), Pure Sunfarms, Inc.

and our operations of growing hemp in the United States;

the legal status of Pure Sunfarms, Rose and Balanced Health cannabis business;

risks relating to the integration of Balanced Health and Rose into our cannabis business;

our limited operating history, including that of Pure Sunfarms and our operations of growing hemp in the United States;

the legal status of Pure Sunfarms cannabis business;

risks relating to obtaining additional financing, including our dependence upon credit facilities;

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variability of product pricing;

risks inherent in the cannabis, hemp, CBD, cannabinoids, and agricultural businesses;

market position, ability to leverage current business relationships for future business involving hemp and cannabinoids, the ability of Pure Sunfarms and Rose to cultivate and distribute cannabis in Canada;

existing and new governmental regulations, including risks related to regulatory compliance and licenses (e.g., Pure Sunfarms ability to obtain licenses for its Delta 2 greenhouse facility as well as additional licenses under the Canadian act respecting cannabis to amend to the Controlled Drugs and Substances Act, the Criminal Code and other Acts, S.C.

16 (Canada) for its Delta 3 greenhouse facility), and changes in our regulatory requirements;

risks inherent in the cannabis, hemp and agricultural businesses;

the ability of Pure Sunfarms to cultivate and distribute cannabis in Canada;

existing and new governmental regulations, including risks related to regulatory compliance and licenses (e.g., Pure Sunfarms ability to maintain licenses for its Delta 2 and Delta 3 greenhouse facilities under the Canadian act respecting cannabis to amend to the Controlled Drugs and Substances Act, the Criminal Code and other Acts, S.C.

16 (Canada)), and changes in our regulatory requirements;

risks relating to conversion of our greenhouses to cannabis production for Pure Sunfarms;

risks related to rules and regulations at the U.S.

federal (Food and Drug Administration and United States Department of Agriculture), state and municipal levels with respect to produce and hemp;

federal (including Food and Drug Administration and United States Department of Agriculture), state and municipal levels with respect to produce and hemp;

retail consolidation, technological advances and other forms of competition;

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These risks and uncertainties include, among other things, the factors contained in the Company’s filings with securities regulators, including this Quarterly Report on Form 10-Q.

In particular, we caution you that our forward-looking statements are subject to the

ongoing and developing circumstances related to the COVID-19 pandemic, which may have a material adverse effect on our business, operations and future financial results.

In particular, we caution you that our forward-looking statements are subject to the ongoing and developing circumstances related to the COVID-19 pandemic, which may have a material adverse effect on our business, operations and future financial results.

When relying on forward-looking statements to make decisions, the Company cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties and should not be read as guarantees of future results, performance, achievements, prospects and opportunities.

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(In thousands of United States dollars, except share data)

March 31, 2022

June 30, 2022

December 31, 2021

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Trade receivables

Note receivable - joint venture

Other receivables

4 unchanged sentences

Property, plant and equipment

Note receivable - joint venture

Investment in minority interests

Note receivable - joint venture

Deferred tax asset

8 unchanged sentences

Lease liabilities - current

Income tax payable

Other current liabilities

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Common stock, no par value per share - unlimited shares authorized;

88,561,929 shares issued and outstanding at March 31, 2022 and 88,233,929 shares issued and outstanding at December 31, 2021.

88,571,929 shares issued and outstanding at June 30, 2022 and 88,233,929 shares issued and outstanding at December 31, 2021.

Additional paid in capital

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(In thousands of United States dollars, except per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of sales

3 unchanged sentences

Interest income

Foreign exchange gain (loss)

Other expense

Foreign exchange (loss) gain

Other (expense) income

Write-off of joint venture loan

Loss on disposal of assets

Loss before taxes and loss from equity method investments

13 unchanged sentences

Foreign currency translation adjustment

Comprehensive loss attributable to Village Farms International, Inc.

Comprehensive loss

The accompanying notes are an integral part of these Condensed Consolidated Interim Statements of Loss and Comprehensive Loss.

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(In thousands of United States dollars, except for shares outstanding)

Three Months Ended March 31, 2022

Three Months Ended June 30,

Number of Common

7 unchanged sentences

Mezzanine Equity

Balance at January 1, 2022

Balance at April 1, 2022

Shares issued on exercise of stock options

1 unchanged sentence

Cumulative translation adjustment

Balance at March 31, 2022

Three Months Ended March 31, 2021

Balance at June 30, 2022

Three Months Ended June 30, 2021

Number of Common

5 unchanged sentences

Total Shareholders’

Balance at April 1, 2021

Shares issued on exercise of warrants

Shares issued on exercise of stock options

Share re-purchases

Share-based compensation

Cumulative translation adjustment

Balance at June 30, 2021

Six Months Ended June 30, 2022

Comprehensive

Shareholders’

Mezzanine Equity

Balance at January 1, 2022

Shares issued on exercise of stock options

Share-based compensation

Cumulative translation adjustment

Balance at June 30, 2022

Six Months Ended June 30, 2021

Additional paid

Accumulated Other

Comprehensive

(Loss) Income

Shareholders’

Balance at January 1, 2021

Shares issued in public offering, net of issuance costs

Shares issued on exercise of warrant

Warrants issued in public offering

Shares issued on exercise of stock options

Share re-purchases

Share-based compensation

Cumulative translation adjustment

Balance at March 31, 2021

Balance at June 30, 2021

The accompanying notes are an integral part of these Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity and Mezzanine Equity.

2 unchanged sentences

(In thousands of United States dollars)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows used in operating activities:

7 unchanged sentences

Unrealized foreign exchange gain/loss

Write-off of joint venture loan

Loss on disposal of assets

Non-cash lease expense

5 unchanged sentences

Purchases of property, plant and equipment

Note receivable

Advances to joint ventures

Investment in minority interests

Notes receivable

Net cash used in investing activities

6 unchanged sentences

Proceeds from exercise of warrants

Share re-purchases

Payments on capital lease obligations

Payment of note payable related to acquisition

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

8 unchanged sentences

Village Farms International, Inc.

(“VFF”) and together with its subsidiaries (the “Company”, “we”, “us”, or “our”) is incorporated under the Canada Business Corporation Act.

VFF’s principal operating subsidiaries as of March 31, 2022 are Village Farms Canada Limited Partnership, Village Farms, L.P., Pure Sunfarms Corp.

(“VFF” and, together with its subsidiaries, the “Company”, “we”, “us”, or “our”) is incorporated under the Canada Business Corporations Act.

VFF’s principal operating subsidiaries as of June 30, 2022 are Village Farms Canada Limited Partnership, Village Farms, L.P., Pure Sunfarms Corp.

(“Pure Sunfarms”), and Balanced Health Botanicals, LLC (“Balanced Health”).

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The address of the registered office of VFF is 4700-80th Street, Delta, British Columbia, Canada, V4K 3N3.

The Company’s shares are listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “VFF”.

The Company’s shares are listed on Nasdaq Capital Market (“Nasdaq”) under the symbol “VFF”.

Village Farms owns and operates sophisticated, highly intensive agricultural greenhouse facilities in British Columbia and Texas, where it produces, markets and sells premium-quality tomatoes, bell peppers, and cucumbers.

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BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated interim financial statements for the three months ended March 31, 2022 have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting.

The condensed consolidated balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date.

Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2021, included in our Annual Report on Form 10-K.

The results for the interim periods are not necessarily indicative of the results for the full year.

The accompanying unaudited Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2022 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.

They do not include all information and notes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments of a normal recurring nature considered necessary for fair presentation have been included.

Operating results for the three and six months ended June 30, 2022 are subject to seasonal variations and accordingly are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal years ended December 31, 2021 and 2020.

In the opinion of management, these financial statements include all adjustments, which are of a normal recurring nature, necessary for a fair statement of the financial position, results of operations, comprehensive loss, cash flows and the change in equity for the periods presented.

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It is difficult to predict what effect, if any, the phase-out of LIBOR and the use of alternative benchmarks may have on the Company’s business or on the overall financial markets.

The Company has not adopted any of the optional expedients or exceptions through March 31, 2022 but will continue to evaluate the possible adoption of any such expedients or exceptions.

The Company has not adopted any of the optional expedients or exceptions through June 30, 2022 but will continue to evaluate the possible adoption of any such expedients or exceptions.

VILLAGE FARMS INTERNATIONAL, INC.

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Classification

March 31, 2022

June 30, 2022

December 31, 2021

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Classification

March 31, 2022

June 30, 2022

December 31, 2021

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GOODWILL AND INTANGIBLE ASSETS

The following table presents the changes in the carrying value of goodwill by reportable segment for the three months ended March 31, 2022:

As of June 30, 2022, the Company recognized macroeconomic challenges in the U.S.

CBD market, including a decrease in market capitalization of CBD companies and transaction multiplies.

Based on those qualitative factors, the Company concluded that its U.S.

Cannabis segment more likely than not was impaired and tested that segment’s assets, including goodwill and intangible assets for impairment.

Cannabis segment’s net working capital assets are readily monetized and therefore book value is deemed to represent its fair value.

It’s ROU asset and associated liability are primarily based on the lease arrangement and the incremental borrowing rate and deemed to represent fair value.

Brand was tested using a relief from royalty method, using a pre-tax royalty rate of 4 % and brand maintenance of 2.45 %.

In assessing goodwill, the Company used a market based approach using a multiple of 1.6 x revenue.

The tests resulted in the Company recognizing impairment charges to goodwill of ($ 25,169 ) and its brand intangible asset of ($ 4,630 ).

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

The following table presents the changes in the carrying value of goodwill by reportable segment for the six months ended June 30, 2022 :

Cannabis - Canada

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Foreign currency translation adjustment

Balance as of March 31, 2022

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

Balance as of June 30, 2022

Intangible Assets

Intangible assets consisted of the following as of:

Intangibles consisted of the following as of:

Classification

March 31, 2022

June 30, 2022

December 31, 2021

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* Indefinite-lived intangible assets

The expected future amortization expense for definite-lived intangible assets as of March 31, 2022 was as follows:

The expected future amortization expense for definite-lived intangible assets as of June 30, 2022 was as follows:

Fiscal period

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The components of lease related expenses are as follows:

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Operating lease expense (a)

Includes short-term lease costs of $ 153 and $ 148 for the three months ended March 31, 2022 and 2021, respectively.

Cash paid for amounts included in the measurement of lease liabilities:

Three months ended March 31,

Operating cash flows from operating leases

Finance cash flows from finance leases

VILLAGE FARMS INTERNATIONAL, INC.

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(In thousands of United States dollars, except per share amounts, unless otherwise noted)

March 31, 2022

Includes short-term lease costs of $ 360 and $ 155 for the three months ended June 30, 2022 and 2021and $ 512 and $ 303 for the six months ended June 30, 2022 and 2021, respectively.

Cash paid for amounts included in the measurement of lease liabilities:

Three months ended June 30,

Six months ended June 30,

Operating cash flows from operating leases and finance leases

Finance cash flows from finance leases

June 30, 2022

Weighted average remaining lease term:

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Reconciling impact from discounting

Lease liabilities on consolidated statement of financial position as of March 31, 2022

Lease liabilities on consolidated statement of financial position as of June 30, 2022

BUSINESS COMBINATIONS

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The Village Farms Shares issued under the Purchase Agreement are subject to lock-up agreements, and subject to compliance with applicable securities laws, 33 % of these shares will be released from lock-up restrictions four (4) months following the Closing Date, another 33 % of these shares will be released from lock-up restrictions eight (8) months after the Closing Date and the remaining shares will be released from lock-up restrictions one (1) year after the Closing Date.

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

Under the terms of the Purchase Agreement, the Company filed a prospectus supplement under our existing shelf registration statement on March 15, 2022 to register for resale all of the Village Farms Shares issued to the Rose Sellers on the Closing Date.

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A put right has also been granted to the Management Shareholders to require Village Farms to complete the acquisition of the Retained Interest upon their death or disability or the occurrence of certain liquidity events with respect to Village Farms (the “Put Option”, and together with the Call Option, the “Put/Call Option”).

The price for the Put/Call Option was set at a multiple solely based on Rose’s adjusted EBITDA performance of the

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

applicable prior calendar year.

The price for the Put/Call Option was set at a multiple solely based on Rose’s adjusted EBITDA performance of the applicable prior calendar year.

If exercised upon a liquidity event, the Option Price is subject to a minimum amount which varies depending on the year on which it is exercised.

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The Company expects to recognize intangible assets but is still in the process of identifying and valuing them as well as the fair value of the Put Option identified and classified as redeemable non-controlling interest.

The Company expects the accounting for the business combination to be complete by June 30, 2022.

The Company expects the accounting for the business combination to be complete by September 30, 2022 .

Consideration paid

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Net assets acquired

Altum International Pty Ltd (“Altum”)

During the year ended December 31, 2021, the Company exercised its option and purchased additional shares of Altum, bringing the Company’s total investment in Altum to 11.9 %.

