Village Farms (VFF) Q3 2026 Earnings Call Transcript

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DATE

Mon, Nov. 9, 2026

CALL PARTICIPANTS

• President and Chief Executive Officer - Michael A. DeGiglio
• Interim Chief Financial Officer - Hamid Shekarchi
• Chief Operating Officer - Ann Gillin Lefever
• Senior Vice President of Corporate Affairs and Investor Relations - Sam Gibbons
• Executive Vice President and Corporate Secretary - Stephen Ruffini

TAKEAWAYS

• Consolidated Net Sales -- $66.9 million, representing a 5% sequential increase driven by record cannabis revenue.
• Cannabis Segment Revenue -- $55.0 million, growing 3% year over year and reaching a new quarterly record.
• International Export Sales -- $20.8 million, increasing 75% year over year due to demand in European markets.
• Net Income -- $9.9 million, resulting in earnings of $0.08 per share.
• Adjusted EBITDA -- $18.2 million, or 27% of sales, improving 18% sequentially from the second quarter.
• Cash and Cash Equivalents -- $79.3 million, an increase of $6.3 million from the previous quarter.
• Operating Cash Flow -- $9.5 million for the third quarter, reflecting stronger second-half free cash flow.
• Canadian Branded Sales -- $25.3 million, a 6% year-over-year decline attributed to lower value brand volumes.
• Canadian Non-Branded Sales -- $3.3 million, falling from $7.3 million last year due to a softer wholesale trim market.
• Netherlands Sales -- $2.8 million, impacted by increased plant propagation activities at the Phase 2 facility.
• U.S. Cannabis Revenue -- $2.8 million, reflecting challenges from unregulated intoxicating hemp products and state restrictions.
• Cannabis Gross Margin -- 48%, compared to 55% in the prior year period, driven by lower trim pricing.
• Trim Spot Pricing -- Down 75% year over year, which management described as a trough level for the industry.
• Delta 2 Expansion Capacity -- 40 metric tons, with the facility expected to reach full annual run rate by mid-2027.
• Delta 1 Conversion Right -- 16 acres, providing the option to activate 700,000 square feet of production in 2027.
• Monahans Facility Size -- 30 acres, consisting of a 1.3 million-square-foot greenhouse in Texas.
• Total Long-term Debt -- $39.0 million, with a weighted-average interest rate of 5.7%.
• Canadian Excise Tax -- $16.5 million, representing 39% of gross branded cannabis sales.
• Year-to-Date Adjusted EBITDA -- $43.5 million, up 18% when excluding a one-time settlement from the previous year.
• Capital Expenditures -- $17.3 million year to date, focused on Delta 2 and Groningen expansions.
• Average Net Selling Price (International) -- Down 9% year over year, entirely driven by a mix shift to bulk-flower sales.
• Monahans Activation Timeline -- 12 months, reflecting the estimated time to operationalize the Texas facility for cannabis production.

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RISKS

• Shekarchi stated, "European order volume slowed significantly over the holiday period in Q4 and resulted in a sequential revenue decline compared to the third quarter," indicating potential seasonal volatility in international sales.
• Shekarchi warned that contracted produce sales from the Delta 1 greenhouse typically peak in the second and third quarters and declined 60% in the fourth quarter of the previous year.
• Management stated that U.S. cannabis operations continue to face challenges created by "unregulated intoxicating hemp products and related state regulatory restrictions."

SUMMARY

Village Farms International, Inc. (NASDAQ:VFF) reported record quarterly cannabis revenue of $55 million, with international export sales growing 75% year over year. Management reported that consolidated net sales reached $66.9 million while adjusted EBITDA improved 18% sequentially to $18.2 million. The company reported net income of $9.9 million and a cash position of approximately $80 million as of Sept. 30. Strategic efforts are focused on mobilizing production assets in Texas and expanding cultivation capacity in British Columbia and the Netherlands to meet global demand for pharmaceutical-grade cannabis.

• CEO DeGiglio indicated that midterm elections in Texas shifted the regulatory landscape, stating, "we are actively mobilizing plans to operationalize our stand alone 30-acre 1.3-million-square-foot greenhouse in Monahans, Texas for cannabis production."
• The company is focusing on EU GMP certification at the source to mitigate late-supply-chain certification, with CEO DeGiglio stating, "If GMP washing continues to be curtailed... the market for truly at the source compliant product could face shortages very quickly."
• Management reported that several Canadian competitors are de-emphasizing branded sales or exiting the dry flower category, which improves the competitive landscape for the company.
• The Delta 2 expansion in British Columbia is on track for completion in the first quarter of 2027 and is expected to reach its full 40 metric ton annual run rate by mid-2027.
• The company exercised its right to convert 25% of the Delta 1 greenhouse to cannabis production in 2027, providing optionality for an additional 700,000 square feet of capacity.
• In the Netherlands, the Groningen facility is now fully planted and is expected to begin driving stronger revenue growth in the fourth quarter.

