(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 ~~August 8, 2021, 80,964,491~~May 6, 2022, 88,561,929 common shares ~~of common stock~~ were issued and outstanding.

As used in this Quarterly Report on Form 10-Q, the terms “Village ~~Farms”,~~Farms,” “Village Farms ~~International”,~~International,” the ~~“Company”, “we”, “us”,~~“Company,” “we,” “us,” “our” and similar references refer to Village Farms International, Inc. and our consolidated subsidiaries, and the term “Common Shares” refers to our common shares, no par value. Our financial information is presented in U.S. dollars and all references in this Quarterly Report on Form 10-Q to “$” means U.S. dollars and all references to “C$” means Canadian dollars.

This Quarterly Report on Form 10-Q the following trademarks, trade names and service marks of ours: Village Farms®, Delectable TOV®, From Our House To Your Home®, Mini Sensations®, Sinfully Sweet Campari®, Heavenly Villagio Marzano®, BC Grown Logo®, Texas Grown Logo®, Good for the Earth ®, Village Farms Greenhouse Grown ®, Village Fields®, Pure SunfarmsTM, Pure Sunfarms BC GrownTM, Farm to FlowerTM, No Sun No FlowerTM, Plants and People FirstTM, Pure ProvisionsTM, Rise with the SunTM, The BakeryTM, Purple Sun GodTM, and Pure Sun CBDTM. This report also contains trademarks, trade names and service marks that are owned by other persons or entities.

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 Rose LifeScience Inc. (“Rose”), Balanced Health Botanicals, LLC (“Balanced Health”), Pure Sunfarms, Inc. and our operations of growing hemp in the United States; the legal status of Pure Sunfarms, Rose and Balanced Health cannabis business; risks relating to the integration of Balanced Health and Rose into our 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, CBD, cannabinoids, and agricultural businesses; market position, ability to leverage current business relationships for future business involving hemp and cannabinoids, the ability of Pure Sunfarms and Rose 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 ~~maintain~~obtain licenses for its Delta 2 ~~and Delta 3~~ greenhouse ~~facilities~~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 ~~(including Food~~(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.

	June 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	114,029	$	21,640	$	34,623	$	53,417
Restricted cash		9,157		4,039		6,810		5,250
Trade receivables		41,303		23,222		35,857		34,360
Inventories		48,607		46,599		79,611		68,677
Note receivable - joint venture						3,207		—
Other receivables		756		145		582		616
Income tax receivable		21		18		3,631		2,430
Prepaid expenses and deposits		8,127		6,145		10,662		10,209
Total current assets		222,000		101,808		174,983		174,959
Non-current assets
Property, plant and equipment		196,236		187,020		220,616		215,704
Note receivable - joint venture						—		3,256
Investment in minority interests		2,227		1,226		2,109		2,109
Note receivable - joint venture		3,344		3,545
Goodwill		24,698		24,027		119,597		117,533
Intangibles		17,311		17,311		26,512		26,394
Deferred tax asset		15,869		13,312		18,682		16,766
Operating right-of-use assets		3,267		3,797
Finance right-of-use assets		—		35
Right-of-use assets						7,195		7,609
Other assets		2,432		1,950		6,088		2,581
Total assets	$	487,384	$	354,031	$	575,782	$	566,911
LIABILITIES
Current liabilities
Line of credit	$	—	$	2,000	$	9,880	$	7,760
Trade payables		19,425		15,064		23,998		22,597
Current maturities of long-term debt		10,889		10,166		10,585		11,416
Note payable		—		15,314
Accrued sales taxes						9,235		3,899
Accrued loyalty program						1,728		2,098
Accrued liabilities		28,818		22,438		15,659		14,168
Operating lease liabilities - current		1,134		1,107
Finance lease liabilities - current		15		27
Income tax payable		1,760		4,523
Lease liabilities - current						872		962
Other current liabilities		4,752		1,641		1,549		1,413
Total current liabilities		66,793		72,280		73,506		64,313
Non-current liabilities
Long-term debt		54,583		53,913		49,749		50,419
Deferred tax liability		18,292		18,059		21,257		18,657
Operating lease liabilities - non-current		2,284		2,855
Finance lease liabilities - non-current		1		8
Lease liabilities - non-current						6,366		6,711
Other liabilities		1,895		1,633		2,076		1,973
Total liabilities		143,848		148,748		152,954		142,073
Commitments and contingencies (note 17)
Commitments and contingencies
MEZZANINE EQUITY
Redeemable non-controlling interest						16,271		16,433
SHAREHOLDERS’ EQUITY
Common stock, no par value per share - unlimited shares authorized; 81,392,588 shares issued and 80,964,491 shares outstanding at June 30, 2021, and 66,911,811 shares issued and outstanding at December 31, 2020.		302,497		145,668
Common stock, no par value per share - unlimited shares authorized; 88,561,929 shares issued and outstanding at March 31, 2022 and 88,233,929 shares issued and outstanding at December 31, 2021.						365,737		365,561
Additional paid in capital		6,748		17,502		10,333		9,369
Accumulated other comprehensive income		10,332		6,255		10,225		6,696
Retained earnings		23,959		35,858		20,262		26,779
Total shareholders’ equity		343,536		205,283		406,557		408,405
Total liabilities and shareholders’ equity	$	487,384	$	354,031
Total liabilities, mezzanine equity and shareholders’ equity					$	575,782	$	566,911

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

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

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Sales

$
70,374

$
47,573

$
122,770

$
79,685

Cost of sales

(65,109
)

(44,044
)

(115,198
)

(75,391
)
Gross margin

5,265

3,529

7,572

4,294

Selling, general and administrative expenses

(9,025
)

(3,813
)

(17,117
)

(7,734
)
Share-based compensation

(1,887
)

(328
)

(3,885
)

(857
)
Interest expense

(598
)

(437
)

(1,339
)

(974
)
Interest income

46

93

49

476

Foreign exchange gain (loss)

193

530

(311
)

(396
)
Gain on settlement agreement

—

—

—

4,681

Other (expense) income

(166
)

26

(235
)

65

Loss on disposal of assets

(40
)

—

(40
)

(6
)
Loss before taxes and earnings of unconsolidated entities

(6,212
)

(400
)

(15,306
)

(451
)
Recovery of (provision for) income taxes

1,781

(69
)

3,620

943

(Loss) income from consolidated entities after income taxes

(4,431
)

(469
)

(11,686
)

492

Equity (losses) earnings from unconsolidated entities

(86
)

350

(213
)

3,579

Net (loss) income

$
(4,517
)

$
(119
)

$
(11,899
)

$
4,071

Basic (loss) income per share

$
(0.06
)

$
(0.00
)

$
(0.15
)

$
0.07

Diluted (loss) income per share

$
(0.06
)

$
(0.00
)

$
(0.15
)

$
0.07

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

Basic

81,071

56,339

78,560

54,636

Diluted

81,071

56,339

78,560

55,756

Net (loss) income

$
(4,517
)

$
(119
)

$
(11,899
)

$
4,071

Other comprehensive income (loss):

Foreign currency translation adjustment

2,366

55

4,077

(72
)
Comprehensive (loss) income

$
(2,151
)

$
(64
)

$
(7,822
)

$
3,999

	Three Months Ended March 31,
	2022			2021
Sales	$	70,156		$	52,396
Cost of sales		(60,252	)		(50,089	)
Gross margin		9,904			2,307
Selling, general and administrative expenses		(16,971	)		(8,092	)
Share-based compensation		(964	)		(1,998	)
Interest expense		(683	)		(741	)
Interest income		110			3
Foreign exchange gain (loss)		319			(504	)
Other expense		(8	)		(69	)
Loss before taxes and loss from equity method investments		(8,293	)		(9,094	)
Recovery of income taxes		1,666			1,839
Loss from equity method investments		(52	)		(127	)
Loss including non-controlling interests		(6,679	)		(7,382	)
Less: net loss attributable to non-controlling interests, net of tax		162			—
Net loss attributable to Village Farms International, Inc.	$	(6,517	)	$	(7,382	)
Basic loss per share attributable to Village Farms International, Inc. shareholders	$	(0.07	)	$	(0.10	)
Diluted loss per share attributable to Village Farms International, Inc. shareholder	$	(0.07	)	$	(0.10	)
Weighted average number of common shares used in the computation of net loss per share (in thousands):
Basic		88,376			76,002
Diluted		88,376			76,002
Loss including non-controlling interests	$	(6,679	)	$	(7,382	)
Less: net loss attributable to non-controlling interests, net of tax		162			—
Net loss attributable to Village Farms International, Inc.		(6,517	)		(7,382	)
Other comprehensive loss:
Foreign currency translation adjustment		461			1,711
Comprehensive loss attributable to Village Farms International, Inc. shareholders	$	(6,056	)	$	(5,671	)

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

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

	Three Months Ended June 30, 2021																Three Months Ended March 31, 2022
	Number of Common Shares (in thousands)			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			Mezzanine Equity
Balance at April 1, 2021		81,191		$	301,092	$	9,353		$	7,966	$	28,476		$	346,887
Shares issued on exercise of warrants		143			1,307		(475	)		—		—			832
Balance at January 1, 2022																		88,234	$	365,561	$	9,369	$	6,696	$	26,779		$	408,405		$	16,433
Shares issued on exercise of stock options		58			98		(37	)		—		—			61			328		176		—		—		—			176			—
Share re-purchases		(428	)		—		(3,980	)		—		—			(3,980	)
Share-based compensation		—			—		1,887			—		—			1,887			—		—		964		—		—			964			—
Cumulative translation adjustment		—			—		—			2,366		—			2,366			—		—		—		3,529		—			3,529			—
Net loss		—			—		—			—		(4,517	)		(4,517	)		—		—		—		—		(6,517	)		(6,517	)		(162	)
Balance at June 30, 2021		80,964		$	302,497	$	6,748		$	10,332	$	23,959		$	343,536
Balance at March 31, 2022																		88,562	$	365,737	$	10,333	$	10,225	$	20,262		$	406,557		$	16,271

Three Months Ended June 30, 2020

Number of Common
Shares (in thousands)

Common Stock

Additional paid in
capital

Accumulated Other
Comprehensive Loss

Retained Earnings

Total Shareholders’
Equity

Balance at April 1, 2020

56,250

$
105,656

$
4,880

$
(602
)

$
28,440

$
138,374

Shares issued in public offering, net of issuance costs

—

(29
)

—

—

—

(29
)
Shares issued on exercise of stock options

152

202

(80
)

122

Share-based compensation

—

—

328

—

—

328

Cumulative translation adjustment

—

—

—

55

—

55

Net loss

—

—

—

—

(119
)

(119
)
Balance at June 30, 2020

56,402

$
105,829

$
5,128

$
(547
)

$
28,321

$
138,731

Six Months Ended June 30, 2021

Number of
Common
Shares

Common
Stock

Additional
paid in
capital

Accumulated
Other
Comprehensive
Loss

Retained
Earnings

Total
Shareholders’
Equity

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

10,887

127,489

—

—

—

127,489

Warrants issued in public offering

3,188

29,050

(10,555
)

—

—

18,495

Shares issued on exercise of stock options

162

290

(104
)

—

—

186

Share re-purchases

(428
)

—

(3,980
)

—

—

(3,980
)
Share-based compensation

243

—

3,885

—

—

3,885

Cumulative translation adjustment

—

—

—

4,077

—

4,077

Net loss

—

—

—

—

(11,899
)

(11,899
)
Balance at June 30, 2021

80,964

$
302,497

$
6,748

$
10,332

$
23,959

$
343,536

	Six Months Ended June 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		Retained Earnings			Total Shareholders’ Equity			Mezzanine Equity
Balance at January 1, 2020		52,657	$	98,333	$	4,351		$	(475	)	$	24,250	$	126,459
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		3,593		7,294		—			—			—		7,294			10,887		127,489		—			—		—			127,489			—
Shares issued on exercise of warrant																	3,045		27,743		(10,080	)		—		—			17,663			—
Shares issued on exercise of stock options		152		202		(80	)		—			—		122			104		192		(67	)		—		—			125			—
Share-based compensation		—		—		857			—			—		857			243		—		1,998			—		—			1,998			—
Cumulative translation adjustment		—		—		—			(72	)		—		(72	)		—		—		—			1,711		—			1,711			—
Net income		—		—		—			—			4,071		4,071
Balance at June 30, 2020		56,402	$	105,829	$	5,128		$	(547	)	$	28,321	$	138,731
Net loss																	—		—		—			—		(7,382	)		(7,382	)		—
Balance at March 31, 2021																	81,191	$	301,092	$	9,353		$	7,966	$	28,476		$	346,887		$	—

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

	Six Months Ended June 30,						Three Months Ended March 31,
	2021			2020			2022			2021
Cash flows (used in) provided by operating activities:
Net (loss) income	$	(11,899	)	$	4,071
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Cash flows used in operating activities:
Net loss							$	(6,517	)	$	(7,382	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		6,536			3,021			3,128			3,225
Amortization of deferred charges		166			38			66			78
Share of loss (income) from joint ventures		213			(3,579	)
Share of loss from joint ventures								52			127
Interest expense		1,339			974			683			741
Interest income		(49	)		(476	)		(110	)		(3	)
Interest paid on long-term debt		(1,909	)		(1,018	)		(747	)		(851	)
Unrealized foreign exchange gain/loss		161			—			113			—
Gain on settlement agreement		—			(4,681	)
Loss on disposal of assets		40			6
Non-cash lease expense		(254	)		(627	)		(116	)		(128	)
Interest paid on finance lease		(1	)		(2	)
Share-based compensation		3,885			857			964			1,998
Deferred income taxes		(3,199	)		(400	)		(2,062	)		(2,538	)
Changes in non-cash working capital items		(10,239	)		3,961			(5,091	)		(9,703	)
Net cash (used in) provided by operating activities		(15,210	)		2,145
Net cash used in operating activities								(9,637	)		(14,436	)
Cash flows used in investing activities:
Purchases of property, plant and equipment		(11,355	)		(452	)		(5,263	)		(4,706	)
Note receivable								(3,442	)		—
Advances to joint ventures		(12	)		(125	)		—			(5	)
Investment in joint ventures		—			(11,713	)
Investment in minority interests		(1,001	)		—			—			(500	)
Net cash used in investing activities		(12,368	)		(12,290	)		(8,705	)		(5,211	)
Cash flows provided by financing activities:
Proceeds from borrowings		4,227			3,000			2,120			4,176
Repayments on borrowings		(6,026	)		(2,652	)		(983	)		(4,223	)
Proceeds from issuance of common stock and warrants		135,000			7,957			—			135,000
Issuance costs		(7,511	)		(663	)		—			(7,511	)
Proceeds from exercise of stock options		186			122			176			125
Proceeds from exercise of warrants		18,495			—			—			17,663
Share re-purchases		(3,980	)		—
Payments on capital lease obligations		(310	)		(39	)		(301	)		(155	)
Payment of note payable related to acquisition		(15,498	)		—			—			(15,498	)
Net cash provided by financing activities		124,583			7,725			1,012			129,577
Effect of exchange rate changes on cash and cash equivalents		502			(1	)		96			178
Net increase in cash and cash equivalents		97,507			(2,421	)
Net (decrease) increase in cash and cash equivalents								(17,234	)		110,108
Cash and cash equivalents, beginning of period		25,679			11,989			58,667			25,679
Cash and cash equivalents, end of period	$	123,186		$	9,568		$	41,433		$	135,787

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”) and together with its subsidiaries ~~the~~(the “Company”, “we”, “us”, or “our”) is incorporated under the Canada Business ~~Corporations~~Corporation Act. VFF’s principal operating subsidiaries as of ~~June 30, 2021~~March 31, 2022 are Village Farms Canada Limited Partnership, ~~(“VFCLP”),~~ Village Farms, L.P. ~~(“VFLP”)~~, ~~VF Clean Energy, Inc. (“VFCE”), and~~ Pure Sunfarms Corp. (“Pure Sunfarms” ~~or “PSF”~~), and Balanced Health Botanicals, LLC (“Balanced Health”). VFF also owns a 70% interest in Rose LifeScience Inc. (“Rose”).

The address of the registered office of VFF is ~~4700-80th~~4700 80th Street, Delta, British Columbia, Canada, V4K 3N3. ~~VFF also owns a 65% equity interest in Village Fields Hemp USA LLC (“VF Hemp”), which is recorded as an equity investment (note 9).~~

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

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

The accompanying unaudited ~~Condensed Consolidated Interim Financial Statements~~condensed consolidated interim financial statements for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 have been prepared in accordance with accounting principles generally accepted in the United States ~~for~~(“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the ~~instructions to~~audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2021, included in our Annual Report on 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. Operating10-K. The results for the ~~three and six months ended June 30, 2021 are subject to seasonal variations and accordingly~~interim periods are not necessarily indicative of the results ~~that may be expected~~ for the ~~year ending December 31, 2021. For further information, refer~~full year.

In the opinion of management, these financial statements include all adjustments, which are of a normal recurring nature, necessary for a fair statement of the financial position, results of operations, comprehensive loss, cash flows and the change in equity for the periods presented.

There have been no changes to ~~the Consolidated Financial Statements and notes thereto included~~our significant accounting policies described in ~~our~~the Annual Report on Form 10-K for the ~~fiscal years~~year ended December 31, ~~2020~~2021 filed with the SEC on March 1, 2022 that have had a material impact on our condensed consolidated interim financial statements and ~~2019.~~related notes.

The condensed consolidated interim financial statements reflect the accounts of the Company and its majority-owned and controlled subsidiaries. All intercompany accounts and transactions between our consolidated operations have been eliminated.