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

Leli Holland B.V.

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The option is exercisable at the sole discretion of the Company for a period of 5 years.

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

On March 18, 2022, the Company loaned EUR 2.6 million (US$ 2.7 million) to L.L.

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The outstanding loan and accrued interest are to be repaid within 14 days upon written request by the Company.

See also Note 17 – Subsequent Events.

Village Fields Hemp USA LLC

The net assets of VF Hemp were ($ 10,400 ) and ($ 10,369 ) as of March 31, 2022 and December 31, 2021, respectively.

The net loss for three months ended March 31, 2022 and 2021 was $ 162 and $ 127 , respectively.

The Company’s equity losses from VF Hemp for the three months ended June 30, 2022 and 2021 were $ 2,615 and $ 86 , respectively, and for the six months ended June 30, 2022 and 2021 were $ 2,667 and $ 213 , respectively.

Included in the losses for the three and six months ended June 30, 2022, is a loss of $ 2,284 which represents the Company’s share of losses from the impairment of inventory at VF Hemp.

In conjunction with the inventory write-off, the Company also wrote-off the remaining balance of its loan to VF Hemp in the amount of $ 529 , which has been recorded as a loss on joint venture loan in the condensed consolidated interim statement of loss and comprehensive loss for the three and six months ended June 30, 2022.

LONG-TERM DEBT AND REVOLVING CREDIT ARRANGEMENT

March 31, 2022

June 30, 2022

December 31, 2021

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matures February, 2024

Term loan - Pure Sunfarms - CA$ 25.0 - Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50 % of the outstanding principal amount starting June 30, 2021 , interest rate of 4.2 %;

Term loan - Pure Sunfarms - CA$ 25.0 M - Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50 % of the outstanding principal amount starting June 30, 2021 , interest rate of 4.2 %;

matures February 2024

BDC Facility - Pure Sunfarms - non-revolving demand loan at prime interest plus 3.75 %, matures December 31, 2031

Unamortized deferred financing fees

The Company’s line of credit (excluding Pure Sunfarms) had $ 2,000 drawn on the facility as of March 31, 2022, while there was no amount drawn as of December 31, 2021.

The carrying value of the assets and securities pledged as collateral for the FCC Loan as of March 31, 2022 and December 31, 2021 was $ 192,344 and $ 233,187 , respectively.

The carrying value of the assets pledged as collateral for the Operating Loan as of March 31, 2022 and December 31, 2021 was $ 33,840 and $ 34,741 , respectively.

The Company’s line of credit (“Operating Loan”) had $ 4,000 amount drawn on the facility as of June 30, 2022, while there was no amount drawn as of December 31, 2021.

The carrying value of the assets and securities pledged as collateral for the FCC Loan as of June 30, 2022 and December 31, 2021 was $ 219,599 and $ 233,187 , respectively.

The carrying value of the assets pledged as collateral for the Operating Loan as of June 30, 2022 and December 31, 2021 was $ 37,213 and $ 34,741 , respectively.

On March 2, 2022, the Company repaid the outstanding balance on the VFCE Term Loan and related advance balance on term loan.

The Pure Sunfarms line of credit had $ 7,880 and $ 7,760 outstanding as of March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022 and December 31, 2021, Pure Sunfarms had an outstanding letter of credit issued to BC Hydro against the revolving line of credit of $ 4,039 .

The weighted average interest rate on short-term borrowings as of March 31, 2022 and December 31, 2021 was 5.05 % and 5.15 %, respectively.

Accrued interest payable on the credit facilities and loans as of March 31, 2022 and December 31, 2021 was $ 234 and $ 304 , respectively, and these amounts are included in accrued liabilities in the statements of financial position.

The Company is required to comply with financial covenants, measured either quarterly or annually depending on the covenant.

As of March 31, 2022 the Company was in compliance with the financial covenants.

VILLAGE FARMS INTERNATIONAL, INC.

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(In thousands of United States dollars, except per share amounts, unless otherwise noted)

The Pure Sunfarms line of credit had $ 2,892 and $ 7,760 outstanding as of June 30, 2022 and December 31, 2021, respectively.

As of June 30, 2022 and December 31, 2021, Pure Sunfarms had an outstanding letter of credit issued to BC Hydro against the revolving line of credit of $ C 5,145 .

The Company was in compliance with all of its credit facility covenants as of June 30, 2022.

The weighted average annual interest rate on short-term borrowings as of June 30, 2022 and December 31, 2021 was 4.86 % and 5.15 %, respectively.

Accrued interest payable on the Credit Facilities and loans as of June 30, 2022 and December 31, 2021 was $ 94 and $ 304 , respectively, and these amounts are included in accrued liabilities in the Condensed Interim Statements of Financial Position.

The Company is required to comply with financial covenants, measured either quarterly or annually depending on the covenant.

As of June 30, 2022 the Company was in compliance with the financial covenants.

The aggregate annual maturities of long-term debt for the remainder of 2022 and thereafter are as follows:

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Unless earlier repaid, or converted into ordinary shares of Altum, the principal and accrued interest of the Note will be due and payable on August 10, 2023 .

As of March 31, 2022, the balance of the Note including accrued interest was $ 727 .

As of June 30, 2022, the balance of the Note including accrued interest was $ 727 .

On March 25, 2019, the Company entered into a Grid Loan Agreement (the “Grid Loan”) with VF Hemp.

The Grid Loan had an original maturity date of March 25, 2022 .

The maturity date has been extended to June 30, 2022 .

As of March 31, 2022 and December 31, 2021, the Grid Loan balance was $ 3,207 and $ 3,256 , respectively.

One of the Company’s employees is related to a member of the Company’s executive management team and received approximately $ 24 and $ 37 in salary and benefits during the three months ending March 31, 2022 and 2021, respectively.

The Grid Loan has a maturity date of March 25, 2022 and bears simple interest at the rate of 8 % per annum, calculated monthly.

As of June 30, 2022 and December 31, 2021, the Grid Loan balance was $- and $ 3,256 , respectively.

One of the Company’s employees is related to a member of the Company’s executive management team and received approximately $ 54 and $ 67 in salary and benefits during the six months ended June 30, 2022 and 2021, respectively.

A provision for income taxes is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year.

The estimated average annual rate used for the three months ended March 31, 2022 and 2021 was 26 % .

The recovery of income taxes was $ 1,666 for the three months ended March 31, 2022 compared to $ 1,839 for the three months ended March 31, 2021.

The estimated average annual rate used for the six months ended June 30, 2022 and June 30, 2021 was 26 % and 24 %, respectively.

For the three months ended June 30, 2022 and 2021, there was a recovery of income taxes of $ 9,714 and provision for income taxes of $ 1,781 , respectively.

There was a recovery of income taxes of $ 11,380 and 3,620 for the six months ended June 30, 2022 and 2021, respectively.

VILLAGE FARMS INTERNATIONAL, INC.

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Segment reporting is prepared on the same basis that the Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker, manages the business, makes operating decisions and assesses performance.

As of March 31, 2022 the Company’s four reportable segments are as follows:

As of June 30, 2022 the Company’s four segments are as follows:

The Produce segment produces, markets, and sells premium quality tomatoes, bell peppers and cucumbers.

6 unchanged sentences

Segment information is summarized below:

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Cannabis - Canada

2 unchanged sentences

Cannabis - United States

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

LOSS PER SHARE

Basic and diluted net loss per ordinary share is calculated as follows:

Three months ended March 31,

Basic and diluted net loss per common share is calculated as follows:

Three months ended June 30,

Six months ended June 30,

Weighted average number of common shares - basic

Effect of dilutive securities- share-based employee options

Effect of dilutive securities- share-based employee options and awards

Weighted average number of common shares - diluted

1 unchanged sentence

Net loss per ordinary share:

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Share-based compensation expense for the three months ended March 31, 2022 and 2021 was $ 964 and $ 1,998 , respectively.

Stock option activity for the three months ended March 31, 2022 was as follows:

Share-based compensation expense for the three and six months ended June 30, 2022 was $ 1,114 and $ 2,078 , respectively, and $ 1,887 and $ 3,885 for the three and six months ended June 30, 2021, respectively.

Stock option activity for the six months ended June 30, 2022 was as follows:

Exercise Price

Outstanding at January 1, 2022

Outstanding at March 31, 2022

Exercisable at March 31, 2022

Performance-based shares activity for the three months ended March 31, 2022 was as follows:

Outstanding at June 30, 2022

Exercisable at June 30, 2022

Performance-based shares activity for the six months ended June 30, 2022 was as follows:

Performance-based

2 unchanged sentences

Outstanding at January 1, 2022

Outstanding at March 31, 2022

Exercisable at March 31, 2022

Outstanding at June 30, 2022

Exercisable at June 30, 2022

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

17 SUBSEQUENT EVENTS

On July 7, 2022, Leli received a license to cultivate cannabis legally in the Netherlands (the “License”) under the Dutch Closed Supply Chain Experiment program (the “Dutch Program”).

On July 19, 2022, the Company acquired 80 % of Leli under its previously announced purchase option agreement, plus an additional 5 % ownership in Leli, bringing the Company’s total ownership to 85 %, and enabling the Company to directly participate as a Netherlands-based cultivator and distributor of cannabis in the Dutch Program.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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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, particularly in light of the ongoing and developing COVID-19 pandemic.

We encourage you to review the risks and uncertainties described in “Risk Factors” in Part I, Item 1A in the Annual Report on Form 10-K for the year ended December 31, 2021 and in Part II, Item 1A of this Quarterly Report.

We encourage you to review the risks and uncertainties described in “Risk Factors” in Part I, Item 1A in the Annual Report on Form 10-K for the year ended December 31, 2021, and in Part II, Item 1A in the Quarterly Report on Form 10-Q ended March 31, 2022 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.

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The Company’s principal operating subsidiaries are Village Farms Canada LP, Village Farms LP, VF Clean Energy, Inc.

(“VFCE”), Pure Sunfarms Corp (“Pure Sunfarms” or “PSF”), Balanced Health Botanicals, LLC (“Balanced Health” or “BHB”) and Rose LifeScience Inc.

(“VFCE”), Pure Sunfarms Corp (“Pure Sunfarms”), Balanced Health Botanicals, LLC (“Balanced Health”) and Rose LifeScience Inc.

“(Rose LifeScience” or “Rose”).

Village Farms acquired 70% ownership of privately-held, Quebec-based Rose LifeScience on November 15, 2021 and acquired 100% interest in privately held Colorado-based Balanced Health on August 16, 2021.

Village Farms acquired 70% ownership of privately-held, Quebec-based Rose LifeScience on November 15, 2021 and acquired a 100% interest in privately held Colorado-based Balanced Health on August 16, 2021.

The Company’s overall strategy is to be recognized as an international leader in consumer products from plants, whereby we produce and market value-added products that are consistently preferred by consumers.

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In Canada, we converted two produce facilities to grow cannabis for the Canadian adult use market.

Our focus for our Canadian cannabis segment is to produce the highest quality cannabis products at an “everyday premium price”.

Our focus for our Canadian Cannabis segment is to produce the highest quality cannabis, leveraging our low-cost production to provide products that address the largest consumer segments in the market.

This market position, together with our cultivation expertise, has enabled us to evolve into one of the few consistently profitable Canadian licensed producers (“LPs”) under our Pure Sunfarms subsidiary.

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

Pure Sunfarms leverages our 30 years of experience as a vertically integrated greenhouse grower for the rapidly developing cannabis opportunity in Canada with commercial distribution in six Canadian provinces:

Alberta, British Columbia, Ontario, Manitoba, Quebec and Saskatchewan.

Our long-term objective for Pure Sunfarms is to be the leading low-cost, high-quality cannabis producer in Canada.

Village Farms acquired 70% ownership of privately-held Rose LifeScience on November 15, 2021.

Rose is a leading third-party cannabis products commercialization expert in the Province of 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.

With decades of regulated-market experience, Rose partners with cannabis companies to assist in commercializing their products, distributing the products throughout Quebec and ensuring a strong presence in the marketplace.

Rose is a leading LP of cannabis in the Province of Quebec as well as a prominent third-party 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.

Cannabis Segment

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Balanced Health is one of the leading cannabinoid brands and e-commerce platforms in the United States.

BHB develops and sells high-quality CBD-based health and wellness products, distributing their diverse portfolio of consumer products through retail storefronts and its top-ranked e-commerce platform, CBDistillery TM .

Balanced Health develops and sells high-quality CBD-based health and wellness products, distributing their diverse portfolio of consumer products through retail storefronts and its top-ranked e-commerce platform, CBDistillery TM .

The Company entered the U.S.

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We established a joint venture with a 65% interest in VF Hemp for multi-state outdoor hemp cultivation and cannabidiol extraction.