INDUSTRY GLOSSARY

• EU GMP: European Union Good Manufacturing Practice, a pharmaceutical quality standard required for medical cannabis imports into Europe.
• Adjusted EBITDA: A financial metric that excludes non-recurring items, amortization, depreciation, and taxes to measure core operational performance.
• Trim: Leaves and small stems removed from cannabis flowers during harvesting, typically sold wholesale for extraction.
• Excise Tax: A specialized tax applied to cannabis products in Canada, often calculated per gram or as a percentage of the selling price.
• Propagation: The process of breeding or growing plants from seeds or cuttings, which can temporarily reduce production volumes during facility ramp-ups.
• Schedule 3: A classification under the U.S. Controlled Substances Act for drugs with moderate to low potential for physical and psychological dependence.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Village Farms International Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Star 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Michael DeGiglio. Please go ahead.

Michael A. DeGiglio: Thank you, Tanya. And good morning, everyone, and thank you for joining us today. With me on the call are Hamid Shekarchi, our Interim Financial Officer, and Ann Gillin Lefever, our Chief Operating Officer and Sam Gibbons, Senior Vice President of Corporate Affairs and Investor Relations. I will start this morning with a review of our Q3 highlights, then Hamid will cover the financials before our closing comments and analyst questions. Before we begin, though, I would like to extend a warm welcome to Hamid on his first call with Village Farms.

Hamid stepped into his new role after serving as CFO of Canadian cannabis business and has 18 years of combined financial leadership and operational experience in cannabis He knows our business inside and out, and we are excited to welcome him to our C-suite as Stephen Ruffini transitions to lead our M&A efforts. Now on to the quarter. We delivered record cannabis revenues of $55 million with approximately 43% of sales coming from some of the world's most attractive and fastest growing international markets. Consolidated net sales were $67 million up 5% sequentially, Net income was $10 million or $0.08 per share.

Adjusted EBITDA improved 18% sequentially to $18.2 million or 27% of sales and we delivered operating cash flow of 9.5 million Most importantly, we are achieving these results before benefitting materially from increased production capacity we have been converting in our Delta BC and Netherlands facilities, both of which position us for stronger revenue growth and profitability next year. As we noted in this morning's earnings release, the year over year variance in our Q3 gross margins was driven predominantly by a softer spot market for trim in the Canadian wholesale channel and not a reflection of us lowering international export pricing.

There is a strong market for our trim to B2B customers in Canada, and these sales typically provide strong contribution margins and profitability for our Canadian operators. However, during Q3, we observed what we believe to be a trough level of trim volumes and trim pricing, with spot trim pricing down about 75% year over year during the quarter. However, we expect these conditions to begin normalizing in Q4 given the visibility we have from our order book in October as well as the commencement of some new trim supply agreements with higher contracted pricing more in line with historical levels which also began last month. Now moving on to our international business.

Which remains a powerful point of distinction for our expanding global platform. International export sales grew 75% year over year to $20.8 million in line with last quarter's record as we remain somewhat supply constrained while awaiting more meaningful production increases from the Delta 2 expansion. We said for the past few quarters that we expected EU GMP compliant product would be more insulated from price compression and we have observed that we are observing in non compliant areas of the European supply chain. Our Q3 results continue to prove it with resilient pricing that we have anticipated. Now let me be clear, we have not lowered pricing for our EU GMP compliant product.

And our pricing outlook remains favorable with demand levels that continue to outpace our current supply capabilities. Our average net selling price in Q3 declined by 9 percent year over year but this was entirely driven by a mix shift to bulk-flower and not a reflection of us aggressively lowering prices as some market participants have speculated far in this earnings season. Now I would like to discuss the broader regulatory landscape in Europe which we believe is continuing to move more favorably in our direction. Many market participants have recently described price compression in Germany. Particularly for converted product, meaning flower cultivated outside EU GMP conditions, and certified later in the supply chain.

UK and German regulators, the Hessian government, are tightening requirements around these conversion pathways. A recent analyst estimates roughly 740 tons of EU GMP certified flower capabilities globally. Of which only about 50-7 percent or roughly 420 tons is EU GMP certified at the source of production. This balance relies on conversion, and that is where pricing pressure has been most significant. Village Farms represents a very meaningful percentage of existing compliant at the source EU GMP capacity. As we have stated previously, our Delta production facility is the world's largest single site EU GMP certified cannabis facility. And the vast majority of our production is completed under GMP conditions.

Germany alone expects roughly 3 hundred tons of imports this year. And Australia, Israel and The UK import more than 150 tons combined. If GMP washing continues to be curtailed as we have seen from The UK and German regulators, the market for truly at the source compliant product could face shortages very quickly. And the market will not just move towards operators with GMP certification. It will move to operators with a consistent flow of quality, certified product at the right price that can consistently deliver. We do not believe anyone is better positioned to benefit from these dynamics in Village Farms.

