Good morning, ladies and gentlemen. Welcome to Village Farms International’s Fourth Quarter and Year End 2019 Financial Results Conference Call.Yesterday, Village Farms issued a news release reporting its financial results for the fourth quarter ended December 31, 2019. The news release along with the company's financial statements are available on SEDAR and on the company's Web site 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 one hour following 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 the conference call. Certain material assumptions were 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. These risks and uncertainties include, among other things, the factors contained in the company’s filing with securities regulators, including its Annual Report on Form 10-K for the year ended December 31, 2019.These forward-looking statements are made as of today's date, except as required by applicable securities law. The company undertakes 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. Thank you to everyone joining us today by telephone and the Internet. With me for today's call is Village Farms’ Chief Financial Officer, Steve Ruffini.The agenda for today's call is I’ll start with a high level review of the highlights, most notably the generation of net income in excess of $36 million by Pure Sunfarms in its first full year of operations. I’m absolutely thrilled at the performance of the management team in its first year of Pure Sunfarms. Steve will then review our financial results and I’ll return to discuss why we remain so confident in the future of our company and be happy to take questions at that point.Before I begin, clearly a few words with respect to all these unprecedented challenges we’re facing and our thoughts and prayers are with those affected by the COVID-19 pandemic, including the frontline healthcare workers across the entire country. And Village Farms’ highest priority is the health and safety of our employees, our customers and vendors and partners and their families, as we continue to fulfill our obligations to customers and ensure that we are meeting the demands of the consumer at this critical time.As a highly regulated operation, our facilities already adhere to the highest health and safety standards and each has put of those – put in place currently has heightened our hygiene practice and safety protocols across all disciplines in our company, and is taking appropriate precautions as per the recommendations of health authorities. We will continue to enhance and evolve such practices and protocols as the situation warrants. But at this time, all of Village Farms and Pure Sunfarms facilities remain open and operational at normal production levels. Consumers need fresh produce and cannabis stores in Ontario and elsewhere have been deemed essential services and…

Thanks, Mike. First, obviously the company was disappointed, me in particular, for not getting our full 10-K filed yesterday. We made a valiant effort, but simply ran out of time due to the aggregatization and the XBRL nature of quoting all our financials. We were very close, but we were not going to make the deadline yesterday. So we expect to file that on Wednesday of this week. I thank everyone for their efforts.Obviously between ourselves, or attorneys, our accountants and everyone else working from home, it just was not a very efficient process as well as the printer is not working with full speed. So I appreciate all of those that worked for us the last week into the wee hours and the weekends, we didn’t quite get there but the whole world can read all 550-page on Wednesday. It will give something for people to do.The primary differences that I’ve said before between U.S. GAAP and IFRS is biological assets. The Pure Sunfarms financials will be included in our big 10-K filing and Pure Sunfarms as a Canadian company will have the bio assets. And if Village Farms excludes bio assets, which has no impact on Pure Sunfarms revenue or EBITDA, but for those that want to try to compare Pure Sunfarms to the other Canadian cannabis companies who do report bio assets, you’ll be able to do that.The other difference between U.S. GAAP and IFRS as it reflects on Village Farms is as most people know Emerald had escrow shares outstanding for most of '19 and '17 and part of '18. Under U.S. GAAP, escrow shares are not counted of allocating income. So for 2017 and '18, Village Farms is [indiscernible] GAAP results. Our comparative IFRS took a larger share of the early Pure Sunfarms expenses since…

