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

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 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 Regulation S-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, a non-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 Rule 12b-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 Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 12, 2020, 66,059,810~~May 6, 2021, 81,191,191 shares of common stock were issued and outstanding.

As used in this Quarterly Report on Form 10-Q, the terms “Village Farms,” “Village Farms International,” the “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 Form 10-Q to “$” means U.S. dollars and all references to “C$” means Canadian dollars.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is subject to the safe harbor created by those sections. This Quarterly Report on Form 10-Q also contains “forward-looking information” within the meaning of applicable Canadian securities law. We refer to such forward-looking statements and forward-looking information collectively as “forward-looking statements”. Forward-looking statements may relate to the 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 industry or the cannabis industry are forward-looking statements. In some cases, forward-looking information can be identified by such terms as “outlook”, “may”, “might”, “will”, “could”, “should”, “would”, “occur”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “try”, “estimate”, “predict”, “potential”, “continue”, “likely”, “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 Form 10-Q are subject to risks that may include, but are not limited to: our limited operating history, , including that of Pure Sunfarms and our ~~start-up~~ operations of growing hemp in the United States; the legal status of Pure Sunfarms cannabis business; risks relating to obtaining additional financing, including our dependence upon credit facilities; potential difficulties in achieving and/or maintaining profitability; variability of product pricing; risks inherent in the cannabis, hemp and agricultural businesses; the ability of Pure Sunfarms to cultivate and distribute cannabis in Canada; existing and new governmental regulations, including risks related to regulatory compliance and licenses (e.g., Pure Sunfarms ability to obtain licenses for its Delta 2 greenhouse facility as well as additional licenses under the Canadian act respecting cannabis to amend to the Controlled Drugs and Substances Act, the Criminal Code and other Acts, S.C. 2018, c. 16 (Canada) for its Delta 3 greenhouse facility), and changes in our regulatory requirements; risks relating to conversion of our greenhouses to cannabis production for Pure Sunfarms; risks related to rules and regulations at the U.S. federal (Food and Drug Administration and United States Department of Agriculture), state and municipal levels with respect to produce and hemp; 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; 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 developing COVID-19 pandemic; 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 Form 10-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 control, that may cause the Company’s or the 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 filings with securities regulators, including this Quarterly Report on Form 10-Q. In particular, we caution you that our forward-looking statements are subject to the ongoing and developing circumstances related to the COVID-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 Form 10-Q relate only to events or information as of the date on which the statements are made in this Quarterly Report on Form 10-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.

	September 30, 2020			December 31, 2019			March 31, 2021		December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	$	54,666		$	11,989		$	131,696	$	21,640
Restricted cash								4,091		4,039
Trade receivables		10,498			8,997			33,470		23,222
Inventories		15,301			15,918			46,851		46,599
Amounts due from joint ventures		10,954			15,418
Other receivables		637			342			181		145
Income tax receivable		440			713			18		18
Prepaid expenses and deposits		934			1,259			7,806		6,145
Total current assets		93,430			54,636			224,113		101,808
Non-current assets
Property, plant and equipment		59,663			63,158			192,583		187,020
Investment in joint ventures		63,164			41,334
Investment in in minority interests		1,226			—
Notes receivable - joint ventures		10,713			10,865
Investment in minority interests								1,726		1,226
Note receivable - joint venture								3,423		3,545
Goodwill								24,314		24,027
Intangibles								17,317		17,311
Deferred tax asset		9,693			7,999			13,711		13,312
Right-of-use assets		4,111			3,582
Operating right-of-use assets								3,549		3,797
Finance right-of-use assets								—		35
Other assets		1,827			1,834			1,830		1,950
Total assets	$	243,827		$	183,408		$	482,566	$	354,031
LIABILITIES
Current liabilities
Line of credit	$	3,000		$	2,000		$	—	$	2,000
Trade payables		9,667			12,653			20,785		15,064
Current maturities of long-term debt		2,294			3,423			10,434		10,166
Note payable								—		15,314
Accrued liabilities		6,676			3,017			21,077		22,438
Operating lease liabilities - current		1,711			875			1,137		1,107
Finance lease liabilities - current		34			61			21		27
Income tax payable								2,827		4,523
Other current liabilities								2,409		1,641
Total current liabilities		23,382			22,029			58,690		72,280
Non-current liabilities
Long-term debt		27,793			28,966			55,869		53,913
Deferred tax liability		2,211			1,873			16,793		18,059
Operating lease liabilities - non-current		2,465			2,690			2,554		2,855
Finance lease liabilities - non-current		12			34			4		8
Other liabilities		1,437			1,357			1,769		1,633
Total liabilities		57,300			56,949			135,679		148,748
Commitments and contingencies (note 15)
Commitments and contingencies (note 17)
SHAREHOLDERS’ EQUITY
Common stock, no par value per share - unlimited shares authorized; 65,959,810 shares issued and outstanding at September 30, 2020 and 52,656,669 shares issued and outstanding at December 31, 2019.		141,310			98,333
Common stock, no par value per share - unlimited shares authorized; 81,191,191 shares issued and outstanding at March 31, 2021 and 66,911,811 shares issued and outstanding at December 31, 2020.								301,092		145,668
Additional paid in capital		16,892			4,351			9,353		17,502
Accumulated other comprehensive loss		(516	)		(475	)
Accumulated other comprehensive income								7,966		6,255
Retained earnings		28,841			24,250			28,476		35,858
Total shareholders’ equity		186,527			126,459			346,887		205,283
Total liabilities and shareholders’ equity	$	243,827		$	183,408		$	482,566	$	354,031

The accompanying notes are an integral part of these Condensed Consolidated Interim Statements of Financial Position.

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Sales

$
43,037

$
38,293

$
122,722

$
111,512

Cost of sales

(37,418
)

(38,904
)

(112,809
)

(114,418
)
Gross margin

5,619

(611
)

9,913

(2,906
)
Selling, general and administrative expenses

(4,942
)

(3,739
)

(12,676
)

(11,899
)
Share-based compensation

(472
)

(666
)

(1,329
)

(2,663
)
Interest expense

(299
)

(655
)

(1,273
)

(2,018
)
Interest income

101

304

577

651

Foreign exchange (loss) gain

(484
)

(183
)

(880
)

338

Gain on settlement agreement

—

—

4,681

—

Other income

27

69

92

219

(Loss) gain on disposal of assets

—

(8
)

(6
)

13,558

Loss before taxes and earnings from unconsolidated
entities

(450
)

(5,489
)

(901
)

(4,720
)
(Provision for) recovery of income taxes

(336
)

1,266

607

114

Loss from consolidated entities after income taxes

(786
)

(4,223
)

(294
)

(4,606
)
Equity earnings from unconsolidated entities

1,306

3,519

4,885

14,115

Net income (loss)

$
520

$
(704
)

$
4,591

$
9,509

Basic income (loss) per share

$
0.01

$
(0.01
)

$
0.08

$
0.20

Diluted income (loss) per share

$
0.01

$
(0.01
)

$
0.08

$
0.19

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

Basic

58,536

48,845

55,946

48,650

Diluted

60,440

48,845

57,778

50,451

Net income (loss)

$
520

$
(704
)

$
4,591

$
9,509

Other comprehensive income (loss):

Foreign currency translation adjustment

31

(22
)

(41
)

58

Comprehensive income (loss)

$
551

$
(726
)

$
4,550

$
9,567

	Three Months Ended March 31,
	2021			2020
Sales	$	52,396		$	32,112
Cost of sales		(50,089	)		(31,347	)
Gross margin		2,307			765
Selling, general and administrative expenses		(8,092	)		(3,921	)
Share-based compensation		(1,998	)		(529	)
Interest expense		(741	)		(537	)
Interest income		3			383
Foreign exchange loss		(504	)		(926	)
Gain on settlement agreement		—			4,681
Other (expense) income		(69	)		39
Loss on disposal of assets		—			(6	)
Loss before taxes and earnings of unconsolidated entities		(9,094	)		(51	)
Recovery of income taxes		1,839			1,012
(Loss) income from consolidated entities after income taxes		(7,255	)		961
Equity (losses) earnings from unconsolidated entities		(127	)		3,229
Net (loss) income	$	(7,382	)	$	4,190
Basic (loss) income per share	$	(0.10	)	$	0.08
Diluted (loss) income per share	$	(0.10	)	$	0.08
Weighted average number of common shares used in the computation of net (loss) income per share (in thousands):
Basic		76,022			52,933
Diluted		76,022			54,175
Net (loss) income	$	(7,382	)	$	4,190
Other comprehensive (loss) income:
Foreign currency translation adjustment		1,711			(127	)
Comprehensive (loss) income	$	(5,671	)	$	4,063

The accompanying notes are an integral part of these Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss).

	Three Months Ended September 30, 2020														Three Months Ended March 31, 2021
	Number of Common Shares		Common Stock		Additional paid in capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings		Total Shareholders’ Equity		Number of Common Shares (in thousands)		Common Stock		Additional Paid in Capital			Accumulated Other Comprehensive (Loss) Income		Retained Earnings			Total Shareholders’ Equity
Balance at July 1, 2020		56,402,418	$	105,829	$	5,128		$	(547	)	$	28,321	$	138,731
Balance at January 1, 2021																66,912	$	145,668	$	17,502		$	6,255	$	35,858		$	205,283
Shares issued in public offering, net of issuance costs		9,396,226		35,275		—			—			—		35,275		10,887		127,489		—			—		—			127,489
Warrants issued in public offering		—		—		11,369			—			—		11,369
Shares issued on exercise of warrants																3,045		27,743		(10,080	)		—		—			17,663
Shares issued on exercise of stock options		161,166		206		(77	)		—			—		129		104		192		(67	)		—		—			125
Share-based compensation		—		—		472			—			—		472		243		—		1,998			—		—			1,998
Cumulative translation adjustment		—		—		—			31			—		31		—		—		—			1,711		—			1,711
Net income		—		—		—			—			520		520
Balance at September 30, 2020		65,959,810	$	141,310	$	16,892		$	(516	)	$	28,841	$	186,527
Net loss																—		—		—			—		(7,382	)		(7,382	)
Balance at March 31, 2021																81,191	$	301,092	$	9,353		$	7,966	$	28,476		$	346,887

Three Months Ended September 30, 2019

Number of
Common
Shares

Common
Stock

Additional
paid in
capital

Accumulated
Other
Comprehensive
Loss

Retained
Earnings

Total
Shareholders’
Equity

Balance at July 1, 2019

49,273,786

$
76,435

$
3,101

$
(482
)

$
32,138

$
111,192

Shares issued in public offering, net of issuance costs

—

(60
)

—

—

—

(60
)
Shares issued on exercise of stock options

31,216

109

(78
)

—

—

31

Share-based compensation

35,333

—

666

—

—

666

Cumulative translation adjustment

—

—

—

(22
)

—

(22
)
Net loss

—

—

—

—

(704
)

(704
)
Balance at September 30, 2019

49,340,335

$
76,484

$
3,689

$
(504
)

$
31,434

$
111,103

Nine Months Ended September 30, 2020

Number of
Common
Shares

Common
Stock

Additional
paid in
capital

Accumulated
Other
Comprehensive
Loss

Retained
Earnings

Total
Shareholders’
Equity

Balance at January 1, 2020

52,656,669

$
98,333

$
4,351

$
(475
)

$
24,250

$
126,459

Shares issued in public offering, net of issuance costs

12,989,976

42,569

—

—

—

42,569

Warrants issued in public offering

—

—

11,369

—

—

11,369

Shares issued on exercise of stock options

313,165

408

(157
)

—

—

251

Share-based compensation

—

—

1,329

—

—

1,329

Cumulative translation adjustment

—

—

—

(41
)

—

(41
)
Net income

—

—

—

—

4,591

4,591

Balance at September 30, 2020

65,959,810

$
141,310

$
16,892

$
(516
)

$
28,841

$
186,527

	Nine Months Ended September 30, 2019														Three Months Ended March 31, 2020
	Number of Common Shares		Common Stock		Additional paid in capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings		Total Shareholders’ Equity		Number of Common Shares (in thousands)		Common Stock		Additional Paid in Capital		Accumulated Other Comprehensive Loss			Retained Earnings		Total Shareholders’ Equity
Balance at January 1, 2019		47,642,672	$	60,872	$	2,198		$	(562	)	$	21,925	$	84,433
Balance at January 1, 2020																52,657	$	98,333	$	4,351	$	(475	)	$	24,250	$	126,459
Shares issued in public offering, net of issuance costs		1,000,000		13,866		—			—			—		13,866		3,594		7,323		—		—			—		7,323
Shares issued on exercise of stock options		83,998		224		(116	)		—			—		108
Share-based compensation		313,665		908		1,755			—			—		2,663		—		—		529		—			—		529
Shares issued on exercise of warrants		300,000		614		(148	)		—			—		466
Cumulative translation adjustment		—		—		—			58			—		58		—		—		—		(127	)		—		(127	)
Net income		—		—		—			—			9,509		9,509		—		—		—		—			4,190		4,190
Balance at September 30, 2019		49,340,335	$	76,484	$	3,689		$	(504	)	$	31,434	$	111,103
Balance at March 31, 2020																56,251	$	105,656	$	4,880	$	(602	)	$	28,440	$	138,374

The accompanying notes are an integral part of these Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity.

	Nine Months Ended September 30,						Three Months Ended March 31,
	2020			2019			2021			2020
Cash flows provided by (used in) operating activities:
Net income	$	4,591		$	9,509
Adjustments to reconcile net income to net cash provided by operating activities:
Cash flows used in operating activities:
Net (loss) income							$	(7,382	)	$	4,190
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		4,540			5,587			3,225			1,530
Amortization of deferred charges		57			57			78			19
Share of income from joint ventures		(4,885	)		(14,115	)
Share of loss (income) from joint ventures								127			(3,229	)
Interest expense		1,273			2,018			741			537
Interest income		(577	)		(651	)		(3	)		(383	)
Interest paid on long-term debt		(1,318	)		(2,013	)		(851	)		(538	)
Gain on settlement agreement		(4,681	)		—			—			(4,681	)
Loss (gain) on disposal of assets		6			(13,558	)
Loss on disposal of assets								—			6
Non-cash lease expense		(935	)		(778	)		(128	)		(271	)
Interest paid on finance leases		(3	)		(6	)
Interest paid on finance lease								—			(1	)
Share-based compensation		1,329			2,663			1,998			529
Deferred income taxes		(321	)		(749	)		(2,538	)		(468	)
Changes in non-cash working capital items		4,938			4,149			(9,703	)		2,225
Net cash provided by (used) in operating activities		4,014			(7,887	)
Net cash used in operating activities								(14,436	)		(535	)
Cash flows used in investing activities:
Purchases of property, plant and equipment, net of rebate		(1,076	)		(1,630	)
Purchases of property, plant and equipment								(4,706	)		(259	)
Advances to joint ventures		(133	)		(9,499	)		(5	)		—
Proceeds from sale of asset		—			52
Investment in joint ventures		(11,713	)		(13	)		—			(6,063	)
Investment in minority interests		(1,226	)		—			(500	)		—
Net cash used in investing activities		(14,148	)		(11,090	)		(5,211	)		(6,322	)
Cash flows from financing activities:
Cash flows provided by financing activities:
Proceeds from borrowings		3,000			3,000			4,176			2,000
Repayments on borrowings		(4,326	)		(3,591	)		(4,223	)		(875	)
Proceeds from issuance of common stock		46,388			13,868
Proceeds from issuance of common stock and warrants								135,000			7,957
Issuance costs		(3,819	)		—			(7,511	)		(633	)
Proceeds from exercise of stock options		251			109			125			—
Proceeds from exercise of warrants								17,663			—
Payments on capital lease obligations		(51	)		(69	)		(155	)		(21	)
Proceeds from exercise of warrants		11,369			466
Payment of note payable related to acquisition								(15,498	)		—
Net cash provided by financing activities		52,812			13,783			129,577			8,428
Effect of exchange rate changes on cash and cash equivalents		(1	)		—			178			(2	)
Net increase (decrease) in cash and cash equivalents		42,677			(5,194	)
Net increase in cash and cash equivalents								110,108			1,569
Cash and cash equivalents, beginning of period		11,989			11,920			25,679			11,989
Cash and cash equivalents, end of period	$	54,666		$	6,726		$	135,787		$	13,558

The accompanying notes are an integral part of these Condensed Consolidated Interim Statements of Cash Flows.