We believe this compliant supply chain organically with the foresight to begin working towards GMP certification nearly 6 years ago. And we continue to operate this business with industry leading profitability, which is what we feel is 1 of the most attractive competitively distinct and independent growth engines across the global cannabis industry. Now I want to turn to the domestic Canadian business where we are starting to see new opportunities to grow profitable market share as evolving competitive dynamics here are also leaning in our favor.

Branded sales were $25.3 million and we continue to hold our top 5 overall market share position nationally with our brands in the top 10 in every major product category while building this business organically and not through mergers and acquisitions. We continue to make incremental market share gains in vapes, and infused pre rolls during the third quarter and average net selling prices in the branded channel were up 6 percent year over year reflecting our continued focus on higher value products. Non branded sales of $3.3 million were down from prior year quarter with the variance driven predominantly by the spot market trend dynamics I discussed earlier. Now I will be candid.

Canada is where we built the foundation for our business, and our objective remains to grow in line with the market at mid single digits. We have not achieved that goal in recent quarters, and we are not satisfied with that result. We remain committed to providing our provincial partners retailers and consumers consistent supply and service levels and we have been allocating majority of product from the initial harvest from our Delta 2 expansion to support the domestic Canadian market. From a competitive standpoint, over the course of the past several months, multiple competitors have indicated they are deemphasizing Canadian branded sales.

Some are exiting the dry flower category entirely, and 1 in particular has publicly acknowledged that it cannot compete with operators like Village Farms. That means improving competitive dynamics and more room for stronger operators like us with the scale, cost structure and brands to win long term. We are also encouraged by recent actions by the Canadian government to aggressively combat the illicit market activities in Canada as well as by last week's news of the move to 1 federal cannabis excise stamp which we anticipate will create additional operating efficiencies for our business. Cannabis is now the number 5 cash crop nationally in Canada and the number 2 cash crop in the province of British Columbia.

We are very encouraged by the government's increasing favorable view of this important growth driver for the Canadian economy and this gives us even more confidence to continue investing in our production our people and our product portfolio in Canada. Our Delta 2 expansion remains on track for completion in the first quarter with expectations to reach its full 40 metric ton annual run rate by the middle of next year. The expansion will support continued organic growth in both the domestic and international export markets through 2028.

But as noted in this morning's release, we are already well ahead on planning for the next step by exercising our conversion rights with Vindextra Holdings for our D1 greenhouse. that is our Delta 1 greenhouse. In mid October, we notified Vindextra to exercise our contractual right to convert 25% of Delta 1 to cannabis production during 2027,. Which provides us the optionality to activate an additional 16 acres of 700 thousand square feet of production. We have no formal conversion plan today, but given increasing demand for EU GMP product and improving conditions in the domestic Canadian market we felt it prudent to look at our flexibility to move as quickly as possible if and when that changes.

In The Netherlands, Q3 sales were impacted by an increase in plant propagation activities, which supported the ramp up of our operations at the Phase 2 facility in Groningen. This resulted in a sequential decline in sales as compared to the second quarter but the Groningen facility is now fully planted which we expect to begin driving stronger revenue growth in the fourth quarter and throughout next year. In September, the Dutch government published its first annual monitoring report conducted by a number of different agencies and coffee shops, growers, all describe their experience with the program as positive. Product availability has widened.

Consumer rate price value more favorable than before the program started, and there was no clear difference in public health, livability, or safety compared to nonparticipating municipalities. Replacing a tolerated illegal supply chain with a regulated 1 is not an easy task, but the Dutch government has taken a very thoughtful approach and so far is showing a lot of signs of success. We believe consumers are developing a preference for the legal supply chain and our team is continuing to work closely with local municipalities and policymakers to help build a model framework all stakeholders can be proud of.

We are supportive of revised packaging and labeling requirements to prevent consumers from focusing on high potency products and we are optimistic that recent efforts to formalize administrative processes surrounding the issuance of coffee shop permits may lead to increased store counts in the pilot program in the near term future. And then finally, in our U. S, our Balanced Health Botanical subsidiaries continuing to pursue pathways to participate in the Center for Medicare and Medicaid Innovation pilot program. For CBD and cannabinoid products. We are awaiting final clarity on the outcome of the pending December 11 federal hemp ban to further assess this opportunity.

But we believe BHB is positioned to play a role in this market if federal regulations end up protecting our nonsynthetic full spectrum products. I will come back to some closing remarks without views of the changing regulatory landscape across the U.S., and in particular Texas But now I would like to hand the call over to Hamid for his review of the financials. Hamid?

Hamid Shekarchi: Thanks, Mike. Good morning, everyone. All figures I will reference today are in US dollars unless otherwise noted. Q3 consolidated net sales were 66.9 million up 5% sequentially and level with Q3 last year. Driven by record cannabis sales and continued international growth. Consolidated gross margin was 44%, compared to 48% last year and 47% in Q2, with the variance driven by softer spot trim market conditions Mike discussed earlier, offset somewhat by a stronger performance in our other segment. SG&A was 24% of sales, compared to 23% in Q3 of last year reflecting higher commercial and marketing spend and the transfer pricing update we discussed last quarter.