Thank you, Steve. Once again, thanks everybody for joining. We look forward to speaking with you. And we’re going to take some questions. But before we do, I just have some closing remarks.So I want to be very clear about why we as a management team and I personally as the larger shareholder of the company continue to be so confident in the future of Village Farms. First, Village Farms remains one of the largest operating greenhouse-grown produce business in North America serving virtually every major growth in big box retail in the U.S. and Canada, and we’re making steady progress on turning that business and transitioning it as we change our assets into the cannabis market. In the meantime, the produce business does give us a solid foundation and a big head start to our institutional knowledge and capabilities, infrastructure masked over decades as we produce our opportunities.Secondly, the long-term opportunity in U.S. hemp and CBD strategy may be even larger than our Canadian cannabis opportunity whilst we get clarity from the FDA and USDA in the months ahead. We’re off to a great start in Canada. We continue to believe that Village Farms is well positioned to capitalize for the long term and we are continuing to work on near-term opportunities as well as in Canada.So finally, we continue to believe that there’s no company better positioned for success in the Canadian cannabis industry than Pure Sunfarms. Pure Sunfarms has proven out the validity and the strength of the business model profitable for the last four consecutive quarters that rapidly established itself as the premier brand consistently number one in dry cannabis brand in Ontario. Its ability to produce quality products with an industry leading cost reduction is a significant advantage and it’s continuing to grow its market share in the legal market as well as taking share from the illicit market.New product launches are imminent to extend the value of the brand and capture more market share, and it is very well capitalized. Even conservative revised forecast have addressed the Canadian market at north of 11 billion by 2025, we believe as many do that the industry will be dominated by just a handful of vertical integrated producers and that Pure Sunfarms will be one of those producers. And with a successful growing business in Canada, now is the right time for Pure Sunfarms to be pursuing opportunities abroad in the proper order of operations, not the other way around.So with that, operator, we’ll take any questions.

[Operator Instructions]. Your first question comes from Doug Cooper with Beacon Securities.

Hi. Good morning, guys. Congratulations on a nice year for Pure Sunfarms. Just a couple of questions on the – first quarter is essentially – I guess it’s over today. You talked a little bit about the trends, whether it’s in BC, in Ontario, how do you see the year shaping up in terms of your volumes? Can you talk a little bit about – you noted market share in Ontario. Is it too early to talk market share in BC and Alberta and maybe just some comments on the new 1 ounce package and how you think that will be received by the market?

Yes, I think it’s a little too early. We’re just finishing today, as you said, but the traction has been – we’ve been very pleased with the traction in the first quarter because really it was the pivot – as I said that the fourth quarter was the pivot for Pure Sunfarms where the handcuffs came off from being restricted as a wholesale provider once they received the Health Canada sales license which was literally the last week of the third quarter. That coupled with the end of the Emerald Health Therapeutics supply agreement has now just uncuffed and unleased the company to pursue what it always wanted to do, be vertically integrated to the retail market. So that fourth quarter was the pivot. And now the focus is independently pursuing the retail market across all of Canada with three of the four major provinces onboard and increasing. And of course with Alberta they had some backup, so really that order that was sort of placed in December didn’t shift until February. So I think they’re now seeing what the feedback is on those products and we understand it’s positive as we expected. And I think we’ll see greater traction and have a much clearer viewpoint when we report the first quarter, which is only about six weeks away at this point.

Doug, this is Steve. Ontario is very good about supplying their vendors which is a – Pure Sunfarms all the POS data. Alberta will not, we were told yesterday. And British Columbia I don’t think reports the same type of level of data to Pure Sunfarms, so they can’t measure the market share.

Okay.

And the other thing I’d add to that is just that we’re probably now – we’ve gone in a matter of basically one to two months from nearly 100 – three months from 100% wholesale to probably north of 90% retail and we’re building on that.

Yes. You mentioned Mike that the wholesale seems to have come back a little bit in Q1. How do you expect it to play out for the year? Do you anticipate 90% of your revenue will be retail in 2020?

