UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

~~FORM10-Q~~

FORM 10-Q

(Mark One)


☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended ~~March 31, 2020~~June 30, 2023


☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period fromto

Commission File Number001-38783

VILLAGE FARMS INTERNATIONAL, INC.

(Exact name of Registrant as Specified in its Charter)


~~Canada~~ Ontario		98-1007671
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

~~4700-80th Street~~ ~~Delta, British Columbia Canada~~ ~~V4K 3N3~~
~~(Address of Principal Executive Offices) (Zip Code)~~

~~(604) 940-6012~~4700-80th Street

Delta, British ColumbiaCanada

V4K 3N3

(Address of Principal Executive Offices) (Zip Code)

(604) 940-6012

Issuer’s phone number, including area code

N/A

(Former name, former address and former fiscal year, if changed since last report).

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Shares, without par value

VFF

The Nasdaq Stock Market LLC

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the ~~past~~preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes☒ No ☐ Not Applicable ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “small reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☐☒

As of ~~May 14, 2020, 56,250,419~~August 9, 2023, 110,238,929 common shares of ~~common stock~~the registrant were ~~issued and~~ outstanding.

TABLE OF CONTENTS


				Page
PART I - FINANCIAL INFORMATION
Item 1.		Condensed Consolidated ~~Interim~~ Financial Statements (Unaudited)
		Condensed Consolidated ~~Interim~~ Statements of Financial Position		1	2
		Condensed Consolidated ~~Interim~~ Statements of ~~Net Income~~Operations and Comprehensive ~~Income~~Loss		2	3
		Condensed Consolidated ~~Interim~~ Statements of Changes in Shareholders’ Equity and Mezzanine Equity		3	4
		Condensed Consolidated ~~Interim~~ Statements of Cash Flows		4	5
		Notes to Condensed Consolidated ~~Interim~~ Financial Statements		5	6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		16	15
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		24	35
Item 4.		Controls and Procedures		25	35

PART II - OTHER INFORMATION				26	37
Item 1.		Legal Proceedings		26	37
Item 1A.		Risk Factors		26	37
Item 2.		Unregistered ~~Sales~~Sale of ~~Equity~~ Securities and Use of Proceeds		26	37
Item 5.3.		~~Other information~~ Defaults Upon Senior Securities		26	37
Item 6.4.		~~Exhibits~~Mine Safety Disclosures		26	37
Item 5.		Other Information	37
Item 6.		~~Signatures~~Exhibits	38
	27
		Signatures	39

Forward Looking ~~Statement~~Statements

As used in this Quarterly Report on Form10-Q, the terms “Village ~~Farms,”~~Farms”, “Village Farms ~~International,”~~International”, the ~~“Company,” “we,” “us,”~~“Company”, “we”, “us”, “our” and similar references refer to Village Farms International, Inc. and our consolidated subsidiaries, and the term “Common Shares” refers to our common shares, no par value. Our financial information is presented in U.S. dollars and all references in this Quarterly Report on Form10-Q to “$” means U.S. dollars and all references to “C$” means Canadian dollars.

This Quarterly Report on Form10-Q contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the U.S. Securities Act of 1933, as amended, (the ~~“Securities Act”~~"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the ~~“Exchange Act”~~"Exchange Act"), and is subject to the safe harbor created by those sections. This Quarterly Report on Form10-Q also contains ~~“forward-looking information”~~"forward-looking information" within the meaning of applicable Canadian securities ~~law.~~laws. We refer to such forward-looking statements and forward-looking information collectively as ~~“forward-looking statements”~~"forward-looking statements". Forward-looking statements may relate to the ~~Company’s~~Company's future outlook or financial position and anticipated events or results and may include statements regarding the financial position, business strategy, budgets, expansion plans, litigation, projected production, projected costs, capital expenditures, financial results, taxes, plans and objectives of or involving the Company. Particularly, statements regarding future results, performance, achievements, prospects or opportunities for the Company, the greenhouse vegetable or produce industry orand the cannabis industry and market are forward-looking statements. In some cases, forward-looking information can be identified by such terms as ~~“outlook”~~"can", ~~“may”~~"outlook", ~~“might”~~"may", ~~“will”~~"might", ~~“could”~~"will", ~~“should”~~"could", ~~“would”~~"should", ~~“occur”~~"would", ~~“expect”~~"occur", ~~“plan”~~"expect", ~~“anticipate”~~"plan", ~~“believe”~~"anticipate", ~~“intend”~~"believe", ~~“try”~~"intend", ~~“estimate”~~"try", ~~“predict”~~"estimate", ~~“potential”~~"predict", ~~“continue”~~"potential", ~~“likely”~~"continue", ~~“schedule”~~"likely", ~~“objectives”~~"schedule", "objectives", or the negative or grammatical variation thereof or other similar expressions concerning matters that are not historical facts. The forward-looking statements in this Quarterly Report on Form10-Q are subject to risks that may include, but are not limited to: our limited operating history in the cannabis and cannabinoids industry, including that of ~~our~~ Pure Sunfarms, ~~Corp. joint venture for the production of cannabis in Canada (our “Joint Venture”~~Inc. (“Pure Sunfarms”), Rose LifeScience Inc. (“Rose” or “Rose LifeScience”) and ~~ourstart-up~~ ~~operations of growing hemp in the United States;~~Balanced Health Botanicals, LLC (“Balanced Health”); the legal status of the cannabis business of Pure Sunfarms and Rose and the hemp business of Balanced Health; risks relating to the integration of Balanced Health and Rose into our ~~Joint Venture;~~consolidated business; risks relating to obtaining additional financing on acceptable terms, including our dependence upon credit ~~facilities;~~facilities and dilutive transactions; potential difficulties in achieving and/or maintaining profitability; variability of product pricing; risks inherent in the cannabis, hemp, CBD, cannabinoids, and agricultural businesses; our market position and competitive position; our ability to leverage current business relationships for future business involving hemp and cannabinoids; the ability of ~~our Joint Venture~~Pure Sunfarms and Rose to cultivate and distribute cannabis in Canada; existing and new governmental regulations, including risks related to regulatory compliance and regarding obtaining and maintaining licenses ~~(e.g., our Joint Venture’s ability to obtain licenses for its Delta 2 greenhouse facility as well as additional licenses~~required under the ~~Canadian act respecting cannabis to amend to the Controlled Drugs and Substances~~Cannabis Act (Canada), the Criminal Code and other Acts, S.C. 2018, c.C. 16 (Canada) for its ~~Delta 3 greenhouse facility),~~Canadian operational facilities, and changes in our regulatory requirements; legal and operational risks relating to expected conversion of our greenhouses to cannabis production ~~for our Joint Venture;~~in Canada and in the United States; risks related to rules and regulations at the U.S. ~~federal~~Federal (Food and Drug Administration and United States Department of Agriculture), state and municipal levels with respect to produce and ~~hemp;~~hemp, cannabidiol-based products commercialization; retail consolidation, technological advances and other forms of competition; transportation disruptions; product liability and other potential litigation; retention of key executives; labor issues; uninsured and underinsured losses; vulnerability to rising energy costs; inflationary effects on costs of cultivation and transportation; recessionary effects on demand of our products; environmental, health and safety risks, foreign exchange exposure, risks associated with cross-border trade; difficulties in managing our growth; restrictive covenants under our credit facilities; natural catastrophes; ~~the ongoing and developingCOVID-19~~ ~~pandemic;~~rising interest rates; and tax risks.

The Company has based these forward-looking statements on factors and assumptions about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. Although the forward-looking statements contained in this Quarterly Report on Form10-Q are based upon assumptions that management believes are reasonable based on information currently available to management,

there can be no assurance that actual results will be consistent with these forward-looking statements. Forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond the ~~Company’s~~Company's control, ~~that~~which may cause the ~~Company’s~~Company's or the ~~industry’s~~industry's actual results, performance, achievements, prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the factors contained in the ~~Company’s~~Company's filings with securities regulators, including this Quarterly Report on Form10-Q. ~~In particular, we caution you that our forward-looking statements are subject to the ongoing and developing circumstances related to theCOVID-19~~ ~~pandemic, which may have a material adverse effect on our business, operations and future financial results.~~

When relying on forward-looking statements to make decisions, the Company cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties and should not be read as guarantees of future results, performance, achievements, prospects and opportunities. The forward-looking statements made in this Quarterly Report on Form10-Q relate only to events or information as of the date on which the statements are made in this Quarterly Report on Form10-Q. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

~~PART I – FINANCIAL STATEMENTS~~

~~Item 1. Financial Statements (Unaudited)~~

Village Farms International, Inc.

Condensed Consolidated ~~Interim~~ Statements of Financial Position

(In thousands of United States dollars, except share data)

(Unaudited)

   March 31, 2020 December 31, 2019
ASSETS

Current assets

Cash and cash equivalents
   $ 13,558 $ 11,989
Trade receivables
   9,602 8,997
Inventories
   15,546 15,918
Amounts due from joint ventures
   10,238 15,418
Other receivables
   201 342
Income tax receivable
   231 713
Prepaid expenses and deposits
   1,123 1,259


Total current assets
   50,499 54,636


Non-current assets

Property, plant and equipment
   61,687 63,158
Investment in joint ventures
   55,607 41,334
Notes receivable - joint ventures
   10,946 10,865
Deferred tax asset
   8,377 7,999
Right-of-use assets
   4,889 3,582
Other assets
   1,593 1,834


Total assets
   $ 193,598 $ 183,408


LIABILITIES

Current liabilities

Line of credit
   $ 4,000 $ 2,000
Trade payables
   9,019 12,653
Current maturities of long-term debt
   3,391 3,423
Accrued liabilities
   3,367 3,017
Operating lease liabilities - current
   718 875
Finance lease liabilities - current
   41 61


Total current liabilities
   20,536 22,029


Non-current liabilities

Long-term debt
   28,158 28,966
Deferred tax liability
   1,150 1,873
Operating lease liabilities -non-current
   4,238 2,690
Finance lease liabilities -non-current
   39 34
Other liabilities
   1,103 1,357


Total liabilities
   55,224 56,949


Commitments and contingencies (note 15)

SHAREHOLDERS’ EQUITY

Common stock, no par value per share - unlimited shares authorized; 56,250,419 shares issued and outstanding at March 31, 2020 and 52,656,669 shares issued and outstanding at December 31, 2019.
   105,656 98,333
Additional paid in capital
   4,880 4,351
Accumulated other comprehensive loss
   (602 ) (475 )
Retained earnings
   28,440 24,250


Total shareholders’ equity
   138,374 126,459


Total liabilities and shareholders’ equity
   $ 193,598 $ 183,408

June 30, 2023

December 31, 2022

ASSETS

Current assets

Cash and cash equivalents

$
26,659

$
16,676

Restricted cash

5,000

5,000

Trade receivables

29,509

27,558

Inventories

73,733

70,582

Other receivables

10,504

309

Income tax receivable, net

1,741

6,900

Prepaid expenses and deposits

9,563

5,959

Total current assets

156,709

132,984

Non-current assets

Property, plant and equipment

207,374

207,701

Investments

2,109

2,109

Goodwill

67,239

66,225

Intangibles

36,532

37,157

Deferred tax asset

4,201

4,201

Right-of-use assets

12,962

9,132

Other assets

1,976

5,776

Total assets

$
489,102

$
465,285

LIABILITIES

Current liabilities

Line of credit

$
4,000

$
7,529

Trade payables

20,551

24,894

Current maturities of long-term debt

9,373

9,646

Accrued sales taxes

13,211

11,594

Accrued loyalty program

1,821

2,060

Accrued liabilities

19,384

13,064

Lease liabilities - current

1,755

1,970

Other current liabilities

1,680

1,458

Total current liabilities

71,775

72,215

Non-current liabilities

Long-term debt

41,615

43,821

Deferred tax liability

19,138

19,756

Lease liabilities - non-current

11,816

7,785

Other liabilities

1,927

1,714

Total liabilities

146,271

145,291

Commitments and contingencies

MEZZANINE EQUITY

Redeemable non-controlling interest

16,223

16,164

SHAREHOLDERS’ EQUITY

Common stock, no par value per share - unlimited shares authorized;
110,238,929 shares issued and outstanding at June 30, 2023 and 91,788,929 shares issued and outstanding at December 31, 2022.

386,719

372,429

Additional paid in capital

24,888

13,372

Accumulated other comprehensive loss

(3,284
)

(8,371
)
Retained earnings

(82,383
)

(74,367
)
Total Village Farms International, Inc. shareholders’ equity

325,940

303,063

Non-controlling interest

668

767

Total shareholders’ equity

326,608

303,830

Total liabilities, mezzanine equity and shareholders’ equity

$
489,102

$
465,285

The accompanying notes are an integral part of these ~~condensed consolidated interim financial statements.~~

Condensed Consolidated Financial Statements.

Village Farms International, Inc.

Condensed Consolidated ~~Interim~~ Statements of ~~Income~~Operations and Comprehensive Income (Loss)

(In thousands of United States dollars, except per share ~~data, unless otherwise noted)~~data)

(Unaudited)

   Three Months Ended March 31,
         2020             2019
Sales
   $ 32,112 $ 31,890
Cost of sales
   (31,347 ) (31,215 )


Gross margin
   765 675
Selling, general and administrative expenses
   (3,921 ) (4,242 )
Share-based compensation
   (529 ) (1,296 )
Interest expense
   (537 ) (694 )
Interest income
   383 136
Foreign exchange (loss) gain
   (926 ) 278
Gain on settlement agreement
   4,681 —
Other income (expense)
   39 (130 )
(Loss) gain on disposal of assets
   (6 ) 13,564


(Loss) income before taxes and earnings from unconsolidated entities
   (51 ) 8,291
Benefit of (provision for) income taxes
   1,012 (4,436 )


Income from consolidated entities after income taxes
   961 3,855
Equity earnings from unconsolidated entities
   3,229 2,611


Net income
   $ 4,190 $ 6,466


Basic income per share
   $ 0.08 $ 0.14
��

Diluted income per share
   $ 0.08 $ 0.13


Weighted average number of common shares used in the computation of net income per share (in thousands):

Basic
   52,933 47,677


Diluted
   54,175 49,506


Net income
   $ 4,190 $ 6,466
Other comprehensive (loss) income:

Foreign currency translation adjustment
   (127 ) 44


Comprehensive income
   $ 4,063 $ 6,510


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Sales	$	77,212		$	82,903		$	141,868		$	153,059
Cost of sales		(65,713	)		(76,580	)		(118,069	)		(136,832	)
Gross margin		11,499			6,323			23,799			16,227
Selling, general and administrative expenses		(16,753	)		(18,516	)		(34,158	)		(36,451	)
Interest expense		(1,411	)		(665	)		(2,544	)		(1,348	)
Interest income		283			—			479			110
Foreign exchange gain (loss)		738			(527	)		669			(208	)
Other income (expense)		5,602			(30	)		5,632			(38	)
Write-off of joint venture loan		—			(592	)		—			(592	)
Impairments		—			(29,799	)		—			(29,799	)
Loss before taxes and loss from equity method investments		(42	)		(43,806	)		(6,123	)		(52,099	)
(Provision for) recovery of income taxes		(1,299	)		9,714			(1,933	)		11,380
Loss from equity method investments		—			(2,615	)		—			(2,667	)
Loss including non-controlling interests		(1,341	)		(36,707	)		(8,056	)		(43,386	)
Less: net (income) loss attributable to non-controlling interests, net of tax		(39	)		152			40			314
Net loss attributable to Village Farms International, Inc. shareholders	$	(1,380	)	$	(36,555	)	$	(8,016	)	$	(43,072	)
Basic loss per share attributable to Village Farms International, Inc. shareholders	$	(0.01	)	$	(0.41	)	$	(0.07	)	$	(0.49	)
Diluted loss per share attributable to Village Farms International, Inc. shareholders	$	(0.01	)	$	(0.41	)	$	(0.07	)	$	(0.49	)
Weighted average number of common shares used in the computation of net loss per share (in thousands):
Basic		110,239			88,567			107,185			88,472
Diluted		110,239			88,567			107,185			88,472
Loss including non-controlling interests	$	(1,341	)	$	(36,707	)	$	(8,056	)	$	(43,386	)
Other comprehensive income (loss):
Foreign currency translation adjustment		4,225			151			5,087			612
Comprehensive income (loss) including non-controlling interests		2,884			(36,556	)		(2,969	)		(42,774	)
Comprehensive (income) loss attributable to non-controlling interests		(361	)		268			(403	)		430
Comprehensive income (loss) attributable to Village Farms International, Inc. shareholders	$	2,523		$	(36,288	)	$	(3,372	)	$	(42,344	)

The accompanying notes are an integral part of these ~~condensed consolidated interim financial statements.~~

Condensed Consolidated Financial Statements.

Village Farms International, Inc.

Condensed Consolidated ~~Interim~~ Statements of Changes in Shareholders’ Equity and Mezzanine Equity

(In thousands of United States dollars, except ~~share data)~~for shares outstanding)

(Unaudited)

   Number of
Common
Shares    Common
Stock Additional paid
in capital Accumulated Other
Comprehensive
(Loss) Income Retained
Earnings    Total
Shareholders’
Equity
Balance at January 1, 2019
   47,642,672    $ 60,872 $ 2,198 $ (562 ) $ 21,925    $ 84,433
Shares issued on exercise of stock options
   15,999    54 (18 ) —   —      36
Share-based compensation
   153,332    908 388 —   —      1,296
Issuance costs
   —      (2 ) —   —   —
Cumulative translation adjustment
   —      —   —   44 —      44
Net income
   —      —   —   —   6,466    6,466






Balance at March 31, 2019
   47,812,003    $ 61,832 $ 2,568 $ (518 ) $ 28,391    $ 92,273






Balance at January 1, 2020
   52,656,669    $ 98,333 $ 4,351 $ (475 ) $ 24,250    $ 126,459
Share issued in public offering, net of issuance costs
   3,593,750    7,323 —   —   —      7,323
Share-based compensation
   —      —   529 —   —      529
Cumulative translation adjustment
   —      —   —   (127 ) —      (127 )
Net income
   —      —   —   —   4,190    4,190






Balance at March 31, 2020
   56,250,419    $ 105,656 $ 4,880 $ (602 ) $ 28,440    $ 138,374


	Three Months Ended June 30, 2023
	Number of Common Shares		Common Stock		Additional Paid in Capital		Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Non-controlling Interest			Total Shareholders’ Equity			Mezzanine Equity
Balance at April 1, 2023		110,239	$	386,719	$	24,232	$	(7,509	)	$	(81,003	)	$	718		$	323,157		$	16,134
Share-based compensation		—		—		656		—			—			—			656			—
Cumulative translation adjustment		—		—		—		4,225			—			—			4,225			—
Net loss		—		—		—		—			(1,380	)		(50	)		(1,430	)		89
Balance at June 30, 2023		110,239	$	386,719	$	24,888	$	(3,284	)	$	(82,383	)	$	668		$	326,608		$	16,223

Three Months Ended June 30, 2022

Number of Common
Shares

Common Stock

Additional Paid in
Capital

Accumulated Other
Comprehensive (Loss)
Income

Retained Earnings

Non-controlling Interest

Total Shareholders’
Equity

Mezzanine Equity

Balance at April 1, 2022

88,562

$
365,737

$
10,333

$
10,225

$
20,262

$
—

$
406,557

$
16,271

Shares issued on exercise of stock options

10

—

16

—

—

—

16

—

Share-based compensation

—

—

1,114

—

—

—

1,114

—

Cumulative translation adjustment

—

—

—

(6,660
)

—

—

(6,660
)

—

Net loss

—

—

—

—

(36,555
)

—

(36,555
)

(152
)
Balance at June 30, 2022

88,572

$
365,737

$
11,463

$
3,565

$
(16,293
)

$
—

$
364,472

$
16,119

Six Months Ended June 30, 2023

Number of Common
Shares

Common Stock

Additional Paid in
Capital

Accumulated Other
Comprehensive (Loss)
Income

Retained Earnings

Non-controlling Interest

Total Shareholders’
Equity

Mezzanine Equity

Balance at January 1, 2023

91,789

$
372,429

$
13,372

$
(8,371
)

$
(74,367
)

$
767

$
303,830

$
16,164

Shares issued in public offering, net of issuance costs

18,350

14,207

—

—

—

—

14,207

—

Warrants issued in public offering

—

—

9,128

—

—

—

9,128

—

Shares issued on exercise of stock options

100

83

—

—

—

—

83

—

Share-based compensation

—

—

2,388

—

—

—

2,388

—

Cumulative translation adjustment

—

—

—

5,087

—

—

5,087

—

Net loss

—

—

—

—

(8,016
)

(99
)

(8,115
)

59

Balance at June 30, 2023

110,239

$
386,719

$
24,888

$
(3,284
)

$
(82,383
)

$
668

$
326,608

$
16,223

Six Months Ended June 30, 2022

Number of Common
Shares

Common Stock

Additional Paid in
Capital

Accumulated Other
Comprehensive (Loss)
Income

Retained Earnings

Non-controlling Interest

Total Shareholders’
Equity

Mezzanine Equity

Balance at January 1, 2022

88,234

$
365,561

$
9,369

$
6,696

$
26,779

$
—

$
408,405

$
16,433

Shares issued on exercise of stock options

338

176

16

—

—

—

192

—

Share-based compensation

—

—

2,078

—

—

—

2,078

—

Cumulative translation adjustment

—

—

—

(3,131
)

—

—

(3,131
)

—

Net loss

—

—

—

—

(43,072
)

—

(43,072
)

(314
)
Balance at June 30, 2022

88,572

$
365,737

$
11,463

$
3,565

$
(16,293
)

$
—

$
364,472

$
16,119

The accompanying notes are an integral part of these ~~condensed consolidated interim financial statements.~~

Condensed Consolidated Financial Statements.

Village Farms International, Inc.

Condensed Consolidated ~~Interim~~ Statements of Cash Flows

(In thousands of United States dollars)

(Unaudited)

   Three Months Ended March 31,
       2020         2019
Cash flows used in operating activities:

Net income
   $ 4,190 $ 6,466
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization
   1,530 1,926
Amortization of deferred charges
   19 19
Share of income from joint ventures
   (3,229 ) (2,611 )
Interest expense
   537 694
Interest income
   (383 ) (136 )
Interest paid on long-term debt
   (538 ) (662 )
Gain on settlement agreement
   (4,681 ) —
Loss (gain) on disposal of assets
   6 (13,564 )
Lease payments
   (271 ) (254 )
Interest paid on finance leases
   (1 ) (3 )
Share-based compensation
   529 1,296
Deferred income taxes
   (468 ) 4,823
Changes innon-cash working capital items
   2,225 (3,540 )


Net cash used in operating activities
   (535 ) (5,546 )


Cash flows used in investing activities:

Purchases of property, plant and equipment, net of rebate
   (259 ) (167 )
Advances to joint ventures
   —   (2,251 )
Proceeds from sale of asset
   —   60
Investment in joint ventures
   (6,063 ) (7 )


Net cash used in investing activities
   (6,322 ) (2,365 )


Cash flows from financing activities:

Proceeds from borrowings
   2,000 3,000
Repayments on borrowings
   (875 ) (837 )
Proceeds from issuance of common stock
   7,957 —
Issuance costs
   (633 ) —
Proceeds from exercise of stock options
   —   34
Payments on capital lease obligations
   (21 ) (18 )


Net cash provided by financing activities
   8,428 2,179


Effect of exchange rate changes on cash and cash equivalents
   (2 ) —


Net increase (decrease) in cash and cash equivalents
   1,569 (5,732 )
Cash and cash equivalents, beginning of period
   11,989 11,920


Cash and cash equivalents, end of period
   $ 13,558 $ 6,188


	Six Months Ended June 30,
	2023			2022
Cash flows used in operating activities:
Net loss attributable to Village Farms International, Inc. shareholders	$	(8,016	)	$	(43,072	)
Adjustments to reconcile net loss net loss attributable to Village Farms International, Inc. shareholders
to net cash used in operating activities:
Depreciation and amortization		7,729			6,332
Amortization of deferred charges		68			126
Share of loss from joint ventures		—			2,667
Net loss attributable to non-controlling interest		(40	)		—
Interest expense		2,544			1,348
Interest income		(479	)		(110	)
Interest paid on long-term debt		(2,637	)		(1,855	)
Unrealized foreign exchange loss		27			115
Impairments		—			29,799
Write-off of joint venture loan		—			592
Non-cash lease expense		907			29
Share-based compensation		2,388			2,078
Deferred income taxes		(392	)		(16,134	)
Changes in non-cash working capital items		(7,346	)		9,064
Net cash used in operating activities		(5,247	)		(9,021	)
Cash flows used in investing activities:
Purchases of property, plant and equipment		(2,548	)		(10,232	)
Issuance of note receivable		—			(3,449	)
Repayment of note receivable		835			—
Net cash used in investing activities		(1,713	)		(13,681	)
Cash flows provided by (used in) financing activities:
Proceeds from borrowings		—			4,000
Repayments on borrowings		(6,406	)		(6,490	)
Proceeds from issuance of common stock and warrants		24,772			—
Issuance costs		(1,437	)		—
Proceeds from exercise of stock options		83			192
Payments on capital lease obligations		—			(612	)
Net cash provided by (used in) financing activities		17,012			(2,910	)
Effect of exchange rate changes on cash and cash equivalents		(69	)		(56	)
Net increase (decrease) in cash, cash equivalents and restricted cash		9,983			(25,668	)
Cash, cash equivalents and restricted cash, beginning of period		21,676			58,667
Cash, cash equivalents and restricted cash, end of period	$	31,659		$	32,999
Non-cash investing and financing activities:
Operating lease right-of-use assets	$	4,808		$	—
Operating lease liabilities	$	4,808		$	—

The accompanying notes are an integral part of these ~~condensed consolidated interim financial statements.~~

Condensed Consolidated Financial Statements.