As a reminder, following the Vindextra transaction last year, more corporate costs are allocated directly to cannabis. And I would also like to point out that SG&A as a percentage of sales improved by 500-basis-points sequentially as compared to Q2. Adjusted EBITDA from continuing operations was $18.2 million or 27% of sales, compared to a record performance of $20.7 million in Q3 of last year. And up 18% sequentially from $15.4 million in Q2. I would also like to put our year to date performance in context. Year to date adjusted EBITDA was 43.5 million compared to $41.2 million which included last year's onetime $4.3 million vendor settlement.

Excluding the vendor settlement, year-to-date adjusted EBITDA is up 18%, continuing to outpace revenue growth with a steady pace of improvement we have been delivering throughout 2026. Net income from continuing operations was $10 million or $0.08 per share compared to $10.8 million or $0.09 Q3 last year and up from $7.2 million in Q2. Cash flow from operations was $9.5 million in the quarter. Turning to the Cannabis segment. Net sales increased 3% to a record $55 million International exports increased 75% to $20.8 million driven by continued strong European demand and in line with Q2's record performance as we remain somewhat supply constrained while awaiting more meaningful contributions from the Delta 2 expansion.

Canadian branded sales were $25.3 million down 6 percent year over year on lower value brand volumes with an average net selling price up 6%. Canadian non branded sales were $3.3 million compared to $7.3 million last year, with the variance driven primarily by lower trim sales. Netherlands sales declined to $2.8 million as a result of the increase in propagation activities, which Mike discussed. US cannabis sales from Balance Health Botanicals were $2.8 million and reflected continued challenges created by unregulated intoxicating hemp products and related state regulatory restrictions.

Cannabis gross margin was 48%, compared to 55% last year and 51% in Q2, with the year over year variance driven primarily by softer trim sales and a more minor impact of the mix shift of international sales towards bulk flower. Cannabis adjusted EBITDA was $14.7 million or 27% of sales, compared to $20.2 million in Q3. Cannabis net income was $7.8 million compared to $12 million last year, with the variance driven by lower gross margins and increased operating expenses to support future growth.

Cannabis cash flow from operations $7.3 million compared to $20.6 million with the variance driven by Canadian income tax installments that did not occur last year, some longer payment terms on export sales, and a planned inventory build we feel is important to support an increasingly complex global supply chain. And finally, as we always point out, we incurred Canadian excise taxes of $16.5 million in Q3 or 39% of gross branded sales.

In our other segment, which includes clean energy, and the remaining produce operations in our Delta 1 greenhouse, we generated net sales of $11.9 million net income of $2.3 million and adjusted EBITDA of $3.4 million with year over year improvements driven primarily by stronger yields and pricing. Now turning to the balance sheet. We ended the quarter with approximately $80 million in cash, up $6.3 million sequentially delivering the stronger second half free cash flows we discussed on last quarter's call. Year-to-date, we generated $35 million from continuing operations before working capital adjustments.

Working capital adjustments have included approximately $19.7 million of income tax payments, essentially a year and 9 months of Canadian income taxes, along with higher receivables and inventory. We invested $17.3 million in CapEx year-to-date primarily expansion CapEx for Delta 2 and Groningen both of which are now substantially complete. Long term debt was approximately $39 million at a weighted-average rate of 5.7% and our $10 million revolver is undrawn and we remain in a strong net cash position of $41 million Before I hand the call back to Mike, a brief reminder of fourth quarter seasonality in our business.

For those of you who are new to our story, there is essentially seasonality in our business related to changes in our growing climate for Delta throughout the year. Contracted produce sales from our Delta 1 greenhouse to our partner, Vindextra Holdings, always peak in the second and third quarters. Last year, they declined about 60% in Q4, and we would expect a similar trend this year in line with this typical seasonality. Additionally, while our international medical business is still relatively new, last year, European order volume slowed significantly over the holiday period in Q4 and resulted in a sequential revenue decline compared to the third quarter.

While we have not observed any material changes in international customer behavior in October, we think it is prudent to remind investors that we may experience similar holiday period seasonality again in 2026. International shipment timing and order sizes can create great quarter-to-quarter variability in our financial performance. So we encourage investors to evaluate the performance of this business over a longer time horizon than 1 quarter. Back to you, Mike, for closing comments.

Michael A. DeGiglio: Thanks, Mike. In summary, our Q3 results reflected an another very strong quarter of financial performance without yet having experienced material benefit from our expansion projects as I mentioned. Year-to-date, we delivered double digit growth in cannabis sales, nearly doubled international exports delivered 6 straight quarters of positive net income, as a pure play global cannabis company and we remain in excellent financial position with $80 million in cash, to continue investing in our platform. Our competitive position in Canada is improving Demand for our EU GMP compliant product remains very strong. And we have importantly not lowered pricing.

