Good morning, ladies and gentlemen. Welcome to Village Farms International Fourth Quarter and Year-end 2018 Financial Results Conference Call. Yesterday, Village Farms issued a news release reporting its financial results for the fourth quarter and year ended December 31, 2018. That news release, along with the company's financial statement are available on SEDAR and on the company's website at villagefarms.com, under the investor's heading. Please note that today's call is being broadcast live over the Internet and will be archived for replay, both by telephone and via the Internet, beginning approximately 1 hour following the completion of the call. Details of how to access the replays are available in yesterday's news release. Before we begin, let me remind you that forward-looking statements may be made today during or after the formal part of this conference call. Certain material assumptions are applied in providing these statements, many of which are beyond our control. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward-looking statements. A summary of these underlying assumptions, risks, uncertainties is contained in our various security filings, including Village Farms annual information form and MD&A for the year ended December 31, 2018. These forward-looking statements are made as of today's date, and except as required by applicable securities law, we undertake no obligation to publicly update or revise any such statements. I would now like to turn the call over to Michael DeGiglio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DeGiglio.

Thanks, Sharon, and thank you everyone for joining us by telephone and Internet. Steve Ruffini, our CFO, is here as he normally is on these calls and I welcome him. Today, just to cover up 4 points of the agenda, I'll review some key highlights for the quarter recap, very business and productive few months since our last call, which was in November of '18. Steve will - briefly view our quarterly yearend financial results and I'll return to tell you that why even with all the progress we have made, this is really just a new chapter for Village Farms moving forward and of course the Q&A portion. I'll keep my remarks fairly brief and clear today as I always try to do, ultimately the Village Farms story is pretty straightforward, and it's easy to see how the progress across our business units are driving our financial results and value for our shareholders. As always, we strive to keep our earnings releases very straightforward for our shareholders and readers to get a quick view on what's happening in the company. So to begin, on Pure Sunfarms, our Canada's joint venture, up in British Columbia, and let me first acknowledge how proud we are that Pure Sunfarms was able to generate positive net income, not only for the fourth quarter, but for its full quarter for the full year, the entire 2018 calendar fiscal year, to me, it's a remarkable achievement, given how much of the facility was under construction, conversion, design, implementation, the ramp up of [indiscernible] propagation facility as well as going through the licensing process with Health Canada all occurring through '18 and really in the - I can tell you I've always seen a development of many marks that recent projects across the U.S. and around…

Thanks, Mike. As Mike mentioned, earlier, we have tried to break down our separate businesses in our press release for a full clarity to the investors so they can feed both our historical businesses as well as our new business, as we go forward hopefully, we'll be adding another column to the end of this year called hemp, so at any rate we try to open and forthright so investors can see all there is to see. Quickly on our produce business, it was a tough quarter and a tough year. There were some positives, year-over-year our price was up 4%, it was driven by more selling change in mix than really market condition for tomatoes, cucumbers or peppers, again, the overall market conditions tend to be very, very tough. Cost of production, while down 3%, was really driven by lower volumes coming out of our Texas asset which actually resulted in lower sales and a higher cost per pound, we are looking at that and hope to improve upon that in 2009. We are expecting continued stress on the PRODUCE BUSINESS from other outside sources like transportation costs. So that is out of our control and it is delivered product. On a more positive note, the Kansas financials, are all 100% related to Pure Sunfarms. For those that want to see the Pure Sunfarms financial in Canadian dollars, you can look at footnote 8 in our financials, I'm going to go through those quickly, so those can be referenced if you go around SEDAR and see the full financials for Village Farms footnote eight are the full financials for Pure Sunfarms. So sales of CAD4.9 million in 2018 essentially all in Q4. Gross margin for the - essentially for the fourth quarter, for the full year of CAD 3.4…

Thanks, Steve. So concluding before the Q&A, just to do a recap of Pure Sunfarms outlook. As we mentioned, we're extremely pleased with the PSF opportunity, having some follow facilities operating extremely well, benefiting from fear of a stock market pricing, branded product strategies are coming into focus and it's already profitable for all last year in the fourth quarter, tremendous achievement. 2019 promises to be a very exciting year, Pure Sunfarms is very well positioned for earnings growth throughout 2019 and beyond. It ramps up to full run rate of an annual production rate of 75,000 kilos, starting mid-year of this year, it commence the sale to account of store family of sin and the positive back and license and hopefully, in Q2, very strong - we feel very confident about that. And it includes a supply agreement with Emerald Health Therapeutics with 40% of the current production this December and redirects much of that production to the retail market. With admission with the entire growing area that Pure Sunfarms facilities not licensed for cultivation, the option period on the Village Farms, two weather delta greenhouse has commenced, those two facilities together represent in addition of 3.7 million square feet of production area right on the same footprint in delta. Pure Sunfarms has already requested to the board to exercise an option for Delta 2 and Village Farms continues to be, as it has, for exactly one year this month in full support of Pure Sunfarms expanding its production beyond the initial Delta 3 facilities as rapidly as possible. That said, it's takes both partners supporting this path forward. Regarding the half outlook, recapping that in the U.S. our CBD initiatives off to a quick start, we have an excellent farm in Jennings, we mentioned to initiate our outdoor…

[Operator Instructions]. And your first question comes from Marty Landry with GMP Securities.