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated ~~Interim~~ Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

1	~~NATURE OF OPERATIONS~~

Village Farms International, Inc. (“VFF” ~~the parent company,~~and, together with its subsidiaries, the “Company”, “we”, “us”, or “our”) is ~~incorporated~~a corporation existing under the ~~Canada~~Ontario Business ~~Corporation~~Corporations Act. VFF’s principal operating subsidiaries as of ~~March 31, 2020~~June 30, 2023 are Village Farms Canada Limited Partnership, ~~(“VFCLP”),~~ Village Farms, L.P. ~~(��VFLP”~~, Pure Sunfarms Corp. (“Pure Sunfarms”), and ~~VF Clean Energy,~~Balanced Health Botanicals, LLC (“Balanced Health”). VFF also owns a 70% interest in Rose LifeScience Inc. (“~~VFCE”~~Rose”) and an 85% interest in Leli Holland B.V. ("Leli").

The address of the registered office of VFF is ~~4700 80th~~4700-80th Street, Delta, British Columbia, Canada, V4K 3N3. VFF owns a 65% equity interest in Village Fields Hemp USA LLC (“VF Hemp”) and a 58.7% equity interest in Pure Sunfarms Corp. (“Pure Sunfarms”), both of which are recorded as Investments in Joint Ventures (note 7).

The Company’s shares are listed on ~~the Toronto Stock Exchange under the symbol VFF and are also listed in the United States on the~~ Nasdaq Capital Market (“Nasdaq”) under the symbol ~~VFF.~~“VFF”.

~~The Company~~Village Farms owns and operates sophisticated, highly intensive agricultural greenhouse facilities in British Columbia and Texas, where it produces, markets and sells premium-quality tomatoes, bell peppers, and cucumbers. ~~The Company, through its~~Its wholly owned subsidiary, ~~VFCE, owns and operates a 7.0 MW power plant that generates electricity. The Company’s joint venture,~~ Pure Sunfarms, is a vertically integrated licensed producer and supplier of cannabis products ~~to be~~ sold to other licensed providers and provincial governments across Canada and internationally. Through its 70% ownership of Rose, the Company has a substantial presence in the Province of Quebec as a cannabis supplier, producer and commercialization expert. The Company’s ~~joint ventures, VF Hemp~~wholly owned subsidiary, Balanced Health, develops and ~~AVGG Hemp, are cultivators of high~~sells high-quality cannabidiol (“CBD”) ~~hemp in multiple states throughout the United States.~~based products including ingestible, edible and topical applications.

Basis of Presentation

~~Coronavirus pandemic(“COVID-19”)~~

~~In March 2020, the World Health Organization declared the outbreak of theCOVID-19~~ virus a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus continues to spread. A number of countries as well as certain states and cities within the United States have enacted temporary closures of businesses, issued quarantine or~~shelter-in-place~~ ~~orders and taken other restrictive measures in response toCOVID-19.~~

~~To date, all of the Company’s operations are operating normally, however, the extent to whichCOVID-19~~ and the related global economic crisis, affect the Company’s business, results of operations and financial condition, will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties (including new financial regulation and other regulatory reform) in response to the pandemic, and the effects on our produce, clients, vendors and employees. Village Farms continues to service its customers amid uncertainty and disruption linked to~~COVID-19~~ ~~and is actively managing its business to respond to the impact.~~

2	~~BASIS OF PRESENTATION~~

The accompanying condensed consolidated financial statements are unaudited ~~Condensed Consolidated Financial Statements for the three months ended March 31, 2020~~and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions tofor Form10-Q and Rule10-01 of RegulationS-X. ~~They do not include all~~ Pursuant to these rules and regulations, certain information and footnote disclosures normally included in the annual audited consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated statement of financial position as of December 31, 2022 is derived from the Company’s audited financial statements as of that date. Because certain information and footnote disclosures have been condensed or omitted, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes ~~required by generally accepted accounting principles~~thereto as of and for ~~complete financial statements.~~the year ended December 31, 2022 contained in the Company’s 2022 Annual Report on Form 10-K. In ~~the~~management’s opinion, ~~of management,~~ all ~~adjustments of a~~ normal and recurring ~~nature~~adjustments considered necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented have been included. ~~Operating results for~~When necessary, certain prior year amounts have been reclassified to conform with the current period presentation. For the three and six months ended ~~March 31, 2020 are subject~~June 30, 2022, share-based compensation has been reclassified to ~~seasonal variations~~selling, general and ~~may be impacted by~~administrative expenses on the ~~COVID-19 pandemic~~condensed consolidated Statements of Operations and ~~accordingly are~~Comprehensive Income (Loss) to conform with the current period presentation. Interim period operating results do not necessarily ~~indicative of~~indicate the results that may be expected for ~~the year ending December 31, 2020. For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form10-K~~any other interim period or for the full fiscal ~~year ended December 31, 2019 and 2018.~~

~~Other than as described below, there were no changes to our significant accounting policies described~~year. The Company believes that the disclosures made in ~~our annual~~these consolidated financial statements ~~that had a material impact on our~~are adequate to make the information not misleading.

Principals of Consolidation

The accompanying condensed consolidated financial statements include Village Farms International, Inc. and ~~related notes.~~its subsidiaries and include the accounts of all majority-owned subsidiaries over which the Company exercises control and, when applicable, entities in which the Company has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. Other parties’ interests in entities that the Company consolidates are reported as non-controlling interests within equity, except for mandatorily redeemable non-controlling interests, which are recorded within mezzanine equity. Net income or loss attributable to non-controlling interests is reported as a separate line item below net income or loss. The Company applies the equity method of accounting for its investments in entities for which it does not have a controlling financial interest, but over which it has the ability to exert significant influence. For equity investees in which the Company has an undivided interest in the assets, liabilities and profits or losses of an unconsolidated entity, but does not exercise control over the entity, the Company consolidates its proportional interest in the accounts of the entity.

Translations of Foreign Currencies

3	~~NEW ACCOUNTING PRONOUNCEMENTS ADOPTED~~

~~In August 2018,~~The assets and liabilities of foreign subsidiaries with a functional currency other than the ~~FASB issued Accounting Standards Update (“ASU”)2018-13,~~ “~~Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement~~~~.” ASU2018-13~~ removes the disclosure requirement for the amount and reasons for transfers between Level 1 and Level 2 fair value measurements as well as the process for Level 3 fair value measurements. In addition, the ASU adds the disclosure requirements for changes in unrealizedU.S. dollar are translated into U.S. dollars at period-end exchange rates, with resulting translation gains ~~and~~or losses included inwithin other comprehensive income ~~(loss) for recurring Level 3 fair value measurements held~~or loss. Revenue and expenses are translated into U.S. dollars at average rates of exchange during the ~~end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted ASU2018-13~~ ~~on January 1, 2020. The adoption of this standard did not have a material impact on~~applicable period. Substantially all the Company’s ~~consolidated financial statements and related disclosures.~~foreign operations use their local currency as their functional currency. For foreign operations for which the local currency is not the functional currency, the operation’s non-monetary assets are remeasured into U.S. dollars at historical exchange rates. All other accounts are remeasured at current exchange rates.

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

General Economic, Regulatory and Market Conditions

~~In June 2016,~~The Company has experienced, and may continue to experience, direct and indirect negative effects on its business and operations from negative economic, regulatory and market conditions, including recent inflationary effects on fuel prices, labor and materials costs, rising interest rates, potential recessionary impacts and supply chain disruptions that could negatively affect demand for new projects and/or delay existing project timing or cause increased project costs. The extent to which general economic, regulatory and market conditions could affect the ~~FASB~~Company’s business, operations and financial results is uncertain as it will depend upon numerous evolving factors that management may not be able to accurately predict, and, therefore, any future impacts on the Company’s business, financial condition and/or results of operations cannot be quantified or predicted with specificity.

Recent Accounting Pronouncements

No accounting pronouncements recently issued ~~ASU2016-13,~~ “~~Financial Instruments—Credit Losses~~.” The standard, including subsequently issued amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amountor newly effective have had, or are expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company adopted ASU~~2016-13~~ ~~on January 1, 2020. The adoption of this standard did not~~ have, a material impact on the Company’s condensed consolidated financial ~~statements and related disclosures.~~statements.

2. INVENTORIES

4	~~INVENTORIES~~

Inventories, consisting of crop inventory, purchased produce inventory and spare parts inventory are valued at the lower of cost or net realizable value. Cost is determined using the weighted average cost method. Costs included in crop inventory include but are not limited to raw material packaging, direct labor, overhead, and the depreciation of growing equipment and facilities determined at normal capacity. These costs are expensed as cost of sales when the crops are sold.

Inventories consisted of the following as ~~of March 31, 2020 and December 31, 2019:~~of:


Classification	March 31, 2020		December 31, 2019		June 30, 2023		December 31, 2022
Cannabis:
Raw materials					$	1,092	$	1,089
Work-in-progress						8,091		10,872
Finished goods						46,823		36,094
Packaging						7,407		6,909
Produce and Energy:
Crop inventory	$	14,672	$	15,281		9,622		14,886
Purchased produce inventory		770		530		581		599
Spare parts inventory		104		107

Inventories	$	15,546	$	15,918

Spare parts inventory and packaging						117		133
Inventory					$	73,733	$	70,582

5	~~PROPERTY, PLANT AND EQUIPMENT~~

Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is allocated between cost of sales and SG&A expenses depending on the type of asset and is determined using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the remaining life of the lease or useful life of the asset, whichever is shorter. Maintenance and repairs are charged to cost of sales when incurred. Significant expenditures, which extend the useful lives of assets, are capitalized. Land is not depreciated. The estimated useful lives of the class of assets for the current and comparative periods are as follows:3. PROPERTY, PLANT AND EQUIPMENT


~~Classification~~		~~Estimated Useful Lives~~
~~Leasehold and land improvements~~		~~5-20~~ ~~years~~
~~Greenhouses and other buildings~~		~~4-30~~ ~~years~~
~~Greenhouse equipment~~		~~3-30~~ ~~years~~
~~Machinery and equipment~~		~~3-12~~ ~~years~~

~~Construction in process reflects the cost of assets under construction, which are not depreciated until placed into service.~~

Property, plant and equipment consisted of the following as ~~of March 31, 2020 and December 31, 2019:~~of:


Classification	March 31, 2020			December 31, 2019			June 30, 2023			December 31, 2022
Land	$	3,204		$	3,204		$	13,642		$	13,411
Leasehold and land improvements		3,820			3,820			5,552			5,372
Greenhouses and other buildings		72,853			72,772
Buildings								217,474			214,146
Machinery and equipment		61,498			61,871			85,055			82,396
Construction in progress		1,745			1,697			10,872			10,033
Less: Accumulated depreciation		(81,433	)		(80,206	)		(125,221	)		(117,657	)

Property, plant and equipment	$	61,687		$	63,158

Property, plant and equipment, net							$	207,374		$	207,701

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

6	~~LEASES~~

~~On August 7, 2019,~~4. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table presents the changes in the carrying value of goodwill by reportable segment for the six months ended June 30, 2023:


	Cannabis - Canada		Cannabis - United States		Total
Balance as of December 31, 2022	$	44,886	$	21,339	$	66,225
Foreign currency translation adjustment		1,014		—		1,014
Balance as of June 30, 2023	$	45,900	$	21,339	$	67,239

Intangible Assets

Intangibles consisted of the following as of:


Classification	June 30, 2023			December 31, 2022
Licenses	$	18,460		$	17,691
Brand and trademarks*		12,797			12,719
Customer relationships		13,592			13,291
Computer software		1,975			1,955
Other*		144			144
Less: Accumulated amortization		(5,806	)		(4,013	)
Less: Impairments		(4,630	)		(4,630	)
Intangibles, net	$	36,532		$	37,157

* Indefinite-lived intangible assets

The expected future amortization expense for definite-lived intangible assets as of June 30, 2023 was as follows:


Fiscal period
Remainder of 2023	$	1,595
2024		3,189
2025		3,101
2026		3,010
2027		3,010
Thereafter		14,316
Intangibles, net	$	28,221

Assessment for Indicators of Impairment

At the end of each reporting period, the Company ~~entered into~~assesses whether events or changes in circumstances have occurred that would indicate an ~~operating lease agreement~~impairment. The Company considers external and internal factors, including overall financial performance and relevant entity-specific factors, as part of this assessment.

During the first six months of 2023, the Company considered qualitative factors in assessing for ~~8,341 square feet of office space located in Lake Mary, Florida. The lease commenced on January 1, 2020 and has a lease term of 88 months with an option to extend for five years. The base rent~~impairment indicators for the ~~lease will be adjusted annually by multiplying~~Company’s U.S. and Canadian cannabis segments. As part of this assessment, the ~~base rent by 1.025. The initial lease liability was calculated~~Company considered both external and internal factors, including overall financial performance and outlook. At June 30, 2023, the Company concluded that no impairment indicators existed as no events or circumstances occurred that would, more likely than not, reduce the ~~present~~fair value of the ~~lease payments using an incremental borrowing rate~~reporting units to be below their carrying amounts.

Throughout 2022, the Company recognized macroeconomic challenges, decreases in market capitalization, decreases in transaction multiples, and continued ambiguity in federal regulations with respect to the U.S. CBD market. As of ~~4.98%. Theright-of-use~~ ~~asset was calculated as~~June 30, 2022, when the ~~initial amount of~~Company considered these qualitative factors in assessing impairment indicators it concluded that the ~~lease liability, plus any lease payments made before lease commencement, plus initial direct costs, less any lease incentives. The lease liability and theright-of-use~~ ~~asset are recorded in the consolidated statements of financial position~~.Company's U.S.

~~The components of lease related expenses are as follows:~~8

   Three Months Ended
March 31, 2020    Three Months Ended
March 31, 2019
Operating lease expense^(a)
   $ 608    $ 611




Finance lease expense:

Amortization ofright-of-use assets
   $ 21    $ 20
Interest on lease liabilities
   1    3




Total finance lease expense
   $ 22    $ 23

^(a)

~~Includes short-term lease costs of $200 and $311 for the three months ended March 31, 2020 and 2019, respectively.~~

~~Cash paid for amounts included in the measurement of lease liabilities:~~

   Three Months Ended
March 31, 2020    Three Months Ended
March 31, 2019
Operating cash flows from operating leases
   $ 271    $ 254
Operating cash flows from finance leases
   $ 1    $ 3
Financing cash flows from finance leases
   $ 21    $ 18


	~~March 31, 2020~~
~~Weighted average remaining lease term:~~
~~Operating leases~~		~~3.9~~
~~Finance leases~~		~~1.6~~
~~Weighted average discount rate:~~
~~Operating leases~~		~~5.87~~	%
~~Finance leases~~		~~6.25~~	%

~~Maturities of lease liabilities are as follows:~~

   Operating
leases    Finance
leases
Remainder of 2020
   $ 987    $ 44
2021
   1,355    30
2022
   1,140    10
2023
   920    —
2024
   562    —
Thereafter
   800    —




Undiscounted lease cash flow commitments
   5,764    84
Reconciling impact from discounting
   (808 )    (4 )




Lease liabilities on consolidated statement of financial position as of March 31, 2020
   $ 4,956    $ 80

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

7	~~INVESTMENT IN JOINT VENTURES~~

~~Summarized Equity Earnings (Losses)~~- Cannabis segment more likely than not was impaired. The Company tested that segment’s assets, including goodwill and intangible assets for impairment.

Cannabis - U.S. - Goodwill

The recoverable amount of the reporting unit was determined based on a transaction multiple of somewhat similar CBD-based companies. Management concluded that as of June 30, 2022, the recoverable amount was lower than its carrying amount and as a result, an impairment charge to goodwill of $25,169 was allocated to the reporting unit.

The significant assumptions applied to the determination of the recoverable amount are described below:

•

Transaction multiples: A market-based revenue multiple of 1.6x was utilized to determine the recoverable amount. A decrease in the multiple of .25x, would increase the impairment to goodwill by $7,000.

Cannabis - U.S. - Brand

The recoverable amount of the brand was determined based on a discounted cash flow projection. Specifically, the Company utilized a relief from ~~Unconsolidated Entities~~royalty valuation technique to arrive at the recoverable amount of the brand. Management concluded that as of June 30, 2022, the recoverable amount was lower than its carrying value of $9,250 and as a result, an impairment charge to the brand intangible of $4,630 was allocated to the reporting unit.

The significant assumptions applied to the determination of the recoverable amount are described below:

   Equity earnings from
unconsolidated entities
   Three months ended March 31,
               2020                            2019
Pure Sunfarms
   $ 3,531    $ 2,641
VF Hemp
   (302 )    (30 )




Total
   $ 3,229    $ 2,611

•

Post-tax discount rate: A market participant post-tax discount rate applied to the after-tax forecast cash flows was 11%. An increase of 1% to the discount rate, would increase the impairment by approximately $530.

•

Royalty rate: An incremental royalty rate of 4.0% of revenues was applied to brand-specific revenues. A decrease to the incremental royalty rate by 0.5% would increase the impairment to brand by $1,490.

•

Future revenues: A decrease in future revenues by 10% would increase the impairment by approximately $470.

~~Pure Sunfarms Corp.~~5. LINE OF CREDIT AND LONG-TERM DEBT

The following table provides details for the carrying values of debt as of:


	June 30, 2023		December 31, 2022
Term Loan - ("FCC Loan") - repayable by monthly principal payments of $164 and accrued interest at a rate of 8.65%; matures April 1, 2025	$	23,772	$	24,755
Term Loan - Pure Sunfarms - C$19.0M - Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50% of the outstanding principal amount, interest rate of 8.95%; matures February, 2026		9,056		9,664
Term loan - Pure Sunfarms - C$25.0M - Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50% of the outstanding principal amount starting June 30, 2021, interest rate of 8.95%; matures February, 2026		14,151		14,867
BDC Facility - Pure Sunfarms - non-revolving demand loan at prime interest plus 3.75%, matures December 31, 2031		4,009		4,181
Total	$	50,988	$	53,467

On ~~June 6, 2017,~~March 13, 2023, the Company entered into ~~an agreement to form Pure Sunfarms,~~ a ~~B.C. corporation, with Emerald Health Therapeutics Inc. (“Emerald”~~Note Modification Agreement (the “Modification”) for its line of credit ("Operating Loan"). The ~~purpose~~Modification eliminated the use of ~~Pure Sunfarms is to produce, market and distribute cannabis in Canada.~~

The Company accounts for its investment in Pure Sunfarms, in accordance with Accounting Standards Codification (ASC) 323, Equity Method and Joint Ventures (“ASC 323”), using the equity method. The Company has determined that Pure Sunfarms is a variable interest entity (“VIE”), however the Company does not consolidate Pure Sunfarms because the Company is not the primary beneficiary. Although the Company is able to exercise significant influence over the operating and financial policies of Pure Sunfarms through its 58.7% majority ownership interest, the Company shares joint control of the Board of Directors and therefore is not the primary beneficiary. The Company’s maximum exposure to lossLIBOR as a ~~result of its involvement with Pure Sunfarms as of March 31, 2020 relates primarily~~basis to determine certain interest rates and transitioned to the ~~Company’s investment of $55,607 and the recovery of the outstanding loan to Pure Sunfarms of $9,959.~~

~~The Company is required to apply the hypothetical liquidation at book value~~Secured Overnight Financing Rate (“~~HLBV”~~SOFR”) ~~method to determine its allocation of the profits and losses in Pure Sunfarms. When determining its allocation of profits and losses, the HLBV method only considers shares that~~for such purposes. This Modification did not have been fully paid for. Therefore, due to the monthly escrow payments made by Emerald in 2019 in accordance with the Delta 2 Option and Escrow Agreements, the ownership changed each month in 2019 as escrow payment(s) were made. Under the hypothetical liquidation method, the Company received 57.4% and 57.6% of Pure Sunfarms’ earnings for the three months ended March 31, 2020 and 2019, respectively. In 2020, all of the escrow payments were made so the allocation of profits and losses is based on shares outstanding at the end of each month.

~~On March 31, 2019, Pure Sunfarms exercised its option to utilize the Delta 2 assets and operations. The contribution of the assets has been accounted for as~~ a ~~disposal of the land, greenhouse facility and other assets in exchange for 25,000,000 common shares of Pure Sunfarms. This was anon-cash~~ transaction, and it was estimated that the fair value of the land, building and other assets was $18.7 million (CA$25 million) at the date of contribution. The Company recognized a gain of $13.6 millionmaterial effect on the ~~contribution of the fixed assets.~~

On March 2, 2020, pursuant to the Settlement Agreement, Emerald transferred to the Company 2.5% of additional equity in Pure Sunfarms. The Company determined the fair value of the equity received from Emerald to be CA$6.5 million (US$4.7 million). The Company recorded this amount as a gain and it’s included as gain on nonmonetary exchange on the consolidated statement of income and comprehensive income for the three months ended March 31, 2020.9

As of March 31, 2020, and December 31, 2019, the total investment in Pure Sunfarms of $55.6 million and $41.3 million, respectively, was recorded in the consolidated statements of financial position.

~~The Company’s share of the joint venture consists of the following:~~

Balance, January 1, 2019
   $ 6,341
Investments in joint venture
   18,717
Share of net income for the year
   16,276


Balance, December 31, 2019
   $ 41,334


Balance, January 1, 2020
   $ 41,334
Investments in joint venture
   10,742
Share of net income for the period
   $ 3,531


Balance, March 31, 2020
   $ 55,607

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

~~Summarized~~Company's results of operations or its financial ~~information~~position. The Company’s Operating Loan had $4,000 amount drawn on the facility as of June 30, 2023 and December 31, 2022.

The Company has two Pure Sunfarms ~~(in USD):~~Term Loans (“PSF Term Loans”) that had a maturity in February 2024. The PSF Term Loans were amended in May 2023 to, among other changes, extend the maturity date of the PSF Term Loans to February 2026. The other terms and conditions of the PSF Term Loans remain substantially the same.