Our Delta 2 and Groningen expansions are on the cusp of continuing stronger revenues and we are carefully laying the groundwork to continue scaling our footprint through our Delta 1 greenhouse and activation of our Texas assets. Now for some last remarks on our view of the U.S. regulatory landscape following last week's midterm elections. US voters overwhelmingly chose access to cannabis over prohibition. Candidates who supported sensible cannabis policy won across the country, and across party lines. Incoming governors in Ohio, Iowa, Wisconsin, and Texas campaigned on cannabis reform and newly elected senators in both parties did the same. In Massachusetts, roughly 3 quarters of the voters chose to keep adult use legalization.

In Idaho, voters defeated by a wide margin a measure that would have taken away their ability to enact future cannabis reform. Several states are now poised to take up more meaningful reforms, including Pennsylvania, Iowa, Kansas, Wisconsin, and Texas, where voter opposition to the state's recent THC ban was a central issue in the race for lieutenant governor. The incumbent who championed the THC ban in Texas and was the largest roadblock for cannabis reform was defeated after telling voters to vote him out if they disagreed with a THC ban. Impact extends to Washington.

Leadership is changing at the Appropriations Committee where federal reform has historically stalled, and we believe this incoming congress will be the most supportive of cannabis reform in American history. This is as we await the DEA's potential rescheduling of legal adult cannabis to schedule 3. The message from voters is clear. Americans want safe, regulated, and affordable access to cannabis and they want their leaders to deliver it. The landscape just shifted quickly, especially in Texas, and we are optimistic about what it means for patients, consumers, and responsible operators like Village Farms.

Now in Texas specifically, we believe the outcomes of the midterm were as big of a move for that market as the DEA's final rescheduling order was for medical operators across the U.S. There is considerable political pressure for Democrats in Texas to bring back THC and they now have the votes in the Texas House, which flipped Democratic, and potentially the Senate which shifted to have less Republicans, to significantly reform its medical program and potentially even more towards full legalization.

We believe it is likely we will see meaningful changes during this upcoming legislative session and we are very encouraged by the things we are already hearing about how new leadership may be thinking about this major voter issue. Village Farms has been operating in Texas for over 30 years as 1 of the largest employers in 2 separate counties, and we are uniquely positioned to quickly operationalize the critical infrastructure necessary to build a successful cannabis market in Texas. In response to the changing regulatory climate following the Texas midterms, we announced this morning that we are actively mobilizing plans to operationalize our stand alone 30-acre 1.3-million-square-foot greenhouse in Monahans, Texas for cannabis production.

Monahans is the youngest, most advanced production asset in our portfolio. I personally, along with our asset development and operational teams, have visited the site several times over the course of the past few months, and we have a clear and cost efficient plan that can bring this facility online within a 12-month time frame. If Texas policymakers are truly serious about enabling their citizens affordable access, to high quality cannabis they should not continue to ignore the operational expertise and infrastructure of Village Farms. As we have said many times in the past, we expect to be in Texas cannabis and we clearly remain focused on pursuing all potential pathways to initiate our U. S.

Market entry with a commencement of production in Texas. Looking ahead, we believe we are still in the very early innings of global cannabis adoption. And that there is a long runway of global growth and opportunities for value creation for Village Farms. For nearly 4 decades, we have led in large scale controlled environmental agriculture and today, we are 1 of the world's largest and lowest cost producers of high quality cannabis. Scale matters, but scale alone is not our only destination. We intend to evolve from being defined by what we grow, to owning the capabilities that determine what is grown how it performs, where it can be sold, and how much value it creates.

We are focused on building a platform that expands globally, and participates in new value pools as regulated markets evolve. While cultivation product innovation and distribution remain at the center of our engine today, Around that core, we see tremendous long term potential for broader applications of cannabinoids across global markets that will be driven by truly protectable intellectual property, In the coming years, our industry will drive advancement in scientific and analytical capabilities accelerate innovation of novel products and commercialization opportunities, and advanced development of botanical drugs for medical and therapeutic purposes.

Our objective is to own more of the value more of the intellectual property, and the economies created from the plan which will be sought by patients and consumers to build a more valuable cannabis company for our shareholders. The same framework is guiding our approach to M&A. We prefer organic growth opportunities, but we will pursue accretive opportunities that accelerate these capabilities and we will remain patient and disciplined on valuation and permissible regulatory frameworks. If a deal is not strategically compelling to create long-term shareholder value, we simply will not do it.

So I would like to close with another acknowledgment and thanks to our teams around the world You all continue to raise the bar for Village Farms in every market we operate. And it is because of you that we are building 1 of the most powerful and differentiated cannabis platforms in global cannabis. With that, operator, we can open the call now for questions.

Operator: Certainly. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question will be coming from the line of Aaron Grey of AGP Alliance Global Partners. Your line is open.

