Q2 2026 Village Farms International Inc Earnings Call

August 10, 2026

Operator: Good morning, ladies and gentlemen. Welcome to Village Farms International Q2 2026 Financial Results Conference Call. This morning, Village Farms issued a news release reporting its financial results for the Q2 ended 30 June 2026. That news release, along with the company's financial statements, are 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 by 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. 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.

Speaker #1: 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.

Speaker #1: Details on how to access the replays are available in today's news release. 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.

Speaker #1: 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.

Operator: 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. 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 31 December 2025, and 10-Q for the quarter ended 30 June 2026, which will be available on EDGAR and SEDAR+. These forward-looking statements are made as of today's date, except as required by applicable securities law, we undertake no obligation to publicly update or revise any statements. I would now like to turn the call over to Michael DeGiglio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DeGiglio.

Speaker #1: 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 and MD&A for the year ended December 31, 2025, and Form 10-Q for the quarter ended June 30, 2026, which will be available on EDGAR and SEDAR+.

Speaker #1: These forward-looking statements are made as of today's date and, except as required by applicable securities law, we undertake no obligation to publicly update or revise any statements.

Speaker #1: I would now like to turn the call over to Michael DeGiglio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DeGiglio.

Speaker #2: Thank you, Liz, and good morning, everyone, and thank you for joining us for our second quarter results. With me today are Steve Ruffini, our Chief Financial Officer; Ann Gillen-Lefevre, our Chief Operating Officer; and Sam Gibbons, our Senior Vice President, Corporate Affairs and Investor Relations.

Michael DeGiglio: Thank you, Liz, good morning, everyone, and thank you for joining us for our Q2 results. With me today are Steve Ruffini, our Chief Financial Officer, Ann Gillin Lefever, our Chief Operating Officer, and Sam Gibbons, our Senior Vice President of Corporate Affairs and Investor Relations. I will begin with my customary review of our highlights from the quarter, Steve will review the segments and financials in more detail before I make some last closing comments. Our Q2 results continue to demonstrate the strength of our expanding global cannabis platform, driven by record cannabis revenues as we continue growing in target markets and product categories in the countries we currently operate in. We delivered our fifth consecutive quarter of positive net income and earnings per share since we privatized our legacy produce business last year.

Speaker #2: I will begin with my customary review of our highlights from the quarter. Then Steve will review the segments and financials in more detail before I make some closing comments.

Speaker #2: Our second quarter results continue to demonstrate the strength of our expanding global cannabis platform, driven by record cannabis revenues as we continue growing in target markets and product categories in the countries we currently operate in.

Speaker #2: We delivered our fifth consecutive quarter of positive net income and earnings per share since we privatized our legacy produce business last year. As we noted in this morning's press release, we are having a record year of production in our Delta, British Columbia facilities, which has contributed to stronger margin performance.

Michael DeGiglio: As we noted in this morning's press release, we're having a record year of production in our Delta British Columbia facilities, which has contributed to stronger margin performance. Consolidating net sales growth was strong, we achieved record cannabis harvest yields from our Delta facilities through the H1 of 2026, with that including the first harvest from our Delta 2 expansion. Record yields, combined with greater operating efficiencies, have resulted in lower cost of production, favorable sales mix also helped drive nearly 10 percentage points of year-over-year gross margin expansion, which translated to strong operating leverage as adjusted EBITDA and net income, both meaningfully outpaced total sales growth. I will also note that when excluding a one-time $4.3 million vendor settlement, which was tied to our legacy produce business, our EBITDA, received in the Q2 of last year as a comparison.

Speaker #2: Consolidated net sales growth was strong, and we achieved record cannabis harvest yields from our Delta facilities through the first half of 2026, without including the first harvest from our Delta 2 expansion.

Speaker #2: Record yields combined with greater operating efficiencies have resulted in lower cost of production and favorable sales mix also helped drive nearly 10 percentage points of year-over-year gross margin expansion which translated to strong operating leverage as adjusted EBITDA and net income both meaningfully outpaced total sales growth.

Speaker #2: I will also note that, when excluding a one-time $4.3 million vendor settlement, which was tied to our legacy produce business, our EBITDA in the second quarter of last year, as a comparison, consolidated adjusted EBITDA increased meaningfully year-over-year to $15.4 million, with a record Q2 cannabis segment performance.

Michael DeGiglio: Consolidated adjusted EBITDA increased meaningfully year over year to $15.4 million with a record Q2 cannabis segment performance. Moving on. For the first time, our brands have achieved top 10 market share in all major categories, with continued growth in vapes and infused pre-rolls. We've discussed our focus on strengthening our position in convenience product categories for several quarters, and we're encouraged by this progress, which has been entirely organic and builds in-house capabilities, which will apply to non-Canadian markets as well in the future. It was also another record quarter of international export sales, which grew 74% year over year and 43% sequentially, as we continue to benefit from our competitive advantage with the world's largest EU GMP certified cannabis facility.

Speaker #2: Moving on, in Canada, we've gained traction in our efforts to grow market share in convenience product categories. For the first time, our brands have achieved top 10 market share in all major categories, with continued growth in vapes and infused pre-rolls.

Speaker #2: We've discussed our focus on strengthening our position in convenience product categories for several quarters, and we're encouraged by this progress, which has been entirely organic and builds in-house capabilities that will apply to non-Canadian markets as well in the future.

Speaker #2: It was also another record quarter of international export sales, which grew 74% year-over-year and 43% sequentially, as we continue to benefit from our competitive advantage with the world's largest EU GMP-certified cannabis facility.

Speaker #2: We discussed on last quarter's call that we believe EU GMP-certified product is a competitive advantage which drives strong growth and profitability, and we're pleased to prove it with today's results.

Michael DeGiglio: We discussed on last quarter's call that we believe EU GMP certified product is a competitive advantage, which drives strong growth and profitability, and we're pleased to prove it with today's results. This is an underappreciated Village Farms strength, strategically built over the past five years into the supply chain for our international customers. Without giving complete details for competitive reasons, our own sales mix of GACP to EU GMP certified product has improved significantly since we completed the facility upgrades we discussed last quarter. As we stated, these upgrades made our Delta campus the world's largest EU GMP certified facility by total compliant product volume, and our higher sales mix of EU GMP certified product improved our margins during Q2.

Speaker #2: This is an underappreciated Village Farms strength, strategically built over the past five years into the supply chain for our international customers. Without giving complete details for competitive reasons, our own sales mix of GACP to EU GMP-certified product has improved significantly since we completed the facility upgrades we discussed last quarter.

Speaker #2: As we stated, these upgrades made our Delta campus the world's largest EU GMP-certified facility by total compliant product volume, and our higher sales mix of EU GMP-certified product improved our margins during the second quarter.

Speaker #2: Some of our peers have discussed these challenges on their earnings call publicly for the first time over the last couple of weeks, and we've been saying demand for EU GMP-compliant product is continuing to increase.

Michael DeGiglio: Some of our peers have discussed these challenges on their earnings call publicly for the first time over the last couple weeks, and we've been saying demand for EU GMP compliant product is continuing to increase. Importantly, the German market continues to grow, and so has our share of the total market thus far in 2026. We most recently held four of the top 10 market share strains, and based on our own internal research, we believe we have the widest pharmacy distribution of any cultivator with product in Germany today. We have a strong growing share of Europe's total addressable cannabis market, and we remain very excited about the opportunities we see in the UK and Australia, and we continue to expect that we will enter new European jurisdictions in H2 of this year. For a quick reminder of our Delta Two expansion project.

