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    VFF
    Earnings call· Jun 2026(Q2 FY26)

    Village Farms International Q2 FY26 earnings call VFF

    Aug 10, 2026 Source

    Executive summary

    Village Farms Q2 FY26 — Record Cannabis Performance and Margin Expansion

    Village Farms delivered a strong Q2 FY26, marked by record cannabis revenues and significant margin expansion, driven by international growth and operational efficiencies. The company is focused on expanding its global cannabis platform, with Delta II expansion underway and positive developments in the Netherlands, while maintaining a strong cash position and balanced capital allocation approach.

    Highlights

    5

    • Consolidated net sales increased 27% sequentially and 7% year-over-year to $64 million, driven by international growth.

    • Achieved fifth consecutive quarter of positive net income, with consolidated net income from continuing operations at $7.2 million, or $0.06 per share.

    • Consolidated adjusted EBITDA from continuing operations reached $15.4 million, representing 24% of sales, and increased approximately 20% year-over-year excluding a one-time vendor settlement.

    • Cannabis gross margin expanded by 900 basis points year-over-year to 51%, reflecting favorable product mix, increased operating efficiencies, and lower cost of production.

    • International export sales grew 74% year-over-year and 43% sequentially, driven by strong performance in the German market.

    Concerns

    2

    • SG&A as a percentage of sales increased to 28% from 23% in Q2 of last year, primarily due to an update in transfer pricing policies and higher commercial/marketing expenses.

    • Cash flow from cannabis operations decreased to $8.9 million from $19.2 million in Q2 of last year, mainly due to Canadian income tax payments and changes in non-cash working capital.

    Guidance & targets

    8
    CategoryTargetConfidence
    Incremental production from Delta II expansion
    15 metric tons
    high materiality
    High
    Incremental production from Delta II expansion
    25 metric tons
    high materiality
    High
    Delta II expansion production run rate
    40 metric tons
    high materiality
    High
    Total annualized production in Delta
    Approximately 160 metric tons
    high materiality
    High
    Entry into new European jurisdictions
    Expected
    medium materiality
    Medium
    Cronogen facility production ramp-up
    Full production capacity
    medium materiality
    High
    Cash balance growth
    Grow
    high materiality
    High
    EBITDA margin
    30% to 40%
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Cannabis
    Driven by strong international medical exports, particularly in Germany, and growth in the Netherlands. Gross margin expanded significantly due to favorable product mix, operating efficiencies, and lower cost of production at Delta campus.
    International medical exports growth YoY: 74%International medical exports growth sequentially: 43%Netherlands sales: $3.3 millionNetherlands sales growth YoY: 35%Adjusted EBITDA: $15.3 millionAdjusted EBITDA growth YoY: 16%Adjusted EBITDA margin: 29%
    		$53.5 million5%—51% gross margin
    Produce and Other
    Gross margin improved from 11% in Q2 of last year, attributed to strong pricing and production, especially in April and May, and early production from Delta One. Favorable pricing environment in the USA due to suspension of tariffs on Mexican tomato imports also contributed.
    		———26% gross margin

    Operational metrics

    26
    Consolidated net income from continuing operations
    $7.2 millionFifth consecutive quarter of positive net income
    Q2 FY26

    Reflects strong Q2 performance, despite unfavorable variance compared to last year due to a one-time vendor settlement.

    Consolidated adjusted EBITDA from continuing operations
    $15.4 millionIncreased approximately 20% (ex-settlement)
    Q2 FY26

    Meaningfully outpaced total sales growth, demonstrating strong operating leverage.

    SG&A as a percentage of sales
    28%vs 23% in Q2 FY25
    Q2 FY26

    Directly attributable to the sale of the produce business, allocating a higher percentage of corporate expenses to cannabis.

    Cash flow from cannabis operations
    $8.9 millionvs $19.2 million in Q2 FY25
    Q2 FY26

    Variance driven by Canadian income tax payments and working capital adjustments related to export sales and production expansion.