During the second quarter of 2022, VF Hemp wrote off the remaining hemp inventory and subsequently, the Company wrote off the remaining balance of its loan to VF Hemp.

Currently, VF Hemp is not cultivating hemp as we await FDA clarity on the use of CBD.

Produce Segment – VF Fresh

Through our Village Farms Fresh brand, we are growers, marketers and distributors of premium-quality, greenhouse-grown tomatoes in North America.

Through our Village Farms Fresh brand, we are growers, marketers and distributors of premium-quality, greenhouse-grown tomatoes and cucumbers in North America.

These premium products are grown in sophisticated, highly intensive agricultural greenhouse facilities located in B.C.

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The Company primarily markets and distributes under its Village Farms® brand name to retail supermarkets and dedicated fresh food distribution companies throughout the United States and Canada.

Energy Segment

Clean Energy Segment

Through our subsidiary VF Clean Energy, Inc., we owned and operated a power plant from landfill gas that generated electricity and provided thermal heat, in colder months, to one of the Company’s adjacent British Columbia greenhouse facilities and sold electricity to the British Columbia Hydro and Power Authority.

On November 10, 2020 we announced that we will be transitioning this operation to a Renewable Natural Gas (“RNG”) operation in conjunction with Mas Energy, LLC, which we believe will enhance our financial return as well as provide food-grade CO 2 that can be used in both our cannabis and produce growing operations in Delta, B.C.

As of April 30, 2022, VFCE has shut down its power plant in preparation for the transition to RNG operations.

For additional detail, see “ Recent Developments and Updates - Village Farms Clean Energy Update ” below.

As of April 30, 2022, VFCE has shut down its power plant in preparation for the transition to a Renewable Natural Gas (“RNG”) operation in conjunction with Mas Energy, LLC (“the Delta RNG Project), which we believe will enhance our financial return, as well as provide food-grade CO2 that can be used in both our cannabis and produce growing operations in Delta, B.C.

The Delta RNG Project consists of a partnership with Mas Energy to convert the current landfill gas to electricity business into a state-of-the-art landfill gas to high-demand renewable natural gas facility, which was entered into in November 2020 by VFCE.

Mas Energy will design, build, finance, own and operate the Delta RNG Project.

VFCE renewed and extended the existing contract with the City of Vancouver to capture the landfill gas at its Delta, B.C.

site securing future resources for the Delta RNG Project.

The 20-year extension, with an option for an additional five-year extension period, commences upon the start-up of the commercial operations of the Delta RNG Project.

The project is designed to generate renewable natural gas and CO 2 from the methane gas created at the nearby landfill.

Village Farms plans to utilize the CO 2 from the renewable natural gas production process for use in our three Delta, B.C.

vegetable and cannabis greenhouse facilities, thereby reducing natural gas requirements and decreasing the total carbon footprint of Village Farms.

Mas Energy intends to sell the renewable natural gas and VFCE will receive a portion of the revenues in the form of a royalty.

For additional detail, see “ Recent Developments and Updates – Delta RNG Project” below.

Impact of Inflation and the Russia/Ukraine Conflict

Our business has been affected, and we expect will continue to be affected for the foreseeable future, by rising inflation and supply chain issues arising from COVID-19, and indirectly, the Russia/Ukraine conflict may impact the price of oil and natural gas which may negatively affect our operating results.

Inflation has affected and continues to affect, amongst other items, supply chain and labor costs as well as purchasing decisions of consumers which may impact demand for our products.

See Part II, Item 1A, “Risk Factors”, in the Quarterly Report ended March 31, 2022.

Our Response to the Ongoing Coronavirus Pandemic

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These protocols take into consideration guidance from state and local government agencies as well as the Centers for Disease Control and Prevention and other public health authorities.

As of May 9, 2022, all of the Company’s operations are operating normally, however, the extent to which COVID-19 and the related global economic crisis affect the Company’s business, results of operations and financial condition, will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties (including new financial regulation and other regulatory reform) in response to the pandemic, and the effects on our produce, clients, vendors and employees.

As of August 9, 2022, all of the Company’s operations are operating normally, however, the extent to which COVID-19 and the related global economic crisis affect the Company’s business, results of operations and financial condition, will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties (including new financial regulation and other regulatory reform) in response to the pandemic, and the effects on our produce, clients, vendors and employees.

Village Farms continues to service its customers amid uncertainty and disruption linked to COVID-19 and is actively managing its business to respond to the impact.

Impact of Inflation and the Russia/Ukraine Conflict

Inflation has affected and continues to affect, amongst other items, supply chain and labor costs as well as purchasing decisions of consumers which may impact demand for our products.

See Part II, Item 1A, “Risk Factors”, in this Quarterly Report.

Recent Developments and Updates

Leli Holland B.V.

On July 7, 2022, Netherlands-based Leli Holland B.V.

(“Leli”) was awarded the tenth and final cultivation license for the Closed Cannabis Supply Chain Experiment (“Dutch Supply Chain Experiment”).

On July 19, 2022, Village Farms acquired 85% of Leli under its previously announced purchase option agreement for $4,568 (EUR4,250), which was paid for as described below.

As a result of the option exercise, Village Farms will directly participate as a cultivator and distributor in the Netherlands, the first major European country to launch an experimental program on the path towards adult-use legalization.

Since the Company exercised the option, the Company will be the majority owner of Leli and as such, Village Farms is responsible for the development of the project and product commercialization throughout the fully vertically integrated business model.

On March 18, 2022, the Company loaned $2,715 (EUR2,575) to L.L.

Lichtendahl Beheer B.V so that L.L.

Lichtendahl Beheer B.V.

could purchase 100% of Leli.

On July 19, 2022, the loan converted to a payment from the Company to L.L.

Lichtendahl Beheer B.V.

In addition, on July 19, 2022, a payment in the amount of $1,795 (EUR1,625) was released from escrow and paid to L.L.

Lichtendahl Beheer B.V.

as part of the compensation for 85% ownership of Leli.

On September 28, 2021, Village Farms paid $58 (EUR50) to enter into an option agreement whereby the Company received the irrevocable right to acquire an interest in Leli.

Leli is one of ten applicants selected to receive a license to legally cultivate and distribute cannabis to retailers when the Dutch government implements its Dutch Supply Chain Experiment.

The Dutch Supply Chain Experiment is currently in its preparatory phase of the program which began in July 2020.

The Dutch Supply Chain Experiment is specified by the Dutch government to be approximately 65,000 kilograms of dried flower annually from the ten approved producers during the first year.

Leli and Village Farms plan to construct two indoor CEA production facilities, leveraging Leli’s track record managing complex regulatory and approval procedures in the Netherlands at both the federal and local levels and Village Farms’ three-plus decades as a vertically integrated CEA grower, as well as its extensive experience in cultivation, product development and commercialization in the Canadian legal recreational cannabis market.

The actual experiment is anticipated to begin by mid-2023, however, the Dutch Supply Chain Experiment continues to experience delays as the program moves from the preparatory phase to the transitioning phase whereby participating coffeeshops will begin selling both regulated and tolerated cannabis.

Village Farms named to Corporate Knights’ inaugural Future 50:

The Fastest Growing Sustainable Companies in Canada

On June 3, 2022, Corporate Knights Inc., an independent media and research B Corp committed to advancing a sustainable economy that supports both people and the planet, named Village Farms to their inaugural Future 50:

The Fastest Growing Sustainable Companies in Canada.

The Future 50 is a list of the fastest-growing Canadian companies whose business activities align with a transition to a global clean economy.

Village Farms was selected from a pool of 6,115 companies as one of twenty-five publicly traded companies with the highest year-over-year percentage increase in “clean revenue”.

Canadian Cannabis Recent Developments and Updates

Canadian Cannabis recent developments and updates include the following:

On March 9, 2022, Pure Sunfarms received EU GMP certification for its 1.1 million square foot Delta 3 cannabis production facility located in Delta, British Columbia.

EU GMP certification permits Pure Sunfarms to export EU-GMP-certified medical cannabis to importers and distributors in international markets that require EU GMP certification.

On January 13, 2022, Pure Sunfarms received from Health Canada an amendment to their existing sales license for its 1.1 million square foot Delta 2 facility.

Pure Sunfarms may now conduct sales activities for provincial customers and retailers out of the Delta 2 facility, including packaging of dried flower, storage of final goods, shipping and receiving.

In January 2022, Pure Sunfarms introduced pre-ground dried flower to their product portfolio in three exclusive blends, with each signature blend hand-selected from strains for their potency, flavor and effect.

In the first quarter of 2022, Rose launched twelve product SKUs under its own brands and two partner brands in order to meet emerging consumer needs for attributes like craft, locally grown, product type, potency and strain.

Towards the end of Q2 2022, Pure Sunfarms began shipping its second-ever brand, Original Fraser Valley Weed Co., which quickly sold out in its initial provincial market, British Columbia.

Differentiated from its Pure Sunfarms brand, Original Fraser Valley targets the price-conscious consumer with dependable and potent large format flower.

Rose LifeScience extended its market share reach in the province of Quebec during the three months ended June 30, 2022.

Based on our internal calculations, supported by StatsCan data, we estimate that Rose’s brands have achieved a 10% market share in Quebec during the quarter.

Pure Sunfarms and NOYA Cannabis Inc.

launched Cookies sun-grown flower in Ontario.

Pure Sunfarms is the licensed producer of record for Cookies sun-grown flower in Canada.

Pure Sunfarms completed its sixth shipment to the Australian market utilizing the network of Altum International Pty Ltd (“Altum”), in which Village Farms owns a minority interest.

The cumulative shipments to Altum in 2021 and for the six months ended June 30, 2022 contributed net sales of C$1,099.

Cannabis Recent Developments and Updates

Cannabis recent developments and updates include the following:

Balanced Health completed its third annual NSF International cGMP (current good manufacturing practices) audit and received the very distinguished “A” grade.

The audit provides third party assurance that Balanced Health’s facility is going above and beyond regulatory requirements to provide customers with safe, high-quality products.

Through a partnership between Balanced Health and leading pet supplement brand Zesty Paws, CBDistillery’s hemp extract is now found in approximately 1,000 PetSmart locations across the United States.

Five of Zesty Paws best-selling SKUs showcase the “Quality with CBDistillery” badge on the front of its packaging.

A study published by Pathfinder Missions concluded that CBDistillery Broad-Spectrum and Isolate tinctures were effective in managing anger, irritation and annoyance.

The 393-participant study, conducted at the end of 2021, also found CBDistillery Broad-Spectrum and Isolate tinctures effective in combatting overall stress.

Village Farms Clean Energy Update

Mas Energy will design, build, finance, own and operate the Delta RNG Project.

VFCE renewed and extended the existing contract with the City of Vancouver to capture the landfill gas at its Delta, B.C.

site securing future resources for the Delta RNG Project.

The 20-year extension, with an option for an additional five-year extension period, commences upon the start-up of the commercial operations of the Delta RNG Project.

The project is designed to generate renewable natural gas and CO 2 from the methane gas created at the nearby landfill.

Village Farms plans to utilize the CO 2 from the renewable natural gas production process for use in our three Delta, B.C.

vegetable and cannabis greenhouse facilities, thereby reducing natural gas requirements and decreasing the total carbon footprint of Village Farms.

Mas Energy intends to sell the renewable natural gas and VFCE will receive a portion of the revenues in the form of a royalty.

When announced in November 2020, we anticipated attaining all regulatory approvals in the first half of 2021 with an expected operational start up as early as the first half of 2022.

Balanced Health successfully launched the first product in the new Synergy+ line.

UNWIND Synergy+ is positioned to help customers unwind after work or a long day.

John Harloe J.D.

PhD, General Counsel for Balanced Health, was chosen by the Colorado Department of Public Health and Environment for the SB 22-205 task force.

Colorado Governor, Jared Polis, has directed the task force to study intoxicating hemp products, make legislative and rule recommendations and analyze the effectiveness of each recommendation.

Subsequent to June 30, 2022, Balanced Health announced the results of a study that reported participants showed a significant reduction of mild or temporary anxiety when they began using CBDistillery Daytime Synergy CBG + CBD tincture.

Delta RNG Project Update

When announced in November 2020, we had originally anticipated attaining all regulatory approvals in the first half of 2021 with an expected operational start up as early as the first half of 2022.

However, COVID-19 adversely impacted the bureaucratic approval processes in Canada surrounding permitting and zoning requirements necessary to break ground on the Delta RNG Project.

We attained the majority of regulatory approvals in the first quarter of 2022, and we now have an expected operational start up in mid-2023.

In addition, the Company has paid off all VFCE loans and entered into a financial arrangement with Mas Energy, in which Mas Energy advanced $445 against future natural gas royalties anticipated after operations commence in mid-2023.

International Update

On September 28, 2021, Village Farms entered into an option agreement whereby the Company received the irrevocable right to acquire at least an 80% ownership interest (the “Option Agreement”) in Netherlands-based Leli Holland B.V.