My first question, Mike, is on your sales during the quarter at the Pure Sunfarms. I believe, last earnings call, in November, you had alluded to a potential to sell overly up to four tons into Q4 and it does look like it's come - come up much less than that. Wondering is this - I would assume it's not a factor of lack of demand but rather more a factor of product availability. Is that the case?

Yes, I'll let Steve answer the question, Martin.

Yes, Martin, the indication of the production yields, which I think is what Mike was alluding to back in November is more indicated by the fair value bio asset that you see in the balance sheet, the Pure Sunfarms at 12/31. The actual production was very strong, but there is the drawing and curing process and it just takes a bit longer to go-to market with this product than it does with the tomato, which essentially pick and pack and ship on the same day. So it anyway was the actual production - what was good, the production was negatively impacted by the slower process than expected with getting each grow room approved, but we are expecting to be up to the annualized run rate of 75,000 kilograms in late Q2 this year.

Okay. Sure if I hear you correctly, there's no issue from a demand standpoint from your product on a - from third-party LPs. Is that correct?

Yes, that's correct. There is no lack of demand out there.

Okay. And to that end, can you talk to us a little bit how have wholesale prices evolved from Q4 to Q1 selling to third parties? Because it looks like that's going to be most of your market in Q1, just curious a little bit about the evolution of the wholesale prices?

Well we commented on it in November and I'm not going to say any specific pricing, although, I could tell you it's exactly in line with where it was. There is really no change, we see, strong demand and in fact, we see strong demand. As you know, we have 40% of the fixed-price, which I won't disclose, but I can say that other LPs are paying more than that. So no change there, Martin.

Okay. So still strong wholesale prices Q4 - Q1 versus Q4. You have been accepted as the supplier to Ontario. Can you just tell us a little bit how many SKUs you intend to list there and what product farms will that be?

While I can't tell you the amount of SKUs while on return, it'll change this year, but we will start with flour for them initially as we are gearing up downstream equipment to meet their greater demand at need but that's probably not going to happen until the third, fourth quarter, so to start with flour. And as far as the split of the packaging and the weights, I don't have that information at this point. That was all given to them and satisfactory and ready to role as soon as we can get our packaging license.

Okay. Okay. And then last question for me. Your production are pretty low and then congrats on that, it's a nice achievement, especially, with a low capacity utilization. But wondering, when you start shipping to the provinces, your shipping cost and your packing cost and packaging costs are probably going to be higher than selling to third-party wholesale LPs. Any color you can give us as to what we could - we should look at above and beyond that $1 to look at your cost of goods sold?

Well based on what we are seeing now, I feel favorable that our cost will decrease, because look, we only need a fraction of production right now, and at the same time this is a fixed cost business, so the greater your output, while holding your input costs the same, our input costs outside of packaging and transportation will not vary, so that just will be divided by higher yield. So we had said in the past that we felt we can get significantly under $1, especially, as we move into oil and other things downstream, which is our plan, and of course, looking at where healthcare and legislation could go on edibles later on and so forth. So we feel that we can get significantly under $1, depends on the packaging side, that's a huge component of our costs, but we are seeing now in the yield profile, assume I could tell you at this point I feel confident we can drive our costs lower, even with the ramping up of packaging and transportation. And then we'll know that better by the end of this year.

Next question come from Doug Cooper will Beacon Securities.

Just on the pricing, you mentioned obviously 40%, Emerald has a 40% call on production to the end of this year and I think, Mike, you just mentioned that already locked in pricing like some - maybe be just give us some idea of what Emerald's paying versus what the current wholesale market is, versus what you think it could be on the direct sale and once you have the packaging license, just in terms of that?

I can't comment, I can't comment, Doug what they're paying, but I could say that other LPs are, you know, we're receiving high pricing than what Emerald's paying, that was the deal we made at the time. And, which goes back to '18, it was still icy under the direction that Health Canada was going to go, but LPs are paying more, so we - when we model our numbers, we've taken some of our competitors pricing even in the last quarter that they reported, extracted out tax and packaging and that differential was still fairly significant in the per gram price and we have $75 million grams, it does have a significant impact to the EBITDA. So I think it's going to be favorable moving forward.

