Q4 2023 Village Farms International Inc Earnings Call
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Operator: Good morning, ladies and gentlemen. Welcome to Village Farm International's fourth quarter and year-end 2023 financial results conference call. This morning, Village Farms issued a news release reporting its financial results for the fourth quarter and year ended December 31, 2023. That news release, along with the company's financial statements, is available on the company's website at villagefarms.com under the Investors heading. Please note that today's call is being broadcast live over the internet and will be archived for replay both by telephone and via the internet beginning approximately one hour following completion of the call. Details of how to access the replays are available in today's news.
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Good morning, ladies and gentlemen.
Welcome to village farms International's fourth quarter and year end 2023 financial results Conference call.
This morning village farms issued a news release reporting its financial results for the fourth quarter and year ended December 31 2023.
That news release, along with the company's financial statements are available on the company's website at village farms Dot com under the investors heading.
Please note that today's call is being broadcast live over the Internet and will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call.
Details of how to access the replays are available in today's news release.
Operator: Before we begin, let me remind you that forward-looking statements may be made today during or after the formal part of this conference call. Certain material assumptions were applied in providing these statements, many of which are beyond our control. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in foregoing statements. A summary of these underlying assumptions, risks, and uncertainties is contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10-K MD&A for the year ended December 31, 2023, which will be available on Edgar and CedarPlex. These forward-looking statements are made as of today's date and, except as required by applicable security laws, we undertake no obligation to publicly update or revise any such statement. I would now like to turn the call over to Michael DeGilio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DeGilio.
Before we begin let me remind you that forward looking statements may be made today during or after the formal part of this conference call certain material assumptions were applied in providing these statements many of which are beyond our control.
These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward looking statements.
If somebody of these underlying assumptions risks and uncertainties is contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10-K M. D&A for the year ended December 31, 2023, which it will be available on Edgar and SEDAR plus.
These forward looking statements are made as of today's date and except as required by applicable security laws. We undertake no obligation to publicly publicly update or revise any such statements.
I would now like to turn the call over to Michael to Julio Chief Executive Officer of village Farms International. Please go ahead Mr. <unk>.
Michael A. DeGiglio: Thanks Shannon. Good morning, and thank you for joining us today. With me are Steve Ruffini, our Chief Financial Officer, and Gillian Lefever, our Executive Vice President of Corporate Affairs, and Patti Smith, Vice President of Corporate. Today I'm going to cover three topics going forward. First, I'm going to spend a few minutes on the fourth quarter of the full year. Second, I will discuss some strongly positive improvements in our business model. And third, I'd like to comment on recent developments in the Canadian cannabis landscape. First, with respect to the year, we delivered positive, consolidated, adjusted EBITDA with positive contributions from each business. This was a key goal in 2023 that was owned by all our employees, and I thank them for their contribution. And I have challenged them to raise the bar even more in 2024.
Thanks Shannon.
And thank you for joining us today with me are Steve Ruffini, our Chief financial Officer, and give them a fever, our executive Vice President of corporate Affairs, and Patti Smith, Vice President corporate controller.
Today I'm going to cover three topics, our going forward first I'm going to spend a few minutes on the fourth quarter and full year second I will discuss some strongly positive improvements in our business model.
And third I would like to comment on recent developments in the Canadian cannabis landscape.
First with respect to the year, we delivered positive consolidated adjusted EBITDA with positive contributions from each business.
This was a key goal in 2023, which was owned by all our employees and I. Thank them for their contribution and I have challenged them to raise the bar even more in 2024.
Michael A. DeGiglio: Some quick highlights: we have restored our fresh produce business with EBITDA now closer to break even on an ongoing basis. That's a $25 million improvement in adjusted EBITDA over 12 months. We are now focused on long-term profitability in cash. Our U.S. cannabis business continues to deliver steady performance with positive adjusted EBITDA and positive cash. We may be the only major CBD hemp player not bleeding cash right now in the U.S. market.
Some quick highlights we have restored our fresh produce business with EBITDA now closer to breakeven on an ongoing basis.
$25 million improvement in adjusted EBITDA and 12 months.
We are now focused on long term profitability and cash flow.
Our U S. Cannabis business continues to deliver steady performance with positive adjusted EBITDA and positive cash flow.
Maybe the only major CBD hemp player not bleeding cash right now in the U S market.
Michael A. DeGiglio: The team has succeeded in establishing a strong and stable platform to leverage as opportunities in the U.S. cannabis industry open up. Our expertise and a portion of our Texas space assets remain a transformational opportunity to replicate our Canadian success in the next iteration of U.S. high-THC cannabis regulation. In our Canadian cannabis business, our sales growth accelerated again. We delivered our best ever quarter in retail branded sales and total net sales. This means in Q4, we reclaimed the number two national market share position across all categories, and we are steadily closing the gap on the number one position. Importantly, brand extensions beyond PureSun Farms like Fraser Valley, Soar, Supertoast, and PureLane are adding market share gains across different price segments and form factors. Outside of Canada, we are pursuing opportunities in new emerging cannabis markets. Nine of the country's best-selling strains in Canada are now being sold across four international medical markets, including the UK, which we will add at the end of 2023.
The team has succeeded in establishing a strong and stable platform to leverage as opportunities in the U S cannabis industry opened up.
Our expertise and a portion about Texas space assets remain a transformational opportunity to replicate our Canadian success in the next generation of U S High THC cannabis regulations.
In our Canadian cannabis business, our sales growth accelerated again.
We delivered our best ever quarter in retail branded sales and in total net sales.
This means in Q4, we reclaim the number two national market share position across all categories.
And we are steadily closing the gap on the number one position.
Importantly brand extensions beyond pure some farms like Fraser Valley SOR supercharge.
And pure laid are adding market share gains across different price segments and form factors.
Outside of Canada, we are pursuing opportunities in new emerging cannabis markets nine of the country's best selling strains in Canada are now being settled across four international medical markets, including the U K, which we added at the end of 2023.
Michael A. DeGiglio: We are excited about the recent German market developments and have a strategy in place to accelerate international export sales in current markets while expecting to launch products in additional European markets this year. Earlier this year, we started the build out of our first production facility in the Netherlands. We are proud to be the only North American participant in this large, limited-licensed country, the first major recreational cannabis market in Europe. Production is targeted to begin later this year, with first sales expected in early 2025.
We are excited about the recent German market developments that have a strategy in place to accelerate international export sales and current markets, while expecting to launch product in additional European markets. This year.
Earlier this year, we started the build out of our first production facility in the Netherlands, we are proud to be the only north American participant in this large limited licensed country. The first major recreational cannabis market in Europe.
<unk> is targeted to begin later this year with first sales expected in early 2025.
Michael A. DeGiglio: Moving to Topic 2, Operational improvements that we have directed that have had a direct impact on our go-forward profitability in cash. During one of the most challenging years on record for Village Farms in 2022, driven largely by a tough macro environment and a destructive tomato virus, we took a hard look at every business. We challenge the assumptions behind our growth projections in light of changing industry and capital market trends. To summarize, against what we expected to be challenging 23 conditions in each of our industries, we prioritized what we could control, generating cash flow and gaining profitable market share. When we started drilling down on the cash flow generation goals, we could not ignore working capital, and in particular, inventory levels within the Canadian cannabis business. Our Canadian cannabis team assessed market conditions and made a brilliant move to monetize non-brand spec inventory to capitalize on the tightening of biomass supply and improve pricing as many large-scale competitors shutter cultivation facilities and move to a lighter asset model. In doing so, we have improved the overall quality of our inventory.
