Cannabis decriminalization in Texas would be good for Village Farms, says Paradigm Capital

Moves to decriminalize marijuana in the state of Texas are good news for cannabis companies Village Farms International (Village Farms International Stock Quote, Chart TSX:VFF) and Cansortium Holdings, says Paradigm Capital analyst Rahul Sarugaser.

On Monday, a committee in the Texas House of Representatives approved a bill that would decriminalize the possession of small amounts of cannabis, replacing penalties with possession of under one ounce with a maximum US$250 fine for the first two offences. It marks the third time that a decriminalization bill written by Rep. Joe Moody has made it past the House’s Criminal Jurisprudence Committee but it’s also the quickest of the three tries, potentially boding well for its chances of success.

The Texas legislature is also considering the expansion of its medical cannabis program, which is currently restricted only to Texans with epilepsy and the only legal products these patients have available are high CBD, low THC oils.

Sarugaser says the move would expand the Texas market for three cannabis companies that won the first licenses and are currently operating in the state, namely, Cansortium Holdings and two private firms, Surterra Wellness and Compassionate Cultivation.

As well, Village Farms, with a 5.7 million square foot vegetable greenhouse facility in Texas (which it is preparing to convert for the purposes of hemp production), VFF is “particularly well-situated” to take advantage of a new law in the state, says Sarugaser.

“We recall that Village Farms was able to rapidly convert 1.1 million of its total 4.8 million square feet of its tomato greenhouses in Delta, British Columbia, for the purposes of growing cannabis during 2018, quickly making them one of the lowest cost producers of Canadian cannabis,” says Sarugaser in a client update on Wednesday.

“Evolution of the regulatory landscape in Texas bodes well for TIUM and VFF, and we expect to see strength in both of these stocks today and in the weeks to come,” he says.