I guess I'm just trying to understand or if you can let us know like what premium the wholesale market is versus what Emerald's per blocked in pricing is?

But if I said that, then you can back into the number. You can ask it 3 different ways but really we're under.

Okay. You talked about integration, propose that's part of a vertical integration strategy. How do you think that roles out and what will be the CapEx for that?

Well, I mean, we have a lot of capacity and the question we have is that if we do manage to get more than 75,000 kilos we have to put the whole integration of drying and packaging, it's a big process for that sized facility. In the end, we did take 1 growing room away, we were at 17 and went to 16 because we didn't want to cut ourselves too short on the equipment for extraction packaging and so forth, and that's going in place now and like everything we do in a more to systematic and methodical in the process, so we really want to get out drying and packaging to make sure our quality stays very high from the grow rooms through the packaging process, and then as we talk we're planning out the equipment for making the products that our customers are going to want and of course, extraction in the end. Overall, that CapEx will probably be in the realm of 7 to 8 at some point $1 million going forward, but with retain earnings coming in, we're in a very strong position and just to reiterate, I mean, we - I think one of the things to that we bring to the table with our loans with BMO and farm credit on this $20 million line of credit, we've packed relationships with both those financial institutions up in Canada for 13 years and it's a testament, I think, to them taking a very typical ag term loan viewpoint for us, so we have a good banks behind us and good data and we're generating positive cash flow, so we're just sharing some of that those retained earnings back into the CapEx we need here.

Just on the yield you're so forecasting similar yield, I guess, that you had earlier or I guess in 2018. Given your experience to date on the growing side, do you feel that you can get that into the 75, based on the yield you're seeing now?

Well like we said, the way we've always done it, we've learned this 30 years ago, you don't have to explain to people that, hey, this is a hot year, cold year, we had this pressure and that pressure. You don't want to answer this question so we take an approach took all our risk that we know can occur in a farming operation and come out with 75,000 kilos and I think a lot of folks have said why are you conservative compared to your competitors who are all much higher in the tune of 25%, 30% more, and except because things as they ramp up, is this and we want to be sure that what we're putting out, we could actually execute on and achieve and an example this year is what's out of our control, the licensing process of quadrant 3 and 4, they led longer than we thought so that's an example where we can't control that, so let's be conservative so based on that, even with those delays, I'm very comfortable we're going to hit the numbers we put out a year ago for this year and extremely confident on an annualized run rate, starting in the third quarter, we'll be at 75,000. So I don't want to project if we're going to exceed that. I think let's get to the second, third quarter, think of look at that point and we'll report it at that point how we think it can go forward.

Good. Two more quick ones for me. You talked about the option to roll in some of the other assets, for example, if D2 is rolled in and you have to convert, can you talk about the experiences that you had at converting D3 and how that might translate into a quicker turnaround of D2.

Well, I think we started D3 going through the winter so obviously it went through British Columbia with the rain and cold and the late saying so the quicker D2 got going while it was feather weather, I think we can move on the construction timetable quicker. We already know we can spend less on the overall CapEx, even if it has the same wattage per square meter in the greenhouse lighting wise, so I think we could save on CapEx, of course we will not build another propagation facility, which was a huge expense, the extraction capabilities and other things we're putting in D3 would be cost reduction overall for D2, and I think we can move fairly quickly. We've learned a lot, but honestly D3 went pretty damn good, it should have gone good because we've been doing this for three decades not like it was luck, so I think we can only get obviously better, of course, like D3, the grower team, maintenance team, I team, most importantly, the crop workers are all there, experienced 20 years so it's a no-brainer to move that forward and so as I said, we would do that quickly if it were up to us, if it was way up to us.

Okay. And finally, just on the hemp roll-out, you've talked about 500 to 1,000 acres by the end of the year, can you just, based on the, I guess, the availability of farmland from through your partner, how do you envision that potentially rolling out over the next few years? In terms of acreage?

It's certainly positive. I mean, you know, look there so many commodities out there whether you're greenhouse or field farming, we've talked about the commoditization of our products even on the - we grow high-value vegetables in greenhouse is when you competing, I mean, that's the beauty here, we're not competing with any third world countries, so to speak, where there labor costs are a fraction of ours. So with - this is just like Canada, no importation of CBD oil coming in at least, for now, so when you look at a lot of the farmers, unless they're doing very specialized craft, they're competing to a degree with open markets. So a lot of growers would be very keen on switching to hemp. The questions will be can they get the right seed, the right varieties, it's very massive, there is a lot of work that has to be done, and we're working on that all-out on working on programs to start, strain, research, breeding existence into the strange, increasing CBD content and so on. And but right now, everybody's jumping in it. The Achilles' heel will be extraction, but in the end, things will settle out. So everybody out there is more or less doing the same. Every state is looking at the state universities are looking at doing research. Growers are looking at growing it. Companies are looking at extracting it. So it's really going to see how you shake that out with the more knowledgeable agriculture players in the end, coupled with CPG, which I'm sure will come into the market and finding that right partnership between the 2, I think is going to be a winning formula.