(“Leli”) upon payment of EUR50,000 (the “Option”).

The Option Agreement allows Village Farms to acquire 80% of Leli’s shares for EUR3,950,000, of which EUR950,000 is due and payable to Leli’s shareholders upon the exercise of the Option and the remainder due in three equal installments subject to the achievement of certain project development milestones.

The Option is exercisable at the sole discretion of Village Farms during the Option exercise period ending September 30, 2026.

As of the date of this filing of this Quarterly Report, we have not exercised the Option.

Leli is one of ten applicants selected to receive a license (subject to customary government approval) to legally cultivate and distribute cannabis to retailers when the Dutch government implements its Experiment to Investigate Closed Cannabis Supply Chains (“Dutch Supply Chain Experiment”).

The Dutch Supply Chain Experiment is specified by the Dutch government to be approximately 65,000 kilograms of dried flower annually from the ten approved producers during the first year.

If the Option is exercised, the Company will be the majority owner of Leli.

Village Farms will then become responsible for the development of the project and product commercialization throughout the fully vertically integrated business model.

On March 18, 2022, the Company loaned $2,715 (EUR 2.6 million) to L.L.

Lichtendahl Beheer B.V, a private company that holds a 50% interest in Leli.

The outstanding loan and accrued interest are to be repaid within fourteen days upon written request by the Company.

we did not attain all of the regulatory approvals for the Delta RNG Project until the first half of 2022.

Accordingly, Mas Energy has begun construction during the latter part of the second quarter of 2022 and we currently expect an operational start up in mid-2023.

OBCA Continuance

On May 24, 2022, at our Annual and Special Meeting of Shareholders, we received shareholder approval for our proposal to continue the Company into the Province of Ontario under the Ontario Business Corporations Act (Ontario) (“OBCA”), which we expect to complete by the end of 2022.

For information regarding our proposed continuance into the OBCA, including a comparison of the difference between the OBCA and CBCA, see “Item No.

5—Continuance of the Company under the Business Corporations Act (Ontario)” in our Definitive Proxy Statement on Schedule 14A for our 2022 Annual and Special Meeting of Shareholders.

Presentation of Financial Results

Our consolidated results of operations (prior to net income) for the three months ended March 31, 2022 and March 31, 2021 presented below reflect the operations of our consolidated wholly-owned subsidiaries, which does not include our VFH joint venture.

The income (loss) from the equity method investments is reflected in our net income for the three months ended March 31, 2022 and March 31, 2021 presented below.

Balanced Health was acquired on August 16, 2021 and their results are presented in the operations of our consolidated wholly-owned subsidiaries for the three months ended March 31, 2022.

The Company acquired 70% of Rose LifeScience on November 15, 2021 and their results are presented in the operations of our consolidated wholly-owned subsidiaries and the minority interest is presented in Net Income (Loss) Attributable to Non-controlling Interests, Net of Tax for the three months ended March 31, 2022.

Our consolidated results of operations (prior to net income) for the three and six months ended June 30, 2022 and June 30, 2021 presented below reflect the operations of our consolidated wholly-owned subsidiaries, which does not include our VFH joint venture.

The income (loss) from the equity method investments is reflected in our net income for the three and six months ended June 30, 2022 and 2021 presented below.

Balanced Health was acquired on August 16, 2021 and their results are presented in the operations of our consolidated wholly-owned subsidiaries for the three and six months ended June 30, 2022.

RESULTS OF OPERATIONS

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Consolidated Financial Performance

For the three months ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of sales

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Interest income

Foreign exchange gain (loss)

Foreign exchange (loss) gain

Other expense, net

Impairments (2)

Write-off of joint venture loan

Loss on disposal of assets

Recovery of income taxes

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Diluted loss per share

For the three months ended March 31, 2022, Balanced Health’s financial results are fully consolidated in the financial results of the Company.

For the three months ended March 31, 2022, Village Farms’ share of Rose LifeScience’s financial results are fully consolidated in the financial results of the Company with the minority non-controlling interest presented in net loss attributable to non-controlling interests, net of tax.

For the three and six months ended June 30, 2022, Balanced Health’s financial results are fully consolidated in the financial results of the Company and Village Farms’ share of Rose LifeScience’s financial results are fully consolidated in the financial results of the Company with the minority non-controlling interest presented in net loss attributable to non-controlling interests, net of tax.

Consists of impairments to goodwill of ($25,159) and intangible assets of ($4,630) that were triggered by macroeconomic challenges, decreases in market capitalization of CBD companies and the continued federal regulation lack of clarity with respect to CBD.

See Part 1, Item 1 Note 6 “Goodwill and Intangible Assets” for additional details.

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

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Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience since acquisition and 65% interest in VFH.

We caution that our results of operations for the three months ended March 31, 2022 and 2021 may not be indicative of our future performance, particularly in light of the ongoing COVID-19 pandemic.

We caution that our results of operations for the three and six months ended June 30, 2022 and 2021 may not be indicative of our future performance, particularly in light of the ongoing COVID-19 pandemic.

We are currently unable to assess the ultimate impact of the COVID-19 pandemic on our business and our results of operations for future periods.

Discussion of Financial Results

A discussion of our consolidated results for the three months ended March 31, 2022 and March 31, 2021 is included below.

A discussion of our consolidated results for the three and six months ended June 30, 2022 and June 30, 2021 is included below.

The consolidated results include all four of our operating segments, VF Fresh (Produce), Canadian Cannabis, U.S.

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

Village Farms acquired 100% of Balanced Health on August 16, 2021 and their operating results are consolidated in our Consolidated Statements of Loss for January 1, 2022 through March 31, 2022.

The Company acquired 70% of Rose LifeScience on November 15, 2021 and their operating results are consolidated in our Consolidated Statements of Loss and the minority interest is presented in Net Loss Attributable to Non-controlling Interests, Net of Tax for January 1, 2022 through March 31, 2022.

Village Farms acquired 100% of Balanced Health on August 16, 2021 and their operating results are consolidated in our Consolidated Statements of Loss for the three and six months ended June 30, 2022.

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

CONSOLIDATED RESULTS

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Sales for the three months ended March 31, 2022 were $70,156 as compared to $52,396 for the three months ended March 31, 2021.

The increase in sales of $17,760 or 34% was attributable to revenue growth in our key operating segments:

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Sales for the three months ended June 30, 2022 were $82,903 as compared to $70,374 for the three months ended June 30, 2021.

The increase in sales of $12,529 or 18% was attributable to the inclusion of Balanced Health and Rose LifeScience in our 2022

results as well as revenue growth in our key operating segments:

VF Fresh, Canadian Cannabis and U.S.

VF Fresh’s sales increased $1,780, Canadian Cannabis increased $5,032 and U.S.

cannabis increased $7,043 for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

The acquisitions of Balanced Health and Rose contributed $7,043 and $3,608, respectively, to the quarter-over-quarter revenue growth while the remaining $7,109 was derived from organic growth of VF Fresh and Pure Sunfarms.

Cannabis increased $5,793 for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Cost of Sales

Cost of sales for the three months ended March 31, 2022 were $60,252 as compared to $50,089 for the three months ended March 31, 2021.

The increase in cost of sales of ($10,163) or (20%) was primarily derived from an increase in VF Fresh cost of sales of ($11,454) and an increase in U.S.

cannabis cost of sales of ($2,331), partially offset by a decrease in Canadian cannabis cost of sales of $2,989 for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Gross margin for the three months ended March 31, 2022 increased $7,597 to $9,904, for a 14% gross margin, in comparison to $2,307, for a 4% gross margin, for the three months ended March 31, 2021.

Statutory gross margin by segment for Q1 2022 was (10%) for VF Fresh, 44% for Canadian cannabis and 67% for U.S.

cannabis as compared to 2% for VF Fresh and 13% for Canadian cannabis in Q1 2021.

Cost of sales for the three months ended June 30, 2022 were $76,580 as compared to $65,109 for the three months ended June 30, 2021.

The increase in cost of sales of ($11,471) or (18%) was attributable to the inclusion of Balanced Health and Rose LifeScience in our 2022 results as well as revenue growth in our key operating segments along with inflationary effects on supply chain costs, labor and freight expenses.

For the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, the cost of sales for VF Fresh increased ($7,025), Canadian Cannabis increased ($3,344) and U.S.

Cannabis increased ($1,956).

For the Clean Energy segment, cost of sales decreased $854 as Clean Energy shut down its power plant on April 30, 2022 in preparation for the transition to renewable natural gas operations.

Gross margin for the three months ended June 30, 2022 increased $1,058 to $6,323, or an 8% gross margin, in comparison to $5,265, or a 7% gross margin, for the three months ended June 30, 2021.

The positive variance between periods is primarily attributable to a higher gross margin from U.S.

Cannabis of $3,837, Canadian Cannabis of $1,688 and Clean Energy of $778, partially offset by lower gross margin from our produce operations of ($5,245).

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2022 increased $8,879 to $16,971 or 24% of sales compared to $8,092 or 15% of sales for the three months ended March 31, 2021.

The increase in selling, general and administrative expenses was primarily due to the acquisition of Balanced Health and Rose LifeScience and inclusion of their expenses in the three months ended March 31, 2022.

In addition, corporate expenses increased $1,027 due to Q1 2022 costs associated with the start-up of Leli and our development team, and an increase in audit, regulatory and compliance fees in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Selling, general and administrative expenses for the three months ended June 30, 2022 increased $8,377 to $17,402 or 21% of sales compared to $9,025 or 13% for the three months ended June 30, 2021.

The increase in selling, general and administrative expenses was primarily due to the acquisition of Balanced Health and Rose LifeScience and the inclusion of their respective expenses for the three months ended June 30, 2022.

In addition, Corporate expenses increased $271 due to costs associated with our Leli development team and an increase in audit, regulatory and compliance fees in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Share-Based Compensation

Share-based compensation expenses for the three months ended March 31, 2022 were $964 as compared to $1,998 for the three months ended March 31, 2021.

The decrease in share-based compensation was primarily due to the vesting of performance share grants for Canadian cannabis management and corporate management in Q1 2021 associated with attained milestones and conditions met associated with the Company’s acquisition of the remaining 41.3% of Pure Sunfarms on November 2, 2020.

Share-based compensation expenses for the three months ended June 30, 2022 were $1,114 as compared to $1,887 for the three months ended June 30, 2021.

The decrease in share-based compensation was primarily due to the vesting of performance shares earned by key corporate and operations employees in Q2 2021 as compared to Q2 2022.

Write-off of Joint Venture Loan

The write-off of joint venture loan for the three months ended June 30, 2022 of ($592) was due to the write down of VF Hemp inventory during the quarter (as described below) which subsequently led to the Company writing off its remaining loan balance to VF Hemp.

The impairments on our goodwill and intangible assets for the three months ended June 30, 2022 was ($29,799).

The Company considered qualitative factors in assessing impairment indicators and concluded at June 30, 2022, an impairment trigger existed.

The impact to goodwill of ($25,159) and intangible assets of ($4,630) were triggered by macroeconomic challenges, decreases in market capitalization of CBD companies and the continued federal regulation lack of clarity with respect to CBD.

We evaluated forecasts of our U.S.

Cannabis business segment and a reduction in market transaction multiples for CBD companies in our valuation and impairment conclusions.

See Part 1, Item 1 Note 6 “Goodwill and Intangible Assets” for additional details.

Loss from Equity Method Investments

The loss from equity method investments for the three months ended June 30, 2022 of ($2,615) was due to losses from VF Hemp and consisted primarily of the write down of VF Hemp inventory during the quarter.

VF Hemp is not currently cultivating hemp as we await FDA clarity on the use of CBD.

Net Loss Attributable to Village Farms International Inc.

Net loss for the three months ended March 31, 2022 was ($6,517) as compared to a net loss of ($7,382) for the three months ended March 31, 2021.

The improvement in net loss was due to positive net income contribution from the Canadian cannabis and U.S.

cannabis segments in 2022, offset by an increase in net loss from VF Fresh for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Net loss for the three months ended June 30, 2022 was ($36,555) as compared to ($4,517) for the three months ended June 30, 2021.

The increase in net loss was primarily due to lower operating profit from VF Fresh and Canadian Cannabis, impairments on goodwill and intangible assets along with the losses attributable to VF Hemp for the three months ended June 30, 2022 as compared to June 30, 2021.

Adjusted EBITDA

Adjusted EBITDA for the three months ended March 31, 2022 was ($6,111) compared to $404 for the three months ended March 31, 2021.

The decrease in adjusted EBITDA was primarily due to lower operating results of VF Fresh.

Adjusted EBITDA for the three months ended June 30, 2022 was ($10,308) compared to $1,547 for the three months ended June 30, 2021.