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

Village Farms International, Inc. (“VFF” ~~the parent company,~~) and together with its subsidiaries ~~the~~(the “Company”, “we”, “us”, or “our”) is incorporated under the Canada Business Corporation Act. VFF’s principal operating subsidiaries as of ~~September 30, 2020~~March 31, 2021 are Village Farms Canada Limited Partnership (“VFCLP”), Village Farms, L.P. (“VFLP”), ~~and~~ VF Clean Energy, Inc. (“VFCE”), and Pure Sunfarms Corp. (“Pure Sunfarms” or “PSF”). The address of the registered office of VFF is 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~~is recorded as an equity ~~investments~~investment (note 7)9).

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

The Company owns and operates sophisticated, highly intensive agricultural greenhouse facilities in British Columbia ~~(“B.C.”)~~ and Texas, where it produces, markets and sells premium-quality tomatoes, bell peppers, and cucumbers. The Company, through ~~its subsidiary VFCE, owns and operates a 7.0 MW power plant that generates electricity. The Company’s joint venture,~~ Pure Sunfarms, is a licensed producer and supplier of cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally. The ~~Company’s joint venture,~~Company, through its subsidiary VFCE, owns and operates a 7.0 MW power plant that generates electricity. VF Hemp ~~is a cultivator~~cultivated one crop season of high cannabidiol (“CBD”) hemp in multiple states throughout the United ~~States.~~

In March 2020, the World Health Organization declared the outbreak of the COVID-19 virus a global pandemic. This outbreak continues to cause 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 ~~and Canada have enacted temporary closures of businesses, issued quarantine or shelter-in-place orders and taken other restrictive measures~~ in ~~response to COVID-19.~~

To date, all of the Company’s operations are operating normally, however, the extent to which COVID-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.2017.

The accompanying unaudited Condensed Consolidated Interim Financial Statements for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for fair presentation have been included. Operating results for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 are subject to seasonal variations and accordingly are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021. For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal years ended December 31, ~~2019~~2020 and ~~2018.~~2019.

Other than as described below, there were no changes to our significant accounting policies described in our annual financial statements that had a material impact on our financial statements and related notes.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ~~Reporting.”~~ ~~The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance~~Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying ~~United States Generally Accepted Accounting Principles (“GAAP”)~~GAAP to ~~contracts, hedging relationships~~debt instruments, derivatives, and other ~~transactions affected by reference rate reform if certain criteria are met. The amendments apply only to~~ contracts ~~and hedging relationships~~ that reference ~~London Interbank Offered Rate (“LIBOR”)~~LIBOR or ~~another~~other reference ~~rate~~rates expected to be discontinued ~~due to~~as a result of reference rate reform. ~~These amendments are effective immediately~~This guidance is optional and may be ~~applied prospectively to contract modification made and hedging relationships entered into or evaluated on or before~~elected through December 31, ~~2022.~~2022 using a prospective application on all eligible contract modifications. The Company ~~believes this guidance will not~~has a line of credit that incorporates LIBOR as a referenced interest rate. It is difficult to predict what effect, if any, the phase-out of LIBOR and the use of alternative benchmarks may have ~~a material impact on its financial statements.~~

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

~~In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement~~.” ASU 2018-13 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 unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at 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 ASU 2018-13 on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s ~~consolidated~~business or on the overall financial ~~statements and related disclosures.~~

~~In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses~~.”markets. 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 amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectabilityCompany has not adopted any of the ~~reported amount. The Company adopted ASU 2016-13 on January 1, 2020. The~~optional expedients or exceptions through March 31, 2021 but will continue to evaluate the possible adoption of ~~this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.~~

~~Inventories, consisting of crop inventory, purchased produce inventory and spare parts inventory, are valued at the lower of cost~~any such expedients 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.

Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is allocated between cost of sales and selling, general and administrative expenses depending on the type of asset and is determined using the straight-line method over the estimated useful lives of the assets. Land is not depreciated. 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. The estimated useful lives of the class of assets for the current and comparative periods are as follows:

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

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

Classification	September 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Land	$	3,204		$	3,204		$	10,534		$	10,447
Leasehold and land improvements		3,820			3,820			4,158			4,154
Greenhouses and other buildings		72,902			72,772
Buildings								143,163			142,060
Machinery and equipment		62,770			61,871			70,080			69,390
Construction in progress		1,568			1,697			59,773			52,960
Less: Accumulated depreciation		(84,601	)		(80,206	)		(95,125	)		(91,991	)
Property, plant and equipment	$	59,663		$	63,158
Property, plant and equipment, net							$	192,583		$	187,020

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

The expected future amortization expense for definite-lived intangible assets as of March 31, 2021 was as follows:

The Company leases a parcel of land in Marfa, Texas that one of its greenhouses resides on as well as two distribution centers located in Fort Worth, Texas and Surrey, British Columbia. The Company ~~also~~ leases ~~production related~~production-related equipment at its greenhouses in Texas and British Columbia. ~~In January 2020, the~~The Company ~~commenced leasing of~~also leases an office building located in Lake Mary, Florida for its corporate headquarters.

	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2020		2019		2020		2019		2021		2020
Operating lease expense ^(a)	$	533	$	588	$	1,649	$	1,762	$	622	$	608
Finance lease expense:
Amortization of right-of-use assets	$	12	$	20	$	51	$	60	$	11	$	21
Interest on lease liabilities		1		2		3		6		—		1
Total finance lease expense	$	13	$	22	$	54	$	66	$	11	$	22

	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2020		2019		2020		2019		2021		2020
Operating cash flows from operating leases	$	308	$	256	$	935	$	778	$	128	$	271
Operating cash flows from finance leases	$	1	$	2	$	3	$	6	$	-	$	1
Finance cash flows from finance leases	$	12	$	21	$	51	$	69	$	155	$	21

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

On June 6, 2017, the Company entered into an agreement to form Pure Sunfarms, a B.C. corporation, with Emerald Health Therapeutics Inc. (“Emerald”). The purpose of Pure Sunfarms is to produce, market and distribute cannabis in Canada and internationally.

~~The Company accounts for its investment in Pure Sunfarms, in accordance with 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 interest, the Company shares joint control of the Board of Directors and therefore is not the primary beneficiary. The Company’s maximum exposure to loss as a result of its involvement with Pure Sunfarms as of September 30, 2020 relates primarily to the Company’s investment of $63,164 and the recovery of the outstanding loan to Pure Sunfarms of $10,954.

The Company is required to apply the hypothetical liquidation at book value (“HLBV”) 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 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 58.7% and 56.1% of Pure Sunfarms’ earnings for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, the Company received 57.8% and 60.1% of Pure Sunfarms’ earnings, respectively.

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 a non-cash transaction, and it was estimated that the fair value of the land, building and other assets was $18.7 million (CA$25.0 million) at the date of contribution. The Company recognized a gain of $13.6 million on the contribution of the fixed assets.

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

On ~~March~~November 2, 2020, ~~pursuant to the settlement~~Village Farms consummated a definitive purchase and sale agreement with Emerald ~~(the “Settlement Agreement”~~Health Therapeutics Inc. (“Emerald”), acquiring 36,958,500 common shares in the capital of Pure Sunfarms owned by Emerald, ~~transferred~~and increasing Village Farms’ ownership of Pure Sunfarms to 100%. The shares were acquired for a total purchase price of C$79.9 million (US$60.0 million), satisfied through an initial C$60.0 million (US$45.0 million) cash payment and a C$19.9 million (US$15.0 million) secured promissory note that was payable to Emerald, which promissory note was repaid in full on February 8, 2021.

The acquisition was a business combination and has been accounted for in accordance with the measurement and recognition provisions of Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (ASC Topic 850”). ASC Topic 805 requires that the purchase consideration be allocated to the ~~Company 2.5%~~assets acquired and liabilities assumed in a business combination based upon their estimated fair values at the date of ~~additional equity in Pure Sunfarms.~~acquisition. The purchase price has been allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The Company used information available to make fair value determinations and engaged independent valuation specialists to assist in the fair value determination of acquired intangible assets. The estimated fair value of licenses was determined using a multi-period excess earnings method. This earnings-based method considers the 85 net present value of the licenses’ cash flows discounted at an asset specific discount rate. The net present value attributable to the licenses deducts the contributory asset charges used in connection with the licenses. The estimated fair value of the brand was determined using the relief-from-royalty method. This method assumes that the brand has value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires the Company to estimate the future revenues for the related brand, the appropriate royalty rate, and an asset specific discount rate. This measure of fair value requires considerable judgment about the value a market participant would be willing to pay to achieve the benefits associated with the brand. Acquired property, plant and equipment and software was valued using the replacement cost method, which requires the Company to estimate the costs to construct an asset of equivalent utility at prices available at the time of the valuation analysis, with adjustments in value for physical deterioration and functional and economic obsolescence. Upon the acquisition of Pure Sunfarms, the Company identified goodwill of C$30,618 (US$24,314). This goodwill was calculated as the difference between the fair value of the ~~equity received from Emerald~~consideration issued for the acquisition of Pure Sunfarms and the fair value of all assets and liabilities acquired. The goodwill is attributable to ~~be $4.7 million (CA$6.5 million).~~the acquired workforce and potential for growth through the conversion of the Delta 1 greenhouse facility and future accretive acquisitions. The Company ~~recorded this amount as~~is required to record a deferred tax liability for the difference between the assigned values and the tax bases of assets acquired and liabilities assumed. None of the goodwill is deductible for tax purposes. As a result of the acquisition, the Company also recognized a gain ~~on settlement agreement in~~of $23.6 million due to the ~~Condensed Consolidated Interim Statement~~revaluation of ~~Income (Loss) and Comprehensive Income (Loss) for the nine months ended September 30, 2020.~~

~~As of September 30, 2020, and December 31, 2019, the total~~its previously held investment in Pure Sunfarms ~~of $63.2 million and $41.3 million, respectively,~~to its fair value at the acquisition date. The initial accounting for the business combination was ~~recorded in~~considered complete for the ~~consolidated statements of financial position.~~year ended December 31, 2020.

The ~~Company’s share~~following table shows the allocation of the ~~joint venture consisted~~purchase price to assets acquired and liabilities assumed, based on estimates of fair value, including a summary of the ~~following:~~

~~Summarized financial information~~identifiable classes of ~~Pure Sunfarms:~~consideration transferred, and amounts by category of assets acquired and liabilities assumed at the acquisition date:

September 30,
2020

December 31,
2019

Current assets

Cash and cash equivalents

$
6,751

$
7,356

Trade receivables

13,543

8,687

Inventory

33,676

21,745

Other current assets

5,759

6,964

Non-current assets

115,720

108,652

Current liabilities

Trade payables

(3,422
)

(4,938
)
Borrowings due to joint ventures

(11,022
)

(26,413
)
Income taxes payable

—

(8,489
)
Borrowings – current

(2,291
)

(1,423
)
Other current liabilities

(10,156
)

(5,021
)
Non-current liabilities

Borrowings – long term

(23,709
)

(13,089
)
Deferred tax liabilities

(13,742
)

(2,473
)
Net assets

$
111,107

$
91,558

Reconciliation of net assets:

Accumulated retained earnings

$
36,091

$
26,679

Contributions from joint venture partners

75,738

63,481

Currency translation adjustment

(722
)

1,398

Net assets

$
111,107

91,558

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

Three months ended September 30,

Nine months ended September 30,

2020

2019

2020

2019

Sales

$
17,048

$
18,084

$
39,571

$
53,128

Cost of sales*

(11,154
)

(5,689
)

(23,678
)

(13,463
)
Gross Margin

5,894

12,395

15,893

39,665

Selling, general and administrative expenses

(2,447
)

(2,830
)

(6,731
)

(5,616
)
Income from operations

3,447

9,565

9,162

34,049

Interest expense

(386
)

(302
)

(734
)

(596
)
Foreign exchange (loss) gain

(56
)

14

(207
)

28

Other income, net**

(131
)

8

4,202

22

Income before taxes

2,874

9,285

12,423

33,503

Provision for income taxes

(417
)

(2,600
)

(3,012
)

(9,397
)
Net Income

$
2,457

$
6,685

$
9,411

$
24,106

Consideration paid	Shares		Share Price		Amount
Cash					$	45,259
Promissory note						15,011
Shareholder loan						4,529
Promissory note owed to PSF from Emerald						439
Due to related party						61
Fair value of previously held investment shares held by Village Farms		52,569,197	$	1.767		92,881
Total fair value of consideration					$	158,180

~~On February 27, 2019,~~ the Company entered into a joint venture with Nature Crisp, LLC (“Nature Crisp”) to form VF Hemp for the objective of outdoor cultivation of high percentage cannabidiol (“CBD”) hemp and CBD extraction in multiple states throughout the United States. VF Hemp is 65% owned by the Company and 35% owned by Nature Crisp. Under the terms of the VF Hemp Joint Venture Agreement, the Company will lend up to approximately $15 million to VF Hemp for start-up costs and working capital.

~~The Company accounts~~accounted for its investment in ~~VF Hemp,~~Pure Sunfarms, in accordance with ASC Topic 323,Equity Method and Joint Ventures (“ASC Topic 323”), using the equity ~~method~~method. The Company determined that Pure Sunfarms was a variable interest entity (“VIE”), however the Company did not consolidate Pure Sunfarms because the Company iswas not the primary beneficiary. Although the Company was able to exercise significant influence over the operating and financial policies of ~~VF Hemp~~Pure Sunfarms through its ~~65% ownership~~then 58.7% majority interest, the Company shared joint control of the board of directors and ~~joint power arrangement with Nature Crisp.~~therefore was not the primary beneficiary. For the three months ended March 31, 2020, the Company’s equity earnings from Pure Sunfarms were $3,531.

On March 2, 2020, pursuant to the Settlement Agreement, Emerald transferred to the Company 2.5% of additional equity in Pure Sunfarms. The ~~Company’s maximum exposure~~Company determined the fair value of the equity received from Emerald to ~~loss~~be C$6.5 million (US$4.7 million). The Company recorded this amount as a ~~result~~gain and included it as a gain on settlement agreement on the Condensed Consolidated Statement of ~~its involvement with VF Hemp is directly related to~~Income (Loss) and Comprehensive Income (Loss) for the ~~recovery of the $10,713 loan outstanding to VF Hemp.~~three months ended March 31, 2020.

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

September 30, 2020

December 31, 2019

Current assets

Inventory

$
9,268

$
9,308

Other current assets

242

546

Non-current assets

989

1,476

Current liabilities

(1,433
)

(1,788
)
Non-current liabilities

(13,697
)

(13,323
)
Net assets

$
(4,631
)

$
(3,781
)
Reconciliation of net assets:

Accumulated retained earnings

$
(3,791
)

$
(3,791
)
Net loss for the nine months ended September 30, 2020

(850
)

—

Contributions from joint venture partners

10

10

Net assets

$
(4,631
)

$
(3,781
)

	Three months ended			Three months ended
	March 31, 2021			March 31, 2020
Sales	$	17,459		$	13,137
Cost of sales*		(12,322	)		(6,258	)
Gross Margin		5,137			6,879
Selling, general and administrative expenses		(5,119	)		(2,434	)
Income from operations		18			4,445
Interest expense		(372	)		(217	)
Foreign exchange loss		(149	)		(179	)
Other income, net**		(50	)		4,332
Income before taxes		(553	)		8,381
Recovery of (provision for) income taxes		149			(2,216	)
Net income	$	(404	)	$	6,165

In July 2020, the Company invested $226, for an approximately 16% minority interest ownership in DutchCanGrow Inc. (“DCG”), a Netherlands-based cannabis enterprise. DCG is pursuing the opportunity to become one of a limited number of licensed cannabis growers (up to a maximum of 10) when the Dutch government permits the first legal recreational cannabis market in Europe under its 10-city Experiment to Investigate Closed Cannabis Supply Chains.

In August 2020, the Company invested $1,000 for a 6.6% minority interest ownership in Australia-based Altum International Pty Ltd (“Altum”), with an option to increase its ownership in Altum on similar terms. Altum is a cannabinoid platform with a focus on the distribution and marketing of CBD products in the Asia-Pacific region.

~~At September 30,~~** Includes gain recognized on settlement of net liabilities of $4,348.

For the three months ended March 31, 2021 and 2020, the ~~Company had~~Company’s equity losses from VF Hemp were ($127) and ($302), respectively. The Company’s maximum exposure to loss as a ~~term~~result of its involvement with VF Hemp is directly related to the recovery of the $3,423 loan ~~financing agreement with a Canadian creditor (“FCC Loan”). The non-revolving variable rate term loan has a maturity date of April 1, 2025 and a balance of $29,182 as of September 30, 2020. The~~ outstanding ~~balance is repayable by way of monthly installments of principal and interest, with the balance and any accrued interest~~ to be paid in full on April 1, 2025. Effective August 1, 2020, monthly principal payments were reduced to $164 from $257. As of September 30, 2020, and December 31, 2019, borrowings under the FCC Loan agreement were subject to an interest rate of 4.388% and 6.391%, respectively.VF Hemp.

