A Village Farms International (TSX:VFF,NASDAQ:VFF) joint venture is continuing to establish itself in the Canadian cannabis industry.

On Tuesday (September 10), Pure Sunfarms, the 50 percent owned joint venture of the British Columbia-based (BC) produce company, announced it secured an amendment for a Health Canada license, which will immediately allow it to sell branded dried cannabis directly to provincial distributors and private retailers.


Pure Sunfarms holds supply agreements with the regulatory bodies for cannabis sales. In Ontario, this is the Ontario Cannabis Store, and in BC, the British Columbia Liquor Distribution Branch.

 

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Since cannabis was legalized for recreational consumption in October last year in Canada, Ontario had C$121 million in marijuana sales while BC had C$19.5 million as of June of this year, according to data from Statistics Canada.

Village Farms touts Pure Sunfarms as a low-cost producer offering quality cannabis products.

The company’s 2019 Q2 results reported earnings of US$9.9 million, including net income from Pure Sunfarms at US$14 million for Village Farms’ share.

Sales of cannabis sold mainly to other licensed producers increased 125 percent in Q2, the company said, bringing in C$32.4 million. It was the third consecutive quarter of profitability for the cannabis producer.

Pure Sunfarms received a license from Health Canada in May to allow one of its facilities in Delta, BC, to extract and process cannabis, enabling it to manufacture products including cannabis oil, concentrates and edibles.

Edible and infused cannabis products are set to become legal for sale later this year. Health Canada has indicated sales of these anticipated items will not start until mid-December.

Pure Sunfarms CEO Mandesh Dosanjh said in a statement the company would begin rolling out its products to regulatory bodies in the coming weeks.

Shares for Village Farms have largely managed to maintain their value in a summer that’s seen other players in the marijuana space slump significantly.

Despite a slow summer for the cannabis stock market, fueled by the industry scandal of CannTrust Holdings (NYSE:CTST,TSX:TRST) illegally growing cannabis in unlicensed rooms and the firing of former Canopy Growth (NYSE:CGC,TSX:WEED) CEO Bruce Linton, Village Farms has seen a strong performance this year.

So far in 2019, shares of the firm in Toronto have jumped over 220 percent in value.

Village Farm shares in Toronto opened at C$15.48 and rose, as of 3:10 pm EDT, to C$15.87, representing a surge in value of 2.52 percent for the day.

Michael DeGiglio, CEO of Village Farms International, said the license amendment follows Pure Sunfarms greenhouse reaching a full production rate of 75,000 kilograms in July.

DeGiglio added that Pure Sunfarms is expected to reach a minimum production capacity of 150,000 kilograms of cannabis per year in 2020.

Pure Sunfarms will continue to engage other provincial cannabis distributors in Canada to sign more supply agreements, according to the company.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.

 

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Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, where he worked on lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now seeing a return to form by way of the excitement for an ongoing opening process in the US.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes for cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

 

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“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro environment pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s current potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business potential, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed to work on the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be at the moment.

 

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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance.

In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

“We’ve seen the Canadian licensed producers be really hot stock performance-wise, outpacing the US (MSOs), and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadians waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent an increase to their already thriving operations.

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