The decrease in adjusted EBITDA was primarily due to lower operating results of VF Fresh and Canadian Cannabis.

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

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Sales for the six months ended June 30, 2022 were $153,059 as compared to $122,770 for the six months ended June 30, 2021.

The increase in sales of $30,289 or 25% was attributable to the inclusion of Balanced Health and Rose LifeScience in our 2022 results as well as revenue growth in our key operating segments:

VF Fresh, Canadian Cannabis and U.S.

VF Fresh’s sales increased $8,262, Canadian Cannabis increased $9,341 and U.S.

Cannabis increased $12,836 for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Cost of Sales

Cost of sales for the six months ended June 30, 2022 were $136,832 as compared to $115,198 for the six months ended June 30, 2021.

The increase in cost of sales of ($21,634) or (19%) was due to the inclusion of Balanced Health and Rose LifeScience in our 2022 results as well as revenue growth in our key operating segments along with inflationary effects on supply chain costs, labor and freight expenses.

The cost of sales increase was attributable to increases in our produce costs of ($17,066), higher produce supply partner costs of ($1,329), U.S.

Cannabis cost of sales of ($4,287) and higher Canadian Cannabis costs of ($355), partially offset by lower Clean Energy costs of $1,403.

The 2022 cost of sales for Pure Sunfarms includes a $3,815 positive adjustment and the 2021 cost of sales for Pure Sunfarms includes a ($3,058) charge from the revaluation of its inventory to fair value at acquisition date and our 2021 produce costs include incremental utility charges of ($1,400) associated with the Texas freeze of February 2021.

The decrease in Clean Energy costs were driven by higher depreciation charges in 2021 as the depreciable life of VFCE assets have been accelerated due to the upcoming transition of operations to the Delta RNG Project expected to become operational in mid-2023.

Gross margin for the six months ended June 30, 2022 increased $8,655 to $16,227, or an 11% gross margin, in comparison to $7,572, or a 6% gross margin, for the six months ended June 30, 2021.

Excluding the $3,815 positive adjustment from the revaluation of Pure Sunfarms’ inventory to fair value at acquisition date, gross margin for the six months ended June 30, 2022 was $12,412, or 8% gross margin.

Excluding the ($3,058) charge from the revaluation of Pure Sunfarms’ inventory to fair value at acquisition date and ($1,400) from the incremental Texas freeze utility expenses, gross margin for the six months ended June 30, 2021 was $12,030, or a 10% gross margin.

The year-over-year increase in gross margin of $8,655 was primarily due to increases in gross margin for Canadian Cannabis of $8,986, U.S.

Cannabis of $8,549 and Clean Energy of $1,253, partially offset by lower VF Fresh gross margin of ($10,133).

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended June 30, 2022 increased $17,256 to $34,373 or 22% of sales compared to $17,117 or 14% of sales for the six months ended June 30, 2021.

The year-over-year increase was primarily due to the acquisition and inclusion of U.S.

Cannabis expenses in 2022 of $8,558 and higher Canadian Cannabis expenses of $6,994 due to the acquisition of Rose along with higher planned incremental investment in headcount, marketing, regulatory fees and IT services to support the growth of the Canadian Cannabis business.

In addition, the year-over-year selling, general and administrative expenses of VF Fresh increased $451 primarily due to legal and audit fees and Corporate expenses increased $1,298 due to 2022 costs associated with the start-up of Leli and our development team and an increase in compensation, audit, regulatory and compliance fees.

Share-Based Compensation

Share-based compensation expenses for the six months ended June 30, 2022 were $2,078 as compared to $3,885 for the six months ended June 30, 2021.

The decrease in share-based compensation was primarily due to the vesting of performance shares earned by key operations employees in Q1 2021 and no performance shares earned in 2022.

Write-off of Joint Venture Loan

The write-off of joint venture loan for the six months ended June 30, 2022 of ($592) was due to the write down of VF Hemp inventory during the quarter which subsequently led to the Company writing off its remaining loan balance to VF Hemp.

The impairments on our goodwill and intangible assets for the six months ended June 30, 2022 was ($29,799).

The Company considered qualitative factors in assessing impairment indicators and concluded at June 30, 2022, an impairment trigger existed.

The impact to goodwill of ($25,159) and intangible assets of ($4,630) were triggered by macroeconomic challenges, decreases in market

capitalization of CBD companies and the continued federal regulation lack of clarity with respect to CBD.

We evaluated forecasts of our U.S.

Cannabis business segment and a reduction in market transaction multiples for CBD companies in our valuation and impairment conclusions.

See Part 1, Item 1 Note 6 “Goodwill and Intangible Assets” for additional details.

Loss from Equity Method Investments

The loss from equity method investments for the six months ended June 30, 2022 of ($2,667) was due primarily to losses from VF Hemp and consisted primarily of the write down of VF Hemp inventory during the second quarter.

VF Hemp is not currently cultivating hemp as we await FDA clarity on the use of CBD.

Net Loss Attributable to Village Farms International Inc.

Net loss for the six months ended June 30, 2022 was ($43,072) as compared to ($11,899) for the six months ended June 30, 2021.

The increase in net loss for the six months ended June 30, 2022 as compared to June 30, 2021 was primarily due to impairments on goodwill and intangible assets, lower operating profit of the produce operations and the loss from VF Hemp, partially offset by higher operating profit of the Canadian Cannabis business.

Adjusted EBITDA

Adjusted EBITDA for the six months ended June 30, 2022 was ($16,419) compared to $1,951 for the six months ended June 30, 2021.

The decrease in adjusted EBITDA was primarily due to lower operating results from our produce business, the loss incurred by VF Hemp and a lower contribution of Adjusted EBITDA from Canadian Cannabis due to the effect of the purchase price inventory adjustments on the calculation of Adjusted EBITDA.

See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings 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, 2022

For the Three Months Ended June 30, 2022

Cannabis Canada (1)

Cannabis U.S.

Cost of sales

1 unchanged sentence

Share-based compensation

Other expense, net

Write-off of joint venture loan

Impairments (2)

Recovery of (provision for) income taxes

(Loss) income from consolidated entities

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

Loss from equity method investments

Net (loss) income

Adjusted EBITDA (3)

Basic (loss) income per share

Diluted (loss) income per share

For the Three Months Ended June 30, 2021

Cannabis Canada (1)

Cannabis U.S.

Cost of sales

Selling, general and administrative expenses

Share-based compensation

Other (expense) income, net

1 unchanged sentence

(Loss) income from consolidated entities

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

Loss from equity method investments

Net (loss) income

Adjusted EBITDA (3)

Basic (loss) income per share

Diluted (loss) income per share

For the Six Months Ended June 30, 2022

Cannabis Canada (1)

Cannabis U.S.

Cost of sales

Selling, general and administrative expenses

Share-based compensation

Other expense, net

Write-off of joint venture loan

Impairments (2)

Recovery of (provision for) income taxes

(Loss) income from consolidated entities

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

4 unchanged sentences

Diluted (loss) income per share

For the Three Months Ended March 31, 2021

For the Six Months Ended June 30, 2021

Cannabis Canada (1)

Cannabis U.S.

Cost of sales

2 unchanged sentences

Other expense, net

Recovery of income taxes

Loss from consolidated entities

Recovery of (provision for) income taxes

(Loss) income from consolidated entities

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

Loss from equity method investments

Net (loss) income

Adjusted EBITDA (3)

Basic loss per share

Diluted loss per share

For the three months ended March 31, 2022, Balanced Health’s financial results are fully consolidated in the financial results of the Company.

Basic (loss) income per share

Diluted (loss) income per share

See Part 1, Item 1 Note 6 “Goodwill and Intangible Assets” for additional details.

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

2 unchanged sentences

Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience since acquisition and 65% interest in VFH.

CANNABIS SEGMENT RESULTS - CANADA

The Canadian Cannabis segment currently 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 and six months ended June 30, 2022 and the results of Pure Sunfarms for the three and six months ended June 30, 2021.

The Company acquired 70% of Rose LifeScience on November 15, 2021 and as such the operating results of Rose LifeScience from January 1, 2022 to June 30, 2022 are consolidated in our results for the three and six months ended June 30, 2022 with the minority interest presented in Net Income (Loss) Attributable to Non-controlling Interests, Net of Tax.

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Canadian Cannabis net sales for the three months ended June 30, 2022 were $29,793 as compared to $24,761 for the three months ended June 30, 2021.

The period-over-period net sales increase of $5,032 or 20% includes net sales from Rose in Q2 2022.

The increase between comparable quarters was driven by a 35% increase in non-branded sales and a 17% increase in branded sales.

Rose also contributed $823 in commission revenue that is included in net sales.

The 35% increase in non-branded sales was primarily due to the continued development and strengthening of relationships with other key LPs that are purchasing high potency, high-quality flower and trim made available as Canadian Cannabis expanded its cultivation footprint in 2022.

The 17% increase in branded sales was attained through the addition of Rose branded sales in Q2 2022, partially offset by a decline in sales of cannabis derivative products and slower moving flower formats in certain provincial markets.

In addition, the Canadian Cannabis industry has experienced price compression in 2022 as compared to 2021 which has affected branded products, flower and trim.

For the three months ended June 30, 2022, 67% of revenue was generated from branded flower, inclusive of pre-rolls, 4% of revenue from cannabis derivative products and 29% from non-branded sales as compared to 65% of revenue from branded flower, inclusive of pre-rolls, 8% from cannabis derivative products and 27% from non-branded sales for the three months ended June 30, 2021.

Cost of Sales

Canadian Cannabis cost of sales for the three months ended June 30, 2022 were $18,285 as compared to $14,941 for the three months ended June 30, 2021.

The period-over-period net cost of sales increase of ($3,344) or (22%) includes Q2 2022 cost of sales from Rose.

In addition, the Q2 2022 cost of sales for Pure Sunfarms includes a positive adjustment of $1,766 and the Q2 2021 cost of sales for Pure Sunfarms includes a ($133) charge from the revaluation of its inventory to fair value at acquisition date of November 2,

The cost of sales increase was primarily due to increases in Canadian Cannabis kilograms produced and sold of both branded and non-branded products in Q2 2022 as compared to Q2 2021.

Canadian Cannabis gross margin for the three months ended June 30, 2022 increased $1,688 to $11,508, or a 39% gross margin, in comparison to $9,820, or a 40% gross margin, for the three months ended June 30, 2021.

Gross margin for the three months ended June 30, 2022 decreased ($211) to $9,742, or a 33% gross margin (excluding the purchase price inventory positive adjustment of $1,766) in comparison to $9,953, or a 40% gross margin (excluding the purchase price inventory adjustment charge of $133), for the three months ended June 30, 2021.

The increase in gross margin between comparable periods was primarily due to the production of high-quality, high-potency flower from a larger cultivation footprint which decreased the cost per gram, partially offset by price compression experienced across various provincial markets in Q2 2022 as compared to Q1 2022.

Selling, General and Administrative Expenses

Canadian Cannabis selling, general and administrative expenses for the three months ended June 30, 2022 increased $4,027 to $8,397 or 28% of sales compared to $4,370 or 18% of sales for the three months ended June 30, 2021.

The increase in selling, general and administrative expenses in Q2 2022 was due to the inclusion of Rose expenses and planned incremental investment in sales support and marketing campaigns for the higher volume of sales along with additional headcount, IT services, regulatory and compliance fees to support the growth of the Canadian Cannabis segment.

Canadian Cannabis net income for the three months ended June 30, 2022 was $1,822 compared to $3,221 for the three months ended June 30, 2021.

The decrease in net income between periods was primarily due to higher selling, general and administrative expenses, partially offset by a higher gross margin for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Adjusted EBITDA

Adjusted EBITDA for the three months ended June 30, 2022 and June 30, 2021 was $2,743 and $7,369, respectively.

The lower Adjusted EBITDA between periods was primarily due to higher selling, general and administrative expenses in Q2 2022 along with the effect of the purchase price inventory adjustments on the calculation of Adjusted EBITDA.

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

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Canadian Cannabis net sales for the six months ended June 30, 2022 were $51,562 as compared to $42,221 for the six months ended June 30, 2021.

The period-over-period net sales increase of $9,341 or 22% includes net sales from Rose for the six months ended June 30, 2022.

The increase between comparable periods was driven by a 76% increase in non-branded sales partially offset by an (8%) decrease in branded sales.

Rose also contributed $1,609 in commission revenue that is included in net sales.

The 76% increase in non-branded sales was primarily due to the continued development and strengthening of relationships with other key LPs that are purchasing high potency, high-quality flower and trim made available as Canadian Cannabis expanded its cultivation footprint in 2022.

The (8%) decrease in branded sales was largely due to a decrease in sales from the western Canadian provinces of British Columbia and Alberta for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

In addition, the Canadian Cannabis industry has experienced price compression in 2022 as compared to 2021 which has affected branded products, flower and trim due to factors such as price competition by retailers and producers, price-sensitive consumer habits and some LPs reducing prices to attain cash or capture market share.