Moving to topic two operational improvements that we have direct that have had a direct impact on a go forward profitability and cash flow.
One of the most challenging years on record for village farms in 2022.
Driven largely by a tough macro environment and a destructive tomato virus, we took a hard look at every business.
We challenged the assumptions behind our growth projections in light of changing industry and capital market trends.
Summarizing against what we expected to be challenging 23 conditions in each of our industries, we prioritize what we could control.
Generating cash flow and gaining profitable market share.
When we started drilling down on the cash flow generation goals, we could not ignore working capital, particularly inventory levels within the Canadian cannabis.
Our Canadian cannabis team assess market conditions and made a brilliant move to monetize non brand spec inventory to capitalize on the lightly tightening of biomass supply and improved pricing as many large scale competitive shutter cultivation facilities and move to a lighter asset model.
In doing so we have improved the overall quality of our inventory freshness and we have moved our operating model model to a higher cash conversion.
Michael A. DeGiglio: Think fresh now, and we have moved our operating model to a higher cash conversion, higher inventory turn operation going forward. We also have better visibility into profitable strategic cultivation opportunities as biomass supply conditions in Canada appear to be tightened. This pivot is temporarily impacting our Q4 Canadian cannabis gross margin and adjusted EBITDA results that otherwise would have been in line with consensus. Steve will describe this further shortly.
Inventory turn operation going forward, we are also better visibility into profitable strategic cultivation opportunities as biomass supply conditions in Canada appear to be tightly.
This pivot is temporarily impacting our Q4 Canadian cannabis gross margin and adjusted EBITDA.
Results that otherwise would have been in line with consensus Steve will describe further on this shortly.
Michael A. DeGiglio: As we see cultivation go offline across the industry and inventories tightening, we expect positive market dynamics to benefit our business. In FRESH, the leadership team has embarked on similar improvements with respect to customer profitability and continued cost improvement mentality while executing on a plan to improve our yield. And turning to our U.S. cannabis business, a major operational improvement is the transition of all our gummy production in-house, which is nearing completion. The initiative is supported by our current sales in the U.S. CBD market, where gummies are a preferred form factor, and it further positions us to be ready for whenever the FDA visits CBD, which we expect will focus on stringent GMP standards for cannabis-derived products, including hemp, to Most of our competitors do not adhere to these standards.
As we see cultivation go offline across the industry and inventories tightening we expect positive market dynamics.
Benefit our business model.
And fresh leadership team is it Bakken similar improvements with respect to customer profitability and continued cost improvement mentality, while executing on our plan to improve our yields.
And turning to our U S cannabis business a major operation improvement is the transition of all our gummy production in house, which is nearing completion.
The initiative is supported by our current sales in the U S CBD market, where gummies as a preferred form factor.
And in further and further positions us to be ready for whatever the FDA whenever the FDA visit CBD, which we expect will focused on stringent GMP standards for cannabis derived products, including hand to which our products already adhere to 100% most.
Most of our competitors do not adhere to these standards, we expect to be producing 100% of our gummy products in house by the second quarter.
Michael A. DeGiglio: We expect to be producing 100% of our gummy products in-house by the second quarter, which will ensure we do not forfeit sales due to stock out conditions as we did in 2023. Finally, I want to turn to recent developments in the Canadian cannabis industry. This is our fifth year of cannabis operations. I want to remind everyone that we have achieved, without being first in the market, with just one acquisition, and it was a good one.
Which will ensure we do not forfeit sales due to stock out conditions as we get into 2023.
Finally, I wanted to turn to recent develops in the Canadian cannabis industry. This is our fifth year of cannabis operations.
I want to remind everyone that we have achieved with that being first to market with one at with just one acquisition have been a good one we have executed on our original thesis leveraging out 30 years of leadership and controlled environment, agriculture, <unk>, leading profitable cannabis company.
Michael A. DeGiglio: We have executed on our original thesis, leveraging our 30 years of leadership in controlled environmental agriculture into a leading, profitable cannabis company. As I look ahead for the first time, I'm optimistic about the potential for favorable changes in the industry, and there are several. I'll start with excise tax reform, where there are two discussions currently ongoing. First, and most importantly, are the reports that Canadian tax authorities are implementing much more aggressive collection efforts for ballooning delinquent payments.
As I look ahead to the first time I'm optimistic about the potential for favorable changes in the industry and there are several I'll start with excise tax reform, where there are two discussions currently unavailable.
And we believe most importantly are the reports that Canadian tax authorities are implementing much more aggressive collection efforts for ballooning delinquent payments.
Michael A. DeGiglio: We fully support this effort to level the playing field for all producers and to strengthen sustainable industry operating models. There has already been industry fallout, which will benefit Village Farms as a leading profitable operator with a strong balance. Second, a review of the onerous excise tax levels was recently included for the first time in recommendations for the federal budget to be tabled on April 16.
Fully support this effort to level, the playing field for all producers and to strengthen sustainable industry operating models.
Already industry fall out, which will benefit village farms as a leading profitable operator with a strong balance sheet.
Second a review of the onerous excise tax that was recently included for the first time in recommendations for the federal budget to be tabled on April 16th.
Michael A. DeGiglio: We applaud those that have worked tirelessly on this effort, including industry groups like C3 and ICID, and stand ready to continue to work together to come to an equitable solution which results in a thriving Canada-leading cannabis industry that invests in long-term employment, local municipalities, and ultimately pays income taxes, which we all know is a true measure of a successful business. Canada was the first major developed country to legalize cannabis and now, as a global leader, has the unique opportunity to work alongside its leading licensed producers to invest in its strong future. The second development in the Canadian industry that I want to highlight is an emerging improvement in the levels of biomass supply. We think there are several factors; the shift of many of our peers to asset-light models, better demand forecasting as the industry matures, and focus on working capital are factors which each LP can control.
We recommend those that have worked tirelessly on this effort, including industry groups like <unk>, three and I said and stand ready to continue to work together to come to an equitable solution, which results in a thriving Canada, leading cannabis industry, which invest in long term employment local municipalities and.
Ultimately pays income taxes, which we all know is the true measure of a successful business.
Canada was the first major developed country to legalize cannabis and now as a global leader has the unique opportunity to work alongside its leading licensed producers to invest in its strong future.
The second development and cat.
<unk> industry that I wanted to highlight is an emerging improvement in the levels of biomass supply.
We think there are several factors.
The shift of many of our peers to asset light models better demand forecasting as the industry matures focus on working capital are factors, which each lp's control.
Michael A. DeGiglio: The decision on excise tax also helps, as do the ongoing conversations with provincial boards who are aligned on supporting sustainable business models. This is positive for pricing and industry profitability and our Canadian cannabis business as we continue to widen the gap as a low cost, high consistency quality cultivator with top market share. This includes pricing at retail, where we're seeing some recent stabilization. We view these developments positively as it stands as a validation of our founding thesis. Quality, low-cost cultivation at scale is incredibly difficult.
The decision on excise tax also.
Help as due to the ongoing conversions conversations rather with Vince your boards, who are aligned on supporting sustainable business models.