The Company’s subsidiary VFCE has a loan agreement with a Canadian Chartered Bank that includes a non-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 September 30, 2020, and December 31, 2019, the balance was US$830 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 behalfshare of the ~~Company, with a maximum term~~joint venture consisted 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 September 30, 2020, and December 31, 2019, the ~~balance was US$75 and US$106, respectively.~~following:

~~The weighted average interest rate on short-term borrowings as of September 30, 2020 and December 31, 2019 was 4.5% 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 September 30, 2020, and December 31, 2019, the amount drawn on this facility was US$3,000 and US$2,000, respectively.

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

~~The Company’s borrowings (“Credit Facilities”) are subject to certain positive and negative covenants, including debt ratios, and~~

In February 2021, the Company ~~is required~~exercised a portion of its option 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 FCC Loan.~~make an additional equity investment in Australia-based Altum International Pty Ltd (“Altum”). The Company ~~amended~~exercised 204,000 options at $2.45 per option increasing its ownership to just under 10.0%.

The carrying value of the ~~terms~~assets and securities pledged as collateral for the FCC Loan as of ~~its covenants with respect to its term loan in August, effective June 30, 2020, applicable to its annual fiscal year end~~March 31, 2021 and December 31, ~~2020. As~~2020 was $207,762 and $86,664, respectively.

The carrying value of ~~September 30,~~the assets pledged as collateral for the Operating Loan as of March 31, 2021 and December 31, 2020 ~~the~~was $25,033 and $23,443, respectively.

The Company, excluding Pure Sunfarms’ borrowings, was in compliance with all of its ~~other~~credit facility covenants as of March 31, 2021.

Pure Sunfarms is required to comply with financial covenants, ~~under its Credit Facilities.~~measured quarterly. As of March 31, 2021, Pure Sunfarms was in compliance with the financial covenants.

The weighted average interest rate on short-term borrowings as of March 31, 2021 and December 31, 2020 was 4.95%and 5.11%, respectively.

Accrued interest payable on the Credit Facilities and loans as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was ~~$29~~$177 and ~~$162,~~$189, respectively, and these amounts are included in accrued liabilities in the interim statements of financial position.

As collateral for the FCC Loan, the Company has provided promissory notes, a first mortgage on the VFF-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 September 30, 2020 and December 31, 2019 was $215,581 and 155,548, respectively.

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 September 30, 2020 and December 31, 2019 was $25,799 and $24,915, respectively.

The aggregate annual maturities of long-term debt for the ~~next five years~~remainder of 2021 and thereafter are as follows:

Remainder of 2020	$	605
2021		2,420
Remainder of 2021			$	5,311
2022		2,407		8,001
2023		2,216		7,618
2024		2,054		26,286
2025				22,300
Thereafter		21,734		3,524
Total	$	31,436	$	73,040

The ~~Company records accounts receivable, accounts payable,~~Company’s financial instrumentsinclude cash and cash equivalents, trade receivables, note receivables, minority investments, trade payables, accrued liabilities, lease liabilities, note payables and ~~debt at amortized cost.~~debt. The carrying ~~values~~value of ~~these instruments~~cash and cash equivalents, trade receivables, trade payables, and accrued liabilities approximate their fair ~~value~~values due to the short-term maturity of these financial instruments. The carrying value of lease liabilities, notes payable, and debt approximate their ~~short-term maturities.~~fair values due to insignificant changes in credit risk. For its minority investments, the Company has elected 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.

On July 5, 2018, the Company entered into a Shareholder Loan Agreement (the “Loan Agreement”) with Pure Sunfarms, whereby, as of September 30, 2020, the Company had contributed $9,959 (CA$13,000) in the form of a demand loan to Pure Sunfarms. As of September 30, 2020, the loan amount bears simple interest at the rate of 4.2% per annum, calculated semi-annually. Interest will accrue and be payable upon demand. The balance of the loan, including interest, was $10,840 as of September 30, 2020.

On February 13, 2019, the Company announced that Pure Sunfarms had entered into a credit agreement with Bank of Montreal, as agent and lead lender, and Farm Credit Canada, as lender, respect of a CA$20 million secured non-revolver term loan (“Credit Facility”). Each component of the Credit Facility matures on February 7, 2022, is secured by the Delta 3 facility, and contains customary financial and restrictive covenants. As a pre-condition to complete the debt facility, the Company made an additional contribution of CA$8.0 (US$5.7) million in Pure Sunfarms, further increasing its majority ownership of Pure Sunfarms to 58.7% from 57.4%. 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 with the Credit Facility. On November 2, 2020, in conjunction with the closing of the acquisition of the remaining shares of Pure Sunfarms, Pure Sunfarms expanded the Credit Facility to CA$59.0 million, including accordion provisions of CA$22.5 million, and the Company increased its guarantee to a total of CA$20 million.

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

As of September 30, 2020, the Company had $114 due from its joint venture, Pure Sunfarms, primarily for consulting services and the reimbursement of expenses which mainly occurred in the year. 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 (US$4,554) refund.

On March 25, 2019, the Company entered into a Grid Loan Agreement (the “Grid Loan”) with VF Hemp. The Grid Loan has a maturity date of March 25, 2022 and bears simple interest at the rate of 8% per annum, calculated monthly. As of ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019~~2020, the Grid Loan balance was ~~$10,713~~ $3,423and ~~$10,865,~~$3,545, respectively.

One of the Company’s employees is related to a member of the Company’s executive management team and received approximately ~~$84~~$37 and ~~$86~~$28 in salary and benefits during the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

During ~~the nine months ended September 30,~~ 2020, the Company had advanced $249 to an employee in connection with a relocation at the request of the Company. AsDuring the three months ended March 31, 2021, the employee repaid $124 of ~~September 30, 2020, this amount was included in other assets on~~ the ~~Condensed Consolidated Interim Statement~~outstanding loan balance. The remaining balance will be forgiven following one year of ~~Financial Position.~~

~~Summarized below are~~service with the ~~amounts due from the joint ventures, including interest and included in the interim statements of financial position:~~

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 ~~nine~~three months ended ~~September 30, 2020 and September 30, 2019~~March 31, 2021 was 26% compared to 24%. for the three months ended March 31, 2020.

The recovery of income taxes was ~~$607~~$1,839 for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$114~~ $1,012for the ~~nine~~three months ended ~~September 30, 2019. The income tax provision for September 30, 2019 includes deferred tax liabilities arising from the contribution~~March 31, 2020.

(In thousands of ~~the Delta 2 assets to Pure Sunfarms.~~United States dollars, except per share amounts, unless otherwise noted)

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~~3 segments. The Company’s three segments include ~~the~~Cannabis, Produce ~~business, the Energy business~~ and ~~the Company’s~~Energy. The Cannabis segment produces and supplies cannabis products to be sold to other licensed providers and ~~hemp segment.~~provincial governments across Canada and internationally. 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 business refer to Note 7 – Investments in Joint Ventures and Minority Interests.~~

~~(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 September 30,						Nine months ended September 30,						Three months ended March 31,
	2020			2019			2020			2019			2021			2020
Sales
Produce	$	42,939		$	37,806		$	122,356		$	110,468		$	34,867		$	31,962
Energy – Canada		98			487			366			1,044
Cannabis														17,460			—
Energy														69			150
	$	43,037		$	38,293		$	122,722		$	111,512		$	52,396		$	32,112
Gross margin
Produce	$	5,828		$	(500	)	$	10,494		$	(2,499	)	$	717		$	943
Energy – Canada		(209	)		(111	)		(581	)		(407	)
Cannabis														2,212			—
Energy														(622	)		(178	)
	$	5,619		$	(611	)	$	9,913		$	(2,906	)	$	2,307		$	765

Basic and diluted net income (loss) per ordinary share is calculated as follows:

Three months ended September 30,

Nine months ended September 30,

2020

2019

2020

2019

Numerator:

Net (loss) income

$
520

$
(704
)

$
4,591

$
9,509

Denominator:

Weighted average number of common shares - Basic

58,536

48,845

55,946

48,650

Effect of dilutive securities- share-based employee options
and awards

1,904

—

1,832

1,801

Weighted average number of common shares - Diluted

60,440

48,845

57,778

50,451

Antidilutive options and awards

865

310

865

310

Net (loss) income per ordinary share:

Basic

$
0.01

$
(0.01
)

$
0.08

$
0.20

Diluted

$
0.01

$
(0.01
)

$
0.08

$
0.19

On September 10, 2020 the Company closed a registered direct offering with certain institutional investors for the purchase and sale of an aggregate of 9,396,226 units at a purchase price of $5.30 per unit for gross proceeds of approximately $49.8 million before placement agent fees and other offering expenses.

Each unit that was sold consists of one common share of the Company and a one-half (0.5) of a warrant to purchase a common share of the Company at an exercise price of $5.80. The warrants will be exercisable beginning on March 10, 2021 and will expire on September 10, 2025. ASC 480, ~~Distinguishing Liabilities from Equity, requires that these warrants are classified as equity. The fair value of these warrants was determined using the Black-Scholes Merton valuation model.~~

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

On January 20, 2021, the Company closed a registered direct offering with certain institutional investors for the purchase and sale of an aggregate of 10,887,097 common shares at a purchase price of $12.40per common share for gross proceeds of approximately $135 millionbefore placement agent fees and other offering expenses.

On September 10, 2020, the Company sold 9,396,226 units through a registered direct offering. Each unit that was sold consisted of one common share of the Company and one-half (0.5) of a warrant to purchase a common share of the Company at a price of $5.80. On March 10, 2021, the warrants became exercisable and will expire on September 10, 2025. As of March 31, 2021, 3,045,283 of the warrants have been exercised.

Share-based compensation expense for the three months ended March 31, 2021 and 2020 was $1,998 and $529, respectively.

Stock option activity for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 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

661,488

CA$

6.65

9.87

$
—

Exercised

(273,165
)

CA$

1.27

1.76

$
—

Forfeited

(36,666
)

CA$

7.06

—

$
—

Outstanding at September 30, 2020

2,804,323

CA$

5.83

6.31

$
6,120

Exercisable at September 30, 2020

1,726,839

CA$

3.65

4.51

$
6,100

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2021		3,067,322		C$	6.91		6.82	$	20,051
Exercised		(104,000	)	C$	1.40		0.00	$	—
Outstanding at March 31, 2021		2,963,322		C$	7.10		6.72	$	28,661
Exercisable at March 31, 2021		1,717,501		C$	5.45		4.90	$	19,490

Performance-based shares activity for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was as follows:

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 can be reasonably estimated. 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 the operations.

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

March 31, 2021, Pure Sunfarms had a commitment of $1,000 in the event of a service agreement break up.

On ~~November 2, 2020,~~May 7, 2021, the Company ~~consummated~~entered into an Amended and Restated Credit Agreement with Bank of Montreal, which among other things, reduces the ~~previously announced definitive purchase~~revolving commitment to a maximum of $10,000 less letters of credit, and ~~sale agreement with Emerald, acquiring 36,958,500 common shares in~~extends the capital of Pure Sunfarms owned by Emerald, and increasing the Company’s ownership of Pure Sunfarms to 100%. The shares were acquired for a total purchase price of C$79.9 million (US$60.0 million), satisfied through a C$60.0 million (US$45.0 million) cash payment and a C$19.9 million (US$14.5 million) secured promissory note payable to Emerald due on May 2, 2021 (the “Pure Sunfarms Acquisition”).

~~In connection with the Pure Sunfarms Acquisition, the previous shareholders’ agreement dated as of June 6, 2017, by and between the Company and Emerald was terminated as at the closing date~~terms of the ~~Pure Sunfarms Acquisition and certain intellectual property was assigned~~agreement to Pure Sunfarms and licensed to Emerald. Pure Sunfarms’ management and employees became part of the Company as of the closing date of the Pure Sunfarms Acquisition, and the Company will begin fully consolidating the financial results of Pure Sunfarms as a wholly owned subsidiary as of November 2, 2020. The transaction will be immediately accretive to the Company’s net income.May 7, 2024.

For Q3 2020, the financial statements of the Company continue to reflect the 58.7% ownership held prior to the Pure Sunfarms Acquisition. For summarized financial information of Pure Sunfarms refer to Note 7.

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 September 30, 2019 figures are based on the Company’s recently restated U.S. Generally Accepted Accounting Principles (“GAAP”) results filed on Form 8-K on April 22, 2020 and not the Company’s financial statements, prepared in accordance with International Accounting Standard 34 – Interim Financial Reporting as issued by the International Accounting Standards Board, filed in August 2019. 2020.This discussion and analysis contain 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. In particular, we encourage you to review the risks and uncertainties described in “Risk Factors” in Part I, Item 1A in the Annual Report on Form 10-K for the year ended December 31, 2020. 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. See “Forward-Looking Statements”.

~~Through our subsidiary,~~Village Farms International, Inc. (“VFF”), the ~~British Columbia-based Pure Sunfarms Corp. (“PSF”~~parent company, together with its subsidiaries (collectively, the “Company”, “Village Farms”, “we”, “us”, or ~~“Pure Sunfarms”~~“our”), we have one of the single largest cannabis growing operations in the world. On November 2, 2020, we completed the acquisition of the remaining 41.3% interest in Pure Sunfarms from Emerald Health Therapeutics, Inc. (“Emerald”), following which we became the 100% owner of Pure Sunfarms (the “Pure Sunfarms Transaction”). See “Acquisition of Remaining Interest in Pure Sunfarms” below. 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. ~~Further,~~Following our acquisition of the remaining 41.3% interest in British Columbia-based Pure Sunfarms Corp. (“Pure Sunfarms” or “PSF”) that was completed on November 2, 2020 (the “Pure Sunfarms Acquisition”), we ~~have joint venture~~now own one of the single largest cannabis growing operations in ~~hemp~~the world, one of the lowest-cost greenhouse producers and ~~high cannabidiol (“CBD”) products and investments~~one of the best-selling brands in ~~cannabis opportunities in Asia and Holland.~~

Canada. Pure Sunfarms ~~has leveraged~~leverages our 30 years of experience as a vertically integrated greenhouse ~~produce~~ grower for the rapidly ~~emerging~~developing cannabis opportunity ~~following legalization of cannabis~~ in Canada. Pure Sunfarms is currently one of the largest producers of cannabis in Canada with distribution in five ~~of the six largest provinces. Its~~Canadian provinces: British Columbia, Ontario, Alberta, Saskatchewan, and Manitoba. Our long-term objective for Pure Sunfarms is to be the leading low cost, high quality cannabis producer in ~~Canada and internationally.~~Canada.

In our ~~produce~~ greenhouse operations, we produce ~~market~~ and ~~sell~~distribute fresh, premium-quality produce with consistency 365 days a year ~~to national grocers in the United States (“U.S.”) and Canada~~ from more than eight million square feet of Controlled Environment Agriculture (“CEA”) greenhouses in British Columbia (“B.C.”) and Texas, as well as from our partner greenhouses in B.C., Ontario, and Mexico.

~~We are pursuing opportunities~~ The Company primarily markets and distributes under its Village Farms® brand name to ~~become a vertically integrated leader in the U.S. hemp-derived CBD market, subject to compliance with all applicable U.S. federal~~retail supermarkets and state laws and will pursue controlled environment hemp production at one of our Texas greenhouse operations, once the current CBD regulatory environment becomes clearer due to the restrictive rulings of the Food and Drug Administration, U.S. Department of Agriculture and U.S. Drug Enforcement Administration. Our U.S. multi-state outdoor cultivation business is operated through our 65% interest in Village Fields Hemp USA, LLC (“VF Hemp” or “VFH”) in multiple statesdedicated fresh food distribution companies throughout the United ~~States.~~States and Canada.

~~Our~~The Company, through its subsidiary VF Clean Energy, Inc. (“VFCE”), owns and operates a ~~7.0 MW~~7.0-megawatt power plant from landfill gas that generates ~~electricity.~~electricity and provides thermal heat, in colder months, to one of the Company’s adjacent B.C. greenhouse facilities and sells electricity to British Columbia Hydro and Power Authority (“BC Hydro”). On November 10, 2020 we announced we will be transitioning this operation to a ~~Renewable Natural Gas~~renewable natural gas facility (“~~RNG”~~Delta RNG Project”) ~~operation~~ in conjunction with Mas Energy, LLC (“Mas Energy”) which ~~will~~is expected to enhance our financial return as well as provide food-grade CO₂ ,CO2, which can be used in both our cannabis and produce growing operations in Delta, B.C.