Speaker #2: Importantly, the German market continues to grow, and so has our share of the total market thus far in 2026. We most recently held four of the top 10 market share strains, and, based on our own internal research, we believe we have the widest pharmacy distribution of any cultivator with product in Germany today.

Speaker #2: We have a strong, growing share of Europe's total addressable cannabis market, and we remain very excited about the opportunities we see in the UK and Australia. We continue to expect that we will enter new European jurisdictions in the second half of this year.

Speaker #2: For a quick reminder of our Delta 2 expansion project, the Delta 2 expansion is the conversion of the second half of the 1.1 million-square-foot Delta 2 greenhouse.

Michael DeGiglio: The Delta Two expansion is the conversion of H2 of the 1.1 million square foot Delta Two greenhouse. As previously stated, we are completing the conversion in phases, one half of the expansion at a time. H1 is completed and in production, and H2 conversion will commence on 1 September. We continue to expect that we will harvest an incremental 15 metric tons of production from this D2 expansion this year, with an additional 25 tons harvested from the expansion in 2027. We will be on a full 40 metric ton run rate starting with Q3 2027, and with the full 40 tons of incremental capacity available beginning fiscal 2028. Once completed, the D2 expansion will bring our total annualized production in Delta to approximately 160 metric tons of dried, trimmed flower annually.

Speaker #2: As previously stated, we are completing the conversion in phases—one half of the expansion at a time. The first half is completed and in production, and the second half conversion will commence on September 1.

Speaker #2: We continue to expect that we will harvest an incremental 15 metric tons of production from this D2 expansion this year, with an additional 25 metric tons harvested from the expansion in 2027.

Speaker #2: We will be on a full 40 metric ton run rate starting with the third quarter of '27 and with the full 40 tons of incremental capacity available beginning fiscal 2028.

Speaker #2: Once completed, the D2 expansion will bring our total annualized production in Delta to approximately 160 metric tons of dried, trimmed flower annually. All of this will drive further economies of scale, cost efficiencies, and improved flexibility to meet demand from our customers, consumers, and patients in Canada and around the world where we operate.

Michael DeGiglio: All of this will drive further economies of scale, cost efficiencies, and improved flexibility to meet demand from our customers, consumers, and patients in Canada and around the world where we operate. As a reminder, any future conversion of our Delta-1 greenhouse would more than double our annualized production capacity. Turning now to our recreational cannabis business in the Netherlands. We are continuing to maintain strong distribution with participating coffee shops and have been focused on expanding our product assortment to create more value for coffee shop owners who are looking to differentiate their menus. We remain incredibly excited about the Netherlands market and feedback from participating municipalities and coffee shop owners about the pilot program has been overwhelmingly positive thus far.

Speaker #2: As a reminder, any future conversion of our Delta 1 greenhouse would more than double our annualized production capacity. Turning now to our recreational cannabis business in the Netherlands.

Speaker #2: We are continuing to maintain strong distribution with participating coffee shops, and we have been focused on expanding our product assortment to create more value for coffee shop owners who are looking to differentiate their menus.

Speaker #2: We remain incredibly excited about the Netherlands market, and feedback from participating municipalities and coffee shop owners about the pilot program has been overwhelmingly positive thus far.

Speaker #2: The government is expected to issue a report with an internal review of the program later this summer, and we're quite optimistic that this will also reflect positively on the program.

Michael DeGiglio: The government is expected to issue a report with an internal review of the program later this summer. We're quite optimistic that this will also reflect positively on the program. As we discussed on last quarter's call, we experienced a slight delay with final approvals of our phase II facility, but we did begin cultivating in the Groningen facility in Q2. Groningen is expected to ramp up to its full production capacity over the course of the next few quarters, positioning us for another step function of growth next year. We're committed to being a strong community partner and employer and believe there is tremendous long-term upside potential for Village Farms in the program if it is ultimately expanded, which could increase the total addressable market in the Netherlands for our products by nearly tenfold compared to where we are today.

Speaker #2: As we discussed on last quarter's call, we experienced a slight delay with final approvals of our phase two facility, but we did begin cultivating in the Kroningen facility in Q2.

Speaker #2: Kroningen is expected to ramp up to its full production capacity over the course of the next few quarters, positioning us for another step function of growth next year.

Speaker #2: We're committed to being a strong community partner and employer, and believe there is tremendous long-term upside potential for Village Farms in the program if it is ultimately expanded, which could increase the total addressable market in the Netherlands for our products by nearly tenfold compared to where we are today.

Speaker #2: In summary, we are pleased with our second quarter results, which continue to reflect our disciplined execution. We closed the second quarter in a strong position, with $73 million in cash after completing the previously disclosed equity placement with U.S. institutional investors.

Michael DeGiglio: In summary, we are pleased with our Q2 results, which continue to reflect our disciplined execution. We closed the Q2 in a strong position with $73 million in cash after completing the previously disclosed equity placement with US institutional investors. We believe increasing institutional ownership alongside the support of retail shareholders will be critical for the global cannabis industry to succeed. We believe both will benefit long term from their investment in Village Farms. With CapEx from our Canadian and Netherlands expansions nearly complete, we are in an excellent position to deliver stronger free cash flow and continuing growing of our cash balance during the H2 of this year. This concludes my introductory remarks and now I'll turn the call over to Steve. Steve?

Speaker #2: We believe increasing institutional ownership, alongside the support of retail shareholders, will be critical for the global cannabis industry to succeed. We also believe that both groups will benefit long-term from their investment in Village Farms.

Speaker #2: With capital expenditures from our Canadian and Netherlands expansions nearly complete, we are in an excellent position to deliver stronger free cash flow and continue growing our cash balance during the second half of this year.

Speaker #2: This concludes my introductory remarks, and now I'll turn the call over to Steve. Steve?

Speaker #3: Thanks, Mike. I'll start with a review of our consolidated Q2 results. All figures referenced reflect US dollars unless otherwise noted. Consolidated net sales increased 27% sequentially and 7% year-over-year to $64 million, driven by continued international growth.

Stephen Ruffini: Thanks, Mike. I'll start with a review of our consolidated Q2 results. All figures referenced reflect US dollars unless otherwise noted. Consolidated net sales increased 27% sequentially and 7% year-over-year to $64 million, driven by continued international growth. Consolidated net income from continuing operations was $7.2 million or $0.06 per share. The unfavorable variance compared to last year was the result of a one-time vendor settlement of $4.3 million received in the Q2 of last year. Excluding this impact, net income from continuing operations would have increased significantly as a result of our record Q2 performance. Consolidated adjusted EBITDA from continuing operations was $15.4 million or 24% of sales, compared to $17.1 million or 28.5% of sales in Q2 of last year, with the unfavorable variance similarly driven by last year's vendor settlement. Excluding this impact, consolidated adjusted EBITDA would have increased approximately 20%.