For the six months ended June 30, 2022, 67% of revenue was generated from branded flower, inclusive of pre-rolls, 6% of revenue from cannabis derivative products and 27% from non-branded sales as compared to 68% of revenue from branded flower, inclusive of pre-rolls, 10% from cannabis derivative products and 22% from non-branded sales for the six months ended June 30, 2021.

Cost of Sales

Canadian Cannabis cost of sales for the six months ended June 30, 2022 were $30,544 as compared to $30,189 for the six months ended June 30, 2021.

The period-over-period cost of sales increase of ($355) or (1%) includes the 2022 cost of sales from Rose.

In addition, the 2022 cost of sales for Pure Sunfarms includes a positive adjustment of $3,815 and the Q2 2021 cost of sales for Pure Sunfarms includes a ($3,058) charge from the revaluation of its inventory to fair value at acquisition date of November 2, 2020.

The cost of sales increase was primarily due to increases in Canadian Cannabis kilograms produced and sold of both branded and non-branded products from a larger cultivation footprint in 2022 as compared to 2021.

Canadian Cannabis gross margin for the six months ended June 30, 2022 increased $8,986 to $21,018, or a 41% gross margin, in comparison to $12,032, or a 28% gross margin, for the six months ended June 30, 2021.

Gross margin for the six months ended June 30, 2022 increased $2,113 to $17,203, or a 33% gross margin (excluding the purchase price inventory positive adjustment of $3,815) in comparison to $15,090, or a 36% gross margin (excluding the purchase price inventory adjustment charge of $3,058), for the six months ended June 30, 2021.

The increase in gross margin was primarily due to the production of high-quality, high-potency flower from a larger cultivation footprint which decreases the cost per gram, partially offset by price compression experienced across various provincial markets in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Selling, General and Administrative Expenses

Canadian Cannabis selling, general and administrative expenses for the six months ended June 30, 2022 increased $6,994 to $15,330 or 30% of sales compared to $8,336 or 20% of sales for the six months ended June 30, 2021.

The increase in selling, general and administrative expenses in 2022 was due to the inclusion of Rose expenses and planned incremental investment in sales support and marketing campaigns for the higher volume of sales along with additional headcount, IT services, regulatory and compliance fees to support the growth of the Canadian Cannabis segment.

Share-Based Compensation

Canadian Cannabis share-based compensation expenses for the six months ended June 30, 2022 were $586 as compared to $1,285 for the six months ended June 30, 2021.

The year-over-year decrease in share-based compensation was primarily due to the vesting of performance share grants for Pure Sunfarms’ management for the six months ended June 30, 2021 versus no performance shares in 2022.

Canadian Cannabis net income for the six months ended June 30, 2022 was $2,809 compared to $387 for the six months ended June 30, 2021.

The increase in net income between periods was primarily due to a higher gross margin which was impacted by the positive purchase price inventory adjustment and lower share-based compensation expense, partially offset by higher selling, general and administrative expenses.

Adjusted EBITDA

Adjusted EBITDA for the six months ended June 30, 2022 and June 30, 2021 was $4,847 and $9,903, respectively.

The lower Adjusted EBITDA between periods was primarily due to higher selling, general and administrative as a percentage of sales expenses in the first half of 2022 along with the effect of the purchase price inventory adjustments on the calculation of Adjusted EBITDA.

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

PRODUCE SEGMENT RESULTS – VF FRESH

The produce segment, VF Fresh, currently 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, 2022 and 2021.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

VF Fresh sales for three months ended March 31, 2022 were $41,349 as compared to $34,867 for the three months ended March 31, 2021.

The increase in sales of $6,482 or 19% was due to increases in our own produce revenues of $3,472 and our grower partner revenues of $3,010.

The increase in our own produce revenues was primarily due to an increase in tomato volume of 19% while the selling price of our own tomatoes was relatively flat due to a change in sales mix to a greater percentage of higher priced specialty tomatoes.

The increase in grower partner revenues was primarily due to higher volumes of pounds sold of tomatoes, peppers, cucumbers and mini-cucumbers, partially offset by decreases in tomato prices of (2%), pepper prices of (25%), cucumber prices of (7%) and mini-cucumber prices of (29%) in Q1 2022 as compared to Q1 2021.

VF Fresh’s comparative analysis is based on the consolidated results of Village Farms LP and Village Farms Canada LP for the three and six months ended June 30, 2022 and 2021.

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

VF Fresh sales for three months ended June 30, 2022 were $47,176 as compared to $45,539 for the three months ended June 30, 2021.

The increase in sales of $1,637 or 4% was due to increases in our own produce revenues of $4,770 partially offset by lower grower partner revenues of ($3,133).

The increase in our own produce revenues was primarily due to an increase in tomato volume of 10% primarily from our Texas greenhouses while the selling price of our own tomatoes increased due to a change in sales mix to a greater percentage of higher priced specialty tomatoes.

The decrease in grower partner revenues was primarily due to (23%) decrease in tomato production purchased.

Cost of Sales

VF Fresh cost of sales for three months ended March 31, 2022 were $45,520 as compared to $34,150 for the three months ended March 31, 2021.

Cost of sales increased ($11,370) or (33%) due to increases in our own produce cost of sales of ($7,054) and our grower partner cost of sales of ($4,316).

The increase in our own produce cost of sales was driven by the 19% increase in tomato volume at our Texas greenhouses as well as an increase in the sales mix for specialty tomatoes which require higher costs for cultivation and packaging.

VF Fresh cost of sales for three months ended June 30, 2022 were $56,143 as compared to $49,353 for the three months ended June 30, 2021.

Cost of sales increased ($6,790) or (14%) due to increases in our own produce cost of sales of ($9,636) partially offset by a decrease in our grower partner cost of sales of $2,846.

The increase in our own produce cost of sales was driven by the 10% increase in tomato volume at our Texas greenhouses as well as an increase in the sales mix for specialty tomatoes which require higher costs for cultivation and packaging along with an incremental catch up to our cost of sales of ($1,038) due to a revised Texas crop cycle that began in summer/fall 2021 and ends in early Q3 2022.

The increase in volume and an incremental increase in freight costs of approximately ($1,686) drove higher transportation and handling costs of produce in Q2 2022 as compared to Q2 2021.

In addition, in Q1 2022, we incurred an incremental catch up to our cost of sales of $1,779 on our Texas crop cycle that began in summer/fall 2021 and ends in late Q2 2022 due to an expected lower total crop volume and higher cost of production for the growing cycle due to ongoing disease pressure and supply chain cost increases, effectively increasing our production price per pound for our Texas tomato crop.

The increase in grower partner cost of sales was driven by an increase in purchased production from our grower partners as well as fixed contract pricing on some of our grower partner tomato varieties.

Our facility management has implemented changes to increase crop yield and reduce cost per pound, however our efforts could not mitigate the increases in supply chain costs and incremental freight experienced in Q1 2022.

The gross margin for VF Fresh was ($4,171) for three months ended March 31, 2022 as compared to $717 for the three months ended March 31, 2021.

Gross margin in the first quarter of 2022 has been greatly affected by the higher cost of sales, which was attributable to additional freight per pound, a revised production forecast and higher cultivation costs in our Texas facilities and lower grower partner gross margin of ($1,306).

The higher freight per pound was mostly due to increases in fuel prices and trucker shortages which could not be passed on to our customers.

The decrease in grower partner cost of sales was driven by a decrease in purchased production from our grower partners, partially offset by

an incremental increase in freight costs of approximately ($502).

Our facility management has implemented changes to increase crop yield and reduce cost per pound, however efforts could not mitigate the increases in supply chain costs and incremental freight.

The gross margin for VF Fresh was ($8,967) for three months ended June 30, 2022 as compared to ($3,814) for the three months ended June 30, 2021.

Gross margin in the second quarter of 2022 has been greatly affected by the higher cost of sales, which was attributable to additional freight per pound, higher cultivation costs in our Texas facilities, a revised Texas crop cycle and lower grower partner gross margin of ($287).

The higher freight per pound increase of 42% was mostly due to increases in fuel prices and trucker shortages which we were not able to pass on to our customers.

Selling, General and Administrative Expenses

VF Fresh selling, general and administrative expenses for three months ended March 31, 2022 were $3,140 or 8% of sales as compared to $2,551 or 7% of sales for the three months ended March 31, 2021.

The quarter-over-quarter increase in selling, general and administrative expenses was primarily due to legal fees.

VF Fresh’s net loss for three months ended March 31, 2022 was ($5,626) as compared to ($1,585) for the three months ended March 31, 2021.

The increase in net loss for the first quarter of 2022 as compared to the first quarter of 2021 was primarily due to the lower gross margin and higher selling, general and administrative expenses incurred in 2022.

VF Fresh selling, general and administrative expenses for three months ended June 30, 2022 were $2,808 or 6% of sales as compared to $2,946 or 6% of sales for the three months ended June 30, 2021.

The quarter-over-quarter decrease in selling, general and administrative expenses was primarily due to lower legal fees incurred in Q2 2022 as compared to Q2 2021.

VF Fresh’s net loss for three months ended June 30, 2022 was ($9,350) as compared to ($4,660) for the three months ended June 30, 2021.

The increase in net loss for the second quarter of 2022 as compared to the second quarter of 2021 was primarily due to the lower gross margin incurred in 2022 driven by higher cost of sales due to an increase in our Texas tomato production volume, revised Texas crop cycle, freight and supply chain expenses.

Adjusted EBITDA

The Adjusted EBITDA for VF Fresh was ($6,201) for three months ended March 31, 2022 as compared to ($492) for the three months ended March 31, 2021.

The lower Adjusted EBITDA was due to a decrease in operating margin of ($5,477) for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

CANNABIS SEGMENT RESULTS - CANADA

The Canadian cannabis segment currently 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, 2022 and the results of Pure Sunfarms for March 31, 2021.

The Company acquired 70% of Rose LifeScience on November 15, 2021 and as such the operating results of Rose LifeScience from January 1, 2022 to March 31, 2022 are consolidated in our results for the three months ended March 31, 2022 with the minority interest presented in Net Income (Loss) Attributable to Non-controlling Interests, Net of Tax.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Canadian cannabis net sales for the three months ended March 31, 2022 were $21,769 as compared to $17,460 for the three months ended March 31, 2021.

The period-over-period net sales increase of $4,309 or 25% includes $3,609 in Q1 2022 net sales from Rose.

The increase between comparable quarters was driven by a 79% increase in non-branded sales and an 8% increase in branded sales.

The 79% increase in non-branded sales was due primarily to the continued development and strengthening of relationships with other key LPs that are purchasing high potency, high-quality flower and trim made available as Pure Sunfarms expanded its cultivation footprint.

The 8% increase in branded sales was attained through the addition of Rose branded sales in Q122, partially offset by a (10%) decline in Pure Sunfarms branded sales driven by selective price decreases on slower moving flower and cannabis derivative products.

For the three months ended March 31, 2022, 67% of revenue was generated from branded flower, inclusive of pre-rolls, 8% of revenue from cannabis derivative products and 25% from non-branded sales as compared to 71% of revenue from branded flower, inclusive of pre-rolls, 13% from cannabis derivative products and 16% from non-branded sales for the three months ended March 31, 2021.

The Adjusted EBITDA for VF Fresh was ($10,282) for three months ended June 30, 2022 as compared to ($3,980) for the three months ended June 30, 2021.

The lower Adjusted EBITDA was primarily due to a decrease in operating margin of ($5,107) for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

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

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

VF Fresh sales for six months ended June 30, 2022 were $88,525 as compared to $80,406 for the six months ended June 30, 2021.

The increase in sales of $8,119 or 10% was due to increases in our own produce revenues of $8,288 partially offset by a decrease from our grower partner revenues of ($169).

The increase in our own produce revenues was primarily due to an increase in tomato volume of 10% primarily from our Texas greenhouses while the selling price of our own tomatoes increased 8% due to a change in sales mix to a greater percentage of higher priced specialty tomatoes.

The decrease in grower partner revenues was primarily due to lower volumes of pounds sold of tomatoes, partially offset by higher volumes of pounds sold of peppers, cucumbers and mini-cucumbers.

Cost of Sales

Canadian cannabis cost of sales for the three months ended March 31, 2022 were $12,259 as compared to $15,248 for the three months ended March 31, 2021.

The period-over-period net cost of sales decrease of $2,989 or 20% includes $2,388 in Q1 2022 cost of sales from Rose.

In addition, the Q2 2022 cost of sales for Pure Sunfarms includes a positive adjustment of $2,050 and the Q1 2021 cost of sales for Pure Sunfarms includes a ($2,778) charge from the revaluation of its inventory to fair value at acquisition date of November 2, 2020.