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 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 phase-out of LIBOR and the use of alternative benchmarks may have on the Company’s business or on the overall financial markets. The Company has not adopted any of the optional expedients or exceptions through ~~June 30, 2021~~March 31, 2022 but will continue to evaluate the possible adoption of any such expedients or exceptions.

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

Classification	June 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Cannabis:
Available for sale - flower and trim	$	14,347	$	12,720
Distilled oil		15,530		13,511
Capitalized production costs		978		3,438
Other		4,342		2,552
Raw materials					$	1,789	$	2,071
Work-in-progress						8,854		5,056
Finished goods						40,336		32,161
Packaging						7,091		5,877
Produce and Energy:
Crop inventory		11,909		13,441		18,688		19,475
Purchased produce inventory		1,371		810		818		2,485
Spare parts inventory		130		127
Spare parts inventory and packaging						2,035		1,552
Inventory	$	48,607	$	46,599	$	79,611	$	68,677

Classification	June 30, 2021			December 31, 2020			March 31, 2022			December 31, 2021
Land	$	10,650		$	10,447		$	14,262		$	14,095
Leasehold and land improvements		4,164			4,154			5,231			5,224
Buildings		144,389			142,060			186,239			184,444
Machinery and equipment		71,130			69,390			81,036			79,070
Construction in progress		64,262			52,960			43,442			39,206
Less: Accumulated depreciation		(98,359	)		(91,991	)		(109,594	)		(106,335	)
Property, plant and equipment, net	$	196,236		$	187,020		$	220,616		$	215,704

The following table presents the changes in the carrying value of goodwill by reportable segment for the ~~following as of:~~three months ended March 31, 2022:

~~The expected future amortization expense for definite-lived intangible assets as of June 30, 2021 was as follows:~~

(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, 2022 was as follows:

The Company leases a parcel of land in Marfa, Texas ~~where~~that one of its greenhouses resides on as well as two distribution centers located in Fort Worth, Texas and Surrey, British Columbia. The Company leases production-related equipment at its greenhouses in Texas and British Columbia. The Company also leases an office building located in Lake Mary, Florida for its corporate ~~headquarters.~~ headquarters, and office and manufacturing space in Denver, Colorado for Balanced Health’s headquarters and operations. Rose owns land and leases a building for its headquarters and operations in Montreal, Quebec.

	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2021		2020		2021		2020		2022		2021
Operating cash flows from operating leases	$	126	$	356	$	254	$	627	$	116	$	128
Operating cash flows from finance leases	$	1	$	1	$	1	$	2
Finance cash flows from finance leases	$	155	$	18	$	310	$	39	$	301	$	155

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

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

	Operating leases			Finance leases			Operating leases
Remainder of 2021	$	654		$	9
2022		1,090			9
Remainder of 2022							$	1,560
2023		870			—			1,900
2024		512			—			1,386
2025		258			—			1,145
2026								1,166
Thereafter		433			—			3,183
Undiscounted lease cash flow commitments		3,817			18			10,340
Reconciling impact from discounting		(399	)		(2	)		(3,102	)
Lease liabilities on consolidated statement of financial position as of June 30, 2021	$	3,418		$	16
Lease liabilities on consolidated statement of financial position as of March 31, 2022							$	7,238

On November ~~2, 2020, Village Farms consummated~~15, 2021, the Company entered into a ~~definitive purchase~~Share Purchase Agreement (the “Purchase Agreement”), with Rose and ~~sale agreement with Emerald Health Therapeutics Inc. (“Emerald”~~other parties, including the shareholders of Rose (collectively, the “Rose Sellers”), ~~acquiring 36,958,500 common shares~~for the acquisition of a 70% interest in Rose pursuant to the ~~capital~~terms of ~~Pure Sunfarms owned by Emerald, and increasing Village Farms’ ownership of Pure Sunfarms to 100%. The shares were acquired~~the Purchase Agreement (the “Acquisition”), for a total purchase price (the “Purchase Price”) of C$~~79.9~~46.7 million, ~~(US$60.0 million), satisfied through an initial~~comprised of a cash purchase price of C$~~60.0~~19.9 million ~~(US$45.0 million) cash payment~~ and a ~~C$19.9 million (US$15.0 million) secured promissory note that was payable~~total of 2,411,280 Common Shares of Village Farms (“Village Farms Shares”), subject to ~~Emerald, which promissory note was repaid~~customary purchase price adjustments. The Village Farms Shares issued under the Purchase Agreement are subject to lock-up agreements, and subject to compliance with applicable securities laws, 33% of these shares will be released from lock-up restrictions four (4) months following the Closing Date, another 33% of these shares will be released from lock-up restrictions eight (8) months after the Closing Date and the remaining shares will be released from lock-up restrictions one (1) year after the Closing Date.

Under the terms of the Purchase Agreement, the Company filed a prospectus supplement under our existing shelf registration statement on March 15, 2022 to register for resale all of the Village Farms Shares issued to the Rose Sellers on the Closing Date.

NaN of the co-founders of Rose (the “Management Shareholders”), who were among the Rose Sellers of Rose in ~~full on February 8, 2021.~~

~~The acquisition was~~the Acquisition, have remained in their current roles with Rose post-Acquisition and have retained a ~~business combination and has been accounted for~~non-voting 30% interest in ~~accordance~~Rose (the “Retained Interest”). In conjunction with the ~~measurement~~Acquisition, Village Farms and ~~recognition provisions~~the Management Shareholders have entered into a unanimous shareholders agreement (the “USA”) providing Village Farms with a call option to acquire the Retained Interest between December 31, 2024 and March 31, 2025 or upon the occurrence of ~~Accounting Standards Codification (“ASC”~~certain liquidity events with respect to Village Farms (the “Call Option”) ~~Topic 805,~~ ~~Business Combinations~~ ~~(ASC Topic 850”~~). ~~ASC Topic 805 requires that~~As part of the ~~purchase consideration be allocated~~Call Option, Village Farms can also acquire 34% of the Retained Interest between December 31, 2022 and March 31, 2023. A put right has also been granted to the ~~assets acquired and liabilities assumed in a business combination based upon their estimated fair values at the date of acquisition. The purchase price has been allocated~~Management Shareholders to ~~the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The Company used information available~~require Village Farms 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 were 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. Uponcomplete the acquisition of ~~Pure Sunfarms,~~ the ~~Company identified goodwill~~Retained Interest upon their death or disability or the occurrence of ~~C$30,618 (US$24,698)~~certain liquidity events with respect to Village Farms (the “Put Option”, and together with the Call Option, the “Put/Call Option”). ~~This goodwill~~The price for the Put/Call Option was ~~calculated as the difference between the fair value~~set at a multiple solely based on Rose’s adjusted EBITDA performance of the consideration issued for the acquisition of Pure Sunfarms and the fair value of all assets and liabilities acquired. The goodwill is attributable to the acquired workforce and potential for growth through the conversion of the Delta 1 greenhouse facility and future accretive acquisitions. The Company 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 of $23.6 million due to the revaluation of its previously held investment in Pure Sunfarms to its fair value at the acquisition date. The initial accounting for the business combination was considered complete for the year ended December 31, 2020.

The following table shows the allocation of the purchase price to assets acquired and liabilities assumed, based on estimates of fair value, including a summary of the identifiable classes of consideration transferred, and amounts by category of assets acquired and liabilities assumed at the acquisition date:

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

~~Prior to its acquisition on November 2, 2020, the Company accounted for its investment in Pure Sunfarms, in accordance with ASC Topic 323,~~ ~~Equity Method and Joint Ventures~~ (“ASC Topic 323”), using the equity method. The Company determined that Pure Sunfarms was a variable interest entity (“VIE”), however the Company did not consolidate Pure Sunfarms because the Company was not the primary beneficiary. Although the Company was able to exercise significant influence over the operating and financial policies of Pure Sunfarms through its then 58.7% majority interest, the Company shared joint control of the board of directors and therefore was not the primary beneficiary. For the three and six months ended June 30, 2021 and 2020, the Company’s equity earnings from Pure Sunfarms were $463 and $3,994, respectively.

On March 2, 2020, pursuant to the Settlement Agreement, Emerald transferred to the Company 2.5% of additional equity in Pure Sunfarms. The Company determined the fair value of the equity received from Emerald to be C$6.5 million (US$4.7 million). The Company recorded this amount as a gain and included it as a gain on settlement agreement on the Condensed Consolidated Statement of Income (Loss) and Comprehensive Income (Loss) for the six months ended June 30, 2020.

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

applicable prior calendar year. If exercised upon a liquidity event, the Option Price is subject to a minimum amount which varies depending on the year on which it is exercised.

The consideration for the acquisition of the Retained Interest may, at Village Farms’ sole discretion, be payable solely in cash or in a pre-determined combination of cash and Village Farms Shares based on a formula similar to that used for the issuance of the Village Farms Shares comprising part of the Purchase Price.

~~Summarized financial information~~Based upon preliminary estimates, the Company identified goodwill of ~~Pure Sunfarms:~~

$34,548 and a redeemable NCI classified as temporary mezzanine equity of $16,479. The goodwill has been allocated to the Canadian Cannabis reporting segment. The Company expects to recognize intangible assets but is still in the process of identifying and valuing them as well as the fair value of the Put Option identified and classified as redeemable non-controlling interest. The Company expects the accounting for the business combination to be complete by June 30, 2022.

Three months ended June 30,

Six months ended June 30,

2021

2020

2021

2020

Sales

$
24,762

$
9,386

$
42,221

$
22,523

Cost of sales*

(17,867
)

(6,266
)

(30,189
)

(12,524
)
Gross Margin

6,895

3,120

12,032

9,999

Selling, general and administrative expenses

(4,502
)

(1,850
)

(9,621
)

(4,284
)
Income from operations

2,393

1,270

2,411

5,715

Interest expense, net

(427
)

(131
)

(799
)

(348
)
Foreign exchange (loss) gain

(87
)

28

(236
)

(151
)
Loss on disposal

(40
)

—

(40
)

—

Other income, net**

(269
)

1

(319
)

4,333

Income before taxes

1,570

1,168

1,017

9,549

Provision for income taxes

(779
)

(379
)

(630
)

(2,595
)
Net income

$
791

$
789

$
387

$
6,954

Consideration paid	Shares		Share Price		Amount
Cash					$	15,859
Village Farms common shares issued		2,411,280	$	9.04		21,798
Working capital adjustment						1,055
Total fair value of consideration					$	38,712

The Company’s equity losses from VF Hemp for the three months ended June 30, 2021 and 2020 were ($86) and ($113), respectively, and for the six months ended June 30, 2021 and 2020 were ($213) and ($415), respectively. The Company’s maximum exposure to loss as a result of its involvement with VF Hemp is directly related to the recovery of the $3,344 loan outstanding to VF Hemp.

During the year ended December 31, 2021, the Company exercised its option and purchased additional shares of Altum, bringing the Company’s total investment in Altum to 11.9%.

In September 2021, the Company entered into an option agreement whereby the Company received the irrevocable right to acquire an 80% ownership interest (the “Option Agreement”) in Netherlands-based Leli Holland B.V. (“Leli”) upon payment of EUR50,000 (the “Option”). The Option Agreement allows the Company to acquire 80% of Leli’s shares for EUR3,950,000, of which EUR950,000 is due and payable to Leli’s shareholders upon the exercise of the Option and the remainder due in three equal installments subject to the achievement of certain project development milestones. The option is exercisable at the sole discretion of the Company for a period of 5 years.

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

On March 18, 2022, the Company loaned EUR 2.6 million (US$2.7 million) to L.L. Lichtendahl Beheer B.V, a private company that holds a 50% interest in Leli. The loan bears interest at a rate of 4% per annum. The outstanding loan and accrued interest are to be repaid within 14 days upon written request by the Company.

~~During the six~~Hemp were ($10,400) and ($10,369) as of March 31, 2022 and December 31, 2021, respectively. The net loss for three months ended ~~June 30,~~March 31, 2022 and 2021 the Company exercised a portion of its option to make an additional equity investment in Australia-based Altum International Pty Ltd (“Altum”). In February 2021, the Company exercised 204,000 options at a price of $2.45 per option, thereby increasing its ownership to just under 10.0%. In May 2021, the Company exercised the remaining 204,570 options at a price of $2.45 per option, thereby further increasing its ownership to 12.2%.was $162 and $127, respectively.

June 30, 2021

December 31, 2020

Term Loan - FCC Loan - repayable by monthly principle of payments of $164 and accrued interest at a rate of 3.746%; matures April 1, 2025

$
27,706

$
28,690

Term Loan - VFCE: C$3.0M - non-revolving fixed rate loan with fixed interest rate of 4.98%; matures June 2023

663

797

Advance on term loan - VFCE: C$250 - repayable in monthly installments of principal plus interest rate of C$ prime rate plus 200 basis points - paid in full June 2021

—

69

Term Loan - Pure Sunfarms - C$19.0M - Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50% of the outstanding principal amount, interest rate of 4.2%; matures February, 2024

12,895

13,385

Term loan - Pure Sunfarms - C$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

19,141

16,535

BDC Facility - Pure Sunfarms - non-revolving demand loan at prime interest plus 3.75%, matures December 31, 2031

5,067

4,905

Unamortized deferred financing fees

—

(302
)
Total

$
65,472

$
64,079

	March 31, 2022		December 31, 2021
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	$	26,230	$	26,723
Term Loan - VFCE: CA$3.0M - non-revolving fixed rate loan with fixed interest rate of 4.98%; matures June 2023		—		491
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		11,670		11,870
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		17,562		17,806
BDC Facility - Pure Sunfarms - non-revolving demand loan at prime interest plus 3.75%, matures December 31, 2031		4,872		4,946
Unamortized deferred financing fees		—		—
Total	$	60,334	$	61,836

The carrying value of the assets and securities pledged as collateral for the FCC Loan as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was ~~$196,536~~$192,344 and ~~$86,664,~~$233,187, respectively.

The carrying value of the assets pledged as collateral for the Operating Loan as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was ~~$28,149~~$33,840 and ~~$23,443,~~$34,741, respectively.

On March 2, 2022, the Company repaid the outstanding balance on the VFCE Term Loan and related advance balance on term loan.

The Pure Sunfarms line of credit had $7,880 and $7,760 outstanding as of March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022 and December 31, 2021, Pure Sunfarms had an outstanding letter of credit issued to BC Hydro against the revolving line of credit of $4,039.

The weighted average interest rate on short-term borrowings as of March 31, 2022 and December 31, 2021 was 5.05% and 5.15%, respectively.

Accrued interest payable on the credit facilities and loans as of March 31, 2022 and December 31, 2021 was $234 and $304, respectively, and these amounts are included in accrued liabilities in the statements of financial position. The Company is required to comply with financial covenants, measured either quarterly or annually depending on the covenant. As of March 31, 2022 the Company was in compliance with ~~all of its credit facility covenants as of June 30, 2021.~~the financial covenants.

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

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 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 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 PSF Revolving Line of Credit had 0 balance as of June 30, 2021 and December 31, 2020, respectively.

~~The weighted average annual interest rate on short-term borrowings as of June 30, 2021 and December 31, 2020 was 5.07%and 5.11%, respectively.~~

Accrued interest payable on the Credit Facilities and loans as of June 30, 2021 and December 31, 2020 was $79 and $189, respectively, and these amounts are included in accrued liabilities in the Condensed Interim Statements of Financial Position.

The aggregate annual maturities of long-term debt for the remainder of ~~2021~~2022 and thereafter are as follows:

Remainder of 2021	$	3,879
2022		8,033
Remainder of 2022			$	6,226
2023		7,675		7,454
2024		26,663		26,446
2025		22,307		22,327
2026				700
Thereafter		3,579		2,879
Total	$	72,136	$	66,032

The Company’s financial instruments include cash and cash equivalents, trade receivables, note receivables, minority investments, trade payables, accrued liabilities, lease liabilities, note payables and debt. The carrying value of cash and cash equivalents, trade receivables, notes receivable, trade payables, and accrued liabilities approximate their fair values due to the short-term maturity of these financial instruments. The carrying value of lease liabilities, notes payable, and debt approximate their fair values due to insignificant changes in credit risk. For its 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 February 10, 2022, the Company entered into an AUD 1 million (US$719) convertible promissory note with Altum (the “Note”). Interest will accrue at a rate of 12% per annum, calculated monthly. Unless earlier repaid, or converted into ordinary shares of Altum, the principal and accrued interest of the Note will be due and payable on August 10, 2023. As of March 31, 2022, the balance of the Note including accrued interest was $727.

On March 25, 2019, the Company entered into a Grid Loan Agreement (the “Grid Loan”) with VF Hemp. The Grid Loan ~~has a~~had an original maturity date of March 25, ~~2022 and bears simple interest at the rate of 8% per annum, calculated monthly.~~2022. The maturity date has been extended to June 30, 2022. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Grid Loan balance was ~~$3,344~~$3,207 and ~~$3,545,~~$3,256, respectively.

One of the Company’s employees is related to a member of the Company’s executive management team and received approximately ~~$67~~$24 and ~~$55~~$37 in salary and benefits during the ~~six~~three months ~~ended June 30,~~ending March 31, 2022 and 2021, ~~and 2020,~~ respectively.

During 2020, the Company advanced a loan of $249 to an employee in connection with a relocation at the request of the Company. During the six months ended June 30, 2021, the employee repaid $124 of the outstanding loan balance. On July 7, 2021, the Company forgave the remaining balance.

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 ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and June 30, 2020~~ was ~~24%~~26%.

~~For~~The recovery of income taxes was $1,666 for the three months ended ~~June 30, 2021 and 2020, there was a recovery of income taxes of $1,781 and provision for income taxes of $(69), respectively. There was a recovery of income taxes of $3,620 and $943~~ March 31, 2022 compared to $1,839for the ~~six~~three months ended ~~June 30, 2021 and 2020, respectively.~~March 31, 2021.