Steve Ruffini: Thanks, Mike. I'll start with a review of our consolidated Q2 results. All figures referenced reflect US dollars unless otherwise noted. Consolidated net sales increased 27% sequentially and 7% year-over-year to $64 million, driven by continued international growth. Consolidated net income from continuing operations was $7.2 million or $0.06 per share. The unfavorable variance compared to last year was the result of a one-time vendor settlement of $4.3 million received in the Q2 of last year. Excluding this impact, net income from continuing operations would have increased significantly as a result of our record Q2 performance. Consolidated adjusted EBITDA from continuing operations was $15.4 million or 24% of sales, compared to $17.1 million or 28.5% of sales in Q2 of last year, with the unfavorable variance similarly driven by last year's vendor settlement. Excluding this impact, consolidated adjusted EBITDA would have increased approximately 20%.

Speaker #3: Consolidated net income from continuing operations was $7.2 million, or $0.06 per share. The unfavorable variance compared to last year was the result of a one-time vendor settlement of $4.3 million received in the second quarter of last year.

Speaker #3: Excluding this impact, net income from continuing operations would have increased significantly as a result of our record Q2 performance. Consolidated adjusted EBITDA from continuing operations was $15.4 million, or 24% of sales, compared to $17.1 million, or 28.5% of sales, in Q2 of last year.

Speaker #3: With the unfavorable variance similarly driven, by last year's vendor settlement. Excluding this impact, consolidated adjusted EBITDA would have increased approximately 20%. Turning now to our cannabis segment.

Stephen Ruffini: Turning now to our Cannabis segment. Total net sales was $53.5 million, or a 5% increase versus Q2 of last year. The year-on-year improvement was driven by the strong performance in our international medical exports, which increased 74% over Q2 of last year and 43% sequentially, predominantly from Village Farms taking a larger share of the German market. As we discussed last quarter, we experienced a slight delay in the commencement of operations at our phase II facility in the Netherlands, but Q2 sales increased 35% year-over-year to $3.3 million. Drachten is now operational and will begin contributing to stronger growth. As Mike mentioned, we expect Drachten to ramp to full production capacity by the end of Q1, positioning for a continued growth through 2027.

Steve Ruffini: Turning now to our Cannabis segment. Total net sales was $53.5 million, or a 5% increase versus Q2 of last year. The year-on-year improvement was driven by the strong performance in our international medical exports, which increased 74% over Q2 of last year and 43% sequentially, predominantly from Village Farms taking a larger share of the German market. As we discussed last quarter, we experienced a slight delay in the commencement of operations at our phase II facility in the Netherlands, but Q2 sales increased 35% year-over-year to $3.3 million. Drachten is now operational and will begin contributing to stronger growth. As Mike mentioned, we expect Drachten to ramp to full production capacity by the end of Q1, positioning for a continued growth through 2027.

Speaker #3: Total net sales were $53.5 million, representing a 5% increase versus Q2 of last year. The year-on-year improvement was driven by the strong performance in our international medical exports, which increased 74% over Q2 of last year, and 43% sequentially.

Speaker #3: Predominantly from Village Farms taking a larger share of the German market. As we discussed last quarter, we experienced a slight delay in the commencement of operations at our Phase Two facility in the Netherlands, but Q2 sales increased 35% year-over-year to $3.3 million.

Speaker #3: Roteringen is now operational and will begin contributing to stronger growth. As Mike mentioned, we expect Roteringen to ramp to full production capacity by the end of Q1, positioning us for continued growth through 2027.

Speaker #3: Cannabis gross margin was 51%, up 900 basis points to from 42% in Q2 of last year, reflecting a favorable product mix increased operating efficiencies and a lower cost of production at our Delta production campus.

Stephen Ruffini: Cannabis gross margin was 51%, up 900 basis points from 42% in Q2 of last year, reflecting a favorable product mix, increased operating efficiencies, and a lower cost of production at our Delta production campus. Total SG&A as a percentage of sales was 28%, compared to 23% in Q2 of last year, reflecting an update to the company's transfer pricing policies, as well as higher commercial and marketing expenses. The update to our transfer pricing policy is directly attributable to the sale of our produce business a year ago. A higher percentage of our corporate expenses are now directly allocated to our cannabis business versus prior years. Q2 adjusted EBITDA from continuing operations for the cannabis improves 16% to a record of $15.3 million, up from $13.1 million in Q2 of last year, resulting in an adjusted EBITDA margin of 29%.

Steve Ruffini: Cannabis gross margin was 51%, up 900 basis points from 42% in Q2 of last year, reflecting a favorable product mix, increased operating efficiencies, and a lower cost of production at our Delta production campus. Total SG&A as a percentage of sales was 28%, compared to 23% in Q2 of last year, reflecting an update to the company's transfer pricing policies, as well as higher commercial and marketing expenses. The update to our transfer pricing policy is directly attributable to the sale of our produce business a year ago. A higher percentage of our corporate expenses are now directly allocated to our cannabis business versus prior years. Q2 adjusted EBITDA from continuing operations for the cannabis improves 16% to a record of $15.3 million, up from $13.1 million in Q2 of last year, resulting in an adjusted EBITDA margin of 29%.

Speaker #3: Total SG&A as a percentage of sales was 28%, compared to 23% in Q2 of last year, reflecting an update to the company's transfer pricing policies as well as higher commercial and marketing expenses.

Speaker #3: The update to our transfer pricing policies directly attributable to the sale of our produce business a year ago. So a higher percentage of our corporate expenses are now directly allocated to our cannabis business versus prior years.

Speaker #3: Q2 adjusted EBITDA from continuing operations for the cannabis segment improved 16% to a record $15.3 million, up from $13.1 million in Q2 of last year, resulting in an adjusted EBITDA margin of 29%.

Speaker #3: Q2 cash flow from cannabis operations was a positive $8.9 million, compared to a positive $19.2 million in Q2 of last year, with the variance driven by Canadian income tax payments, which did not occur during the prior year.

Stephen Ruffini: Q2 cash flow from cannabis operations was $+8.9 million, compared to $+19.2 million in Q2 of last year, with the variance driven by Canadian income tax payments, which did not occur during the prior year, as well as changes in non-cash working capital items, as terms on export sales are generally longer than in the Canadian market and as we expand our production footprint in Delta 2. We believe we are the first and only major Canadian public cannabis LP in the position of paying corporate income taxes, which remains a testament to the strength of our operating capabilities and a sign of a sustainable, long-term, profitable platform. As we do each quarter, I will point out that in Q2, we also paid Canadian excise taxes on our retail branded sales of $15 million, nearly 40% of gross retail branded sales.

Steve Ruffini: Q2 cash flow from cannabis operations was $+8.9 million, compared to $+19.2 million in Q2 of last year, with the variance driven by Canadian income tax payments, which did not occur during the prior year, as well as changes in non-cash working capital items, as terms on export sales are generally longer than in the Canadian market and as we expand our production footprint in Delta 2. We believe we are the first and only major Canadian public cannabis LP in the position of paying corporate income taxes, which remains a testament to the strength of our operating capabilities and a sign of a sustainable, long-term, profitable platform. As we do each quarter, I will point out that in Q2, we also paid Canadian excise taxes on our retail branded sales of $15 million, nearly 40% of gross retail branded sales.

Speaker #3: As well as changes in non-cash working capital items as terms on export sales are generally longer than in the Canadian market and as we expand our production footprint in Delta 2.