    Canadian income tax payments
    $17 million
    H1 FY26

    Company believes it is the first major Canadian public cannabis LP to be paying corporate income taxes, a testament to operational strength.

    Canadian excise taxes
    $15 million
    Q2 FY26

    Paid on retail range of sales.

    Cash balance
    $73 million
    Q2 FY26

    After completing a $15 million equity placement with US institutional investors.

    Long-term debt
    $40 million
    Q2 FY26

    Company remains comfortable with its long-term debt level.

    Net cash position
    $33 million
    Q2 FY26

    Calculated from cash balance and long-term debt.

    Capital expenditures
    $15 million
    H1 FY26

    Spend during the first six months of the year.

    Share buybacks
    $7 million
    H1 FY26

    Executed during the first six months of the year.

    Equity placement
    $15 million
    Q2 FY26

    Completed during the quarter, contributing to the strong cash balance.

    Pearson Farms credit facility draw
    $8.3 millionIncremental
    Q2 FY26

    Drawn during the quarter to fund facility improvements.

    Market share in Canadian convenience product categories
    Top 10
    Q2 FY26

    Achieved for the first time, entirely organic and building in-house capabilities.

    EU GMP certified product sales mix
    Improved significantly
    Q2 FY26

    Higher sales mix of EU GMP certified product improved margins during the quarter.

    German market share strains
    4
    Q2 FY26

    Most recently held four of the top 10 market share strains in Germany.

    German pharmacy distribution
    Widest
    Q2 FY26

    Believed to have the widest pharmacy distribution of any cultivator with product in Germany today, based on internal research.

    Netherlands market total addressable market potential
    Nearly tenfoldcompared to today
    Long-term

    Significant long-term upside potential if the Netherlands program expands.

    Delta II greenhouse conversion
    —
    Q2 FY26

    The conversion is being completed in phases, one half at a time.

    Future Delta I greenhouse conversion
    More than doubleannualized production capacity
    Future

    Any future conversion of Delta I would significantly increase production capacity.

    German market growth projections
    8,000 tons
    Next 5-6 years

    Management cites projections for significant growth in the German market, even if half of the projection is realized.

    German patient enrollments
    Very low single digits
    Current

    Indicates significant room for growth in the German market.

    Canadian market growth
    Single-digit growth
    Current

    Canada has become a somewhat mature market, with pricing plateauing.

    Pricing in Germany
    Maintaining
    Foreseeable future

    Management sees maintaining margins in Germany, despite decline in non-compliant product pricing.

    Cost of production
    Lower
    H1 FY26

    Demonstrated ability to continue driving down cost of production through continuous improvement and scale.

    Tariff on Mexican tomato imports
    17%
    Past year

    Suspension agreement with Mexico was stopped, leading to this tariff and less capacity from Mexico.

    Industry KPIs

    6
    MetricValueDetails
    Gross margin51%%
    Brand platform growthTop 10 market share
    Organic net revenue growth7%%
    Adjusted EPS operating income$0.06per share
    Elasticity consumer response commentaryResilient demand
    Category growth benchmark channel shift data8% to 15%%

    Capital programs

    2
    Delta II Expansionunderway

    Benefit: 40 metric tons incremental annualized production

    Conversion of the second half of the 1.1 million square foot Delta II greenhouse. First half is completed and in production. Second half conversion will commence on September 1st. Will bring total annualized production in Delta to approximately 160 metric tons.

    Cronogen Facility Ramp-upunderway
    Start: Q2 FY26 (cultivation began)

    Benefit: Increased production capacity for Netherlands market

    Experienced a slight delay with final approvals but began cultivating in Q2. Expected to ramp up to full production capacity over the next few quarters, positioning for growth next year.

    Risks & headwinds

    3
    Increased SG&A as percentage of salesQ2 FY26

    28% in Q2 FY26 vs 23% in Q2 FY25

    Mitigation: Attributed to transfer pricing policy update post-produce business sale and higher commercial/marketing expenses; implies a new baseline.