     March 31, 2020        December 31, 2019
Current assets

Cash and cash equivalents
   $ 608    $ 7,356
Trade receivables
   12,809    8,687
Inventory
   29,970    21,745
Other current assets
   5,933    6,964
Non-current assets
   105,921    108,652
Current liabilities

Trade payables
   (12,288 )    (4,938 )
Borrowings due to joint ventures
   (10,311 )    (26,413 )
Income taxes payable
   (8,843 )    (8,489 )
Borrowings – current
   (1,341 )    (1,423 )
Other current liabilities
   (11,360 )    (5,021 )
Non-current liabilities

Borrowings – long term
   (11,642 )    (13,089 )
Deferred tax liabilities
   (3,372 )    (2,473 )




Net assets
   $ 96,084    $ 91,558

     March 31, 2020        December 31, 2019
Reconciliation of net assets:

Accumulated retained earnings
   $ 32,844    $ 26,679
Contributions from joint venture partners
   70,088    63,481
Currency translation adjustment
   (6,848 )    1,398




Net assets
   $ 96,084    $ 91,558

   Three Months Ended
March 31, 2020    Three Months Ended
March 31, 2019
Revenue
   $ 13,137    $ 10,801
Cost of sales*
   (6,258 )    (3,818 )




Gross margin
   6,879    6,983
Selling, general and administrative expenses
   (2,434 )    (999 )




Income from operations
   4,445    5,984
Interest expense
   (217 )    (1 )
Foreign exchange (loss) gain
   (179 )    39
Other income, net**
   4,332    10




Income before taxes
   8,381    6,032
Provision for income taxes
   (2,216 )    (1,629 )




Net income
   $ 6,165    $ 4,403

~~Included in cost of sales for the three months ended March 31, 2020 and 2019 is $449 and $458, respectively, of depreciation expense.~~

~~Includes gain recognized on settlement of net liabilities of $4,348 (CA$6,044).~~

~~Village Fields Hemp USA LLC~~The carrying value of the assets and securities pledged as collateral for the FCC Loan as of June 30, 2023 and December 31, 2022 was $130,100 and $113,159, respectively.

~~On February 27, 2019,~~The carrying value of the assets pledged as collateral for the Operating Loan as of June 30, 2023 and December 31, 2022 was $24,567 and $26,666, respectively.

The Pure Sunfarms line of credit had $0 and $3,529 outstanding as of June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023 and December 31, 2022, Pure Sunfarms had an outstanding letter of credit issued to BC Hydro against the revolving line of credit of $C5,145.

The Company is required to comply with financial covenants, measured either quarterly or annually depending on the covenant. The Company was in compliance with all its credit facility covenants as of June 30, 2023.

The weighted average annual interest rate on short-term borrowings as of June 30, 2023 and December 31, 2022 was 9.64% and 9.12%, respectively.

Accrued interest payable on all long-term debt as of June 30, 2023 and December 31, 2022 was $174 and $398, respectively, and these amounts are included in accrued liabilities in the Condensed Consolidated Statements of Financial Position.

The aggregate annual principal maturities of long-term debt for the remainder of 2023 and thereafter are as follows:


Remainder of 2023	$	2,955
2024		5,911
2025		24,764
2026		14,962
2027		701
Thereafter		1,695
Total	$	50,988

6. FINANCIAL INSTRUMENTS

The Company’s financial instrumentsinclude cash and cash equivalents, trade receivables, note receivables, investments, trade payables, accrued liabilities, lease liabilities, note payables and debt. The carrying value of cash and cash equivalents, trade receivables, notes receivable, trade payables, and accrued liabilities approximate their fair values due to the short-term maturity of these financial instruments. The carrying value of lease liabilities, notes payable, and debt approximate their fair values due to insignificant changes in credit risk. For its investments, the Company ~~entered into~~has selected the practicability election to fair value measurement, under which the investment is measured at cost, less impairment, plus or minus observable price changes of an identical or similar investment.

7. RELATED PARTY TRANSACTIONS AND BALANCES

One of the Company’s employees is related to a ~~joint venture with Nature Crisp, LLC (“Nature Crisp”) to form VF Hemp~~member of the Company’s executive management team and received approximately $61 and $54 in salary and benefits during the six months ended June 30, 2023 and 2022, respectively.

8. INCOME TAXES

The Company has recorded a provision for income taxes of $1,299 and $1,933 for the ~~objective~~three and six months ended June 30, 2023, respectively, compared with a recovery of ~~outdoor cultivation~~income taxes of ~~high percentage cannabidiol (“CBD”) hemp~~$9,714 and ~~CBD extraction in multiple states throughout~~$11,380 for the ~~United States. VF Hemp~~same periods last year.

The Company’s income tax provision is ~~65% owned by the Company and 35% owned by Nature Crisp. Under the terms~~based on management’s estimate of the ~~VF Hemp Joint Venture Agreement,~~effective tax rate for the ~~Company~~full year. The tax (provision) benefit in any period will ~~lend up~~be affected by, among other things, permanent, as well as temporary, differences in the deductibility of certain items, changes in the valuation allowance related to ~~approximately US$15 million~~net deferred tax assets, in addition to ~~VF Hemp forstart-up~~ ~~costs and working capital.~~

changes in tax

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, tax expense divided by pre-tax book income) from period to period.

In order to fully utilize the net deferred tax assets, the Company will need to generate sufficient taxable income in future years. The Company ~~accounts for its investment in VF Hemp, in accordance with ASC 323, using~~analyzed all positive and negative evidence to determine if, based on the ~~equity method because~~weight of available evidence, it is more likely than not to realize the benefit of the net deferred tax assets. The recognition of the net deferred tax assets and related tax benefits is based upon the Company’s conclusions regarding, among other considerations, estimates of future earnings based on information currently available and current and anticipated customers, contracts, and product introductions, as well as historical operating results and certain tax planning strategies.

Based on the analysis of all available evidence, both positive and negative, the Company ~~is able~~has concluded that it does not have the ability to ~~exercise significant influence over~~generate sufficient taxable income in the ~~operating~~necessary period to utilize the entire benefit for the deferred tax assets. Accordingly, the Company established a valuation allowance of $30,419 as of June 30, 2023 and ~~financial policies of VF Hemp through its 65% ownership interest and joint power arrangement with Nature Crisp.~~December 31, 2022. The ~~Company’s maximum exposure~~Company cannot presently estimate what, if any, changes to ~~loss as a result~~the valuation of its ~~involvement with VF Hemp is directly~~deferred tax assets may be deemed appropriate in the future. If the Company incurs future losses, it may be necessary to record additional valuation allowance related to the ~~recovery~~deferred tax assets recognized as of June 30, 2023.

As of June 30, 2023, the ~~$10,946 loan outstanding to VF Hemp.~~Company’s net deferred tax assets totaled approximately $4,201 and were primarily derived from net operating loss carryforwards.

9. SEGMENT AND GEOGRAPHIC INFORMATION

~~The~~Segment reporting is prepared on the same basis that the Company’s ~~share~~Chief Executive Officer, who is the Company’s Chief Operating Decision Maker, manages the business, makes operating decisions and assesses performance.

As of June 30, 2023, the ~~joint venture consists of the following:~~Company’s four segments are as follows:


~~Balance, beginning of the period~~Segment	$	—	Description
~~Investments in joint venture~~Produce		7	The Produce segment produces, markets, and sells premium quality tomatoes, bell peppers and cucumbers.
~~Share of net loss~~Cannabis – Canada		~~(2,464~~	) The Cannabis – Canada segment produces and supplies cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally.
~~Losses applied against joint venture note receivable~~		~~2,457~~
	Cannabis – United States		The Cannabis – United States segment develops and sells high-quality, CBD-based health and wellness products including ingestible, edible and topical applications.
~~Balance, December 31, 2019~~	$	—
	Energy
~~Balance, beginning of the period~~	$	—
~~Investments in joint venture~~		—
~~Share of net loss~~		~~(302~~	)
~~Losses applied against joint venture note receivable~~		~~302~~

~~Balance, March 31, 2020~~	$	—

~~Summarized financial information of VF Hemp:~~

   March 31, 2020    December 31, 2019
Current assets

Inventory
   $ 9,268    $ 9,308
Other current assets
   163    546
Non-current assets
   1,406    1,476
Current liabilities
   (1,386 )    (1,788 )
Non-current liabilities
   (13,697 )    (13,323 )




Net assets
   $ (4,246 )    $ (3,781 )

Reconciliation of net assets:
   March 31, 2020    December 31, 2019
Beginning retained earnings
   $ (3,791 )    $ (3,791 )
Net loss for the three months ended March 31, 2020
   (465 )    —
Contributions from joint venture partners
   10    10




Net assets
   $ (4,246 )    $ (3,781 )

8	~~DEBT~~The Energy business produces power that it sells per a long-term contract to its one customer.

~~At March 31, 2020~~

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

The Company’s primary operations are in the United States and Canada. Segment information is summarized below:


	Three months ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Sales
Produce	$	43,846		$	47,176		$	78,413		$	88,525
Cannabis - Canada		28,065			29,793			53,177			51,562
Cannabis - United States		5,301			5,793			10,278			12,836
Energy		—			141			—			136
	$	77,212		$	82,903		$	141,868		$	153,059
Gross margin
Produce	$	(2,761	)	$	(8,967	)	$	(2,146	)	$	(13,257	)
Cannabis - Canada		10,716			11,508			19,170			21,018
Cannabis - United States		3,558			3,837			6,796			8,549
Energy		(14	)		(55	)		(21	)		(83	)
	$	11,499		$	6,323		$	23,799		$	16,227

10. LOSS PER SHARE

Basic and diluted net loss per common share is calculated as follows:


	Three months ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Numerator:
Net loss attributable to Village Farms International, Inc. shareholders	$	(1,380	)	$	(36,555	)	$	(8,016	)	$	(43,072	)
Denominator:
Weighted average number of common shares - basic		110,239			88,567			107,185			88,472
Effect of dilutive securities- share-based employee options and awards		—			—			—			—
Weighted average number of common shares - diluted		110,239			88,567			107,185			88,472
Antidilutive options and awards		6,589			3,592			6,589			3,592
Net loss per ordinary share:
Basic	$	(0.01	)	$	(0.41	)	$	(0.07	)	$	(0.49	)
Diluted	$	(0.01	)	$	(0.41	)	$	(0.07	)	$	(0.49	)

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except per share amounts, unless otherwise noted)

11. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Share-based compensation expense for the three and six months ended June 30, 2023 was $656 and $2,388, respectively, and $1,114 and $2,078 for the three and six months ended June 30, 2022, respectively.

Stock option activity for the six months ended June 30, 2023 was as follows:


	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2023		4,089,418		$	5.76		6.77	$	152
Granted		2,671,896		$	0.99		9.17	$	125
Exercised		(100,000	)	$	0.83			$	71
Forfeited		(72,500	)	$	8.07
Outstanding at June 30, 2023		6,588,814		$	3.88		8.98	$	35
Exercisable at June 30, 2023		3,227,929		$	6.13		5.50	$	0

Performance-based shares activity for the six months ended June 30, 2023 was as follows:


	Number of Performance-based Restricted Share Units		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2023		30,000	$	8.31
Outstanding at June 30, 2023		30,000	$	8.31
Exercisable at June 30, 2023		30,000	$	8.31

On January 30, 2023, the Company closed a public offering (the "Offering") of 18,350,000 Common Shares at a price of US$1.35 per share together with accompanying warrants to purchase up to 18,350,000 Common Shares, which have an exercise price of US$1.65 per share (the "Warrants"). The gross proceeds from the Offering were approximately US$25 million before deducting placement agent fees and other offering expenses payable by the Company. The proceeds from the Offering are intended to be used for general working capital. The accompanying Warrants have an exercise price of US$1.65 and will be exercisable beginning six months from issuance and will expire five years from the date of initial exercisability.

12. CHANGES IN NON-CASH WORKING CAPITAL ITEMS


	Six Months Ended June 30,
	2023			2022
Trade receivables	$	(447	)	$	(4,097	)
Inventories		(880	)		(8,922	)
Due from joint ventures		—			(4	)
Other receivables		(9,991	)		(280	)
Prepaid expenses and deposits		(411	)		121
Trade payables		(2,487	)		5,468
Accrued liabilities		6,017			13,737
Lease liabilities		(956	)		—
Other assets, net of other liabilities		1,809			3,041
	$	(7,346	)	$	9,064

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report and the Management’s Discussion and Analysis of Financial Condition and Results of Operations and consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2022(our "Annual Report on Form 10-K"). This discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on assumptions and estimates that are inherently subject to significant risks and uncertainties, and our actual results could differ materially from the results anticipated by our forward-looking statements. We encourage you to review the risks and uncertainties described in “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K, and in Part II, Item 1A of this Quarterly Report. These risks and uncertainties could cause actual results to differ materially from those projected or implied by our forward-looking statements contained in this report. These forward-looking statements are made as of the date of this management’s discussion and analysis, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law.

EXECUTIVE OVERVIEW

Village Farms International, Inc. (“VFF”, together with its subsidiaries, the “Company”, “Village Farms”, “we” “us” or “our”) is a corporation existing under the Business Corporations Act (Ontario). The Company’s principal operating subsidiaries are Village Farms Canada LP ("VFCLP"), Village Farms LP ("VFLP"), Pure Sunfarms Corp (“Pure Sunfarms” or "PSF"), Balanced Health Botanicals, LLC (“Balanced Health”), and Rose LifeScience Inc. ("Rose LifeScience” or “Rose”).

The Company’s vision is to be recognized as an international leader in consumer products developed from plants, whereby we produce and market value-added products that are consistently preferred by consumers. To do so, we leverage decades of cultivation expertise, investment, and experience in fresh produce across profitable, high growth plant-based opportunities.

In Canada, we converted two produce facilities to grow cannabis for the Canadian legal adult use (recreational) market. Our focus for our Canadian Cannabis segment is to produce high quality cannabis, leveraging our low-cost production to provide preferred products at an attractive price that address the largest consumer segments in the market. This market positioning, combined with our cultivation expertise, has enabled us to evolve into the best-selling Canadian licensed producer (“LP”) of dried flower products, the third best-selling Canadian producer overall and one of the few consistently adjusted EBITDA positive Canadian LPs.

Additionally, through organic growth, acquisitions and/or exports, we have a strategy to participate in other international markets where cannabis attains legal status. In September 2021, our Canadian Cannabis business began exporting cannabis products to Australia for that country’s medical market. In March 2022, our Canadian Cannabis business received European Union Good Manufacturing Practice (“EU GMP”) certification for Pure Sunfarms’ 1.1 million square foot Delta 3 cannabis facility located in Delta, British Columbia (“B.C.”) which permits Pure Sunfarms to export EU GMP-certified medical cannabis to importers and distributors in international markets that require EU GMP certification. In late 2022, Pure Sunfarms commenced exports to Israel and in 2023, Pure Sunfarms began exporting cannabis products to Germany for the medical markets in those countries. As a result of the typically higher margins in international medical markets, we expect international expansion should enhance our profitability while expanding our brand and experience into emerging legal cannabis markets. We also have one of ten licenses to cultivate cannabis legally in the Netherlands under that country’s Closed Supply Chain Experiment program through our 85% ownership of Leli Holland.

Balanced Health, our industry-leading cannabinoid business, extends our cannabis portfolio into cannabidiol (“CBD”) consumer products, which are being sold in the United States.

We also operate a large, well-established produce business (primarily tomatoes) under the Village Farms Fresh (“VF Fresh”) brand which sells into food and mass retail stores. We own and operate produce cultivation assets in Texas and Delta, B.C. and source produce from our growing partners, in Mexico and Canada. Our intention is to use our assets, expertise and experience (across cannabis, CBD and produce) to participate in the U.S. cannabis market subject to compliance with applicable US federal and state laws and stock exchange rules.

Our Operating Segments

Canadian Cannabis Segment

Our Canadian Cannabis segment is composed of wholly owned Pure Sunfarms and 70% owned Rose LifeScience.

Pure Sunfarms is one of the single largest cannabis growing operations in the world, one of the lowest-cost greenhouse producers and is the top selling dried flower brand in Canada. PSF leverages our 30 years of experience as a vertically integrated greenhouse grower for the high growth cannabis opportunity in Canada with commercial distribution in ten Canadian provinces and territories that represent 98% of total Canadian legal recreational cannabis sales. Our long-term objective for PSF is to be the leading low-cost, high-quality cannabis producer and brand in Canada.

Rose is one of the top-selling licensed producers of cannabis in the Province of Quebec, as well as a prominent cannabis products commercialization expert in Quebec, acting as the exclusive, direct-to-retail sales, marketing and distribution entity for some of the best-known brands in Canada, as well as Quebec-based micro and craft growers.

U.S. Cannabis Segment

Our U.S. Cannabis segment is composed of wholly owned Balanced Health.

Balanced Health is one of the leading cannabinoid brands and e-commerce platforms in the United States. Balanced Health develops and sells high-quality CBD-based health and wellness products, distributing their diverse portfolio of consumer products through retail storefronts and its top-ranked e-commerce platform, CBDistillery™.

Produce Segment

Our Produce segment is composed of VF Fresh, which currently consists of Village Farms LP and Village Farms Canada.

Through VF Fresh, we grow, market and distribute premium-quality, greenhouse-grown produce in North America. These premium products are grown in sophisticated, highly intensive agricultural greenhouse facilities located in British Columbia and Texas. We also market and distribute premium tomatoes, peppers and cucumbers produced under exclusive arrangements from our greenhouse supply partners located primarily in Mexico, B.C. and Ontario. We primarily market and distribute under our Village Farms® brand name to retail supermarkets and dedicated fresh food distribution companies throughout the United States and Canada.

Energy Segment

Our Energy segment is composed of wholly owned VF Clean Energy Inc.

VFCE, which has partnered with Mas Energy for the Delta RNG Project based on VFCE’s 20-year contract (plus five-year option) with the City of Vancouver to capture landfill gas at the Delta, B.C. landfill site (the "Delta RNG Project"). The Delta RNG Project will convert VFCE’s previous landfill gas-to-electricity business into a state-of-the-art landfill gas to high-demand renewable natural gas ("RNG") facility. Mas Energy intends to sell the renewable natural gas and VFCE will receive a portion of the revenue in the form of a royalty. The facility will also provide food-grade CO2 that can be used in both our cannabis and produce growing operations in Delta or can be provided to other users of CO2. Mas Energy is in process of completing the facility and we expect the Delta RNG Project to begin operations later this year.

Recent Developments and Updates

Canadian Cannabis Recent Developments and Updates

•

In April 2023, Rose LifeScience entered into an agreement pursuant to which it agreed to provide supply management and distribution services to Hexo in Quebec commencing in April 2023 until the close of the acquisition of Hexo by Tilray. As this transaction closed on June 22, 2023, all of Tilray’s sales including the now acquired Hexo Quebec sales will continue to be managed, for a distribution fee, by Rose LifeScience.

•

During the first half of 2023, according to independent third-party sources (amalgamated to cover all provinces), Village Farms’ Canadian Cannabis remains top three ranked by market share position across all product categories in Canada and has maintained its leading market share in dried flower category in Canada. Based on these sources, Province of Quebec-focused Rose LifeScience moved to rank number one by market share position in Quebec during the second quarter of 2023.

U.S. Cannabis Recent Developments and Updates

•

Balanced Health continues to launch incremental products under its successful 2022 new Synergy+ line. It was the first CBD company to advertise on Twitter under its recent new cannabis policy.

•

The Company filed an application for a Texas Medicinal license in late April 2023. The Company is hopeful that its application will be awarded the highest or one of the highest marks, putting it in a good position, should the State of Texas award additional medicinal cannabis licenses. If awarded, the Company plans to work with its listing authority to structure an acceptable ownership structure.

Delta RNG Project Update

•

Construction is being completed in August 2023, with commissioning to commence later in the third quarter of 2023.

VF Fresh (Produce)

•

The Company has commenced the sale process of its Monahans (Permian Basin, Texas) greenhouse facility and is expecting initial indications of interest in the third quarter of 2023.

Presentation of Financial Results

Our consolidated results of operations (prior to net income) for the three and six months ended June 30, 2023 and June 30, 2022 presented below reflect the operations of our consolidated wholly-owned subsidiaries and our 70% ownership in Rose LifeScience. The loss from our equity method investment in Village Farms Hemp ("VFH") is reflected in our net income for the three and six months ended June 30, 2022 presented below.

Foreign currency exchange rates

All currency amounts in this Quarterly Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of June 30, 2023, June 30, 2022, and December 31, 2022. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The condensed consolidated statements of operations and comprehensive income (loss) and condensed consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period.

The exchange rates used to translate from Canadian dollars ("C") to dollars is shown below:


	As of
	June 30, 2023		June 30, 2022		December 31, 2022
Spot rate		0.7547		0.7756		0.7380
Six-month period ended		0.7420		0.7864	N/A
Three-month period ended		0.7445		0.7864	N/A

RESULTS OF OPERATIONS

(In thousands of U.S. dollars, except per share amounts, and unless otherwise noted)

Consolidated Financial Performance


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Sales	$	77,212		$	82,903		$	141,868		$	153,059
Cost of sales		(65,713	)		(76,580	)		(118,069	)		(136,832	)
Gross margin		11,499			6,323			23,799			16,227
Selling, general and administrative expenses		(16,753	)		(18,516	)		(34,158	)		(36,451	)
Interest expense		(1,411	)		(665	)		(2,544	)		(1,348	)
Interest income		283			—			479			110
Foreign exchange gain (loss)		738			(527	)		669			(208	)
Other income (expense), net		5,602			(30	)		5,632			(38	)
Write-off of joint venture loan		—			(592	)		—			(592	)
Impairments		—			(29,799	)		—			(29,799	)
Loss before taxes and loss from equity method investments		(42	)		(43,806	)		(6,123	)		(52,099	)
(Provision for) recovery of income taxes		(1,299	)		9,714			(1,933	)		11,380
Loss including non-controlling interests and before equity losses		(1,341	)		(34,092	)		(8,056	)		(40,719	)
Less: net loss attributable to non-controlling interests, net of tax		(39	)		152			40			314
Loss from equity method investments		—			(2,615	)		—			(2,667	)
Net loss attributable to Village Farms International Inc.	$	(1,380	)	$	(36,555	)	$	(8,016	)	$	(43,072	)
Adjusted EBITDA (1)	$	4,475		$	(10,308	)	$	4,994		$	(16,419	)
Basic loss per share	$	(0.01	)	$	(0.41	)	$	(0.07	)	$	(0.49	)
Diluted loss per share	$	(0.01	)	$	(0.41	)	$	(0.07	)	$	(0.49	)

(1)

Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recurring and other items that do not reflect our business performance. Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience since acquisition.

We caution that our results of operations for the three and six months ended June 30, 2023 and 2022 may not be indicative of our future performance.

Discussion of Financial Results

A discussion of our consolidated results for the three and six months ended June 30, 2023 and 2022 is included below. The consolidated results include all four of our operating segments: VF Fresh (Produce), Canadian Cannabis, U. S. Cannabis, and Energy, along with all public company expenses. For a discussion of our segmented results, please see “Segmented Results of Operations” below.

CONSOLIDATED RESULTS

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Sales

Sales for the three months ended June 30, 2023 were $77,212 as compared to $82,903 for the three months ended June 30, 2022. The decrease in sales of ($5,691) or (7%) was attributable to a decrease in VF Fresh sales of ($3,330), a decrease in Canadian Cannabis sales of ($1,728), and a decrease in U.S Cannabis sales of ($492). For additional information, refer to Segmented Results of Operations below.

Cost of Sales

Cost of sales for the three months ended June 30, 2023 were $65,713 as compared to $76,580 for the three months ended June 30, 2022. The decrease in cost of sales of $10,867, or 14%, was attributable to a reduction in the cost of sales at VF Fresh of $9,536, Canadian Cannabis of $936, and U.S Cannabis of $213. For additional information, refer to Segmented Results of Operations below.

Gross Margin

Gross margin for the three months ended June 30, 2023 increased $5,176 to $11,499, or 82%, from $6,323 for the three months ended June 30, 2022. The increase in gross margin was attributable to an increase in gross margin at VF Fresh of $6,206, partially offset by decreases in Canadian Cannabis and U.S Cannabis of ($792) and ($279), respectively. For additional information, refer to Segmented Results of Operations below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30, 2023 decreased $1,763 to $16,753, or 22% of sales, compared to $18,516, or 22% of sales, for the three months ended June 30, 2022. The decrease in sales, general and administration expenses was primarily due to improvements in operating expenses of $1,305 attributable improvements in all divisions and lower share-based compensation of approximately $458. For additional information, refer to Segmented Results of Operations below.


	June 30, 2023		June 30, 2022
Selling, general and administrative expenses	$	16,097	$	17,402
Share-based compensation		656		1,114
Total selling, general and administrative expenses	$	16,753	$	18,516

Other Income (Expense)

Other income (expense) for the three months ended June 30, 2023 was $5,602 as compared to ($30) for the three months ended June 30, 2022. The increase in other income was primarily attributable to a favorable legal settlement in the three months ended June 30, 2023.