Speaker #3: We believe we are the first and only major Canadian public cannabis LP in the position of paying corporate income taxes which remains a testament to the strength of our operating capabilities and the sign of a sustainable long-term profitable platform.

Speaker #3: As we do each quarter, I will point out that in Q2 we also paid Canadian excise taxes on our retail branded sales of 15 million, nearly 40% of gross retail branded sales.

Speaker #3: Turning to the balance sheet, I'll note that we no longer carry a restricted cash balance after the completion of the one-year escrow period as part of our produce transaction last May.

Stephen Ruffini: Turning to the balance sheet, where I'll note that we no longer carry a restricted cash balance after the completion of the one-year escrow period as part of our Protis transaction last May. We ended H1 of the year with cash of approximately $73 million. For H1, we generated close to $21 million from continuing operations before working capital adjustments. Working capital adjustments were significant in H1 of this year, in particular due to the payment of essentially a full year and a half of Canadian income taxes totaling $17 million, and that's in US dollars. During H1, we also spent $15 million in CapEx, paid $31 million in excise taxes, as well as $7 million in share buybacks, and completed a $15 million equity placement with two key US institutional investors.

Steve Ruffini: Turning to the balance sheet, where I'll note that we no longer carry a restricted cash balance after the completion of the one-year escrow period as part of our Protis transaction last May. We ended H1 of the year with cash of approximately $73 million. For H1, we generated close to $21 million from continuing operations before working capital adjustments. Working capital adjustments were significant in H1 of this year, in particular due to the payment of essentially a full year and a half of Canadian income taxes totaling $17 million, and that's in US dollars. During H1, we also spent $15 million in CapEx, paid $31 million in excise taxes, as well as $7 million in share buybacks, and completed a $15 million equity placement with two key US institutional investors.

Speaker #3: We extended the we ended the first half of the year with cash of approximately 73 million for the first six months we generated close to 21 million from continuing operations before working capital adjustments.

Speaker #3: Working capital adjustments were significant in the first six months of this year in particular due to the payment of essentially a full year and a half of Canadian income taxes totaling 17 million and that's in US dollars during the first six months we also spent 15 million in CapEx paid 31 million in excise taxes as well as 7 million in share buybacks and completed a 15 million dollar equity placement with two key US institutional investors.

Speaker #3: We remain very comfortable with our long-term debt level, which was approximately $40 million at a blended interest rate of 5.6% as of June 30, 2026.

Stephen Ruffini: We remain very comfortable with our long-term debt level, which was approximately $40 million at a blended interest rate of 5.6% as of 30 June 2026. During the quarter, we drew down an incremental, in Canadian dollars, CAD 8.3 million on our Pure Sunfarms credit facility to support our Delta facility upgrades and technology enhancements. We're in a net cash position of $33 million, and as Mike mentioned, we expect to grow our cash balance for the remainder of the year with stronger free cash flow during the H2. Our board and management will continue to evaluate capital allocation decisions on a quarterly basis, and we expect to maintain a balanced approach to capital allocation to drive returns to shareholders. I will now turn the call back to Mike for some closing comments.

Steve Ruffini: We remain very comfortable with our long-term debt level, which was approximately $40 million at a blended interest rate of 5.6% as of 30 June 2026. During the quarter, we drew down an incremental, in Canadian dollars, CAD 8.3 million on our Pure Sunfarms credit facility to support our Delta facility upgrades and technology enhancements. We're in a net cash position of $33 million, and as Mike mentioned, we expect to grow our cash balance for the remainder of the year with stronger free cash flow during the H2. Our board and management will continue to evaluate capital allocation decisions on a quarterly basis, and we expect to maintain a balanced approach to capital allocation to drive returns to shareholders. I will now turn the call back to Mike for some closing comments.

Speaker #3: During the quarter, we drew down an incremental CAD $8.3 million on our Pearson Farms credit facility to support our Delta facility upgrades and technology enhancements.

Speaker #3: We're in a net cash position of 33 million and as Mike mentioned we expect to grow our cash balance for the remainder of the year with stronger free cash flow during the second half.

Speaker #3: Our board and management will continue to evaluate capital allocation decisions on a quarterly basis, and we expect to maintain a balanced approach to capital allocation to drive returns to shareholders.

Speaker #3: I'll now turn the call back to Mike for some closing comments.

Speaker #1: Thanks, Steve. Before we open the call to questions, I'd like to recognize the continued execution of our team members around the world. Our team have undertaken significant development projects this year while continuing to deliver outstanding results.

Michael DeGiglio: Thanks, Steve. Before we open the call to questions, I'd like to recognize the continued execution of our team members around the world. Our team have undertaken significant development projects this year while continuing to deliver outstanding results. Personally thank all our folks who continue to lead us forward. In closing, we feel we've had an excellent H1 of 2026, and we're proud to continue demonstrating the strength and durability of our global operating model. With industry-leading profitability and a global cannabis business that is approaching 50% of revenues from growing international markets, we're positioned for continued profitable growth regardless of our entry point or timing into the US market.

Speaker #1: I’d like to personally thank all our folks who continue to lead us forward. In closing, we feel we've had an excellent first half of 2026, and we’re proud to continue demonstrating the strength and durability of our global operating model.

Speaker #1: With industry-leading profitability and a global cannabis business that is approaching 50% of revenues from growing international markets, we're positioned for continued profitable growth regardless of our entry point or timing into the US market.

Speaker #1: We remain encouraged by what we see in the US regulatory landscape and we're pleased to see that the US Congress provided an extension for full spectrum CBD products into December which will give them time to potentially find a workable permanent solution.

Michael DeGiglio: We remain encouraged by what we see in the US regulatory landscape, and we're pleased to see that the US Congress provided an extension for full-spectrum CBD products into December, which will give them time to potentially find a workable, permanent solution. As you know, we've never engaged in the production of synthetic cannabinoids or related products, and Balanced Health Botanicals has always operated to the higher standards. We're incredibly proud of that team and still see a lot of opportunity for BHB, depending on how things settle out. We're looking forward to the rules of engagement being finalized so we can start planning accordingly. I will reiterate something I mentioned last quarter. We are pleased that we've become a partner of choice and are recognized as a strong leader in the global cannabis industry.

Speaker #1: As you know, we've never engaged in the production of synthetic cannabinoids or related products on BHB. CBDistillery has always operated to the highest standards.

Speaker #1: We're incredibly proud of that team and still see a lot of opportunity for BHB, depending on how things settle out. But we're looking forward to the rules of engagement being finalized so we can start planning accordingly.

Speaker #1: I will reiterate something I mentioned last quarter. We are pleased that we have become a partner of choice and are recognized as a strong leader in the global cannabis industry.

Speaker #1: But we will only pursue opportunities that are strategically compelling and supportive of long-term shareholder value creation. We have considerable upside potential in our Netherlands business, Canadian and U.S. assets, and ownership interest in Vindextra, and we believe Village Farms remains one of the most attractive cannabis growth platforms and investment opportunities in the world.

Michael DeGiglio: We will only pursue opportunities that are strategically compelling and supportive of long-term shareholder value creation. We have a considerable upside potential in our Netherlands business, Canadian and US assets, and ownership interest in Vendexa, and we believe Village Farms remains one of the most attractive cannabis growth platforms and investment opportunities in the world. Liz will now take time to answer some questions.

