Village Farms International, Inc. Annual Report: An Investor's Guide to a Dynamic Year

Village Farms International, Inc. (VFF) navigated a year of significant strategic shifts and demonstrated operational resilience across its diverse business segments. This summary offers a clear, concise breakdown of the company's performance, financial health, strategic direction, and key risks, providing retail investors with a complete and accessible picture.

Business Overview

Village Farms International operates across three core segments:

• Produce Business: Cultivates and sells fresh, high-quality produce, primarily tomatoes, cucumbers, and bell peppers, using advanced controlled environment agriculture (CEA) techniques.
• Cannabis Business: A prominent player in the Canadian cannabis market through its Pure Sunfarms brand, with strategic ventures also underway in the U.S. and the Netherlands.
• Energy Business: A smaller segment that generates clean energy from landfill gas.

The past year saw Village Farms strategically pivot to enhance profitability and focus. The company reported total revenue of $295 million, marking a 2% increase year-over-year. Growth in the cannabis segment primarily drove this increase, which a planned reduction in produce operations partially offset. Despite revenue growth, non-cash charges and market dynamics pressured net income.

Financial Performance

• Total Revenue: Reached $295 million, up 2% from the previous year.
  • Cannabis Segment: Led growth with $150 million in revenue, a 15% increase, driven by strong brand recognition and market share gains in Canada.
  • Produce Segment: Generated $135 million in revenue, a 9% decrease, primarily due to the strategic divestiture of Vanguard Food LLP.
  • Energy Segment: Maintained stable revenue at $10 million year-over-year.
• Gross Profit: Totaled $45 million, representing a 15.3% gross margin. This marked a slight improvement from 14.8% last year, reflecting better cost management within the cannabis segment.
• Net Income (Loss): The company reported a net loss of $12 million, or ($0.14) per share, compared to a net loss of $8 million last year. An $18 million non-cash goodwill impairment charge in the cannabis segment and higher interest expenses primarily impacted this result.
• Adjusted EBITDA: Decreased to $28 million from $32 million. This indicates operational profitability challenges despite revenue growth, mainly stemming from increased marketing spend and competitive pricing pressures in the cannabis market.

Risk Factors

Investors should consider the following key risks:

• Customer Concentration: Approximately 25% of produce revenue comes from Village Farms' top three customers. Losing any major customer or a significant reduction in their orders could materially impact revenue and profitability.
• Cannabis Market Volatility and Regulatory Risk: The cannabis industry is highly sensitive to regulatory changes, pricing pressures from oversupply, and evolving consumer preferences. Delays in U.S. federal legalization or adverse changes in Canadian regulations could negatively affect growth and profitability.
• Goodwill Impairment Risk: A further deterioration in the cannabis market or a failure to meet projected cash flows could necessitate additional goodwill impairment charges, impacting reported earnings.
• Commodity Price Fluctuations: The produce business faces exposure to volatile energy costs, fertilizer prices, and market pricing for fresh produce.
• Supply Chain Disruptions: Global supply chain issues could impact the availability and cost of essential inputs for both produce and cannabis operations.

Management Discussion

Major Achievements and Challenges This Year:

• Strategic Divestiture: On May 30, 2025, Village Farms successfully sold its non-core Vanguard Food LLP produce operation for $20 million. This move streamlines the Produce Business, allowing for a greater focus on high-margin, proprietary varieties and improving overall segment profitability by 1.5 percentage points.
• Cannabis Market Share: Pure Sunfarms maintained its position as a top-three licensed producer in Canada by retail sales. It expanded its product portfolio with 10 new SKUs and achieved a 10% increase in average selling price per gram.
• Share Buyback Program: The company actively repurchased 1.5 million shares under its share buyback program, demonstrating management's confidence in the company's intrinsic value and commitment to enhancing shareholder returns.
• Cannabis Goodwill Impairment: The company recorded an $18 million non-cash goodwill impairment charge related to its Canadian Cannabis business. This reflects a more conservative outlook on future cash flow projections due to increased market competition and slower-than-anticipated regulatory reforms, indicating potential risks if market conditions do not improve.
• Produce Market Headwinds: The remaining produce operations faced challenges from rising energy costs and competitive pricing pressures, impacting segment profitability despite efficiency improvements.
• Regulatory Uncertainty: Continued delays in U.S. federal cannabis legalization and evolving provincial regulations in Canada created an unpredictable operating environment.

Leadership and Strategy Changes:

• Strategic Focus: The divestiture of Vanguard Food LLP underscores a clear strategy to optimize the produce portfolio, focusing on higher-margin, value-added products and operational efficiency.
• Shareholder Value Enhancement: The ongoing share buyback program, initiated in September 2025, signals management's commitment to returning value to shareholders and confidence in the company's long-term prospects.
• Past Acquisition Integration: The "Rose" acquisition, completed in November 2021, has been fully integrated. It contributes an additional $15 million in annual revenue to the produce segment and expands the company's geographic footprint in the Western U.S.
• Operational Optimization: Village Farms continues to invest in automation and energy efficiency across all segments to drive down costs and improve margins.

Market Trends and Regulatory Changes Affecting the Company:

• Cannabis Legalization Momentum: While U.S. federal legalization remains uncertain, incremental state-level reforms and potential federal rescheduling of cannabis could open significant new market opportunities for Village Farms' U.S. ventures.
• Global CEA Growth: Increasing consumer demand for sustainably grown, locally sourced produce, coupled with technological advancements in CEA, presents a long-term growth driver for the Produce Business.
• Inflationary Pressures: Rising input costs (labor, energy, packaging) across all segments remain a key market trend, requiring continuous cost management and pricing strategies.
• Environmental, Social, and Governance (ESG) Focus: Growing investor and consumer emphasis on ESG factors influences operational decisions and reporting, with Village Farms highlighting its sustainable cultivation practices.

Financial Health

• Cash and Equivalents: Village Farms ended the year with $35 million in cash and cash equivalents, providing operational flexibility.
• Total Debt: Amounted to $110 million, primarily consisting of term loans and credit facilities for its Pure Sunfarms cannabis operations. The debt-to-equity ratio stands at 0.6x, which is manageable but requires ongoing monitoring.
• Liquidity: The company has $20 million available under its existing credit facilities, providing adequate liquidity for short-term operational needs and capital expenditures. Operating cash flow of $15 million indicates the core business effectively generates cash.

Future Outlook

Village Farms anticipates revenue in the range of $305 million to $320 million for the upcoming fiscal year, with Adjusted EBITDA projected between $30 million and $38 million. This outlook relies on:

• Continued market share gains and new product introductions in the Canadian cannabis market.
• Improved profitability in the produce segment through cost efficiencies and a focus on premium varieties.
• Strategic exploration of U.S. cannabis opportunities, particularly in states with established medical or adult-use markets.
• Subsequent Event (Canadian Cannabis): In February 2026, the company announced a significant partnership with a major Canadian retailer. This collaboration will launch an exclusive line of cannabis products, expected to boost cannabis revenue by an additional 5% in the next fiscal year and solidify its market leadership.

Competitive Position

• Produce: Village Farms leverages its large-scale, technologically advanced CEA facilities to produce high-quality, consistent yields. Its focus on sustainable practices and proprietary varieties helps differentiate it in a competitive market.
• Cannabis: Pure Sunfarms stands as a recognized leader in the Canadian recreational cannabis market, known for its consistent quality, competitive pricing, and strong brand loyalty. Its vertically integrated model, from cultivation to distribution, provides significant cost advantages. Strategic investments in the U.S. (e.g., through joint ventures) and the Netherlands position it for future international expansion.