Aaron Grey: Hi. Good morning. Congrats on the quarter, and thank you for the and the detailed remarks in the prepared. First question I have is relating to the Germany pricing dynamics. My appreciate, you know, the color you provide in terms of, you know, where you believe VFS stands and the broader market. Just going to maybe summarize. So it seems like even without clamping down on EU GMP compliance, you feel confident in your ability to compete in the international market. And then, you know, if greenwashing were more meaningfully cut off, you see, as we have seen in some countries, you see that could present meaningful upside given the expected undersupply of full EU GMP compliant product.

Just want to get some further color in terms of that is how you are seeing the current dynamics for international. Thanks.

Michael A. DeGiglio: Yeah. I mean, we are very confident that the EU GMP compliant product will continue to gain traction going forward. So the regulators are showing that And there is been a couple situations. I mean, Portugal, as you know, took country of Portugal took a position about a year ago. Due to a lot of, product coming out of Portugal through illicit markets that really restrict growers from exports. That created a large inventory that has aged out And we think that had some short term impact at the pharmacy level. So there are other dynamics.

We have even heard everybody's trying to jump on a bandwagon. it is been field flower trying to make its way through the process as well. So you know, I think it is going to be-- there will be some headwinds going forward, but we are just going to stick to continuing to build out EU GMP. Ann, you want to add some color?

Ann Gillin Lefever: Yes. Good morning, Aaron. Just 2 more things. Just reiterating, we have not lowered our pricing on EU GMP. Biomass product. And number 2, I think your analysis of supply-demand is very accurate. Obviously, the large sought after EU GMP product still has a very large backlog of demand. Behind it.

Aaron Grey: Okay, great. Thanks, Mike and Ann, for that. Second question for me. Just in terms of, you know, capacity allocation. In your prepared remarks, you mentioned that some of the initial harvest from the second half of Delta going to the Canadian market, versus potentially international. Obviously, not all, but just allocating some there. As you look to defend share. So maybe just talk about, you know, how you value your position in the Canadian market on a longer-term basis, particularly given you might be able to get, you know, some higher margin sales initially if you allocate it towards international? Thanks.

Michael A. DeGiglio: Yeah, well, it is been a difficult balance. that is really why it led to over a year ago, the plans to expand the Delta 2 facility. Which is now, as we indicated, coming on board. So we are going to continue to balance the portfolio, but Canada is very important to us, as I mentioned. And. But we. We have made a statement years ago that we are not only chasing market share. So we continue to try to be more efficient in our portfolio going forward. And we believe, as I mentioned, there are some of our competitors that may be not pursuing Canada.

So we think with the growth we are having, and the fact that the government, for the first time in my tenure, is really starting to acknowledge the impact to the overall Canadian economy is getting behind cutting back on illicit trade. So we think growth is in Canada. it is very important market for us. And we think we will have the capacity to continue to penetrate increases in the Canadian market.

Aaron Grey: Okay. Great. Thanks very much for the color. I will jump back in the queue.

Operator: Next question will be coming from the line of Doug Cooper of Beacon Securities. Your line is open, Doug.

Doug Cooper: Hey. Good morning, everybody, and congrats on a great quarter. Mike, just wanted to sort of jump around into various geographies to just confirm to follow on from Aaron. Can you confirm the number you just said earlier in your presentation about the percentage of EU GMP certified product do you believe Village has? What percentage of the overall market?

Ann Gillin Lefever: Do you want to-- yeah. Good morning, Doug. We do not put that out there. We gave you some numbers as to what we see happening on the macro scale, and you know the size of our footprint, but we do not confirm that number publicly. Okay.

Doug Cooper: So you did-- you-- I just wanted to. Maybe I did not quite hear. So was that you just said the. You are the. Have the largest single facility of EU GMP certified product. Is that correct? Is that right?

Michael A. DeGiglio: Believe we did. We believe we are the largest single facility. But we just decided to make the campus, EU GMP compliant. So even if it goes to other channels, including domestic Okay.

Ann Gillin Lefever: And then it would involve a lot of work. I will just add that. It was not just a quick decision. Quite a bit of work that our teams put in to scale that way.

Doug Cooper: Okay. And sticking with the Delta Complex, Mike, you talked about exercising the option for 25% conversion of D1 potentially. What else needs to be done before you, actually put I am gonna say, shovels in the ground to convert 25% of that. And what would be the tonnage you would expect from that if it were converted and how would you need to be that-- make that an EU-GMP-certified facility about 25%?

Michael A. DeGiglio: Well, that 25% is bigger than the expansion of Delta 2, which is 40 tons. So probably in the area of 50 to 60. We have the optionality to convert 1 quarter of it over a 4-year period. So we just to be clear, we trigger the optionality if we were to convert it sometime next year for 28, No decision has been made, but we have the right to do that. So that is what it could lead to because 700 thousand square feet, the delta 2 second half conversion was about 550 thousand square feet. So doing the math, it would probably be 50 metric tons for that additional quarter. Okay.

