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Whether or not produce firms would enter the marijuana trade as acceptance and legality has become more commonplace has been debated in the industry for years. Now Village Farms has become the first to make the leap into legal production of marijuana, partnering with Emerald Health Therapeutics, Inc. to begin growing pot in British Columbia, Canada.

It’s almost impossible to hold back jokes about “green thumbs” and “potted plants” – even the press release from Village referred to the partnership as a “joint venture” — but the new avenue is serious business. Village Farms International Chief Executive Officer Michael DeGiglio projects the combined venture’s pot profits will dwarf those from the Canadian vegetable crop by 10 to 15 times.

The goal is to utilize Village resources and expertise to grow high-quality (no pun intended… okay, yes there was…) marijuana at the lowest production price in Canada while maximizing profits.

Michael DeGiglio

Under the terms of the agreement, Village Farms will initially contribute a 1.1 million-square foot (25-acre) greenhouse facility in Delta, British Columbia, located on a 50-acre parcel of land (with ancillary buildings) which will be converted to ACMPR (Access to Cannabis for Medical Purposes Regulations), compliant production, and, if permitted by applicable law, production for the non-therapeutic adult-use market.

Emerald will initially contribute an aggregate of $20 million in cash (of which $2 million was advanced at closing and the remaining $18 million will be advanced in tranches upon satisfaction of certain milestones to be determined by the board of directors of the joint venture) to fund conversion of the Initial Greenhouse. (All figures are presented in Canadian dollars.)

Each party will have a 50% ownership stake in the joint venture.

The initial goal is to produce 75,000 kilograms of product annually with the potential to have up to 4.8 million square feet of greenhouse cannabis production estimated to yield more than 300,000 kilograms of product annually), a significant portion of the projected Canadian market.

No stock boost reported… yet…

There is no word yet on the impact of this announcement on the stock of the Tim Horton’s doughnut chain (sorry).

DeGiglio is quick to note that Village remains committed to its traditional produce customers and that the economic impact of marijuana production will give the company even more opportunities in the produce realm.

“Diversification into cannabis production is a truly transformational opportunity for Village Farms, with a portion of its Canadian assets, to apply our core capabilities and expertise as a technology driven, low-cost, high-quality greenhouse grower and our significant investment in our existing facilities to a product that is substantially more profitable,” said DeGiglio. “Based on our conservative market pricing forecasts and yield projections, conversion of our Canadian greenhouse facilities to cannabis production could generate revenue of 10 to 15 times that of our current Canadian vegetable production with EBITDA margins potentially expanding to more than 50% compared with our current Candian vegetable margins.”

The targeted production cost is less than $1 per gram

Emerald was one of the earlier players in the Canadian legal marijuana trade and has a spot-free reputation.

A more traditional Village Farms product

“Partnering with Village Farms, one of North America’s largest and most technologically driven greenhouse growers, on this tremendous opportunity, is a very exciting development for Emerald,” said Avtar Dhillon, MD, Executive Chairman, Emerald Health Therapeutics. “Village Farms is a global leader in greenhouse growing and, importantly, an expert in the complex matter of safety for agricultural consumables, which is a critical competency in the production of cannabis. Together we have the experience, expertise, and capital to become not only Canada’s, but one of the world’s premier greenhouse cannabis growers.”

Village Farms and Emerald believe currently announced planned production by licensed cannabis producers in Canada falls well short of the projected demand over the next four years following the anticipated legalization of non-therapeutic adult-use cannabis in Canada.

Greenhouse growing has significant proven advantages over conventional indoor growing, as any college student can tell you (told you it’s impossible to hold back). Growing with natural sunlight produces a sustainable, high-quality product that requires less energy to produce.

More greenhouse space allows for more efficient logistics and economies of scale that allow for a lower-cost product. Village Farms’ experience and ability with indoor, hydroponic growing is a hand-in-glove fit with the production of marijuana.

“Although diversification into cannabis is a tremendous opportunity, we remain steadfastly committed to our existing produce business. We will continue to provide our customers with the premium-quality products they have come to know and expect throughout our 30-year history,” said DeGiglio.  “In fact, the favorable economics of cannabis production are expected to provide Village Farms with the financial strength and resources necessary to further expand and solidify our industry-leading position.”

 

 

 

 

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