InThe Company entered the ~~third quarter of 2020, the Company acquired minority interests in two international companies, DutchCanGrow (“DCG”)~~U.S. hemp business in the ~~Netherlands~~spring of 2019 after the passing of the 2018 Farm Bill. We established a joint venture, Village Fields Hemp USA, LLC (“VFH”), for multi-state outdoor hemp cultivation and ~~Asia-based~~cannabidiol (“CBD”) extraction, and initiated plans to pursue controlled environment hemp production at our Texas greenhouse operations.

Internationally, we evaluate, and target select, nascent, legal cannabis and CBD opportunities with significant long-term potential, with an initial focus on the Asia-Pacific region through our investment in Australia-based Altum International Pty Ltd (“Altum”)~~, in order to leverage our experience and expand into international cannabis and CBD opportunities.~~

On September 8, 2020, we entered into a purchase agreement (the “Purchase Agreement”) with Emerald to purchase from Emerald 36,958,500 common shares in the capital of Pure Sunfarms, representing 41.3% of the issued and outstanding common shares of Pure Sunfarms and all of the remaining common shares of Pure Sunfarms not held by the Company. On November 2, 2020, we consummated the Pure Sunfarms Transaction for a total aggregate purchase price of C$79.9 million (US$60.0 million), satisfied through a C$60.0 million (US $45.0 million) cash payment and a C$19.9 million (US$14.5 million) secured promissory note payable to Emerald due on May 2, 2021 (the “Promissory Note”). Interest on the principal amount owed under the Promissory Note will accrue at the lower of (i) the maximum non-usurious rate of interest under applicable law or (ii) 12% per annum. In order to secure our obligations under the Promissory Note, on November 2, 2020, we entered into a share pledge agreement (the “Share Pledge Agreement”) with Emerald and Computershare Trust Company of Canada, as collateral agent, in order to pledge 9,239,625 common shares of Pure Sunfarms to Emerald as collateral for the amounts owed by us under the Promissory Note. Also, on November 2, 2020, in connection with the consummation of the Pure Sunfarms Transaction, the Company and Emerald terminated the shareholders

~~agreement, dated as of June 6, 2017, by and between the Company and Emerald, which had governed the business and affairs of Pure Sunfarms.~~

The Purchase Agreement contains representations and warranties customary for transactions of this nature negotiated between sophisticated purchasers and sellers acting at arm’s length, certain of which are qualified as to materiality and knowledge and subject to reasonable exceptions. Subject to certain exceptions, the representations and warranties of the Company and Emerald in the Purchase Agreement will survive for a period of 18 months from the closing date of the Pure Sunfarms Transaction. Certain “fundamental” representations, however, will survive the closing of the Pure Sunfarms Transaction for a period of six years.

Pursuant to the Purchase Agreement, each of the Company and Emerald have agreed, following closing, to indemnify the other party and its affiliates against any loss arising from a breach of a representation, warranty, or covenant given by the Company or Emerald, respectively, under the Purchase Agreement. The indemnity is subject to certain limitations, including that neither the Company nor Emerald are required to indemnify the other party unless and until losses exceed C$500,000, at which point Village Farms or Emerald, as the case may be, will be entitled to recover the full amount of such losses from the first dollar. The indemnity is also capped at 100% of the purchase price under the Purchase Agreement and no party is liable for any losses resulting from any breach of any representation or warranty in the Purchase Agreement if the party seeking indemnification knew about the inaccuracy or breach before closing.

In addition, the Company and Emerald entered into a non-solicitation agreement on the closing date of the Pure Sunfarms Transaction pursuant to which Emerald has agreed not to solicit or hire any employees of Pure Sunfarms or the Company for a period of three years following the closing date, subject to customary exceptions.

On ~~September 10, 2020, we~~January 20, 2021, Village Farms completed a registered direct offering ~~(the “Registered Direct Offering”)~~with certain institutional investors for the purchase and sale of ~~9,396,226 units (each,~~an aggregate 10,887,097 Common Shares at a ~~“Unit”), with each Unit consisting~~purchase price of ~~one common share in the capital stock of the Company (each, a “Common Share”) and 0.50 of a warrant to purchase one~~$12.40 (approximately C$15.70) per Common Share ~~(each, a “Warrant”). Each Unit was sold at a public offering price~~for gross proceeds of ~~$5.30 per Unit. The Warrants included in the Units will initially be exercisable on March 10, 2021, at an exercise price of $5.80 per share, subject to adjustment in certain circumstances,~~approximately $135 million (approximately C$171 million) before placement fees and ~~will expire five years from the date of issuance (subject to the call right provided for in the Warrants).~~

The net proceeds to the Company after deducting placement agent fees were approximately $46.8 million, excluding the proceeds, if any, from the exercise of the Warrants, and prior to deducting estimatedother offering expenses payable by ~~the Company. We used approximately $37.5 million of the net proceeds from the Registered Direct Offering to finance the Pure Sunfarms Transaction.~~Village Farms.

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

In March 2020, the World Health Organization declared the outbreak of the COVID-19 virus a global pandemic. This outbreak continues to cause 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 and Canada have enacted temporary closures of businesses, issued quarantine or shelter-in-place orders, and taken other restrictive measures in response to COVID-19.

To date, all of our operations are operating normally, however, the extent to which COVID-19 and the related global economic crisis affect our 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. We continue to service our customers amid uncertainty and disruption linked to COVID-19 and we are actively managing our business to respond to the impact.

On February 5, 2021, Village Farms repaid in full the Promissory Note of C$19,900 plus accrued interest of C$622 to Emerald Health Therapeutics, Inc. (”Emerald”), that was issued in conjunction with the Purchase Agreement on September 8, 2020. The Company no longer owes any amounts to Emerald with respect to the Pure Sunfarms Transaction and the previously pledged 9,239,625 Common Shares of Pure Sunfarms have been released to the Company by the collateral agent.

Village Farms was added to the S&P/TSX Composite Index (Consumer Staples sector) prior to trading on March 22, 2021. The S&P/TSX Composite Index is the headline index for the Canadian equity market and is the broadest index in the S&P/TSX family. We believe that inclusion in the S&P/TSX Composite Index can potentially broaden participation in the Company's investor base by enabling investments from index funds and similar investment vehicles.

In the first quarter of 2021, warrants issued as part of the September 2020 registered direct offering were exercised, resulting in proceeds to the Company of $17,663 and the issuance of 3,045,283 additional Common Shares. There are 1,652,830 remaining warrants from the September 2020 registered direct offering as of the date of this filing.

On May 7, 2021, Village Farms amended the Operating Loan terms to extend the credit agreement with an amended line of credit of C$10,000 and maturity date of May 7, 2024. See “Liquidity and Capital Resources – Operating Loan”.

During the first quarter of 2021, Pure Sunfarms continued seeking opportunities to increase its production, sales, brand awareness and global footprint. A few notable accomplishments include:

In November 2020, VFCE entered into a partnership with Mas Energy to convert the current landfill gas to electricity business into a state-of-the-art landfill gas to high-demand renewable natural gas facility. Mas Energy will design, build, finance, own and operate the Delta RNG Project. VFCE renewed and extended the existing contract with the City of Vancouver to capture the landfill gas at its Delta, B.C. site. The 20-year extension, with a five-year option, commences upon the start-up of the commercial operations of the Delta RNG Project. We anticipate that the conversion to the Delta RNG Project will begin mid-2021 with commercial operations to commence in mid-2022. We expect the project to capture the CO2 from the renewable natural gas production process and make it available to Village Farms for producing crops in its three Delta, B.C. vegetable and cannabis greenhouses. The reduction in natural gas requirements is expected to decrease the total carbon footprint of Village Farms.

On February 8, 2021, Village Farms exercised an option to increase its equity investment in Altum from 6.6% to just under 10%. On May 5, 2021, Village Farms exercised its remaining option to increase its equity investment in Altum to just under 12%. The investment in Altum, one of Asia-Pacific’s leading CBD platforms, represents a capital efficient means to participate in opportunities in this region.

Our consolidated results of operations (prior to net income) for the three months ended March 31, 2021 and 2020 presented below reflect the operations of our consolidated wholly owned subsidiaries, which does not include our VFH joint venture. The equity in earnings from VFH is reflected in our net income for the three months ended March 31, 2021 and 2020 presented below. Due to the acquisition of our joint venture, Pure Sunfarms, on November 2, 2020, the equity earnings from Pure Sunfarms are reflected in our net

income for March 31, 2020. However, for the three months ended March 31, 2021, the results of Pure Sunfarms are presented in the operations of our consolidated wholly owned subsidiaries. For information regarding the results of operations from our joint ventures, see “Reconciliation of Generally Accepted Accounting Practices (“GAAP”) Results to Proportionate Results” below.

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

For the three months
ended September 30,

For the nine months
ended September 30,

2020

2019

2020

2019

Sales

$
43,037

$
38,293

$
122,722

$
111,512

Cost of sales

(37,418
)

(38,904
)

(112,809
)

(114,418
)
Gross margin

5,619

(611
)

9,913

(2,906
)
Selling, general and administrative expenses

(4,942
)

(3,739
)

(12,676
)

(11,899
)
Stock compensation expense

(472
)

(666
)

(1,329
)

(2,663
)
Interest expense

(299
)

(655
)

(1,273
)

(2,018
)
Interest income

101

304

577

651

Foreign exchange (loss) gain

(484
)

(183
)

(880
)

338

Gain on settlement agreement

—

—

4,681

—

Other income, net

27

69

92

219

(Loss) gain on disposal of assets

—

(8
)

(6
)

13,558

(Provision for) recovery of income taxes

(336
)

1,266

607

114

Net Loss from consolidated entities after income taxes

(786
)

(4,223
)

(294
)

(4,606
)
Equity earnings of unconsolidated entities

1,306

3,519

4,885

14,115

Net income (loss)

$
520

$
(704
)

$
4,591

$
9,509

Adjusted EBITDA (1)

$
4,556

$
2,881

$
7,921

$
8,326

Earnings (loss) per share - basic

$
0.01

$
(0.01
)

$
0.08

$
0.20

Earnings (loss) per share – diluted

$
0.01

$
(0.01
)

$
0.08

$
0.19

	For the three months ended March 31,
	2021⁽¹⁾			2020⁽¹⁾
Sales	$	52,396		$	32,112
Cost of sales		(50,089	)		(31,347	)
Gross margin		2,307			765
Selling, general and administrative expenses		(8,092	)		(3,921	)
Share-based compensation		(1,998	)		(529	)
Interest expense		(741	)		(537	)
Interest income		3			383
Foreign exchange loss		(504	)		(926	)
Gain on settlement agreement		—			4,681
Other (expense) income		(69	)		39
Loss on disposal of assets		—			(6	)
Recovery of income taxes		1,839			1,012
(Loss) income from consolidated entities after income taxes		(7,255	)		961
Equity (losses) earnings of unconsolidated entities		(127	)		3,229
Net (loss) income	$	(7,382	)	$	4,190
Adjusted EBITDA ⁽²⁾	$	404		$	1,096
(Loss) earnings per share - basic	$	(0.10	)	$	0.08
(Loss) earnings per share – diluted	$	(0.10	)	$	0.08

We caution that our results of operations for the three months ended March 31, 2021 and 2020 may not be indicative of our future performance, particularly in light of the ongoing COVID-19 pandemic. We are currently unable to assess the ultimate impact of the COVID-19 pandemic on our business and our results of operations for future periods.

The following segmented financial information includes the financial results of our cannabis segment (Pure Sunfarms), before any allocation to Village Farms, which were not consolidated in our financial results for the three months ended March 31, 2020 and consolidated in our financial results for the three months ended March 31, 2021.


	Three months ended March 31, 2021	Three months ended March 31, 2020
Sales:
Produce	$ 34,867	$ 31,962
Cannabis	17,460	13,137
Clean Energy	69	150
	$ 52,396	$ 45,249
Cost of Sales:
Produce	($ 34,066)	($ 30,928)
Cannabis⁽¹⁾	(15,248)	(6,258)
Clean Energy	(775)	(419)
	($ 50,089)	($ 37,605)
Selling, general and administrative expenses:
Produce	($ 2,551)	($ 2,535)
Cannabis	(3,966)	(2,434)
Clean Energy	(32)	(45)
Corporate	(1,543)	(1,341)
	($ 8,092)	($ 6,355)
Share-based compensation:
Produce	$ -	$ -
Cannabis	(1,094)	-
Clean Energy	-	-
Corporate	(904)	(529)
	($ 1,998)	($ 529)
Operating profit/(loss):
Produce	($ 1,750)	($ 1,501)
Cannabis⁽¹⁾	(2,848)	4,445
Clean Energy	(738)	(314)
Corporate	(2,447)	(1,870)
	($ 7,783)	$ 760

A discussion of our consolidated results for the three months ended March 31, 2021 and 2020 is included below. The consolidated results include all three of our operating segments, which include produce, cannabis and energy, along with all public company expenses. Pure Sunfarms ~~(USD)~~was acquired in its entirety on November 2, 2020; for the three months ended March 31, 2021, the operating results of Pure Sunfarms are consolidated in our Consolidated Statements of Income (Loss), and for the three months ended March 31, 2020, Pure Sunfarms’ results are included in equity earnings from unconsolidated entities in our Consolidated Statements of Income (Loss).

~~Set forth below are~~We also present a discussion of the operating results of Pure Sunfarms, before any allocation to Village Farms, which ~~are~~were not consolidated in our financial results for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 ~~and 2019 in accordance with GAAP. Subsequent to September 30, 2020, we completed the Pure Sunfarms Transaction, and we will consolidate Pure Sunfarms~~but were consolidated in our ~~operating~~ results ~~for future periods. A discussion of our consolidated results for the three and nine months ended September 30, 2020 and 2019, including our Produce Segment, is included further below.~~

~~Three months ended September 30, 2020 compared to the three months ended June 30, 2020.~~

Sales for three months ended September 30, 2020 increased to $17,048 as compared to $9,386, or an 81% quarter on quarter increase from the three months ended June 30, 2020. The increase was primarily driven by a 148% increase in sales in the wholesale channel, a 22% quarter on quarter increase in sales to provincial (retail) boards and the September launch of Pure Sunfarms Cannabis 2.0 derivative products, which includes cannabis oil and vape pens. The quarter on quarter growth in retail sales is directly attributable to a 165.7% increase in Pure Sunfarms retail small format, a 29.7% quarter on quarter increase in pre-rolls and a (42.7%) decrease in Pure Sunfarms retail large format as the large format was launched in the second quarter of 2020 and the third quarter retail large format sales consisted of ongoing reorder sales.

The channel makeup of the third quarter sales was 54% to the retail channel and 46% to the wholesale channel. The channel makeup of the second quarter sales was 69% to the retail channel and 31% to the wholesale channel. Cannabis 2.0 derivative products were 4.4% of third quarter sales.

~~The net average selling price~~ for the three months ended ~~September 30,~~March 31, 2021. As a result of the Pure Sunfarms Acquisition, Pure Sunfarms recognized an increase in the fair value of its inventory on-hand on the acquisition date, resulting in a $2,925 charge to cost of sales in the first quarter of 2021 and a $3,295

charge to cost of sales in the fourth quarter of 2020 ~~was higher than~~from the ~~net average selling price~~revaluation of its inventory to fair value. This is a non-cash accounting charge to cost of sales and should be adjusted for when analyzing the actual operational results of Pure Sunfarms.

Sales for the three months ended ~~June 30, 2020 by 17.4%,~~March 31, 2021 were $52,396 as compared to $32,112 for the three months ended March 31, 2020. The increase in sales was primarily due to the inclusion of Pure Sunfarms’ Q1 2021 revenues of $17,460 and an increase in ~~small format retail~~produce supply partner sales of $4,139, partially offset by a decrease in our own produce sales of ($1,234) and VFCE power sales of ($81). The produce supply partner sales increase was due to higher volumes of pounds sold of tomatoes, peppers, cucumbers and mini-cucumbers. The decrease in our own produce sales was due to a (24%) decrease in the average selling price of tomatoes in the three months ended March 31, 2021 versus ~~large format retail sales,~~March 31, 2020, partially offset by a ~~quarter on quarter~~14% increase in ~~sales~~our own production volume. The price decrease is the result of ~~retail flower SKUs and~~ a ~~slight~~market supply overage caused by lower retailer demand along with an increase in ~~wholesale pricing, which~~Canadian tomato production from new acreage under light in 2021. The tomato produce industry is ~~impacted by the makeup~~currently experiencing one of the ~~potency of flower biomass sold to various wholesale customers.~~lowest pricing environments for tomatoes-on-the-vine and beefsteak varieties in the past ten years.