[Operator Instructions]. And have a question from Michael Freeman with Paradigm Capital.

I'm sure there are people of course questions and cost of goods and apologize in advance for the onslaught. My question is, would you let us know how much cannabis was sold over the last quarter and over the last year from Pearson Farms?

Steve, again, getting to specifics and how that's measured, I will leave it up to the reader if you get the financials out, you can see the cost of sales for Pure Sunfarms and as I've said, we were very, very close to $1. So I'll let the reader figure out what that equivalents to is the equivalent of on a per gram basis, and again, demand has been strong, even things like trim [ph] and revenue and cost of sales, so it's it is a good quarter and Laura future good quarters and getting into specifics and metrics and trying to how that equates delivery and metrics and how their metrics, there is no standardization. So were not going to get into those games.

Well honestly we didn't start selling too willing to have for through the fourth quarter, sorry looking at last year, that was a sales period, those 6 weeks of '18. So I think Michael, it's going to be a better picture to discuss going forward after the first, second quarter of this year when we start, we have a seen legs here, so to speak, and we're operating on all of these cylinders.

Sure thing. Just give you some equilibration going forward, so understand. And addressing I'm just going to come to this question, but you mentioned that different metrics by, which people and companies measure the cost of goods. I'm just wondering from what part of the process to work part of the process you will calculate your approximate wonders program cost of goods?

Volleyball said I mean we could, first of all, the precision, depreciated assets and work to do an in-service and a cost of sales, external cost of sales, so and a separate line item, it's the way should be and unfortunately, it's very hard to bearable travels between the plates right now, that I think in time especially, towards the end of this year has got you be that bar, so for us, our cost of sales encompasses pretty much everything, including depreciation. we will look at the biological, unfortunately, not a public our culture companies on the cultural side and you always taken a very conservative approach as Steve is indicated. Is prudent to just look what's on the plant that you'll be harvesting over the eighth-week or so I had. I think a lot of companies come of the looking at plans and if you think the generations on addressing that in the biological control, the problem with that is, if you have a disease issue or a crop issue, then you have to give a writer. So you don't take that approach and I'm glad that the management team with Pure Sunfarms and after that more conservative approach as more realistic. Honestly, when, try to look at some of our competitors earnings release and I get fatigued after about 3 minutes of reading, find out what the numbers are and I think we put those numbers out whatever they may be right there, so the reader can see it and make a quick call on what the numbers are. So anyway I hope that answers your question, Mike.

Yes, no problem. We respect that very much. My last question is just a broader question. Looking forward for the future of recent forms and Pure Sunfarms, Village Farms and Pure Sunfarms, you guys are achieving massive scale and you are - your Prozac this going back decades. Other growers are wrapping up their capacity and they're going to achieve scales similar to yours sooner or later and I trust they'll become as good as you guys are at this. So I wonder what your plans are for keeping ahead of the curves and what's the plan when this is truly a commodity market for both Canada and have? Just looking for broader.

Yes, that's an easy question to answer because we've been in that space, we've gone from - we've gone - our quantities have we've grown over the years, we've seen cases go from 20% EBITDA margin down to 4% to 6%. Then you grovel in the commodity business and you wait and see what you're going to do but we've said since day 1, day 1 when we came out and everybody's talking about brand and this and that, that they, the most good in agriculture you have to be the low-cost producer. We've said it time and time again, it doesn't mean you can't you have to have high quality, you have to have integrity in your product, you have to have safety in your product, but you need to build your business model, knowing that it will commoditize out and any low-cost producer will win at the end of the game. In some cases, we've seen where we're just the ones getting the sale from a big box retailer while the other ones miss that sale have to go to a wholesale market and they wind up going out of business. So I think that's not going to be any different here, this is an agricultural crop, putting aside the branding at the end of the day. So technology, innovation, all those items are very critical to drive that low-cost production and seeking better varieties, better crops, the investment, strange to have higher yields, as I said earlier, higher components of what the market wants, be it higher THC level, higher CBD level, the ability to grow more crop cycles per year. So all that comes full circle to drive to be the guy, you want to be the one at the table when the music stops, you know. So that's how we think and like we've said, it's in our DNA. Nobody wants to really be in the commodity product, but that's the reality if you're in agriculture and that's what this is.

And that this time, I will turn the call over to the presenters.

Okay, on behalf of Steve, myself, Village Farms, we are village, we are very thankful to have everyone on the call today and thankful for our villagers as well. So till next time we report, have a great week. Thank you. Bye.

This concludes today's conference call. You may now disconnect.