Loss Before Taxes and Loss from Equity Method Investments

Loss before taxes and loss from equity method investments for the three months ended June 30, 2023 was ($42) compared to ($43,806) for the three months ended June 30, 2022, an increase of $43,764, or 100%. The improvement was primarily due to non-recurring costs incurred during the three months ended June 30, 2022 of ($29,799) for impairment of goodwill and intangible assets and a ($3,207) write-off of a joint venture loan. The three months ended June 30, 2023 also saw improved operating performance from VF Fresh, lower selling, general and administrative expenses in all segments and the favorable legal settlement.

Net Loss Attributable to Village Farms International Inc.

Net loss for the three months ended June 30, 2023 was ($1,380) as compared to ($36,555) for the three months ended June 30, 2022, an improvement of $35,175, or 96%.

Adjusted EBITDA

Adjusted EBITDA for the three months ended June 30, 2023 was $4,475 compared to ($10,308) for the three months ended June 30, 2022. The improvement was mainly driven by a stronger performance from VF Fresh. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Sales

Sales for the six months ended June 30, 2023 were $141,868 as compared to $153,059 for the six months ended June 30, 2022. The decrease in sales of ($11,191) or (7%) was attributable to a decrease in VF Fresh sales of ($10,112) and a decrease in U.S Cannabis sales of ($2,558), partially offset by an increase in Canadian Cannabis sales of $1,615. For additional information, refer to Segmented Results of Operations below.

Cost of Sales

Cost of sales for the six months ended June 30, 2023 were $118,069 as compared to $136,832 for the six months ended June 30, 2022. The decrease in cost of sales of $18,763, or 14%, was attributable to a reduction in cost of sales in our VF Fresh segment of $21,223, and our U.S Cannabis segment of $805, partially offset by an increase in our Canadian Cannabis segment of ($3,463). For additional information, refer to Segmented Results of Operations below.

Gross Margin

Gross margin for the six months ended June 30, 2023 increased $7,572 to $23,799, or 47%. The increase in gross margin was attributable to an increase in gross margin in our VF Fresh segment of $11,111, partially offset by decreases in our Canadian Cannabis segment and our U.S Cannabis segment of ($1,848) and ($1,753), respectively. For additional information, refer to Segmented Results of Operations below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended June 30, 2023 decreased $2,293, or an improvement of 6%, to $34,158, or 24% of sales, compared to $36,451, or 24% of sales, for the six months ended June 30, 2022. The decrease in sales, general and administration expenses was primarily attributable to decreases in operating expenses of $2,603, partially offset by an increase in share-based compensation of approximately ($310). For additional information, refer to Segmented Results of Operations below.


	June 30, 2023		June 30, 2022
Selling, general and administrative expenses	$	31,770	$	34,373
Share-based compensation		2,388		2,078
Total selling, general and administrative expenses	$	34,158	$	36,451

Other Income (Expense)

Other income for the six months ended June 30, 2023 was $5,632 as compared to ($38) for the six months ended June 30, 2022. The increase in other income was primarily attributable to a favorable legal settlement in the six months ended June 30, 2023.

Loss Before Taxes and Loss from Equity Method Investments

Loss before taxes and loss from equity method investments for the six months ended June 30, 2023 was ($6,123) compared to ($52,099) for the six months ended June 30, 2022, an increase of $45,976, or 88%. The improvement was primarily due to a $7,572 improvement in gross margin for the six months ended June 30, 2023, and no impairment of goodwill and intangibles in 2023, versus non-recurring costs incurred during the six months ended June 30, 2022 of ($29,799) for impairment of goodwill and intangible assets, and a favorable legal settlement in the six months ended June 30, 2023 of $5,584. The six months ended June 30, 2023 saw improved operating performance from VF Fresh, and lower selling, general and administrative expenses in all segments.

Net Loss Attributable to Village Farms International Inc.

Net loss for the six months ended June 30, 2023 was ($8,016) as compared to ($43,072) for the six months ended June 30, 2022, an improvement of $35,056, or 81%.

Adjusted EBITDA

Adjusted EBITDA for the six months ended June 30, 2023 was $4,994 compared to ($16,419) for the six months ended June 30, 2022. The improvement was mainly driven by a stronger performance from VF Fresh. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

SEGMENTED RESULTS OF OPERATIONS

(In thousands of U.S. dollars, except per share amounts, and unless otherwise noted)


	For The Three Months Ended June 30, 2023
	VF Fresh (Produce)			Cannabis Canada			Cannabis U.S.			Clean Energy			Corporate			Total
Sales	$	43,846		$	28,065		$	5,301		$	—		$	—		$	77,212
Cost of sales		(46,607	)		(17,349	)		(1,743	)		(14	)		—			(65,713	)
Selling, general and administrative expenses		(2,854	)		(7,827	)		(3,386	)		(1	)		(2,685	)		(16,753	)
Other income (expense), net		5,135			(806	)		—			(19	)		902			5,212
Operating (loss) income		(480	)		2,083			172			(34	)		(1,783	)		(42	)
Provision for income taxes		(218	)		(818	)		—			—			(263	)		(1,299	)
(Loss) income from consolidated entities		(698	)		1,265			172			(34	)		(2,046	)		(1,341	)
Less: net (income) loss attributable to non-controlling interests, net of tax		—			(91	)		—			—			52			(39	)
Net (loss) income	$	(698	)	$	1,174		$	172		$	(34	)	$	(1,994	)	$	(1,380	)
Adjusted EBITDA (1)	$	1,330		$	4,778		$	354		$	(35	)	$	(1,952	)	$	4,475
(Loss) income per share	$	(0.01	)	$	0.01		$	0.00		$	(0.00	)	$	(0.02	)	$	(0.01	)
Diluted (loss) income per share	$	(0.01	)	$	0.01		$	0.00		$	(0.00	)	$	(0.02	)	$	(0.01	)


	For The Three Months Ended June 30, 2022
	VF Fresh (Produce)			Cannabis Canada			Cannabis U.S.			Clean Energy			Corporate			Total
Sales	$	47,176		$	29,793		$	5,793		$	141		$	—		$	82,903
Cost of sales		(56,143	)		(18,285	)		(1,956	)		(196	)		—			(76,580	)
Selling, general and administrative expenses		(2,808	)		(8,616	)		(4,369	)		(7	)		(2,716	)		(18,516	)
Other expense, net		(402	)		(231	)		(12	)		—			(577	)		(1,222	)
Write-off of joint venture loan		—			—			—			—			(592	)		(592	)
Impairments		—			—			(29,799	)		—			—			(29,799	)
Operating (loss) income		(12,177	)		2,661			(30,343	)		(62	)		(3,885	)		(43,806	)
Recovery of (provision for) income taxes		2,827			(991	)		7,025			—			853			9,714
(Loss) income from consolidated entities		(9,350	)		1,670			(23,318	)		(62	)		(3,032	)		(34,092	)
Less: net loss attributable to non-controlling interests, net of tax		—			152			—			—			—			152
Loss from equity method investments		—			—			(331	)		—			(2,284	)		(2,615	)
Net (loss) income	$	(9,350	)	$	1,822		$	(23,649	)	$	(62	)	$	(5,316	)	$	(36,555	)
Adjusted EBITDA (1)	$	(10,282	)	$	2,743		$	(633	)	$	(63	)	$	(2,073	)	$	(10,308	)
(Loss) income per share	$	(0.11	)	$	0.02		$	(0.29	)	$	(0.00	)	$	(0.03	)	$	(0.41	)
Diluted (loss) income per share	$	(0.11	)	$	0.02		$	(0.29	)	$	(0.00	)	$	(0.03	)	$	(0.41	)


	For The Six Months Ended June 30, 2023
	VF Fresh (Produce)			Cannabis Canada			Cannabis U.S.			Clean Energy			Corporate			Total
Sales	$	78,413		$	53,177		$	10,278		$	—		$	—		$	141,868
Cost of sales		(80,559	)		(34,007	)		(3,482	)		(21	)		—			(118,069	)
Selling, general and administrative expenses		(5,770	)		(14,675	)		(7,003	)		(30	)		(6,680	)		(34,158	)
Other income (expense), net		4,591			(1,410	)		3			(19	)		1,071			4,236
Operating (loss) income		(3,325	)		3,085			(204	)		(70	)		(5,609	)		(6,123	)
Recovery of (provision for) income taxes		8			(1,956	)		—			—			15			(1,933	)
(Loss) income from consolidated entities		(3,317	)		1,129			(204	)		(70	)		(5,594	)		(8,056	)
Less: net loss (income) attributable to non-controlling interests, net of tax		—			(60	)		—			—			100			40
Net (loss) income	$	(3,317	)	$	1,069		$	(204	)	$	(70	)	$	(5,494	)	$	(8,016	)
Adjusted EBITDA (1)	$	335		$	8,688		$	203		$	(71	)	$	(4,161	)	$	4,994
(Loss) income per share	$	(0.03	)	$	0.01		$	(0.00	)	$	(0.00	)	$	(0.05	)	$	(0.08	)
Diluted (loss) income per share	$	(0.03	)	$	0.01		$	(0.00	)	$	(0.00	)	$	(0.05	)	$	(0.08	)


	For The Six Months Ended June 30, 2022
	VF Fresh (Produce)			Cannabis Canada			Cannabis U.S.			Clean Energy			Corporate			Total
Sales	$	88,525		$	51,562		$	12,836		$	136		$	—		$	153,059
Cost of sales		(101,782	)		(30,544	)		(4,287	)		(219	)		—			(136,832	)
Selling, general and administrative expenses		(5,948	)		(15,916	)		(8,760	)		(39	)		(5,788	)		(36,451	)
Other expense, net		(432	)		(977	)		(12	)		(6	)		(57	)		(1,484	)
Write-off of joint venture loan		—			—			—			—			(592	)		(592	)
Impairments		—			—			(29,799	)		—			—			(29,799	)
Operating (loss) income		(19,637	)		4,125			(30,022	)		(128	)		(6,437	)		(52,099	)
Recovery of (provision for) income taxes		4,542			(1,630	)		7,025			—			1,443			11,380
(Loss) income from consolidated entities		(15,095	)		2,495			(22,997	)		(128	)		(4,994	)		(40,719	)
Less: net loss attributable to non-controlling interests, net of tax		—			314			—			—			—			314
Loss from equity method investments		—			—			(383	)		—			(2,284	)		(2,667	)
Net (loss) income	$	(15,095	)	$	2,809		$	(23,380	)	$	(128	)	$	(7,278	)	$	(43,072	)
Adjusted EBITDA (1)	$	(16,483	)	$	4,847		$	(53	)	$	(122	)	$	(4,608	)	$	(16,419	)
(Loss) income per share	$	(0.17	)	$	0.03		$	(0.29	)	$	(0.00	)	$	(0.06	)	$	(0.49	)
Diluted (loss) income per share	$	(0.17	)	$	0.03		$	(0.29	)	$	(0.00	)	$	(0.06	)	$	(0.49	)

(1)

PRODUCE SEGMENT RESULTS – VF FRESH

The produce segment, VF Fresh, currently consists of Village Farms LP and Village Farms Canada LP. VF Fresh’s comparative analysis are based on the consolidated results of Village Farms LP and Village Farms Canada LP for the three and six months ended June 30, 2023 and 2022.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Sales

VF Fresh sales for the three months ended June 30, 2023 were $43,846 as compared to $47,176 for the three months ended June 30, 2022. The decrease in sales of ($3,330) or (7%) was primarily due to a decrease in supply partner revenues of ($4,513), partially offset by an increase in sales from the VF Fresh-owned greenhouses of $1,183. The decrease in supply partner revenues is due to a decrease of (18%) in product volume. The Company’s own sales increased 11% due to an 18% increase in the selling price partially offset by a decrease of (6%) in pounds produced. The decrease in production pounds is due to a (15%) strategic reduction in acres planted in Texas.

The average selling price for all produce sold, during the three months ended June 30, 2023, versus the three months ended June 30, 2022, changed as follows: tomatoes increased 5%, peppers decreased (13%), cucumbers increased 26% and mini cucumbers increased 44%. The price changes are due to both higher market pricing in 2023 versus 2022, as well as a higher percentage of VF Fresh sales going direct to retail accounts versus the first quarter of 2022.

Cost of Sales

VF Fresh cost of sales for the three months ended June 30, 2023, decreased by $9,536 or 17% to $46,607 for the three months ended June 30, 2023. The decrease in cost of goods sold is primarily due to an improvement of VF Fresh-owned greenhouses of $5,034, lower supply partner costs of $2,647, and lower freight expense of $1,973. The decrease in VF Fresh-owned greenhouses cost of goods is due to a (7%) improvement (reduction) in cost per pounds as well as a (6%) decrease in pounds sold. The decrease in supply partner cost of goods is due to a decrease of (18%) in product volume. The decrease in freight expense is due to a (17%) decrease in cost as well as an (8%) decrease in pounds shipped.

Gross Margin

The gross margin for VF Fresh was ($2,761) for the three months ended June 30, 2023 as compared to ($8,967) for the three months ended June 30, 2022. The gross margin percentage was (6%) for the three months ended June 30, 2023, compared to (19%) for

the three months ended June 30, 2022. The improvement in gross margin is due to increased pricing in 2023 versus the same period in 2022, lower per pound costs from our Texas facilities, in 2023 versus 2022, due to higher yields and lower freight costs.

Selling, General and Administrative Expenses

VF Fresh selling, general and administrative expenses for the three months ended June 30, 2023 were $2,854 or 7% of sales as compared to $2,808 or 6% of sales for the three months ended June 30, 2022.

Net Loss

VF Fresh net loss for the three months ended June 30, 2023 was ($698) as compared to ($9,350) for the three months ended June 30, 2022. The decrease in net loss for the second quarter of 2023 as compared to the second quarter of 2022 was primarily due to an improvement in gross margin in the three months ended June 30, 2023 versus the prior year period and improvements in selling, general and administrative expenses.

Adjusted EBITDA

The Adjusted EBITDA for VF Fresh was $1,330 for the three months ended June 30, 2023 as compared to ($10,282) for the three months ended June 30, 2022. The higher Adjusted EBITDA was due to a 13% increase in the average selling price of tomatoes, a decrease in our own per pound cost and a decrease in freight costs when compared to the three months ended June 30, 2022.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Sales

VF Fresh sales for the six months ended June 30, 2023 were $78,413 as compared to $88,525 for the six months ended June 30, 2022. The decrease in sales of ($10,112) or (11%) was primarily due to a decrease in supply partner revenues of ($10,948), partially offset by an increase in sales from the VF Fresh-owned greenhouses of $836. The decrease in supply partner revenues is due to a decrease of (20%) in product volume and due to the loss of two larger growers in late 2022. Sales at VF Fresh-owned greenhouses increased 7.3% due to a 20% increase in the selling price partially offset by a decrease of (10.9%) in pounds produced. The decrease of (10.9%) in production pounds is due to a (15%) decrease in planted area as well as a decrease in of (11.6%) at the Marfa 2 facility.

The average selling price for all produce sold, during the six months ended June 30, 2023, versus the six months ended June 30, 2022, changed as follows: tomatoes increased 8%, peppers decreased (7%), cucumbers increased 41% and mini cucumbers increased 52%. The price increases are due to both higher market pricing in 2023 versus 2022, as well as a higher percentage of VF Fresh sales going direct to retail accounts versus the second quarter of 2022.

Cost of Sales

VF Fresh cost of sales for the six months ended June 30, 2023, decreased by $21,223 or 21% to $80,559 as compared to $101,782 for the six months ended June 30, 2022. The decrease was primarily due to decreases in supply partner costs of ($7,493), reduced costs from the Texas greenhouses of ($8,135), and lower freight expense of ($5,000). The decrease in cost of sales from the Texas greenhouses is primarily due to lower pounds produced. The decrease in supply partner cost is related to the (20%) decrease in pounds received. The decrease in freight cost is due to increased available drivers, decreases in fuel prices, as well as lower pounds shipped.

Gross Margin

The gross margin for VF Fresh was ($2,146) for the six months ended June 30, 2023 as compared to ($13,257) for the six months ended June 30, 2022. The gross margin percentage was (3%) for the six months ended June 30, 2023, compared to (15%) for the six months ended June 30, 2022. The increase in gross margin is due to higher pricing in 2023 versus the same period in 2022, a decrease in cost per pound at our Texas facilities, in 2023 versus 2022, due to higher yields and lower freight costs.

Selling, General and Administrative Expenses

VF Fresh selling, general and administrative expenses for the six months ended June 30, 2023 were $5,770 or 7% of sales as compared to $5,948, or 7% of sales for the six months ended June 30, 2022.

Net loss

VF Fresh net loss for the six months ended June 30, 2023 was ($3,317) as compared to ($15,095) for the six months ended June 30, 2022. The decrease in net loss for the first half of 2023 as compared to the first half of 2022 was primarily due to the higher gross margin in 2023 and improvements in selling, general and administrative expenses.

Adjusted EBITDA

Adjusted EBITDA for VF Fresh was $335 for the six months ended June 30, 2023 as compared to ($16,483) for the six months ended June 30, 2022. The higher Adjusted EBITDA was due to a 13% increase in the average selling price of tomatoes, a

decrease in cost per pound at VF Fresh-owned greenhouses and a decrease in freight costs when compared to the six months ended June 30, 2022.

CANADIAN CANNABIS SEGMENT RESULTS

The Canadian Cannabis segment currently consists of Pure Sunfarms and Rose LifeScience. The comparative analysis for Canadian Cannabis is based on the consolidated results of Pure Sunfarms and Rose LifeScience for the three and six months ended June 30, 2023 and 2022.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Sales

Canadian Cannabis net sales for the three months ended June 30, 2023 were $28,065 as compared to $29,793 for the three months ended June 30, 2022. The decrease between comparable quarters was driven by a (64%) decrease in non-branded sales, as well as an unfavorable impact of exchange rate fluctuations, partially offset by an 18% increase in branded sales. The 18% increase in branded sales was attained through increased sales in Ontario and Alberta as well as Rose’s strengthening position in Quebec. Canadian Cannabis branded revenue growth was primarily in the large format and pre-rolls offset by a decrease in small formats, milled and cannabis derivative products for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. The (64%) decrease in non-branded sales was primarily due to an oversupplied LP market, which has resulted in continuing desperation pricing by some LPs, which has resulted in fluctuations in our non-branded channels. International sales increased by $901, or 189%, to $1,377for the three months ended June 30, 2023 versus $476for the three months ended June 30, 2022 the increase was primarily driven by incremental sales to Australia.

Canadian Cannabis continues to pay a burdensome excise tax on its branded sales (provincial sales). For the three months ended June 30, 2023, the Company incurred $13,966 (C$18,760) versus $11,188 (C$14,279) of excise taxes for the three months ended June 30, 2022. The increase of $2,778(C$4,481) in excise taxes was due to an increase in kilograms sold in this provincial (branded) channel in the second quarter of 2023 versus the second quarter of 2022. The Canadian excise tax is our single largest cost of participating in the adult-use market in Canada.

For the three months ended June 30, 2023, 85% of revenue was generated from branded flower, inclusive of pre-rolls, 4% of revenue from cannabis derivative products and 11% from non-branded sales as compared to 67% of revenue from branded flower, inclusive of pre-rolls, 4% from cannabis derivative products and 29% from non-branded sales for the three months ended June 30, 2022.

The following table presents sales by revenue stream in U.S. dollars and Canadian dollars for the three months ended:


(in thousands of U.S. dollars)	June 30, 2023			June 30, 2022
Branded sales	$	37,164		$	31,581
International sales		1,377			476
Non-branded sales		2,933			8,102
Other		557			822
Less: excise taxes		(13,966	)		(11,188	)
Net Sales	$	28,065		$	29,793


(in thousands of Canadian dollars)	June 30, 2023			June 30, 2022
Branded sales	$	49,895		$	40,317
International sales		1,849			608
Non-branded sales		3,940			10,340
Other		749			1,049
Less: excise taxes		(18,760	)		(14,279	)
Net Sales	$	37,673		$	38,035

Cost of Sales

Canadian Cannabis cost of sales for the three months ended June 30, 2023 were $17,349 as compared to $18,285 for the three months ended June 30, 2022. The period-over-period cost of sales decrease of $936 or 5% was primarily due to a lower bulk cost per gram and a favorable impact of exchange rate fluctuations, partially offset by increases in kilograms produced, packaged and sold, of branded products in Q2 2023 as compared to Q2 2022. The Q2 2022 cost of sales included a positive adjustment (reduction in cost of sales) of $1,766from the revaluation of Pure Sunfarms' inventory to fair value at acquisition date of November 2, 2020.

Gross Margin

Canadian Cannabis gross margin for the three months ended June 30, 2023 decreased ($792) to $10,716, or a 38% gross margin, in comparison to $11,508, or a 39% gross margin, for the three months ended June 30, 2022. Canadian Cannabis gross margin declined somewhat in the three months ended June 30, 2023 due to the reduction in net sales as described above, partially offset by an improvement in cost of sales.

Selling, General and Administrative Expenses

Canadian Cannabis selling, general and administrative expenses for the three months ended June 30, 2023 decreased $789 to $7,827 or 28% of sales compared to $8,616 or 29% of sales for the three months ended June 30, 2022. The SG&A decreased due to a reduction in head count.

Net Income

Canadian Cannabis net income for the three months ended June 30, 2023 was $1,174 compared to net income of $1,822 for the three months ended June 30, 2022. The decrease in net income between periods was primarily due to a lower gross margin, partially offset by improvements in SG&A.

Adjusted EBITDA

Adjusted EBITDA for the three months ended June 30, 2023 and June 30, 2022 was $4,778 and $2,743, respectively. The increase in Adjusted EBITDA between periods was primarily due to improved margins in 2023 versus 2022, excluding the revaluation of Pure Sunfarms' inventory to fair value. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Sales

Canadian Cannabis net sales for the six months ended June 30, 2023 were $53,177 as compared to $51,562 for the six months ended June 30, 2022. The increase between comparable periods was driven by a 28% increase in branded sales partially offset by a (57%) decrease in non-branded sales and the unfavorable impact of exchange rate fluctuations. The 28% increase in branded sales was attained through increased sales in Ontario, British Columbia, Alberta, Manitoba as well as to Rose’s strengthening position in Quebec. Canadian Cannabis branded revenue growth was primarily in the small format, large format-single and pre-rolls offset by a decrease in milled and cannabis derivative products for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. The (57%) decrease in non-branded sales was primarily due to an oversupplied LP market, which has resulted in continuing desperation pricing by some LPs, which has resulted in fluctuations in our non-branded channels. International sales increased by $2,415, or 372%, to $3,064 for the six months ended June 30, 2023 versus $649 for the six months ended June 30, 2022 the increase was primarily driven by incremental sales to Australia.

Canadian Cannabis continues to pay a burdensome excise tax on its branded sales (provincial sales). For the six months ended June 30, 2023 , the Company incurred $27,724(C$37,361) versus $20,158 (C$25,644) of excise taxes for the six months ended June 30, 2022. The increase of $7,566(C$11,717) was due to higher kilograms sold in this provincial (branded) channel in the first half of 2023 versus the first half of 2022. The Canadian excise tax is our single largest cost of participating in the adult-use market in Canada.

For the six months ended June 30, 2023, 86% of revenue was generated from branded flower, inclusive of pre-rolls, 4% of revenue from cannabis derivative products and 10% from non-branded sales as compared to 67% of revenue from branded flower, inclusive of pre-rolls, 6% from cannabis derivative products and 27% from non-branded sales for the six months ended June 30, 2022.

The following table presents sales by revenue stream in U.S. dollars and Canadian dollars for the six months ended:


(in thousands of U.S. dollars)	June 30, 2023			June 30, 2022
Branded sales	$	71,663		$	56,436
International sales		3,064			649
Non-branded sales		5,242			13,026
Other		932			1,609
Less: excise taxes		(27,724	)		(20,158	)
Net Sales	$	53,177		$	51,562


(in thousands of Canadian dollars)	June 30, 2023			June 30, 2022
Branded sales	$	96,571		$	71,802
International sales		4,131			827
Non-branded sales		7,061			16,580
Other		1,255			2,044
Less: excise taxes		(37,361	)		(25,644	)
Net Sales	$	71,657		$	65,609

Cost of Sales

Canadian Cannabis cost of sales for the six months ended June 30, 2023 were $34,007 as compared to $30,544 for the six months ended June 30, 2022. The period-over-period cost of sales increase of ($3,463) or (11%) was primarily due to increases in kilograms produced, packaged and sold, of branded products in the first half of 2023 as compared to the first half of 2022. The 2022 cost of sales included a positive adjustment (reduction in cost of sales) of $3,815from the revaluation of Pure Sunfarms' inventory to fair value at acquisition date of November 2, 2020, as such the non-GAAP, but actual economic change, was a decrease of ($352) or (1%).