(In thousands of 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~~

As of March 31, 2022 the ~~Company operates in 3 segments. The~~ Company’s ~~three~~4 reportable segments ~~include Cannabis, Produce and Energy.~~ are as follows:

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

	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2021			2020			2021			2020			2022			2021
Sales
Produce	$	45,539		$	47,455		$	80,406		$	79,417		$	41,349		$	34,867
Cannabis		24,761			—			42,221			—
Cannabis - Canada														21,769			17,460
Cannabis - United States														7,043			—
Energy		74			118			143			268			(5	)		69
	$	70,374		$	47,573		$	122,770		$	79,685		$	70,156		$	52,396
Gross margin
Produce	$	(3,814	)	$	3,723		$	(3,097	)	$	4,666		$	(4,290	)	$	717
Cannabis		9,820			—			12,032			—
Cannabis - Canada														9,510			2,212
Cannabis - United States														4,712			—
Energy		(741	)		(194	)		(1,363	)		(372	)		(28	)		(622	)
	$	5,265		$	3,529		$	7,572		$	4,294		$	9,904		$	2,307

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

Three months ended June 30,

Six months ended June 30,

2021

2020

2021

2020

Numerator:

Net (loss) income

$
(4,517
)

$
(119
)

$
(11,899
)

$
4,071

Denominator:

Weighted average number of common shares - basic

81,071

56,339

78,560

54,636

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

—

—

—

1,120

Weighted average number of common shares - diluted

81,071

56,339

78,560

55,756

Antidilutive options and awards

4,535

2,479

4,535

650

Net (loss) income per common share:

Basic

$
(0.06
)

$
(0.00
)

$
(0.15
)

$
0.07

Diluted

$
(0.06
)

$
(0.00
)

$
(0.15
)

$
0.07

~~On May 21, 2021, the Company announced that the Toronto Stock Exchange (“TSX”) had accepted a notice filed by the Company of its intention to make a normal course issuer bid (“NCIB”).~~ ~~The NCIB notice provides that Village Farms may, during the 12-month period commencing~~ May 26, 2021 and terminating May 25, 2022, purchase up to 4,062,309 of its common shares, representing approximately 5% of the Company’s issued and outstanding common shares, by way of a NCIB over the facilities of the TSX, the NASDAQ Stock Market and/or through alternative trading systems in Canada and the United States. For the three and six months ended June 30, 2021, the

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

~~Company had re-purchased 428,097 common shares for a total cost $3,980.~~ 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 $12.40~~per 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 June 30, 2021, 3,188,680 of the warrants have been exercised.

Share-based compensation expense for the three and six months ended June 30, 2021 was $1,887 and $3,885, respectively, and $328 and $857 for the three and six months ended June 30, 2020, respectively.

~~Stock option activity for the six months ended June 30, 2021 was as follows:~~

~~Performance-based shares activity for the six months ended June 30, 2021 was as follows:~~

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

Share-based compensation expense for the ~~normal course of business,~~three months ended March 31, 2022 and 2021 was $964 and $1,998, respectively.

Stock option activity for 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~~three months ended March 31, 2022 was as follows:

Performance-based shares activity for 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.

~~As of June 30, 2021, Pure Sunfarms had a commitment of $1,000 in the event of a service agreement break up.~~

~~In July 2021, the Company re-purchased an additional 107,955 common shares for a total cost of $1,020.~~three months ended March 31, 2022 was as follows:

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, ~~2020.~~2021. 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~~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.~~2021 and in Part II, Item 1A of this Quarterly Report. These risks and uncertainties could cause actual results to differ materially from those projected or implied by our forward-looking statements contained in this report. These forward-looking statements are made as of the date of this management’s discussion and analysis, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law. ~~See “Forward-Looking Statements”.~~

Village Farms International, Inc. (“VFF”), ~~(together~~together with its subsidiaries, the “Company”, “Village Farms”, “we”, “us”, or “our”) is ~~one of~~a corporation existing under the ~~largest and longest-operating vertically integrated greenhouse growers in North America. Following our acquisition of the remaining 41.3% interest in British Columbia-based~~Canada Business Corporations Act. The Company’s principal operating subsidiaries are Village Farms Canada LP, Village Farms LP, VF Clean Energy, Inc. (“VFCE”), Pure Sunfarms ~~Corp.~~Corp (“Pure Sunfarms” or “PSF”) ~~that was completed~~, Balanced Health Botanicals, LLC (“Balanced Health” or “BHB”) and Rose LifeScience Inc. “(Rose LifeScience” or “Rose”). Village Farms acquired 70% ownership of privately-held, Quebec-based Rose LifeScience on November ~~2, 2020 (the “Pure~~15, 2021 and acquired 100% interest in privately held Colorado-based Balanced Health on August 16, 2021.

The Company’s overall strategy is to be recognized as an international leader in consumer products from plants, whereby we produce and market value-added products that are consistently preferred by consumers. To do so, we leverage decades of cultivation expertise, investment, and experience in fresh produce (primarily tomatoes) across other plant-based opportunities. In Canada, we converted two produce facilities to grow cannabis for the Canadian adult use market. Our focus for our Canadian cannabis segment is to produce the highest quality cannabis products at an “everyday premium price”. This market position, together with our cultivation expertise, has enabled us to evolve into one of the few consistently profitable Canadian licensed producers (“LPs”) under our Pure Sunfarms ~~Acquisition”~~subsidiary.

Additionally, through organic growth, acquisitions and/or exports, we plan to participate in other international markets where cannabis attains legal status. In March 2022, Pure Sunfarms received European Union Good Manufacturing Practice (“EU GMP”) certification for its 1.1 million square foot Delta 3 cannabis facility located in Delta, British Columbia (“B.C.”) which permits Pure Sunfarms to export EU GMP-certified medical cannabis to importers and distributors in international markets that require EU GMP certification. We expect international expansion should enhance our profitability while expanding our brand and experience into emerging new legal cannabis markets.

Within the U.S., we ~~wholly~~acquired Balanced Health, an industry-leading cannabinoid business which extends our portfolio into cannabidiol (“CBD”) consumer products. We also operate a large, well-established produce business under the Village Farms Fresh (“VF Fresh”) brand which sells into food and mass retail stores. We own and operate produce cultivation assets in both B.C. and Texas and source produce from our growing partners, predominantly in Mexico. Our intention is to use our assets, expertise and experience (across cannabis, CBD and produce) to participate in the U.S. cannabis market when legally permitted to do so.

Village Farms’ Canadian cannabis segment includes Pure Sunfarms and Rose LifeScience.

Pure Sunfarms is one of the single largest cannabis growing operations in the world, ~~which is~~ one of the lowest-cost greenhouse producers and one of the best-selling flower brands in Canada. Pure Sunfarms leverages our 30 years of experience as a vertically integrated greenhouse grower for the rapidly developing cannabis opportunity in Canada with commercial distribution in ~~five~~six Canadian provinces: Alberta, British Columbia, Ontario, ~~Alberta, Saskatchewan,~~Manitoba, Quebec and ~~Manitoba.~~Saskatchewan. Our long-term objective for Pure Sunfarms is to be the leading low-cost, high-quality cannabis producer in Canada.

~~In our greenhouse operations, we produce~~Village Farms acquired 70% ownership of privately-held Rose LifeScience on November 15, 2021. Rose is a leading third-party cannabis products commercialization expert in the Province of Quebec, acting as the exclusive, direct-to-retail sales, marketing and ~~distribute fresh, premium-quality produce with consistency 365 days a year from more than eight million square feet~~distribution entity for some of ~~Controlled Environment Agriculture (“CEA”) greenhouses~~the best-known brands in ~~British Columbia (“B.C.”) and Texas,~~Canada as well as ~~from our partner greenhouses~~Quebec-based micro and craft growers. With decades of regulated-market experience, Rose partners with cannabis companies to assist in ~~B.C., Ontario,~~commercializing their products, distributing the products throughout Quebec and ~~Mexico. The~~ensuring a strong presence in the marketplace.

On August 16, 2021, the Company ~~primarily markets and distributes under its Village Farms~~^® ~~brand name and proprietary trademarks to retail supermarkets and dedicated fresh food distribution companies throughout the United States and Canada.~~

~~The Company, through its subsidiary VF Clean Energy, Inc. (“VFCE”), owns and operates a 7.0-megawatt power plant from landfill gas that generates electricity and provides thermal heat to~~acquired 100% interest in privately held Colorado-based Balanced Health. Balanced Health is one of the ~~Company’s adjacent B.C. greenhouse facilities~~leading cannabinoid brands and e-commerce platforms in the United States. BHB develops and sells ~~electricity to British Columbia Hydro~~high-quality CBD-based health and Power Authority (“BC Hydro”). On November 10, 2020 we announced that we will be transitioning this operation to a renewable natural gas facility (“Delta RNG Project”) in conjunction with Mas Energy, LLC (“Mas Energy”) which is expected to enhance our financial return as well as provide food-grade CO2, which can be used in both our cannabiswellness products, distributing their diverse portfolio of consumer products through retail storefronts and ~~produce growing operations in Delta, B.C.~~its top-ranked e-commerce platform, CBDistillery^TM.

The Company entered the U.S. hemp business in the spring of 2019 after the passing of the 2018 Farm Bill. We established a joint venture with a 65% interest in ~~Village Fields~~VF Hemp ~~USA, LLC (“VFH”)~~ for multi-state outdoor hemp cultivation and cannabidiol extraction. Currently, VF Hemp is not cultivating hemp as we await FDA clarity on the use of CBD.

Through our Village Farms Fresh brand, we are growers, marketers and distributors of premium-quality, greenhouse-grown tomatoes in North America. These premium products are grown in sophisticated, highly intensive agricultural greenhouse facilities located in B.C. and Texas. The Company also markets and distributes premium tomatoes, peppers and cucumbers produced under exclusive arrangements with other greenhouse producers located primarily in Mexico, B.C. and Ontario. The Company primarily markets and distributes under its Village Farms® brand name to retail supermarkets and dedicated fresh food distribution companies throughout the United States and Canada.

Through our subsidiary VF Clean Energy, Inc., we owned and operated a power plant from landfill gas that generated electricity and provided thermal heat, in colder months, to one of the Company’s adjacent British Columbia greenhouse facilities and sold electricity to the British Columbia Hydro and Power Authority. On November 10, 2020 we announced that we will be transitioning this operation to a Renewable Natural Gas (“~~CBD”~~RNG”) ~~extraction, and initiated plans to pursue controlled environment hemp production at~~operation in conjunction with Mas Energy, LLC, which we believe will enhance our ~~Texas greenhouse operations.~~

~~Internationally, we evaluate, and target select, nascent, legal~~financial return as well as provide food-grade CO² that can be used in both our cannabis and ~~CBD opportunities with significant long-term potential, with an initial focus on~~produce growing operations in Delta, B.C. As of April 30, 2022, VFCE has shut down its power plant in preparation for the ~~Asia-Pacific region through our investment in Australia-based Altum International Pty Ltd (“Altum”).~~

~~We are in various stages of negotiations~~transition to RNG operations. For additional detail, see “Recent Developments and due diligence in respect to potential opportunities in the developing cannabis industry. There can be no assurance that these negotiations will result in the completion of any such acquisitions or, if they do, what the final terms or timing of any such acquisitions would be.Updates - Village Farms Clean Energy Update” below.

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~~Several 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~~measures. In response to ~~COVID-19. To date,~~the COVID-19 pandemic, the Company implemented safety protocols and procedures to protect its employees, its subcontractors, and its customers. These protocols take into consideration guidance from state and local government agencies as well as the Centers for Disease Control and Prevention and other public health authorities.

As of May 9, 2022, all of ~~our~~the Company’s operations are operating normally, however, the extent to which COVID-19 and the related global economic crisis affect ~~our~~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. ~~We continue~~Village Farms continues to service ~~our~~its customers amid uncertainty and disruption linked to COVID-19 and ~~we are~~is actively managing ~~our~~its business to respond to the impact.

Our business has been affected, and we expect will continue to be affected for the ~~Texas Winter Storm~~foreseeable future, by rising inflation and supply chain issues arising from COVID-19, and indirectly, the Russia/Ukraine conflict may impact the price of ~~February 2021~~

~~From February 13-17, 2021, a major winter~~oil and ice storm with extremely cold temperatures impacted parts of the United States and Canada and in particular Texas. The unprecedented winter storm caused electricity demand in Texas to increase dramatically as Texas facilities were not built for such climate conditions. The storm caused major problems with sources of electricity, due to frozen wind turbines, natural gas ~~production losses,~~which may negatively affect our operating results. Inflation has affected and ~~power generator outages, leading~~continues to ~~a short-term situation in which demand vastly exceeded~~affect, amongst other items, supply ~~within the Texas power grid, which is not connected to the larger U.S. power grid. The loss of fuel supply~~chain and power generating capacity forced the Electric Reliability Council of Texas (“ERCOT”), the nonprofit grid operator, to declare an Energy Emergency Alert Level 3 and begin rotating power outages. Throughout the 5-day emergency period, the real-time price for electricity elevated to the maximum allowable price of $9,000 per MWh, which is more than 100 times higher than the prices observed in early February 2021 and historical February pricing.

The impact on Texas from the winter storm and rolling blackouts led to a number of deaths and billions of dollars in damages, making the weather event one of the costliest in Texas history. Since Texas has a deregulated electricity market, all customers from large industrial companies to residential customers purchase their electricity from third-party power suppliers, at the prevailing market price, which fluctuates by the hour. The Texas legislature was analyzing this event to determine necessary changes to the current structure of its power gridlabor costs as well as ~~the oversight provided by the Public Utility Commission~~purchasing decisions of Texas and ERCOT, but no measures were passed by the Texas legislature to address the astronomical rate increases for the 2021 freeze, nor to implement measures or regulations to address the demand/supply situation, should such an event reoccur.

Our Texas operations, including the four greenhouses and distribution center, use a small amount of power to run its operational systems, but due to the more than 100 times increase in rates, we were financially impacted by the winter storm. The Company incurred an incremental electricity expense in Q2 2021 for the February 5-day period of $1,400, solely due to the significant temporary increase in electricity pricing. The freeze itself had noconsumers which may impact on our operations, nor our use of electricity. Due to the overall impact on many Texas businesses, utility companies and retail customers had expectations that the Texas legislature would address the incremental costs to users. Due to this expectation of legislative involvement, the electricity invoices that included the activity of February 13-17 were not sent until late May when it became evident that the Texas legislature was not going to address the issue. As such, the Company received its initial invoices for the freeze period in late May and after reviews, audits of all facility meters and material invoice corrections with the power companies, the invoices were finalized and paid in June 2021.

Our Texas operations are designed with back-up and redundant systems to handle temporary systems or weather events. Our facilities have back-up diesel generators that can run our heating systems. We hold two to three days of diesel to run the back-up generators, but due to the effect of the freeze and resulting Texas highway closures, additional diesel supply was unavailable and could not be transported to our Texas sites, so we could not take the Texas facilities off the grid to avoid a potential price surge. Our decision not to utilize our back-up systems was due to the rotating power outages and the risk of running out of dieseldemand for our ~~back-up systems, which~~products. See Part II, Item 1A, “Risk Factors”, in ~~turn would have led to the loss of the crops in all four greenhouses.~~

In order to mitigate future price instability, in winter months, the Company has initiated fixed contracts for a significant portion of its anticipated electricity requirements at all our Texas facilities to mitigate future surcharges. In addition, the Company is reassessing its back-up systems to ensure that the greenhouses have enough capacity to produce the required electrical output if an outage occurs again in the future.

On May 26, 2021, the Toronto Stock Exchange accepted a notice of normal course issuer bid filed by the Company. Village Farms may purchase up to 4,062,309 of its Common Shares commencing May 26, 2021 and terminating May 25, 2022. As of June 30, 2021, the Company had purchased 428,097 Common Shares with an average price of $9.2972 per Common Share and a gross value of $3,980. As of the date of this ~~filing, the Company had purchased 536,052 Common Shares with an average price of $9.3272 per Common Share and a gross value of $5,000.~~

In the first half of 2021, warrants issued as part of the September 2020 registered direct offering were exercised and resulted in proceeds to the Company of $18,494 and the issuance of 3,188,680 additional Common Shares. There are 1,509,433 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~~Canadian Cannabis Recent Developments and ~~maturity date of May 7, 2024. See “Liquidity and Capital Resources – Operating Loan”.~~Updates

~~Pure Sunfarms’~~Canadian cannabis recent developments and updates include the following:

~~In November 2020, VFCE entered into~~The Delta RNG Project consists of 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.~~facility, which was entered into in November 2020 by VFCE. 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.~~site securing future resources for the Delta RNG Project. The 20-year extension, with an option for an additional five-year extension period, commences upon the start-up of the commercial operations of the Delta RNG Project.

The project is designed to generate renewable natural gas and CO² from the methane gas created at the nearby landfill. Village Farms plans to utilize the CO² from the renewable natural gas production process for use in our three Delta, B.C. vegetable and cannabis greenhouse facilities, thereby reducing natural gas requirements and decreasing the total carbon footprint of Village Farms. Mas Energy intends to sell the renewable natural gas and VFCE will receive a portion of the revenues in the form of a royalty. When announced in November 2020, we anticipated attaining all regulatory approvals in the first half of 2021 with an expected operational start up as early as the first half of 2022. However, COVID-19 ~~continues to~~ adversely ~~impact~~impacted the bureaucratic approval processes in Canada surrounding permitting and zoning requirements necessary to break ground on the Delta RNG Project. We ~~now anticipate attaining all~~attained the majority of regulatory approvals in the ~~fall~~first quarter of ~~2021 with~~2022, and we now have an expected operational start up ~~as early as~~in mid-2023. In addition, the ~~fall of 2022. We expect the project to capture the CO2 from the renewable~~Company has paid off all VFCE loans and entered into a financial arrangement with Mas Energy, in which Mas Energy advanced $445 against future natural gas ~~production process for use~~royalties anticipated after operations commence in ~~our three Delta, B.C. vegetable and cannabis greenhouse facilities. The reduction in natural gas requirements is expected to decrease the total carbon footprint of Village Farms.~~mid-2023.