Ann Gillin Lefever: And then you got that Doug, I will just add that if it is concurrent with you know, putting shovels in the ground, we would be working on the processing side where the EU GMP certification lies. And so we would be running both of those in parallel just like we have done throughout this year. As we add to that.

Doug Cooper: Mike, you said you thought to trim pricing troughed in Q3 and it was down 75% year over year. What was there any material change in pricing between and Q2, the prior quarter?

Ann Gillin Lefever: I do not think so. I think it was just a fall away of the demand. Doug, but no change in pricing. that is correct.

Doug Cooper: Okay. And final 1 for me. Just on The US side, Obviously, you are very bullish about the progress in Texas. You do not have a license I do not believe. So what does it need to take for you to actually get in the cannabis production space and be able to participate? In that market if it opens up?

Michael A. DeGiglio: Well, I just say that we plan to be in Texas 1 way or another. So how we do it we will have to see. We think there are going to be a number of regulatory changes in this session coming up in February to the T-CUP program. Which may include increasing licenses. That could be a vector for us or another way to get into the market. But we are very confident we are very confident that we can and we will pursue all permissible pathways for us.

But we want to start getting this facility ready So we are kind of going to run it in the parallel track as opposed to serial, the facility is there. it is just a matter of sort of gearing it up and then providing conversion, and we may do that in phases as we go, not all at once. K.

Doug Cooper: And how long would that take and how much?

Michael A. DeGiglio: Well, if you look at Delta 2, the conversions are, like, 6 months. So we would probably do some work to it ahead of time. Before we actually started the conversion on the growing systems. The unique thing about that area which is very unique, as you know, that part of Texas is about the lowest latitude in The United States, so you do not need supplemental lighting to run a cannabis crop through the winter. I mean, it could help increase yield, but it is not required. So we think we will have even a cost advantage over our Delta facilities longer term, and that makes it very unique in that regard.

Doug Cooper: Okay. Okay. Perfect. Thanks very much. Thanks, Ann.

Operator: Our next question will be coming from the line of Frederico Gomes of ATB Capital Markets. Your line is open, Frederico.

Frederico Gomes: Yeah. Good morning. Thanks for the questions here, and congrats on a great quarter. I want to go back to the comment about EU GMP and the fact that your pricing has been relatively resilient and steady. I guess, could you just talk about that? I mean, why is it that from a price standpoint, EU-GMP compliant product is more resilient compared to, I guess, greenwashed product. And then second, I know that you mentioned the potential for tightening controls around the greenwashing, but are you actually seeing that happening?

I mean, how likely is it to happen And, you know, how likely is it that we could see, I guess, a product shortage of EU GMP compliant product at the source? Thank you.

Michael A. DeGiglio: Well, I will start it out, and I will hand it over to Ann. I think you know, the program is really originally set up to have EU GMP certification at the source. So that is really what the program's about. There are other ways to get there in the supply chain, as I mentioned in my prepared remarks. There will probably always be a country trying to do that And there are distributors who, you know, in order to get the capacity they need are buying this GACP product and then converting it through the supply chain. So we think we are.

You know, anybody producing EU GMP product at the source is sort of the is the standard, but there are other ways to do it. Do you want to add some color?

Ann Gillin Lefever: Yeah. I would just say that, I think the winds seem to be in favor of the EU GMP compliant product as we have seen in The UK and then the Hessian state. And so we think that is nothing new. But frankly, what we talked about for a couple of quarters now. The demand profile is still there supporting the price. Frederico. And we think that is you know, how do you ensure an efficient supply chain, frankly, from the source right through to the consumer. And the supply chain cares very much about that. You wanna add some color?

Hamid Shekarchi: Yeah. Just to just to add a bit of color on that. I mean, the 1 thing is looking at price, and 1 thing is looking at the level of scale of EU GMP compliant product that we produce. that is low cost and high quality And the supply chains are very complex. And there is a there is a value to be ascribed to being able to provide a large volume of EU GMP compliant product as opposed to various small lots that are often we see in the marketplace. And that is a competitive moat that we have. And we believe that is 1 of the key factors that we believe will maintain price as we look forward.

Thank you.

Frederico Gomes: Appreciate that. It makes sense. And then, in regards to the, I guess, the decline in price of trim, and you think that is the bottom in Q3. Why is that? And you know, in terms of the supply demand balance in Canada, seems like you are more constructive going forward. Can you talk a little bit about that as well? Thank you.

Hamid Shekarchi: Yeah, I mean, the variances that we ascribe in our remarks was really a year over year perspective. And the market has changed over the course of the year. However, we do believe that there was a buildup of large producers that were more in the 2.0 space, then those inventory builds have largely dissipated. And we are seeing increasing demand and requests from our peer group for high quality trim. So we are seeing that demand and supply rebalance. And which we are confident of the forward looking projections of our trim.

Frederico Gomes: Great. Thank you. You are welcome.