Well, I would say greater than 80%. That’s clearly the focus. That’s always been really – that was the initial business model. And we look at – the wholesale market is just another conduit that we made up of different channels within the wholesale market. I think depending on where the market goes with extractors that are sort of a pure play extraction company which I think has taken a lot of that wholesale demand back in '19 where that business model goes in the future, but for us we’re going to look at the wholesale market as sort of a secondary market. And if it’s 75% retail, 25% for lack of a better term wholesale even though it may go to different channels, that’s the focus of the company going forward. And then with more derivative products entering in later this year and into next year, I think that will just boost our opportunity for increasing that retail side. And then of course we’ll enter Delta 2. That wholesale market may be an important part of doubling our capacity for some time, which is normal, as we continue to make new product introductions and greater penetration in existing markets.

The next question comes from Rahul Sarugaser with Raymond James.

Good morning, Mike and Steve. Thanks for taking our questions. Congrats on the five consecutive quarters of positive EBITDA for Pure Sunfarms. So just following up from Doug’s question, I’d start with the shift from being an exclusive wholesaler to adult use focused company. Given that your comment was that wholesale was more or less nonexistent in Q4, what proportion of the revenue was wholesale versus adult use? And what was the average selling price in each of these channels?

For, say, Q1 going forward?

So Q4 but also Q1 if possible, yes.

Q4 was 100% retail.

And as Mike said, the wholesale market is coming back. So for the first three quarters of last year, there was clearly a rush by many LPs for either the expectation of big sales to provincial governments or let’s just say some of them may be had growing cultivation issues. And then I think the realization of all the LPs in this summer and fall was while the rollout of retail stores is way slower than everyone expected and sales totally backed off. Now we are – as Mike said, we’re seeing a return to the wholesale business but the orders are not huge. There are 100 kilograms versus 1 million to 2 million to 3 million which were some of our orders in the wholesale market in 2019. So it’s coming back, but people are being very prudent about their purchases. And yes, Pure Sunfarms is being very prudent about who they sell to, because obviously we’re well aware of the financial issues that some are experiencing. So no sense selling to someone who can’t pay for it.

Right, great. Thanks.

And the answer on pricing, at the end of the day we still see pricing as – pricing has to be at a level that has to start the cannibalization of the illicit trade. That’s just the bottom line. That’s how market share is going to increase. So that’s what we’re looking at and where we position that price point based on different product categories. So I think that’s going to – we’ll have a better handle on that this year going forward.

Okay. Thanks. So a quick follow up then. So given the actual number of kilograms sold in Q4 was roughly nominal, can you give us an idea of how inventories are looking and how you see as a strategic asset for wholesale versus adult use in the future, and in particular your focus on the evolution of your Cannabis 2.0 portfolio?

Well, our inventories have increased in Q4 because when you look at the actual sales versus what was produced, it’s there. And we realized that. Again, I’m going to reiterate that it was very difficult – I think it’d be very difficult for any company that’s based on a 40% contract and keep in mind with Emerald for last year’s production of what was produced and really for the first two months of this year too, we had the settlement agreement, 25% of the production. When an entity is focused on that and that disappears, you can’t just find a home for it tomorrow, especially – as Steve was saying, when we saw the wholesale market in the fourth quarter coming down. So when we look at the fourth quarter, the takeaway for us is yes, the sales were not great in the fourth quarter and that was just the beginning of traction on the provinces rolling out greater stores. Everybody knew the fourth quarter was challenging, wholesale and retail. And we looked at the positive coming into the fourth quarter that all our sales were retail. So that pivot was great. Yes, it would have been nice if the sales were much higher. But that was incredible accomplishment by that team out there – I take my hat off to them – and in that amount of time. So inventories have backed up, but now as we go forward we said we’re vertically integrated. We have our first two machines that will be coming online this year on extraction and working on a whole number of other products. So we feel pretty good where our inventories level are and I think you’ll start getting some greater – it’s going to be very interesting and I think very positive and very confident where our sales start ramping up during Q2 and Q3.

Great. Thanks. I’ll just leave it there then.

Thank you.

Thank you, Rahul.

The next question comes from Aaron Grey with Alliance Global Partners.