This is a positive for pricing and industry profitability and our Canadian cannabis business as we continue to widen the gap as a low cost high consistency quality cultivated with top market share.
This includes pricing at retail where we're seeing some recent stabilization.
We view these developments positively as it stands as a validation of our founding thesis quality low cost cultivation that scale is incredibly difficult.
Michael A. DeGiglio: Our three decades of experience are evident in our profitable position leading market share. Few in Canada have been able to meet this incredibly difficult challenge. I see this as the next leg of growth for the Canadian cannabis industry, and we will take full advantage to extend our lead going forward. Now, Steve, I'll turn it over to you. Thanks, Mike. Starting with the consolidated numbers for Q4, sales were up 7% to $74.2 million. The net loss narrowed to negative $22.5 million or 20 cents per share, a $27 million improvement from last year. Both the fourth quarter of 2023 and 2022 were impacted by non-cash goodwill impairments on our U.S. Cannabis Division of $14 million and $13.5 million, respectively. Our consolidated adjusted EBITDA improved $11.1 million year-over-year to negative $700,000.
Three decades of experience as evidenced in our profitable profitable position leading market share.
You and Kevin have been able to meet this incredibly difficult challenge I see this as the next leg of growth for the Canadian cannabis industry.
And we will take full advantage to extend extend our lead.
Going forward and now Steve I'll turn it over to you.
Thanks, Mike starting with the consolidated numbers for Q4 sales were up 7% to $74 2 million net.
Net loss narrowed to negative $22 5 million or 20 per share a $27 million improvement from last year. Both the fourth quarter of 2023, and 2022 were impacted by noncash goodwill impairments on our U S cannabis division of $14 million and $13 5 million respect respect.
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Our consolidated adjusted EBITDA improved $11 $1 million year over year to negative 700000 with respect to adjusted EBITDA I will note here that based on feedback and guidance from the SEC. During 2023, we no longer add back inventory write downs to our adjusted EBITDA calculation.
Michael A. DeGiglio: With respect to adjusted EBITDA, I will note here that, based on feedback and guidance from the SEC during 2023, we no longer add back inventory write-downs to our adjusted EBITDA calculation. Previously reported 2022 adjusted EBITDA figures for Q4 and the full year have been adjusted to reflect this change. There were no inventory write-downs in any of our divisions in Q4 or for the entirety of 2023. Drilling down on Canadian campus results, which I will reference in local currency, Canadian dollars. In Q4, as Mike mentioned, we delivered record net sales and another quarter of positive adjusted EBITDA and positive cash flow. Net sales increased 14% year-over-year to $43.6 million. Of this total, retail branded sales were up 4% to $33.9 million, a new quarterly record.
We reported 2022 adjusted EBITDA figures for Q4, and the full year have been adjusted to reflect this change.
No inventory write downs in any of our divisions in Q4 or for the entirety of 2023.
Drilling down on Canadian hampered results, which I will reference in local currency Canadian dollars in Q4, as Mike mentioned, we delivered record net sales.
And another quarter of positive adjusted EBITDA and positive cash flow net sales increased 14% year over year to $43 $6 million of this total retail branded sales were up 4% to $33 9 million a new quarterly record.
Stephen C. Ruffini: We have continued to see strong branded sales carry over into early 2024 with some sizable restocking orders from some of our large provincial customers. Non-branded sales continued the growth we saw in Q3 at $7.9 million. They're up fourfold from Q4 last year and up 27% sequentially. Some additional color on this growth.
We have continued to see strong branded sales carryover into early 2024 with some sizeable restocking order from some of our large provincial customers non branded sales.
<unk> the growth we saw in Q3 at $7 $9 million are up four fold from Q4 last year and up 27% sequentially.
Some additional color on this growth during the second half of 2023 wholesale demand firmed up which gave us a window to strategically capitalize on moving some of our non branded inventory. It was a good time to be in the market with biomass that is not designated for our branded or other growth areas.
Stephen C. Ruffini: During the second half of 2023, wholesale demand firmed up, which gave us a window to strategically capitalize on and move some of our non-branded inventory. It was a good time to be in the market with biomass that is not designated for our branded or other growth areas. For context, during the fourth quarter, we sold roughly three and a half times more non-branded biomass volume than the average of the prior three quarters of 2023. Also, for context, without these sales, our gross margin on Canadian cannabis would have been more in line with analyst consensus estimates for the quarter. So, if you were thinking that we cleaned up our balance sheet this quarter, you would be correct. International sales for Q4 were $1.2 million compared with $3.2 million in Q4 of last year.
For context during the fourth quarter, we sold roughly three five times more non branded biomass volume than the average of the prior three quarters of 2023.
Also for context without these sales our gross margin on Canadian canvas would've been more in line with analysts' consensus estimates for the quarter.
So if you were thinking that we've cleaned up our balance sheet. This quarter you would be correct.
International sales for Q4 were $1 2 million compared with $3 2 million in Q4 of last year sales in this growth area of our business continue to be lumpy as we're selling into what are essentially.
Stephen C. Ruffini: Sales in this growth area of our business continue to be lumpy, as we are selling into what are essentially startup mode medical markets. We stand by our goal for sales outside of Canada to contribute 10% of total sales as we continue to build commercial relationships in these markets. Turning to operating profit and cash flow, our Q4 Canadian cannabis gross margin of 23% was below our target due to the heavier weight of non-strategic lower margin biomass that we sold during the quarter. For context, in Q4, 30% of our sales volume was sold below our target gross margins of 30 to 40%. Our branded sales continue to be within our target gross margin range.
Startup mode Medical markets, we stand by our goal for sales outside of Canada to contribute 10% of total sales as we continue to build commercial relationships in these markets.
Turning to operating profit and cash flow, our Q4 Canadian cannabis gross margin of 23% was below our target due to the heavier weight of nonstrategic lower margin biomass that we sold during the quarter.
For context in Q4, 30% of our sales volume was sold below our target gross margins of 30% to 40%.
Our branded sales continue to be within our target gross margin range.
Stephen C. Ruffini: We are continuing to take advantage of favorable market conditions to monetize non-branded SPEC biomass, which will drive additional cash generation, with some continued effect on gross margin percentage in the early part of 2024. But we do expect to deliver Q1 in the low range of our traditional target gross margin of 30% to 40%. Another highlight of the quarter was our continuous cost management mindset, with SG&A expenses of $9.1 million, down $1 million year over year, and a 400 basis point improvement as a percent of sales.
We are continuing to take advantage of the favorable market conditions to monetize non branded spec biomass, which will drive additional cash generation.
With some continued effect on gross margin percentage in the early part of 2024, but we do expect to deliver Q1 in the low range of our traditional target gross margin of 30% to 40%.
Another highlight of the quarter is our continuous cost management mindset.
With SG&A expenses of $9 $1 million down $1 million year over year.
Was it 400.
Basis point improvement as a percent of sales.
Stephen C. Ruffini: While our non-branded spec sales in Q4 did enhance our SG&A as a percentage of sales figure, we are expecting a continuation of our cost management with the expectation that our 2024 SG&A to sales ratio will be a couple of hundred basis points less than our full year ratio of 25.6 in 2023. Our Q4 Canadian cannabis adjusted EBITDA of $2.1 million for the quarter is an improvement from Q4 of 2022's rest As with gross margin, Adjusted EBITDA was impacted by the opportunities to close out sales I discussed. We estimate these sales reduced Adjusted EBITDA by $1.7 million.