The cost of sales decrease is partly attributable to ongoing improvements in yields, potency and growing practices as well as a higher proportion of non-branded sales between comparable periods, as non-branded products require lower manufacturing, packaging and distribution costs.

Gross margin for the three months ended March 31, 2022 increased $7,298 to $9,510, or a 44% gross margin, in comparison to $2,212, or a 13% gross margin, for the three months ended March 31, 2021.

Gross margin for the three months ended March 31, 2022 increased $2,470 to $7,460, or a 34% gross margin (excluding the purchase price inventory positive adjustment of $2,050) in comparison to $4,990, or a 29% gross margin (excluding the purchase price inventory adjustment charge of $2,778), for the three months ended March 31, 2021.

The increase in gross margin between comparable periods was primarily due to the production of high-quality, high-potency flower from a larger cultivation footprint which is a key factor in decreasing cost of sales as a percentage of revenue and offset the price compression experienced across various provincial markets in Q1 2022.

VF Fresh cost of sales for six months ended June 30, 2022 were $101,782 as compared to $83,503 for the six months ended June 30, 2021.

Cost of sales increased ($18,279) or (22%) due to increases in our own produce cost of sales of ($16,950) and our grower partner cost of sales of ($1,329).

The increase in our own produce cost of sales was driven by the increase in tomato volume at our Texas greenhouses as well as an increase in the sales mix for specialty tomatoes which require higher costs for cultivation and packaging.

The increase in volume and an incremental increase in freight costs of approximately ($3,010) drove higher transportation and handling costs of produce in 2022 as compared to 2021.

In addition, in the six months ended June 30, 2022, we incurred an incremental catch up to our cost of sales of ($2,818) on our Texas crop cycle that began in summer/fall 2021 and ends in early Q3 2022 due to an expected lower total crop volume and higher cost of production for the growing cycle due to ongoing disease pressure and supply chain cost increases, effectively increasing our production price per pound for our Texas tomato crop.

The increase in grower partner cost of sales was driven by an incremental increase in freight costs of approximately ($1,930), partially offset by lower volumes of produce pounds sold in 2022 as compared to 2021.

The gross margin for VF Fresh was ($13,257) for six months ended June 30, 2022 as compared to ($3,097) for the six months ended June 30, 2021.

Gross margin in the six months ended June 30, 2022 has been greatly affected by the higher cost of sales, which was attributable to additional freight per pound, a revised production forecast and higher cultivation costs in our Texas facilities and

lower grower partner gross margin of ($1,498).

The higher freight per pound increase of 36% was mostly due to increases in fuel prices and trucker shortages which we were not able to pass on to our customers.

Selling, General and Administrative Expenses

Canadian cannabis selling, general and administrative expenses for the three months ended March 31, 2022 increased $2,967 to $6,933 or 32% of sales compared to $3,966 or 23% of sales for the three months ended March 31, 2021.

The increase in selling, general and administrative expenses in Q2 2022 was due to a 40% rise in Pure Sunfarms’ expenses and the inclusion of Rose expenses of $1,364.

The quarter-over-quarter increase was mostly due to planned incremental investment in sales support and marketing campaigns for the higher volume of sales in 2022 along with additional headcount, IT services, regulatory and compliance fees to support the growth of the Canadian cannabis segment.

Share-Based Compensation

Canadian cannabis share-based compensation expenses for the three months ended March 31, 2022 were $367 as compared to $1,094 for the three months ended March 31, 2021.

The decrease in share-based compensation was primarily due to the vesting of performance share grants for Pure Sunfarms’ management associated with attained milestones and conditions met associated with the Company’s acquisition of the remaining 41.3% of Pure Sunfarms on November 2, 2020.

Net Income (Loss)

Canadian cannabis net income for the three months ended March 31, 2022 was $987 as compared to net loss of ($2,834) for the three months ended March 31, 2021.

VF Fresh selling, general and administrative expenses for six months ended June 30, 2022 were $5,948 or 7% of sales as compared to $5,497 or 7% of sales for the six months ended June 30, 2021.

The quarter-over-quarter increase in selling, general and administrative expenses was primarily due to legal fees and higher audit and compliance fees.

VF Fresh’s net loss for six months ended June 30, 2022 was ($15,095) as compared to ($6,245) for the six months ended June 30, 2021.

The increase in net loss for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 was primarily due to the higher cost of sales that resulted in lower gross margin in 2022.

Adjusted EBITDA

Adjusted EBITDA for the three months ended March 31, 2022 and March 31, 2021 was $2,104 and $2,534, respectively.

The lower Adjusted EBITDA between periods was primarily due to higher selling, general and administrative expenses along with the effect of the purchase price inventory adjustments on the calculation of Adjusted EBITDA.

The Adjusted EBITDA for VF Fresh was ($16,483) for six months ended June 30, 2022 as compared to ($4,472) for the six months ended June 30, 2021.

The lower Adjusted EBITDA was primarily due to a decrease in operating margin of ($10,584) for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

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

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Cannabis segment currently consists of Balanced Health and VF Hemp.

For the three months ended March 31, 2022, U.S.

For the three and six months ended June 30, 2022, U.S.

Cannabis financial results are based on the consolidated results of Balanced Health from the closing date of the acquisition of August 16, 2021.

VF Hemp is a joint venture and its results are included in “(Losses) Income from Equity Method Investments” for the three months ended March 31, 2022.

Three Months Ended March 31, 2022

cannabis sales for the period of January 1, 2022 to March 31, 2022 were $7,043.

VF Hemp is a joint venture, and its results are included in “Loss from Equity Method Investments” for the three and six months ended June 30, 2022.

Three Months Ended June 30, 2022

Cannabis sales for the three months ended June 30, 2022 were $5,793.

Over 99% of sales were generated in the United States and gross sales were composed of 82% from e-commerce sales, 13% from retail sales, 6% from shipping income and 1% from bulk sales.

In addition, sales included a (2%) loyalty program impact as loyalty program customers generate loyalty points that may be used when purchasing Balanced Health products.

Balanced Health successfully launched its Synergy+ product line in May 2022, which we believe will drive higher sales for its loyal customer base and attract new customers to its cannabinoid products.

Cost of Sales

cannabis cost of sales for the period of January 1, 2022 to March 31, 2022 were $2,331.

Cannabis cost of sales for the three months ended June 30, 2022 were $1,956.

Cost of sales can be primarily attributed directly to e-commerce, retail and bulk cost of sales with all other costs of sales categorized within other manufacturing costs including expenses such as warehouse expenses, freight and shipping supplies.

cannabis gross margin for the period of January 1, 2022 to March 31, 2022 was $4,712 or 67%.

Cannabis gross margin for the three months ended June 30, 2022 was $3,837 or 66%.

Selling, General and Administrative Expenses

cannabis selling general and administrative expenses for the period of January 1, 2022 to March 31, 2022 was $4,296 or 61% of sales.

Cannabis selling general and administrative expenses for the three months ended June 30, 2022 was $4,262 or 74% of sales.

Cannabis business derives a substantial number of sales through its online technology platforms, the primary expense categories within selling, general and administrative include sales and marketing, merchant fees, e-commerce support, IT services, research and development and customer service.

cannabis net income for the period of January 1, 2022 to March 31, 2022 was $269 due primarily to the gross margin of 67%.

Balanced Health focused efforts in Q2 2022 to reduce selling, general and administrative expenses through headcount reduction and more efficient marketing and brand spend in order to reduce overhead as a percentage of sales.

The impairments on our goodwill and intangible assets for the six months ended June 30, 2022 was ($29,799).

The Company considered qualitative factors in assessing impairment indicators and concluded at June 30, 2022, an impairment trigger existed.

We evaluated forecasts of our U.S.

Cannabis business segment and a reduction in market transaction multiples for CBD companies in our valuation and impairment conclusions.

See Part 1, Item 1 Note 6 “Goodwill and Intangible Assets” for additional details.

Loss from Equity Method Investments

The loss from equity method investments for the three months ended June 30, 2022 of ($2,615) was primarily due to the write down of VF Hemp inventory during the quarter.

VF Hemp is not currently cultivating hemp as we await FDA clarity on the use of CBD.

Cannabis net loss for the three months ended June 30, 2022 was ($25,933) driven by impairments on goodwill and intangible assets and the loss from VF Hemp write down of inventory for the period, as described above.

Adjusted EBITDA

cannabis adjusted EBITDA for the period of January 1, 2022 to March 31, 2022 was $580 and was due primarily to operating profit for the period.

Cannabis adjusted EBITDA for the three months ended June 30, 2022 was ($633) due to the Balanced Health operating loss and VF Hemp loss for the period.

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

Six Months Ended June 30, 2022

Cannabis sales for the six months ended June 30, 2022 were $12,836.

Over 99% of sales were generated in the United States and gross sales were composed of 77% from e-commerce sales, 15% from retail sales, 5% from shipping income and 1% from bulk sales.

In addition, sales included a 2% loyalty program impact as loyalty program customers generate loyalty points that may be used when purchasing Balanced Health products.

Balanced Health continues to identify opportunistic and resourceful strategies and tactics to drive topline sales.

As customer acquisition costs have increased in the first half of 2022, Balanced Health increased discounts for their e-commerce subscription program to retain and attract customers utilizing their CBDistillery website and drive additional sales of their products.

In addition, Balanced Health successfully launched its Synergy+ product line in May 2022, which we believe will drive higher sales for its loyal customer base and attract new customers to its cannabinoid products.

Cost of Sales

Cannabis cost of sales for the six months ended June 30, 2022 were $4,287.

Balanced Health implemented efficiencies throughout the year to reduce cost of sales, particularly freight savings from alternative providers, lower packaging costs, renegotiating with co-manufacturers and internalizing production of specific products.

Cannabis gross margin for the six months ended June 30, 2022 was $8,549 or 67%.

Selling, General and Administrative Expenses

Cannabis selling general and administrative expenses for the six months ended June 30, 2022 was $8,558 or 67% of sales.

Share-based Compensation

Cannabis share-based compensation for the six months ended June 30, 2022 was $202 due to options issued to key U.S.

Cannabis employees.

The impairments on our goodwill and intangible assets for the six months ended June 30, 2022 was ($29,799).

The Company considered qualitative factors in assessing impairment indicators and concluded at June 30, 2022, an impairment trigger existed.

We evaluated forecasts of our U.S.

Cannabis business segment and a reduction in market transaction multiples for CBD companies in our valuation and impairment conclusions.

See Part 1, Item 1 Note 6 “Goodwill and Intangible Assets” for additional details.

Loss from Equity Method Investments

The loss from equity method investments for the six months ended June 30, 2022 of ($2,667) was primarily due to the write down of VF Hemp inventory during the second quarter, as described above.

Cannabis net loss for the six months ended June 30, 2022 was ($2,890) primarily due to the impairments on goodwill and intangible assets and the loss from VF Hemp for the period, as described above.

Adjusted EBITDA

Cannabis adjusted EBITDA was ($53) primarily due to the loss from VF Hemp for the six months ended June 30, 2022.

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

Liquidity and Capital Resources

Capital Resources

As at March 31, 2022, we had $41,433 in cash (includes $6,810 in restricted cash) and $101,477 of working capital, and as at December 31, 2021, we had $58,667 in cash (includes $5,250 in restricted cash) and $110,646 of working capital.

We believe that cash generated from our operating activities, Credit Facilities and Pure Sunfarms Loans will provide sufficient liquidity to meet our working capital needs, repayments of long-term debt, future contractual obligations and 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.

As at June 30, 2022, we had $32,999 in cash (includes $6,810 in restricted cash) and $78,157 of working capital, and as at December 31, 2021, we had $58,667 in cash (includes $5,250 in restricted cash) and $110,646 of working capital.

We believe that our existing cash together with cash generated from our operating activities, proceeds from our Credit Facilities and Pure Sunfarms Loans, and additional potential liquidity from equity or debt financings, will provide us with sufficient liquidity to meet our working capital needs, repayments of long-term debt, future contractual obligations and planned capital expenditures for the next 12 months.

We intend to use our cash on hand for daily funding requirements.

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dollars unless otherwise noted)

March 31, 2022

June 30, 2022

Operating Loan (1)

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See “Operating Loan” below.

The Company’s borrowings under the FCC Term Loan, the Operating Loan and the VFCE Borrowings (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, 2022, the Company was in compliance with all of its covenants under its Credit Facilities.

The Company’s borrowings under the FCC Term Loan, the Operating Loan and the VFCE 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 June 30, 2022, the Company was in compliance with all of its covenants under its Credit Facilities.

On December 31, 2021 we were not in compliance with one financial covenant under our FCC Term Loan.

Subsequent to December 31, 2021, we received a waiver from Farm Credit Canada (“FCC”) in connection with the

annual testing on December 31, 202 1 for the one financial covenant.

Subsequent to December 31, 2021, we received a waiver from Farm Credit Canada (“FCC”) in connection with the annual testing on December 31, 2021 for the one financial covenant.