Cost of sales for the three months ended ~~September 30, 2020 and~~March 31, 2021 were $50,089 as compared to $31,347 for the three months ended ~~June 30, 2020 was $11,154 and $6,266, respectively, an~~March 31, 2020. The increase ~~of 78%. The third quarter of 2020~~in cost of sales ~~includes~~was primarily due to the addition of Pure Sunfarms’ Q1 2021 cost of sales of $15,248, an ~~inventory write down of $1,042 for distillate inventory purchased from third party extraction companies for which the market value had dropped since the initial purchase. The quarter on quarter~~ increase in produce supply partner costs ~~excluding~~of $3,282 and higher clean energy costs of $356, partially offset by a decrease in our own production cost of sales of ($144). The Q1 2021 cost of sales for Pure Sunfarms includes a $2,925 charge from the ~~distillate~~revaluation of its inventory ~~write down is 61.4%,~~to fair value at acquisition date. The increase in produce supply partner cost of sales was driven by higher volumes of pounds sold and the increase in clean energy costs were driven by higher depreciation charges. The decrease in our own production costs was driven by lower cost per pound production at two of our Texas facilities and better utilization of our transportation and handling cost, primarily due to a 143% increase in wholesale kilograms sold, a 120% increase in retail small format kilograms sold which has higher overhead and labor cost compared to retail large format, and the launch of recently approved Cannabis 2.0 derivative products which are co-manufactured by another licensed producer.greenhouse management efficiency efforts.

Gross margin for the three months ended ~~September 30, 2020 and~~March 31, 2021 increased $1,542 to $2,307, for a 4% gross margin (including the $2,925 charge from the revaluation of Pure Sunfarms’ inventory to fair value at acquisition date), in comparison to $765, for a 2% gross margin, for the three months ended ~~June 30, 2020 was 34.6%~~March 31, 2020. Gross margin for the three months ended March 31, 2021 increased $4,467 to $5,232, for a 10% gross margin (excluding the $2,925 charge from the revaluation of Pure Sunfarms’ inventory to fair value at acquisition date). Gross margin (excluding the revaluation charge) increased due to the inclusion of Pure Sunfarms’ Q1 2021 gross margin of $5,137, partially offset by a lower produce gross margin of ($226) and ~~33.2%, respectively, excluding the distillate inventory write down, the~~a lower clean energy gross margin of ($444). The decreased produce gross margin was ~~40.7%, The quarter on quarter improvement was~~primarily due to ~~an increase~~lower prices for tomatoes in ~~wholesale sell price~~Q1 2021 and ~~an increase in small format retail flower sales as compared to higher sales of Pure Sunfarms retail large format products in~~ the ~~second quarter of 2020, which have a~~ lower gross ~~margin.~~margin for clean energy was driven by higher depreciation charges as the depreciable life of VFCE assets have been accelerated due to the upcoming transition of operations to the Delta RNG Project expected in mid-2021.

Selling, general and administrative expenses for the three months ended ~~September 30, 2020 and three months ended June 30, 2020 were $2,447 and $1,850, respectively, an increase of 32.3%. The increase was primarily due~~March 31, 2021 increased $4,171 to ~~investments in retail sales, marketing, and staffing.~~

~~Net income~~$8,092 compared to $3,921 for the three months ended ~~September 30, 2020 and three months ended June 30, 2020 was $2,457 and $790 respectively, an increase of 211%.~~March 31, 2020. The increase was primarily due to the ~~increase in gross margin.~~

Adjusted EBITDA for the three months ended September 30, 2020 increase 133.2% to $4,277 from $1,835 for the second quarter. The third quarter Adjusted EBITDA figure does include the third party distillate inventory write downinclusion of ~~$1,042.~~

~~Three months ended September 30, 2020 compared to the three months ended September 30, 2019.~~

~~Sales for the three months ended September 30, 2020~~Pure Sunfarms’ expenses of $3,966 and 2019 was $17,048 and $18,084, respectively, a decrease of (5.7%). The change was due to a 362% increase in provincial (retail) sales and a (51.6%) decrease in wholesale selling price for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The net average selling price for the three months ended September 30, 2020 was lower than the net average selling price for the three months ended September 30, 2019 by (35.8%).

During the three months ended September 30, 2020, approximately 4.4% of the sales were from its recently launched Cannabis 2.0 derivative products, which includes cannabis oil and vape pens, 49.6% of dried flower sales to provincial (retail) boards, with the remaining 46% through the wholesale channel, including nonmonetary transactions with extraction licensed producers in which Pure Sunfarms sold extraction grade dried flower and trim and purchased various forms of distillate from the same counterparties. Pure Sunfarms will use the distillate in future Cannabis 2.0 products.

Cost of sales for the three months ended September 30, 2020 and 2019 was $11,154 and $5,689, respectively, an increase of 96.1%. The third quarter 2020 cost of sales includes an inventory write down of ($1,042) for distillate inventory purchased from third party extraction companies for which the market value has dropped since the initial purchase. The year on year increase in costs, excluding the distillate inventory write down was 77.7%, was due to 553% increase in retail kilograms sold which require incremental packaging, overhead and logistics expenses compared to product sold through the wholesale channel, as well as higher depreciation expense charge (a year on year increase of 91%) due to higher volumes.

Gross margin for the three months ended September 30, 2020 and 2019 was 34.6% and 68.5%, respectively. The decline was due to the $1,042 inventory write down for distillate inventory, in 2020, a lower price environment for the wholesale channel in 2020 as compared to the third quarter of 2019, as well as an increase in corporate expenses, primarily related to public company costs such as ~~a result~~investor relations, legal and regulatory fees, listing fees for the TSX, January 2021 equity raise and incremental costs of ~~Pure Sunfarms’ increase in provincial retail sales in 2020, as the majority of sales in the third quarter of 2019 were made through the wholesale channel.~~U.S. reporting compliance.

~~Selling, general and administrative~~Share-based compensation expenses for the three months ended ~~September 30, 2020 and 2019~~March 31, 2021 were ~~$2,447 and $2,830, respectively, a decrease of 13.5%. The decrease was primarily due~~$1,998 as compared to wage subsidies received from the Government of Canada as a result of the federal COVID-19 program, without the subsidy the year on year selling, general and administrative expenses were essentially flat.

~~Net income~~$529 for the three months ended ~~September 30, 2020 and 2019 was $2,457 and $6,685 respectively, a decrease of (63.2%). The decrease was primarily due to the decrease in gross margin.~~

~~Adjusted EBITDA for the three months ended September 30, 2020 declined (57.5%) to $4,277 from $10,075 for the same prior year period. The decrease was primarily due to the decrease in gross margin.~~

~~Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.~~

Sales for the nine months ended September 30, 2020 and 2019 was $39,571 and $53,128, respectively, a decrease of (25.5%). The decrease was due to a lower average selling price for the nine months ended September 30, 2020, compared to 2019, when 95% of Pure Sunfarms’ sales were being made through its wholesale channel during a period of elevated wholesale market pricing. For the nine months ended September 30, 2020, 54.4% of dried flower sales were to provincial (retail) boards, with the remaining 45.6% of sales through the wholesale channel, including nonmonetary transactions with extraction licensed producers in which Pure Sunfarms sold extraction grade dried flower and trim and purchased various forms of distillate from the same counterparties. Pure Sunfarms will use the distillate in future Cannabis 2.0 products.

Net sales for nine months ended September 30, 2020 as compared to net sales for the nine months ended September 30, 2019 were impacted by lower retail pricing, partially due to the introduction of retail large format products, in the second quarter of 2020 as well as lower pricing on both pre-rolls and small format dried flower, inMarch 31, 2020.

Cost of sales for the nine months ended September 30, 2020 and 2019 was $23,678 and $13,463, respectively, an increase of 75.9%. The increase was primarily due to an increase in kgs sold of 59.5% and a transition to higher costing provincial (retail) sales products which require incremental packaging and logistics expenses compared to products sold through the wholesale market, as well as higher year on year depreciation expense as a result of higher kgs sold.

Gross margin percentage for the nine months ended September 30, 2020 was 40.2% and 74.7%, respectively. The decline was due to a lower price environment in 2020, partly driven by the market place acceptance of the larger format SKUs, as well as the increase in cost of sales resulting from Pure Sunfarms’ change in product mix to retail sales in 2020, as the majority of sales for the nine months ended September 30, 2019 were made through the wholesale channel.

Selling, general and administrative expenses for the nine months ended September 30, 2020 and 2019 was $6,731 and $5,616, respectively, an increase of 19.9%. The increase was primarily due to higher Health Canada regulatory fees, which are based on provincial kgs sold, as well as incremental year over year expenses for marketing and staffing as a direct result of the provincial (retail) sales in 2020, as Pure Sunfarms did not have its provincial (retail) sales license for the first eight months of 2019.

Other income, net for the nine months ended September 30, 2020 and 2019 was $4,201 and $22, respectively. During the first quarter of 2020, Pure Sunfarms recognized a $4,348 gain on settlement of net liabilities resulting from the March 2, 2020 Settlement Agreement between Pure Sunfarms, Emerald Health and Village Farms. This gain is derived from Pure Sunfarms’ forgiveness of Emerald’s shareholder loan, including accrued interest, offset by the extinguishment of the Supply Agreement and a $457 receivable due from Emerald for sales made in the first quarter of 2020 and $5.4 million for sales made in 2019.

~~Net income for the nine months ended September 30, 2020 and 2019 was $9,412 and $24,106, respectively, a decrease of (61.0%). The decrease was primarily due to the decrease in gross margin.~~

Adjusted EBITDA, which excludes the gain on settlement of net liabilities and includes the distillate inventory write down of $1,042, was $10,980 for the nine months ended September 30, 2020, a (69.0%) decrease from $35,419 for the nine months ended September 30, 2019. The decrease was primarily due to a lower grow margin and an increase in selling, general and administrative expenses for the nine months ended September 30, 2020 compared to the same prior year period.

~~Three months ended September 30, 2020 compared to the three months ended September 30, 2019.~~

Produce sales for the three months ended September 30, 2020 increased $4,744, or 12.4%, to $43,037 compared to $38,293 for the three months ended September 30, 2019. The improvement in sales is due to an increase in pricing for tomatoes during the three months ended September 30, 2020 compared to the same prior year period. The average net selling price for total tomato pounds sold increased 30% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, generated primarily from our commodity items, which includes beefsteak tomatoes and tomatoes on the vine (“TOVs”). The increase in net selling price in the commodity items was primarily the result of a supply shortage throughout most of 2020, due to an increase in grocery store traffic, driven by COVID-19 measures, as well as a global tomato virus that is negatively impacting tomato supplies. Pepper prices increased 19% and pepper pounds sold increased 47% when compared to the same prior year period, due to an increase in our third-party pepper contracts. Cucumber prices increased 1% and cucumber pieces sold decreased (12%) for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Cost of sales for the three months ended September 30, 2020 decreased ($1,486), or (3.8%), to $37,418 from $38,904 for the three months ended September 30, 2019, as the Company produced less tomatoes at its facilities in the third quarter of 2020 compared to the same period in 2019 due to the transition of the Delta 2 facility, which converted from tomato production in 2019 to cannabis production for Pure Sunfarms in 2020.

Selling, general and administrative expenses for the three months ended September 30, 2020 increased $1,203, or 32.2%, to $4,942 from $3,739 for the three months ended September 30, 2019 driven by incremental legal, acquisition and regulatory expenses related primarily to the Pure Sunfarms negotiations and acquisition and year over year incremental public company filings, and an increase in employee compensation.

~~Share-based compensation expense for the three months ended September 30, 2020 was $472 compared to $666 for the three months ended September 30, 2019. The decrease in~~ share-based compensation ~~expense is~~was primarily due to the vesting of performance ~~shares earned related to developments~~share grants for Pure Sunfarms’ management of $1,094 in ~~Pure Sunfarms~~Q1 2021 versus nil in ~~2019. Due~~Q1 2020, along with the cost of issuing stock options in December 2020.

On March 2, 2020, pursuant to the ~~closing of~~settlement agreement between the Pure Sunfarms acquisition in November 2020, there will be incremental share-based compensation expense in the fourth quarter of 2020 due the vesting of performance shares earned relating to the acquisition ofCompany, Pure Sunfarms and ~~its management team.~~

~~Interest expense~~Emerald (“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 $4,681 (C$6,500). The Company recorded this amount as a gain on non-monetary exchange on the Consolidated Statement of Income (Loss) and Comprehensive Income (Loss) for the three months ended ~~September 30, 2020 decreased ($356) to $299 from $655~~March 31, 2020.

Income taxes for the three months ended ~~September 30, 2019. The decrease is primarily due~~March 31, 2021 was a recovery of $1,839 compared to ~~lower interest rates as well as lower debt balances.~~

~~Interest income~~a recovery of $1,012 for the three months ended ~~September 30, 2020 and 2019 was $101 and $304, respectively. We are no longer accruing interest associated with the VF Hemp Grid Loan Agreement.~~

March 31, 2020. For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~we recorded an~~our effective tax rate, including both current and deferred income taxes, was 19.9% and 31.8%, respectively. The equity losses for our unconsolidated entity, VFH, is reported post-tax and therefore does not affect our tax ~~provision~~calculation. Our share of ~~($336) compared to an~~ income ~~tax recovery of $1,266~~for Pure Sunfarms was presented in equity earnings from unconsolidated entities for the three months ended ~~September 30, 2019. The difference is primarily due to a higher gross margin in the 2020 period.~~March 31, 2020. Village Farms began fully consolidating operating results of Pure Sunfarms ~~and VF Hemp~~on November 2, 2020; Pure Sunfarms’ operating results are ~~both reported post-tax and therefore do not factor into~~fully consolidated for the ~~Company’s tax calculation.~~three months ended March 31, 2021.

~~Equity~~Our share of earnings from our joint ventures for the three months ended March 31, 2021 was ($127) compared to $3,229 for the three months ended March 31, 2020. Our share of income from Pure Sunfarms was presented in equity earnings from unconsolidated entities ~~decreased~~for the three months ended March 31, 2020. Village Farms began fully consolidating operating results of ~~($2,213), or (62.9%). The decrease was primarily due to an impairment loss taken~~Pure Sunfarms on Pure Sunfarms’ inventory of ($1,042), as well as a lower Pure Sunfarms’ gross margin as a result of a lower selling price environment, as well as our share of VF Hemp’s third quarter losses of ($137).November 2, 2020 and its results are presented in the Company’s consolidated operating results for the three months ended March 31, 2021. For information regarding the results of ~~operation~~operations from our joint ventures, ~~refer to “JV Cannabis Business” above and~~see “Reconciliation of U.S. GAAP Results to Proportionate Results” below.

Net ~~income (loss)~~loss for the three months ended ~~September 30, 2020 and 2019~~March 31, 2021 was ~~$520 and~~ ($~~704), respectively.~~7,382) as compared to net income of $4,190 for the three months ended March 31, 2020. The ~~improvement was~~decrease in net income is primarily due to ~~an increase in our produce~~a lower gross margin ~~partially offset by~~from Pure Sunfarms (which includes the $2,925 charge from the revaluation of its inventory to fair value at acquisition date) and higher company-wide selling, general and administrative ~~expenses~~expense and share-based compensation in the three months ended March 31, 2021 as compared to March 31, 2020, which also included a ~~decrease~~gain from the Settlement Agreement of $4,681 in ~~equity earnings from Pure Sunfarms.~~March 2020.

Adjusted EBITDA for the three months ended ~~September 30, 2020 increased 58.1%~~March 31, 2021 was $404 compared to ~~$4,556 from $2,881~~$1,096 for the three months ended ~~September 30, 2019 due primarily to a~~March 31, 2020. The decrease in ~~losses from consolidated entities~~adjusted EBITDA was primarily due to lower operating results of ~~$3,437, offset by a decrease in equity earnings from our joint ventures.~~both Pure Sunfarms and the produce business. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP ~~Measures -~~ Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

~~Nine~~Pure Sunfarms’ comparative analysis are based on the consolidated results of Pure Sunfarms for the three months ended ~~September 30,~~March 31, 2021, December 31, 2020, ~~compared~~and March 31, 2020, not accounting for the percentage owned by Village Farms. As a result of the Pure Sunfarms Acquisition, Pure Sunfarms recognized an increase in the fair value of its inventory on-hand on the acquisition date, resulting in a $2,925 charge to cost of sales in the ~~nine~~first quarter of 2021 and a $3,295 charge to cost of sales in the fourth quarter of 2020 from the revaluation of its inventory to fair value. This is a non-cash accounting charge to cost of sales and should be adjusted for when analyzing the actual operational results of Pure Sunfarms. See “Reconciliation of U.S. GAAP Results to Proportionate Results” for a presentation of Pure Sunfarms’ proportionate results for the three months ended ~~September 30, 2019.~~March 31, 2021 and March 31, 2020.