Our non branded spec sales in Q4 did enhance our SG&A as a percentage of sales figure we are expecting a continuation.
Of our cost management with the expectation that our 2020 for SG&A to sales ratio via a couple 100 basis points less than our full year ratio of $25 six in 2023.
Our Q4 Canadian cannabis adjusted EBITDA of two point was $2 1 million for the quarter is an improvement from Q4 of 2020 twos restated adjusted EBITDA.
As with gross margin adjusted EBITDA was impacted by the opportunities to close out of sales I discussed.
We estimate these sales reduced adjusted EBITDA by $1 7 million.
Stephen C. Ruffini: Mike noted our focus on cash flow generation, another area in which we believe our Canadian Canvas Division is in a leadership position. For the full year of 2023, Canadian cannabis generated strong cashflow from operations of $18.2 million, which is close to our Canadian Canvas full-year EBITDA of $20 million, with capital expenditures of $1.1 million and principal debt repayments of $9.9 million for a net cash generation of $7.2 million. I will now turn to our U.S. cannabis business. Q4 sales and gross margin were roughly in line with those of last year at 5.1 million, or 66 percent. Adjusted EBITDA doubled to a small but positive $400,000 net loss, which includes the $14 million impairment charge. Adjusted EBITDA improved year over year.
Mike noted our focus on cash flow generation another area in which we believe are Canadian canvas division.
Isn't a leadership position for the full year 2023, Canadian canvas generated strong cash flow from operations of $18 2 million, which is close to recognizing cannabis full year EBITDA of $20 million.
With capital expenditures of $1 1 million and principal debt repayments of $9 9 million for a net cash generation of $7 2 million.
I will now turn to our U S canvas business.
Q4 sales and gross margin were roughly in line with those of last year at $5 1 million or 66% adjusted EBITDA doubled.
To a small but positive 400000 net loss, which includes a $14 million to $14 million impairment charge improved year over year.
Stephen C. Ruffini: While we acknowledge the accounting rules driving the impairment charge, it is primarily driven by the ongoing lack of growth in this segment as we continue to await FDA clarity on the commercialization of CBD. Even so, we continue to generate positive cash flow for both the fourth quarter and the full year. Moving to fresh produce, sales for Q4 increased to $37.1 million, gross margin was in positive territory for the second consecutive quarter at $800,000, while adjusted EBITDA was a negative $600,000 in Q4, which was slightly below our Q3 forecast for the fourth quarter because the seasonal improvement in winter pricing, which normally kicks into December, was delayed, with pricing firming up in January, especially on smaller tomatoes, which continued into early March, and we are For the year, Fresh Produce Adjusted EBITDA delivered a remarkable $25 million improvement and, as noted earlier, ended the year in positive territory. Q4 net loss for fresh produce improved by over $16.5 million to negative $4 million.
While we acknowledge the accounting rules to driving the impairment charge is primarily driven by the ongoing lack of growth in this segment as we continue to await FDA clarity on the.
Commercialization of CBD evens.
Even so we continue to generate positive cash flow for both the fourth quarter and the full year.
Moving to fresh produce sales for Q4 increased to $37 1 million gross margin wasn't positive territory for the second consecutive quarter at 800000, while adjusted EBITDA was a negative 600000 in Q4, which was slightly below our Q3 forecast for the fourth quarter because the seat.
No improvement in winter pricing, which normally kicks in in December was delayed with pricing firming up in January, especially on smaller Tomatoes.
<unk> continued into early March and we are expecting another quarter of subs substantive year on year improvement.
And for this division.
For the year fresh produce adjusted EBITDA delivered a remarkable $25 million improvement and as noted earlier ended the year in positive territory Q4, net loss for fresh produce it improved by over $16 5 million to negative $4 million that brings the total improvement for the year.
Stephen C. Ruffini: That brings the total improvement for the year to $32.3 million. Switching to cash flow, consolidated cash flow from operations for the quarter was negative $1.5 million.
<unk> to 32 3 million.
Switching to cash flow consolidated cash flow from operations for the quarter was negative $1 5 million. This was primarily a result of an increase in accounts receivable due to our higher sales, which resulted in a net use of working capital of over $2 million in the quarter.
Stephen C. Ruffini: This was primarily a result of an increase in accounts receivable due to our higher sales, which resulted in a net use of working capital of over $2 million during the quarter. Our capital expenditures for the quarter of $1.7 million, or roughly 30 percent of our total 2023 CapEx spend, were primarily for enhanced operational packhouse equipment for our Texas greenhouses, which will lower our labor costs in 2024 with an expected payback period of 18 months. We've also invested CAFX of roughly $1 million for our Lely-Holland project in the Netherlands. Finally, we paid $1.4 million in recurring quarterly principal payments, resulting in a net decrease in our consolidated cash for the quarter of $5.2 million.
Our capital expenditures for the quarter of $1 7 million or roughly 30% of our total 2023 Capex spend was primarily for enhanced operational pack house equipment for our Texas, greenhouses, which will lower our labor costs in 2024 with an expected payback period of 18 months.
Also invested.
Invested capex of roughly $1 million for our Lely Holland project in.
In the Netherlands.
Finally, we paid $1 4 million in recurring quarterly principal payments, resulting in a net decrease in our consolidated cash for the quarter of $5 2 million.
Stephen C. Ruffini: Looking ahead to 2024, the first quarter is seasonally our toughest working capital quarter for produce as we gear up our Canadian produce assets, i.e., build inventory in the form of tomato plants at the Delta I and Delta II facilities, both of which are about to start harvest. So cash flow from these facilities will start in late April. Our Texas crops are performing well, well into the 2023-2024 crop season. Our Canadian operations are having a strong quarter of cash generation as a result of our strong fourth quarter sales and early 2024 sales. Our primary capital spend for this year will be our Lely project, which we are forecasting to finance 100 percent from our existing cash in 2024 operating cash flow.
Looking ahead to 2020 for the first quarter is seasonally our toughest working capital quarter for produce as we gear up our Canadian produce assets I E build inventory in the form of tomato plant.
In the Delta one in Delta two facilities, both of which are about to start harvest. So cash flow from these facilities will start in late April.
Our Texas crops are performing well well into the 2023 2020 for crop season.
Our Canadian operations are having a strong quarter of cash generation cash generation as a result of our strong fourth quarter sales in early 2024 sales.
Our primary capital spend for this year will be our lately project, which we are forecasting to finance, 100% from our existing cash in 2020 for operating cash flow.
Stephen C. Ruffini: We ended Q4 with $35.3 million in cash, and working capital decreased slightly to 79.6 million, both much improved from the end of 2022. Total term debt at the end of Q4 was $48 million, composed of $23 million of fresh produce debt, which is due in May 2027, and $25 million of cannabis debt, which matures starting in February 2026. Our total net debt is $13 million, a level that we are very comfortable with.
We ended Q4 with $35 3 million in cash and working capital decreased slightly two.
<unk> hundred $79 6 million both both much improved from the end of 2022.
Total term debt at the end of Q4 was 48 million composed of $23 million of fresh produce debt, which is due in may 2027, and $25 million of cannabis debt, which matures starting in February 2026, our total net debt is $13 million a level that we are very comfortable with and now I'll turn the call back to Mike.