Speaker #1: Liz will now take time to answer some questions.

Operator: As a reminder, if you would like to ask a question at this time, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from Aaron Grey with Alliance Global Partners.

Speaker #2: As a reminder, if you'd like to ask a question at this time, please press *11 on your telephone and wait for your name to be announced.

Speaker #2: To withdraw your question, please press star 11 again. Our first question comes from Erin Gray with Alliance Global Partners.

Speaker #4: Good morning. Thank you for the questions, and congratulations on the strong quarter. I want to talk a little bit more about international and the medium-term opportunity.

Aaron Grey: Good morning. Thank you for the questions and congrats on the strong quarter. I want to talk a little bit more about international and the medium-term opportunity. Maybe give some color in terms of some of the demand supply bottlenecks you might have near term, and as those get alleviated as H1 and H2 expansion for Delta 2 are completed. Maybe just talk about long term, your confidence to remain with a competitive advantage even with potential for US exports. Thank you.

Speaker #4: Maybe give some color in terms of some of the demand-supply, you know, bottlenecks you might have near term, and how those get alleviated, you know, as first half and second half expansion for Delta 2 are completed.

Speaker #4: And just maybe talk about your long-term confidence to maintain a competitive advantage, even with the potential for U.S. exports. Thank you.

Speaker #1: Okay. Good morning, Erin. A few questions in there. Yeah, we remain confident that we'll continue to expand as I said in my call. We still have Delta 1 availability behind the expansion of Delta 2 and that's a 33% increase with the expansion bringing us to the 40 incremental metric tons going forward.

Michael DeGiglio: Okay. Good morning, Aaron. A few questions in there. We remain confident that we will continue to expand. As I said in my call, we still have Delta 1 availability behind the expansion of Delta 2, and that is a 33% increase with the expansion, bringing us to the 40 incremental metric tons going forward. We do not talk much about Delta 1, but that is always a possibility for us, and it is even a possibility for export to the US market, depending on how things shape out in the future. We think we can continue to meet our EU GMP growth as well going forward, and we feel confident about Germany continue to grow going forward. As far as pricing, we have not seen a decline in our pricing.

Speaker #1: So we don't talk much about Delta 1, but that is always a possibility for us, and it's even a possibility for export to the U.S. market, depending on how things shape out in the future.

Speaker #1: So we think we can continue to meet our EU GMP growth as well going forward and we feel confident about Germany continuing to grow going forward.

Speaker #1: As far as pricing, we haven't seen a decline in our pricing. There has been a decline in the non-compliance, so to speak, products that are flowing into Germany from multiple parts of the world.

Michael DeGiglio: There has been a decline in the non-compliant, so to speak, products that are flowing into Germany from multiple parts of the world. You really need to be an EU GMP-compliant partner. I could say this as far as your question for the US, I am not saying US single state, multi-state operators will not be there, but I can tell you from our experience in the last six years, it is not easy. It is just not a matter of getting a DEA export license, not just qualifying for EU GMP, but not just getting there on your initial certification, but maintaining it is even more difficult. I wish everybody luck and, as far as I am concerned, we may be a US exporter of EU GMP in the future as well. I think we have a great position right now that we can continue to build on.

Speaker #1: But you really need to be a EU GMP compliant partner and I could say this as far as your question for the US, I'm not saying you know, US single-state, multi-state operators won't be there but I can tell you from our experience in the last six years it is not easy it's just not a matter of getting a DEA export license.

Speaker #1: Not just qualifying for EU GMP, but not just getting there on your initial certification—maintaining it is even more difficult. So, you know, I wish everybody luck, and as far as I'm concerned, we may be a US exporter of EU GMP in the future as well.

Speaker #1: So I think we have a great position right now that we can continue to build on and I think we're in a strong position going forward over really anybody who wants to focus on EU GMP for the European market.

Michael DeGiglio: I think we're in a strong position going forward over really anybody who wants to focus on EU GMP for the European market.

Speaker #4: Okay, great. Thank you very much for that detail. Second question from me—just talking about the EBITDA margin profile. You've seen some nice expansion in the past two quarters.

Aaron Grey: Okay, great. Thanks very much for that detail. Second question from me, just talking about the EBITDA margin profile. We've seen some nice expansion in the past two quarters. How best to think about the long-term EBITDA margin aspirations as we think about all the puts and takes of your sales growth opportunities and potential broader sales pressure within cannabis. Thank you. Or pricing pressure within cannabis. Thank you.

Speaker #4: How best should we think about the long-term EBITDA margin aspirations as we consider all the puts and takes regarding your sales growth opportunities and the potential for broader sales pressure within cannabis?

Speaker #4: Thank you. Or pricing pressure within cannabis—thank you.

Stephen Ruffini: Aaron, Steve, our continued long-term focus is the 30% to 40% for our gross margin, our EBITDA margin, certainly in the mid-20s is possible. We continue to be very focused on managing our costs. Obviously, the EBITDA margin and gross margin are also somewhat dependent on demand and supply. As more people enter the market, there could be some pricing pressure. As Mike mentioned, we're continuing to see very strong pricing for our EU GMP, and we'll continue to get some economies to scale as we expand our Delta facility platforms over the ensuing years.

Steve Ruffini: Aaron, Steve, our continued long-term focus is the 30% to 40% for our gross margin, our EBITDA margin, certainly in the mid-20s is possible. We continue to be very focused on managing our costs. Obviously, the EBITDA margin and gross margin are also somewhat dependent on demand and supply. As more people enter the market, there could be some pricing pressure. As Mike mentioned, we're continuing to see very strong pricing for our EU GMP, and we'll continue to get some economies to scale as we expand our Delta facility platforms over the ensuing years.

Speaker #1: Erin, Steve, our continued long-term focus is the 30% to 40% range for our gross margin. Our EBITDA margin, certainly in the mid-20s, is possible. You know, we continue to be very focused on managing our costs.

Speaker #1: Obviously the EBITDA margin and gross margin are also somewhat dependent on demand and supply. And you know, as more people enter the market there could be some pricing pressure but now we're you know, we're as Mike mentioned we're continuing to see very strong pricing for our EU GMP and we'll continue to get some economies of scale as we expand our Delta facility platform over the ensuing years.

Speaker #3: Yeah, and if I could add to that, just with the increase in our gross margin, it really doesn't clearly show the efficiency of our operation because complying with EU GMP significantly increases your cost of production.

Michael DeGiglio: If I could answer that, just with the increase in our gross margin, it really doesn't clearly show the efficiency of our operation because complying with EU GMP significantly increases your cost of production. When you're looking at others who may start to index on EU GMP out of the US, they should plan for much greater costs of production and overall cost to get there. That's not really identifying in our numbers. It just shows the power of large-scale efficient operations, and the bigger we get, the lower we believe our cost will be going forward. We see that as a great advantage. You really need a large-scale footprint to index. Thanks, Aaron.

Speaker #3: So, when you're looking at others who may start to index on EU GMP out of the U.S., they should plan for much greater cost of production and overall cost to get there.

Speaker #3: So that's, you know, that's not really identifying in our numbers. It just shows the power of large-scale, efficient operations, and the bigger we get, the lower we believe our cost will be.