On ~~May 5,~~September 28, 2021, Village Farms ~~exercised its remaining~~entered into an option agreement whereby the Company received the irrevocable right to ~~increase its equity investment~~acquire at least an 80% ownership interest (the “Option Agreement”) in ~~Altum to just under 12%~~Netherlands-based Leli Holland B.V. (“Leli”) upon payment of EUR50,000 (the “Option”). The ~~investment in Altum, one of Asia-Pacific’s leading CBD platforms, represents a capital efficient means for~~Option Agreement allows Village Farms to ~~participate~~acquire 80% of Leli’s shares for EUR3,950,000, of which EUR950,000 is due and payable to Leli’s shareholders upon the exercise of the Option and the remainder due in ~~opportunities~~three equal installments subject to the achievement of certain project development milestones. The Option is exercisable at the sole discretion of Village Farms during the Option exercise period ending September 30, 2026. As of the date of this filing of this Quarterly Report, we have not exercised the Option.

Leli is one of ten applicants selected to receive a license (subject to customary government approval) to legally cultivate and distribute cannabis to retailers when the Dutch government implements its Experiment to Investigate Closed Cannabis Supply Chains (“Dutch Supply Chain Experiment”). The Dutch Supply Chain Experiment is specified by the Dutch government to be approximately 65,000 kilograms of dried flower annually from the ten approved producers during the first year. Leli and Village Farms plan to construct two indoor CEA production facilities, leveraging Leli’s track record managing complex regulatory and approval procedures in ~~this region.~~the Netherlands at both the federal and local levels and Village Farms’ three-plus decades as a vertically integrated CEA grower, as well as its extensive experience in cultivation, product development and commercialization in the Canadian legal recreational cannabis market. If the Option is exercised, the Company will be the majority owner of Leli. Village Farms will then become responsible for the development of the project and product commercialization throughout the fully vertically integrated business model.

On March 18, 2022, the Company loaned $2,715 (EUR 2.6 million) to L.L. Lichtendahl Beheer B.V, a private company that holds a 50% interest in Leli. The outstanding loan and accrued interest are to be repaid within fourteen days upon written request by the Company.

Our consolidated results of operations (prior to net income) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and March 31, 2021 ~~and 2020~~ presented below reflect the operations of our consolidated ~~wholly owned~~wholly-owned subsidiaries, which does not include our VFH joint venture. The income (loss) from the equity ~~in earnings from VFH~~method investments is reflected in our net income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and March 31, 2021 presented below. Balanced Health was acquired on August 16, 2021 and 2020 presented below. Due to the acquisition of the remaining 41.3% interest in Pure Sunfarms, on November 2, 2020, the equity earnings from Pure Sunfarms are reflected in our net income for the three and six months ended June 30, 2020. However, for the three and six months ended June 30, 2021, thetheir results ~~of Pure Sunfarms~~ are presented in the operations of our consolidated ~~wholly owned subsidiaries. For information regarding~~wholly-owned subsidiaries for the three months ended March 31, 2022. The Company acquired 70% of Rose LifeScience on November 15, 2021 and their results are presented in the operations of ~~operations from~~ our ~~joint ventures, see “Reconciliation~~consolidated wholly-owned subsidiaries and the minority interest is presented in Net Income (Loss) Attributable to Non-controlling Interests, Net of ~~Generally Accepted Accounting Practices (“GAAP”) Results to Proportionate Results” below.~~Tax for the three months ended March 31, 2022.

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

Three Months Ended June 30,

Six Months Ended June 30,

2021 ⁽¹⁾

2020⁽¹⁾

2021 ⁽¹⁾

2020⁽¹⁾

Sales

$
70,374

$
47,573

$
122,770

$
79,685

Cost of sales

(65,109
)

(44,044
)

(115,198
)

(75,391
)
Gross margin

5,265

3,529

7,572

4,294

Selling, general and administrative expenses

(9,025
)

(3,813
)

(17,117
)

(7,734
)
Share-based compensation

(1,887
)

(328
)

(3,885
)

(857
)
Interest expense

(598
)

(437
)

(1,339
)

(974
)
Interest income

46

93

49

476

Foreign exchange gain (loss)

193

530

(311
)

(396
)
Gain on settlement agreement

—

—

—

4,681

Other (expense) income

(166
)

26

(235
)

65

Loss on disposal of assets

(40
)

—

(40
)

(6
)
Recovery of (provision for) income taxes

1,781

(69
)

3,620

943

(Loss) income from consolidated entities after income taxes

(4,431
)

(469
)

(11,686
)

492

Equity (losses) earnings of unconsolidated entities

(86
)

350

(213
)

3,579

Net (loss) income

$
(4,517
)

$
(119
)

$
(11,899
)

$
4,071

Adjusted EBITDA ⁽²⁾

$
1,547

$
2,268

$
1,951

$
3,364

(Loss) earnings per share - basic

$
(0.06
)

$
(0.00
)

$
(0.15
)

$
0.07

(Loss) earnings per share - diluted

$
(0.06
)

$
(0.00
)

$
(0.15
)

$
0.07

Net (loss) income

$
(4,517
)

$
(119
)

$
(11,899
)

$
4,071

Other comprehensive income (loss):

Foreign currency translation adjustment

2,366

55

4,077

(72
)
Comprehensive (loss) income

$
(2,151
)

$
(64
)

$
(7,822
)

$
3,999

	For the three months ended March 31,
	2022 ⁽¹⁾			2021⁽¹⁾
Sales	$	70,156		$	52,396
Cost of sales		(60,252	)		(50,089	)
Gross margin		9,904			2,307
Selling, general and administrative expenses		(16,971	)		(8,092	)
Share-based compensation		(964	)		(1,998	)
Interest expense		(683	)		(741	)
Interest income		110			3
Foreign exchange gain (loss)		319			(504	)
Other expense, net		(8	)		(69	)
Recovery of income taxes		1,666			1,839
Loss from consolidated entities		(6,627	)		(7,255	)
Less: net loss attributable to non-controlling interests, net of tax		162			—
Loss from equity method investments		(52	)		(127	)
Net loss attributable to Village Farms International Inc.	$	(6,517	)	$	(7,382	)
Adjusted EBITDA ⁽²⁾	$	(6,111	)	$	404
Basic loss per share	$	(0.07	)	$	(0.10	)
Diluted loss per share	$	(0.07	)	$	(0.10	)

We caution that our results of operations for the three and six months ended June 30, 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.

A discussion of our consolidated results for the three and six months ended June 30, 2021 and 2020 is included below. The consolidated results include all three of our operating segments, which include produce, cannabis and clean energy, along with all public company expenses. The remaining 41.3% interest in Pure Sunfarms was acquired by Village Farms on November 2, 2020; for the three and six months ended June 30, 2021, the operating results of Pure Sunfarms are consolidated in our Consolidated Statements of Income (Loss), and for the three and six months ended June 30, 2020, Pure Sunfarms’ results are included in equity earnings from unconsolidated entities in our Consolidated Statements of Income (Loss).

Under “Cannabis Segment Results”, we also present a discussion of the operating results of Pure Sunfarms, before any allocation to Village Farms, which were not consolidated in our financial results for the three and six months ended June 30, 2020 but were consolidated in our results for the three and six months ended June 30, 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 ($133) charge to cost of sales in the second quarter of 2021 and a ($2,925) charge to cost of sales in the first quarter of 2021 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.

~~Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020~~

Sales for the three months ended June 30, 2021 were $70,374 as compared to $47,573 for the three months ended June 30, 2020. The increase in sales was primarily due to the inclusion of Pure Sunfarms’ Q2 2021 revenues of $24,761 and an increase in produce supply partner sales of $1,867, partially offset by a decrease in our own produce sales of ($3,676) and VFCE power sales of ($151). 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 (42%) decrease in the average selling price of tomatoes in the three months ended June 30, 2021 versus June 30, 2020, partially offset by a 33% increase in our own production volume. The price decrease is the result of a market supply overage caused by lower retailer demand along with an increase in Canadian and U.S. tomato production. The tomato produce industry experienced one of the lowest pricing environments for tomatoes-on-the-vine and beefsteak varieties in the past ten years through late Q2 2021 with signs of pricing moving back into historical ranges towards the end of Q2 2021.

Cost of sales for the three months ended June 30, 2021 were $65,109 as compared to $44,044 for the three months ended June 30, 2020. The increase in cost of sales was primarily due to the addition of Pure Sunfarms’ Q2 2021 cost of sales of $14,941, an increase in our produce costs of $4,286, higher produce supply partner costs of $1,319 and an increase in clean energy costs of $519. The Q2 2021 cost of sales for Pure Sunfarms includes a $133 charge from the revaluation of its inventory to fair value at acquisition date and our produce costs include the $1,400 incremental utility charges associated with the Texas freeze of February 2021 that was settled and paid in Q2 2021. The increase in our own production costs was driven by the increase in volume as the Texas facilities improved production cost per pound in Q2 2021 through better utilization of our labor, transportation and handling cost, primarily due to greenhouse management efficiency efforts. 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 as the depreciable life of VFCE assets have been accelerated due to the upcoming transition of operations to the Delta RNG Project expected to become operational in the fall of 2022.

Gross margin for the three months ended June 30, 2021 increased $1,736 to $5,265, or a 7% gross margin, in comparison to $3,529, or a 7% gross margin, for the three months ended June 30, 2020. Excluding the $133 charge from the revaluation of Pure Sunfarms’ inventory to fair value at acquisition date and $1,400 from the incremental Texas freeze utility expenses, gross margin for the three months ended June 30, 2021 increased $3,269 to $6,798, or a 10% gross margin. The positive variance between periods is primarily attributable to Pure Sunfarms’ Q2 2021 gross margin of $9,820 and higher produce supply partner gross margin of $548, partially offset by lower gross margin from our produce operations of ($7,962) and clean energy of ($670).

Selling, general and administrative expenses for the three months ended June 30, 2021 increased $5,212 to $9,025 compared to $3,813 for the three months ended June 30, 2020. The increase was primarily due to the inclusion of Pure Sunfarms’ expenses of $4,370, higher produce related legal fees and an increase in corporate expenses, primarily related to public company costs such as investor relations, legal and regulatory fees and incremental costs of U.S. reporting compliance.

Share-based compensation expenses for the three months ended June 30, 2021 were $1,887 as compared to $328 for the three months ended June 30, 2020. The increase in share-based compensation was primarily due to the vesting of performance shares earned by key corporate and operations employees in Q2 2021 as compared to Q2 2020 and the cost of stock options for Pure Sunfarms’ management of $191 in Q2 2021 versus nil in Q2 2020.

Income taxes for the three months ended June 30, 2021 was a recovery of $1,781 compared to a provision for ($69) for the three months ended June 30, 2020. For the three months ended June 30, 2021 and 2020, our effective tax rate, including both current and deferred income taxes, was (28.6%) and 17.3%, respectively. The equity losses for our unconsolidated entity, VFH, is reported post-tax and therefore does not affect our tax calculation.

Our share of losses from our joint ventures for the three months ended June 30, 2021 was ($86) compared to earnings of $350 for the three months ended June 30, 2020. The Q2 2021 equity loss includes only our proportionate share of the losses of VFH compared to Q2 2020 which includes our proportionate share of the earnings of Pure Sunfarms and VFH. Our share of income from

Pure Sunfarms was presented in equity earnings from unconsolidated entities for the three months ended June 30, 2020. Village Farms began fully consolidating operating results of Pure Sunfarms on November 2, 2020 and its results are presented in the Company’s consolidated operating results for the three months ended June 30, 2021. For information regarding the results of operations from our joint ventures, see “Reconciliation of U.S. GAAP Results to Proportionate Results” below.

Net loss for the three months ended June 30, 2021 was ($4,517) as compared to ($119) for the three months ended June 30, 2020. The increase in net loss was primarily due to a lower gross margin from our produce operations and higher corporate share-based compensation, partially offset by an improved operating profit for Pure Sunfarms in the three months ended June 30, 2021 as compared to June 30, 2020.

Adjusted EBITDA for the three months ended June 30, 2021 was $1,547 compared to $2,268 for the three months ended June 30, 2020. The decrease in adjusted EBITDA was primarily due to lower operating results of the produce business, partially offset by the improvement in operating profit for Pure Sunfarms. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

The foreign currency translation adjustment for the three months ended June 30, 2021 was $2,366 compared to $55 for the three months ended June 30, 2020. Village Farms’ functional currency is the U.S. dollar while Pure Sunfarms’ functional currency is the Canadian dollar. The 2021 currency translation adjustment is due to the Canadian dollar strengthening versus the U.S. dollar during the second quarter of 2021, as Pure Sunfarms has more Canadian dollar assets than Canadian dollar liabilities on its balance sheet, resulting in a gain on its functional currency when converted on its balance sheet to U.S. dollars.

Sales for the six months ended June 30, 2021 were $122,770 as compared to $79,685 for the six months ended June 30, 2020. The increase in sales was primarily due to the inclusion of Pure Sunfarms’ 2021 revenues of $42,221 and an increase in produce supply partner sales of $6,005, partially offset by a decrease in our own produce sales of ($4,909) and VFCE power sales of ($232). The produce supply partner sales increase was due to higher volumes of pounds sold of tomatoes, peppers, cucumbers and mini-cucumbers, partially offset by lower price per pound for tomatoes and peppers. The decrease in our own produce sales was due to a (30%) decrease in the average selling price of tomatoes in the six months ended June 30, 2021 versus June 30, 2020, partially offset by a 23% increase in our own production volume despite the ongoing virus pressure, primarily from the tomato brown rugose fruit virus, at all of the Texas facilities. The commodity price decrease is the result of a market supply overage caused by an increase in Canadian winter production and a change in retailer buying habits to more specialty tomatoes. The tomato produce industry experienced one of the lowest pricing environments for tomatoes-on-the-vine and beefsteak varieties in the past ten years through late Q2 2021 with signs of pricing moving back into historical ranges towards the end of Q2 2021.

Cost of sales for the six months ended June 30, 2021 were $115,198 as compared to $75,391 for the six months ended June 30, 2020. The increase in cost of sales was primarily due to the addition of Pure Sunfarms’ 2021 cost of sales of $30,189, higher produce supply partner costs of $4,600, an increase in our produce costs of $4,143 and higher clean energy costs of $875. The 2021 cost of sales for Pure Sunfarms includes a $3,108 charge from the revaluation of its inventory to fair value at acquisition date and our produce costs include incremental utility charges of $1,400 associated with the Texas freeze of February 2021. The increase in our own production costs was driven by the 23% increase in production volume in the first six months of 2021 versus the first six months of 2020. 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 as the depreciable life of VFCE assets have been accelerated due to the upcoming transition of operations to the Delta RNG Project expected to become operational in the fall of 2022.

Gross margin for the six months ended June 30, 2021 increased $3,278 to $7,572, or a 6% gross margin, in comparison to $4,294, or a 5% gross margin, for the six months ended June 30, 2020. Excluding the $3,108 charge from the revaluation of Pure Sunfarms’ inventory to fair value at acquisition date and $1,400 from the incremental Texas freeze utility expenses, gross margin for the six months ended June 30, 2021 increased $7,786 to $12,080, or a 10% gross margin. The positive variance between periods is primarily attributable to Pure Sunfarms’ 2021 gross margin of $12,032 and higher produce supply partner gross margin of $1,405, partially offset by lower gross margin from our produce operations of ($9,052) and clean energy of ($1,107).

Selling, general and administrative expenses for the six months ended June 30, 2021 increased $9,383 to $17,117 compared to $7,734 for the six months ended June 30, 2020. The increase was primarily due to the inclusion of Pure Sunfarms’ expenses of $8,336, higher produce related legal fees and an increase in corporate expenses, primarily related to public company costs such as investor relations, legal and regulatory fees, listing fees for the Toronto Stock Exchange (“TSX”), the January 2021 equity raise and incremental costs of U.S. reporting compliance.

Share-based compensation expenses for the six months ended June 30, 2021 were $3,885 as compared to $857 for the six months ended June 30, 2020. The increase in share-based compensation was primarily due to the vesting of performance share grants and stock options for Pure Sunfarms’ management of $1,285 in 2021 versus nil in 2020 as well as the vesting of performance shares earned by corporate and operations employees in 2021 as compared to 2020.

On March 2, 2020, pursuant to the settlement agreement between the Company, Pure Sunfarms and 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 six months ended June 30, 2020.

Income taxes for the six months ended June 30, 2021 was a recovery of $3,620 compared to a recovery of $943 for the six months ended June 30, 2020. For the six months ended June 30, 2021 and 2020, our effective tax rate, including both current and deferred income taxes, was (23.6%) and (209.1%), respectively. The equity losses for our unconsolidated entity, VFH, is reported post-tax and therefore does not affect our tax calculation.

Our share of losses from our joint ventures for the six months ended June 30, 2021 was ($213) compared to earnings of $3,579 for the six months ended June 30, 2020. The 2021 equity loss includes only our proportionate share of the losses of VFH compared to 2020 which includes Pure Sunfarms and VFH. Our share of income from Pure Sunfarms was presented in equity earnings from unconsolidated entities for the six months ended June 30, 2020. Village Farms began fully consolidating operating results of Pure Sunfarms on November 2, 2020 and its results are presented in the Company’s consolidated operating results for the six months ended June 30, 2021. For information regarding the results of operations from our joint ventures, see “Reconciliation of U.S. GAAP Results to Proportionate Results” below.