Michael A. DeGiglio: And now I'll turn the call back to Mike. Thanks, Steve. So I want to reiterate a few comments before the Q&A on why I remain so optimistic as Village Farms' founder, CEO, and largest shareholder. One, we are executing on our original thesis that we would build a profitable cannabis company by replicating our best-in-class 30-plus years of agricultural expertise. We have started 2024 with a tremendous amount of momentum. Second, we are growing our share of the expanding Canadian cannabis market. At the end of February, the gap between our number two overall position and the number one ranked LP had shrunk to less than 300 bases, and we are not done.
Thanks, Steve.
Okay.
So I want to reiterate a few comments before the Q&A and why I remain so optimistic as village farms founder CEO and largest shareholder one we are executing on our original thesis that we would build a profitable cannabis company by replicating our best in class 30, plus years in agriculture expertise we have.
<unk> started 2024 with a tremendous amount of momentum.
Second we are growing our share of the expanding Canadian cannabis market at the end of February the gap between our number two overall position and the number one ranked Lps shrunk to less than 300 basis points and we are not done.
Michael A. DeGiglio: Our target still remains 20% market share. Our Profitable Growth Model is uniquely positioned to benefit from improving supply dynamics, stabilizing pricing, and excise tax enforcement currently underway within the Canadian market. And finally, we are driving the next level of Village Farms growth. We are pursuing emerging opportunities in medical markets such as Germany and the limited-licensed country of the Netherlands. We stand at an incredible vantage point.
Our target still remains 20% market share.
Three.
Our profitable growth model is uniquely positioned to benefit from improving supply dynamics stabilizing pricing and excise tax enforcement currently underway within the Canadian market.
And finally, we are driving the next level of village Farms' growth, we are pursuing emerging opportunities in medical markets, such as Germany, and the limited licensed country of the Netherlands, We stand at an incredible vantage point and as I told my senior management team go crushing.
Operator: And as I told my senior management team, go crush it. With that, Shannon, we'll turn it over to Q&A. Thank you. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
With that Shannon I will turn it over to Q&A.
Thank you to ask a question. Please press star one on your telephone and wait for your name to be announced.
Withdraw your question. Please press star one again please.
Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Eric DeLauriers with Craig Hallam Capital Group. Your line is now open. Great, thank you for taking my questions. The first one from me is just on the US cannabis side, with the vertical integration of the gummy production, can you just talk about how that may or may not impact either gross or EBITDA margins going forward? How to think about that change in the business model there? Thank you.
Please standby was how the Q&A roster.
Our first question comes from the line of Eric des <unk> with Craig Hallum Capital Group. Your line is now open.
Great. Thank you for taking my questions.
First one for me is just on the U S. Canada side with the vertical integration of the gummy production can you just talk about how that may or may not impact either gross or EBITDA margins going forward just kind of.
How to think about that change in the business model there. Thank you.
Michael A. DeGiglio: Eric, it will essentially allow us to sustain our existing gross margins. You know, we have seen consumers switch from tinctures, which traditionally had a higher gross margin than gummies traditionally, but by insourcing it, we've been able to improve by not outsourcing our gummies. So, you know, we believe we'll continue to sustain our... you know, high 60% gross margin. And, you know, we have additional capacity on that machine as well. So we're looking at, you know, opportunities to assist others as well. Okay, great. That's, that's very helpful.
Eric It will essentially allow us to.
Staying in our existing gross margins I mean, we have seen consumers switch from from tinctures, which had a higher gross margin.
The gummies traditionally but by in sourcing we have been able to improve by not outsourcing our gummies our own gross margin on our gummies. So we believe we will continue to sustain our.
High 60% gross margin.
And we have additional capacity on that machine as well so we're looking at opportunities to assist others as well.
Michael A. DeGiglio: And then my other question, just kind of trying to put all these pieces together in terms of margins on the Canadian cannabis side. So, it's great to hear that we have some reduced biomass levels, kind of tightening supply and sort of playing to your strength here at the same time. You know, we've had some of these opportunistic wholesale sales, which, you know, certainly makes sense. As you mentioned, improving the quality of inventory, improving the balance sheet, et cetera.
Okay, Great. That's very helpful. Thank you.
And then my other question just trying to put all these pieces together.
In terms of margins on the Canadian cannabis side. So that's great to hear that we have reduced.
<unk> reduced biomass levels kind of tightening supply sort of.
Playing to your strength there.
At the same time, we've had some of these opportunistic.
Wholesale sales, which certainly makes sense as you mentioned improving quality of inventory.
Stephen C. Ruffini: So, you mentioned, if I heard correctly, that Q1, although there's still some, some, I guess, elevated wholesale sales, you do expect gross margins to sort of. I'll come back to that historical level of between 30 and 40 percent. Is there anything to consider with respect to EBITDA margins, potentially some ongoing inventory write-downs that you're no longer adding back, or just wondering how we should be thinking about EBITDA margins in this sort of... new normalized environment? Thank you. We're, Eric, this is Steve. We're, most of our inventory is spoken for. We're not anticipating any inventory, you know, write-downs.
Inventory, improving the balance sheet et cetera.
So you've mentioned if I heard correctly that.
Q1, although there is still some some.
I guess elevated wholesale sales.
You do expect gross margins to sort of.
Come back to that historical level of between 30% to 40%.
Is there anything to consider.
With respect to EBITDA margins potentially some of that.
Some ongoing inventory write downs that you are no longer adding back or just.
I'm just wondering how we should be thinking about.
EBITDA margins in this sort of.
New normalized environment. Thank you.
Eric This is Steve were most of our inventory is spoken for we're not anticipating any inventory write downs of it as agriculture, so things happen, but with with our existing inventory.
Stephen C. Ruffini: It is agriculture, so things happen, but with our existing inventory, as of today, there is no risk of any write-downs. We continue to move some of the out of spec, which is generally lower potency, smaller buds, but we have seen increased demand for that, and increased demand and increased prices because, you know, we think it's an indication that the market is short, and we're very comfortable, you know, giving the range that we did that we'll be able to even with these opportunistic movements in the non-brand spec inventory in Q1 All right, it's great to hear you guys again, and thank you for taking my question. Thank you. Our next question comes from the line of Mike Regan with Excelsior Equities. Your line is now open.
As of today.
No no risk of any write downs, we continue to move some of the out of spec, which is generally lower potency smaller buds.
We have seen increased demand for that and increased demand and increased pricing because we think it's an indication that the market is short.
Uh huh.
We're very comfortable giving the range that we did that we'll be able to even even with these opportunistic movements in the non non brand spec inventory in Q1 to maintain our gross margins in the 30% to 40% range.
Alright, Thats great to hear your thoughts again, thank you for taking my questions.
Thank you.
Our next question comes from the line of Mike Regan with Excelsior Equities. Your line is now open.
Operator: Hey everyone, thanks for taking the question. So I guess, can you give us maybe a sort of a civics lesson on how exactly the Canadian governmental process would work on the potential 10% ad valorem change? You know, the Standing Committee on Finance recommended the tax change unanimously. It's going to be tabled on April 15th.
Okay.
Hey, everyone. Thanks for taking the question.
So I guess can you give us maybe a sort of a civics lesson on how exactly the Canadian governmental process would work on the potential 10% AD valorem change now we have the the standing committee on finance recommended the tax change unanimously it's been it's going to be tabled for April 15th and I think <unk>.
