VFF stock is trading up on Wednesday after Village Farms International's (TSX:VFF) (NASDAQ:VFF) majority-owned joint venture Pure Sunfarms has secured a cannabis supply agreement with Alberta Gaming, Liquor & Cannabis (AGLC).
Over the past few years, many companies have entered the cannabis space due to the growth prospects of the sector, and one of the most interesting entrants is Village Farms International. Village Farms revealed that its joint venture, Pure Sunfarms, in which it has a majority stake, has signed a supply agreement with Alberta Gaming, Liquor & Cannabis Commission. By way of the new agreement, the company is going to provide recreational cannabis to licensed retailers in Alberta.
Earlier this month, the company released its financial results for the third quarter, and while it is true that the headline figures are disappointing, it is perhaps necessary to look a little deeper. Village Farms International's revenue slipped by as much as 3.5% year-on-year to $38.3 million, and its joint venture Pure Sunfarms generated sales of $18.1 million.
VFF stock is trading higher by 4.30% at $7.00 USD.
Village Farms gets 50% of all sales generated by the joint venture. The company is now quite dependent on the sales generated by Pure Sunfarms, and the decline in sales during the third quarter proved to be a bit of a problem for the company.
However, it needs to be pointed out that in the same quarter, Pure Sunfarms also started selling its produce to the Ontario Cannabis Store, and hence, the decline is a bit of a setback. The problem lies in the fact that Pure Sunfarms has to sell 40% of the product to Village Farms International's joint venture partner Emerald Health Therapeutics (TSXV:EMH) (OTCQX:EMHTF) at a fixed price.
However, if Emerald does not purchase some of its earmarked quotas, then Village Farms has to pay the difference between fixed and market prices. Emerald has reportedly refused to pay the difference, and this created problems for Village Farms. The bill for Emerald stood at $7.2 million in the quarter, and if that bill had accrued, then Pure Sunfarms would have actually grown by 5% sequentially. If this particular issue gets resolved, then the future is not that grim for VFF stock.
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