    Reduced cash flow from cannabis operationsQ2 FY26

    $8.9 million in Q2 FY26 vs $19.2 million in Q2 FY25

    Mitigation: Primarily due to Canadian income tax payments ($17M for H1 FY26) and changes in non-cash working capital (longer terms on export sales, Delta II production expansion). Management expects stronger FCF in H2 FY26.

    Pricing pressure in Canadian marketCurrent

    Single-digit growth, pricing plateauing

    Mitigation: Company is investing in convenience categories and leveraging its dominant position in flower to drive mix and price. Seeing more supply and a mix shift towards lowest value segment in flower.

    What to watch in Q3 FY26

    5

    Delta II expansion production

    Next quarter / H2 FY26
    CurrentFirst half completed and in production
    TargetProgress on second half conversion, incremental 15 MT production for FY26

    Why it matters

    This expansion is key to increasing overall production capacity and driving economies of scale for the cannabis segment.

    The first is completed and in production and the second half conversion will commence on September 1st. We continue to expect that we will harvest an incremental 15 metric tons of production from this D2 expansion this year.

    Q&A highlights

    8

    How will the company alleviate demand/supply bottlenecks with Delta II expansion, and what is the long-term confidence in competitive advantage, especially with potential US exports?

    Management is confident in continued expansion, citing Delta 1 as future capacity and the difficulty of obtaining and maintaining EU GMP certification as a significant barrier for new entrants, including potential US exporters. They believe their current position is strong for the European market.

    “It is not easy. It's just not a matter of getting a DEA export license. not just qualifying for EU GMP. but not just getting there on your initial certification, but maintaining it is even more difficult.”

    asked by Erin Gray · answered by Unknown Speaker

    2 min read6 chapters

    Detailed Narrative

    01

    Global Cannabis Platform Strength

    Village Farms continues to demonstrate the strength of its expanding global cannabis platform, achieving record cannabis revenues and its fifth consecutive quarter of positive net income. The company's Delta British Columbia facilities are experiencing a record year of production, contributing to stronger margin performance. This success is driven by strategic growth in target markets and product categories across its operating countries.

    02

    International Expansion and EU GMP Advantage

    International export sales surged by 74% year-over-year and 43% sequentially, highlighting the competitive advantage of Village Farms' EU GMP certified cannabis facility, the world's largest by compliant product volume. The German market is a key driver, where the company holds four of the top 10 market share strains and has wide pharmacy distribution. The company plans to enter new European jurisdictions in the second half of the year.

    03

    Delta II Expansion and Production Capacity

    The Delta II expansion, converting the second half of the 1.1 million square foot greenhouse, is progressing. The first half is complete and in production, with the second half conversion commencing in September. This expansion is expected to add 15 metric tons of production in FY26 and 25 metric tons in FY27, reaching a full 40 metric ton run rate by Q3 FY27. This will bring total annualized Delta production to approximately 160 metric tons, driving economies of scale and cost efficiencies.

    04

    Netherlands Market Development

    In the Netherlands, Village Farms maintains strong distribution with participating coffee shops and is expanding its product assortment. The Cronogen facility, after a slight delay, began cultivation in Q2 and is expected to ramp to full production capacity by Q1 FY27, positioning for significant growth next year. The company is optimistic about the pilot program's success and potential for tenfold market expansion if it is ultimately expanded.

    05

    Financial Position and Capital Allocation

    The company ended Q2 with a strong cash position of $73 million, following a $15 million equity placement. With Canadian and Netherlands CapEx nearing completion, Village Farms anticipates stronger free cash flow and continued cash balance growth in the second half of the year. The board and management will continue to evaluate capital allocation decisions quarterly, aiming for a balanced approach to drive shareholder returns.

    06

    Legacy Produce Business Performance

    The legacy produce business, though privatized, saw its gross margin expand to 26% from 11% in the prior year. This improvement was attributed to strong pricing and production in Q2, particularly in April and May, and early production from Delta One. The suspension of a 17% tariff on Mexican tomato imports also contributed to a more favorable pricing environment in the USA.

    AI-generated summary of the company’s earnings call. Not investment advice.