Gross Margin

Canadian Cannabis gross margin for the six months ended June 30, 2023 decreased ($1,848) to $19,170, or a 36% gross margin, in comparison to $21,018, or a 41% gross margin, for the six months ended June 30, 2022. The decrease in gross margin between comparable periods was due to the inclusion of a purchase price inventory adjustment in the six months ended June 30, 2022.

Selling, General and Administrative Expenses

Canadian Cannabis selling, general and administrative expenses for the six months ended June 30, 2023 decreased $1,241 to $14,675 or 28% of sales compared to $15,916 or 31% of sales for the six months ended June 30, 2022. SG&A decreased due to a lower headcount while generating higher sales such that SG&A as a percentage of revenue decreased.

Net Income

Canadian Cannabis net income for the six ended June 30, 2023 was $1,069 compared to net income of $2,809 for the six months ended June 30, 2022. The decrease in net income between periods was primarily due to a lower gross margin.

Adjusted EBITDA

Adjusted EBITDA for the six months ended June 30, 2023 and June 30, 2022 was $8,688 and $4,847, respectively. The increase in Adjusted EBITDA between periods was primarily due to higher sales but at a lower margin being offset by lower SG&A expenditures in 2023 versus 2022. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

U. S. CANNABIS SEGMENT RESULTS

The U.S. Cannabis segment currently consists of Balanced Health. For the three and six months ended June 30, 2023 and 2022, U.S. Cannabis financial results are based on the consolidated results of Balanced Health. VF Hemp was a joint venture which ceased operations in 2022, and its results are included in “Loss from Equity Method Investments” for the three and six months ended June 30, 2022.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Sales

U.S. Cannabis net sales for the three months ended June 30, 2023 were $5,301 as compared to $5,793 for the three months ended June 30, 2022, a decrease of (8%). The decrease was primarily due to lower direct-to-consumer sales, due to the proliferation of hemp derived cannabinoid sales. All U.S. Cannabis sales were generated in the United States, with gross sales composed of 83% e-commerce sales, 10% retail sales, and 7% shipping income.

Cost of Sales

U.S. Cannabis cost of sales for the three months ended June 30, 2023 was $1,743 compared to $1,956 for the three months ended June 30, 2022. The improvement in cost of sales of 11% is primarily due to lower volumes sold in 2023 versus 2022, as margins on most products remained constant between years.

Gross Margin

U.S Cannabis gross margin for the three months ended June 30, 2023 decreased ($279) to $3,558, or a 67% gross margin, in comparison to $3,837, or a 66% gross margin, for the three months ended June 30, 2022.

Selling, General and Administrative Expenses

U.S. Cannabis selling general and administrative expenses for the three months ended June 30, 2023 was $3,386 as compared to $4,369 for the three months ended June 30, 2022. The improvement in selling, general and administrative expenses when compared to the same prior year period is due to reductions in headcount, contract renegotiation and more efficient marketing and brand spending.

Net Income (Loss)

U.S. Cannabis net income for the three months ended June 30, 2023 was $172 as compared to a net loss of ($23,649) for the three months ended June 30, 2022. The improvement in U.S. Cannabis net income was driven by non-recurring non-cash impairments of goodwill and intangible assets during the three months ended June 30, 2022 of ($29,799) and the improvement in SG&A, partially offset by a decrease in U.S. Cannabis net sales as discussed above.

Adjusted EBITDA

U.S. Cannabis adjusted EBITDA for the three months ended June 30, 2023 was $354 as compared to ($633) for the three months ended June 30, 2022 due to improvements in selling, general and administrative expenses. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Sales

U.S. Cannabis net sales for the six months ended June 30, 2023 were $10,278 as compared to $12,836 for the six months ended June 30, 2022, a decrease of (20%). The decrease was primarily due to lower direct-to-consumer sales, due to the proliferation of hemp derived cannabinoid sales. All our sales were generated in the United States, with gross sales composed of 83% e-commerce sales, 10% retail sales, and 7% shipping income.

Cost of Sales

U.S. Cannabis cost of sales for the three months ended June 30, 2023 was $3,482 compared to $4,287 for the six months ended June 30, 2022. The improvement in cost of sales of 19% is primarily due to lower volumes sold in 2023 versus 2022, as margins on most products remained constant between years.

Gross Margin

U.S Cannabis gross margin for the six months ended June 30, 2023 decreased ($1,753) to $6,796, or a 66% gross margin, in comparison to $8,549, or a 67% gross margin, for the six months ended June 30, 2022.

Selling, General and Administrative Expenses

U.S. Cannabis selling general and administrative expenses for the six months ended June 30, 2023 was $7,003 as compared to $8,760 for the six months ended June 30, 2022 . The improvement in selling, general and administrative expenses when compared to the same prior year period is due to reductions in headcount, contract renegotiation and more efficient marketing and brand spending.

Net Loss

U.S. Cannabis net loss for the six months ended June 30, 2023 was ($204) as compared to a net loss of ($23,380) for the six months ended June 30, 2022 . The improvement in U.S. Cannabis net loss was driven by non-recurring non-cash impairments of goodwill and intangible assets during the six months ended June 30, 2022 of ($29,799) and the improvement in SG&A, partially offset by a decrease in U.S. Cannabis net sales as discussed above.

Adjusted EBITDA

U.S. Cannabis adjusted EBITDA for the six months ended June 30, 2023 was $203 as compared to ($53) for the six months ended June 30, 2022 due to lower sales. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

Liquidity and Capital Resources

Capital Resources

As of June 30, 2023, we had a$31,659 in cash and $84,934 of working capital, and as of December 31, 2022, we had $21,676 in cash and $60,769 of working capital. The increase was primarily due to cash proceeds from the January 2023 Equity Offering (as defined below). We believe that our existing cash, together with cash generated from our operating activities, and the remaining

availability under our Operating Loan (as defined below), and our PSF revolving line of credit, and future availability under our ATM (as defined below), will provide us with sufficient liquidity to meet our working capital needs, repayments of long-term debt, future contractual obligations and planned capital expenditures for the next 12 months. In addition, we may obtain additional liquidity from potential equity or debt financing in the future. We intend to use our cash on hand for daily operational funding requirements.


(in thousands of U.S. dollars unless otherwise noted)	Maximum Availability		Outstanding as of June 30, 2023
Operating Loan	C$	10,000	$	4,000
FCC Term Loan	$	23,772	$	23,772
Pure Sunfarms Loans	C$	36,063	$	27,216

The Company’s borrowings under the FCC Term Loan (as defined below) and the Operating Loan (as defined below) (collectively the “Credit Facilities”) are subject to certain positive and negative covenants, including debt ratios, and the Company is required to maintain certain minimum working capital. As of June 30, 2023, the Company was in compliance with all of its covenants under its Credit Facilities. Prior to December 31, 2022, the Company received a waiver from FCC for the annual test for one of its financial covenants under our FCC Term Loan. FCC measures our financial covenants once a year on the last calendar day of the year and our next annual testing date will be on December 31, 2023. We can provide no assurance that we will be in compliance, or receive a waiver, for any non-compliance as of the next annual testing date.

Accrued interest payable on the Credit Facilities and Pure Sunfarms Loans as of June 30, 2023 and December 31, 2022 was $174 and $398, respectively. These amounts are included in accrued liabilities in the accompanying Condensed Consolidated Statements of Financial Position.

FCC Term Loan

The Company has a term loan financing agreement with Farm Credit Canada, a Canadian creditor ~~(“FCC~~(the “FCC Term Loan”). The non-revolving variable rate term loan ~~had~~has a maturity date of ~~May~~April 1, ~~2021~~2025 and a balance of ~~$30,428 as of March~~$23,772 on June 30, 2023 and $24,755 on December 31, ~~2020.~~2022. The outstanding balance ~~was~~is repayable by way of monthly installments of principal and interest, with the balance and any accrued interest to be paid in full on ~~May~~April 1, ~~2021.~~2025. As of ~~March 31, 2020 and December 31, 2019,~~June 30, 2023, borrowings under the FCC Term Loan agreement were subject to an interest rate of ~~6.241% and 6.391%, respectively.~~8.65% per annum.

Effective May 1, 2020, the Company renewed its FFC Loan extending it for a term of five years, with an amortization period of 9 years and 9 months and a variable interest rate based on Canadian Imperial Bank of Commerce LIBOR (note 16).

~~VILLAGE FARMS INTERNATIONAL, INC.~~

~~Notes to Condensed Consolidated Interim Financial Statements~~

~~(In thousands of United States dollars, except per share amounts, unless otherwise noted)~~

~~The Company’s subsidiary VFCE has a loan agreement with a Canadian Chartered Bank that includes anon-revolving~~ fixed rate loan of CA$3.0 million with a maturity date of June 2023 and fixed interest rate of 4.98%. As of March 31, 2020 and December 31, 2019, the balance was US$915 and US$1,066, respectively. The loan agreement also includes an uncommitted,~~non-revolving~~ credit facility for up to CA$300 to cover Letters of Guarantee issued by the bank on behalf of the Company, with a maximum term of 365 days, renewable annually. The loan agreement also includes an uncommitted credit facility for up to CA$700 to support financing of certain capital expenditures. The Company received an initial advance of CA$250 in October 2017. Each advance is to be repaid on a five-year, straight-line amortization of principal, repaid in monthly installments of principal plus interest at an interest rate of CA$ prime rate plus 200 basis points. As of March 31, 2020 and December 31, 2019, the balance was US$88 and US$106, respectively.

~~The weighted average interest rate on short-term borrowings as of March 31, 2020 and December 31, 2019 was 6.1% and 6.2%, respectively.~~

The Company has a line of credit agreement with a Canadian Chartered Bank (“Operating Loan”). The revolving Operating Loan has a line of credit up to CA$13,000, less outstanding letters of credit totaling US$150 and CA$38, and variable interest rates with a maturity date on May 31, 2021. The Operating Loan is subject to margin requirements stipulated by the bank. As of March 31, 2020 and December 31, 2019, the amount drawn on this facility was US$4,000 and US$2,000, respectively.

The Company’s borrowings (“Credit Facilities”) are subject to certain positive and negative covenants, including debt ratios, and the Company is required to maintain certain minimum working capital. In December 2019, the Company received a waiver for its annual debt service coverage and debt to EBITDA covenants under its Term Loan. As of March 31, 2020 the Company was in compliance with all of its other Credit Facility covenants under its Credit Facilities.

Accrued interest payable on the credit facilities and loans as of March 31, 2020 and December 31, 2019 was $161 and $162, respectively, and these amounts are included in accrued liabilities in the interim statements of financial position.

As collateral for the FCC Term Loan, the Company has provided promissory notes, a first mortgage on theVFF-owned Delta 1 and Texas greenhouse ~~properties (excluding the Delta 3 and Delta 2 greenhouse facilities),~~facilities, and general security agreements over its assets. In addition, the Company has provided full recourse guarantees and has granted security ~~therein.~~interests in respect of the FCC Term Loan. The carrying value of the assets and securities pledged as collateral as of ~~March 31, 2020~~June 30, 2023 and December 31, ~~2019~~2022 was ~~$165,442~~$130,100 and ~~155,548,~~$113,159, respectively.

Operating Loan

The Company has a revolving line of credit agreement with a Canadian chartered bank (the "Operating Loan"). On March 13, 2023, the Company entered into a Note Modification Agreement (the “Modification”) to the Operating Loan. The Modification eliminated the use of LIBOR as a basis to determine certain interest rates under the Operating Loan and transitioned to the Secured Overnight Financing Rate (“SOFR”) for such purposes. The Company does not expect the Modification to materially change the amount of interest payable under the Operating Loan. The Operating Loan is subject to margin requirements stipulated by the lender. The Operating Loan had an outstanding balance of $4,000 and future availability of $6,000 on June 30, 2023 and December 31, 2022.

As collateral for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory. In addition, the Company has granted full recourse guarantees and security therein. The carrying value of the assets pledged as collateral as of ~~March 31, 2020~~June 30, 2023 and December 31, ~~2019~~2022 was ~~$25,148~~$24,567 and ~~$24,915,~~$26,666, respectively.

~~The aggregate annual maturities of long-term debt for the next five years and thereafter are as follows:~~

Remainder of 2020
   $ 2,761
2021
   30,362
2022
   361
2023
   166
2024
   —
Thereafter
   —


   $ 33,650

9	~~FINANCIAL INSTRUMENTS~~

The Company records accounts receivable, accounts payable, accrued liabilities and debt at amortized cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.

~~VILLAGE FARMS INTERNATIONAL, INC.~~

~~Notes to Condensed Consolidated Interim Financial Statements~~

~~(In thousands of United States dollars, except per share amounts, unless otherwise noted)~~

10	~~RELATED PARTY TRANSACTIONS AND BALANCES~~

~~On July 5, 2018, the Company entered into a Shareholder Loan Agreement (the “Loan Agreement”) with~~ Pure Sunfarms whereby, as of March 31, 2020, the Company had contributed $9,959 (CA$13,000) in the form of a demand loan to Pure Sunfarms. As of March 31, 2020, the loan amount bears simple interest at the rate of 5.2% per annum, calculated semi-annually. Interest will accrue and be payable upon demand. The balance of the loan, including interest, was $10,039 as of March 31, 2020.Loans

~~On February 13, 2019, the Company announced that~~ Pure Sunfarms ~~had entered into~~has a revolving line of credit ~~agreement with Bank~~(the “PSF Revolving Line of ~~Montreal, as agent~~Credit”), a non-revolving credit facility (the “PSF Non-Revolving Facility”), and ~~lead lender, and Farm Credit Canada, as lender, in respect of~~ a ~~CA$20 million securednon-revolver~~ term loan (the ~~“Credit Facility”). The Credit Facility, which matures on February 7, 2022, is secured by the Delta 3 facility,~~“PSF Term Loan” and ~~contains customary financial and restrictive covenants. The Company is not a party to the Credit Facility but has provided a limited guarantee in the amount of CA$10 million in connection~~collectively, with the ~~Credit Facility (note 16).~~

AsPSF Revolving Line of ~~March 31, 2020, the Company had $199 due from its joint venture, Pure Sunfarms, primarily for consulting services~~Credit and the ~~reimbursement of expenses which occurred in~~PSF Non-Revolving Facility, the quarter. As of December 31, 2019, the Company had $4,610 due from Pure Sunfarms, primarily relating to an equity contribution of CA$5,940 (US$4,494) to Pure Sunfarms made by the Company, on November 19, 2019 when Emerald failed to make a required escrow equity payment to Pure Sunfarms on November 1, 2019. Emerald disputed the Company’s additional November equity contribution, as well as the cancellation of 5.94 million common shares of Pure Sunfarms that related to the failure to pay the CA$5,940 equity contribution. In an effort to narrow the issues in dispute and accelerate the resolution of this shareholder dispute, which occurred on March 2, 2020 with the Settlement Agreement, Village Farms unwound its November equity contribution in January with Pure Sunfarms providing Village Farms with a CA$5,940 refund.

~~On March 25, 2019, the Company entered into a Grid Loan Agreement (the “Grid Loan”~~“PSF Loans”) with ~~VF Hemp. The Grid Loan has~~three Canadian chartered banks. On May 5, 2023, the PSF Loans were extended from a maturity date of ~~March 25, 2022,~~February 7, 2024 to February 7, 2026 by the syndicate lenders under the same terms, conditions and ~~bears simple interest~~covenants as the original PSF Loans maturing on February 7, 2024. Due to the extension the classification of the PSF Loans on June 30, 2023 remains the same as December 31, 2022.

The PSF Revolving Line of Credit had an outstanding balance of $0 as of June 30, 2023 and $3,529 as of December 31, 2022. Pure Sunfarms had an outstanding letter of credit issued to BC Hydro against the PSF Revolving Line of Credit of C$4,145 at ~~the rate of 8% per annum, calculated monthly. As of March 31, 2020~~June 30, 2023 and December 31, ~~2019 the Grid Loan balance was $10,946 and $10,865, respectively.~~2022.

One of the Company’s employees is related to a member of the Company’s executive management team and received approximately $28 in salary and benefits during the three months ended March 31, 2020 and 2019, respectively.27

~~Summary of amounts due from the joint ventures, including interest and included in the interim statements of financial position:~~

   March 31, 2020    December 31, 2019
Pure Sunfarms
   $ 10,238    $ 15,418
VF Hemp
   10,946    10,865




Total
   $ 21,184    $ 26,283

11	~~INCOME TAXES~~

A provision for income taxes is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual rate used for the three months ended March 31, 2020 was 24%, and 16% for the three months ended March 31, 2019.

The recovery for income taxes was $1,012 for the three months ended March 31, 2020 compared to provision for income taxes of ($4,436) for the three months ended March 31, 2019. The income tax provision for March 31, 2019 includes deferred tax liabilities arising from the contribution of the Delta 2 assets to Pure Sunfarms.

12	~~SEGMENT AND GEOGRAPHIC INFORMATION~~

Segment reporting is prepared on the same basis that the Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker, manages the business, makes operating decisions and assesses performance. Management has determined that the Company operates in three segments. The Company’s three segments include the Produce business, the Energy business and the Company’s cannabis and hemp segment. The Produce business produces, markets, and sells the product group which consists of premium quality tomatoes, bell peppers and cucumbers. The Energy business produces power that it sells per a long-term contract to its one customer. For segment information regarding the Company’s cannabis and hemp segment refer to Note 7 – Investments – Equity Method and Joint Ventures.

~~VILLAGE FARMS INTERNATIONAL, INC.~~

~~Notes to Condensed Consolidated Interim Financial Statements~~

~~(In thousands of United States dollars, except per share amounts, unless otherwise noted)~~

~~The Company’s primary operations are in the United States and Canada. Segment information for the three months ended March 31, 2020 and 2019:~~

     March 31, 2020        March 31, 2019
Sales

Produce – U.S.
   $ 29,315    $ 28,199
Produce – Canada
   2,647    3,379
Energy – Canada
   150    312




   $ 32,112    $ 31,890




Interest expense

Produce – U.S.
   $ 7    $ 33
Produce – Canada
   515    643
Energy – Canada
   15    18




   $ 537    $ 694




Interest income

Corporate
   $ 383    $ 136




   $ 383    $ 136




Depreciation

Produce – U.S.
   $ 1,046    $ 1,020
Produce – Canada
   301    419
Energy – Canada
   183    228




   $ 1,530    $ 1,667




Gross margin

Produce – U.S.
   $ 1,317    $ 705
Produce – Canada
   (374 )    60
Energy – Canada
   (178 )    (90 )




   $ 765    $ 675

   March 31, 2020    December 31, 2019
Total assets

United States
   $ 88,275    $ 88,395
Canada
   102,781    92,067
Energy – Canada
   2,542    2,946




   $ 193,598    $ 183,408

   March 31, 2020    December 31, 2019
Property, plant and equipment, net

United States
   $ 40,373    $ 41,656
Canada
   18,966    18,759
Energy – Canada
   2,348    2,743




   $ 61,687    $ 63,158

~~VILLAGE FARMS INTERNATIONAL, INC.~~

~~Notes to Condensed Consolidated Interim Financial Statements~~

~~(In thousands of United States dollars, except per share amounts, unless otherwise noted)~~

13	~~INCOME PER SHARE~~

~~Basic and diluted net income per ordinary share is calculated as follows:~~

   For the three months ended March 31,
   2020    2019
Numerator:

Net income
   $ 4,190    $ 6,466




Denominator:

Weighted average number of common shares—basic
   52,933    47,677
Effect of dilutive securities- share-based employee options and awards
   1,242    1,829




Weighted average number of common shares—diluted
   54,175    49,506




Antidilutive options and awards
   510    —
Net income per ordinary share:

Basic
   $ 0.08    $ 0.14




Diluted
   $ 0.08    $ 0.13

14	~~SHARE-BASED COMPENSATION PLAN~~

~~Share-based~~ ~~compensation expense for the three months ended March 31, 2020 and 2019 of $529 and $1,296, respectively.~~

~~Stock option activity for the three months ended March 31, 2020 is as follows:~~

   Number of
Options    Weighted
Average
Exercise Price    Weighted
Average
Remaining
Contractual
Term (years)    Aggregate
Intrinsic
Value
Outstanding at December 31, 2019
   2,452,666    CA$ 5.12    5.60    $ 11,435
Granted
   —      —      —      $ —
Exercised
   —      —      —      $ —
Forfeited
   (25,000 )    CA$ 2.67    —      $ —



Outstanding at March 31, 2020
   2,427,666    CA$ 5.15    5.34    $ 4,215



Exercisable at March 31, 2020
   1,890,670    CA$ 3.29    4.45    $ 4,132

~~Performance-based shares activity for the three months ended March 31, 2020 was as follows:~~

   Number of
Performance-based
Shares    Weighted Average
Grant Date Fair
Value
Outstanding at December 31, 2019
   739,000    CA$ 6.58
Granted
   10,000    CA$ 7.16
Received
   —      —
Forfeited/expired
   (54,000 )    CA$ 8.09



Outstanding at March 31, 2020
   695,000    CA$ 7.16



Exercisable at March 31, 2020
   40,000    CA$ 11.44

15	~~COMMITMENTS AND CONTINGENCIES~~

In the normal course of business, the Company and its subsidiaries may become defendants in certain employment claims and other litigation. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. The Company is not involved in any legal proceedings other than routine litigation arising in the normal course of business, none of which the Company believes will have a material adverse effect on the Company’s business, financial condition or results of operations.

16	~~SUBSEQUENT EVENTS~~

~~In April 2020, Pure Sunfarms expanded its credit facility with its existing lender to CA$59.0 million, including accordion provisions of CA$22.5 million. As apre-condition~~ ~~to complete the debt facility, the Company made an additional contribution of CA$8.0 million in Pure Sunfarms, further increasing its majority ownership of Pure Sunfarms to 58.7% from 57.4%.~~

~~VILLAGE FARMS INTERNATIONAL, INC.~~

~~Notes to Condensed Consolidated Interim Financial Statements~~

~~(In thousands of United States dollars, except per share amounts, unless otherwise noted)~~

Effective May 1, 2020, the Company renewed its FCC Loan extending it for a term of five years with a maturity date of April 1, 2025. The renewed loan will be subject to a variable interest rate of 4.574%, reset quarterly based on Canadian Imperial Bank of Commerce LIBOR. The renewed loan is repayable by way of monthly installments of principal and interest based on an amortization period of 9 years and 9 months, with the balance and any accrued interest to be paid in full April 1, 2025.

~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated interim financial statements and related notes included in Item 1 of Part I of this Quarterly Report and the Management’s Discussion and Analysis of Financial Condition and Results of Operations and consolidated financial statements contained in our Annual Report on Form~~10-K~~ for the year ended December 31, 2019. The March 31, 2019 figures are based on the Company’s recently restated GAAP results filed on Form 8-K on April 22, 2020 and not the Company’s IFRS financial statements filed in May 2019. This discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our actual results could differ materially from the results anticipated by our forward-looking statements, particularly in light of the ongoing and developing~~COVID-19~~ ~~pandemic. See “Forward-Looking Statements”.~~

~~EXECUTIVE OVERVIEW~~

Through our majority ownership position in our joint venture, the British Columbia-based Pure Sunfarms Corp. (“PSF” or “Pure Sunfarms”), we have one of the single largest cannabis growing operations in the world. We are also one of the largest and longest-operating vertically integrated greenhouse growers in North America and the only publicly traded greenhouse produce company in Canada, and we have joint venture operations in hemp and CBD products.