Speaker #3: Going forward, we see that as a great advantage. You really need a large-scale footprint to index. Thanks, Erin.

Speaker #4: Great color. Appreciate that. I'll jump back in the queue.

Aaron Grey: Great color. Appreciate that. I'll jump back in the queue.

Speaker #2: Our next question comes from Doug Cooper with Beacon Securities.

Operator: Our next question comes from Doug Cooper with Beacon Securities.

Speaker #5: Hey, good morning guys. Terrific work in the quarter. A couple things first of all in Germany you're up 70-odd percent year over year up 43% sequentially.

Doug Cooper: Hey, good morning, guys. Terrific work in the quarter. Couple things. First of all, in Germany, you're up 70-odd% year-over-year, up 43% sequentially. What did the market grow and therefore, what kind of market share did you gain, you think?

Speaker #5: What is the market growth, and therefore, you know, what kind of market share do you think you gained?

Speaker #1: Hi Doug. Good morning. It's really hard to know. There was some indication of that being tracked in Germany which is not really happening. So we have to really rely on internal numbers and those numbers have been anywhere from sort of 8 to 15% internally but I can't really verify it.

Michael DeGiglio: Hi, Doug. Good morning. It's really hard to know. There was some indication of that being tracked in Germany, which is not really happening, so we have to really rely on internal numbers. Those numbers have been anywhere from sort of 8% to 15% internally, but I can't really verify it, so probably won't go there right now. I can tell you that we have four of the 10 top strains, and with the percentage of growth, I think that outweighs others as far as the growth potential. Ann, do you want to put some color on it?

Speaker #1: So probably won't go there right now. But I can tell you that we have 4 of the 10 top strains and with the percentage of growth I think that outweighs others as far as the growth potential.

Speaker #1: And do you want to put some color on it?

Ann Gillin Lefever: Yeah, I agree. It's hard to quantify but there's also for us, we do monitor our distribution penetration, and we have been growing in locations where we're distributing or where our cultivars are distributed.

Speaker #6: Yeah, I agree. It's hard to quantify growth, but for us, we do monitor our distribution penetration, and we have been growing in locations where we're distributing or where our cultivars are distributed.

Speaker #5: Okay, that's good color. I guess there's visibility how do investors view the visibility of growth in Germany? Like obviously it's a big part of your growth and margin expansion story so you know, looking out into 2027 and beyond you know, how do we get comfort that they're going to continue to grow as much as they have been?

Doug Cooper: Okay, that's good color. I guess just visibility, how do investors view the visibility of growth in Germany? Obviously, it's a big part of your growth and margin expansion story. Looking out into 2027 and beyond, how do we get comfort that they're going to continue to grow as much as they have been?

Speaker #1: I think projections are pretty astronomical over the next 5 to 6 years towards 8,000 tons. So even if it was half of that it would be a huge upside.

Michael DeGiglio: I think projections are pretty astronomical over the next five to six years towards 8,000 tons. Even if it was half of that, it would be a huge upside. Patient enrollments overall are still very low. It's probably in the single digits.

Speaker #1: And you know, and patient enrollments overall are still very low. It's probably in a single digit. So

Ann Gillin Lefever: Low single digits. Very low single digits.

Speaker #6: Low single digit. Very low single digit.

Michael DeGiglio: Yeah, low single digits. I think we're very confident that the growth will continue, at least for the foreseeable future, at least 5 years, maybe more.

Speaker #1: Yeah, low single digit. So I think we're very confident that the growth will continue at least for the foreseeable future—at least five years, maybe more.

Speaker #5: And do you foresee ultimately getting a footprint in Europe to feed that demand?

Doug Cooper: Do you foresee ultimately getting a footprint in Europe to feed that demand?

Speaker #1: Probably talk to you offline on that one.

Michael DeGiglio: Probably talk to you offline on that one.

Speaker #5: Thank you. A couple of quick ones. Capex remaining for your second half of '26 and '27?

Doug Cooper: Okay. A couple of quick ones. CapEx remaining for H2 of 2026 and 2027?

Speaker #1: We really don't have anything on the front burner right now for capex internally. We spent most of the capex now, even though we indicated that we're breaking ground on the second half of Delta 2 on August 1st.

Michael DeGiglio: We really don't have anything on the front burner right now for CapEx internally. We spent most of the CapEx now, even though we indicated that we're breaking ground on the second half of Delta 2, 1 August, we procured all the material we need. I can't recall. The Netherlands is fully built out, there's really nothing right now that we're looking at.

Speaker #1: I mean, we procured all the material we need, so I don't—I can't recall. The Netherlands is fully built out, so there's really nothing right now that we're looking at.

Speaker #5: Okay. And final one if I could just on the produce side I see or produce and other I guess I see that gross margin expanded to 26% from 11 last year.

Doug Cooper: Okay. Final one, if I could, just on the produce side, or produce and other, I guess. I see that gross margin expanded to 26% from 11% last year. What do you attribute the improved profitability? I know it's not a huge part of your business anymore, but just what do you attribute that improvement in profitability to?

Speaker #5: What do you attribute the improved profitability? I know it's not a huge part of your business anymore but just what do you attribute that improvement in profitability to?

Stephen Ruffini: Pricing was very strong in Q2. As well as we had strong production and we had strong pricing. As we've said for years, Doug, it's a commodity-driven business, and demand was strong, in particular in April and May, and we had very good early production out of Delta 1, which I continue to believe is one of the most profitable or if not the most profitable greenhouse in North America. Obviously everyone else is private. I can't prove that, someday, hopefully, we can prove that with Canada.

Steve Ruffini: Pricing was very strong in Q2. As well as we had strong production and we had strong pricing. As we've said for years, Doug, it's a commodity-driven business, and demand was strong, in particular in April and May, and we had very good early production out of Delta 1, which I continue to believe is one of the most profitable or if not the most profitable greenhouse in North America. Obviously everyone else is private. I can't prove that, someday, hopefully, we can prove that with Canada.

Speaker #1: Pricing was very strong in Q2, as well as we had strong production, and we had strong pricing. So it's, as we've said for years, Doug, it's a commodity-driven business, and demand was strong, in particular in April and May. We had very good early production out of Delta 1, which I continue to believe is one of the most profitable, if not the most profitable, greenhouses in North America. Obviously, I can't prove that versus everyone else's profit, but, you know, someday hopefully we can prove that.

Speaker #3: Yeah, and one of the catalysts, real quick, was under the US Trump administration. There’s been this suspension agreement with Mexico for 22 years, and that suspension was stopped, which increased to a 17% tariff on Mexican imports of tomatoes.

Michael DeGiglio: Yeah, one of the catalysts real quick was under the US Trump administration. There's been this suspension agreement with Mexico for 22 years, that suspension was stopped, which increased a 17% tariff on Mexican imports of tomatoes. As Steve said, price demand that helped drive that balance better in favor of pricing in the US. That occurred about a year ago and seeing less capacity coming out of Mexico in that business.

Speaker #3: So, as Steve said, price demand has helped drive that balance better in favor of pricing in the USA. That occurred about a year ago, and we're seeing less capacity coming out of Mexico.

Speaker #3: In that business.

Doug Cooper: Great. Excellent. Thanks, gentlemen and ladies.