Three Months Ended March 31, 2021 Compared to Three Months Ended December 31, 2020

~~Produce~~Pure Sunfarms’ net sales for the ~~nine~~three months ended ~~September 30, 2020 increased $11,210, or 10.1%, to $122,722~~March 31, 2021 were $17,460 as compared to ~~$111,512~~$17,303 for the ~~nine~~three months ended ~~September 30, 2019.~~December 31, 2020. The sequential net sales increase was comprised of a 20% increase in branded sales, partially offset by a (49%) decrease in non-branded sales. For the three months ended March 31, 2021, 71% of revenue was generated from branded flower and 13% of revenue from tinctures and Cannabis 2.0 products (branded cannabis oil, edibles and vapes) as compared to 56% of revenue from branded flower and 12% of revenue from tinctures and Cannabis 2.0 products for the three months ended December 31, 2020. For the three months ended March 31, 2021, non-branded sales represented 16% of revenues compared to 32% for the three months ended December 31, 2020.The decrease in non-branded sales between comparable periods was driven primarily by an oversaturated wholesale market combined with the impact of several provincial boards initiating stock keeping unit (“SKU”) rationalization and management of their March 31, 2021 fiscal year-end inventory levels, which decreased demand from other licensed producers (“LP”) in the wholesale market.

Pure Sunfarms’ cost of sales for the three months ended March 31, 2021 was $15,248 as compared to $13,918 for the three months ended December 31, 2020. The Q1 2021 and Q420 cost of sales for Pure Sunfarms includes a $2,925 and $3,295 charge, respectively, from the revaluation of its inventory to fair value at acquisition date. The increase in ~~produce~~cost of sales between periods was driven by the higher volume of branded sales which require incremental costs for manufacturing, packaging and distribution.

Gross margin for the three months ended March 31, 2021 decreased ($1,173) to $2,212, for a 13% gross margin, in comparison to $3,385, for a 20% gross margin, for the three months ended December 31, 2020. Gross margin for the three months ended March 31, 2021 decreased ($1,542) to $5,137, for a 29% gross margin (excluding the purchase price inventory adjustment of $2,925), in comparison to $6,679, for a 39% gross margin (excluding the purchase price inventory adjustment of $3,295), for the three months ended December 31, 2020. The decrease in gross margin between periods was primarily due to ~~higher selling prices for tomatoes and a~~the increase in cost of sales associated with the higher volume of ~~supply partner produce during the nine months ended September 30, 2020 compared to the same prior year period.~~

~~Village Farms’ greenhouse production revenues were consistent with the prior year period even though production volume decreased due to the transition of the Delta 2 facility to Pure Sunfarms~~branded sales in 2021 that require incremental costs for manufacturing, packaging and a year over year decline in the overall production generated from our Texas facilities. The decrease in production volume was offset by an increase of 32% in the average selling price of Village Farms’ own production. The increase in selling prices for the commodity items was primarily due to a market supply shortage, largely stemming from changes in consumer buying habits affected by COVID-19. Pepper prices increased 19% and pepper pounds sold increased 37% when compared to the same prior year period. Cucumber prices increased 1% and cucumber pieces sold decreased (13%) for the nine months ended September 30, 2020 as compared to the same prior year period.

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

Cost of sales for the nine months ended September 30, 2020 decreased ($1,609), or (1.4%), to $112,809 from $114,418 for the nine months ended September 30, 2019. This decrease is primarily due to the transition of our Delta 2 facility to Pure Sunfarms and lower production costs at our Texas facilities, offset by an increase in supply partner purchases.distribution.

Pure Sunfarms’ selling, general and administrative expenses for the three months ended March 31, 2021 were $3,966 compared to $4,476 for the three months ended December 31, 2020. The decrease in selling, general and administrative expenses for the three months ended March 31, 2021 in comparison to the three months ended December 31, 2020 was primarily due to a reduction in marketing spend and lower professional fees, such as legal and consulting services, partially offset by additional headcount to support the growth of Pure Sunfarms.

Share-based compensation expenses for the three months ended March 31, 2021 were $1,094 as compared to $61 for the three months ended December 31, 2020. The increase in share-based compensation is due to the vesting of performance share grants for Pure Sunfarms’ management as well as the incremental cost of issuing stock options in December 2020.

Pure Sunfarms’ net loss for the three months ended March 31, 2021 was ($2,834) as compared to ($1,720) for the three months ended December 31, 2020. The Q1 2021 and Q420 net loss for Pure Sunfarms includes a $2,925 and $3,295 charge, respectively, from the revaluation of its inventory to fair value at acquisition date. The higher net loss between periods was driven by a lower gross margin, largely attributable to a lower average selling price for non-branded sales and increased share-based compensation, partially offset by lower selling, general and administrative expenses.

Adjusted EBITDA for the three months ended March 31, 2021 and December 31, 2020 was $2,534 and $2,279, respectively. The increase in Adjusted EBITDA was driven by higher net sales and lower selling, general and administrative expenses in the three months ended March 31, 2021 as compared to the three months ended December 31, 2020. The three months ended December 31, 2020 also included a $757 write-off of a note receivable from Emerald as part of the Pure Sunfarms acquisition.

Pure Sunfarms’ net sales for the three months ended March 31, 2021 were $17,460 as compared to $13,137 for the three months ended March 31, 2020. The period-over-period net sales increase was comprised of a 117% increase in branded sales, partially offset by a (62%) decrease in non-branded sales. For the three months ended March 31, 2021, 71% of revenue was generated from branded flower and 13% of revenue from tinctures and Cannabis 2.0 products as compared to 47% of revenue from branded flower for the three months ended March 31, 2020. Pure Sunfarms had not begun selling Cannabis 2.0 products in the three months ended March 31, 2020. For the three months ended March 31, 2021, non-branded sales represented 16% of revenues compared to 53% for the three months ended March 31, 2020. The decrease in non-branded sales between periods was driven primarily by an oversaturated wholesale market combined with the impact of several provincial boards initiating SKU rationalization and management of their March 31, 2021 fiscal year-end inventory levels, which decreased demand for many LPs in the wholesale market.

Pure Sunfarms’ cost of sales for the three months ended March 31, 2021 were $15,248 as compared to $6,258 for the three months ended March 31, 2020. The Q1 2021 cost of sales for Pure Sunfarms includes a $2,925 charge from the revaluation of its inventory to fair value at acquisition date. The increase in cost of sales between periods was driven by the higher volume of branded sales which require incremental costs for manufacturing, packaging and distribution.

Gross margin for the three months ended March 31, 2021 decreased ($4,667) to $2,212, for a 13% gross margin (including the purchase price inventory adjustment of $2,925), in comparison to $6,879, for a 52% gross margin, for the three months ended March 31, 2020. Gross margin for the three months ended March 31, 2021 decreased ($1,742) to $5,137, for a 29% gross margin (excluding the purchase price inventory adjustment of $2,925). The decrease in gross margin between comparable periods was primarily due to price compression in the wholesale market over the past 12 months combined with the increase in cost of sales associated with a higher volume of branded sales which require incremental costs for manufacturing, packaging and distribution.

Selling, general and administrative expenses for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 increased ~~$777,~~$1,532, or 6.5%, to $12,676 from $11,899 for the nine months ended September 30, 2019. The increase was primarily related to an increase in legal and regulatory expenses related to incremental public company filings, the Pure Sunfarms acquisition and the first quarter Settlement Agreement, and an increase in employee compensation, which in turn were offset by reductions in accounting fees and travel expenses.

~~Share-based compensation expense for the nine months ended September 30, 2020 decreased ($1,334), or (50.1%~~(63%), to ~~$1,329 from $2,663~~$3,966 compared to $2,434 for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The ~~decrease~~increase in selling, general and administrative expenses was due to incremental sales support and marketing for the higher volume of branded sales in 2021 along with additional headcount to support the growth of Pure Sunfarms.

Share-based compensation expenses for the three months ended March 31, 2021 were $1,094 as compared to nil for the three months ended March 31, 2020. The increase in share-based compensation ~~expense~~ was primarily due to the vesting of performance ~~shares earned related to developments in~~share grants for Pure ~~Sunfarms in 2019.~~Sunfarms’ management and Pure Sunfarms’ management not being part of the Company until November 2020.

~~Interest expense~~Pure Sunfarms recognized income of $4,348 in the first quarter of 2020 as an outcome of the March 2, 2020 Settlement Agreement between Pure Sunfarms, Emerald and the Company. This gain is Pure Sunfarm’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 a C$8,100 receivable from Emerald for sales made in 2019.

Pure Sunfarms’ net loss for the ~~nine~~three months ended ~~September 30, 2020 decreased~~March 31, 2021 was ($~~745), or (36.9%),~~2,834) as compared to ~~$1,273 from $2,018~~net income of $6,165 for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The Q1 2021 net loss for Pure Sunfarms includes a $2,925 charge from the revaluation of its inventory to fair value at acquisition date. The decrease ~~was due to lower interest rates as well as lower debt balances.~~

~~Interest~~in net income ~~for the nine months ended September 30, 2020 and 2019 was $577 and $651, respectively. During 2020 we stopped accruing interest income for the VFH Grid Loan.~~

We recognized a loss on disposal of assets of ($6) for the nine months ended September 30, 2020 compared to a gain of $13,558 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 Pure Sunfarms.~~

For the nine months ended September 30, 2020, we recorded an income tax recovery of $607 compared to $114 for the nine months ended September 30, 2019. In 2020, we experienced a significant increase in its produce gross margin compared to the prior year period, along with a gain of $4,681 on the Settlement Agreement with Emerald. During 2019, we had a $13,558 gain on disposal of assets arising from the contribution of our Delta 2 assets to Pure Sunfarms. Pure Sunfarms and VF Hemp are both reported post-tax and therefore do not factor into our tax calculation.

~~Equity earnings from our unconsolidated entities decreased ($9,230) or (65.4%) to $4,885 for the nine months ended September 30, 2020, from $14,115 for the same prior year period. The decrease~~periods was primarily due to ~~a decrease~~lower gross margin, higher selling, general and administrative expenses and share-based compensation expense in ~~earnings from Pure Sunfarms’ of ($8,678), caused by an increase in~~2021, while 2020 also included the sales of lower margin large format products sold through the provincial (retail) boards and an overall decrease in the wholesale market in 2020 as compared to elevated pricing in the wholesale channel in 2019. In addition, Pure Sunfarms’ net income for the nine months ended September 30, 2020 includes a $4,348 gain resulting from the Settlement Agreement, of which $2,496 was our share. 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.

Net income (loss) for the nine months ended September 30, 2020 and 2019 was $4,591 and $9,509, respectively. The decrease was primarily the result of a decline in our equity earnings from unconsolidated entities of ($9,230) and, a $13,588 gain on ~~disposal recorded during~~ the ~~nine months ended September 30, 2019, offset by an increase in our gross margin of $12,819 and a gain on~~ settlement of ~~$4,681 recognized during the nine months ended September 30, 2020.~~net liabilities of $4,348.

Adjusted EBITDA for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and March 31, 2020 ~~decreased ($405), or (4.9%),~~was $2,534 and $4,868, respectively. The lower Adjusted EBITDA between periods was primarily due to ~~$7,921 from $8,326 for~~lower non-branded sales and lower gross margin in Q1 2021 as compared to Q1 2020. For the ~~nine~~three months ended ~~September 30, 2019 due primarily to~~March 31, 2020, the ~~decrease in net income from joint ventures and~~average selling price for non-branded sales was higher than the ~~add back of the gains related to the Settlement Agreement, offset by the add back of the contribution of Delta 2 assets during the nine~~three months ended ~~September 30, 2019. See~~March 31, 2020 as the ~~reconciliation of Adjusted EBITDA to net income~~wholesale market faced oversaturation in ~~“Non-GAAP Measures - Reconciliation of Net Earnings to Adjusted EBITDA”.~~2021.

At ~~September 30,~~March 31, 2021, we had $131,696 in cash and $165,423 of working capital, and at December 31, 2020, we had ~~$54,666~~$21,640 in cash and ~~$70,048~~$29,528 of working capital. We expect to utilize cash-on-hand and provide or obtain adequate financing to maintain and improve our property, plant and equipment, to fund working capital produce needs and invest in Pure Sunfarms for the next twelve months from cash flows from operations, and, as needed, from additional borrowings under the Credit Facilities (as defined below) or additional equity or debt financing.

The Company’s borrowings under the FCC Term Loan, the Operating Loan and VFCE Borrowings (collectively the “Credit Facilities”), excluding Pure Sunfarms borrowings, are subject to certain positive and negative covenants, including debt ratios, and the Company is required to maintain certain minimum working capital. As of March 31, 2021, the Company was in compliance with all of its covenants under its Credit Facilities.

~~At September 30,~~Accrued interest payable on the Credit Facilities and Pure Sunfarms Loans as of March 31, 2021 and December 31, 2020 ~~we had~~was $177 and $189, respectively, and these amounts are included in accrued liabilities in the interim statements of financial position.

The Company has a term loan financing agreement with the Farm Credit Canada (“FCC”), a Canadian creditor (“FCC Term Loan”). The non-revolving variable rate term loan ~~had~~has a maturity date of April 1, 2025 and a balance of ~~$29,182~~$28,198 on March 31, 2021 and $28,690 as of ~~September 30,~~December 31, 2020. The outstanding

balance is repayable by way of monthly installments of principal and interest, with the balance and any accrued interest to be paid in full on April 1, 2025. Effective August 1, 2020, monthly principal payments were reduced to $164 from $257. As of ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019,~~2020, borrowings under the FCC Term Loan agreement were subject to an interest rate of ~~4.388%~~3.766% and ~~6.391%,~~3.79% per annum, respectively.

~~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~~As collateral for the FCC Loan, the “Credit Facilities”). The Operating Loan is subject to margin requirements stipulated by the bank based on produce sales. As at September 30, 2020 and 2019 there was $3,000 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 a non-revolving fixed rate loan of CA$3.0 million with a maturity date of June 2023 at a fixed interest rate of 4.98%. As of September 30, 2020, and December 31, 2019, the balance was CA$1,210 (US$830) and CA$1,526 (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~~Term Loan, the Company has provided promissory notes, a first mortgage on the VFF-owned greenhouse properties (excluding the Delta 32 and Delta 23 greenhouse 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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was ~~$215,581~~$207,762 and ~~$155,548,~~$86,664, 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 C$10,000, as amended on May 7, 2021, less outstanding letters of credit totaling US$150 and C$38 and includes variable interest rates with a maturity date of May 7, 2024. The Operating Loan is subject to margin requirements stipulated by the bank. As of March 31, 2021, there was no amount drawn on this loan, and as of December 31, 2020, the amount drawn on this facility was US$2,000.

As ~~security~~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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was ~~$25,799~~$25,033 and ~~$24,915,~~$23,443, respectively.

VFCE has a loan agreement with a Canadian chartered bank that includes a non-revolving fixed rate loan (“VFCE Loan”) of C$3.0 million with a maturity date of June 2023 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 FCC Loan.~~fixed interest rate of 4.98% per annum. As of ~~September 30, 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 September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020, the balance of the VFCE Loan was ~~$29~~US$730 and ~~$162,~~US$797, respectively. ~~These amounts are included~~The loan agreement also includes an uncommitted, non-revolving credit facility for up to C$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 C$700 to support financing of certain capital expenditures (“VFCE Credit Facility”). The Company received an initial advance of C$250 in ~~accrued liabilities~~October 2017. Each advance is to be repaid on a five-year, straight-line amortization of principal, repaid in monthly installments of principal plus interest at an interest rate of C$ prime rate plus 200 basis points. As of March 31, 2021 and December 31, 2020, the ~~unaudited Condensed Consolidated Interim Statements of Financial Position.~~outstanding borrowings under the VFCE Credit Facility were US$60 and US$69, respectively (such borrowings, together with the VFCE Loan, the ”VFCE Borrowings”).