Operator: As a reminder, to ask a question, please press star 1 on your telephone and wait for your name to be announced. Our next question will be coming from the line of Pablo Zuanic of Zuanic & Associates. Your line is open.

Pablo Zuanic: Thank you, and good morning, everyone. Mike, I guess a 2 part question. Can you talk about how concentrated is your international business? Is it, you know, 1, 2 customers, or is it a long list? Is, 1 of your customers, 50, 60% of your sales? I do not know how much you can talk about that, but obviously, congrats on the $56 million year to date in international exports and 21 in third quarter. But if you can talk about that, And then the second point which, I have asked in prior calls, you know, obviously, the power right now is on the supply chain. EU GMP compliant, low cost, high quality cultivation, which you have.

But given everything that is happening on the m and a front, do you see a need now to start investing in route to market in markets like Germany or. And The UK. Thank you.

Michael A. DeGiglio: Yeah. We do not really disclose, Pablo, how many customers we have, but it is more than 1. No, just kidding aside, we have multiple customers in Europe. So, but I do not wanna really disclose those numbers And we see that increasing over the next couple of years. We were planning and this is 1 topic I did not touch on to enter some other countries in Europe. But to be honest with you, we have sort of curtailed that. We are capacity-constrained in meeting the demand of current customers in the markets we are in.

So I think that has a chance of opening up once again next year as this additional capacity comes on, and that will increase the amount of distributors we work with So that is that question. As far as M&A, routes to market question.

Ann Gillin Lefever: I am sorry, again, Pablo, asked us about the route to market, if we have any interest in pursuing that.

Michael A. DeGiglio: Well, we do. I mean, that, you know, it depends how we look I probably will not go too deep into this, but, really, look at what is that landscape gonna look like in 2 or 3 years from now as opposed to right now. I think there may be some dynamics that the future will be somewhat different than it is today. That being said, valuation always plays a role in that. And I will be honest with you. I think some values are crazy. For lack of a better term. So we are not gonna do a deal that is not accretive or does not make sense just for the sake of doing it.

But we are always in discussions and looking at opportunities there. Vertical integration is part of our DNA, and at some point, we are gonna get there 1 way or another. K. Thank you.

Pablo Zuanic: And then just 1 last question on The Netherlands. You know, some of your peers there are complaining about price compression. I do not know if you wanna put that in there? How bad is it? I know you are still capacity constrained in that market. But as prices come down, does not that move, you know, I guess it tilts the balance for the lower cost greenhouse operators versus the indoor ones. But, again, if you can give us some context there, that is the first part of the Netherlands question. And the second 1, you know, I think we are down now to 70 coffee shops. From the initial 85, so is that creating a problem?

And how do you see that changing? Thank you. Well, again, you know, let me answer the second question first.

Michael A. DeGiglio: I mean, when we got involved in The Netherlands, there was a risk to it in that it is a 4-year deemed experiment. We knew that each year, the Dutch government will publish their findings. We know that they wanna move to a legalized regulated structure at some point. But it is a we do not have a crystal ball to really to be able to guarantee where it will be in 3 years from now But we are working together, and we are working with some others to open more doors. You know, it is very oriented to the municipal.

The municipalities in The Netherlands are like each 1 operates independently and has significant power to decide if they wanna move to a legal platform. So yes, some coffee shops dropped out, but as capacity increases, there could be some pricing pressure. There may be. But we feel we are in a pretty steady Eddie state for at least next year where we evaluate. As far as your first question, which was Price compression. Price compression. Yeah. I mean, you know, I do not wanna talk about our competitors necessarily. I mean, we have heard a lot of things, sometimes question the source where it is coming from.

But you know, as Hamid had said on the call, just having EU GMP compliant product at the source like we do is just 1 component of the success you need to have to be able to deliver large scale product and get it out the door in a consistent month to month order to order basis is a huge undertaking. And I think it is very underestimated by many others in the space. It is. You are talking pharmaceutical grade product that there is no higher standard that you need to meet day in and day out.

So it is not just the fact that you have EU-GMP, the fact that you can deliver on these orders and you have an organization behind it to do it. So I think others are scrambling, or they do not have EU GMP or they have not been able to get certified So they are looking at many other ways to circumvent the system. And I think there will be a reckoning coming in the next year or 2 in which way it goes. that is the best color I can give you, Pablo. Okay. that is good. Thank you.

Operator: And I would now like to turn the conference back to Michael DeGiglio for closing remarks.

Michael A. DeGiglio: Well, I just wanna thank everybody for their participation. I think it is very exciting times globally and now even more so in The U. S. I think The U. S. Is gonna go through quite a change in who the survivors are going to be at some point more states opening up interstate commerce down the road. We certainly wanna have scale and be a very low cost producer. We thank you for joining us today. And look forward to a wonderful holiday season for everybody and updating you in the New Year. Thank you, operator.

Operator: This concludes today's program. Thank you for participating. You may now disconnect.

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