Net loss for the six months ended June 30, 2021 was ($11,899) as compared to net income of $4,071 for the six months ended June 30, 2020. The decrease in net income in the six months ended June 30, 2021 as compared to June 30, 2020 was primarily due to lower operating profit of the produce operations, higher corporate expenses and accelerating the depreciable life of the clean energy assets due to the upcoming transition of operations to the Delta RNG Project expected to become operational in the fall of 2022.

Adjusted EBITDA for the six months ended June 30, 2021 was $1,951 compared to $3,364 for the six months ended June 30, 2020. The decrease in adjusted EBITDA was primarily due to lower operating results from our produce business, partially offset by the improvement in operating profit for Pure Sunfarms. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

The foreign currency translation adjustment for the six months ended June 30, 2021 was $4,077 compared to ($72) for the six months ended June 30, 2020. Village Farms’ functional currency is the U.S. dollar while Pure Sunfarms’ functional currency is the Canadian dollar. The 2021 currency translation adjustment is due to the Canadian dollar strengthening versus the U.S. dollar during the first six months of 2021, as Pure Sunfarms has more Canadian dollar assets than Canadian dollar liabilities on its balance sheet, resulting in a gain on its functional currency when converted on its balance sheet to U.S. dollars.

The following segmented financial information includes the financial results of our cannabis segment (Pure Sunfarms), before any allocation to Village Farms, which were not previously consolidated in our financial results for the three and six months ended June 30, 2020 and consolidated in our financial results for the three and six months ended June 30, 2021.

Three months ended June 30, 2021

Three months ended June 30, 2020

Six months ended June 30, 2021

Six months ended June 30, 2020
Sales:

   Produce

  $ 45,539

$47,455

  $ 80,406

$79,417
   Cannabis

     24,761

9,386

     42,221

22,523
   Clean Energy

            74

118

143

268

  $ 70,374

$ 56,959

  $ 122,770

$ 102,208
Cost of Sales:

   Produce

  ($ 49,321)

($43,716)

  ($ 83,387)

($74,644)
   Cannabis⁽¹⁾

     (14,941)

(6,266)

     (30,189)

(12,524)
   Clean Energy

          (847)

(328)

          (1,622)

(747)

  ($ 65,109)

($ 50,310)

  ($ 115,198)

($ 87,915)
Selling, general and administrative expenses:

   Produce

    ($ 2,946)

($ 2,319)

    ($ 5,497)

($ 4,854)
   Cannabis

       (4,370)

(1,850)

       (8,336)

(4,284)
   Clean Energy

            (52)

(65)

            (84)

(110)
   Corporate

       (1,657)

(1,429)

       (3,200)

(2,770)

    ($ 9,025)

($ 5,663)

    ($ 17,117)

($ 12,018)
Share-based compensation:

   Produce

     $        -

$        -

     $        -

$        -
   Cannabis

       (191)

-

       (1,285)

-
   Clean Energy

               -

-

               -

-
   Corporate

          (1,696)

(328)

          (2,600)

(857)

    ($ 1,887)

($ 328)

    ($ 3,885)

($ 857)
Operating profit/(loss):

   Produce

    ($ 6,728)

$ 1,420

    ($ 8,478)

($ 81)
   Cannabis⁽¹⁾

       5,259

1,270

       2,411

5,715
   Clean Energy

          (825)

(275)

          (1,563)

(589)
   Corporate

       (3,353)

(1,757)

       (5,800)

(3,627)

    ($ 5,647)

$   658

    ($ 13,430)

$   1,418
Adjusted EBITDA⁽²⁾:

   Produce

    ($ 3,981)

$ 2,783

    ($ 4,472)

$ 2,565
   Cannabis⁽¹⁾

       7,369

1,835

       9,903

6,703
   Clean Energy

          (135)

(106)

          (151)

(146)
   Corporate⁽³⁾

       (1,706)

(1,485)

       (3,329)

(2,909)

    $ 1,547

$   3,027

    $ 1,951

$   6,213

We caution that our results of operations for the three months ended March 31, 2022 and 2021 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.

A discussion of our consolidated results for the three months ended March 31, 2022 and March 31, 2021 is included below. The consolidated results include all four of our operating segments, VF Fresh (produce), Canadian cannabis, U.S. cannabis and clean energy, along with all public company expenses. Village Farms acquired 100% of Balanced Health on August 16, 2021 and their operating results are consolidated in our Consolidated Statements of Loss for January 1, 2022 through March 31, 2022. The Company acquired 70% of Rose LifeScience on November 15, 2021 and their operating results are consolidated in our Consolidated Statements of Loss and the minority interest is presented in Net Loss Attributable to Non-controlling Interests, Net of Tax for January 1, 2022 through March 31, 2022. For a discussion of our segmented results, please see “Segmented Results of Operations” below.

Sales for the three months ended March 31, 2022 were $70,156 as compared to $52,396 for the three months ended March 31, 2021. The increase in sales of $17,760 or 34% was attributable to revenue growth in our key operating segments: VF Fresh, Canadian cannabis and U.S. cannabis. VF Fresh’s sales increased $6,566, Canadian cannabis increased $4,309 and U.S. cannabis increased $7,043 for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. The acquisitions of Balanced Health and Rose contributed $7,043 and $3,608, respectively, to the quarter-over-quarter revenue growth while the remaining $7,109 was derived from organic growth of VF Fresh and Pure Sunfarms.

Cost of sales for the three months ended March 31, 2022 were $60,252 as compared to $50,089 for the three months ended March 31, 2021. The increase in cost of sales of ($10,163) or (20%) was primarily derived from an increase in VF Fresh cost of sales of ($11,454) and an increase in U.S. cannabis cost of sales of ($2,331), partially offset by a decrease in Canadian cannabis cost of sales of $2,989 for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Gross margin for the three months ended March 31, 2022 increased $7,597 to $9,904, for a 14% gross margin, in comparison to $2,307, for a 4% gross margin, for the three months ended March 31, 2021. Statutory gross margin by segment for Q1 2022 was (10%) for VF Fresh, 44% for Canadian cannabis and 67% for U.S. cannabis as compared to 2% for VF Fresh and 13% for Canadian cannabis in Q1 2021.

Selling, general and administrative expenses for the three months ended March 31, 2022 increased $8,879 to $16,971 or 24% of sales compared to $8,092 or 15% of sales for the three months ended March 31, 2021. The increase in selling, general and administrative expenses was primarily due to the acquisition of Balanced Health and Rose LifeScience and inclusion of their expenses in the three months ended March 31, 2022. In addition, corporate expenses increased $1,027 due to Q1 2022 costs associated with the start-up of Leli and our development team, and an increase in audit, regulatory and compliance fees in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Share-based compensation expenses for the three months ended March 31, 2022 were $964 as compared to $1,998 for the three months ended March 31, 2021. The decrease in share-based compensation was primarily due to the vesting of performance share grants for Canadian cannabis management and corporate management in Q1 2021 associated with attained milestones and conditions met associated with the Company’s acquisition of the remaining 41.3% of Pure Sunfarms on November 2, 2020.

Net loss for the three months ended March 31, 2022 was ($6,517) as compared to a net loss of ($7,382) for the three months ended March 31, 2021. The improvement in net loss was due to positive net income contribution from the Canadian cannabis and U.S. cannabis segments in 2022, offset by an increase in net loss from VF Fresh for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Adjusted EBITDA for the three months ended March 31, 2022 was ($6,111) compared to $404 for the three months ended March 31, 2021. The decrease in adjusted EBITDA was primarily due to lower operating results of VF Fresh. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

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

	For the Three Months Ended March 31, 2022
	VF Fresh (Produce)			Cannabis - Canada ⁽¹⁾			Cannabis - U.S. ⁽¹⁾			Clean Energy			Corporate			Total
Sales	$	41,349		$	21,769		$	7,043		$	(5	)	$	—		$	70,156
Cost of sales		(45,520	)		(12,259	)		(2,331	)		(142	)		—			(60,252	)
Selling, general and administrative expenses		(3,140	)		(6,933	)		(4,296	)		(32	)		(2,570	)		(16,971	)
Share-based compensation		—			(367	)		(95	)		—			(502	)		(964	)
Other (expense) income, net		(30	)		(746	)		—			(6	)		520			(262	)
Recovery of (provision for) income taxes		1,715			(639	)		—			—			590			1,666
(Loss) income from consolidated entities		(5,626	)		825			321			(185	)		(1,962	)		(6,627	)
Less: net loss attributable to non-controlling interests, net of tax		—			162			—			—			—			162
(Loss) from equity method investments		—			—			(52	)		—			—			(52	)
Net (loss) income		(5,626	)		987			269			(185	)		(1,962	)		(6,517	)
Adjusted EBITDA⁽²⁾	$	(6,201	)	$	2,104		$	580		$	(59	)	$	(2,535	)	$	(6,111	)
Basic loss (income) per share	$	(0.06	)	$	0.01		$	0.00		$	(0.00	)	$	(0.02	)	$	(0.07	)
Diluted loss (income) per share	$	(0.06	)	$	0.01		$	0.00		$	(0.00	)	$	(0.02	)	$	(0.07	)

	For the Three Months Ended March 31, 2021
	VF Fresh (Produce)			Cannabis - Canada ⁽¹⁾			Cannabis - U.S. ⁽¹⁾			Clean Energy			Corporate			Total
Sales	$	34,867		$	17,460		$	—		$	69		$	—		$	52,396
Cost of sales		(34,150	)		(15,248	)		—			(691	)		—			(50,089	)
Selling, general and administrative expenses		(2,551	)		(3,966	)		—			(32	)		(1,543	)		(8,092	)
Share-based compensation		—			(1,094	)		—			—			(904	)		(1,998	)
Other expense, net		(256	)		(630	)		—			(12	)		(413	)		(1,311	)
Recovery of income taxes		505			644			—			—			690			1,839
Loss from consolidated entities		(1,585	)		(2,834	)		—			(666	)		(2,170	)		(7,255	)
Less: net (income) loss attributable to non-controlling interests, net of tax		—			—			—			—			—			—
Loss from equity method investments		—			—			(127	)		—			—			(127	)
Net loss		(1,585	)		(2,834	)		(127	)		(666	)		(2,170	)		(7,382	)
Adjusted EBITDA⁽²⁾	$	(492	)	$	2,534		$	(79	)	$	(16	)	$	(1,543	)	$	404
Basic loss per share	$	(0.02	)	$	(0.04	)	$	(0.00	)	$	(0.01	)	$	(0.03	)	$	(0.10	)
Diluted loss per share	$	(0.02	)	$	(0.04	)	$	(0.00	)	$	(0.01	)	$	(0.03	)	$	(0.10	)

~~Cannabis Segment Results~~PRODUCE SEGMENT RESULTS – ~~Pure Sunfarms~~VF FRESH

~~Pure Sunfarms’~~The produce segment, VF Fresh, currently consists of Village Farms LP and Village Farms Canada LP. VF Fresh’s comparative analysis are based on the consolidated results of ~~Pure Sunfarms~~Village Farms LP and Village Farms Canada LP for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and June 30, 2020, not accounting for the percentage owned by Village Farms. See “Reconciliation of U.S. GAAP Results to Proportionate Results” for a presentation of Pure Sunfarms’ proportionate results for the three and six months ended June 30, 2021 and June 30, 2020.2021.

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to Three Months Ended March 31, 2021

VF Fresh sales for three months ended March 31, 2022 were $41,349 as compared to $34,867 for the three months ended March 31, 2021. The increase in sales of $6,482 or 19% was due to increases in our own produce revenues of $3,472 and our grower partner revenues of $3,010. The increase in our own produce revenues was primarily due to an increase in tomato volume of 19% while the selling price of our own tomatoes was relatively flat due to a change in sales mix to a greater percentage of higher priced specialty tomatoes. The increase in grower partner revenues was primarily due to higher volumes of pounds sold of tomatoes, peppers, cucumbers and mini-cucumbers, partially offset by decreases in tomato prices of (2%), pepper prices of (25%), cucumber prices of (7%) and mini-cucumber prices of (29%) in Q1 2022 as compared to Q1 2021.

VF Fresh cost of sales for three months ended March 31, 2022 were $45,520 as compared to $34,150 for the three months ended March 31, 2021. Cost of sales increased ($11,370) or (33%) due to increases in our own produce cost of sales of ($7,054) and our grower partner cost of sales of ($4,316). The increase in our own produce cost of sales was driven by the 19% increase in tomato volume at our Texas greenhouses as well as an increase in the sales mix for specialty tomatoes which require higher costs for cultivation and packaging. The increase in volume and an incremental increase in freight costs of approximately ($1,803) drove higher transportation and handling costs of produce in Q1 2022 as compared to Q1 2021. In addition, in Q1 2022, we incurred an incremental catch up to our cost of sales of $1,779 on our Texas crop cycle that began in summer/fall 2021 and ends in late Q2 2022 due to an expected lower total crop volume and higher cost of production for the growing cycle due to ongoing disease pressure and supply chain cost increases, effectively increasing our production price per pound for our Texas tomato crop. The increase in grower partner cost of sales was driven by an increase in purchased production from our grower partners as well as fixed contract pricing on some of our grower partner tomato varieties. Our facility management has implemented changes to increase crop yield and reduce cost per pound, however our efforts could not mitigate the increases in supply chain costs and incremental freight experienced in Q1 2022.

The gross margin for VF Fresh was ($4,171) for three months ended March 31, 2022 as compared to $717 for the three months ended March 31, 2021. Gross margin in the first quarter of 2022 has been greatly affected by the higher cost of sales, which was attributable to additional freight per pound, a revised production forecast and higher cultivation costs in our Texas facilities and lower grower partner gross margin of ($1,306). The higher freight per pound was mostly due to increases in fuel prices and trucker shortages which could not be passed on to our customers.

VF Fresh selling, general and administrative expenses for three months ended March 31, 2022 were $3,140 or 8% of sales as compared to $2,551 or 7% of sales for the three months ended March 31, 2021. The quarter-over-quarter increase in selling, general and administrative expenses was primarily due to legal fees.

VF Fresh’s net loss for three months ended March 31, 2022 was ($5,626) as compared to ($1,585) for the three months ended March 31, 2021. The increase in net loss for the first quarter of 2022 as compared to the first quarter of 2021 was primarily due to the lower gross margin and higher selling, general and administrative expenses incurred in 2022.

The Adjusted EBITDA for VF Fresh was ($6,201) for three months ended March 31, 2022 as compared to ($492) for the three months ended March 31, 2021. The lower Adjusted EBITDA was due to a decrease in operating margin of ($5,477) for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The Canadian cannabis segment currently consists of Pure Sunfarms and Rose LifeScience. The comparative analysis for Canadian cannabis is based on the consolidated results of Pure Sunfarms and Rose LifeScience for the three months ended March 31, 2022 and the results of Pure Sunfarms for March 31, 2021. The Company acquired 70% of Rose LifeScience on November 15, 2021 and as such the operating results of Rose LifeScience from January 1, 2022 to March 31, 2022 are consolidated in our results for the three months ended March 31, 2022 with the minority interest presented in Net Income (Loss) Attributable to Non-controlling Interests, Net of Tax.

Canadian cannabis net sales for the three months ended ~~June 30, 2021~~March 31, 2022 were ~~$24,761~~$21,769 as compared to $17,460 for the three months ended March 31, 2021. The ~~sequential~~period-over-period net sales increase of $4,309 or 25% includes $3,609 in Q1 2022 net sales from Rose. The increase between comparable quarters was ~~comprised~~driven by a 79% increase in non-branded sales and an 8% increase in branded sales. The 79% increase in non-branded sales was due primarily to the continued development and strengthening of ~~a 22%~~relationships with other key LPs that are purchasing high potency, high-quality flower and trim made available as Pure Sunfarms expanded its cultivation footprint. The 8% increase in branded sales was attained through the addition of Rose branded sales in Q122, partially offset by a (10%) decline in Pure Sunfarms branded sales driven by selective price decreases on slower moving flower and ~~a 121% increase in non-branded sales.~~cannabis derivative products. For the three months ended ~~June 30, 2021, 66%~~March 31, 2022, 67% of revenue was generated from branded flower, ~~and~~inclusive of pre-rolls, ~~and~~ 8% of revenue from ~~branded oils, edibles~~cannabis derivative products and ~~vapes (“Cannabis Derivate Products”)~~25% from non-branded sales as compared to 71% of revenue from branded flower, inclusive of pre-rolls, 13% from cannabis derivative products and ~~pre-rolls and 13% of revenue~~16% from ~~Cannabis Derivative Products~~non-branded sales for the three months ended March 31, 2021. For the three months ended June 30, 2021, non-branded sales represented 26% of revenues compared to 16% for the three months ended March 31, 2021. The increase in branded sales between sequential periods was largely attributable to increased production of high-potency flower and trim released in the three months ended June 30, 2021. Additionally, many provinces began their COVID-19 re-opening plans as COVID-19 pressures began subsiding and capacity restrictions decreased, particularly in Ontario, which helped spur demand in the latter half of Q2 2021. Similarly, the increase in non-branded sales was largely attributable to the availability of high-potency flower and trim to meet demand from other licensed producers (“LPs”) in the wholesale market.

