With volatility prevalent in the cannabis sector, Village Farms International (VFF) emerges as a steadfast player set for substantial growth. Senior analyst Pablo Zuanic, from Zuanic & Associates, accentuates the driving forces propelling VFF in the ever-changing cannabis market.
Analyzing VFF’s stock, Zuanic states that it remains attractively valued at 0.5x EV/current sales on the aggregate, with the cannabis unit valued at 3.3x EBITDA based on CY25 estimates.
Unwavering Growth and a Rosy Outlook
VFF distinguishes itself with sustained cannabis EBITDA margins in the high teens, reflecting robust operational performance.
The company exhibits consistent free cash flow generation, strengthening in 3Q23 after a period of fluctuation.
Resurgence in the Domestic Market
An encouraging reversal in domestic recreational market share trends bodes well for VFF. Momentum has surged since July ’23, with VFF achieving remarkable sales growth in 4Q23, surpassing top competitors.
According to Hifyre scanner data, VFF’s sales growth in 4Q23 reached $89.5 million, marking a significant achievement in the competitive landscape of the cannabis sector.
Assessing Canadian Market Dynamics
Despite ongoing challenges such as market deceleration and pricing fluctuations, VFF maintains a resilient position.
The report also highlights several other key players in the cannabis sector, including Tilray Inc., Decibel Cannabis Company Inc., Organigram Holdings Inc., Cronos Group Inc., and Auxly Cannabis Group Inc.
Regional Performance and Product Mix
- VFF’s sales distribution across provinces emphasizes its varied market penetration strategy, adapting product offerings to regional preferences for a competitive edge.
- In 4Q23, the format mix comprised 78% flower, 18% pre-rolls, 4% vape, and 1% edibles, inclusive of QC. This distribution remained consistent with 4Q22.
- Flower sales increased by 12% sequentially, with VFF experiencing a 9% increase, while pre-roll sales saw a 3% increase.
- In QC, flower sales accounted for 89% of total sales, while pre-rolls accounted for 11%.
- Pure Sunfarms’ format mix consisted of 73% flower, 21% pre-rolls, 5% vape, and 1% edibles.
- Approximately one-third of VFF’s flower business and only 17% of its national pre-roll business is represented in QC, as per Hifyre data.
Pricing Analysis
- The average price for the Pure Sunfarms (PSF) portfolio in 4Q23 stood at $4.12 per gram, compared to $4.34 in 3Q23 and $4.42 in 4Q22 (with $5.30 in 4Q21).
- This marks a 22% drop over two years, aligning with the overall market flower price decline. Specifically, in 4Q23, the market average was $4.95, down from $5.52 in 4Q22 and $6.37 in 4Q21.
- Year-over-year, VFF’s prices decreased by 7%, contrasting with the market’s 10% decrease.
- VFF’s price decline is attributed to brand mix-related factors, with prices for specific brands remaining relatively stable despite the overall market fluctuations.
Challenges and Opportunities in the Pre-Roll Segment
Despite challenges in the pre-roll segment, VFF exhibits resilience, steadily increasing its market share. However, the absence of a presence in the infused pre-roll segment underscores a potential area for growth and expansion.
Product Portfolio Optimization
VFF’s strategic approach to product diversification and brand expansion underscores its commitment to meeting evolving consumer demands. The introduction of new brands and SKUs reflects a proactive stance in capturing market share.
International Expansion On the Horizon
Anticipation builds around positive developments on the international front, including export growth momentum and strategic investments, promising broader market access for VFF.
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