International Cannabis Exports Will Redefine Global Market Dynamics

Key Takeaways

• Expansion into international cannabis markets and efficient conversion of greenhouse assets position the company for growth and improved profitability.
  
• Strategic focus on high-margin cannabis, sustainability expertise, and U.S. market readiness provide competitive advantages and potential for strong future earnings.
  
• Reliance on international cannabis exports exposes the company to regulatory delays, oversupply issues, rising competition, volatile costs, and risks from industry technological disruption.

Catalysts

Produces, markets, and distributes greenhouse grown tomatoes, bell peppers, cucumbers, and mini-cukes in North America.

• The rapid scaling of international cannabis exports, particularly driven by strong demand in Germany, the UK, and the Netherlands, indicates Village Farms is capitalizing on expanding global legalization, supporting future revenue growth and improving earnings visibility.
  
• Conversion of existing greenhouse assets (such as the Delta 2 facility and expansion in the Netherlands) into cannabis cultivation at low incremental investment reflects both operational efficiency and increasing addressable market, setting the company up for margin expansion and top-line growth as these assets come online.
  
• The company's ability to focus resources on cannabis, following the strategic privatization of produce operations and a robust cash position, allows it to pursue high-margin opportunities and self-fund growth projects, positively impacting future net margins and earnings quality.
  
• Village Farms' longstanding expertise in controlled-environment agriculture and certified production standards provides a sustainability and efficiency advantage, aligning with consumer and regulatory preferences for sustainable, high-quality products-potentially driving higher gross margins and giving pricing power in both produce and cannabis segments.
  
• Strategic optionality with large-scale, owned greenhouse assets in the U.S. and Canada positions the company to rapidly respond to U.S. policy changes around cannabis legalization, giving it a first-mover advantage and creating potential for significant incremental revenue and earnings growth if/when U.S. markets open.

Village Farms International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Village Farms International's revenue will decrease by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.7% today to 19.6% in 3 years time.
• Analysts expect earnings to reach $59.8 million (and earnings per share of $0.21) by about September 2028, up from $-5.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.6x on those 2028 earnings, up from -50.2x today. This future PE is lower than the current PE for the CA Food industry at 19.8x.
• Analysts expect the number of shares outstanding to grow by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Village Farms International Future Earnings Per Share Growth

Risks

• The international cannabis export market, while currently a significant growth driver, faces increasing competition as more companies add capacity and enter these markets, which could lead to price pressures and margin compression, ultimately impacting revenue and net earnings.
  
• Long-term success is heavily reliant on continued regulatory progress in key markets (Europe, U.S., and others); any delays or reversals in cannabis legalization or regulatory changes-such as proposed telemedicine reforms in Germany-could constrain market access and slow revenue growth projections.
  
• The Canadian cannabis retail market remains oversupplied, with Village Farms acknowledging persistent supply/demand imbalances and price stabilization rather than true recovery; ongoing downward pricing pressure and intense competition threaten future net margins and earnings from this segment.
  
• Capital expansion plans, including the conversion of additional greenhouse space, require significant upfront investment and are predicated on sustained demand; any miscalculation in supply/demand matching or delays in market growth could result in underutilized assets and poor return on investment, adversely affecting free cash flow and future profitability.
  
• Village Farms' exposure to fluctuating international export demand, volatile commodity input costs (energy, labor), and regulatory/legal uncertainties in markets like the U.S. and Europe introduces significant long-term risks to revenue growth and margin sustainability, especially as industry technological disruption (e.g., vertical farming) could erode competitive advantages.

Valuation

• The analysts have a consensus price target of $3.75 for Village Farms International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $4.5, and the most bearish reporting a price target of just $3.25.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $304.1 million, earnings will come to $59.8 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 6.8%.
• Given the current share price of $2.58, the analyst price target of $3.75 is 31.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.