Major new cannabis project proposed in B.C.

June 15, 2017
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June 16, 2017 – British Columbia will soon be home to one of the largest greenhouse cannabis operations in the country.

Village Farms International, Inc. and Emerald Health Therapeutics Inc. together with its affiliates have entered into an agreement to form a joint venture for large-scale, high-quality, low-cost cannabis production.

Under the terms of the agreement, Village Farms will initially contribute a 1.1 million-square foot (25-acre) greenhouse facility in Delta, British Columbia, located on a 50-acre parcel of land (with ancillary buildings), which will be converted to ACMPR (Access to Cannabis for Medical Purposes Regulations)-compliant production and, if permitted by applicable law, production for the non-therapeutic adult-use market.

Emerald will initially contribute an aggregate of $20 million in cash (of which $2 million was advanced at closing and the remaining $18 million will be advanced in tranches upon satisfaction of certain milestones to be determined by the board of directors of the joint venture) to fund conversion of the initial greenhouse. Each party will have a 50 per cent ownership stake in the joint venture.

JOINT VENTURE HIGHLIGHTS

• 1.1 million square feet of initial potential greenhouse cannabis production (estimated to yield more than 75,000 kg of product annually) upon completion of full licensing and greenhouse conversion.

• Formation of the joint venture is a transformational opportunity for Village Farms that will see the conversion of one of its existing Delta, BC greenhouse assets to grow a substantially more profitable agricultural product.

• Village Farms is one of the largest, most experienced and technically advanced greenhouse growers in North America, with an ingrained culture of low-cost production.

• Formation of the joint venture strategically positions Emerald for rapid production capacity expansion in partnership with world-class greenhouse operators, preparing it for the future non-therapeutic market and existing undersupplied medical cannabis market.

• Emerald has significant cannabis industry experience, including a portfolio of high-quality genetics and refined standard operating procedures, with a flawless record of operations under Health Canada’s stringent ACMPR regime.

• The joint venture has the goal to be the lowest-cost cannabis producer in Canada.

• In the future, the joint venture has the potential to have access to up to 4.8 million square feet of greenhouse cannabis production (estimated to yield more than 300,000 kg of product annually), which would supply a considerable portion of the expected future cannabis demand in Canada or for export abroad.

• The joint venture expects its production will address a diverse array of cannabis products, including dried cannabis and quality inputs for extraction-based products, currently the fastest growing segment in the Canadian medical cannabis market and expected to be a meaningful part of the non-therapeutic adult-use market.

• Village Farms remains committed to its existing greenhouse produce business and customers.

“Diversification into cannabis production is a truly transformational opportunity for Village Farms, with a portion of its Canadian assets, to apply our core capabilities and expertise as a technology-driven, low-cost, high-quality greenhouse grower and our significant investment in our existing facilities to a product that is substantially more profitable,” says Michael DeGiglio, chief executive officer of Village Farms International.

“Based on our conservative market pricing forecasts and yield projections, conversion of our Canadian greenhouse facilities to cannabis production could generate revenue of 10- to 15-times that of our current Canadian vegetable production with EBITDA margins potentially expanding to more than 50 per cent compared with our current Canadian vegetable margins.”

Village Farms will leverage the combined 750 years of experience of its master grower team, and its history and expertise as an established low-cost, high-quality greenhouse agricultural producer, within a vertically integrated business model. The goal of the joint venture is to be the lowest-cost, highest-quality cannabis producer in Canada, with a targeted production cost of less than $1.00 per gram.

 “Emerald is an excellent, and very complementary, partner for Village Farms in this endeavour, bringing with it a seasoned management team with specific cannabis industry experience, having obtained the eighth federal licence granted under the MMPR (now ACMPR) to cultivate medicinal cannabis,” says DeGiglio.

“Emerald has tremendous downstream product development expertise and extensive experience in pharmaceutical and nutraceuticals product development for medical purposes. It is uniquely positioned in the Canadian cannabis industry, pursuing the development of cannabinoid medicines that are less toxic, more efficacious and safer therapeutic alternatives to conventional pharmaceutical medicines.”

The transaction closed concurrently with the signing of a definitive agreement, at which time the joint venture leased (with the option to buy) Village Farms’ Delta 3 greenhouse assets.

The joint venture also entered into an agreement with Village Farms for options to lease or purchase from Village Farms a second 1.1 million square foot greenhouse (25 acre) and a 2.6 million square foot (60 acre) greenhouse, both located adjacent to the Initial Greenhouse. Combined, these three greenhouse assets could provide the joint venture with a total potential aggregate production capacity of approximately 4.8 million square feet (110 acres).

CONTINUED COMMITMENT TO PRODUCE BUSINESS

Village Farms does not expect its growth of cannabis or other alternative crops to have a material impact on its existing produce production and distribution business.

“Although diversification into cannabis is a tremendous opportunity, we remain steadfastly committed to our existing produce business,” said DeGiglio. “We will continue to provide our customers with the premium-quality products they have come to know and expect throughout our 30-year history.

“In fact, the favourable economics of cannabis production are expected to provide Village Farms with the financial strength and resources necessary to further expand and solidify our industry-leading position. We fully expect to continue to expand capacity in our produce business to meet customer demand by exploring consolidation opportunities, as we have successfully done in the past, and through organic initiatives at our U.S. operations.”

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