On March 15, 2021, Pure Sunfarms entered into the Third Amended and Restated Credit Agreement (the “Third Amended and Restated PSF Credit Agreement) with Farm Credit Canada (“FCC”) and two Canadian chartered banks, which extended the maturity date of each of the PSF Revolving Line of Credit, PSF Non-Revolving Facility and the PSF Term Loan (each as defined below) through February 7, 2024, included an unlimited guarantee from Village Farms and changed certain financial covenants. The Third Amended and Restated PSF Credit Agreement amends and updates the previous three loan facilities.

The first loan facility is a revolving line of credit (the “PSF Revolving Line of Credit”) with two separate C$7,500 commitments from each of the Canadian chartered banks. Each lender established a revolving line of credit severally and not jointly whereby Pure Sunfarms may receive advances in equal proportionate amounts from each lender. The advances shall be used for working capital purposes, general corporate purposes and capital expenditures, of which capital expenditures may not exceed C$7,500 in aggregate use of the outstanding advances. Interest is payable at the Canadian prime rate plus an applicable margin per annum, payable monthly. The PSF Revolving Line of Credit had no outstanding balance as of March 31, 2021 and December 31, 2020.

The second loan facility is a credit agreement with ~~BMO,~~a Canadian chartered bank, as agent and lead lender, and ~~Farm Credit Canada,~~FCC, as lender, in respect of a ~~CA$20,000~~C$17,000 secured non-revolver term loan (the “PSF ~~Credit Facility”)~~Non-Revolving Facility). In June 2020, Pure Sunfarms expanded the PSF Credit Facility with its existing lenders, and the addition of the Canadian Imperial Bank of Commerce, to CA$59.0 million, including accordion provisions of up to CA$22.5 million. As of September 30, 2020, the outstanding amount on the loan was CA$35.0 million.

The PSF ~~Credit~~Non-Revolving Facility, which matures on February 7, ~~2022,~~2024, is secured by the Delta 2 and 3 greenhouse facilities and contains customary financial and restrictive covenants. The ~~Company is not a party to~~purpose of the PSF ~~Credit~~Non-Revolving Facility ~~but has guaranteed up~~is to ~~CA$10.0~~refinance our Delta 3 greenhouse and provide funds to upgrade and retrofit the D2 Property. The outstanding amount on the PSF Non-Revolving Facility was US$13,177 on March 31, 2021 and US$13,385 on December 31, 2020.

The third loan facility is a C$25 million term loan (the “PSF Term Loan”) at Canadian prime interest rate plus an applicable margin, repayable in ~~connection~~quarterly payments equal to 2.50% of the outstanding principal amount starting June 30, 2021 and maturing February 7, 2024. Advances under the PSF Term Loan shall be used to finance the upgrade and retrofit of the Delta 2 greenhouse to render it suitable for cannabis cultivation as well as any funds necessary for capital expenditures on the D3 Property’s processing facility. The outstanding amount on the PSF Term Loan was US$19,713 on March 31, 2021 and US$16,535 on December 31, 2020.

On December 20, 2020, Pure Sunfarms entered into a C$6,250 non-revolving demand loan at prime interest plus 3.75% per annum with a Canadian chartered bank with the ~~PSF Credit Facility. On~~financial support of the Business Development Bank of Canada (the “BDC Facility”). The BDC Facility, provided as part of COVID-19 relief, requires interest only payments monthly for the first twelve months and matures on December 31, 2031. Commencing on December 31, 2021, Pure Sunfarms will repay the outstanding principal amount in equal monthly installments. The outstanding amount on the BDC Facility was US$4,989 on March 31, 2021 and US$4,905 on December 31, 2020.

Pure Sunfarms is required to comply with financial covenants measured quarterly. As of March 31, 2021, Pure Sunfarms was in compliance with the financial covenants.

The Company had a note payable due to Emerald of C$19,900 (US$15,314), plus accrued interest included in the statements as of December 31, 2020 that the Company originally issued to Emerald as partial consideration for the November 2, 2020 ~~in conjunction with the closing of the~~ acquisition of ~~the remaining shares of~~ Pure ~~Sunfarms, the~~Sunfarms. The note and accrued interest were repaid to Emerald in full on February 5, 2021.

The Company ~~increased its guarantee to a total of CA$20 million in connection with the Pure Sunfarms Credit Facility.~~

We closed equity offerings on ~~October 22, 2019,~~ March 24, 2020, ~~and~~ September 10, ~~2020. The October 22, 2019 public offering raised net proceeds of CA$26,934 through the issuance of 3,059,000 Common Shares at a price of CA$9.40 per Common Share.~~2020, and January 20, 2021. The March 24, 2020 public offering raised ~~net~~gross proceeds of ~~CA$10,711~~C$11,500 through the issuance of 3,593,750 Common Shares at a price of ~~CA$~~C$3.20 per Common Share. The ~~Registered Direct Offering, which closed on~~ September 10, 2020 offering raised ~~net~~gross proceeds of ~~approximately~~ US$~~46,800 (after placement agent fees, but before estimated offering expenses)~~49,800 through the issuance of 9,396,226 Units with each Unit consisting of one Common Share at a ~~public offering~~ price of US$5.30 per ~~Unit. Each Unit that was sold consists of one Common Share~~share and one-half of a Warrant at an exercise price of US$~~5.80. The Warrants will be exercisable beginning~~5.80, and on ~~March 10,~~January 20, 2021, ~~and will expire on September 10, 2025. For more information, see “Executive Overview—Registered Direct Offering” above.~~

After quarter end, on November 2, 2020, in connection with the consummation of the Pure Sunfarms Transaction, we entered into the Promissory Note with Emerald, in the amount of C$19.9 million (US$14.5 million), payable to Emerald on May 2, 2021, or six months from the consummation of the Pure Sunfarms Transaction. Interest on the principal amount owed under the Promissory Note will accrue at the lower of (i) the maximum non-usurious rate of interest under applicable law or (ii) 12% per annum. In order to secure our obligations under the Promissory Note, on November 2, 2020, we entered into the Share Pledge Agreement with Emerald and Computershare Trust Company of Canada, as collateral agent, in order to pledge 9,239,625 common shares of Pure Sunfarms to Emerald as collateralVillage Farms completed a registered direct offering for the ~~amounts owed by us under the Promissory Note.~~purchase and sale of an aggregate 10,887,097 Common Shares at a purchase price of US$12.40 per Common Share for gross proceeds of approximately US$135 million.

	For the nine months ended September 30,						For the three months ended March 31,
(in Thousands)	2020			2019			2021			2020
Cash beginning of period	$	11,989		$	11,920		$	25,679		$	11,989
Net cash flow provided by (used in):
Net cash flow provided by/(used in):
Operating activities		4,014			(7,887	)		(14,436	)		(535	)
Investing activities		(14,148	)		(11,090	)		(5,211	)		(6,322	)
Financing activities		52,812			13,783			129,577			8,428
Net cash increase (decrease) for the period		42,678			(5,194	)		109,930			1,571
Effect of exchange rate changes on cash		(1	)		—			178			(2	)
Cash, end of the period	$	54,666		$	6,726		$	135,787		$	13,558

For the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ cash flows used in operating activities before changes in non-cash working capital totaled ($~~924)~~4,733) and ($~~12,036)~~2,760), respectively. The ~~improvement is~~decline in cash flows from operating activities between periods was primarily ~~attributable~~due to ~~a $12,819 increase~~lower operating results of both Pure Sunfarms and the produce business in ~~year over year gross margin which contributed to an increase in our net income, adjusted for non-cash expenses.~~Q1 2021.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ cash flows used in investing activities were ($~~14,148)~~5,211) and ($~~11,090)~~6,322), respectively. ~~The~~Q1 2021 investing activities primarily consist of a ($500) investment in Altum and ($4,706) of capital expenditure expenses, of which ($3,789) was primarily for the Pure Sunfarms Delta 2 greenhouse transition to cannabis and ($916) for our produce operations. Q1 2020 investing activities consist primarily of ~~$11,713 invested~~($6,063) of additional investment in Pure Sunfarms and ($259) of capital expenditures for ~~its Delta 2 facility conversion and $1,226 invested in~~ our ~~two minority cannabis investments, DCG and Altum. In 2019, our investing activities were focused on U.S. Hemp with loans totaling $9,133 to our U.S. joint ventures.~~produce operations.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ cash flows provided by financing activities were ~~$52,812~~$129,577 and ~~$13,783,~~$8,428, respectively. ~~The year over year increase is~~For the three months ended March 31, 2021, cash flows provided by financing activities primarily ~~due to a $49,800 unit~~consisted of $127,489 of net proceeds from the issuance of Common Shares, $17,663 in proceeds from the exercise of warrants from the September 2020 ~~predominately used to finance~~registered direct offering and the ~~acquisition~~($15,498) payment of ~~remaining shares~~the Emerald Promissory Note. For the three months ended March 31, 2020, cash flows provided by financing activities primarily consisted of ~~Pure Sunfarms.~~ the $7,324 generated from the issuance of Common Shares, net of issuance costs, and $1,125 of proceeds from borrowings net of repayments.

~~During the nine months ended September 30, 2020, we made equity contributions to Pure Sunfarms totaling CA$16,000 (US$11,713).~~

Information regarding our contractual obligations as of ~~September 30, 2020~~March 31, 2021 is set forth in the table below:

Financial liabilities	Total		1 year		2-3 years		4-5 years		More than 5 years		Total		1 year		2-3 years		4-5 years		More than 5 years
Long-term debt	$	31,436	$	2,310	$	4,566	$	3,935	$	20,625	$	73,040	$	5,575	$	38,502	$	24,352	$	4,611
Line of credit		3,000		3,000		—		—		—		—		—		—		—		—
Trade payables		9,667		9,667		—		—		—		20,785		20,785		—		—		—
Accrued liabilities		6,676		6,676		—		—		—		21,077		21,077		—		—		—
Operating lease liabilities		4,176		1,076		1,851		1,143		106
Capital lease liabilities		46		34		12
Lease liabilities												3,716		1,158		1,969		463		126
Other liabilities												23,798		—		23,798		—		—
Total	$	55,001	$	22,763	$	6,429	$	5,078	$	20,731	$	142,416	$	48,595	$	64,269	$	24,815	$	4,737

~~After September 30, 2020, we entered into the Promissory Note in the amount~~As of ~~C$19.9 million (US$14.5 million), payable to Emerald on May 2,~~March 31, 2021, ~~or six months from the consummation of the Purchase Agreement for the~~ Pure Sunfarms ~~Transaction.~~

~~The Company does not have any off-balance sheet arrangements.~~had a service agreement with an unrelated party. In the event Pure Sunfarms terminates the agreement, Pure Sunfarms would be required to pay the counterparty a C$1.0 million termination fee. This is considered a commitment.

References in this ~~report~~MD&A to “Adjusted EBITDA” are to earnings (including the equity in earnings of ~~the~~ Pure ~~Sunfarms)~~Sunfarms and 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 that is not recognized under GAAP and does 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 or to cash flows from operating, investing, and financing activities as measures of liquidity and cash flows. Management believes that Adjusted EBITDA is an important measure in evaluating the historical performance of the Company.

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 the Pure Sunfarms and ~~VF Hemp~~VFH operations), are presented in the table Reconciliation of ~~U.S.~~ GAAP ~~Results~~ 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.

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

	For the three months ended September 30,						For the nine months ended September 30,						For the three months ended March 31,
	2020			2019			2020			2019
(in thousands of U.S. dollars)													2021 ⁽¹⁾			2020 ⁽¹⁾
Net (loss) income	$	520		$	(704	)	$	4,591		$	9,509		$	(7,382	)	$	4,190
Add:	��
Amortization		1,518			2,360			4,540			5,587			3,412			1,530
Foreign currency exchange loss (gain)		484			183			880			(338	)
Foreign currency exchange loss														504			926
Interest expense, net		198			351			696			1,367			738			154	��
Provision for (recovery of) income taxes		336			(1,266	)		(607	)		(114	)
Stock based compensation		472			666			1,329			2,663
Recovery of income taxes														(1,839	)		(1,012	)
Share-based compensation														1,998			529
Interest expense for JVs		240			276			636			506			14			293
Amortization for JVs		598			414			1,276			1,125			34			301
Foreign currency exchange loss (gain) for JVs		33			(8	)		118			(21	)
Provision for income taxes from JVs		245			1,355			1,736			5,572
Gain on settlement agreement		—			—			(4,681	)		—
Foreign currency exchange loss for JVs														—			102
Provision for income taxes for JVs														—			1,269
Purchase price adjustment ⁽²⁾														2,925			—
Gain on settlement agreement ⁽³⁾														—			(4,681	)
Gain on settlement of net liabilities from JV		—			—			(2,496	)		—			—			(2,496	)
Gain on disposal of assets		(88	)		8			(97	)		(13,558	)		—			(9	)
Adjustment to reflect true economic value for Pure Sunfarms⁽¹⁾		—			(754	)		—			(3,972	)
Adjusted EBITDA(4)	$	4,556		$	2,881		$	7,921		$	8,326		$	404		$	1,096
Adjusted EBITDA for JVs ^{(See table below)}	$	2,333		$	4,826		$	6,050		$	17,346		$	(79	)	$	2,683
Adjusted EBITDA excluding JVs^(produce)	$	2,223		$	(1,945	)	$	1,871		$	(9,020	)
Adjusted EBITDA excluding JVs													$	483		$	(1,587	)

The following tables are a reconciliation of the GAAP results to the proportionate results (which include our proportionate share of Pure Sunfarms and VF Hemp operations). The tables reflect the full statements of income for Pure Sunfarms (Cannabis) and VFH (Hemp) multiplied by the ownership percentage of the Company (versus presenting the results of these joint ventures in Equity Earnings from Unconsolidated Entities):

For the Three months ended September 30, 2020

Produce

Pure
Sunfarms ⁽¹⁾

Hemp⁽¹⁾

Total

Sales

$
43,037

$
10,007

$
—

$
53,044

Cost of sales

(37,418
)

(6,547
)

—

(43,965
)
Selling, general and administrative expenses

(4,942
)

(1,436
)

(213
)

(6,591
)
Stock compensation expense

(472
)

—

—

(472
)
Gain on disposal of assets

—

—

89

89

Other expense, net

(655
)

(336
)

(13
)

(1,004
)
Provision for income taxes

(336
)

(245
)

—

(581
)
Net (loss) income

$
(786
)

$
1,443

$
(137
)

520

Adjusted EBITDA⁽²⁾

$
2,223

$
2,511

$
(178
)

$
4,556

(Loss) income per share – basic

$
(0.01
)

$
0.02

$
(0.00
)

$
0.01

(Loss) income per share – diluted

$
(0.01
)

$
0.02

$
(0.00
)

$
0.01

	For the Three months ended March 31, 2021
	Produce			Cannabis ⁽¹⁾			Hemp⁽¹⁾			Total
Sales	$	34,936		$	17,460		$	—		$	52,396
Cost of sales		(34,841	)		(15,248	)		(48	)		(50,137	)
Selling, general and administrative expenses		(4,126	)		(3,966	)		(65	)		(8,157	)
Share-based compensation		(904	)		(1,094	)		—			(1,998	)
Other expense, net		(681	)		(630	)		(14	)		(1,325	)
Recovery of income taxes		1,195			644			—			1,839
Net loss	$	(4,421	)	$	(2,834	)	$	(127	)		(7,382	)
Adjusted EBITDA⁽²⁾	$	(2,051	)	$	2,534		$	(79	)	$	404
Losses per share – basic	$	(0.06	)	$	(0.04	)	$	(0.00	)	$	(0.10	)
Losses per share – diluted	$	(0.06	)	$	(0.04	)	$	(0.00	)	$	(0.10	)

	For the three months ended September 30, 2019												For the three months ended March 31, 2020
	Produce			Pure Sunfarms⁽¹⁾			Hemp ⁽¹⁾			Total			Produce			Cannabis⁽¹⁾			Hemp ⁽¹⁾			Total
Sales	$	38,293		$	10,217		$	—		$	48,510		$	32,112		$	7,442		$	98		$	39,652
Cost of sales		(38,904	)		(3,211	)		—			(42,115	)		(31,347	)		(3,557	)		(120	)		(35,024	)
Selling, general and administrative expenses		(3,739	)		(1,635	)		(229	)		(5,603	)		(3,921	)		(1,348	)		(117	)		(5,386	)
Stock compensation expense		(666	)		—			—			(666	)
Loss on disposal of assets		(8	)		—			—			(8	)
Share-based compensation														(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 expense, net		(465	)		(162	)		—			(627	)		(1,041	)		(238	)		(173	)		(1,452	)
Recovery of (provision for) income taxes		1,266			(1,461	)		—			(195	)		1,012			(1,269	)		—			(257	)
Net (loss) income	$	(4,223	)	$	3,748		$	(229	)	$	(704	)
Net income (loss)													$	961		$	3,531		$	(302	)	$	4,190
Adjusted EBITDA ⁽²⁾	$	(1,945	)	$	5,035		$	(209	)	$	2,881		$	(1,587	)	$	2,778		$	(95	)	$	1,096
(Loss) income per share – basic	$	(0.09	)	$	0.08		$	(0.00	)	$	(0.01	)
(Loss) income per share – diluted	$	(0.09	)	$	0.08		$	(0.00	)	$	(0.01	)
Earnings (losses) per share – basic													$	0.02		$	0.07		$	(0.01	)	$	0.08
Earnings (losses) per share – diluted													$	0.02		$	0.07		$	(0.01	)	$	0.08

