Village Farms International, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Amounts are U.S. dollars unless noted. This is an annual report, not a standalone Q4 filing. Village Farms operates greenhouse produce, Canadian cannabis, U.S. hemp-derived CBD, and clean-energy businesses.
Key financial results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Sales | $293.6 million | $268.0 million |
| Gross margin | $27.5 million (9.4% of sales) | $45.2 million (16.9% of sales) |
| Net loss attributable to Village Farms | $101.1 million; $1.13 per share | $9.1 million; $0.11 per share |
| Adjusted EBITDA | $(21.3) million | $14.0 million |
| Cash used in operating activities | $19.9 million | $39.6 million |
| Cash used in investing activities | $20.9 million | $63.5 million |
Sales grew approximately 10%, but cost of sales increased 19%, contributing to lower gross margin. The net loss included $43.3 million of impairment charges and an $11.0 million Canadian cannabis inventory write-down. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for net income or cash flow.
At year-end, the balance sheet reported $16.7 million cash, $5.0 million restricted cash, and $60.8 million working capital, down from $111.5 million in 2021. Total current and long-term debt plus line of credit was approximately $61.0 million. The cash flow statement reports $21.7 million of cash, cash equivalents and restricted cash combined; this differs from the $16.7 million unrestricted cash balance.
Material changes and business performance
- Canadian cannabis: Sales rose 14% to $109.9 million, including a full year of Rose LifeScience results. Segment Adjusted EBITDA fell to $13.1 million from $23.4 million, with the inventory write-down, product mix, pricing pressure and higher expenses weighing on results. The business reported 8.6% Canadian market share across categories and 16.2% in dried flower in Q4, according to company-cited market data.
- Produce: Sales were essentially flat at $160.3 million, but the segment recorded a $17.4 million gross loss versus positive gross margin in 2021. Brown rugose tomato virus reduced output at the Delta greenhouse, while labor, freight, fertilizer, energy and packaging costs rose; the company said it could not pass on all cost increases.
- U.S. cannabis/CBD: Sales were $23.3 million, up from the partial-year $11.3 million following the 2021 Balanced Health acquisition. Adjusted EBITDA was $0.2 million versus $2.4 million for the prior partial year. The segment recorded substantial goodwill and brand impairment charges following weaker valuation estimates and uncertainty around U.S. CBD regulation.
- Cash and financing: Operating cash outflow improved year over year, but remained negative. The company raised $6.7 million net through its at-the-market program in 2022. In January 2023, it sold 18.35 million shares at $1.35 and issued an equal number of warrants at $1.65; net proceeds were approximately $22 million, with potential dilution if warrants are exercised.
Outlook, risks and unusual items
- Management said cash, credit facilities, the January 2023 offering and ATM capacity were expected to fund working capital, debt repayments and planned capital expenditures for the next 12 months. This outlook depends on operating cash generation and continued access to financing.
- The company did not provide quantified consolidated revenue or earnings guidance in the supplied filing text. It is pursuing international cannabis sales, including exports to Australia and Israel; Pure Sunfarms received EU GMP certification.
- The Delta renewable natural gas project was delayed by permitting and zoning. Construction began in 2022, and commercial operations were then expected in mid-2023; the project is intended to generate royalty revenue and potentially supply food-grade CO2 to greenhouses.
- Debt and covenant risk is significant: the company obtained a waiver for non-compliance with one FCC Term Loan covenant at December 31, 2022. Pure Sunfarms’ bank facilities largely mature in February 2024. Interest rates increased, and the FCC Term Loan rate was 7.71% at year-end versus 3.79% a year earlier.
- Management and the auditor reported ineffective internal control over financial reporting due to a material weakness in controls for goodwill and intangible-asset impairment valuations. Management reported no resulting adjustment to the annual financial statements and planned remediation during 2023. The auditor’s financial-statement opinion was unqualified.
- Other principal risks include cannabis oversupply and price compression, produce disease and weather exposure, inflation and energy costs, regulatory uncertainty for cannabis and U.S. CBD, customer concentration, labor and cross-border logistics, and the need for additional financing. The filing reported no material legal proceedings.
Important facts for investors to verify
- Reconcile unrestricted cash, restricted cash, and the cash-flow statement’s combined cash figure; assess near-term cash burn and funding requirements.
- Review covenant compliance, waiver terms and upcoming maturities, especially Pure Sunfarms’ February 2024 facilities and the FCC covenant test scheduled for December 2023.
- Track whether produce margins recover from ToBRFV-related losses and inflation, and whether price increases can offset operating costs.
- Assess the assumptions supporting U.S. cannabis goodwill and intangible valuations after the $43.3 million impairment, and monitor remediation of the reported material weakness.
- Evaluate the sustainability of Canadian cannabis market share and margins amid oversupply, lower wholesale prices, inventory risk and the costs of branded sales.
- Consider dilution from the January 2023 share-and-warrant offering, the remaining ATM capacity, and other outstanding equity awards.