Village Farms International stock is a buy, GMP says

Canadian cannabis and vegetable grower Village Farms International (Village Farms International Stock Quote, Chart, News TSX:VFF) has secured a packaging license from Health Canada, a development which will shift the company’s branding into high gear, says GMP Securities analyst Andrew Partheniou.

In a flash update to clients on Monday, Partheniou reiterated his “Buy” rating and C$30.00 target price for VFF, representing a projected 12-month return of 91.6 per cent at the time of publication.

Village Farms International gets Health Canada approval for Pure Sunfarms-branded cannabis products…

Vancouver-based Village Farms International on Monday announced that its 50 per cent owned joint venture, Pure Sunfarms, has received from Health Canada a license amendment allowing it to package and sell Pure Sunfarms-branded cannabis products directly to provincial and territorial wholesalers as well as to private retailers, effective immediately.

“We’re thrilled to receive this amendment to our license and to be able to make our product available to cannabis consumers across the country,” said Pure Sunfarms CEO and president Mandesh Dosanjh in a press release.

“Pure Sunfarms will begin to roll out our consumer brand over the coming weeks and Canadian consumers will soon be able to try our product, proudly grown right here in BC, for themselves. Cultivated with the highest standards by the most experienced growers in the industry, we believe the quality of our cannabis, will speak for itself.”

Prior to the announcement, Pure Sunfarms had been relying on selling its products to the wholesale channel and mostly at the currently strong spot market, along with about 25 per cent of its production being contracted to its JV partner, Emerald Health Therapeutics.

Partheniou, who says the packaging license and its impact starting in the fourth quarter of this year has already been figured into his existing forecast for VFF, thinks that with the amended license in hand, Pure Sunfarms will have an easier time negotiating supply agreements with provincial authorities (the company already has supply agreements with Ontario and BC), making the chances for further recreational market supply agreements coming in the near term more likely, the analyst says.

“Having achieved the milestone of securing the ability to sell directly into the REC channel, Pure Sunfarms’ can progress towards becoming a true CPG company as opposed to solely a wholesale cannabis producer,” writes Partheniou.

“A part of this strategy is to develop a REC brand to market its products, which we expect could be unveiled near term. With this, the JV could finalize its brand positioning, which we believe could be one of affordable luxury with quality products offered at attractive price points relative to peers,” he says.

Last month, Village Farms delivered its second quarter financials which featured strong numbers from Pure Sunfarms.

The JV generated $32.4 million in sales and EBITDA of $25.2 million, representing an EBITDA margin of 78 per cent, up from 60 per cent in the previous quarter.

For the quarter, the company achieved a full run-rate production of 75,000 kg of cannabis annually at its three greenhouses in Delta, BC, while it continues conversion of a second 1.1 million sq ft greenhouse operation in Delta which is expected to double Pure Sunfarms’ annual output at full production to more than 150,000 kg annually.