Pure Sunfarms leverages our 30 years of experience as a vertically integrated greenhouse grower for the rapidly emerging cannabis opportunity following legalization of cannabis in Canada. Pure Sunfarms is currently one of the largest producers of cannabis in Canada with distribution in three of the provinces. Its long-term objective is to be the leading low cost, high quality cannabis producer in Canada. In our greenhouse operations, we produce and distribute fresh, premium-quality produce with consistency 365 days a year to national grocers in the U.S. and Canada from more than nine million square feet of Controlled Environment Agriculture (“CEA”) greenhouses in British Columbia and Texas, as well as from our partner greenhouses in British Columbia, Ontario and Mexico. We are also pursuing opportunities to become a vertically integrated leader in the U.S. hemp-derived CBD market, subject to compliance with all applicable U.S. federal and state laws. We have established two joint ventures, Village Fields Hemp USA, LLC (“VF Hemp” or “VFH”), and Arkansas Valley Green and Gold Hemp LLC, for multi-state outdoor hemp cultivation and CBD extraction and plans to pursue controlled environment hemp production at our Texas greenhouse operations, which total 5.7 million square feet of production area, subject to legalization of hemp in Texas. Our subsidiary VF Clean Energy, Inc. (“VFCE”), owns and operates a 7.0 MW power plant that generates electricity.

~~Recent developments relating to the outbreak of the Coronavirus pandemic(“COVID-19”)~~

~~In March 2020, the World Health Organization declared the outbreak of theCOVID-19~~ virus a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus continues to spread. A number of countries, including Canada, as well as certain states and cities within the United States have enacted temporary closures of businesses, issued quarantine or~~shelter-in-place~~ ~~orders and taken other restrictive measures in response toCOVID-19.~~

~~To date, all of our cultivation operations as well as PSF’s cultivation operations are operating. However, the extent to whichCOVID-19~~ and the related global economic crisis, affects our workforce, results of operations and financial condition, will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties such as our produce customers, cannabis retail store operations and vendors. We continue to service our customers amid uncertainty and disruption linked to~~COVID-19~~ ~~and are actively managing our business to respond to the impact.~~

~~We caution you that our results of operations for the three months ended March 31, 2020 may not be indicative of our future performance, particularly considering the ongoing and developingCOVID-19~~ ~~pandemic. We are currently unable to assess the ultimate impact of theCOVID-19~~ ~~pandemic on our business and our results of operations for future periods.~~

~~RESULTS OF OPERATIONS~~

~~Results of Operations~~

~~Consolidated Financial Performance~~

~~(In thousands of U.S. dollars, except per share amounts)~~

   For the three months ended
March 31,
   2020    2019
Sales
   $ 32,112    $ 31,890
Cost of sales
   (31,347 )    (31,215 )
Gross margin
   765    675
Selling, general and administrative expenses
   (3,921 )    (4,242 )
Stock compensation expense
   (529 )    (1,296 )
Interest expense
   (537 )    (694 )
Interest income
   383    136
Foreign exchange (loss) gain
   (926 )    278
Gain on settlement agreement
   4,681    —
Other income, net
   39    (130 )
(Loss) gain on disposal of assets
   (6 )    13,564
Recovery of (provision for) income taxes
   1,012    (4,436 )
Net income from consolidated entities
   961    3,855
Equity earnings of unconsolidated entities
   3,229    2,611
Net income
   $ 4,190    $ 6,466
Adjusted EBITDA (1)
   $ 1,096    $ 1,344
Earnings per share - basic
   $ 0.08    $ 0.14
Earnings per share – diluted
   $ 0.08    $ 0.13

~~(1)~~

Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. See~~“Non-GAAP~~ Measures” for a definition and reconciliation of Adjusted EBITDA to net income, the nearest comparable measurement under GAAP. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company. Adjusted EBITDA includes the Company’s majority~~non-controlling~~ ~~interest in Pure Sunfarms and 65% interest in VFH.~~

~~JV Cannabis Business – Pure Sunfarms~~

Set forth below are the operating results of PSF, before any allocation to Village Farms, which are not consolidated in our financial results, in accordance with Generally Accepted Accounting Principles of the United States (“GAAP”). A discussion of our consolidated results, including our Produce Segment, is included further below.

~~For the three months ended March~~ ~~31, 2020 compared to the three months ended March~~ ~~31, 2019~~.

~~Sales~~

Sales for the three months ended March 31, 2020 and 2019 were $13,137 and $10,801, respectively, an increase of 21.6%. For the three months ended March 31, 2020, sales consisted of approximately 10,365 kilograms (“kgs”) of flower and trim, at an average sales price of $1.27 per gram (CAD $1.75 per gram). For the three months ended March 31, 2019, sales consisted of approximately 4,140 kilograms of flower and trim, at an average sales price of $2.61 per gram (CAD $3.47 per gram).

~~Sales includenon-monetary~~ transactions with extraction licensed producers in which PSF sold extraction grade dried flower and trim and purchased for various forms of distillate from the same counterparties. PSF committed to sell approximately 8,802 kgs of dried flower for $7,138 of which approximately 6,256 kgs of dried flower were sold in the quarter for $5,037 and committed to and purchased 368.161 liters of distillate for $6,566 and will receive net cash of $573. The distillate will be used by PSF in future cannabis 2.0 product launches. Title and control of the extraction grade dried flower and trim was transferred and accepted by the customers, with some of it being delivered during the quarter and some of it being sold on a bill and hold basis and therefore, identified as separately belonging to the customer while still in the physical possession of PSF. Some of the distillate has been delivered and some is being held by the extraction companies, but has been identified and accepted by PSF.

Sales to provincial boards totaled 3,065 kgs during the quarter at an average price of $1.98 per gram, as compared to nil in the first quarter of 2019 when all of PSF sales were to the wholesale channel. Sales to provincial governments increased 135.8% from the fourth quarter of 2019, which was PSF’s first full quarter of retail (provincial sales). The first quarter of 2020 benefited from the initial launch and sale of product to Alberta.

~~Cost of Goods~~

Cost of goods sold for the three months ended March 31, 2020 and 2019 was $6,258 and $3,818, respectively, an increase of 63.9%. The total cost increase is driven by a period over period increase in kgs sold. The cost of kgs sold in the first quarter of 2020 was $0.64 per kgs, versus $1.04 in the first quarter of 2019. The lower cost in 2020 was driven by full scale operations in 2020 versus 2019, providing better efficiencies and economies of scale, as well as more experience since PSF initial winter crop cycle. The cost of production in the first quarter of 2020 was higher than the fourth quarter of 2019 due the incremental use and cost of power to run the operations.

~~Selling, General and Administrative Expense~~

Selling, general and administrative expenses for the three months ended March 31, 2020 and 2019 was $2,434 and $999, respectively, an increase of 143.6%. The increase is primarily due to investments in retail sales, marketing and staffing.

~~Other Income~~

PSF recognized $4,348 in the first quarter of 2020 as an outcome of the March 2, 2020 Settlement Agreement between PSF, Emerald Health and the Company. This gain is PSF’s forgiveness of the shareholder loan and accrued interest owed by Emerald offset by the extinguishment of the Supply Agreement and any amounts receivable under it, which included an CA$8.1 million receivable from Emerald for sales made in 2019.

~~Net Income~~

~~Net income for the three months ended March 31, 2020 and 2019 was $6,165 and $4,403, respectively, an increase of 40.0%.~~

~~Adjusted EBITDA~~

~~Adjusted earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”), which excludes theone-off~~ gain on settlement of net liabilities, for the three months ended March 31, 2020 and 2019 was $4,868 and $6,451, respectively. The decrease is primarily due to lower selling prices and higher selling, general and administrative expenses for the three months ended March 31, 2020 compared to the same prior year period.

~~Consolidated Line Item Results~~

~~Three months ended March 31, 2020 Compared to Three months ended March 31, 2019~~

~~Sales~~

Sales for the three months ended March 31, 2020 increased $222, or 1%, to $32,112 compared to $31,890 for the three months ended March 31, 2019. The increase in sales is primarily due to an increase in supply partner sales of $2,257 partially offset by a decrease in our own production sales of ($1,964). The decrease in the sale of our own production is primarily attributed to a decrease of (18%) in our product volume as a result of ongoing plant disease pressure at our Texas facilities.

The average net price for all tomato pounds sold increased 12% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 due to an increase in the average selling price of our commodity items, which includes beefsteak and tomatoes on the vine (“TOVs”). The increase in net price in the commodity item prices was primarily due to a supply shortage throughout most of the first quarter of 2020. Pepper prices increased 22% and pepper pounds decreased (49%) when compared to the same prior year period. Cucumber prices decreased (8%) and cucumber pounds remained flat for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019.

~~A summary of sales by product group in our greenhouse produce business, follows:~~

   For the three months ended
March 31,
Percent of Sales by Product Group
   2020 2019
Tomatoes
   91 % 87 %
Peppers
   4 % 5 %
Cucumbers
   5 % 8 %


   100 % 100 %

~~Cost of Sales~~

Cost of sales for the three months ended March 31, 2020 increased $132, or less than 1%, to $31,347 from $31,215 for the three months ended March 31, 2019, due to a decrease in freight expense and production costs at our Texas facilities, partially offset by an increase in contract sales costs of 4%. The decrease in freight expense and Texas facilities production costs is primarily due to a decline in our own production volume which continues to be affected by the ongoing plant disease pressure.

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses for the three months ended March 31, 2020 decreased ($321), or (8%), to $3,921 from $4,242 for the three months ended March 31, 2019. The decrease is primarily due to reductions in employee related expenses, accounting fees and travel offset by an increase in legal expense related primarily to public company filings and the settled matters with our Pure Sunfarms joint venture partner and increases in other public company expenses.

~~Stock Compensation Expenses~~

Share-based compensation expense for the three months ended March 31, 2020 was $529 compared to $1,296 for the three months ended March 31, 2019. The decrease in share-based compensation expense is primarily due to the vesting of performance shares earned related to developments in Pure Sunfarms in the first quarter of 2019.

~~Interest Expense~~

Interest expense for the three months ended March 31, 2020 decreased ($157) to $537 from $694 for the three months ended March 31, 2019. The decrease is due to lower interest rates and lower debt balances.

~~Interest Income~~

Interest income for the three months ended March 31, 2020 and 2019 was $383 and $136, respectively. The increase is due to interest being earned on the VFH grid loan that did not exist during the first quarter of 2019.

~~Equity Earnings from Unconsolidated Entities~~

Equity earnings from our unconsolidated entities increased 24% to $3,229 for the three months ended March 31, 2020, from $2,611 for the prior year period. The increase is primarily due to a $4,348 gain resulting from the outcome of the March 2, 2020 Settlement Agreement between PSF, Emerald Health and the Company, of which $2,496 is our share of that income, offset by a period over period increase in Pure Sunfarms’ selling, general and administrative expenses of ($1,435) and our share of VF Hemp first quarter losses of ($302). For information regarding the results of operations from our joint ventures, refer to “JV Cannabis Business” above and “Reconciliation of U.S. GAAP Results to Proportionate Results” below.

~~Income Tax Recovery (Provision)~~

For the three months ended March 31, 2020, we recorded an income tax recovery of $1,012 compared to an income tax provision of ($4,436) for the three months ended March 31, 2019. The improvement is primarily due to a $13,564 gain on disposal of assets arising from the contribution of our Delta 2 assets to Pure Sunfarms during the three months ended March 31, 2019. Pure Sunfarms and VF Hemp are both reported~~post-tax~~ ~~and therefore do not factor into our tax calculation.~~

~~(Loss) gain on Disposal of Assets~~

The Company recognized a loss on disposal of assets of ($6) for the three months ended March 31, 2020 compared to a gain of $13,564 in the prior year period. The 2019 gain was due to the contribution of Delta 2 assets to Pure Sunfarms in March 2019. The gain represents the difference between our book value of the assets contributed and the CA$25,000 fair market value of stock received in PSF.

~~Net Income~~

Net income for the three months ended March 31, 2020 and 2019 was $4,190 and $6,466, respectively. The decrease was due to a gain on settlement of $4,681, a recovery of taxes of $1,012 and a decrease in share-based compensation of $767 recognized during the three months ended March 31, 2020 compared to a gain on disposal of assets of $13,564 offset by a provision for taxes of ($4,436), recognized during the three months ended March 31, 2019.

~~Adjusted EBITDA~~

~~Adjusted EBITDA for the three months ended March 31, 2020 decreased to $1,096 from $1,344 for the three months ended March 31, 2019. See the reconciliation of Adjusted EBITDA to net income in“Non-GAAP~~ ~~Measures - Reconciliation of Net Earnings to Adjusted EBITDA”.~~

~~Liquidity and Capital Resources~~

~~Capital Resources~~

We expect to provide or obtain adequate financing to maintain and improve its property, plant and equipment, to fund working capital produce needs and invest in Pure Sunfarms for the foreseeable future from cash flows from operations, and, as needed, from additional borrowings under the Credit Facilities (as defined below) or additional equity financing.

(in thousands of U.S. dollars unless otherwise noted)    Maximum    Outstanding
March 31, 2020
Operating Loan
   CA$ 13,000    $ 4,000
Term Loan
   $ 30,428    $ 30,428
VFCE Loan
   CA$ 1,422    CA$ 1,422

~~At March 31, 2020 we had a Term Loan financing agreement with a Canadian creditor (“FCC Loan”). Thenon-revolving~~ variable rate term loan had a maturity date of May 1, 2021 and a balance of $30,428 as of March 31, 2020. The outstanding balance was repayable by way of monthly installments of principal and interest, with the balance and any accrued interest to be paid in full on May 1, 2021. As of March 31, 2020 and December 31, 2019, borrowings under the FCC Loan agreement were subject to an interest rate of 6.241% and 6.391%, respectively.

In May, we received a loan amendment from FFC for our Term Loan, extending it for a term of five years, to April 1, 2025 with an amortization period of 9 years and 9 months and with a revised variable interest rate based on Canadian Imperial Bank of Commerce LIBOR, which resulted in a lower interest rate on this loan effective May 1, 2020.

We are also party to a variable rate line of credit agreement with Bank of Montreal (“BMO”) that has a maturity date of May 31, 2021 (the “Operating Loan” and together with the FCC Loan, the “Credit Facilities”). The Operating Loan is subject to margin requirements stipulated by the bank based on produce sales. As at March 31, 2020 and 2019 there was $4,000 and $2,000, respectively, drawn on the Operating Loan, which is available to a maximum of CA$13,000, less outstanding letters of credit of US$150 and CA$38.

~~Our subsidiary VFCE has a loan agreement with a Canadian Chartered Bank that includes anon-revolving~~ fixed rate loan of CA$3.0 million with a maturity date of June 2023 and fixed interest rate of 4.98%. As of March 31, 2020, and December 31, 2019, the balance was US$915 and US$1,066, respectively. The loan agreement also includes an uncommitted,~~non-revolving~~ ~~credit facility for up to CA$300 to cover Letters of Guarantee issued by the bank on behalf of the Company, with a maximum term of 365 days, renewable annually.~~

~~As security for the FCC Loan, the Company has provided promissory notes, a first mortgage on theVFF-owned~~ greenhouse properties (excluding the Delta 3 and Delta 2 greenhouse facilities) and general security agreements over its assets. In addition, the Company has provided full recourse guarantees and has granted security therein. The carrying value of the assets and securities pledged as collateral as of March 31, 2020 and 2019 was $156,368 and $155,548, respectively.

As security for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory. In addition, the Company has granted full recourse guarantees and security therein. The carrying value of the assets pledged as collateral as of March 31, 2020 and 2019 was $25,038 and $24,915, respectively.

Our borrowings (“Credit Facilities”) are subject to certain positive and negative covenants, including debt ratios, and we are required to maintain certain minimum working capital. In December 2019, we received a waiver for our annual debt service coverage and debt to EBITDA covenants under its Term Loan. As of March 31, 2020 the Company was in compliance with all of its other Credit Facility covenants under its Credit Facilities.

Accrued interest payable on the credit facilities and loans as of March 31, 2020 and 2019 was $161 and $162, respectively. These amounts are included in accrued liabilities in the consolidated statements of financial position.

~~In 2019, Pure Sunfarms entered into a credit agreement with BMO, as agent and lead lender, and FCC, as lender, in respect of a CA$20,000 securednon-revolver~~ term loan (the “PSF Credit Facility”). As of March 31, 2020, the outstanding amount on the loan was CA$18,401. In April 2020, Pure Sunfarms expanded the PSF Credit Facility credit facility with its existing lender to CA$59.0 million, including accordion provisions of CA$22.5 million.

The PSF ~~Credit~~Non-Revolving Facility ~~which matures on February 7, 2022,~~ is secured by the Delta 2 and Delta 3 greenhouse facilities and contains customary financial and restrictive covenants. The ~~Company is not a party to~~other terms and conditions of the PSF ~~Credit~~Non-Revolving Facility ~~but has guaranteed up to CA$10 million~~remain substantially the same. As of June 30, 2023, Pure Sunfarms was in ~~connection~~compliance with these financial covenants. The outstanding amount on the PSF Non-Revolving Facility was $9,056 on June 30, 2023 and $9,664 on December 31, 2022.

The outstanding amount on the PSF Term Loan was $14,151 on June 30, 2023 and $14,867 on December 31, 2022.

The outstanding amount on Pure Sunfarms' credit facility with the ~~PSF Credit Facility.~~Business Development Bank of Canada was $4,009 on June 30, 2023 and $4,181 on December 31, 2022.

~~The~~Equity Offerings

On January 30, 2023, the Company ~~closed equity offerings on October 22, 2019~~issued and ~~March 24, 2020. The October 22, 2019 public offering raised net proceeds of CA$26,934 through the issuance of 3,059,000~~sold 18,350,000 Common Shares under a registered direct equity offering, at a price of ~~CA$9.40~~$1.35 per ~~Common Share. The March 24, 2020 public offering raised~~share, resulting in net proceeds for approximately $23,300 after deducting commissions and offering expenses (the "January 2023 Equity Offering"). As part of ~~CA$10,711 through~~ the ~~issuance~~January 2023 Equity Offering the Company also issued 18,350,000 Common Warrants at an exercise price of ~~3,593,750~~$1.65 per share. The Common Warrants became exercisable on July 31, 2023, and expire on July 30, 2028.

On August 9, 2022, Village Farms entered into a Controlled Equity Offering Sales Agreement ("Sales Agreement") pursuant to which the Company may offer and sell Common Shares ~~at a~~having an aggregate offering price up to $50 million from time to time to or through A.G.P./Alliance Global Partners and Cantor Fitzgerald & Co. Under the Sales Agreement, the Company may offer and sell Common Shares through A.G.P./Alliance Global Partners and Cantor Fitzgerald & Co. by any method deemed to be an “at the market offering” ("ATM") as defined in Rule 415 of ~~CA$3.20 per Common Share.~~the U.S. Securities Act of 1933, as amended, including sales made directly on The Nasdaq Capital Market. During the six months ended June 30, 2023 there were no shares sold under our ATM.

Summary of Cash Flows


	For the six months ended June 30,
(in Thousands)	2023			2022
Cash, beginning of period	$	21,676		$	58,667
Net cash flow (used in) provided by:
Operating activities		(5,247	)		(9,021	)
Investing activities		(1,713	)		(13,681	)
Financing activities		17,012			(2,910	)
Net cash increase (decrease) for the period		10,052			(25,612	)
Effect of exchange rate changes on cash		(69	)		(56	)
Cash, end of the period	$	31,659		$	32,999

   For the three months ended
March 31,
(in Thousands)
   2020    2019
Cash beginning of period
   $ 11,989    $ 11,920
Net cash flow (used in) provided by: (used in)

Operating activities
   (419 )    (5,546 )
Investing activities
   (6,438 )    (2,365 )
Financing activities
   8,428    2,179




Net cash increase (decrease) for the period
   1,571    (5,732 )
Effect of exchange rate changes on cash
   (2 )    —




Cash, end of the period
   $ 13,558    $ 6,188

Operating Activities

For the ~~three~~six months ended ~~March 31, 2020~~June 30, 2023 and ~~2019,~~2022, cash flows used in operating activities ~~before changes innon-cash~~ ~~working capital totalled~~were ($~~2,760)~~5,247) and ($~~2,006)~~9,021), respectively. The ~~period over period change is~~operating activities for the six months ended June 30, 2023 consisted of ($7,346) in changes in non-cash working capital items and $2,099 in changes before non-cash working capital items, while operating activities for the six months ended June 30, 2022 consisted of $9,064 in changes in non-cash working capital items and ($18,085) in changes before non-cash working capital items. The changes before non-cash working capital items for 2023 as compared to 2022 was primarily due to ~~an increase~~a lower net loss from VF Fresh as well as impairments on our goodwill and intangibles in ~~purchases~~2022 that were non-recurring, partially offset by slightly lower net income from ~~third party suppliers.~~our Canadian Cannabis and U.S. Cannabis businesses.

Investing Activities

For the ~~three~~six months ended ~~March 31, 2020~~June 30, 2023 and 2022, cash flows used in investing activities were ($1,713) and ($13,681), respectively. The investing activities for the six months ended June 30, 2023 consisted of ($~~6,063) of additional investment~~2,548) invested in ~~Pure Sunfarms and ($259) of~~ capital expenditures to support our VF Fresh and Canadian and U.S. Cannabis operations, partially offset by the repayment of the promissory note to Altum. The investing activities for ~~our produce~~the six months ended June 30, 2022 consists of a ($2,715) loan to L.L. Lichtendahl, a private company that holds a 50% interest in Leli, a promissory note to Altum of ($727) and ($10,232) invested in capital expenditures, primarily to support Canadian Cannabis operations.

Financing Activities

For the ~~three~~six months ended ~~March 31, 2019~~June 30, 2023, cash flows provided by financing activities were $17,012 and cash flows used in ~~investing~~financing activities ~~consisted of a~~were ($~~2,251) note to VF Hemp, ($167) of capital expenditures and our initial ($7) investment in VF Hemp.~~

~~Financing Activities~~

2,910) for the six months ended June 30, 2022. For the ~~three~~six months ended ~~March 31, 2020,~~June 30, 2023, cash flows provided by financing activities consisted of ~~the $7,324 generated~~$23,335 in proceeds from the issuance of Common Shares net of issuance costs, ~~$1,125 of~~$83 in proceeds ~~from borrowing net of repayments, and payments on capital lease obligations of ($21). For the three months ended March 31, 2019, cash flows provided by financing activities consisted of $34 generated~~ from the exercise of stock options ~~$2,163~~and repayment of debt of ($6,406). For the six months ended June 30, 2022, cash flows used in financing activities consisted of $4,000 for proceeds from the Operating Loan, $192 of proceeds from ~~borrowings net~~the exercise of stock options, offset by cash flows used in financing activities of ($6,490) in repayments ~~and ($18) used for payments~~ on ~~capital lease obligations.~~borrowings.

Contractual Obligations and Commitments

~~During the three months ended March 31, 2020,~~We expect to meet our contractual obligations and commitments using our working capital and our other resources described under “Capital Resources” above. Other than with respect to our long-term debt described above, we made equity contributions to Pure Sunfarms totaling CA$8,000 (US$6,063). We contributed an additional CA$8,000 (US$5,650) on April 2, 2020. The Company may be required to make additional equity contributions to Pure Sunfarms based on Pure Sunfarms ability to generate positive cash flow from its operations, as well as a requirement under the terms of its expanded credit facility with BMO, if another syndicate member is not added on or before May 31, 2020.

~~Off-Balance~~ ~~Sheet Arrangements~~

~~The Company does~~currently do not have any~~off-balance~~ ~~sheet arrangements.~~ material cash requirements in the near future.

Non-GAAP Measures

References in this ~~report~~MD&A to “Adjusted EBITDA” and "Adjusted EBITDA - Constant Currency" (Collectively "Adjusted EBITDA") are to earnings (including the equity ~~in earnings~~losses of the ~~Pure Sunfarms)~~joint venture, VFH) before interest, taxes, depreciation, and amortization (“EBITDA”), as further adjusted to exclude foreign currency exchange gains and losses on translation of long-term debt, unrealized gains on the changes in the value of derivative instruments, ~~stock~~share-based compensation, ~~and~~ gains and losses on asset sales and ~~adjusts for~~ the ~~difference~~other adjustments set forth in ~~accounting treatment of Pure Sunfarms, which we believe is necessary to reflect~~ the ~~true economic value of our interest in Pure Sunfarms.~~table below. Adjusted EBITDA ~~is a cash flow measure~~are measures of operating performance that isare not recognized under GAAP and ~~does~~do not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Investors are cautioned that Adjusted EBITDA should not be construed as an alternative to net income or loss determined in accordance with GAAP as an indicator of our performance. Adjusted EBITDA is used as additional measures to evaluate the operating and financial performance ~~or to cash flows from operating, investing and financing activities as measures~~ of ~~liquidity and cash flows.~~our segments. Management believes that Adjusted EBITDA is an important measure in evaluating the historical performance of the ~~Company.~~Company because it excludes non-recurring and other items that do not reflect our business performance.