~~Pure Sunfarms’~~Canadian cannabis cost of sales for the three months ended ~~June 30, 2021 was $14,941~~March 31, 2022 were $12,259 as compared to $15,248 for the three months ended March 31, 2021. ~~As a result of the Pure Sunfarms Acquisition, Pure Sunfarms recognized an increase in the fair value of its inventory on the acquisition date, resulting in a ($133) charge to~~The period-over-period net cost of sales decrease of $2,989 or 20% includes $2,388 in ~~the second quarter of 2021 and a ($2,925) charge to~~Q1 2022 cost of sales infrom Rose. In addition, the ~~first quarter~~Q2 2022 cost of sales for Pure Sunfarms includes a positive adjustment of $2,050 and the Q1 2021 cost of sales for Pure Sunfarms includes a ($2,778) charge from the revaluation of its inventory to fair ~~value. This is a non-cash accounting charge to~~value at acquisition date of November 2, 2020. The cost of sales decrease is partly attributable to ongoing improvements in yields, potency and ~~should be adjusted for when analyzing the actual operational results~~growing practices as well as a higher proportion of ~~Pure Sunfarms. The decrease in cost of~~non-branded sales between ~~the~~comparable periods, ~~was driven by the~~as non-branded products require lower charge from the revaluation of inventory to fair value at acquisition date. In addition, cost of sales as a percentage of revenue decreased from 71% to 60% for the sequential quarter as our cost of production decreased due to increased yields in cultivation.manufacturing, packaging and distribution costs.

Gross margin for the three months ended ~~June 30, 2021~~March 31, 2022 increased ~~$7,608~~$7,298 to ~~$9,820,~~$9,510, or a ~~40%~~44% gross margin, in comparison to $2,212, or a 13% gross margin, for the three months ended March 31, 2021. ~~Excluding the purchase price inventory adjustment of $133, gross~~Gross margin for the three months ended ~~June 30, 2021~~March 31, 2022 increased ~~$4,817~~$2,470 to ~~$9,954,~~$7,460, or a ~~40%~~34% gross margin (excluding the purchase price inventory positive adjustment of $2,050) in comparison to ~~$5,137,~~$4,990, or a 29% gross margin ~~excluding~~(excluding the purchase price inventory adjustment charge of ~~$2,925~~$2,778), for the three months ended March 31, 2021. The increase in gross margin between ~~sequential~~comparable periods was ~~attributable~~primarily due to ~~an increase in branded flower sales at higher margins, an increased demand for~~the production of high-quality, high-potency flower ~~at higher margins for non-branded revenue and lower~~from a larger cultivation footprint which is a key factor in decreasing cost of sales as a percentage of ~~net sales.~~revenue and offset the price compression experienced across various provincial markets in Q1 2022.

~~Pure Sunfarms’~~Canadian cannabis selling, general and administrative expenses for the three months ended ~~June 30, 2021 were $4,370,~~March 31, 2022 increased $2,967 to $6,933 or ~~18%~~32% of sales compared to $3,966 or 23% of sales for the three months ended March 31, 2021. The ~~decrease~~increase in selling, general and administrative expenses ~~as a percentage of sales for the three months ended June 30, 2021~~ in ~~comparison to the three months ended March 31, 2021~~Q2 2022 was due to ~~general cost containment efforts initiated by management~~a 40% rise in Pure Sunfarms’ expenses and the inclusion of Rose expenses of $1,364. The quarter-over-quarter increase was mostly due to ~~effectively keep expenses relatively constant as~~planned incremental investment in sales ~~increased 38%.~~support and marketing campaigns for the higher volume of sales in 2022 along with additional headcount, IT services, regulatory and compliance fees to support the growth of the Canadian cannabis segment.

~~Share-based~~Canadian cannabis share-based compensation expenses for the three months ended ~~June 30, 2021~~March 31, 2022 were ~~$191~~$367 as compared to $1,094 for the three months ended March 31, 2021. The decrease in share-based compensation ~~is largely~~was primarily due to the vesting of performance ~~shares granted to~~share grants for Pure Sunfarms’ management ~~that vested in~~associated with attained milestones and conditions met associated with the ~~first quarter~~Company’s acquisition of ~~2021.~~the remaining 41.3% of Pure Sunfarms on November 2, 2020.

~~Pure Sunfarms’~~Canadian cannabis net income for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~$3,221~~$987 as compared to a net loss of ($2,834) for the three months ended March 31, 2021. The ~~higher~~increase in net income between periods was primarily ~~driven by~~due to a higher gross margin ~~due to increased sales volume while decreasing cost of sales~~which was impacted by the positive purchase price inventory adjustment and lower share-based compensation expense, partially offset by higher selling, general and administrative ~~expenses as a percentage of revenue.~~

Adjusted EBITDA for the three months ended ~~June 30, 2021~~March 31, 2022 and March 31, 2021 was ~~$7,369~~$2,104 and $2,534, ~~respectively, representing an increase of 191%.~~respectively. The ~~increase in~~lower Adjusted EBITDA between periods was ~~driven by~~primarily due to higher selling, general and administrative expenses along with the effect of the purchase price inventory adjustments on the calculation of Adjusted EBITDA. See the reconciliation of Adjusted EBITDA to net ~~sales, gross margin~~income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

The U.S. cannabis segment currently consists of Balanced Health and ~~operating profit in the three months ended June 30, 2021 as compared to~~VF Hemp. For the three months ended March 31, 2022, U.S. cannabis financial results are based on the consolidated results of Balanced Health from the closing date of the acquisition of August 16, 2021.

~~Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020~~

~~Pure Sunfarms’ net sales~~ VF Hemp is a joint venture and its results are included in “(Losses) Income from Equity Method Investments” for the three months ended ~~June 30, 2021 were $24,761 as compared to $9,386~~March 31, 2022.

U.S. cannabis sales for the ~~three months ended June 30, 2020. The net~~period of January 1, 2022 to March 31, 2022 were $7,043. Over 99% of sales ~~increase was comprised~~were generated in the United States and gross sales were composed of 73% from e-commerce sales, 16% from retail sales, 5% from shipping income and 1% from bulk sales. In addition, sales included a 154% increase in branded sales and a 96% increase in non-branded sales. For the three months ended June 30, 2021, 66% of revenue was generated from branded flower and pre-rolls and 8% of revenue from Cannabis Derivate Products5% loyalty program impact as compared to 69% of revenue from branded flower and pre-rolls and no sales from Cannabis Derivate Products as Pure Sunfarms launched these products in Q3 2020. The sales increase was due to the impact of store openings throughout Canada combined with favorable brand performance and market share in addition to the launch of Cannabis Derivate Products. Non-branded sales also benefited from store openings and the growth of the Cannabis Derivate Products which in turn increased demand for cannabis biomass sold to other LPs. For the three months ended June 30, 2021, non-branded sales represented 26% of revenues compared to 31% for the three months ended June 30, 2020.loyalty program customers generate loyalty points that may be used when purchasing Balanced Health products.

~~Pure Sunfarms’~~U.S. cannabis cost of sales for the ~~three months ended June 30, 2021 was $14,941 as compared~~period of January 1, 2022 to ~~$6,266 for the three months ended June 30, 2020. The Q2 2021~~March 31, 2022 were $2,331. Cost of sales can be primarily attributed directly to e-commerce, retail and bulk cost of sales ~~for Pure Sunfarms includes a $133 charge from the revaluation of its inventory to fair value at acquisition date. The increase in cost~~with all other costs of sales ~~between periods was driven by an increase in net sales,~~categorized within other manufacturing costs including ~~a higher volume of branded sales which require incremental costs for manufacturing, packaging~~expenses such as warehouse expenses, freight and ~~distribution. However, cost of sales as a percentage of revenue decreased from 67% to 57% due to increased production efficiencies in 2021.~~shipping supplies.

~~Gross margin for the three months ended June 30, 2021 increased $6,700 to $9,820, or a 40% gross margin, in comparison to $3,120, or a 33%~~U.S. cannabis gross margin for the ~~three months ended June 30, 2020. The Q2 2021 gross margin for Pure Sunfarms includes a $133 charge from the revaluation~~period of ~~its inventory~~January 1, 2022 to ~~fair value at acquisition date. The increase in gross margin between periods~~March 31, 2022 was ~~primarily due to the higher volume of branded flower and pre-roll sales in 2021.~~$4,712 or 67%.

~~Pure Sunfarms’~~U.S. cannabis selling general and administrative expenses for the ~~three months ended June 30, 2021 were $4,370 compared~~period of January 1, 2022 to ~~$1,850 for~~March 31, 2022 was $4,296 or 61% of sales. As the ~~three months ended June 30, 2020. The increase in~~U.S. cannabis business derives a substantial number of sales through its online technology platforms, the primary expense categories within selling, general and administrative ~~expenses for the three months ended June 30, 2021 in comparison to the three months ended June 30, 2020 was primarily due to additional headcount to~~include sales and marketing, merchant fees, e-commerce support, ~~the growth of Pure Sunfarms.~~

Share-based compensation expenses for the three months ended June 30, 2021 were $191 as compared to nil for the three months ended June 30, 2020. The increase in share-based compensation is due to the cost of stock options for Pure Sunfarms’ management.IT services, research and development and customer service.

~~Pure Sunfarms’~~U.S. cannabis net income for the ~~three months ended June 30, 2021~~period of January 1, 2022 to March 31, 2022 was ~~$3,221 as compared~~$269 due primarily to ~~$789 for~~ the three months ended June 30, 2020. The higher net income between periods was driven by higher net sales which includes Cannabis Derivative Products sales and lower selling, general and administrative costs as a percentagegross margin of ~~net revenue.~~67%.

~~Adjusted~~U.S. cannabis adjusted EBITDA for the ~~three months ended June 30, 2021~~period of January 1, 2022 to March 31, 2022 was $580 and ~~June 30, 2020~~ was $7,369 and $1,835, respectively, representing an increase of 302%. The increase in Adjusted EBITDA was driven by higher net sales, gross margin and lower selling, general and administrative costs as a percentage of net sales.

~~Six Months Ended June 30, 2021 Compared~~due primarily to ~~Six Months Ended June 30, 2020~~

Pure Sunfarms’ net sales for the six months ended June 30, 2021 were $42,221 as compared to $22,523 for the six months ended June 30, 2020. Branded sales for the six months ended June 30, 2021 and 2020, were $32,973 and $12,738, respectively, an increase of $20,235, or 159% between periods. Non-branded revenue for the six months ended June 30, 2021 and 2020 was $9,248

and $9,785, respectively, a decrease of ($537), or (5%). For the six months ended June 30, 2021, 68% of revenue was generated from branded flower and pre-rolls and 10% of revenue was generated from Cannabis Derivate Products as compared to 57% of revenue from branded flower and pre-rolls and no revenue from Cannabis Derivative Products for the six months ended June 30, 2020. The increase in branded sales was largely attributable to increased production of high-potency flower, trim and Cannabis Derivate Products relative to the prior period. Additionally, many provinces began their re-opening plans as COVID-19 pressures subsided and capacity restrictions decreased, particularly in Ontario, which helped spur demand in the latter half of Q2 2021. For the six months ended June 30, 2021, non-branded sales represented 22% of revenues compared to 43% for the six months ended June 30, 2020. The decrease in non-branded sales was largely due to opportunistic and material non-monetary transactions that occurred in 2020 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’ cost of sales for the six months ended June 30, 2021 was $30,189 as compared to $12,524 for the six months ended June 30, 2020. The 2021 cost of sales for Pure Sunfarms includes a $3,058 charge from the revaluation of inventory to fair value at acquisition date. The increase in cost of sales between periods was driven by an increase in net sales, including the higher volume of branded sales which require incremental costs for manufacturing, packaging and distribution.

Gross margin for the six months ended June 30, 2021 increased $2,033 to $12,032, or a 28% gross margin, in comparison to $9,999, or a 44% gross margin, for the six months ended June 30, 2020. Excluding the purchase price inventory adjustment of $3,058, gross margin for the six months ended June 30, 2021 increased $5,091 to $15,090, or a 36% gross margin. The increase in gross margin was driven by the increase in branded sales. However, branded sales have a higher cost associated with packaging and distribution which led to a decrease in gross margin as a percentage of revenue between the periods. In addition, Pure Sunfarms entered into certain co-manufacturing agreements to assist in the production of Cannabis Derivative Products which have a lower margin relative to in-house production.

Pure Sunfarms’ selling, general and administrative expenses for the six months ended June 30, 2021 were $8,336 compared to $4,284 for the six months ended June 30, 2020. The increase in selling, general and administrative expenses for the six months ended June 30, 2021 in comparison to the six months ended June 30, 2020 was primarily due to additional headcount to support the growth of Pure Sunfarms. Selling, general and administrative expenses remained approximately 20% of net sales as revenues increased 87% between the six months ended June 30, 2021 and June 30, 2020, respectively.

Share-based compensation expenses for the six months ended June 30, 2021 were $1,285 as compared to nil for the six months ended June 30, 2020. The increase in share-based compensation is due to the vesting of performance share grants and cost of stock options for Pure Sunfarms’ management.

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 Sunfarms’ forgiveness of a shareholder loan and accrued interest owed by Emerald offset by the extinguishment of the supply agreement and any amounts receivable thereunder, which included a C$8,100 receivable from Emerald for sales made in 2019.

Pure Sunfarms’ net income for the six months ended June 30, 2021 was $387 as compared to net income of $6,954 for the six months ended June 30, 2020. The decrease in net income was largely attributable to the one-time gain on settlement of net liabilities of $4,348 in 2020 as well as the lower operating profit for the ~~six months ended June 30, 2021.~~

Adjusted EBITDA for the six months ended June 30, 2021 and June 30, 2020 was $9,903 and $6,703, respectively. Adjusted EBITDA increased 33% between periods primarily due to higher gross margin for the period ended June 30, 2021 as compared to June 30, 2020.period.

As at ~~June 30, 2021,~~March 31, 2022, we had ~~$114,029~~$41,433 in cash (includes $6,810 in restricted cash) and ~~$155,207~~$101,477 of working capital, and as at December 31, ~~2020,~~2021, we had ~~$21,640~~$58,667 in cash (includes $5,250 in restricted cash) and ~~$29,528~~$110,646 of working capital. We ~~expect~~believe that cash generated from our operating activities, Credit Facilities and Pure Sunfarms Loans will provide sufficient liquidity to ~~utilize~~meet our working capital needs, repayments of long-term debt, future contractual obligations and ~~provide or obtain adequate financing to maintain~~

~~and improve our property, plant and equipment, to fund working~~planned capital ~~produce needs and invest in Pure Sunfarms~~expenditures for the next ~~twelve months from cash flows from operations, and, if needed, from~~12 months. An additional ~~borrowings under the Credit Facilities (as defined below) or~~potential source of liquidity is access to capital markets for additional equity or debt financing. We intend to use our cash on hand for daily funding requirements.

The Company’s borrowings under the FCC Term Loan, the Operating Loan and the VFCE Borrowings (as defined below) (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 ~~June 30, 2021,~~March 31, 2022, the Company was in compliance with all of its covenants under its Credit Facilities.On December 31, 2021 we were not in compliance with one financial covenant under our FCC Term Loan. Subsequent to December 31, 2021, we received a waiver from Farm Credit Canada (“FCC”) in connection with the

annual testing on December 31, 2021 for the one financial covenant. FCC measures our financial covenants once a year on the last calendar day of the year and our next annual testing date will be on December 31, 2022. We can provide no assurance that we will be in compliance or receive a waiver for any non-compliance as of the next annual testing date.

Accrued interest payable on the Credit Facilities and Pure Sunfarms Loans as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was ~~$79~~$234 and ~~$189,~~$304, respectively, and these amounts are included in accrued liabilities in the ~~Condensed~~ Consolidated ~~Interim~~ Statements of Financial Position.

The Company has a term loan financing agreement with Farm Credit Canada, ~~(“FCC”),~~ a Canadian creditor (the “FCC Term Loan”). The non-revolving variable rate term loan has a maturity date of April 1, 2025 and a balance of ~~$27,706~~$26,230 on ~~June 30, 2021~~March 31, 2022 and ~~$28,690 as of~~$26,723 on December 31, ~~2020.~~2021. 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 ~~June 30, 2021 and December~~March 31, ~~2020,~~2022, borrowings under the FCC Term Loan agreement were subject to an interest rate of ~~3.746% and 3.79%~~3.77% per ~~annum, respectively.~~annum.

As collateral for the FCC Term Loan, the Company has provided promissory notes, a first mortgage on the VFF-owned Delta 1 and Texas greenhouse facilities, and general security agreements over its assets. In addition, the Company has provided full recourse guarantees and has granted security interests in respect of the FCC Term Loan. The carrying value of the assets and securities pledged as collateral as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was ~~$196,536~~$192,344 and ~~$86,664,~~$233,187, respectively.

The Company has a revolving line of credit agreement with a Canadian chartered bank (the “Operating Loan”). The Operating Loan has a line of credit of up to C$10,000, as amended on May 7, 2021, less outstanding letters of credit totaling $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 lender. AsThe Operating Loan had a balance of ~~June 30, 2021,~~$2,000 on March 31, 2022 and there was no amount drawn on this loan ~~and as of~~on December 31, ~~2020, the amount drawn on this facility was $2,000.~~2021.

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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was ~~$28,149~~$33,840 and ~~$23,443,~~$34,741, respectively.

VFCE ~~has~~had a loan agreement with a Canadian chartered bank that includes a non-revolving fixed rate loan (the “VFCE Loan”) of C$3,000 with a maturity date of June 2023 and a fixed interest rate of 4.98% per annum. As of June 30, 2021 and December 31, 2020, the balance of the VFCE Loan was C$822 and C$1,103, respectively. The loan agreement also includes an uncommitted credit facility for up to C$700 to support financing of certain capital expenditures (the “VFCE Credit Facility”). The Company paid off the outstanding balance of the VFCE ~~Credit Facility~~Loan in the ~~second~~first quarter of ~~2021.~~2022. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the ~~outstanding borrowings under the VFCE Credit Facility were nil and C$88, respectively (such borrowings, together with~~balance of the VFCE Loan ~~the ”VFCE Borrowings”).~~was nil and C$624, respectively.