Speaker #5: Great. Excellent. Thanks, gentlemen and ladies.

Ann Gillin Lefever: Thanks, Doug.

Speaker #6: Thanks Doug.

Speaker #2: Our next question comes from Federico Gomez with ATB Cormark.

Operator: Our next question comes from Frederico Gomes with ATB Cormark.

Speaker #7: Yeah, thanks. Good morning. Thanks for taking my questions. Congrats on the great quarter here. I want to ask I'm going to go back to margins you know, pretty impressive.

Frederico Gomes: Thanks. Morning. Thanks for taking my questions. Congrats on the great quarter here. I'm going to go back to margins. Pretty impressive this quarter. You referenced, I guess, your long-term target of 30% to 40% again, how sustainable do you think those high 40s margins are short term, especially as you increase the sales mix towards international, maybe reaching that 50% that you mentioned? That's number one. Secondly, obviously, I get the portion that's not only sales mix, but cost of production, and you mentioned continued improvements there. Can you maybe just elaborate on that? What's driving that continued improvement, and how can you be more efficient as you scale? Thank you.

Speaker #7: This quarter, you referenced, I guess, your long-term target of 30 to 40% again. But how sustainable do you think those, you know, high-40s margins are short term, especially as you increase the sales mix towards International—maybe reaching that 50% that you mentioned?

Speaker #7: So, you know, that's number one. And then secondly, obviously, I guess a portion that's not only sales mix but cost of production—and you mentioned continued improvements there—but can you maybe just elaborate on that?

Speaker #7: I mean, what's driving that continued improvement, and how can you be more efficient as you scale? Thank you.

Speaker #1: Well, there's a number of drivers but not just on pricing which we see for the foreseeable future we see maintaining our margins in Germany.

Michael DeGiglio: Well, there's a number of drivers, not just on pricing, which we see for the foreseeable future, we see maintaining our margins in Germany. We feel very confident about that. We've always mentioned for many years about continuous improvement and continuing to drive our costs down. That's number one and most prudent. You have to drive your costs down. This was the H1 of this year demonstrated that we are able to continue to drive our cost of production down. That's a factor of yield increases, more efficiency in how we operate. That showed strongly this H1 of the year. In our long history of growing multiple crops, there's no end to increasing efficiency. You have to take that into account. If you look at Canada, I think Canada's become somewhat of a mature market now, 10 years later.

Speaker #1: We feel very confident about that. But we've always mentioned for many years about continuous improvement and continuing to drive our costs down. I mean, that's number one and most prudent.

Speaker #1: You have to drive your costs down. And this was the first half of this year demonstrated that we are able to continue to drive our costs of production down.

Speaker #1: That's a factor of yield increases, more efficiency, and how we operate. So that showed strongly this first half of the year. And in our, you know, long history of growing multiple crops, there's no end to increasing efficiency.

Speaker #1: So you have to take that into account. If you look at Canada I think Canada's become somewhat of a mature market now 10 years later.

Michael DeGiglio: It's got single-digit growth, at some point, the pricing more or less is plateauing, depending on convenience brands, pure flower, but it's not going to have great changes, I think, over the long term. Yeah, we feel pretty comfortable. Steve said we've always said our target margin is 30% to 40%, that doesn't mean that we're not going to try to do better as we've demonstrated this quarter. Scale matters. You can't get around it. It's ultimately a fixed cost business. The variable component is very, very small, at least on the cultivation side. The larger you can get, you can really hammer down your cost of production.

Speaker #1: It's got single-digit growth, and at some point the pricing more or less is plateauing depending on convenience brands and pure flower, but it's not going to have great changes, I think, over the long term.

Speaker #1: So yeah, we feel pretty comfortable. I mean, Steve said we've always said our target margin is 30 to 40 but that doesn't mean that we're not going to try to do better as we've demonstrated this quarter.

Speaker #1: And scale matters. There's just you can't get around it. The largest your fixed you know, it's ultimately a fixed cost business. The variable component is very, very small.

Speaker #1: You know, at least on the cultivation side. So the larger you can get, you can really hammer down your costs of production.

Speaker #7: Thank you Mike. Appreciate that. And then secondly you mentioned that pricing is maybe plateauing in Canada. Can you comment on how the domestic prices have evolved recently?

Frederico Gomes: Thank you, Mike. Appreciate that. Then secondly, you mentioned that pricing is maybe plateauing in Canada. Can you comment on how the domestic prices have evolved recently? I know that we talked about how international is maybe benefiting domestic prices, anything on the recent trend in terms of pricing domestically? Thank you.

Speaker #7: I know that we talked about you know, how international is maybe benefiting domestic prices but anything on the recent trend in terms of pricing domestically?

Speaker #7: Thank you.

Michael DeGiglio: Ann?

Speaker #1: Yeah?

Ann Gillin Lefever: Yeah. Good morning, Federico. A couple of things. We are seeing some more supply come back into the Canadian market. We think it's tied to the testing requirements that the international markets have, as well as some crackdown on greenwashing. Within the flower category in particular, and some of the close derivatives, we're seeing a little bit of a mix emerging towards the lowest value segment, which we think is, again, folks using that outlet to raise cash on existing biomass. We're continuing to invest. As Mike highlighted in the remarks, we've spent a lot of time building into our convenience categories. We see those, plus the dominant position we have as flower, as a way for us to continue to drive the mix and price in the market.

Speaker #6: Yeah. Good morning, Federico. A couple of things. We are seeing some more supply come back into the Canadian market. We think it's tied to the testing requirements that the international markets have, as well as some crackdown on greenwashing.

Speaker #6: And so within the flour category in particular and some of the close derivatives we're seeing a little bit of a mixed emerging towards the lowest value segment which we think is you know, again folks using that outlet to raise cash on existing biomass.

Speaker #6: We're continuing to invest as Mike highlighted in the remarks we've spent a lot of time building into our convenience categories and so we see those plus the dominant position we have as flour as a way for us to continue to drive the mix and price in the market.

Speaker #7: Thank you. Appreciate that.

Frederico Gomes: Thank you. Appreciate that.

Speaker #4: Thanks Federico.

Michael DeGiglio: Thanks, Federico.

Speaker #2: Our next question comes from Pablo Zwanek with Zwanek & Associates.

Operator: Our next question comes from Pablo Zuanic with Zuanic & Associates.

Speaker #4: Good morning everyone and congratulations on the very strong export numbers. Look, the first question Mike and I think we've talked about this before you know, if you can give more color about your route to market in Europe or is it pretty much an FOB model in which you sell to distributors and they take care of the distribution and selling to pharmacies or color in terms of how your company is involved in that selling effort.

Pablo Zuanic: Good morning, everyone, and congratulations on the very strong export numbers. Look, the first question, Mike, and I think we've talked about this before. If you can give more color about your route to market in Europe, or is it pretty much an FOB model in which you sell to distributors and they take care of the distribution and selling to pharmacies, or color in terms of how your company's involved in that selling effort? That would help. By the same token, whether at some point you see opportunities to sell branded product there? Now, the second part to the question is, as you expand your scale and your capacity, does that model hold, or do you need to invest in downstream assets to gain more control over your distribution in Europe? Thank you.

