First a perspective. Village Farms is small. Village Farms suffered an under insured loss in the Texas a few years ago. 20 acres of green houses in the Marfa/Fort Davis area are still not online. However about 3/4 of the loss production came online recently.
For the three months ended in September 2016 Village Farms had $732,000 U.S. Dollars in Net cash provided by operating activities. (I believe this is Free Cash Flow or FCF, please correct me if I am wrong.)
For the three months ended in September 2017 Village Farms had $3,489,000 U.S. Dollars in FCF.
I believe this is due to the first crops being sold from the restored green houses in Texas, and this was with a lower yield in the Canadian green houses to unusual low sunlight.
These numbers may also be distorted due to a partnership with a fuel cell company in 2016. (I am working off memory here.)
However, to give the size of Village Farms, ~ $3 million a quarter is the FCF, or ~12 million a year. It is important to note the U.S. dollar figure. Today most of the income comes from the U.S. However, as the Cannibus joint venture unfolds, most of the money will come from Canada. The CEO was asked about this on the conference call and he did not know if the reporting would change.
They are planning on converting three green houses total to cannabis production. Their partner will provide an initial 20 million in cash to fund the conversion of the first facility.
Conservatively they are projecting 75,000 kilograms of cannabis per year at the initial facility.
They expect to have the initial cultivation license sometime mid next year.
If they only convert the 1.1 million square foot green house their output will be 75,000 kilograms per year and make them the largest. (legal) cannabis producer in the world. (This reminds me of DeLorean, can’t produce futuristic gull wing stainless steel sports car, Ok I will become the largest cocaine dealer in the world.)
Village Farms believes that they can produce at 1 dollar per gram at full production. (I am not sure what “full production” means. However, this indicates to me that Village Farms will need $75,000,000 million for expenses per year. Considering that they only have 4 million on hand this puts a question mark in my mind.
On the other hand, the current prices for cannabis in Canada is between 4 and 6 dollars a gram, or 4 to 6 thousand a kilogram. Conservatively this would put gross cash flow at $300,000,000 per year. This is a very large difference from today.
With 40 million shares outstanding and a price of around 4 dollars shares, Village Farms has a market cap of of only $160 million dollars and a projected gross sales of 300 million in cannabis. With conservative estimates of 1 dollar per gram gross profit this would put Village Farms with a P/E of about 2.
There are some risks:
- The licenses have not been granted.
- There has been some discussion for punitive measures by the U.S. for companies in Canada working in the Cannabis market.