On March 1, Vancouver-based Village Farms announced a joint venture (to be called Village Fields Hemp) with Jennings Group for the outdoor cultivation of high-cannabidiol (CBD) hemp and CBD extraction in the United States. VFF will contribute US$15 million and own 65 per cent of the JV while its partner will own 35 per cent. Hemp cultivation is expected to begin this spring and is expected to have 500 to 1,000 acres in production during 2019.
Landry says that while there’s currently little visibility on the hemp and CBD market, the JV could be worth about $3.50 per share for Village Farms, whose share price has already risen 230 per cent since the start of January.
“Village Farms executed on one of its promises to investors by investing in the hemp and CBD markets in the United States. Village Farms’ partner appears to have deep agriculture expertise combined with strong R&D capabilities, which could result in the development over time of hemp strains with higher yields and CBD concentration levels than currently assumed. The commercialization strategy still needs to be clarified but overall, this appears to be a strong start. We will reflect the revenues from this JV in our forecasts once we have more visibility as to the acres planted in 2019,” says Landry.
The analyst’s target price stems from using a sum-of-the-parts valuation where: (1) VFF’s Pure Sunfarms joint venture is valued at approximately $8.50 (previously $5.85); (2) the current produce business is valued at $0.70; (3) the optionality of the conversion of VFF’s Delta 2 greenhouse is at $4.50 (previously $2.90); and (4) the Village Fields Hemp JV is valued at $3.50.
Landry is maintaining his “Buy” rating with the raised target of $17.00, which represents a projected return of 11.5 per cent at the time of publication.
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