Hi. Good morning and thanks for the questions. First, I’d just like to start off on continue to have strong share in Ontario throughout the Pure Sunfarms retail, but you have seen a lot of competition especially in the deep value space. And I just want to know your current thoughts on Pure Sunfarms price points given you are offering at such a low cost per gram. Do you feel like you need to lower the price to capture more share or are you comfortable with letting the market more or less fight at the deep value price down there? And I know you rolled out the 28-gram value priced product as well. How are you filling out your pricing positioning whether or not you want to get a little bit more aggressive there in order to capture more share to volume? Thank you.

Well, the leadership at Pure Sunfarms, they do an incredible amount of work. They really have a phenomenal understanding of the market, who is the market and they’ve identified that market as the everyday and casual user that is at that price point. On top of the attributes of the product, they all have to be there, but price point works. And I think it’s like a [indiscernible] I’ve often said where you turn it slowly and then seeing what happens and turning it more and seeing what happens. And I think that will determine as they build market share how they can eventually find the sweet spot of that price point. Based on whether it’s award winning Afghan Kush product that’s number one on the marketplace or it becomes a blended product or it goes into derivatives. So I think it’s just going to be a work in progress. But ultimately that was the whole reason for being a low-cost producer is because you have to take away the illicit trade. We look at the U.S. pricing. U.S. price of cannabis is so far superior to Canadian and I think one of the reasons is the U.S. has a number of federal agencies that continue to arrest the illicit and illegal growers and distributors of cannabis and they are supporting the legal trade. And in Canada, it’s not the case. So the case is that the producers and the marketers like Pure Sunfarms that will have to find that price point where they can have a consumer say, rather than buy it from an illicit trade, I like the fact that I can walk into a retail store and look at my selection. I know the product has grown to very, very tight regulations and standards without pesticides and the price differential, whatever that split may be, 5%, 10%, 15%, is worth it to me. And I think that’s the goal going forward. So it’s still a work in progress to find the exact price point.

Okay, great. Thanks. I appreciate the color there. And then just one more in terms of – as you think about the retail sales over the next couple of quarters, obviously one of the things we’ve been looking at historically has been the number of stores. But just as we think about COVID-19, it seems like there’s only more uncertainty than we have had historically. So it looks like the most opportunity would be in Alberta. We have seen some delays there from December to February shipments. So as we think about the potential impact with COVID-19 and specifically in Alberta, do you think that will have any impact on the reorder rate? I know cannabis was deemed essential in that province, but just given things probably won’t be operating as efficiently and you are one of the newer people selling it to the province, do you think that impact kind of the rollout in how that ramps up to the province? Thanks.

Aaron, it’s Steve. Actually, we’ve seen the inverse. We’ve seen very high demand for cannabis in all three provinces that we’ve been in. I was on the phone yesterday with someone who’s actually ordering product online and the post office has stopped delivering it, but essentially they can now go pick it up direct. So we have not – we’ve seen the inverse. I can say our sales to our number one customer in Ontario started off January pretty well. We’ve doubled that in February. We’ve doubled it again in March in particular with the 1 ounce product. So we – be it tomatoes, as Mike mentioned in his remarks, or be it cannabis, actually COVID-19 has certainly helped our sales not hurt them.

Okay, great. Thanks. And just one quick follow up just specifically on Alberta, that would be the same for that case too just because I know that’s a newer one where you’re selling it to the province where you have more recurring sales than the Ontario market?

Yes, I’ve seen the stats. I don’t know if they’re any – but I’ve seen the stats. So Alberta even though had a lot of more stores, for the whole province last year sold, it was give or take a few percentage points within what Ontario did. So I appreciate there’s a lot more stores, but it has comparable sales. So we have seen an increase in the number of stores in Ontario. Obviously because of the success of the brands with the existing stores, certainly the initial sell-in to each of the new stores has been very good for Pure Sunfarms because they’re all sharing the same POS data. It may slow down what COVID-19 may do, it may slow down the new store openings, I can’t speak to that. But the existing stores are, as Mike said, are deemed to be essential and we’ve seen good demand.

