Village Farms International, Inc. Q1 FY2026 earnings call

Overall Q1 2026 Performance

• The company delivered a strong start to fiscal 2026 with 27% year-over-year total net sales growth, driven by international medical cannabis business and sustained leadership in Canada. Sequential revenue from Q4 2025 was up ~2%, in line with expectations amid pre-expansion capacity constraints.
• Achieved a fourth consecutive quarter of positive net income, with adjusted EBITDA growth outpacing sales growth, demonstrating sustainable profitability for the global cannabis business.

International Operations

• International medical cannabis export sales increased 171% year-over-year and 60% sequentially to a record ~$15 million, including orders that slipped from Q4 2025 into Q1. Germany is the top contributor to international growth: Village Farms holds 3 of the top 5 leading cultivars and 4 of the top 10 in the German market, and regained sequential growth in Q1 after a temporary Q4 2025 market decline.
• Pricing for Village Farms' EU GMP compliant flower remains stable, even as general price compression impacts non-compliant product segments. Stricter regulatory enforcement across multiple international jurisdictions has increased demand for the company's fully compliant product.
• The company recently completed facility upgrades at its British Columbia production campus, expanding EU GMP production capacity to make it what it believes is the world's largest EU GMP certified cannabis facility, creating a durable competitive advantage that is hard for competitors to replicate.
• The company is exploring new jurisdiction entries and opportunities to export additional cannabis product formats to existing international partners for the remainder of 2026.

Canadian Operations

• Village Farms remains committed to the Canadian branded cannabis market, even as competitors exit the channel. It holds a top 5 overall market share position in Canada's adult-use market and the number 1 share in dried flower, a position it expects to maintain.
• Flagship PureSun Farms brand achieved 15 consecutive months of flower category market share gains through April 2026, and the Fraser Valley brand is also gaining share, with successful recent launches in vape and infused pre-roll categories. Branded sales grew ~5% year-over-year, in line with seasonal and capacity-related expectations.
• The first planting for the Delta II greenhouse expansion was completed in March 2026. First harvest is scheduled for the week of May 18, 2026, with initial sales contribution expected in late Q2 or early Q3 2026. The expansion will add 40 metric tons of annual production capacity (a 33% increase over fiscal 2025 British Columbia capacity), with 15 incremental metric tons expected to be harvested in 2026, driving economies of scale and cost efficiencies.

Netherlands Operations

• The small sequential Q1 sales decline from the existing Drop-in facility was attributed to typical post-holiday seasonality and consumer behavior, consistent with expectations.
• Construction of the Phase 2 Groningen facility was completed in April 2026. The facility is designed to support future expansion: it has access to three times current electricity demand and can accommodate a second story if needed. Final regulatory approval to begin full operations is expected in May 2026, with operations launching before the end of Q2 2026. The minor delay is not expected to impact full-year sales outlooks.

Strategy and Capital Allocation

• Village Farms welcomes the recent U.S. DEA order rescheduling medical cannabis, as its existing compliant supply chain expertise can be replicated with its U.S. assets. The company is prepared to benefit from future progression toward open cross-border trade for medical cannabis between Canada and the U.S.
• The company is a preferred potential partner/acquirer in the global cannabis industry (including the U.S.) but will remain highly disciplined, patient, and selective with M&A activity, only pursuing opportunities that are strategically and financially attractive for long-term shareholder value.
• The company completed its full $10 million board-approved share repurchase authorization in Q2 2026, after purchasing $6.4 million of shares in Q1 2026. It will continue to evaluate capital allocation decisions quarterly to deliver shareholder returns.
• Long-time CFO Steve Ruffini delayed his retirement to lead the company's M&A function, given his track record of capital stewardship and alignment with shareholder interests as a large shareholder.

Following the sale of its produce business last year, Village Farms now reports a single cannabis segment, with all remaining non-cannabis operations classified as 'Other'. For Q1 2026:

• Cannabis Segment: Net sales of $49.9 million, representing a 27% year-over-year increase, accounting for 99.4% of total consolidated net sales. Adjusted EBITDA from continuing cannabis operations increased 48% year-over-year to $10.2 million, resulting in an adjusted EBITDA margin of 20.5% of segment sales. Canada cannabis gross margin reached 43% (up from 39% year-over-year), above the company's 30-40% target range, with SG&A holding flat at 30% of sales.
• Other (remaining non-cannabis operations): Contributed $0.3 million in net sales, accounting for 0.6% of total consolidated net sales.
• Consolidated: Total net sales increased 27% year-over-year to $50.2 million. Consolidated adjusted EBITDA from continuing operations increased 118% year-over-year to $9.9 million, with an adjusted EBITDA margin of 20% (up from 11.4% year-over-year). Consolidated net income from continuing operations improved to $2.7 million ($0.03 per diluted share), from a net loss of $2.1 million ($0.02 per diluted share) in Q1 2025.