We also present Adjusted EBITDA, earnings per share and diluted earnings per share on a proportionate segment basis. Each of the components of Adjusted EBITDA, on a proportionate segment basis (which include our proportionate share of Pure Sunfarms and VF Hemp operations), are presented in the table Reconciliation of GAAP to Proportionate Results below. We believe that the ability of investors to assess our overall performance may be improved by the disclosure of proportionate segment Adjusted EBITDA, earnings per share and diluted earnings per share, given that our joint ventures represent a significant percentage of our net income.

Reconciliation of Net ~~Income~~Loss to Adjusted EBITDA

The following table reflects a reconciliation of net ~~income~~loss to Adjusted EBITDA, as presented by the Company:

(in thousands of U.S. dollars)    For the three months
ended March 31,
   2020    2019
Net income
   $ 4,190    $ 6,466
Add:

Amortization
   1,530    1,840
Foreign currency exchange loss (gain)
   926    (278 )
Interest expense, net
   154    558
(Recovery of) provision for income taxes
   (1,012 )    4,436
Stock based compensation
   529    1,296
Interest expense for JVs
   293    —
Amortization for JVs
   301    296
Foreign currency exchange loss (gain) for JVs
   102    (29 )
Provision for (recovery of) income taxes from JVs
   1,269    1,093
Gain on settlement agreement
   (4,681 )    —
Gain on settlement of net liabilities from JV
   (2,496 )    —
Gain on disposal of assets
   (9 )    (13,564 )
Adjustment to reflect true economic value for Pure Sunfarms⁽¹⁾
   —      (770 )




Adjusted EBITDA
   $ 1,096    $ 1,344
Adjusted EBITDA for JVs^{(See table below)}
   $ 2,683    $ 3,203
Adjusted EBITDA excluding JVs^(produce)
   ($ 1,587 )    ($ 1,859 )


	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands of U.S. dollars)	2023			2022			2023			2022
Net loss	$	(1,380	)	$	(36,555	)	$	(8,016	)	$	(43,072	)
Add:
Amortization		2,946			2,768			6,190			5,470
Foreign currency exchange (gain) loss		(766	)		570			(733	)		251
Interest expense, net		1,079			705			2,016			1,278
Provision for (recovery of) income taxes		1,299			(9,714	)		1,933			(11,380	)
Share-based compensation		599			1,114			2,282			2,078
Interest expense for JV's		34			26			34			39
Amortization for JVs		598			130			1,158			224
Foreign currency exchange loss (gain) for JVs		1			(28	)		2			1
Share-based compensation for JV's		40			—			74			—
Other expense, net for JV's		(9	)		—			(15	)		—
Deferred financing fees		34			61			68			127
Impairments(1)		—			29,799			—			29,799
JV exit-related costs(2)		—			2,876			—			2,876
Gain on disposal of assets		—			(2	)		—			(2	)
Other expense, net		—			1			1			1
Purchase price adjustment (3)		—			(2,059	)		—			(4,109	)
Adjusted EBITDA (4)	$	4,475		$	(10,308	)	$	4,994		$	(16,419	)
Adjusted EBITDA for JVs (5)	$	—		$	(302	)	$	—		$	(327	)
Adjusted EBITDA excluding JVs	$	4,475		$	(10,006	)	$	4,994		$	(16,092	)

(1)

Represents impairments to goodwill of ($25,159) and intangible assets of ($4,630) that were triggered by inflationary effects on consumer spending, decreases in market capitalization of CBD companies and the continued federal regulation lack of clarity with respect to CBD.

Breakout of JV Adjusted EBITDA
(in thousands of U.S. dollars)
   For the three months
ended March 31,
   2020    2019
Pure Sunfarms Adjusted EBITDA
   $ 2,778    $ 3,226
VFH Adjusted EBITDA
   (95 )    (23 )




Total JV Adjusted EBITDA
   $ 2,683    $ 3,203

⁽¹⁾(2)

Represents exit related costs incurred due to the winding down of the VF Hemp joint venture.

(3)

The ~~GAAP treatment of our equity earning~~purchase price adjustment primarily reflects the non-cash accounting charge resulting from the revaluation of Pure ~~Sunfarms is different than under International Financial Reporting Standards (“IFRS”). Under GAAP~~Sunfarms’ inventory to fair value at the ~~Emerald shares held in escrow are not considered issued until paid for pursuant to~~acquisition date on November 2, 2020, Pure Sunfarms' intangible amortization and Rose intangible amortization resulting from the GAAP concept of ‘hypothetical liquidation’. As a result, under GAAP, our ownership percentage for the three months ended March 31, 2019 of 57.6% was higher than our economic interest of 50% under IFRS.

~~Reconciliation of U.S. GAAP Results to Proportionate Results~~

~~The following tables are a reconciliation~~September 30, 2022 finalization of the ~~GAAP results to the proportionate results (which include our proportionate share of Pure Sunfarms~~Rose purchase price accounting.

(4)

Adjusted EBITDA is not a recognized earnings measure and ~~VF Hemp operations):~~

   For the three months ended March 31, 2020
   Produce    Pure
Sunfarms ⁽¹⁾    Hemp ⁽¹⁾    Total
Sales
   $ 32,112    $ 7,442    $ 98    $ 39,652
Cost of sales
   (31,347 )    (3,557 )    (120 )    (35,024 )
Selling, general and administrative expenses
   (3,921 )    (1,348 )    (117 )    (5,386 )
Stock compensation expense
   (529 )    —      —      (529 )
Gain on settlement agreement
   4,681    —      —      4,681
Gain on settlement of net liabilities
   —      2,496       2,496
(Loss) gain on disposal of assets
   (6 )    5    10    9
Other income (expense) net
   (1,041 )    (238 )    (173 )    (1,441 )
Recovery of (provision for) income taxes
   1,012    (1,269 )    —      (257 )
Net income (loss)
   $ 961    $ 3,531    ($ 302 )    $ 4,190
Adjusted EBITDA⁽²⁾
   ($ 1,587 )    $ 2,778    ($ 95 )    $ 1,096
Earnings (loss) per share – basic
   $ 0.02    $ 0.07    ($ 0.01 )    $ 0.08
Earnings (loss) per share – diluted
   $ 0.02    $ 0.07    ($ 0.01 )    $ 0.08
   For the three months ended March 31, 2019
   Produce    Pure
Sunfarms⁽¹⁾    Hemp ⁽¹⁾    Total
Sales
   $ 31,890    $ 6,728    $ —      $ 38,618
Cost of sales
   (31,215 )    (2,451 )    —      (33,666 )
Selling, general and administrative expenses
   (4,242 )    (583 )    (31 )    (4,856 )
Stock compensation expense
   (1,296 )    —      —      (1,296 )
Gain on disposal of assets
   13,564    —      —      13,564
Other income (expense) net
   (410 )    34    —      (376 )
Recovery of (provision for) income taxes
   (4,436 )    (1,086 )    —      (5,522 )
Net income (loss)
   3,855    $ 2,642    ($ 31 )    $ 6,466
Adjusted EBITDA⁽²⁾
   ($ 1,859 )    $ 3,226    ($ 23 )    $ 1,344
Earnings (loss) per share – basic
   $ 0.08    $ 0.06    $ 0.00    $ 0.14
Earnings (loss) per share – diluted
   $ 0.08    $ 0.05    $ 0.00    $ 0.13

~~Notes:~~

~~(1)~~

The adjusted consolidated financial results have been adjusted to include our share of sales and expenses from Pure Sunfarms and Hemp on a proportionate accounting basis, on which management bases its operating decisions and performance evaluation. GAAP does ~~not allow for the inclusion of the joint ventures on a proportionate basis. These results include additionalnon-GAAP~~ ~~measures such as Adjusted EBITDA.~~

~~The adjusted results are~~ not ~~generally accepted measures of financial performance under~~have a standardized meaning prescribed by GAAP. ~~Our method of calculating~~Therefore, Adjusted EBITDA presented for these ~~financial performance measures may differ from other companies and accordingly, they~~segments may not be comparable to similar measures ~~used~~presented by other ~~companies.~~

issuers. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recurring and other items that do not reflect the underlying business performance of the Company.

(5)

The Adjusted EBITDA for JVs consists of the VF Hemp Adjusted EBITDA

Reconciliation of Segmented Net Loss to Adjusted EBITDA

The following table reflects a reconciliation of segmented net loss to Adjusted EBITDA, as presented by the Company:


	For The Three Months Ended June 30, 2023
(in thousands of U.S. dollars)	VF Fresh (Produce)			Cannabis Canada			Cannabis U.S.		Clean Energy			Corporate			Total
Net (loss) income	$	(698	)	$	1,174		$	172	$	(34	)	$	(1,994	)	$	(1,380	)
Add:
Amortization		1,302			1,494			87		—			63			2,946
Foreign currency exchange gain		(80	)		(22	)		—		(1	)		(663	)		(766	)
Interest expense, net		588			728			—		—			(237	)		1,079
Provision for income taxes		218			818			—		—			263			1,299
Share-based compensation		—			119			95		—			385			599
Interest expense for JV's		—			34			—		—			—			34
Amortization for JVs		—			367			—		—			231			598
Foreign currency exchange loss for JVs		—			1			—		—			—			1
Share-based compensation for JV's		—			40			—		—			—			40
Other expenses for JV's		—			(9	)		—		—			—			(9	)
Deferred financing fees		—			34			—		—			—			34
Adjusted EBITDA (2)	$	1,330		$	4,778		$	354	$	(35	)	$	(1,952	)	$	4,475


	For The Six Months Ended June 30, 2023
(in thousands of U.S. dollars)	VF Fresh (Produce)			Cannabis Canada			Cannabis U.S.			Clean Energy			Corporate			Total
Net (loss) income	$	(3,317	)	$	1,069		$	(204	)	$	(70	)	$	(5,494	)	$	(8,016	)
Add:
Amortization		2,556			3,284			226			—			124			6,190
Foreign currency exchange (gain) loss		(27	)		(35	)		19			(1	)		(689	)		(733	)
Interest expense, net		1,131			1,289			(24	)		—			(380	)		2,016
(Recovery of) provision for income taxes		(8	)		1,956			—			—			(15	)		1,933
Share-based compensation		—			263			185			—			1,834			2,282
Interest expense for JV's		—			34			—			—			—			34
Amortization for JVs		—			699			—			—			459			1,158
Foreign currency exchange loss for JVs		—			2			—			—			—			2
Share-based compensation for JV's		—			74			—			—			—			74
Other expense for JV's		—			(15	)		—			—			—			(15	)
Deferred financing fees		—			68			—			—			—			68
Other expense, net		—			—			1			—			—			1
Adjusted EBITDA (2)	$	335		$	8,688		$	203		$	(71	)	$	(4,161	)	$	4,994


	For The Three Months Ended June 30, 2022
(in thousands of U.S. dollars)	VF Fresh (Produce)			Cannabis Canada			Cannabis U.S.			Clean Energy			Corporate			Total
Net (loss) income	$	(9,350	)	$	1,822		$	(23,649	)	$	(62	)	$	(5,316	)	$	(36,555	)
Add:
Amortization		1,242			1,385			141			—			—			2,768
Foreign currency exchange loss		236			28			14			—			292			570
Interest expense, net		428			195			—			—			82			705
(Recovery of) provision for income taxes		(2,827	)		991			(7,025	)		—			(853	)		(9,714	)
Share-based compensation		—			219			107			—			788			1,114
Interest expense for JV's		—			—			26			—			—			26
Amortization for JVs		—			130			—			—			—			130
Foreign currency exchange gain for JVs		—			(28	)		—			—			—			(28	)
Deferred financing fees		—			61			—			—			—			61
Impairments(1)		—			—			29,799			—			—			29,799
JV exit-related costs(2)		—			—			—			—			2,876			2,876
Gain on disposal of assets		(2	)		—			—			—			—			(2	)
Purchase price adjustment (3)		—			(2,059	)		—			—			—			(2,059	)
Other expense, net		(9	)		(1	)		(46	)		(1	)		58			1
Adjusted EBITDA (4)	$	(10,282	)	$	2,743		$	(633	)	$	(63	)	$	(2,073	)	$	(10,308	)


	For The Six Months Ended June 30, 2022
(in thousands of U.S. dollars)	VF Fresh (Produce)			Cannabis Canada			Cannabis U.S.			Clean Energy			Corporate			Total
Net (loss) income	$	(15,095	)	$	2,809		$	(23,380	)	$	(128	)	$	(7,278	)	$	(43,072	)
Add:
Amortization		2,501			2,687			282			—			—			5,470
Foreign currency exchange loss (gain)		236			117			14			2			(118	)		251
Interest expense, net		428			776			—			4			70			1,278
(Recovery of) provision for income taxes		(4,542	)		1,630			(7,025	)		—			(1,443	)		(11,380	)
Share-based compensation		—			586			202			—			1,290			2,078
Interest expense for JV's		—			—			39			—			—			39
Amortization for JVs		—			224			—			—			—			224
Foreign currency exchange loss for JVs		—			1			—			—			—			1
Deferred financing fees		—			127			—			—			—			127
Impairments(1)		—			—			29,799			—			—			29,799
JV exit-related costs(2)		—			—			—			—			2,876			2,876
Gain on disposal of assets		(2	)		—			—			—			—			(2	)
Purchase price adjustment (3)		—			(4,109	)		—			—			—			(4,109	)
Other expense, net		(9	)		(1	)		16			—			(5	)		1
Adjusted EBITDA (4)	$	(16,483	)	$	4,847		$	(53	)	$	(122	)	$	(4,608	)	$	(16,419	)

~~(2)~~

Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. See~~“Non-GAAP~~ ~~Measures”. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company. Consolidated Adjusted EBITDA includes our majoritynon-controlling~~ ~~interest Pure Sunfarms and our 65% interest in VF Hemp.~~

(1)

(2)

Represents exit-related costs incurred due to the winding down of the VF Hemp joint venture.

(3)

The purchase price adjustment primarily reflects the non-cash accounting charge resulting from the revaluation of Pure Sunfarms’ inventory to fair value at the acquisition date on November 2, 2020, Pure Sunfarms' intangible amortization and Rose intangible amortization resulting from the September 30, 2022 finalization of the Rose purchase price accounting.

(4)

Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA presented for these segments may not be comparable to similar measures presented for comparable segments by other issuers. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company’s segments because it excludes non-recurring and other items that do not reflect the business performance of our segments. Adjusted EBITDA for Canadian Cannabis includes the 70% interest in Rose LifeScience and Adjusted EBITDA for “Corporate” and “Total” includes our 65% interest in VFH.

~~New~~31

Constant Currency

To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented constant currency adjusted financial measures for sales, cost of sales, selling, general and administrative, other income (expense), operating (loss) income, loss from consolidated entities, net loss, and Adjusted EBITDA for the three and six months ended June 30, 2023, which are considered non-GAAP financial measures. We present constant currency information to provide a framework for assessing how our underlying operations performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period income statement results in currencies other than U.S. dollars are converted into U.S. dollars using the average exchange rates from the three and six month comparative periods in 2022 rather than the actual average exchange rates in effect during the respective current periods. All growth comparisons relate to the corresponding period in 2022. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our segments without taking into account the effect of exchange rate fluctuations. The non-GAAP financial measures presented in this Quarterly Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP.

The table below sets forth certain measures of consolidated results from continuing operations on a constant currency basis for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 on an as reported and constant currency basis (in thousands):


	As Reported												As Adjusted for Constant Currency
	Three months ended June 30,						As Reported Change						Three months ended June 30,			Constant Currency Change
	2023			2022			$			%			2023			$			%
Sales	$	77,212		$	82,903		$	(5,691	)		(7	%)	$	78,889		$	(4,014	)		(5	%)
Cost of sales		(65,713	)		(76,580	)		10,867			14	%		(66,742	)		9,838			13	%
Selling, general and administrative expenses		(16,753	)		(18,516	)		1,763			10	%		(17,238	)		1,278			7	%
Other (expense) income, net		5,212			(1,222	)		6,434			527	%		5,199			6,421			525	%
Operating (loss) income		(42	)		(43,806	)		43,764			100	%		(42	)		43,764			100	%
Loss including non-controlling interests		(1,341	)		(34,092	)		32,751			96	%		(1,191	)		32,901			97	%
Net loss		(1,380	)		(36,555	)		35,175			96	%		(1,286	)		35,269			96	%
Adjusted EBITDA (1)		4,475			(10,308	)		14,783			143	%		4,484			14,792			143	%


	As Reported												As Adjusted for Constant Currency
	Six months ended June 30,						As Reported Change						Six months ended June 30,			Constant Currency Change
	2023			2022			$			%			2023			$			%
Sales	$	141,868		$	153,059		$	(11,191	)		(7	%)	$	145,050		$	(8,009	)		(5	%)
Cost of sales		(118,069	)		(136,832	)		18,763			14	%		(120,105	)		16,727			12	%
Selling, general and administrative expenses		(34,158	)		(36,451	)		2,293			6	%		(35,038	)		1,413			4	%
Other (expense) income, net		4,236			(1,484	)		5,720			385	%		4,150			5,634			380	%
Operating (loss) income		(6,123	)		(52,099	)		45,976			88	%		(5,943	)		46,156			89	%
Loss including non-controlling interests		(8,056	)		(40,719	)		32,663			80	%		(7,993	)		32,726			80	%
Net loss		(8,016	)		(43,072	)		35,056			81	%		(7,956	)		35,116			82	%
Adjusted EBITDA (1)		4,994			(16,419	)		21,413			130	%		5,510			21,929			134	%

(1) Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA presented for these segments may not be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recurring and other items that do not reflect the underlying business performance of the Company.

Recent Accounting Pronouncements Not Yet Adopted

~~In December 2019,~~No accounting pronouncements recently issued or newly effective have had, or are expected to have, a material impact on the ~~FASB issued ASU2019-12,~~ “~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~~~.” ASU2019-12~~ simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax). which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon the applicable amendments. Early adoption is permitted. The Company is currently evaluating the impact of this standard on itsCompany’s condensed consolidated financial ~~statements and related disclosures.~~statements.

Critical Accounting Estimates and Judgments

Our discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Interim Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses and related disclosure of contingent assets and liabilities.

We believe that the estimates, assumptions and judgments involved in the accounting policies described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our ~~most recent~~ Annual Report on Form10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Actual results could differ from the estimates we use in applying our critical accounting policies. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

Assessment for Indicators of Impairment

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk~~

Goodwill

Factors Affecting Goodwill

The Company has experienced macroeconomic challenges, such as a decrease in market capitalization driven by decreases in transaction multiples for cannabis and CBD companies, as well as the continued ambiguity in federal regulations with respect to the U.S. CBD market. Macroeconomic challenges include inflation, which affects cultivation costs, distribution costs and operating expenses, as well as rising interest rates, supply shortages and volatile commodity prices.

The U.S. CBD market and the comparable market capitalizations for our CBD competitors declined throughout 2022 as a result of continued ambiguity in federal regulations. CBD was taken off the controlled substance list in the Farm Bill of 2018. In 2019, the FDA ruled that CBD was deemed to be a “medicine”. However, CBD remains subject to further study by the FDA in order to receive FDA approval to include CBD based products in food and beverages. Until the FDA receives either more scientifically-based health and wellness studies, or further Congressional direction, the FDA will not allow CBD to be put into food or beverages. As such, there has been a negative impact on the sales of all CBD products across the country since the initial interest in CBD products in 2019 and 2020. This has resulted in U.S. retailers moving away from carrying CBD based products in light of potential FDA scrutiny and has had a negative impact on the sales of all CBD products across the United States.

The FDA continues to not only publish guidance indicating their unwillingness to pursue rulemaking allowing the use of CBD in dietary supplements or conventional foods, but also issue warning letters to some CBD companies that are making health and wellness claims, which has increased regulatory uncertainty regarding CBD and has pushed U.S. retailers further away from CBD products.

As a result of the foregoing factors, the Company and other cannabis and CBD companies have suffered a decline in the price of their common shares and their overall market capitalizations. These declines represented an indicator of possible goodwill and intangible asset impairment for the Company.

Cannabis – U.S.

As a result of foregoing factors, we performed a goodwill impairment assessment for the Company’s Cannabis – U.S. segment as of June 30, 2022. On June 30, 2022, the estimated fair value of goodwill for the Cannabis – U.S. segment using the market-based approach. The most significant assumption used in applying the market approach was a market-based revenue multiple of 1.6x based on transaction multiples of somewhat similar CBD-based companies. We concluded that as of June 30, 2022, the recoverable amount was lower than its carrying amount and as a result, an impairment charge to goodwill of $25,169 was allocated to the Cannabis – U.S. segment for the six months ended June 30, 2022.

In addition, due to further erosion in the market values publicly traded CBD companies relating to the ongoing uncertainty regarding the regulatory status of CBD and the corresponding decline in retail sales of CBD products, we concluded that as of December 31, 2022, the recoverable amount of goodwill for the U.S. – Cannabis segment was lower than its carrying amount and as a result, an additional impairment charge to goodwill of $13,500 was allocated to the U.S. – Cannabis segment. Accordingly, we recognized a total goodwill impairment charge of $38,669 in 2022. For more information, see Note 11 to our audited annual financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

As of June 30, 2023, there were no goodwill impairment indicators for the Company’s Cannabis – U.S. segment. Accordingly, the Company did not perform a goodwill impairment assessment for the Company’s Cannabis – U.S. segment as of June 30, 2023. Given this, no goodwill impairment charge was required for the Cannabis – U.S. segment.

The carrying value of goodwill associated with our Cannabis – U.S. segment was $21,339 at June 30, 2023 and $34,839 at June 30, 2022.

Cannabis - Canada

There were no goodwill impairment indicators for the Cannabis – Canada segment throughout 2022 and 2023. Accordingly, the Company did not perform a goodwill impairment assessment for the Company’s Cannabis – Canada segment.

The carrying value of goodwill associated with our Cannabis – Canada segment was $45,900 at June 30, 2023 and $57,804 at June 30, 2022.

Future Periods; Further Information

To the extent we continue to observe impairment indicators for our Cannabis – U.S. and/or Cannabis – Canada segments or our other reporting units, we may be required to perform quantitative goodwill impairment assessments for such reporting units in future periods.

For further information regarding our goodwill and any applicable impairment testing, see Note 11 to our audited annual financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 and Note 4 to our interim financial statements included in this Quarterly Report on Form 10-Q.

Intangible Assets

Factors Affecting Intangible Assets

Intangible assets include licenses, brands and trademarks, customer relationships, computer software and other indefinite-lived intangible assets, which were impacted by the same factors as those affecting goodwill (see “—Factors Affecting Goodwill” above).

Cannabis – U.S.

As a result of foregoing factors, we performed a brand impairment assessment for the Company’s Cannabis – U.S. segment as of June 30, 2022. On June 30, 2022, the estimated fair value of the Cannabis – U.S. brand was determined using a discounted cash flow projection. We concluded that as of June 30, 2022, the recoverable amount was lower than its carrying amount and as a result, an impairment charge to the brand intangible of $4,630 was allocated to the Cannabis – U.S. segment.

As of June 30, 2023, there were no brand impairment indicators for the Company’s Cannabis – U.S. segment. Accordingly, the Company did not perform a brand impairment assessment for the Company’s Cannabis – U.S. segment as of June 30, 2023.

Cannabis - Canada

There were no impairment indicators for identifiable intangibles for the Cannabis – Canada segment throughout 2022 and 2023. Accordingly, the Company did not perform impairment assessments for the Company’s Cannabis – Canada.

Future Periods; Further Information

To the extent we continue to experience intangible assets impairment indicators for our Cannabis – U.S. and/or Cannabis – Canada segments or our other reporting units, we may be required to perform quantitative intangible asset impairment assessments for such reporting units in future periods.