Michael A. DeGiglio: And I think the 10K added the word near for, you know, when these changes could potentially come. So just help us understand what the process is and what we should be looking for in that change. Yeah, I think Mike, you know, we're not necessarily, we don't have any idea what the Canadian government's timing is. So we just, there's no way to get around it.
I added the word near.
Four.
When these changes could potentially compensated he has to help us understand what the process is and what we should be looking for.
On that change.
Yes, I think Mike we're not necessarily we don't have any idea what the Canadian government's timing is so.
Michael A. DeGiglio: But we just reflected that there is a conversation going on, and there are recommendations now that could happen this year; it may not happen in the fall, or even next year. But that trend is going there.
We just there's no way to get around it but we just reflected that there is conversation going on and there are recommendations now could happen. This year. It may not it could happen in the fall or even next year, but that trend is going there and the reason we mentioned it it is a profound difference for us for <unk>.
Michael A. DeGiglio: And the reason we mentioned it is that it's a profound difference for us. If, you know, cannabis last year paid more tax to the government than all beer and wine combined. So, at some point, it will happen, and the impact for the industry and for us is huge. So that's why we brought it up, but we can't necessarily say it will happen anytime soon. We don't have any color on that.
If.
Canada Slash it paid more.
So the government then all beer and wine combined.
So.
At some point it will happen and the impact for the industry and for US is huge so that's why we brought it up but we can't necessarily say it will happen any time soon we don't have any color on that.
Yes.
Operator: So, okay, but in terms of the process, I mean, basically, what the Parliament has been, it'll be tabled for Parliament, and then they decide whether they'll pass the law, accepting or rejecting the recommendation. Is that basically how it would work? Yeah, this is Steve.
Got it okay, but I guess.
Process I mean basically what.
The Parliament, it's been it'll be tabled for Parliament, then they decide whether the past a lot of accepting or rejecting the recommendation is that basically how it would work.
Stephen C. Ruffini: That's basically how it will work. And we do appreciate, you know, your work and analysis on the, as Mike mentioned, the substantive impact on our cash flow and EBITDA. Good. Good, good work on that. Well, thanks. Yeah, I guess in terms of how much, I guess in terms of that actual impact, I mean, just using the 2023 numbers. He basically sold $150 million of branded cannabis and paid $58 million of excise taxes on it for a net revenue of $92 million in US dollars.
Yes. This is Steve that's basically how it will work and we do appreciate your.
Your work and analysis on the as Mike mentioned the.
The substantive impact on our cash flow and EBITDA.
You have done.
Good good work on that.
Well. Thank you I guess in terms of how I guess in terms of that actual impact I mean, just using the 2023 numbers.
We sold $150 million of branded cannabis and paid $58 million of excise taxes on it for net revenue of $92 million in U S dollars.
Michael A. DeGiglio: So if the tax became a 10% ad valorem, it'd be 10% of the 150, right? So that 58 would go to 92, and the delta would then push up the net revenue. Is that basically how I'm thinking about the accounting correctly? We're paying, obviously, excise tax on the branded sales. You have to exclude non-branded sales from your calculation. But, but, you know, looking at your report, you've essentially done the calculation, and we're comfortable with the numbers that you provided.
So if that tax became a 10% AD valorem it'd be 10% of the 150 right. So that would that 58 would go to <unk> 92, and that Delta would then push up the net revenue is that basically how I'm thinking about the accounting correctly.
We're we're we're paying obviously excise tax on the branded sales you have to exclude non branded sales from your calculations.
But looking looking at your report SM.
Essentially you've done the calculation and we're comfortable with with the <unk>.
<unk> that you provided.
Stephen C. Ruffini: Got it. Great. Thank you. Thank you. Our next question comes from the line of Aaron Grey with Alliance Global Partners. Your line is now open.
Got it great. Thanks, a lot.
Thank you. Our next question comes from the line of Aaron Grey with Alliance Global Partners. Your line is now open.
Operator: Good morning, and thank you for the questions here. The first one for me, just in terms of some of the enforcement of taxes owed and garnishing of payments. How big of an impact do you think that could have in terms of some accelerated shakeout in the market? And have you already started to see some of it in terms of maybe the purchasing patterns of some of the provincial boards as they look to increase the amount that they buy from LPs that they know are in good standing with the CRA and shift away from some of those that they may have been asked to garnish wagers on because they see that they owe taxes to the I think on the second part of the question, we don't know for sure if they're going to... shy away from those specific providers.
Hi, good morning, and thank you for the questions here.
First one for me just in terms of.
Some of the enforcement of taxes owed and garnering a payment.
Have you been impact you think that could have in terms of some accelerated shakeout in the market.
And have you already started to see some of it in terms of maybe the purchasing patterns of some of the provincial boards as they look to increase.
The amount that they bought from Lps that they know are in good standing with the CRA and shift away from some of those.
They may have been asked to garnish wages, they see that they owe taxes too on CRA. Thank you.
I think on the second part of your question, we don't know for sure if they get us.
Shy away from those specific providers.
Operator: Most boards, I think, have indicated that they are willing and will collect the taxes. That's a strong move toward enforcement and collection, which we think will put pressure on those companies that are delinquent. The number is ballooning; it's approaching 300 million, and that's a big number. Now, it may force companies into bankruptcy; I think we've seen some of that. Canada, unlike the United States, you can wipe your taxes through a bankruptcy, but we think there's discussions going on in Canada where Health Canada may take your license away or the boards won't issue orders if that happens because it's really an unfair way to not pay your taxes.
Sports I think have indicated that they are willing we'll collect the taxes. So.
That's <unk>.
<unk> moved towards enforcement and collection, which we think will put pressure on those companies that are delinquent.
The number is ballooning, it's approaching $300 million.
And that's a big number.
Now it May force companies into bankruptcy I think we've seen some.
Canada.
The United States you can you.
You can scrubbed your taxes through a bankruptcy, but we think there is discussions going on in Canada way health.
Health, Canada May take your license away or the board's world issue orders, if that happens because its really an unfair way to not pay your taxes. So theres a lot of things in motion and I think over the next couple of months, we'll get better color color on it as this sort of aggressive move by the tax collectors was very real.
Michael A. DeGiglio: So there's a lot of things in motion, and I think over the next couple months we'll get better color on it as this sort of aggressive move by the tax collectors was very recent in the last four to six weeks, so more to come on that. Okay, great. Thanks.
Over the last four to six weeks, so more to come on that.
Michael A. DeGiglio: And then, just in terms of international growth opportunities, you know, a big one potentially coming with the expected German reform, where it offers an opportunity to meaningfully grow the medical market. Can you speak to your plans more to capitalize on the opportunity, particularly given the initiative to increase, you know, doctor and patient awareness of the brand, given the dynamics of, you know, being prescribed. Pacific brand versus just a broad, you know, medical.
Okay, great. Thanks, and then.
Just in terms of international growth opportunities are big one potentially coming with expected German reform.
We're offers opportunity to meaningfully grow the medical market can you speak to your plans more to capitalize on the opportunity, particularly just given it seems the initiative to increase doctor and patient awareness of the brand given the dynamics.
Being prescribed.
Specific brand versus abroad medical.