• The company expects to return to positive consolidated cash flow from operations in Q2 2026 and through the remainder of 2026, after the one-time Q1 impact of paying 2025 Canadian corporate income taxes.
• The Delta II expansion is expected to contribute incremental sales beginning in late Q2 or early Q3 2026, with 15 metric tons of incremental production harvested in 2026 and full ramp to 40 metric tons of annual capacity by mid-2027.
• Full regulatory approval for the Groningen Phase 2 facility in the Netherlands is expected in May 2026, with full operations starting before the end of Q2 2026. The facility is expected to contribute to stronger sales and adjusted EBITDA during the second half of 2026 as it ramps.
• The company expects stable pricing for its EU GMP compliant cannabis in Germany for the foreseeable future, supporting continued profitability as new capacity comes online.
• Management maintains its original medium and long-term outlooks for the business, with clear line of sight to continued profitable growth through the remainder of 2026 and 2027.
• Management expects greater regulatory clarity for U.S. cannabis rescheduling to emerge over the next 3 to 6 months, and will wait for this clarity before making any major capital deployment decisions in the U.S.

• Forward-looking statements are subject to significant uncertainty and risks, including regulatory changes that differ from current expectations, which could cause actual results to differ materially from guidance. All relevant risks are detailed in the company's SEC and Canadian regulatory filings.
• Uncertainty remains around the implementation of U.S. cannabis rescheduling, including ongoing lawsuits and the outcome of DEA's upcoming review, creating ambiguity around the regulatory rules for U.S. market entry and cross-border trade.
• General industry price compression exists in multiple international cannabis markets, driven by non-compliant product and increased supply, though Village Farms notes it has not seen this impact its own EU GMP compliant product.
• The Netherlands recreational cannabis pilot program will undergo a review after summer 2026, and future market expansion and regulatory changes remain uncertain. The current pilot market is finite, with no near-term expectation of added participating municipalities.

Q: What drives Village Farms' confidence in stable pricing for its EU GMP product amid industry-wide price pressure, and what is the margin difference between Canadian and international export sales? / A: Management declined to share internal margin differences between the two segments. It explained that price compression is concentrated in non-compliant product, specifically product that attempts to cut corners by using non-EU GMP production and GACP standards to mimic compliant product. Village Farms' long-standing, fully verified EU GMP compliance has allowed it to avoid this compression, and management expects this price stability to continue.

Q: How aggressive will Village Farms be with M&A amid U.S. rescheduling opportunities, and how should investors approach the uncertainty around regulatory reform? / A: Management will remain patient and will not deploy capital until clear regulatory rules are established, noting that clarity will likely emerge in the next 3-6 months after ongoing lawsuits and the DEA's mid-year review conclude. It cited past experience with CBD hemp regulation, where ambiguous rules after 2017 descheduling created unforeseen challenges, as a reason for prudence. Management also added that it will not overpay for assets, noting the large gap between public and private cannabis asset valuations, and will only pursue deals that deliver clear long-term shareholder value.

Q: How has Village Farms been able to gain market share and maintain stable pricing in the German cannabis market, versus competitors facing pressure? / A: Management explained that the advantage comes from six years of early investment in full EU GMP compliance, with no attempts to cut regulatory corners. Competitors that tried to circumvent strict requirements via non-compliant production have had their products pushed out of the market by increased regulatory enforcement. Village Farms' entire British Columbia campus is now nearly fully EU GMP compliant, with all required long-term stability testing and consistent on-time delivery, creating a durable competitive advantage that cannot be quickly replicated.

Q: What are current supply-demand and pricing dynamics in the Netherlands recreational cannabis market, and what is the outlook for the pilot program after this summer's review? / A: All competitors have now fully launched operations, so total supply has increased, leading to the expected mild pricing softness that was already modeled by management. Management expects the pilot program review to result in a positive outcome, as regulators have reported minimal violations and no diversion to illicit trade. The current pilot market is finite with 10 licensees and 80 participating coffee shops, with no near-term expectation of added municipalities, and consumers are already expanding demand for alternative product formats faster than initially expected.