Village Farms International, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter earnings release; the supplied filing text does not provide a complete set of Q4-only financial results. Unless noted, amounts are U.S. dollars in thousands.
Business context
Village Farms operates four segments: greenhouse produce, Canadian cannabis, U.S. hemp-derived CBD products, and clean energy. Its businesses include Village Farms Fresh, Pure Sunfarms, 70%-owned Rose LifeScience, wholly owned Balanced Health Botanicals, and 85%-owned Dutch cannabis producer Leli. The company reported approximately 1,400 employees and contract workers.
Key financial results
| Metric | FY2023 | FY2022 |
|---|---|---|
| Sales | $285.6 million | $293.6 million |
| Gross margin | $49.4 million | $27.5 million |
| Gross margin as % of sales | 17.3% | 9.4% |
| SG&A | $65.5 million | $72.3 million |
| Operating cash flow | $5.3 million provided | $19.9 million used |
| Net loss attributable to shareholders | $31.8 million | $101.1 million |
| Loss per share, basic and diluted | $0.29 | $1.13 |
| Adjusted EBITDA | $7.6 million | $(34.6) million |
Adjusted EBITDA is a non-GAAP measure and is not directly comparable across issuers. FY2023 results included a $14.0 million impairment charge, comprising $11.3 million against U.S. cannabis goodwill and $2.7 million against its brand intangible. The prior year included $43.3 million of impairments and an $11.0 million Canadian cannabis inventory write-down.
Liquidity, debt and cash flow
- Year-end cash, cash equivalents and restricted cash were $35.3 million, including $5.0 million restricted; working capital was $79.6 million.
- Operating activities generated $5.3 million, investing activities used $6.2 million, and financing activities generated $14.1 million. The financing inflow included proceeds from the January 2023 share-and-warrant offering.
- Outstanding term loans were $48.1 million and the operating line of credit had $4.0 million drawn. The balance sheet also reports $9.1 million of current maturities of long-term debt. Variable-rate borrowings carried a weighted average rate of 9.1% at year-end.
- The company was out of compliance with one FCC Term Loan financial covenant at December 31, 2023 and received a waiver. It said it expected cash generated from operations and available credit to fund requirements for the next 12 months, while noting financing access as a potential source of additional liquidity.
Changes versus FY2022
- Sales fell 3%, mainly as lower produce and U.S. CBD sales outweighed growth in Canadian cannabis.
- Gross margin rose $21.9 million. Produce improved substantially from the prior-year gross loss, while Canadian cannabis gross margin increased; U.S. cannabis gross margin declined.
- SG&A decreased $6.8 million, reflecting lower operating costs and share-based compensation. Interest expense rose $1.3 million as borrowing rates increased.
- Operating cash flow improved to positive $5.3 million from an outflow of $19.9 million. Year-end cash increased by $13.6 million, with equity proceeds contributing to the increase.
- Canadian cannabis net sales rose 4%; branded sales increased, partly offset by lower non-branded sales and lower average selling prices for branded flower. Excise tax expense rose to $58.0 million from $50.1 million.
- Produce sales declined 6%, but the segment returned to a small positive gross margin. A $5.6 million vendor settlement related to Tomato Brown Rugose Fruit Virus (ToBRFV) was recorded in other income.
- U.S. cannabis sales declined 13%. Its adjusted EBITDA was positive $0.9 million, but the segment recorded the $14.0 million impairment noted above.
Outlook, commentary and risks
- Management provided no clear numerical revenue or earnings guidance in the supplied filing text. It cited expected incremental cash flow and profitability from the Delta renewable natural gas project, which began operations in January 2024 under a 20-year contract, subject to a five-year extension option.
- The company began re-purposing half of its Delta 2 facility for tomato production in 2024 and was pursuing a sale of its Monahans, Texas greenhouse. Leli began construction of its first Dutch indoor cannabis facility; production was targeted for Q4 2024, with legal supply to designated Dutch coffee shops expected from January 2025.
- Canadian cannabis remained exposed to oversupply, price compression, competition from illicit suppliers, high excise taxes and restrictive marketing rules. U.S. CBD faces uncertain FDA regulation, including restrictions on CBD in foods and dietary supplements.
- Other significant risks include agricultural disease and weather, energy and labor costs, customer and distribution concentration, interest-rate exposure, financing needs and restrictive debt covenants. Nasdaq had extended the deadline to regain its $1.00 minimum bid-price compliance to April 15, 2024.
- Management reported a material weakness in internal control over financial reporting involving fair-value calculations for goodwill and intangible assets; it remained unremediated at year-end, and disclosure controls were judged ineffective. Management planned further remediation work in 2024, including use of third-party valuation specialists.
- The independent auditor issued an unqualified opinion on the consolidated financial statements. Its critical audit matters included the U.S. and Canadian cannabis goodwill impairment assessments. The filing reports no material legal proceedings and no material cybersecurity event identified in 2023.
Most important facts for investors to verify
- Whether the company can sustain positive operating cash flow and improve produce-segment profitability without relying on one-time settlements.
- Debt covenant compliance, the status and terms of the FCC waiver, upcoming maturities, borrowing costs and remaining credit availability.
- Canadian cannabis pricing, market share, excise-tax burden and inventory realizability; confirm whether proposed excise-tax changes are enacted.
- Progress on the U.S. CBD business, future impairment exposure and the assumptions supporting goodwill and brand valuations.
- Completion and economics of the Delta RNG project, Delta 2 tomato conversion, Monahans sale process and Dutch facility launch.
- Remediation of the material weakness, Nasdaq listing compliance, and potential dilution from outstanding warrants, options or future financing.