For additional information regarding our intangible assets and applicable impairment testing, see Note 11 to our audited annual financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 and Note 4 to our interim financial statements included in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

~~Interest~~As of June 30, 2023, our variable interest rate debt was primarily related to our Credit Facilities and Term Loans. Outstanding borrowings under our Credit Facility and Term Loans bear interest at either the (a) Secured Overnight Financing Rate (“SOFR”) or (b) Canadian Prime Rate, as defined in the agreement, plus an applicable margin. As of June 30, 2023, we had approximately $4,000 aggregate principal amount of outstanding revolving loans under our Operating Loan with a weighted average interest rate of 6.48% and we had approximately $50,988 in aggregate principal amounts with Term Loans with a weighted average interest rate of 8.22%. The current interest rates for outstanding revolving loans under our Credit Facility and Term Loans reflect basis point increases of approximately 3.7% over the comparable period in 2022.

Our interest expense is affected by the overall interest rate environment. Our variable rate interest debt subjects us to risk ~~is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes~~from increases in ~~market~~prevailing interest rates. ~~The Company is exposed to interest rate~~This risk ~~on its long-term debt, for~~increases in the current inflationary environment, in which the Federal Reserve has increased interest rates, ~~charged fluctuate based on the90-day~~ ~~LIBOR rate. If~~resulting in an increase in our variable interest rates ~~had been~~and related interest expense. An additional 50 basis ~~points higher,~~point increase in the ~~net income during the periods ended March 31, 2020~~applicable interest rates under our Credit Facility and ~~2019~~Term Loan would have ~~been lower by $40 and $43, respectively. This represents $40 and $43 in~~ increased our interest expense by approximately $131 and $65 for the ~~periods~~three and six months ended ~~March 31, 2020~~June 30, 2023, respectively and ~~2019,~~$149 and $76 for the three and six months ended June 30, 2023 and 2022, respectively.

While we cannot predict our ability to refinance existing debt or the significance of the impact that interest rate movements will have on our existing debt, management evaluates our financial position on an ongoing basis.

Foreign Exchange Risk

As of ~~March 31, 2020,~~June 30, 2023 and ~~2019,~~2022, the Canadian/U.S. foreign exchange rate was C$1.00 = US$~~0.7056~~0.7547 and C$1.00 = US$~~0.7489,~~0.7995, respectively. ~~Assuming that~~If all other variables remain constant, an increase of $0.10 in the Canadian dollar would have the following impact on the ending balances of certain statements of financial position items at ~~March 31, 2020~~June 30, 2023 and ~~March 31, 2019~~2022 with the net foreign exchange gain or loss directly impacting net income (loss).


	March 31, 2020			March 31, 2019			June 30, 2023			June 30, 2022
Financial assets
Cash and cash equivalents	$	1,179		$	214		$	1,433		$	1,060
Trade receivables		181			230			2,572			3,470
JV notes receivable		1,451			1,346
Inventories								8,346			7,800
Prepaid and deposits								965			1,030
Financial liabilities
Trade payables and accrued liabilities		(266	)		(282	)		(5,776	)		(6,003	)
Loan payable		(142	)		(186	)		(3,606	)		(4,492	)

Net foreign exchange gain (loss)	$	2,403		$	1,322

Deferred tax liability								(2,764	)		(2,399	)
Net foreign exchange gain							$	1,170		$	466

Our exposure to foreign exchange risk and the impact of foreign exchange rates are monitored by the Company’s management but generally the Company tries to match its sales (trade receivables) and vendor payments (trade payables) such that the net impact is not material.

Other than the interest rate risk and foreign exchange risk discussed above, there have been no material changes ~~tour~~to our market risks from those disclosed in Part II, Item 7A of our Annual Report on Form10-K.

Item 4. Controls and Procedures

~~Item 4.~~

~~Controls and Procedures~~

Evaluation of Disclosure Controls and Procedures

~~The Company’s~~Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified by the U.S. Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ~~the design and operation of the Company’s “disclosure~~our disclosure controls and ~~procedures” (as defined inRule 13a-15(e) under~~ ~~the Securities Exchange Act of 1934, as amended)~~procedures as of the end of the period covered by this

Quarterly ~~Report.~~Report on Form 10-Q. Based upon that evaluation, ~~the~~our Chief Executive Officer and ~~the Principal~~Chief Financial ~~and Accounting~~ Officer concluded that, as of ~~the end of the period covered by this Quarterly Report, the Company’s~~June 30, 2023, our disclosure controls and procedures are ~~effective.~~not effective at a reasonable assurance level due to the material weakness described in Management’s Report on Internal Control over Financial Reporting in our Annual Report on Form 10-K for the year ended December 31, 2022.

Material Weakness in Internal Controls Over Financial Reporting

As of December 31, 2022, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control –Integrated Framework (2013). Based on this assessment, our management concluded that, as of December 31, 2022, our internal control over financial reporting was not effective based on those criteria because a material weakness in internal control over financial reporting existed as of that date, as described below.

The Company did not operate effective controls over the calculation of the recoverable amount of goodwill and intangible assets. The Company’s controls related to the calculation of the recoverable amount of goodwill failed to prevent or detect an error in the revision of certain of the formulas and significant assumptions within the calculation of recoverable amount. There was no impact on the Company’s December 31, 2022 financial statements.

Remediation Plan and Status

In the six months ended June 30, 2023, the Company implemented remediation to improve the operation of its controls over the review of the determination of the recoverable amount of its goodwill and intangible assets. The Company will continue to review, optimize and enhance its financial reporting controls and procedures to ensure the remediation measures are effective and controls are operating effectively. The Company expects implementation of its remediation plan by December 31, 2023.

Changes in Internal Control over Financial Reporting

The Company’s management, including the Chief Executive Officer and Principal Financial and Accounting Officer, has reviewed the Company’s internal control over financial reporting. There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the ~~Company’s~~Exchange Act), other than to address the material weakness described in management's report on internal control over financial reporting, during the ~~quarter~~six months ended ~~March 31, 2020~~June 30, 2023 (as described above) that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

PART II. – OTHER INFORMATION

Item 1. Legal Proceedings

~~Item 1.~~

~~Legal Proceedings~~

From time to time the Company is engaged in legal proceedings in the ordinary course of business. We do not believe any current legal proceedings are material to our business.

Item 1A. Risk Factors

~~Item 1A.~~

~~Risk Factors~~

Our business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described in Part I, Item 1A, “Risk Factors” contained in our Annual Report on Form ~~10K for the year ended December 31, 2019,~~10-K, as filed with the SEC on ~~April 1, 2020,~~March 9, 2023, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report onForm 10-Q and in our other filings filed with the SEC in connection with evaluating us, our business, and the forward-looking statements contained in this Quarterly Report onForm 10-Q. During the ~~quarter~~six months ended ~~March 31, 2020,~~June 30, 2023, other than as described in the Quarterly Report on Form 10-Q, there have been no material changes from the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report onForm ~~10-K, for~~10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Repurchases of Equity Securities

The Company did not repurchase any of its Common Shares during the ~~year~~six months ended ~~December 31, 2019, except as described in Part I,~~ June 30, 2023.

Item ~~2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent developments relating to the outbreak of the Coronavirus pandemic(“COVID-19”)”.~~3. Defaults Upon Senior Securities.

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Uses of Proceeds~~

~~None.~~Not applicable.

~~Item 5.~~

~~Other Information~~

~~On May 12, 2020, we filed a preliminary proxy statement that included disclosure indicating that Dr. Roberta Cook, a member on our board of directors (the “Board”), is not standing forre-election~~ as a director on the Board at our annual and special meeting of shareholders (the “Meeting”) and accordingly, would resign as a member of the Board and from any position held by her on any committee of the Board. Such resignation and decision to not stand for~~re-election~~ as a director was not the result of any disagreement relating to the Company’s operations, policies or practices. Following Dr. Roberta Cook ‘s resignation the Board will consist of six directors.Item 4. Mine Safety Disclosure.

Not applicable.

~~Item 6.~~

~~Exhibits~~

Item 5. Other Information.

Not applicable.

Item 6. Exhibits

The following exhibits are filed as part of, or incorporated by reference into, this report:


Exhibit Number		Description of Document
31.1
~~3.1~~		~~Articles of Amalgamation (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on FormS-8~~ ~~(FileNo. 333-230298)~~ ~~filed on March 15, 2019)~~

~~3.2~~		~~By-laws~~ ~~(incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on FormS-8~~ ~~(FileNo. 333-230298)~~ ~~filed on March 15, 2019)~~

~~3.3~~		~~By-laws~~ ~~amendment (incorporated by reference to Exhibit 99.1 to the Company’s Report on Form6-K~~ ~~filed on December 20, 2019)~~

~~10.1~~		~~Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K~~ filed on April 22, 2020)**

~~31.1~~		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document*Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document*Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document*Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document*Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document*Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document*Document

*	~~In accordance with Rule 406T of RegulationS-T,~~
104		The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL ~~related information~~and contained in Exhibit 101 ~~to this Quarterly Report onForm 10-Q~~ is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

**	Certain confidential portions of this exhibit have been redacted pursuant to Item 601(b)(10) of Regulation S-K. The Company agrees to furnish to the Securities and Exchange Commission a copy of any omitted portions of the exhibit upon request.

^ Certain confidential portions of this exhibit have been redacted pursuant to Item 601(b)(10) of Regulation S-K. The Company agrees to furnish to the Securities and Exchange Commission a copy of any omitted portions of the exhibit upon request.

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


	VILLAGE FARMS INTERNATIONAL, INC.

~~By:~~		By:		/s/ Stephen C. Ruffini
~~Name:~~			Name:	Stephen C. Ruffini
~~Title:~~
			Title:	Executive Vice President and Chief Financial Officer ~~and Director~~

			(Authorized Signatory and Principal Financial and Accounting Officer)
Date: August 9, 2023

~~Date: May 14, 2020~~


	March 31, 2020			December 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	13,558		$	11,989
Trade receivables		9,602			8,997
Inventories		15,546			15,918
Amounts due from joint ventures		10,238			15,418
Other receivables		201			342
Income tax receivable		231			713
Prepaid expenses and deposits		1,123			1,259

Total current assets		50,499			54,636

Non-current assets
Property, plant and equipment		61,687			63,158
Investment in joint ventures		55,607			41,334
Notes receivable - joint ventures		10,946			10,865
Deferred tax asset		8,377			7,999
Right-of-use assets		4,889			3,582
Other assets		1,593			1,834

Total assets	$	193,598		$	183,408

LIABILITIES
Current liabilities
Line of credit	$	4,000		$	2,000
Trade payables		9,019			12,653
Current maturities of long-term debt		3,391			3,423
Accrued liabilities		3,367			3,017
Operating lease liabilities - current		718			875
Finance lease liabilities - current		41			61

Total current liabilities		20,536			22,029

Non-current liabilities
Long-term debt		28,158			28,966
Deferred tax liability		1,150			1,873
Operating lease liabilities -non-current		4,238			2,690
Finance lease liabilities -non-current		39			34
Other liabilities		1,103			1,357

Total liabilities		55,224			56,949

Commitments and contingencies (note 15)
SHAREHOLDERS’ EQUITY
Common stock, no par value per share - unlimited shares authorized; 56,250,419 shares issued and outstanding at March 31, 2020 and 52,656,669 shares issued and outstanding at December 31, 2019.		105,656			98,333
Additional paid in capital		4,880			4,351
Accumulated other comprehensive loss		(602	)		(475	)
Retained earnings		28,440			24,250

Total shareholders’ equity		138,374			126,459

Total liabilities and shareholders’ equity	$	193,598		$	183,408


		Three Months Ended March 31,
		2020			2019
Sales		$	32,112		$	31,890
Cost of sales			(31,347	)		(31,215	)

Gross margin			765			675
Selling, general and administrative expenses			(3,921	)		(4,242	)
Share-based compensation			(529	)		(1,296	)
Interest expense			(537	)		(694	)
Interest income			383			136
Foreign exchange (loss) gain			(926	)		278
Gain on settlement agreement			4,681			—
Other income (expense)			39			(130	)
(Loss) gain on disposal of assets			(6	)		13,564

(Loss) income before taxes and earnings from unconsolidated entities			(51	)		8,291
Benefit of (provision for) income taxes			1,012			(4,436	)

Income from consolidated entities after income taxes			961			3,855
Equity earnings from unconsolidated entities			3,229			2,611

Net income		$	4,190		$	6,466

Basic income per share		$	0.08		$	0.14
	��
Diluted income per share		$	0.08		$	0.13

Weighted average number of common shares used in the computation of net income per share (in thousands):
Basic			52,933			47,677

Diluted			54,175			49,506

Net income		$	4,190		$	6,466
Other comprehensive (loss) income:
Foreign currency translation adjustment			(127	)		44

Comprehensive income		$	4,063		$	6,510


	Number of Common Shares		Common Stock			Additional paid in capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings		Total Shareholders’ Equity
Balance at January 1, 2019		47,642,672	$	60,872		$	2,198		$	(562	)	$	21,925	$	84,433
Shares issued on exercise of stock options		15,999		54			(18	)		—			—		36
Share-based compensation		153,332		908			388			—			—		1,296
Issuance costs		—		(2	)		—			—			—
Cumulative translation adjustment		—		—			—			44			—		44
Net income		—		—			—			—			6,466		6,466

Balance at March 31, 2019		47,812,003	$	61,832		$	2,568		$	(518	)	$	28,391	$	92,273

Balance at January 1, 2020		52,656,669	$	98,333		$	4,351		$	(475	)	$	24,250	$	126,459
Share issued in public offering, net of issuance costs		3,593,750		7,323			—			—			—		7,323
Share-based compensation		—		—			529			—			—		529
Cumulative translation adjustment		—		—			—			(127	)		—		(127	)
Net income		—		—			—			—			4,190		4,190

Balance at March 31, 2020		56,250,419	$	105,656		$	4,880		$	(602	)	$	28,440	$	138,374


	Three Months Ended June 30, 2022
	Number of Common Shares		Common Stock		Additional Paid in Capital		Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Non-controlling Interest		Total Shareholders’ Equity			Mezzanine Equity
Balance at April 1, 2022		88,562	$	365,737	$	10,333	$	10,225		$	20,262		$	—	$	406,557		$	16,271
Shares issued on exercise of stock options		10		—		16		—			—			—		16			—
Share-based compensation		—		—		1,114		—			—			—		1,114			—
Cumulative translation adjustment		—		—		—		(6,660	)		—			—		(6,660	)		—
Net loss		—		—		—		—			(36,555	)		—		(36,555	)		(152	)
Balance at June 30, 2022		88,572	$	365,737	$	11,463	$	3,565		$	(16,293	)	$	—	$	364,472		$	16,119


	Six Months Ended June 30, 2023
	Number of Common Shares		Common Stock		Additional Paid in Capital		Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Non-controlling Interest			Total Shareholders’ Equity			Mezzanine Equity
Balance at January 1, 2023		91,789	$	372,429	$	13,372	$	(8,371	)	$	(74,367	)	$	767		$	303,830		$	16,164
Shares issued in public offering, net of issuance costs		18,350		14,207		—		—			—			—			14,207			—
Warrants issued in public offering		—		—		9,128		—			—			—			9,128			—
Shares issued on exercise of stock options		100		83		—		—			—			—			83			—
Share-based compensation		—		—		2,388		—			—			—			2,388			—
Cumulative translation adjustment		—		—		—		5,087			—			—			5,087			—
Net loss		—		—		—		—			(8,016	)		(99	)		(8,115	)		59
Balance at June 30, 2023		110,239	$	386,719	$	24,888	$	(3,284	)	$	(82,383	)	$	668		$	326,608		$	16,223


	Six Months Ended June 30, 2022
	Number of Common Shares		Common Stock		Additional Paid in Capital		Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Non-controlling Interest		Total Shareholders’ Equity			Mezzanine Equity
Balance at January 1, 2022		88,234	$	365,561	$	9,369	$	6,696		$	26,779		$	—	$	408,405		$	16,433
Shares issued on exercise of stock options		338		176		16		—			—			—		192			—
Share-based compensation		—		—		2,078		—			—			—		2,078			—
Cumulative translation adjustment		—		—		—		(3,131	)		—			—		(3,131	)		—
Net loss		—		—		—		—			(43,072	)		—		(43,072	)		(314	)
Balance at June 30, 2022		88,572	$	365,737	$	11,463	$	3,565		$	(16,293	)	$	—	$	364,472		$	16,119


	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Operating lease expense^(a)	$	608	$	611

Finance lease expense:
Amortization ofright-of-use assets	$	21	$	20
Interest on lease liabilities		1		3

Total finance lease expense	$	22	$	23


	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Operating cash flows from operating leases	$	271	$	254
Operating cash flows from finance leases	$	1	$	3
Financing cash flows from finance leases	$	21	$	18


	Operating leases			Finance leases
Remainder of 2020	$	987		$	44
2021		1,355			30
2022		1,140			10
2023		920			—
2024		562			—
Thereafter		800			—

Undiscounted lease cash flow commitments		5,764			84
Reconciling impact from discounting		(808	)		(4	)

Lease liabilities on consolidated statement of financial position as of March 31, 2020	$	4,956		$	80


Balance, January 1, 2019	$	6,341
Investments in joint venture		18,717
Share of net income for the year		16,276

Balance, December 31, 2019	$	41,334

Balance, January 1, 2020	$	41,334
Investments in joint venture		10,742
Share of net income for the period	$	3,531

Balance, March 31, 2020	$	55,607


	March 31, 2020			December 31, 2019
Current assets
Cash and cash equivalents	$	608		$	7,356
Trade receivables		12,809			8,687
Inventory		29,970			21,745
Other current assets		5,933			6,964
Non-current assets		105,921			108,652
Current liabilities
Trade payables		(12,288	)		(4,938	)
Borrowings due to joint ventures		(10,311	)		(26,413	)
Income taxes payable		(8,843	)		(8,489	)
Borrowings – current		(1,341	)		(1,423	)
Other current liabilities		(11,360	)		(5,021	)
Non-current liabilities
Borrowings – long term		(11,642	)		(13,089	)
Deferred tax liabilities		(3,372	)		(2,473	)

Net assets	$	96,084		$	91,558


	March 31, 2020			December 31, 2019
Reconciliation of net assets:
Accumulated retained earnings	$	32,844		$	26,679
Contributions from joint venture partners		70,088			63,481
Currency translation adjustment		(6,848	)		1,398

Net assets	$	96,084		$	91,558


	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Revenue	$	13,137		$	10,801
Cost of sales*		(6,258	)		(3,818	)

Gross margin		6,879			6,983
Selling, general and administrative expenses		(2,434	)		(999	)

Income from operations		4,445			5,984
Interest expense		(217	)		(1	)
Foreign exchange (loss) gain		(179	)		39
Other income, net**		4,332			10

Income before taxes		8,381			6,032
Provision for income taxes		(2,216	)		(1,629	)

Net income	$	6,165		$	4,403


Remainder of 2020	$	2,761
2021		30,362
2022		361
2023		166
2024		—
Thereafter		—

	$	33,650


	March 31, 2020		December 31, 2019
Pure Sunfarms	$	10,238	$	15,418
VF Hemp		10,946		10,865

Total	$	21,184	$	26,283


	For the three months ended March 31,
	2020		2019
Numerator:
Net income	$	4,190	$	6,466

Denominator:
Weighted average number of common shares—basic		52,933		47,677
Effect of dilutive securities- share-based employee options and awards		1,242		1,829

Weighted average number of common shares—diluted		54,175		49,506

Antidilutive options and awards		510		—
Net income per ordinary share:
Basic	$	0.08	$	0.14

Diluted	$	0.08	$	0.13


	Number of Performance-based Shares			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2019		739,000		CA$	6.58
Granted		10,000		CA$	7.16
Received		—			—
Forfeited/expired		(54,000	)	CA$	8.09

Outstanding at March 31, 2020		695,000		CA$	7.16

Exercisable at March 31, 2020		40,000		CA$	11.44


	For the three months ended March 31,
Percent of Sales by Product Group	2020			2019
Tomatoes		91	%		87	%
Peppers		4	%		5	%
Cucumbers		5	%		8	%

		100	%		100	%


(in thousands of U.S. dollars unless otherwise noted)	Maximum		Outstanding March 31, 2020
Operating Loan	CA$	13,000	$	4,000
Term Loan	$	30,428	$	30,428
VFCE Loan	CA$	1,422	CA$	1,422


	For the three months ended March 31,
(in Thousands)	2020			2019
Cash beginning of period	$	11,989		$	11,920
Net cash flow (used in) provided by: (used in)
Operating activities		(419	)		(5,546	)
Investing activities		(6,438	)		(2,365	)
Financing activities		8,428			2,179

Net cash increase (decrease) for the period		1,571			(5,732	)
Effect of exchange rate changes on cash		(2	)		—

Cash, end of the period	$	13,558		$	6,188


(in thousands of U.S. dollars)	For the three months ended March 31,
	2020			2019
Net income	$	4,190		$	6,466
Add:
Amortization		1,530			1,840
Foreign currency exchange loss (gain)		926			(278	)
Interest expense, net		154			558
(Recovery of) provision for income taxes		(1,012	)		4,436
Stock based compensation		529			1,296
Interest expense for JVs		293			—
Amortization for JVs		301			296
Foreign currency exchange loss (gain) for JVs		102			(29	)
Provision for (recovery of) income taxes from JVs		1,269			1,093
Gain on settlement agreement		(4,681	)		—
Gain on settlement of net liabilities from JV		(2,496	)		—
Gain on disposal of assets		(9	)		(13,564	)
Adjustment to reflect true economic value for Pure Sunfarms⁽¹⁾		—			(770	)

Adjusted EBITDA	$	1,096		$	1,344
Adjusted EBITDA for JVs^{(See table below)}	$	2,683		$	3,203
Adjusted EBITDA excluding JVs^(produce)	($	1,587	)	($	1,859	)


Breakout of JV Adjusted EBITDA (in thousands of U.S. dollars)	For the three months ended March 31,
	2020			2019
Pure Sunfarms Adjusted EBITDA	$	2,778		$	3,226
VFH Adjusted EBITDA		(95	)		(23	)

Total JV Adjusted EBITDA	$	2,683		$	3,203


	For the three months ended March 31, 2020
	Produce			Pure Sunfarms ⁽¹⁾			Hemp ⁽¹⁾			Total
Sales	$	32,112		$	7,442		$	98		$	39,652
Cost of sales		(31,347	)		(3,557	)		(120	)		(35,024	)
Selling, general and administrative expenses		(3,921	)		(1,348	)		(117	)		(5,386	)
Stock compensation expense		(529	)		—			—			(529	)
Gain on settlement agreement		4,681			—			—			4,681
Gain on settlement of net liabilities		—			2,496						2,496
(Loss) gain on disposal of assets		(6	)		5			10			9
Other income (expense) net		(1,041	)		(238	)		(173	)		(1,441	)
Recovery of (provision for) income taxes		1,012			(1,269	)		—			(257	)
Net income (loss)	$	961		$	3,531		($	302	)	$	4,190
Adjusted EBITDA⁽²⁾	($	1,587	)	$	2,778		($	95	)	$	1,096
Earnings (loss) per share – basic	$	0.02		$	0.07		($	0.01	)	$	0.08
Earnings (loss) per share – diluted	$	0.02		$	0.07		($	0.01	)	$	0.08

	For the three months ended March 31, 2019
	Produce			Pure Sunfarms⁽¹⁾			Hemp ⁽¹⁾			Total
Sales	$	31,890		$	6,728		$	—		$	38,618
Cost of sales		(31,215	)		(2,451	)		—			(33,666	)
Selling, general and administrative expenses		(4,242	)		(583	)		(31	)		(4,856	)
Stock compensation expense		(1,296	)		—			—			(1,296	)
Gain on disposal of assets		13,564			—			—			13,564
Other income (expense) net		(410	)		34			—			(376	)
Recovery of (provision for) income taxes		(4,436	)		(1,086	)		—			(5,522	)
Net income (loss)		3,855		$	2,642		($	31	)	$	6,466
Adjusted EBITDA⁽²⁾	($	1,859	)	$	3,226		($	23	)	$	1,344
Earnings (loss) per share – basic	$	0.08		$	0.06		$	0.00		$	0.14
Earnings (loss) per share – diluted	$	0.08		$	0.05		$	0.00		$	0.13

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company