On March 15, 2021, Pure Sunfarms entered into the Third Amended and Restated Credit Agreement (the “Third Amended and Restated PSF Credit ~~Agreement)~~Agreement”) with 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

and included a guarantee by Village Farms. The Third Amended and Restated PSF Credit Agreement ~~amends~~amended and ~~updates~~updated the previous three loan facilities.

The first loan facility under the Third Amended and Restated PSF Credit Agreement 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 noan outstanding balance of C$9,855 as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. Pure Sunfarms had an outstanding letter of credit issued to BC Hydro against the revolving line of credit of C$5,145 at March 31, 2022 and December 31, 2021.

The second loan facility under the Third Amended and Restated PSF Credit Agreement is a credit ~~agreement~~facility with a Canadian chartered bank, as agent and lead lender, and FCC, as lender, in respect of a C$17,000 secured non-revolver term loan (the “PSF Non-Revolving Facility). The PSF Non-Revolving Facility, which matures on February 7, 2024, is secured by the Delta 2 and Delta 3 greenhouse facilities and contains customary financial and restrictive covenants. The purpose of the PSF Non-Revolving Facility is to refinance our Delta 3 greenhouse and provide funds to upgrade and retrofit the Delta 2 facility. The outstanding amount on the PSF Non-Revolving Facility was C$~~15,986~~14,595 on ~~June 30, 2021~~March 31, 2022 and C$~~17,057~~15,076 on December 31, ~~2020.~~2021.

The third loan facility under the Third Amended and Restated PSF Credit Agreement is a C$25,000 term loan (the “PSF Term Loan”) at the Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50% of the outstanding principal amount starting June 30, 2021 and maturing February 7, 2024. Advances under the PSF Term Loan ~~shall~~are required to be used to finance the upgrade and retrofit of the Delta 2 greenhouse to render it suitable for cannabis cultivation as well as any funds necessary for capital expenditures on the Delta 3 processing facility. The outstanding amount on the PSF Term Loan was C$~~23,728~~21,965 on ~~June 30, 2021~~March 31, 2022 and C$~~21,072~~22,614 on December 31, ~~2020.~~2021.

On December 20, 2020, Pure Sunfarms entered into a C$6,250 non-revolving demand loan at the Canadian prime interest rate plus 3.75% per annum with a Canadian chartered bank with the financial support of the Business Development Bank of Canada (the “BDC Facility”). The BDC Facility, provided as part of COVID-19 government relief, requires interest only payments monthly for the first twelve months and matures on December 31, 2031. Commencing on December 31, 2021, Pure Sunfarms will repay the outstanding principal amount in equal monthly installments. The outstanding amount on the BDC Facility was C$~~6,282~~6,094 on ~~June 30, 2021~~March 31, 2022 and C$~~6,250~~6,282 on December 31, ~~2020.~~2021.

Pure Sunfarms is required to comply with financial covenants under the Third Amended and Restated PSF Credit Agreement, which are measured quarterly. As of ~~June 30, 2021,~~March 31, 2022, Pure Sunfarms was in compliance with ~~the~~these financial covenants.

The Company had a note payable due to Emerald of C$19,900, plus accrued interest that the Company originally issued to Emerald as partial consideration for the November 2, 2020 acquisition of Pure Sunfarms. The note and accrued interest were repaid to Emerald in full on February 5,8, 2021.

The Company closed equity offerings on March 24, 2020, September 10, 2020, and January 20, 2021. The March 24, 2020 public offering raised gross proceeds of C$11,500 through the issuance of 3,593,750 Common Shares at a price of C$3.20 per Common Share. The September 10, 2020 offering raised gross proceeds of $49,800 through the issuance of 9,396,226 Units with each Unit consisting of one Common Share at a price of $5.30 per Common Share and one-half of a Warrant at an exercise price of $5.80, and onOn January 20, 2021, Village Farms completed a registered direct offering for the purchase and sale of an aggregate of 10,887,097 Common Shares at a purchase price of $12.40 per Common Share for gross proceeds of approximately $135,000.

	For the six months ended June 30,						For the three months ended March 31,
(in Thousands)	2021			2020			2022			2021
Cash beginning of period	$	25,679		$	11,989		$	58,667		$	25,679
Net cash flow provided by/(used in):
Operating activities		(15,210	)		2,145			(9,637	)		(14,436	)
Investing activities		(12,368	)		(12,290	)		(8,705	)		(5,211	)
Financing activities		124,583			7,725			1,012			129,577
Net cash increase (decrease) for the period		97,005			(2,420	)
Net cash (decrease) increase for the period								(17,330	)		109,930
Effect of exchange rate changes on cash		502			(1	)		96			178
Cash, end of the period	$	123,186		$	9,568		$	41,433		$	135,787

For the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ cash flows used in operating activities ~~before~~were ($9,637) and ($14,436), respectively. The operating activities for the three months ended March 31, 2022 consisted of ($5,091) in changes in non-cash working capital ~~totaled ($5,051)~~items and ($~~1,816), respectively. The decline~~4,546) in ~~cash flows from~~changes before non-cash working capital items, while operating activities ~~between periods~~for 2021 consisted of ($9,703) in changes in non-cash working capital items and ($4,733) in changes before non-cash working capital items. The decrease in changes before non-cash working capital items for Q1 2022 as compared to Q1 2021 was primarily due to ~~lower operating results~~an improvement in our net loss of ~~both~~$865 from quarter-over-quarter improvement from our Canadian cannabis operations, as well as the ~~produce business and Pure Sunfarms for the six months ended June 30, 2021.~~addition of U.S. cannabis, partially offset by higher losses from VF Fresh.

For the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ cash flows used in investing activities were ($~~12,368)~~8,705) and ($~~12,290)~~5,211), respectively. ~~The~~Q1 2022 investing activities ~~for the six months ended June 30, 2021 largely consists~~consisted of a ($~~1,001) investment~~2,715) loan to L.L. Lichtendahl Beheer B.V., a private company that holds a 50% interest in Leli, a promissory note to Altum of ($727) and ($~~11,355)~~5,263) of capital expenditure expenses, of which ($~~9,029)~~4,344) was for Pure Sunfarms Delta 2 packhouse conversion and Delta 3 improvement projects and ($883) for our produce operations. Q1 2021 investing activities primarily consisted 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 ($2,326) for upgrades to our produce operations. The investing activities for the six months ended June 30, 2020 consist primarily of ($11,713) of additional investment in Pure Sunfarms and ($452) of capital expenditures916) for our produce operations.

For the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ cash flows provided by financing activities were ~~$124,583~~$1,012 and ~~$7,725,~~$129,577, respectively. For the ~~six~~three months ended ~~June 30,~~March 31, 2022, cash flows provided by financing activities primarily consisted of $2,000 for proceeds from the Operating Loan, $176 in proceeds from the exercise of Common Shares, ($983) in repayments on borrowings and ($301) for payments on lease obligations. For the three months ended March 31, 2021, cash flows provided by financing activities primarily consisted of $127,489 of net proceeds from the issuance of Common Shares, ~~$18,494~~$17,663 in proceeds from the exercise of warrants from the September 2020 registered direct offering and the ($15,498) payment of the Emerald Promissory Note, share repurchases of ($3,980) and payments on borrowings net of proceeds of ($1,799). For the six months ended June 30, 2020, cash flows provided by financing activities primarily consisted of the $7,294 generated from the issuance of Common Shares, net of issuance costs, and $348 of proceeds from borrowings net of repayments.Note.

~~Information regarding~~We expect to meet our contractual obligations asand commitments through the use of ~~June 30, 2021 is set forth~~our working capital. We currently do not have any material obligations identified in the ~~table below:~~

Asnear future, however, as noted in “Recent Developments and Updates – International Update”, we entered into an option agreement to receive the irrevocable right to acquire 80% ownership of ~~June 30, 2021, Pure Sunfarms had~~Leli. This potential investment is being evaluated by the Company and may require a ~~service agreement with an unrelated party. In~~material contractual obligation in the event ~~Pure Sunfarms terminates~~that we exercise the ~~agreement, Pure Sunfarms would be required~~Option.

In addition, we currently have material long-term debt and lines of credit that we rely on to ~~pay~~meet financing needs of the ~~counterparty a C$1,000 termination fee. This is considered a commitment.~~Company. The long-term debt and lines of credit have interest rate terms whereas the possibility of rising interest rates may impact the cost of capital for the Company. See “Item 7A – Qualitative and Quantitative Disclosures About Market Risk – Interest Rate Risk” below for additional information.

References in this MD&A to “Adjusted EBITDA” are to earnings (including the equity earnings of ~~Pure Sunfarms and~~the joint venture, VFH) before interest, taxes, depreciation, and amortization (“EBITDA”), as further adjusted to exclude foreign currency exchange gains and losses on translation of long-term debt, unrealized gains on the changes in the value of derivative instruments, share-based compensation, gains and losses on asset sales and the other adjustments set forth in the table below. Adjusted EBITDA is a ~~cash flow~~ measure of operating performance 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.~~performance. Management believes that Adjusted EBITDA is an important measure in evaluating the historical performance of the ~~Company.~~Company because it excludes non-recurring and other items that do not reflect our business performance.

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

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

	Three Months Ended June 30,						Six Months Ended June 30,						For the three months ended March 31,
(in thousands of U.S. dollars)	2021 ⁽¹⁾			2020 ⁽¹⁾			2021 ⁽¹⁾			2020 ⁽¹⁾			2022 ⁽¹⁾			2021 ⁽¹⁾
Net (loss) income	$	(4,517	)	$	(119	)	$	(11,899	)	$	4,071
Net loss													$	(6,517	)	$	(7,382	)
Add:
Amortization		3,898			1,491			7,310			3,021			2,702			3,412
Foreign currency exchange loss		(269	)		(530	)		235			396
Foreign currency exchange (gain) loss														(319	)		504
Interest expense, net		552			344			1,290			498			573			738
Recovery of income taxes		(1,781	)		69			(3,620	)		(943	)		(1,666	)		(1,839	)
Share-based compensation		1,887			328			3,885			857			964			1,998
Interest expense for JVs		13			103			27			396			13			14
Amortization for JVs		30			377			64			678			94			34
Foreign currency exchange loss for JVs		—			(17	)		—			85			29			—
Provision for income taxes for JVs		—			222			—			1,491
Deferred financing fees		166			—			166			—
Incremental utility costs due to storm		1,400			—			1,400			—
Purchase price adjustment ⁽²⁾		133			—			3,058			—			(2,050	)		2,925
Gain on settlement agreement ⁽³⁾		—			—			—			(4,681	)
Gain on settlement of net liabilities from JV		—			—			—			(2,496	)
Gain on disposal of assets		35			—			35			(9	)
Adjusted EBITDA ⁽⁴⁾	$	1,547		$	2,268		$	1,951		$	3,364
Adjusted EBITDA for JVs ^{(See table below)}	$	(48	)	$	1,034		$	(127	)	$	3,717
Amortization of deferred charges														66			—
Adjusted EBITDA ⁽³⁾													$	(6,111	)	$	404
Adjusted EBITDA for JVs ⁽⁴⁾													$	(25	)	$	(79	)
Adjusted EBITDA excluding JVs	$	1,595		$	1,234		$	2,078		$	(353	)	$	(6,086	)	$	483

The following tables are a reconciliation of the GAAP results to the proportionate results (which include our proportionate share of Pure Sunfarms and VFH 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 June 30, 2021

Produce

Clean Energy

Corporate

Cannabis ⁽¹⁾

Hemp⁽¹⁾

Total

Sales

$
45,539

$
74

$
—

$
24,761

$
—

$
70,374

Cost of sales

(49,321
)

(847
)

—

(14,941
)

(42
)

(65,151
)
Selling, general and administrative expenses

(2,946
)

(52
)

(1,657
)

(4,370
)

(36
)

(9,061
)
Share-based compensation

—

—

(1,696
)

(191
)

—

(1,887
)
Loss on disposal of assets

—

—

—

(40
)

—

(40
)
Other income (expense), net

—

(10
)

209

(724
)

(8
)

(533
)
Recovery of income taxes

2,710

—

345

(1,274
)

—

1,781

Net (loss) income

$
(4,018
)

$
(835
)

$
(2,800
)

$
3,222

$
(86
)

(4,517
)
Adjusted EBITDA⁽²⁾

$
(3,981
)

$
(135
)

$
(1,658
)

$
7,369

$
(48
)

$
1,547

(Loss) earnings per share – basic

$
(0.05
)

$
(0.01
)

$
(0.04
)

$
0.04

$
(0.00
)

$
(0.06
)
(Loss) earnings per share – diluted

$
(0.05
)

$
(0.01
)

$
(0.04
)

$
0.04

$
(0.00
)

$
(0.06
)

For the three months ended June 30, 2020

Produce

Clean Energy

Corporate

Cannabis⁽¹⁾

Hemp ⁽¹⁾

Total

Sales

$
47,455

$
118

$
—

$
5,509

$
—

$
53,082

Cost of sales

(43,716
)

(328
)

—

(3,678
)

—

(47,722
)
Selling, general and administrative expenses

(2,319
)

(65
)

(1,429
)

(1,086
)

(170
)

(5,069
)
Share-based compensation

—

—

(328
)

—

—

(328
)
Other (expense) income, net

—

(12
)

224

(60
)

57

209

Recovery of (provision for) income taxes

220

—

(289
)

(222
)

—

(291
)
Net income (loss)

$
1,640

$
(287
)

$
(1,822
)

$
463

$
(113
)

$
(119
)
Adjusted EBITDA ⁽²⁾

$
2,783

$
(106
)

$
(1,443
)

$
1,076

$
(42
)

$
2,268

Earnings (loss) per share - basic

$
0.03

$
(0.01
)

$
(0.03
)

$
0.01

$
(0.00
)

$
(0.00
)
Earnings (loss) per share - diluted

$
0.03

$
(0.01
)

$
(0.03
)

$
0.01

$
(0.00
)

$
(0.00
)

For the six months ended June 30, 2021

Produce

Clean Energy

Corporate

Cannabis⁽¹⁾

Hemp ⁽¹⁾

Total

Sales

$
80,406

$
143

$
—

$
42,221

$
—

$
122,770

Cost of sales

(83,387
)

(1,622
)

—

(30,189
)

(90
)

(115,288
)
Selling, general and administrative expenses

(5,497
)

(84
)

(3,200
)

(8,336
)

(101
)

(17,218
)
Share-based compensation

—

—

(2,600
)

(1,285
)

—

(3,885
)
Loss on disposal of assets

—

—

—

(40
)

—

(40
)
Other expense, net

—

(21
)

(461
)

(1,354
)

(22
)

(1,858
)
Recovery of (provision for) income taxes

3,372

—

878

(630
)

—

3,620

Net (loss) income

$
(5,106
)

$
(1,584
)

$
(5,383
)

$
387

$
(213
)

$
(11,899
)
Adjusted EBITDA ⁽²⁾

$
(4,472
)

$
(151
)

$
(3,202
)

$
9,903

$
(127
)

$
1,951

(Loss) income per share – basic

$
(0.06
)

$
(0.02
)

$
(0.07
)

$
0.00

$
(0.00
)

$
(0.15
)
(Loss) income per share – diluted

$
(0.06
)

$
(0.02
)

$
(0.07
)

$
0.00

$
(0.00
)

$
(0.15
)

For the six months ended June 30, 2020

Produce

Clean Energy

Corporate

Cannabis⁽¹⁾

Hemp ⁽¹⁾

Total

Sales

$
79,417

$
268

$
—

$
12,951

$
98

$
92,734

Cost of sales

(74,644
)

(747
)

—

(7,235
)

(120
)

(82,746
)
Selling, general and administrative expenses

(4,854
)

(110
)

(2,770
)

(2,434
)

(287
)

(10,455
)
Share-based compensation

—

—

(857
)

—

—

(857
)
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

—

(31
)

(798
)

(298
)

(116
)

(1,243
)
Recovery of (provision for) income taxes

1,401

—

(458
)

(1,491
)

—

(548
)
Net income (loss)

$
1,320

$
(620
)

$
(208
)

$
3,994

$
(415
)

$
4,071

Adjusted EBITDA ⁽²⁾

$
2,565

$
(146
)

$
(2,772
)

$
3,854

$
(137
)

$
3,364

Earnings (loss) per share – basic

$
0.02

$
(0.01
)

$
(0.00
)

$
0.07

$
(0.01
)

$
0.07

Earnings (loss) per share – diluted

$
0.02

$
(0.01
)

$
(0.00
)

$
0.07

$
(0.01
)

$
0.07

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.

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 for the year ended December 31, ~~2020~~2021 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. 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 phase-out of LIBOR and the use of alternative benchmarks may have on the Company’s business or on the overall financial markets. If interest rates had been 50fifty basis points higher, ~~(lower),~~ the net income during the three months ended March 31, 2022 and 2021 would have been lower by $76 and $81, respectively. This represents $76 and $81 in increased interest expense for the three months ended ~~June 30,~~March 31, 2022 and 2021, and 2020 would have been higher (lower) by $81 and $40, respectively and net income for the six months ended June 30, 2021 and 2020 would have been higher (lower) by $161 and $80, respectively. These net income effects represent increased (decreased) interest expense for the periods ended June 30, 2021 and 2020, 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 ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Canadian/U.S. foreign exchange rate was C$1.00 = US$~~0.8066~~0.7995 and C$1.00 = US$~~0.7330,~~0.7941, 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 ~~June 30,~~March 31, 2022 and 2021 ~~and June 30, 2020~~ with the net foreign exchange gain or loss directly impacting net income (loss).