For the nine months ended September 30, 2020

Produce

Pure
Sunfarms ⁽¹⁾

Hemp ⁽¹⁾

Total

Sales

$
122,722

$
22,958

$
98

$
145,778

Cost of sales

(112,809
)

(13,782
)

(120
)

(126,711
)
Selling, general and administrative expenses

(12,676
)

(3,870
)

(500
)

(17,046
)
Stock compensation expense

(1,329
)

—

—

(1,329
)
Gain on settlement agreement

4,681

—

—

4,681

Gain on settlement of net liabilities

—

2,496

—

2,496

Loss on disposal of assets

(6
)

5

99

98

Other expense, net

(1,484
)

(634
)

(129
)

(2,247
)
Recovery of (provision for) income taxes

607

(1,736
)

—

(1,129
)
Net (loss) income

$
(294
)

$
5,437

$
(552
)

$
4,591

Adjusted EBITDA ⁽²⁾

$
1,871

$
6,365

$
(315
)

$
7,921

(Loss) income per share – basic

$
(0.00
)

$
0.09

$
(0.01
)

$
0.08

(Loss) income per share – diluted

$
(0.00
)

$
0.09

$
(0.01
)

$
0.08

For the nine months ended September 30, 2019

Produce

Pure
Sunfarms ⁽¹⁾

Hemp ⁽¹⁾

Total

Sales

$
111,512

$
32,011

$
—

$
143,523

Cost of sales

(114,418
)

(8,137
)

—

(122,555
)
Selling, general and administrative expenses

(11,899
)

(3,334
)

(378
)

(15,611
)
Stock compensation expense

(2,663
)

—

—

(2,663
)
Gain on disposal of assets

13,558

—

—

13,558

Other expense, net

(810
)

(322
)

—

(1,132
)
Recovery of (provision for) income taxes

114

(5,725
)

—

(5,611
)
Net (loss) income

$
(4,606
)

$
14,493

$
(378
)

$
9,509

Adjusted EBITDA (2)

$
(9,020
)

$
17,710

$
(364
)

$
8,326

(Loss) income per share – basic

$
(0.09
)

$
0.30

$
(0.01
)

$
0.20

(Loss) income per share – diluted

$
(0.09
)

$
0.29

$
(0.01
)

$
0.19

The adjusted results are not generally accepted measures of financial performance under GAAP. Our method of calculating these financial performance measures may differ from other companies and accordingly, they may not be comparable to measures used by other companies.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to debt instruments, derivatives, and other contracts that reference LIBOR or other reference rates expected to be discontinued as a result of reference rate reform. This guidance is optional and may be elected through December ~~2019,~~31, 2022 using a prospective application on all eligible contract modifications. The Company has a line of credit that incorporates LIBOR as a referenced interest rate. It is difficult to predict what effect, if any, the ~~FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying~~phase-out of LIBOR and the ~~Accounting for Income Taxes.” ASU 2019-12 simplifies~~use of alternative benchmarks may have on the ~~accounting for income taxes by removing~~Company’s business or on the overall financial markets. The Company has not adopted any of the optional expedients or exceptions ~~within~~through March 31, 2021 but will continue to evaluate 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 effectpossible adoption of any ~~enacted changes in tax laws~~such expedients 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. We are currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.exceptions.

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 Form 10-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.

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its long-term debt, for which the interest rates charged fluctuate based on the 90-day LIBOR rate. If interest rates had been 50 basis points higher (lower), the net income for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ would have been higher (lower) by ~~$117~~$81 and ~~$128,~~$40, respectively. This represents ~~$117~~$81 and ~~$128~~$40 in increased (decreased) interest expense for the ~~periods~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ 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.

As of ~~September 30,~~March 31, 2021, and 2020, ~~and 2019,~~ the Canadian/U.S. foreign exchange rate was C$1.00 = US$~~0.7482~~0.7941 and C$1.00 = US$~~0.7552,~~0.7056, respectively. Assuming that 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 ~~September 30,~~March 31, 2021 and March 31, 2020 ~~and September 30, 2019~~ with the net foreign exchange gain or loss directly impacting net income (loss).

	September 30, 2020			September 30, 2019			March 31, 2021			March 31, 2020
Financial assets
Cash and cash equivalents	$	6,298		$	189		$	1,365		$	1,179
Trade receivables		340			367			3,180			181
JV notes receivable		1,464			1,387			—			1,451
Inventories								3,998			—
Prepaid and deposits								764			—
Financial liabilities
Trade payables and accrued liabilities		(454	)		(658	)		(4,312	)		(266	)
Loan payable		(121	)		(163	)		(4,798	)		(142	)
Deferred tax liability								(2,209	)		—
Net foreign exchange gain (loss)	$	7,527		$	1,122		$	(2,012	)	$	2,403

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 to our market risks from those disclosed in Part II, Item 7A of our Annual Report on Form 10-K.

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.

The Company’s Chief Executive Officer and Principal Financial and Accounting Officer evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the Chief Executive Officer and the Principal Financial and Accounting Officer concluded that, as of the end of the period covered by this Quarterly Report, the Company’s disclosure controls and procedures are effective.

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 the Company’s internal control over financial reporting during the quarter ended ~~September 30, 2020~~March 31, 2021 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.

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,~~2020, as filed with the SEC on ~~April 1, 2020,~~March 15, 2021 and amended on March 18, 2021, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 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 on Form 10-Q. During the quarter ended ~~September 30, 2020,~~March 31, 2021, there have been no material changes from the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K, for the year ended December 31, 2019, except as described in Part I, 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”)”.2020.

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

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.

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

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Interim Financial Statements (Unaudited)
	Condensed Consolidated Interim Statements of Financial Position		1
	~~Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss)~~		2
	Condensed Consolidated Interim Statements of ~~Changes in Shareholders’ Equity~~Income (Loss) and Comprehensive Income (Loss)		3
	Condensed Consolidated Interim Statements of ~~Cash Flows~~Changes in Shareholders’ Equity		4
	Condensed Consolidated Interim Statements of Cash Flows		5
	Notes to Condensed Consolidated Interim Financial Statements		56
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1716
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		31
Item 4.	Controls and Procedures		31

PART II - OTHER INFORMATION			3233
Item 1.	Legal Proceedings		3233
Item 1A.	Risk Factors		3233
Item 6.	Exhibits		3233

	Signatures		3334

~~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~~

Classification	March 31, 2021		December 31, 2020
Cannabis:
Available for sale - flower and trim	$	13,785	$	12,720
Distilled oil		14,288		13,511
Capitalized production costs		1,108		3,438
Other		2,436		2,552
Produce and Energy:
Crop inventory		14,454		13,441
Purchased produce inventory		650		810
Spare parts inventory		130		127
Inventory	$	46,851	$	46,599

	Three Months Ended September 30, 2019
	Number of Common Shares		Common Stock			Additional paid in capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Shareholders’ Equity
Balance at July 1, 2019		49,273,786	$	76,435		$	3,101		$	(482	)	$	32,138		$	111,192
Shares issued in public offering, net of issuance costs		—		(60	)		—			—			—			(60	)
Shares issued on exercise of stock options		31,216		109			(78	)		—			—			31
Share-based compensation		35,333		—			666			—			—			666
Cumulative translation adjustment		—		—			—			(22	)		—			(22	)
Net loss		—		—			—			—			(704	)		(704	)
Balance at September 30, 2019		49,340,335	$	76,484		$	3,689		$	(504	)	$	31,434		$	111,103

	Nine Months Ended September 30, 2020
	Number of Common Shares		Common Stock		Additional paid in capital			Accumulated Other Comprehensive Loss			Retained Earnings		Total Shareholders’ Equity
Balance at January 1, 2020		52,656,669	$	98,333	$	4,351		$	(475	)	$	24,250	$	126,459
Shares issued in public offering, net of issuance costs		12,989,976		42,569		—			—			—		42,569
Warrants issued in public offering		—		—		11,369			—			—		11,369
Shares issued on exercise of stock options		313,165		408		(157	)		—			—		251
Share-based compensation		—		—		1,329			—			—		1,329
Cumulative translation adjustment		—		—		—			(41	)		—		(41	)
Net income		—		—		—			—			4,591		4,591
Balance at September 30, 2020		65,959,810	$	141,310	$	16,892		$	(516	)	$	28,841	$	186,527

Fiscal period
Remainder of 2021	$	590
2022		786
2023		780
2024		780
2025		688
Thereafter		9,960
Intangibles, net	$	13,584

	~~September 30, 2020~~March 31, 2021
Weighted average remaining lease term:
Operating leases		~~4.4~~4.1
Finance leases		~~1.3~~1.1
Weighted average discount rate:
Operating leases		~~5.77~~5.73	%
Finance leases		6.25	%

	Operating leases			Finance leases
Remainder of 2020	$	315		$	12
2021		1,305			30
2022		1,090			9
2023		870			—
2024		512			—
Thereafter		691			—
Undiscounted lease cash flow commitments		4,783			51
Reconciling impact from discounting		(607	)		(5	)
Lease liabilities on consolidated statement of financial position as of September 30, 2020	$	4,176		$	46

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		16,393
Share of net income for the period		5,437
Balance, September 30, 2020	$	63,164

	September 30, 2020			December 31, 2019
Current assets
Cash and cash equivalents	$	6,751		$	7,356
Trade receivables		13,543			8,687
Inventory		33,676			21,745
Other current assets		5,759			6,964
Non-current assets		115,720			108,652
Current liabilities
Trade payables		(3,422	)		(4,938	)
Borrowings due to joint ventures		(11,022	)		(26,413	)
Income taxes payable		—			(8,489	)
Borrowings – current		(2,291	)		(1,423	)
Other current liabilities		(10,156	)		(5,021	)
Non-current liabilities
Borrowings – long term		(23,709	)		(13,089	)
Deferred tax liabilities		(13,742	)		(2,473	)
Net assets	$	111,107		$	91,558
Reconciliation of net assets:
Accumulated retained earnings	$	36,091		$	26,679
Contributions from joint venture partners		75,738			63,481
Currency translation adjustment		(722	)		1,398
Net assets	$	111,107			91,558

~~Balance, January 1, 2019~~	$	—
~~Investments in joint venture~~		7
~~Share of net loss~~		~~(2,464~~	)
~~Losses applied against joint venture note receivable~~		~~2,457~~
~~Balance, December 31, 2019~~	$	—
~~Balance, January 1, 2020~~	$	—
~~Investments in joint venture~~		—
~~Share of net loss~~		~~(552~~	)
~~Losses applied against joint venture note receivable~~		~~552~~
~~Balance, September 30, 2020~~	$	—

Balance, January 1, 2020	$	—
Share of net loss		(3,975	)
Losses applied against joint venture note receivable		3,975
Balance, December 31, 2020	$	—
Balance, January 1, 2021	$	—
Share of net loss		(127	)
Losses applied against joint venture note receivable		127
Balance, March 31, 2021	$	—

	March 31, 2021			December 31, 2020
Term Loan - ("FCC Loan") - repayable by monthly principle of payments of $164 and accrued interest at a rate of 3.766%; matures April 1, 2025	$	28,198		$	28,690
Term Loan - VFCE: CA$3.0M - non-revolving fixed rate loan with fixed interest rate of 4.98%; matures June 2023		730			797
Advance on term loan - VFCE: CA$250 - repayable in monthly installments of principle plus interest rate of CA$ prime rate plus 200 basis points		60			69
Term Loan - Pure Sunfarms - CA$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 4.2%; matures February, 2024		13,177			13,385
Term loan - Pure Sunfarms - CA$25.0 - 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 4.2%; matures February 2024		19,713			16,535
BDC Facility - Pure Sunfarms - non-revolving demand loan at prime interest plus 3.75%, matures December 31, 2031		4,989			4,905
Unamortized deferred financing fees		(564	)		(302	)
Total	$	66,303		$	64,079

	September 30, 2020		December 31, 2019
Pure Sunfarms	$	10,954	$	15,418
VF Hemp		10,713		10,865
Total	$	21,667	$	26,283

	Number of Performance -based Shares			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2019		739,000		CA$	7.92
Granted		810,000		CA$	6.26
Received		(40,000	)	CA$	11.44
Forfeited/expired		(98,000	)	CA$	9.59
Outstanding at September 30, 2020		1,411,000		CA$	6.75
Exercisable at September 30, 2020		—		CA$	—

	Number of Performance-based Restricted Share Units			Weighted Average Grant Date Fair Value
Outstanding at January 1, 2021		869,000		C$	7.51
Received		(243,000	)	C$	6.53
Outstanding at March 31, 2021		626,000		C$	7.89
Exercisable at March 31, 2021		5,000		C$	5.79

	For the nine months ended September 30,
Percent of Sales by Product Group	2020			2019
Tomatoes		90	%		85	%
Peppers		6	%		6	%
Cucumbers		4	%		9	%
		100	%		100	%

	Maximum		Outstanding September 30, 2020
Operating loan	CA$	13,000	$	3,000
Term loan	$	29,182	$	29,182
VFCE loan	CA$	1,210	CA$	1,210

(in thousands of U.S. dollars unless otherwise noted)	Maximum		Outstanding March 31, 2021
Operating Loan⁽¹⁾	C$	13,000	$	—
Term Loan	$	28,198	$	28,198
Pure Sunfarms Loans	C$	46,990	C$	46,990
VFCE Loan	C$	995	C$	995

Breakout of JV Adjusted EBITDA	For the three months ended September 30,						For the nine months ended September 30,
	2020			2019			2020			2019
Pure Sunfarms Adjusted EBITDA	$	2,511		$	5,035		$	6,365		$	17,710
VFH Adjusted EBITDA		(178	)		(209	)		(315	)		(364	)
Total JV Adjusted EBITDA	$	2,333		$	4,826		$	6,050		$	17,346

	For the Three months ended September 30, 2020
	Produce			Pure Sunfarms ⁽¹⁾			Hemp⁽¹⁾			Total
Sales	$	43,037		$	10,007		$	—		$	53,044
Cost of sales		(37,418	)		(6,547	)		—			(43,965	)
Selling, general and administrative expenses		(4,942	)		(1,436	)		(213	)		(6,591	)
Stock compensation expense		(472	)		—			—			(472	)
Gain on disposal of assets		—			—			89			89
Other expense, net		(655	)		(336	)		(13	)		(1,004	)
Provision for income taxes		(336	)		(245	)		—			(581	)
Net (loss) income	$	(786	)	$	1,443		$	(137	)		520
Adjusted EBITDA⁽²⁾	$	2,223		$	2,511		$	(178	)	$	4,556
(Loss) income per share – basic	$	(0.01	)	$	0.02		$	(0.00	)	$	0.01
(Loss) income per share – diluted	$	(0.01	)	$	0.02		$	(0.00	)	$	0.01

Exhibit Number		Description of Document

~~4.1~~		~~Form of Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 105, 2020)~~

10.1		~~Employment~~Amended and Restated Credit Agreement ~~dated as of July 13, 2020,~~ by and between Village Farms ~~International, Inc.~~Canada Limited Partnership and ~~Michael A. DeGiglio (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 14, 2020)~~Village Farms, L.P., and Bank of Montreal, dated May 7, 2021 +.

~~10.2~~		Purchase Agreement, dated September 8, 2020, between Village Farms International Inc. and Emerald Health Therapeutics Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 10, 2020)*

~~10.3~~		Secured Promissory Note by and between the Company and Emerald Health Therapeutics, Inc., dated November 2, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 2, 2020)

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

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

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

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

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document^*
~~+Indicates management contract or compensatory plan.~~
104		The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101

	VILLAGE FARMS INTERNATIONAL, INC.

	By:	/s/ Stephen C. Ruffini
		Name:	Stephen C. Ruffini

		Title:	Executive Vice President and Chief Financial Officer

		(Authorized Signatory and Principal Financial and Accounting Officer)
Date: ~~November 12, 2020~~May 10, 2021

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company