Speaker #4: That would help. And by the same token, you know, whether at some point you see opportunities to sell branded product there. Now, the second part of the question is: as you expand your scale and your capacity, does that model hold, or do you need to invest in downstream assets to gain more control of your distribution in Europe?

Speaker #4: Thank you.

Michael DeGiglio: On that branded question, I would say absolutely. As I said, we know our strains. We have four of the 10. Our brands is in work. That is part of the future. Absolutely there. As far as downstream, yeah. We sat back and watched what others have done. If you really look at, say, Germany as an example, going back eight to 10 years, the evolution is pretty incredible from Malta to Portugal to others building small assets in Germany. We don't think they've ever made money. We've watched all this capital over many years being spent with really no return. Now of course, the GACP magic wand approach is not really working.

Speaker #1: On a branded question I would say absolutely. As I said we know how strains are. We have four of the top 10. So our brands is in work.

Speaker #1: That is part of the future. So absolutely there. As far as downstream yeah. You know, we sat back and watched what others have done.

Speaker #1: If you really look at say Germany as an example going back 8 to 10 years the evolution is pretty incredible from Malta to Portugal to others building small assets in Germany.

Speaker #1: We don't think they've ever made money so we've watched all this capital over many years being spent with really no return. And now of course you know, the GACP Magic Wand approach is not really working as Anne mentioned that's why we see more capacity in the Canadian market because this is a pharmaceutical grade cannabis product and the regulators are coming down on those who can't meet that uniform criteria as EU GMP and that we've never straight away from that.

Michael DeGiglio: As Ann mentioned, that's why we see more capacity in the Canadian market, because this is a pharmaceutical grade cannabis product, and the regulators are coming down on those who can't meet that uniform criteria as EU GMP, and we've never strayed away from that. To answer your question, as we've sat back and look at the landscape, who's developing, we've looked at valuations, for example. In some cases, we puked when we saw some of these ridiculous valuations. We're taking our time, but I would say yes, we see ourselves being much more vertically integrated in the European theater going forward for sure. As far as your first question, what was your first question? I'm sorry.

Speaker #1: So, to answer your question, as we've sat back and looked at the landscape—who's developing—we've looked at valuations, for example. In some cases, you know, we puked when we sourced some of these ridiculous valuations. So we're taking our time. But I would say, yes, we see ourselves being much more vertically integrated in the European theater.

Speaker #1: Going forward for sure. You know, and as far as your first question what was your first question again? I'm sorry. No, no, go ahead.

Ann Gillin Lefever: I'll jump in.

Michael DeGiglio: Yeah. Go ahead, Ann.

Speaker #1: Go ahead Anne.

Ann Gillin Lefever: Pablo, you asked about our route to market.

Speaker #6: Pablo you asked about our route to market specifics and I just want to roll back a little bit and say right now the playbook in international is not unlike how we set up in Canada.

Pablo Zuanic: Yeah

Ann Gillin Lefever: specifics, I just want to roll back a little bit and say right now the playbook in international is not unlike how we set up in Canada. We were initially very much B2B oriented, as we got the, essentially the cost of goods sold right, the COGS fine, we started to invest in the SG&A. I think you should expect us to do that, where there's some great distributor partners around the world, frankly. We stay focused on getting the best quality product into the market as our first step.

Speaker #6: We were initially very much B2B oriented and then as we got the essentially the cost of goods sold right the COGS line we started to invest in the SG&A.

Speaker #6: So I think you should expect us to do that. We have some great distributor partners around the world, frankly, and we've stayed focused on getting the best quality product into the market as our first step.

Speaker #4: Yeah. No, no. That's great color. Thank you. And I'm sure you're hearing the good relief conference call. They mentioned USA key supplier of theirs.

Pablo Zuanic: Yeah. No, that's great color. Thank you. I'm sure you heard in the Curaleaf conference call, they mentioned you as a key supplier of theirs. I don't know if that's already happening or it's in the future, but congrats for that. Look, on the same topic, when I try to think of your $21 million number for the quarter, in very simplistic terms, I would call that an FOB number, and what some of your peers, larger Canadian peers report, it's pretty much a landed almost to pharmacy number, right? The numbers are not comparable. I don't know if you have a way to calculate this, but are you really the largest Canadian exporter by volume, or am I exaggerating there?

Speaker #4: I don't know if that's already happening or it's in the future but congrats for that. Look, on the same topic when I try to think of your 21 million dollar number for the quarter I mean in very simplistic terms I would call that an FOB number and what some of your peers larger Canadian peers report it's pretty much a landed almost to pharmacy number right?

Speaker #4: So the numbers are not comparable. I mean I don't know if you have a way to calculate this but are you really the largest Canadian exporter by volume or am I exaggerating there?

Speaker #6: We think we are the largest Canadian exporter by volume.

Ann Gillin Lefever: We think we are the largest Canadian exporter by volume.

Speaker #4: Okay, thank you. Looking at the last question—moving on to Texas with the 12 licenses already issued, provisional licenses—is that door pretty much shut?

Pablo Zuanic: Okay. Thank you. Look, the last question, moving on to Texas. With the 12 licenses already issued, provisional licenses, is that door pretty much shut? Is that window for Village Farms to win a license through the process, is that window shut and the only option for you to enter Texas is by buying one of those 12 licenses? Thank you.

Speaker #4: Is that window for Village Farms to win a license through the process—is that window shut, and is the only option for you to enter Texas by buying one of those 12 licenses?

Speaker #4: Thank you.

Speaker #1: I would say no. I mean first of all as you pointed out these are conditional licenses. They're not licenses yet. And there's a lot of noise out there of what people are doing and we know Texas well so one to answer your question I don't necessarily think that it's 100% sure we won't get a license if you we've spent a lot of time and done a lot of homework on who've received them and I think it's still yet to be determined what the final number of those licenses will be.

Michael DeGiglio: I would say no. First of all, as you pointed out, these are conditional licenses. They're not licenses yet. There's a lot of noise out there of what people are doing, and we know Texas well. One, to answer your question, I don't necessarily think that it's 100% sure we won't get a license. We've spent a lot of time and done a lot of homework on who've received them, and I think it's still yet to be determined what the final number of those licenses will be. I can say one way or another, we plan to be in Texas, and just kind of leave it at that at this point.

Speaker #1: But I can't say one way or another we plan to be in Texas. And just kind of leave it at that at this point.

Speaker #1: So.

Pablo Zuanic: Sure. Thank you.

Speaker #4: Okay. Thank you.

Speaker #1: Thank you Pablo.

Michael DeGiglio: Thank you, Pablo.

Operator: That concludes today's question and answer session. I'd like to turn the call back to Mr. DeGiglio for closing remarks.

Speaker #2: That concludes today's question and answer session. I'd like to turn the call back to Mr. DeGiglio for closing remarks.

Speaker #1: Thank you everyone for participating in today's second quarter call and we very much look forward to reporting come November for our third quarter. Have a great week.

Michael DeGiglio: Thank you everyone for participating in today's Q2 call. We very much look forward to reporting come November for our Q3. Have a great week. Bye.

Speaker #1: Bye.

Speaker #2: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker #1: All right. Thanks Liz.

Michael DeGiglio: All right. Thanks, Liz.

Ann Gillin Lefever: Bye.

Q2 2026 Village Farms International Inc Earnings Call

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