	June 30, 2021			June 30, 2020			March 31, 2022			March 31, 2021
Financial assets
Cash and cash equivalents	$	1,357		$	260		$	763		$	1,365
Trade receivables		3,701			496			3,348			3,180
JV notes receivable		—			1,455
Inventories		4,380			—			7,108			3,998
Prepaid and deposits		853			—			217			764
Financial liabilities
Trade payables and accrued liabilities		(5,187	)		(517	)		(4,306	)		(4,312	)
Loan payable		(4,682	)		(132	)		(1,059	)		(4,798	)
Deferred tax liability		(2,283	)		—			(2,753	)		(2,209	)
Net foreign exchange gain (loss)	$	(1,861	)	$	1,562		$	3,318		$	(2,012	)

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~~As required by Rule 13a-15(b) under the Exchange Act, our management, including our Chief Executive Officer and ~~Principal~~Chief Financial ~~and Accounting~~ Officer, evaluated the effectiveness of ~~the design and operation of the Company’s “disclosure~~our 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,procedures as of the end of the period covered by this Quarterly Report ~~the Company’s~~on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022, our disclosure controls and procedures are ~~effective.~~not effective at a reasonable assurance level due to the material weakness described in Management’s Report on Internal Control over Financial Reporting in our Annual Report on Form 10-K for the year ended December 31, 2021.

As of December 31, 2021, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control –Integrated Framework (2013). Based on this assessment, our management concluded that, as of December 31, 2021, our internal control over financial reporting was not effective based on those criteria because a material weakness in internal control over financial reporting existed as of that date, as described below.

The Company did not operate effective controls over the calculation of one of its debt covenants. The Company’s controls related to the review of debt covenant calculations failed to identify a violation of a debt covenant as at December 31, 2021 in a timely manner. The lender subsequently waived the debt covenant prior to filing and therefore there was no impact on the Company’s December 31, 2021 financial statements.

In the first quarter of 2022, the Company implemented remediation measures improving the review of the calculation of its debt covenants by applying additional independent review of the calculations. In addition, the Company is working with its lender group to modify and synchronize its loan covenants such that definitions of loan covenants are aligned going forward to avoid conflicting covenants between the Company and one of its subsidiaries. The Company will continue to review, optimize and enhance its financial reporting controls and procedures to ensure the remediation measures are effective and controls are operating effectively. The Company expects implementation of its remediation plan by the end of the second quarter of 2022.

The Company’s management, including the Chief Executive Officer and Principal Financial and Accounting Officer, has reviewed the Company’s internal control over financial reporting. There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the ~~Company’s~~Exchange Act), other than to address the material weakness described in management's report on internal control over financial reporting, during ~~the~~our fiscal quarter ended ~~June 30,~~December 31, 2021 that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our 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, ~~2020,~~2021, as filed with the SEC on March ~~15, 2021~~1, 2022 and amended on March ~~18, 2021,~~14, 2022, 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 ~~June 30, 2021,~~March 31, 2022, 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, ~~2020.~~2021, except as described below.

For the year ended March 2022, the US Bureau of Labor and Statistics reported that inflation increased 8.5 percent as against prices from March 2021. This represents the largest 12-month advance since 1981. Rising inflation affects our cultivation costs, distribution costs and operating expenses. We believe that volatile prices for commodities have impacted our operating results. We maintain strategies to mitigate the impact of higher raw material, energy and commodity costs, which include cost reduction, sourcing, passing along certain cost increases to customers and other actions, which may help to offset a portion of the adverse impact.

The effect of sanctions and an escalation of the conflict in Ukraine may further disrupt supply chains and adversely impact our business.

As a result of the current conflict between Russia and Ukraine and related geopolitical tensions, there have been, and may continue to be, significant adverse impacts on fuel, transportation costs and natural resources. Additionally, the governments of the United States, the European Union, Canada and other jurisdictions have announced the imposition of sanctions on certain industry sectors and parties in Russia as well as enhanced export controls on certain products and industries. These and any additional sanctions and export controls, as well as any counter responses by the governments of Russia, could adversely affect, the global supply chain, and the availability and prices of raw materials, energy prices, as well as the global financial markets and financial services industry.

The ~~following table represents information with respect to purchases by the~~ Company did not repurchase any of its Common Shares during the three months ended ~~June 30, 2021.~~March 31, 2022. On May 21, 2021, the Company announced that the TSX accepted a notice filed by the Company of its intention to make a Normal Course Issuer Bid (“NCIB”). The NCIB notice provides that Village Farms may, during the period commencing May 26, 2021 and terminating May 25, 2022, purchase up to 4,062,309 of its Common Shares by way of a NCIB over the facilities of The Nasdaq Stock Market LLC and/or through alternative trading systems in Canada and the United States. Daily purchases are limited to 233,243 Common Shares, other than block purchase exceptions. Shareholders may obtain a copy of the NCIB notice, without charge, by contacting Village Farms.

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		23
	Condensed Consolidated Interim Statements of ~~Income (Loss)~~Loss and Comprehensive ~~Income (Loss)~~Loss		34
	Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity and Mezzanine Equity		45
	Condensed Consolidated Interim Statements of Cash Flows		56
	Notes to Condensed Consolidated Interim Financial Statements		67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1716
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3429
Item 4.	Controls and Procedures		3429

PART II - OTHER INFORMATION			3531
Item 1.	Legal Proceedings		3531
Item 1A.	Risk Factors		3531
Item 6.	Exhibits		3632

	Signatures		3733

Classification	June 30, 2021			December 31, 2020
Licenses	$	13,148		$	12,870
Branding		3,792			3,688
Computer Software		971			945
Less: Accumulated amortization		(600	)		(192	)
Intangibles, net	$	17,311		$	17,311

	Cannabis - Canada		Cannabis - United States		Total
Balance as of December 31, 2021	$	57,525	$	60,008	$	117,533
Foreign currency translation adjustment		2,064		-		2,064
Balance as of March 31, 2022	$	59,589	$	60,008	$	119,597

Classification	March 31, 2022			December 31, 2021
Licenses	$	13,033		$	12,835
Brand and trademarks*		13,009			12,951
Computer Software		2,028			2,014
Other*		144			144
Less: Accumulated amortization		(1,702	)		(1,550	)
Intangibles, net	$	26,512		$	26,394

	Three Months Ended June 30, 2020
	Number of Common Shares (in thousands)		Common Stock			Additional paid in capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Shareholders’ Equity
Balance at April 1, 2020		56,250	$	105,656		$	4,880		$	(602	)	$	28,440		$	138,374
Shares issued in public offering, net of issuance costs		—		(29	)		—			—			—			(29	)
Shares issued on exercise of stock options		152		202			(80	)								122
Share-based compensation		—		—			328			—			—			328
Cumulative translation adjustment		—		—			—			55			—			55
Net loss		—		—			—			—			(119	)		(119	)
Balance at June 30, 2020		56,402	$	105,829		$	5,128		$	(547	)	$	28,321		$	138,731

	Six Months Ended June 30, 2021
	Number of Common Shares			Common Stock		Additional paid in capital			Accumulated Other Comprehensive Loss		Retained Earnings			Total Shareholders’ Equity
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		10,887			127,489		—			—		—			127,489
Warrants issued in public offering		3,188			29,050		(10,555	)		—		—			18,495
Shares issued on exercise of stock options		162			290		(104	)		—		—			186
Share re-purchases		(428	)		—		(3,980	)		—		—			(3,980	)
Share-based compensation		243			—		3,885			—		—			3,885
Cumulative translation adjustment		—			—		—			4,077		—			4,077
Net loss		—			—		—			—		(11,899	)		(11,899	)
Balance at June 30, 2021		80,964		$	302,497	$	6,748		$	10,332	$	23,959		$	343,536

Fiscal period
Remainder of 2021	$	393
2022		786
2023		780
2024		780
2025		688
Thereafter		10,092
Intangibles, net	$	13,519

	~~June 30, 2021~~March 31, 2022
Weighted average remaining lease term:
Operating leases		~~3.5~~6.3
Finance leases		~~1.0~~0.3
Weighted average discount rate:
Operating leases		~~5.94~~8.55	%
Finance leases		6.25	%

	November 2, 2020
ASSETS
Cash and cash equivalents	$	10,860
Trade receivables, net		10,553
Inventories		32,393
Prepaid expenses and deposits		3,572
Property, plant and equipment		122,831
Goodwill		23,095
Intangibles		16,670
Total assets		219,974
LIABILITIES
Trade payables		3,849
Accrued liabilities		13,062
Income taxes payable		2,173
Current maturities of long-term debt		2,306
Deferred revenue		77
Long-term debt		23,903
Deferred tax liabilities		16,424
Total liabilities		61,794
Net assets acquired	$	158,180

	*	~~Included in cost of sales for the three months ended June 30,~~November 15, 2021
ASSETS
Cash and ~~2020, respectively is~~cash equivalents		$~~1,327~~		1,118
Trade and ~~$563,~~other receivables, net				1,595
Inventories				3,586
Prepaid expenses and ~~six months ended June 30, 2021~~deposits			498
Property, plant and ~~2020 is$2,591~~equipment				16,423
Goodwill				34,548
Total assets				57,768
LIABILITIES
Trade payables				774
Accrued liabilities				1,803
Total liabilities				2,577
Mezzanine equity				16,479
Total liabilities and ~~$1,012 respectively, of depreciation expense.~~mezzanine equity				19,056
Net assets acquired		$		38,712

~~Balance, January 1, 2020~~	$	—
~~Share of net loss~~		~~(3,975~~	Altum International Pty Ltd (“Altum”)
~~Losses applied against joint venture note receivable~~		~~3,975~~
~~Balance, December 31, 2020~~	$	—
~~Balance, January 1, 2021~~	$	—
~~Share of net loss~~		~~(213~~	)
~~Losses applied against joint venture note receivable~~		~~213~~
~~Balance, June 30, 2021~~	$	—

	June 30, 2021		December 31, 2020
Term Loan - FCC Loan - repayable by monthly principle of payments of $164 and accrued interest at a rate of 3.746%; matures April 1, 2025	$	27,706	$	28,690
Term Loan - VFCE: C$3.0M - non-revolving fixed rate loan with fixed interest rate of 4.98%; matures June 2023		663		797
Advance on term loan - VFCE: C$250 - repayable in monthly installments of principal plus interest rate of C$ prime rate plus 200 basis points - paid in full June 2021		—		69
Term Loan - Pure Sunfarms - C$19.0M - Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50% of the outstanding principal amount, interest rate of 4.2%; matures February, 2024		12,895		13,385
Term loan - Pure Sunfarms - C$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		19,141		16,535
BDC Facility - Pure Sunfarms - non-revolving demand loan at prime interest plus 3.75%, matures December 31, 2031		5,067		4,905
Unamortized deferred financing fees		—		(302	)
Total	$	65,472	$	64,079


Segment		Description
Produce		The Produce segment produces, markets, and sells premium quality tomatoes, bell peppers and cucumbers.
Cannabis – Canada		The Cannabis-Canada segment produces and supplies cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally. The Produce business produces, markets and sells premium quality tomatoes, bell peppers and cucumbers. The Energy business produces power that it sells pursuant to be sold to other licensed providers and provincial governments across Canada and internationally.
Cannabis – United States		The Cannabis – United States segment develops and sells high-quality, CBD-based health and wellness products including ingestible, edible and topical applications.
Energy		The Energy business produces power that it sells per a long-term contract to its one customer.

	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
Granted		120,000		C$	12.91		9.88	$	—
Exercised		(162,000	)	C$	1.36		1.31	$	2,116
Outstanding at June 30, 2021		3,025,322		C$	7.44		6.74	$	19,222
Exercisable at June 30, 2021		1,793,834		C$	5.66		5.04	$	14,685

	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 June 30, 2021		626,000		C$	7.89
Exercisable at June 30, 2021		201,000		C$	5.79

(in thousands of U.S. dollars unless otherwise noted)	Maximum		Outstanding June 30, 2021
Operating Loan⁽¹⁾	C$	10,000	$	—
Term Loan	$	27,706	$	27,706
Pure Sunfarms Loan	C$	45,996	C$	45,996
VFCE Loan	C$	822	C$	822

(in thousands of U.S. dollars unless otherwise noted)	Maximum		Outstanding March 31, 2022
Operating Loan (1)	C$	10,000	$	2,000
FCC Term Loan	$	26,230	$	26,230
Pure Sunfarms Loans	C$	46,415	C$	46,415

Financial liabilities	Total		1 year		2-3 years		4-5 years		More than 5 years
Long-term debt	$	72,137	$	6,241	$	37,565	$	23,851	$	4,480
Trade payables		19,425		19,425		—		—		—
Accrued liabilities		28,818		28,818		—		—		—
Lease liabilities		3,434		663		1,568		770		433
Other liabilities		26,699		—		26,699		—		—
Total	$	150,513	$	55,147	$	65,832	$	24,621	$	4,913

Breakout of JV Adjusted EBITDA	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands of U.S. dollars)	2021			2020			2021			2020
Pure Sunfarms Adjusted EBITDA	$	—		$	1,076		$	—		$	3,854
VFH Adjusted EBITDA		(48	)		(42	)		(127	)		(137	)
Total JV Adjusted EBITDA	$	(48	)	$	1,034		$	(127	)	$	3,717

	For the Three months ended June 30, 2021
	Produce			Clean Energy			Corporate			Cannabis ⁽¹⁾			Hemp⁽¹⁾			Total
Sales	$	45,539		$	74		$	—		$	24,761		$	—		$	70,374
Cost of sales		(49,321	)		(847	)		—			(14,941	)		(42	)		(65,151	)
Selling, general and administrative expenses		(2,946	)		(52	)		(1,657	)		(4,370	)		(36	)		(9,061	)
Share-based compensation		—			—			(1,696	)		(191	)		—			(1,887	)
Loss on disposal of assets		—			—			—			(40	)		—			(40	)
Other income (expense), net		—			(10	)		209			(724	)		(8	)		(533	)
Recovery of income taxes		2,710			—			345			(1,274	)		—			1,781
Net (loss) income	$	(4,018	)	$	(835	)	$	(2,800	)	$	3,222		$	(86	)		(4,517	)
Adjusted EBITDA⁽²⁾	$	(3,981	)	$	(135	)	$	(1,658	)	$	7,369		$	(48	)	$	1,547
(Loss) earnings per share – basic	$	(0.05	)	$	(0.01	)	$	(0.04	)	$	0.04		$	(0.00	)	$	(0.06	)
(Loss) earnings per share – diluted	$	(0.05	)	$	(0.01	)	$	(0.04	)	$	0.04		$	(0.00	)	$	(0.06	)

	For the six months ended June 30, 2021
	Produce			Clean Energy			Corporate			Cannabis⁽¹⁾			Hemp ⁽¹⁾			Total
Sales	$	80,406		$	143		$	—		$	42,221		$	—		$	122,770
Cost of sales		(83,387	)		(1,622	)		—			(30,189	)		(90	)		(115,288	)
Selling, general and administrative expenses		(5,497	)		(84	)		(3,200	)		(8,336	)		(101	)		(17,218	)
Share-based compensation		—			—			(2,600	)		(1,285	)		—			(3,885	)
Loss on disposal of assets		—			—			—			(40	)		—			(40	)
Other expense, net		—			(21	)		(461	)		(1,354	)		(22	)		(1,858	)
Recovery of (provision for) income taxes		3,372			—			878			(630	)		—			3,620
Net (loss) income	$	(5,106	)	$	(1,584	)	$	(5,383	)	$	387		$	(213	)	$	(11,899	)
Adjusted EBITDA ⁽²⁾	$	(4,472	)	$	(151	)	$	(3,202	)	$	9,903		$	(127	)	$	1,951
(Loss) income per share – basic	$	(0.06	)	$	(0.02	)	$	(0.07	)	$	0.00		$	(0.00	)	$	(0.15	)
(Loss) income per share – diluted	$	(0.06	)	$	(0.02	)	$	(0.07	)	$	0.00		$	(0.00	)	$	(0.15	)

	For the six months ended June 30, 2020
	Produce			Clean Energy			Corporate			Cannabis⁽¹⁾			Hemp ⁽¹⁾			Total
Sales	$	79,417		$	268		$	—		$	12,951		$	98		$	92,734
Cost of sales		(74,644	)		(747	)		—			(7,235	)		(120	)		(82,746	)
Selling, general and administrative expenses		(4,854	)		(110	)		(2,770	)		(2,434	)		(287	)		(10,455	)
Share-based compensation		—			—			(857	)		—			—			(857	)
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		—			(31	)		(798	)		(298	)		(116	)		(1,243	)
Recovery of (provision for) income taxes		1,401			—			(458	)		(1,491	)		—			(548	)
Net income (loss)	$	1,320		$	(620	)	$	(208	)	$	3,994		$	(415	)	$	4,071
Adjusted EBITDA ⁽²⁾	$	2,565		$	(146	)	$	(2,772	)	$	3,854		$	(137	)	$	3,364
Earnings (loss) per share – basic	$	0.02		$	(0.01	)	$	(0.00	)	$	0.07		$	(0.01	)	$	0.07
Earnings (loss) per share – diluted	$	0.02		$	(0.01	)	$	(0.00	)	$	0.07		$	(0.01	)	$	0.07

ISSUER PURCHASES OF EQUITY SECURITIES⁽³⁾
Period	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share⁽¹⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans⁽¹⁾		Maximum Number of Shares that May Yet Be Purchased Under the Plans⁽²⁾
April 2021		—		—		—		—
May 2021		347,762	$	9.26		347,762		3,714,547
June 2021		80,335	$	9.45		80,335		3,634,212
Total Q2 2021		428,097	$	9.30		428,097		3,634,212

Exhibit Number		Description of Document

10.1		Employment Agreement, dated as of May 1, 2021, by and between Orville Bovenschen and Village Farms L.P.

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

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

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

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

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

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: ~~August 9, 2021~~May 10, 2022

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company