Shares of Village Farms International VFF have surged 49% over the past three months, reflecting improving sentiment toward its cannabis business.
The upside could be attributed to stronger international demand, particularly in Europe, alongside meaningful gains in profitability. These factors helped the company report better-than-expected second-quarter results, with both earnings and sales beating consensus estimates.
However, the stock’s exceptional performance has left investors wondering whether this momentum will last. Let’s examine the company’s fundamentals to better understand how to approach the stock amid the recent rally.
International Exports Continue to Drive VFF’s Top Line
Village Farms’ cannabis business delivered a stronger performance in the first half of 2026, with international markets becoming an increasingly important source of growth. Cannabis sales reached $103.3 million during the period, up about 15% year over year, with second-quarter sales improving sequentially. Second-quarter cannabis sales rose to $53.5 million from $49.7 million in the prior quarter.
International exports were the key driver of this improvement, helping offset weakness in some of VFF’s domestic cannabis operations. Export sales surged 74% year over year and 43% sequentially, primarily reflecting stronger volumes in Germany. The company also expects to enter additional European jurisdictions in the second half of 2026, providing another avenue for international growth. Netherlands sales also increased, further supporting the company’s international operations.
However, the growing importance of international markets also increases VFF’s exposure to Germany, which was the primary contributor to recent export gains. Meanwhile, its Canadian and U.S. cannabis businesses have faced softer conditions. Canadian branded and non-branded sales declined in the second quarter, while U.S. cannabis sales also fell, partly reflecting weaker direct-to-consumer demand. In Canada, VFF is gaining traction in convenience categories, but rising industry supply and greater activity in lower-priced flower could continue to weigh on pricing.
The improvement in profitability further strengthens the growth story. VFF’s cannabis gross margin expanded sharply in the second quarter to 51%, up 900 basis points (bps) over the year-ago period, supported by record yields, lower production costs, greater operating efficiencies and a more favorable sales mix. Adjusted EBITDA margin also increased 270 bps to 28.5%, highlighting the operating leverage generated by stronger international sales and production efficiencies.
Still, investors should be cautious about assuming that the current margin levels will persist. Management has reiterated a long-term gross-margin target of 30-40% and said adjusted EBITDA margins in the mid-20% range are achievable. This points to some potential margin normalization from current levels, particularly if industry supply increases and pricing comes under pressure.
Looking ahead, the company’s ongoing capacity expansions and plans to enter additional international markets should provide avenues for further growth. However, sustaining VFF’s recent momentum will require continued international growth, along with effective management of Canadian pricing pressure and margin normalization.
Intense Competition
Village Farms operates in an increasingly competitive cannabis market, with established players also looking to capitalize on the growth of international medical cannabis. Tilray Brands TLRY, for instance, continues to strengthen its presence in Europe, including Germany, where it recently launched a premium medical cannabis brand and expanded its cultivation and distribution capabilities. Tilray has also increased its global cannabis production capacity to support rising international demand.
Canopy Growth CGC is similarly expanding its international medical cannabis operations. The company reported growth in its international cannabis business in the last reported quarter, driven by strength in Europe, particularly Poland. It has been expanding its European supply chain while pursuing additional EU-GMP capabilities.
As more established cannabis companies target European medical markets, VFF could face greater competition for market share, distribution and pricing. This makes the company’s ability to sustain recent export growth and favorable margins increasingly important to maintaining its operating momentum.
VFF Stock Performance & Valuation
Shares of Village Farms have lost 20% year to date compared with the industry’s 23% decline.
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EPS estimates for 2026 and 2027 have remained mixed over the past 60 days.
Image Source: Zacks Investment Research
How to Play VFF Stock Now?
Village Farms continues to benefit from strong international cannabis demand and improving profitability. However, the company’s growing dependence on international markets, particularly Germany, warrants caution, especially as more cannabis operators expand across Europe. Pricing pressure also remains a concern, as increasing industry supply could weigh on prices and make it harder to sustain the strong margins reported recently. While VFF expects to enter additional European markets, it will need to demonstrate its ability to diversify its international business successfully and sustain its recent growth momentum.
The earnings outlook also remains mixed. The EPS estimate for 2026 has increased over the past 60 days, while the same for 2027 has edged lower. VFF currently carries a Zacks Rank #3 (Hold). Given the stock’s sharp recent rally, investors may want to see more evidence that the company can expand into additional markets while sustaining strong international growth and profitability before taking a longer-term position.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).