Michael A. DeGiglio: So, just given that backdrop, how do you plan to potentially make investments ahead of the market to really capitalize on the opportunity that is potentially there? Yeah, I think we're going to go work with distributors, either. We're talking to so many distributors in an array of countries, even countries that are looking at legalizing in the next 12 to 15 months. So the way we'll look at that is by having partners in each country, and maybe there would be multiple partners that would cover a number of different countries, say in the EU. That's worked for us well in Australia.
Prescription we can go to <unk> store and buy it.
Just given that backdrop, how do you plan to potentially make investments ahead of the market to really capitalize on the opportunity that potentially there. Sir thanks, Yes, I think we're going to go work with distributors.
Is there.
We're talking to so many distributors offer an array of countries even countries that are looking at legalizing in the next 12 to 15 months. So.
They will look at that as having partners in each country and maybe there would be multiple partners that would cover a number of different countries say in the EU.
That's worked for us well in Australia.
Michael A. DeGiglio: And as you know, in the EU, we did issue out strains. So we're going to invest more in, you know, sort of taking out strains on a more global platform going forward and how we measure that. So medicinal growth is a key priority for this year and next. We have now formed a separate entity for international export. It's being headed by somebody very qualified, and I think that coupled with our footprint in the Netherlands for recreational marijuana, I think it will help springboard us where Germany may go in the next or third gyration of their scheduling and class and legalization, i.e. Where you have to cultivate in-country, like the Netherlands.
And as you know in the EU, we did issue our strange so.
We're going to invest more in sort of taking a strange too.
A more global platform going forward and how we measure that so.
That <unk> growth for us is a key.
Our priority for this year and next we now have four.
Separate entity for international export is being headed by somebody very qualified.
I think.
That coupled with our footprint in the Netherlands.
For recreational I think will help springboard us where Germany may go in the next or third gyration of there.
The scheduling and class and <unk>.
<unk>.
I E will you have to cultivate in country like the Netherlands, So lot of moving parts, but we're very focused on it.
Michael A. DeGiglio: So a lot of moving parts, but we're very focused on it. You know, we continue to be frustrated at the U.S. market because nothing is happening. And, of course, that optionality that we've talked about for years is very strong and very alive for us. But in the meantime, we're just not going to sit here and wait. We think there's a great opportunity internationally, and we wanted to wait until we could make very solid ground in Canada, be cash flow positive in Canada, EBITDA positive, and have number two market share across the board, so we feel now is the right time for us to aggressively pursue international opportunities while we continue to drive forward in Canada, and we like where we stand. Okay, great. I look forward to it.
We continue to be frustrated at the U S market and nothing happening and of course that Optionality that we've talked about for years is very strong and very alive for us but in the meantime, we're just not going to sit here and wait we think theres a great opportunity internationally.
And.
We wanted to wait till we can make very solid ground and Canada be cash flow positive in Canada, EBITDA positive number two market share across the board. So we feel.
Now is the right time for us to aggressively pursue international opportunities, while we continue to drive forward in Canada, and we like where we stand so more and more of that to come.
Operator: Thanks very much for the answers, and I'll jump back into the Q&A, like, Thank you. Our next question comes from the line of Pablo Zuanic with Zuanic & Associates. Your line is now open. Good morning, everyone.
Okay, Great look forward to it thanks very much for the answers and I'll jump back in the queue.
Thanks.
Our next question comes from the line of Pablo <unk> with <unk> Associates. Your line is now open.
Michael A. DeGiglio: Thank you. Mike, in terms of the 20 percent share target you mentioned, is that for flower or across all formats? Can you clarify that? And as you do that, maybe a two-part question. As you've been narrowing the share gap with an industry leader, can you talk about, you know, more and more color in terms of formats and provinces where there's still room for? And along those lines, you know, infused pre-rolls, large-size vape, and all-in-ones are big drivers of market growth. How are you performing there in terms of what you can disclose, and what plans you may have there? Just understand the share better. Thanks, Pablo.
Good morning, everyone. Thank you.
Mike in terms of a 20% share target you mentioned is that for flower or across all formats. If you can clarify that and as you do that maybe a two part question.
As you've been narrowing the share gap with the industry leader.
Talk about.
More and more quarter industrial formats in provinces, where there's still room for opportunity.
And along those lines infuse pre rolls large size very boiling one's a big driver. So market growth. How are you performing there in terms of what you can disclose what plans you might have there just to understand better the share momentum. Thank you.
Michael A. DeGiglio: Yeah, the 20% was something we put out, and we're still steadfast on it. We believe at some point, we can get there. And that's across all formats. And, of course, flour. We still remain number one. And you know, there's been some shrinking of flour overall, but we almost consider pre-rolls as flour just in another form.
Thanks, Bob Yes, the 20% was something we put out and we still we are steadfast on and we believe at some point.
Can get there and thats across all formats and of course flour, we still remain number one and theres been some shrinking of flour overall, but we almost consider pre rolls as flower just in another forum. So I think our focus will be on flower pre rolls infused pre rolls vape, So thats really where we think the largest.
Michael A. DeGiglio: So I think our focus will be on flour, pre-rolls, infused pre-rolls, and vapes. That's really where we think the largest part of the market is going to be. We're not doing anything right now in beverages, nor do we probably see that on the horizon.
Part of the market is going to be we're not doing anything right now in beverage.
Nor that we probably see that on the horizon.
Michael A. DeGiglio: You know, and we continue to make strides. This will be a big year for us to continue to go forward. Innovation is at the top of that. Freshness.
And we continue to make strides just be a big year for us to continue to go forward innovation is at the top of that freshness.
Michael A. DeGiglio: Yeah. You know, it's difficult, as I said in my remarks, it's difficult to execute across the board where you have the right cost of production in order to generate positive cash flow and positive EBITDA, meeting consumer needs, understanding what the consumer is looking for, and being able to invest heavily in product development. We've always said we need to know what we're launching in 26 right now and plan for that. So, that's where we stand with Delta 2.
It's difficult.
<unk> as I said in my remarks, it's difficult to execute across the board where you have.
The right cost of production in order to generate positive cash flow and positive EBITDA meeting consumer needs understanding what the consumers looking for.
Being able to.
Invest heavily in product development, we've always said, we need to know what we're launching in 26, right now and plan for that.
So so that's where we stand with Delta two actually.
Michael A. DeGiglio: We've turned that back on, and we see good things coming ahead there for us going forward. Can you share some color at the provincial level? I mean, there's been quite a variance, according to HIFIRE data, you know, significant variance in terms of air penetration by province.
We've turned that back on.
We see good things coming ahead, there for us going forward so.
Can you share some color at the provincial level.
Been quite varied according to high fire data significant variance industrial penetration by programs can thank you for going over there in terms of where the opportunities lie.
Operator: Can you give some color there in terms of where the opportunities lie? Kamala, sorry, we missed your question. Did you ask it again?
Thank you Ken.
Sorry, we missed your question you ask it again.
Pablo Ernesto Zuanic: No, in terms of provinces, whether it's BC, Alberta, Ontario, whether you can give any color in terms of the momentum in shares. When I look at the HIFIRE data or with Roller, there seems to be significant variance in terms of the company's share penetration across provinces. I don't know if those numbers are right, but whether you can give some color in terms of your room to increase share across the various provinces, if you can give that type of color. Pablo, it's Ann.
