What are the long-term EBITDA margin aspirations given recent expansion and potential pricing pressures?

The long-term target for gross margin is 30-40%, and EBITDA margin in the mid-20s is possible. They continue to see strong pricing for EU GMP products and expect economies of scale from Delta expansion. The high cost of EU GMP compliance for others highlights their operational efficiency. “Our continued long-term focus is the 30 to 40% for our gross margin, our EBITDA margin. Certainly in the mid-20s, it's possible.”

Given the 70%+ YoY growth in Germany, what was the overall market growth, and what market share did Village Farms gain?

It's difficult to quantify overall market growth in Germany due to lack of tracking, but internal estimates range from 8-15%. Village Farms has four of the top ten strains and has been growing its distribution penetration, indicating significant share gains. “There was some indication of that being tracked in Germany, which is not really happening, so we have to really rely on internal numbers And those numbers have been anywhere from sort of 8% to 15% internally, but I can't really verify it, so probably won't go there right now.”

How do investors view the visibility of growth in Germany, and how can the company ensure continued growth into 2027 and beyond?

Projections for the German market are astronomical, with patient enrollments still in very low single digits, suggesting significant future growth for at least five years. The company is confident in continued expansion. “Projections are pretty astronomical over the next five to six years towards 8,000 tons. So even if it was half of that, it would be a huge upside. And patient enrollments overall are still very low. It's probably in the single digits. No single digits. Very low single digits. Yes, low single digits.”

VFF

Village Farms (VFF) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Consumer Staples· Aug 10, 2026

Source: earnings call transcript

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

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

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

Category	Target	Timeline	Confidence
Incremental production from Delta II expansion	15 metric tons high materiality	FY26	High
Incremental production from Delta II expansion	25 metric tons high materiality	FY27	High
Delta II expansion production run rate	40 metric tons high materiality	Q3 · FY27	High
Total annualized production in Delta	Approximately 160 metric tons high materiality	Post Delta II completion · FY28	High
Entry into new European jurisdictions	Expected medium materiality	H2 FY26	Medium
Cronogen facility production ramp-up	Full production capacity medium materiality	Q1 · FY27	High
Cash balance growth	Grow high materiality	H2 FY26	High
EBITDA margin	30% to 40% high materiality	Long-term	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
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 million	5%	—	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

Capital programs

Delta II Expansion underway

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-up underway

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

Increased SG&A as percentage of sales Q2 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 operations Q2 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 market Current

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

Delta II expansion production

Next quarter / H2 FY26

Current First half completed and in production

Target Progress 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.

Find out whether VFF delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 6 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.