Village Farms Leans on Brand Diversification to Navigate Cannabis Glut

Village Farms International (Nasdaq: VFF), an agriculture veteran turned cannabis grower, is weathering a competitive cannabis market by betting on brand variety and operational efficiency, executives said during the company’s third-quarter earnings call.

The British Columbia-based company, traditionally known for its produce, has shifted much of its growth narrative toward expanding Canadian cannabis segment. The introduction of the Fraser Valley brand to Ontario has driven positive results, grabbing decent market share by targeting cost-conscious consumers during a period of industry-wide price compressions.

CEO Michael DeGiglio cited the strong performance of the brand as a testament to the company’s ability to pivot in response to market conditions. He also spotlighted the success of Soar, Village Farms’ premium cannabis offering, which has defied expectations while premium products are often suffering from cuts in consumer spending.

“We never expected the premium category to be more than 5% or 10% with the current economic situation, but it’s doing very well,” the CEO told analysts Wednesday.

Not all of Village Farms’ cannabis brands have been immune to the industry’s challenges though. Pure Sunfarms has struggled some from the market’s pricing volatility, DeGiglio said. However, he dismissed the notion of any long-term concern, attributing it to cyclical market dynamics and insisting on the brand’s strong foundation.

“I think it’s an ebb and flow, and the economy has a lot to do with it,” he said. “So, we continue to innovate.”

Looking to the Future

“And now we continue to drive newness innovation. We need to know where we’re going to be in 2025 right now with our launches,” DeGiglio said. “And it takes a lot of energy, a lot of effort, a lot of time and money. You have to continue to trial.”

The company’s nonbranded wholesale business has shown an uptick in profitability, with DeGiglio pointing to shrewd business-to-business dealings that have bolstered gross margins. The shift comes as the company leans into an environment where many competitors are scaling back or reorienting operations in the face of persisting oversupply and a retreat from capital-intensive cultivation models.

DeGiglio candidly reflected on the past year’s challenges in the produce sector, noting a “perfect storm” of inflationary pressures and supply chain disruptions that have rippled across global markets.

“Last year was the worst year we had in produce in 33 years,” he said.

Still, the CEO said he remains cautiously optimistic, citing investments in artificial intelligence and advanced cultivation technology as future catalysts for cost reductions and yield improvements, potentially unlocking new growth avenues for 2024.

Overall, management doesn’t necessarily consider this moment a turning point in cash flow generation for the company.

“I think they may be somewhat lumpy in the quarters ahead, but on the positive side,” DeGiglio said. “That’s our focus: positive cash generation. If our market share slips, it’s because we don’t deem it profitable market share. We are just not gonna chase it.”

“Those days, I think, are over, and we could see what that’s done to a number of companies just chasing unprofitable market share.”