In terms of provinces related BC, Alberta, Ontario, whether you can give any color in terms of the momentum in share when I look at the data what are we <unk> there seems to be significant variance industrial the company's share penetration across provinces I don't know if those numbers are right, but whether you can give some color in terms of your rooms to increase share.
Gross at various provinces, but if you can give that type of quarter. Thank you.
And it's a great question.
You are correct.
Ann Gillin Lefever: It's a great question. You are correct. We have the strongest share in Ontario, and it tapers off from there. And this is something that Orville and his team are very focused on. There are nuances in each province as we get closer and closer to understanding what drives consumption. It does vary.
Have strongest share in Ontario, and it tapers off from there.
This is something that <unk> and his team are very focused on.
There are nuances in each province, as we get closer and closer to understanding what drives consumption. It does vary.
And.
They are really on.
<unk>.
Addressing each provinces variances quite correctly.
That took place that youre going to see some share improvement going forward.
Okay. Thank you and then just one follow up Mike on the on the international side.
Ann Gillin Lefever: And they're really on to addressing each province's variances quite directly. So I think that's a place where you're going to see some share improvement going forward. Thank you.
I guess again two part question.
You had export number 1 million to $2 million per quarter Thats in the range recently, but I understand that a good chunk of your wholesale business not branded domestic gets re exported I don't know if again, if you can give us some color on that number would be like half one quarter I don't know if you have visibility on that but also related to that when you look.
Michael A. DeGiglio: On the international side, I guess, again, a two-part question. [inaudible] But also related to that, you know, when you look at the opportunity in Germany, do you need to get more, I think the question came up before, but do you need to get more aggressive in terms of going deeper there, in terms of finding various importers or even selling branded products there? How are you thinking about that?
The opportunity in Germany, do you need to get more I think the question came up before but do you need to get more aggressive in terms of going deeper there.
This will finding various importers or even selling branded product. There. How are you thinking about that thank you. Yes, we are very aggressive as we will get more aggressive but these.
These companies that Steve had mentioned a lot of them are starting up and they don't have.
The wherewithal of the balance sheet. So we're working with a number of country.
Michael A. DeGiglio: Thank you. Yeah, we are very aggressive, and we will get more aggressive, but you know, these companies that Steve mentioned, a lot of them are starting up, and they don't have it. I wouldn't be surprised if, across the board, we approach a third of the cannabis that's being exported in one form or another through us or through others into the international market today. You know, we made a decision that with the capital markets the way they are, not knowing what the future is, we want to continue to generate earnings so we can plow that back into expansion.
Companies distributors actually in Germany, and very solid in the U K. So I think that's going to start showing more so but we are aggressive about it we're increasing our staff and going forward, but look I would probably say.
Wouldnt be surprised if across the board we approach a third of a third of the cannabis.
It's being exported in one form or another through us or through others is in the international market today.
Today so.
We made a decision that with the capital markets. The way they are and not knowing what the future is we want to continue to generate earnings. So we can plough that back into expansion like Steve mentioned lately Highland we're funding that completely ourselves.
Michael A. DeGiglio: Like Steve mentioned, Lely Holland, we're funding that completely ourselves. So right now, that B2B business, especially on the international side, is interesting for us. But it's on a parallel track with us developing our own brands internationally as well. So we like that sweet spot right now, building up and keeping our balance sheet strong and generating cashflow. But I would say probably 35% of the exports internationally are probably coming through PureSun Farms. Got it.
So right now that <unk> business, especially on the international side is interesting for us, but its unparalleled track with us developing our own brands internationally as well.
So we like that that sweet spot right now building up but keeping our balance sheet strong and generating cash flow, but I would say probably 35% of the exports internationally are probably coming through pure some farms.
Got it thank you.
Operator: Our next question comes from the line of Eric Livshits with ATB Capital Markets. Your line is now open. Hi, Eric Livshits or Frederico Gomes.
Thank you.
Our next question comes from the line of Eric <unk> with ATB capital markets. Your line is now open.
Hi, Eric listen or Puerto Rico Gomez.
Operator: So what kind of impact do you potentially see the recent developments in Germany and the Netherlands having on near-term international sales? And you mentioned that you are looking at expanding to other European markets. Would you be able to provide some color on what other markets you currently find attractive? Thank you. Well, it's the markets that become legal. I mean, like Denmark, some of these markets are much smaller than others.
So what kind of impact do you potentially see.
Elements in Germany, and the Netherlands, having on near term international sales.
And you mentioned that you are looking at expanding to other European markets would you be able to provide some color on what other markets. You currently find attractive. Thank you.
Well, it's the markets have become legal I mean like Denmark. Some of these markets are much smaller than others, Germany is just the well but.
Michael A. DeGiglio: You know, Germany's just a whale, but Switzerland, there are markets talking about recreational as well. So the Netherlands, for us, as the only North American company that has one of the 10 licenses, we love how the Netherlands has set it up. When we look at how we operate in Canada, you know, the Netherlands is a limited license country. And if you look at the U.S., where the greatest margins are by the LPs in the U.S., they're in limited license states.
So there are markets talking about recreational as well so the Netherlands for us as being the only North American company that has one of the 10 licenses, we love how the Netherlands has set it up when we look at how we operate in Canada.
Nevertheless.
As a limited license country and if you look at the U S where the greatest margins are by the <unk> in the U S. They are in limited license states. So take that same philosophy to the Netherlands 10 license holders.
Michael A. DeGiglio: So take that same philosophy to the Netherlands, 10 license holders. No excise tax, the Dutch government wants a whole pricing system, our pricing is very, the margins we expect there are very high, packaging, it's clear packaging, there are so many advantages, and I think the Netherlands, as they do many things well, will do this very well going forward, so we expect further growth in the Netherlands beyond this first quarter. Cultivation Facility going forward, we think that would be a definite springboard for us for other recreational markets that emerge in the EU going forward. So we're pursuing both sides. We think medicinal marijuana in certain countries will continue on even if there's a recreational program, more so than we've seen in other states in the U.S. or in Canada. So we have sort of a two-pronged approach. But there are many EU countries watching what Germany is doing, and the Netherlands, and moving the needle in that regard over the next one or two years.
No excise tax <unk>.
Dutch government wants a whole pricing our pricing is very the margins. We expect there are very high packaging is clear packaging. There's so many advantages and I think the Netherlands as they do many things well we will do this very well going forward. So we expect further growth in <unk> beyond this first.
Cultivation facility going forward, we think that would be a definite springboard for us for other recreational markets that emerge.
In the EU.
Going forward. So we're pursuing both sides, we think medicinal in certain countries will continue on even if theres a recreational program more so than we've seen in other states in the U S or in Canada. So we have sort of a two pronged approach.
But there are many EU countries talking watching what Germany is doing the Netherlands, and moving the needle in that regard over the next one or two years.
Operator: Thank you. And I'm showing no further questions at this time. I'd like to hand the call back over to Michael DeGiglio for closing remarks. Thanks, Shannon. And thank you. Thanks, everyone, for joining us today. We look forward to speaking to you on our next call in May. Thanks. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Thank you.
And I'm showing no further questions at this time I would like to hand, the call back over to Michael to Julia for closing remarks, Thanks, Shannon and thank you. Thanks to everyone for joining US today, we look forward to speaking to you on our next call.
In may thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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