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, 2022.

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, 2022 and December 31, 2021 was $234 and $304, respectively, and these amounts are included in accrued liabilities in the Consolidated Statements of Financial Position.

Accrued interest payable on the Credit Facilities and Pure Sunfarms Loans as of June 30, 2022 and December 31, 2021 was $94 and $304, respectively, and these amounts are included in accrued liabilities in the Consolidated Statements of Financial Position.

FCC Term Loan

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

The non-revolving variable rate term loan has a maturity date of April 1, 2025 and a balance of $26,230 on March 31, 2022 and $26,723 on December 31, 2021.

The non-revolving variable rate term loan has a maturity date of April 1, 2025 and a balance of $25,739 on June 30, 2022 and $26,723 on December 31, 2021.

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 April 1, 2025.

Effective August 1, 2020, monthly principal payments were reduced to $164 from $257.

As of March 31, 2022, borrowings under the FCC Term Loan agreement were subject to an interest rate of 3.77% per annum.

As of June 30, 2022, borrowings under the FCC Term Loan agreement were subject to an interest rate of 3.746% 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, 2022 and December 31, 2021 was $192,344 and $233,187, respectively.

The carrying value of the assets and securities pledged as collateral as of June 30, 2022 and December 31, 2021 was $212,574 and $233,187, respectively.

Operating Loan

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

The Operating Loan had a balance of $2,000 on March 31, 2022 and there was no amount drawn on this loan on December 31, 2021.

The Operating Loan had a balance of $4,000 on June 30, 2022 and there was no amount drawn on this loan on December 31, 2021.

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, 2022 and December 31, 2021 was $33,840 and $34,741, respectively.

The carrying value of the assets pledged as collateral as of June 30, 2022 and December 31, 2021 was $37,213 and $34,741, respectively.

VFCE had a loan agreement with a Canadian chartered bank that includes a non-revolving fixed rate loan (the “VFCE Loan”) of C$3,000 with a maturity date of June 2023 and a fixed interest rate of 4.98% per annum.

The Company paid off the outstanding balance of the VFCE Loan in the first quarter of 2022.

As of March 31, 2022 and December 31, 2021, the balance of the VFCE Loan was nil and C$624, respectively.

As of June 30, 2022 and December 31, 2021, the balance of the VFCE Loan was nil and C$624, respectively.

Pure Sunfarms Loans

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Interest is payable at the Canadian prime rate plus an applicable margin per annum, payable monthly.

The PSF Revolving Line of Credit had an outstanding balance of C$9,855 as of March 31, 2022 and December 31, 2021.

Pure Sunfarms had an outstanding letter of credit issued to BC Hydro against the revolving line of credit of C$5,145 at March 31, 2022 and December 31, 2021.

The PSF Revolving Line of Credit had an outstanding balance of C$3,539 as of June 30, 2022 and C$9,855 as of December 31, 2021.

Pure Sunfarms had an outstanding letter of credit issued to BC Hydro against the revolving line of credit of C$5,145 at June 30, 2022 and December 31, 2021.

The second loan facility under the Third Amended and Restated PSF Credit Agreement is a credit facility with a Canadian chartered bank, as agent and lead lender, and FCC, as lender, in respect of a C$17,000 secured non-revolver term loan (the “PSF Non-Revolving Facility”).

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The purpose of the PSF Non-Revolving Facility is to refinance our Delta 3 greenhouse and provide funds to upgrade and retrofit the Delta 2 facility.

The outstanding amount on the PSF Non-Revolving Facility was C$14,595 on March 31, 2022 and C$15,076 on December 31, 2021.

The outstanding amount on the PSF Non-Revolving Facility was C$14,000 on June 30, 2022 and C$15,076 on December 31, 2021.

The third loan facility under the Third Amended and Restated PSF Credit Agreement is a C$25,000 term loan (the “PSF Term Loan”) at the Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50% of the outstanding principal amount starting June 30, 2021 and maturing February 7, 2024.

Advances under the PSF Term Loan are required to be used to finance the upgrade and retrofit of the Delta 2 greenhouse to render it suitable for cannabis cultivation as well as any funds necessary for capital expenditures on the Delta 3 processing facility.

The outstanding amount on the PSF Term Loan was C$21,96 5 on March 31, 2022 and C$22,614 on December 31, 2021.

The outstanding amount on the PSF Term Loan was C$21,250 on June 30, 2022 and C$22,614 on December 31, 2021.

On December 20, 2020, Pure Sunfarms entered into a C$6,250 non-revolving demand loan at the Canadian prime interest rate plus 3.75% per annum with a Canadian chartered bank with the financial support of the Business Development Bank of Canada (the “BDC Facility”).

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Commencing on December 31, 2021, Pure Sunfarms will repay the outstanding principal amount in equal monthly installments.

The outstanding amount on the BDC Facility was C$6,094 on March 31, 2022 and C$6,282 on December 31, 2021.

The outstanding amount on the BDC Facility was C$5,938 on June 30, 2022 and C$6,282 on December 31, 2021.

Pure Sunfarms is required to comply with financial covenants under the Third Amended and Restated PSF Credit Agreement, which are measured quarterly.

As of March 31, 2022, Pure Sunfarms was in compliance with these financial covenants.

As of June 30, 2022, Pure Sunfarms was in compliance with these financial covenants.

Emerald Promissory Note

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Summary of Cash Flows

For the three months ended March 31,

For the six months ended June 30,

(in Thousands)

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Financing activities

Net cash (decrease) increase for the period

Net cash increase (decrease) for the period

Effect of exchange rate changes on cash

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Operating Activities

For the three months ended March 31, 2022 and 2021, cash flows used in operating activities were ($9,637) and ($14,436), respectively.

The operating activities for the three months ended March 31, 2022 consisted of ($5,091) in changes in non-cash working capital items and ($4,546) in changes before non-cash working capital items, while operating activities for 2021 consisted of ($9,703) in changes in non-cash working capital items and ($4,733) in changes before non-cash working capital items.

The decrease in changes before non-cash working capital items for Q1 2022 as compared to Q1 2021 was primarily due to an improvement in our net loss of $865 from quarter-over-quarter improvement from our Canadian cannabis operations, as well as the addition of U.S.

cannabis, partially offset by higher losses from VF Fresh.

For the six months ended June 30, 2022 and 2021, cash flows used in operating activities were ($9,021) and ($15,210), respectively.

The operating activities for the six months ended June 30, 2022 consisted of $9,064 in changes in non-cash working capital items and ($18,085) in changes before non-cash working capital items, while operating activities for the six months ended June 30, 2021 consisted of ($10,239) in changes in non-cash working capital items and ($4,971) in changes before non-cash working capital items.

The decrease in changes before non-cash working capital items for 2022 as compared to 2021 was primarily due to impairments on our goodwill and intangibles, a higher net loss from VF Fresh and higher loss from our joint venture, VF Hemp, partially offset by higher net income from Canadian Cannabis.

Investing Activities

For the three months ended March 31, 2022 and 2021, cash flows used in investing activities were ($8,705) and ($5,211), respectively.

Q1 2022 investing activities consisted of a ($2,715) loan to L.L.

Lichtendahl Beheer B.V., a private company that holds a 50% interest in Leli, a promissory note to Altum of ($727) and ($5,263) of capital expenditure expenses, of which ($4,344) was for Pure Sunfarms Delta 2 packhouse conversion and Delta 3 improvement projects and ($883) for our produce operations.

Q1 2021 investing activities primarily consisted of a ($500) investment in Altum and ($4,706) of capital expenditure expenses, of which ($3,789) was primarily for the Pure Sunfarms Delta 2 greenhouse transition to cannabis and ($916) for our produce operations.

For the six months ended June 30, 2022 and 2021, cash flows used in investing activities were ($13,681) and ($12,368), respectively.

The investing activities for the six months ended June 30, 2022 consisted of a ($2,715) loan to L.L.

Lichtendahl Beheer B.V., a private company that held a 50% interest in Leli, a promissory note to Altum of ($734) and ($10,232) of capital expenditure expenses of which ($1,416) was for our produce operations and ($8,768) was for Canadian Cannabis operations, primarily for Pure Sunfarms Delta 2 packhouse conversion and Delta 3 improvement projects.

The investing activities for the six months ended June 30, 2021 largely consisted of a ($1,001) investment in Altum and ($11,355) of capital expenditure expenses, of which ($9,029) was primarily for the Pure Sunfarms Delta 2 greenhouse transition to cannabis and ($2,326) for upgrades to our produce operations.

Financing Activities

For the three months ended March 31, 2022 and 2021, cash flows provided by financing activities were $1,012 and $129,577, respectively.

For the three months ended March 31, 2022, cash flows provided by financing activities primarily consisted of $2,000 for proceeds from the Operating Loan, $176 in proceeds from the exercise of Common Shares, ($983) in repayments on borrowings and ($301) for payments on lease obligations.

For the three months ended March 31, 2021, cash flows provided by financing activities primarily consisted of $127,489 of net proceeds from the issuance of Common Shares, $17,663 in proceeds from the exercise of warrants from the September 2020 registered direct offering and the ($15,498) payment of the Emerald Promissory Note.

For the six months ended June 30, 2022, cash flows used in financing activities were ($2,910) and cash flows provided by financing were $124,583 for the six months ended June 30, 2021.

For the six months ended June 30, 2022, cash flows provided by financing activities consisted of $4,000 for proceeds from the Operating Loan and $192 from proceeds from the exercise of stocks, offset by cash flows used in financing activities of ($6,490) in repayments on borrowings and ($612) for payments on lease obligations.

For the six months ended June 30, 2021, cash flows provided by financing activities primarily consisted of $127,489 of net proceeds from the issuance of Common Shares, $18,494 in proceeds from the exercise of warrants from the September 2020 registered direct offering, the ($15,498) payment of the Emerald Promissory Note, share repurchases of ($3,980) and payments on borrowings net of proceeds of ($1,799).

Contractual Obligations and Commitments

We expect to meet our contractual obligations and commitments through the use of our working capital.

We currently do not have any material obligations identified in the near future, however, as noted in “ Recent Developments and Updates – International Update ”, we entered into an option agreement to receive the irrevocable right to acquire 80% ownership of Leli.

This potential investment is being evaluated by the Company and may require a material contractual obligation in the event that we exercise the Option.

We currently do not have any material obligations identified in the near future.

In addition, we currently have material long-term debt and lines of credit that we rely on to meet financing needs of the Company.

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

Investors are cautioned that Adjusted EBITDA should not be construed as an alternative to net income or loss determined in accordance with GAAP as an indicator of our performance.

Investors are cautioned that Adjusted EBITDA should not be construed as an alternative to net income or loss determined in accordance with GAAP as an indicator of our

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

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

For the three months ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands of U.S.

Foreign currency exchange (gain) loss

Foreign currency exchange loss (gain)

Interest expense, net

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Share-based compensation

Interest expense for JVs

Interest expense for VFH

Amortization for JVs

Foreign currency exchange loss for JVs

Deferred financing fees

Impairments (2)

JV loan write-off

Share of loss on JV inventory impairment

Incremental utility costs due to storm

Foreign currency exchange (gain) loss for JVs

Purchase price adjustment (3)

Amortization of deferred charges

Gain on disposal of assets

Adjusted EBITDA (4)

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Adjusted EBITDA excluding JVs

For the three months ended March 31, 2022, Balanced Health’s financial results are fully consolidated in the financial results of the Company.

Consists of impairments to goodwill of ($25,159) and intangible assets of ($4,630) that were triggered by inflationary effects on consumer spending, decreases in market capitalization of CBD companies and the continued federal regulation lack of clarity with respect to CBD.

See Part 1, Item 1 Note 6 “Goodwill and Intangible Assets” for additional details.

The purchase price adjustment primarily reflects the non-cash accounting charge resulting from the revaluation of Pure Sunfarms’ inventory to fair value at the acquisition date on November 2, 2020.

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Adjusted EBITDA includes the 70% interest in Rose LifeScience since acquisition and 65% interest in VFH.

The Adjusted EBITDA for JVs consists of the VF Hemp Adjusted EBITDA for the three months ended March 31, 2022 and 2021.

The Adjusted EBITDA for JVs consists of the VF Hemp Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021.

Recent Accounting Pronouncements Not Yet Adopted

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It is difficult to predict what effect, if any, the phase-out of LIBOR and the use of alternative benchmarks may have on the Company’s business or on the overall financial markets.

The Company has not adopted any of the optional expedients or exceptions through March 31, 2022 but will continue to evaluate the possible adoption of any such expedients or exceptions.

The Company has not adopted any of the optional expedients or exceptions through June 30, 2022 but will continue to evaluate the possible adoption of any such expedients or exceptions.

Critical Accounting Estimates and Judgments

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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 1. Financial Statements