Yes, I could add – because I think the tax revenues are going to become very important for both Canada and the United States and I think this is a very unfortunate scenario, but it could help. I know every governor in the United States is going to be clamoring for tax revenues, so maybe it will have some impact on the legalization in the future in the U.S. too.

Okay, great. Thank you.

Thank you.

The next question comes from Scott Fortune with ROTH Capital Partners.

Good morning. Congrats on a good year. Where are we as far as other provinces and potentially on Quebec, has there been discussions there as far as products going into other provinces here?

The discussions are ongoing, Scott. Quebec is a bit – as you may know or not know, Quebec is a bit of a different market and essentially don’t sell what you sell through the province essentially, but you have to deliver to each store. So there are some operational logistics that Pure Sunfarms needs to get in place, but they’re close on that. They are also very close to several other provinces, but obviously Quebec is the elder big market that obviously I want to get into. So I would expect to see something hopefully in Q2 of this year, seen an announcement there, I don’t know when the initial shipment will be. And again, an initial shipment to Quebec is different than an initial shipment to Alberta or Ontario as they are shipping to each individual store.

Okay. And then just a follow up. As we roll out – you guys roll out new product offerings; pre-rolls, oils and 2.0 product offerings, kind of step me through this kind of sales and marketing side and kind of putting that infrastructure in place or what the needs are there? So we can expect higher cost to continue to build Pure Sunfarms brand through to Canada from that standpoint?

No, I don’t think so. I think they’ve done a phenomenal job of managing that. And when you look at the way the team there has marketed the product to the number one brand in Ontario, I think they have that secret sauce pretty well down. So I don’t think we’ll be hiring any celebrities going forward. So I don’t see that as increasing and at the same time their efficiency on the growing side I think would balance it out. But that’s not to say that as Delta 2 comes on, we won’t see increases for a while which would be normal on SG&A overall. But I think they’ve managed that superbly and they’re very focused on the color of the percent of sales that we need to be in to drive profitability, so feel good about that.

The next question comes from Eric Des Lauriers with Craig-Hallum Capital Group.

Great. Thanks for taking my questions, guys, and congrats on the strong profitability in Pure Sunfarms even with the lower sales. A couple of questions just on timing. Mike, I think you said that you’re going to take the D2 ramp sort of as market demand warrants. What specifically are you looking for and do you have any expectations for timing of when you’ll begin and ramping Delta 2?

Yes, well, Delta 2 is basically – half of it can go on production now. So when we saw this downturn in the fourth quarter across the board, again, by the time the beginning of the fourth quarter was coming on, the activity was just kind of dwindling there with overcapacity discussions, wholesale drying up even though the market is there, okay. So we just thought it more prudent at that point to just slow things down and come through the transition. And again, we have to go through this whole settlement agreement with Emerald, both companies getting together to get through it. And I can’t – you have to be somewhat cognizant to that was a lot of noise, so to speak; in one, knowing that we had to come to a settlement with them. Secondly that the supply agreements would no longer be in place and how that affected the new strategy going forward and then implementing and executing on it, which I think was done in a very swift manner and very – with a lot of positives of it. And even the fact that our fourth quarter numbers had some of the sales that were tied to the supply agreement, that really is legitimate sales because they should have been in the third quarter and haven’t just go through the settlement. So all that being said, while all that was going on, there were so many things happening that are now behind us, including the year-end, fourth quarter. Now the stores are gaining momentum. But at that point, we just decided, let’s slow things down in Delta 2. So to answer your question, I think we’ll start coming online later this year with part of Delta 2 and then ramping it up. We feel pretty confident ramping it up pretty full going into the new year.

All right, thanks for that. And then on the 2.0 products, can you remind us which product format you guys are going for and which licenses are needed from Health Canada to get you guys there?

I can’t really comment on that other than we’re hopeful to get extraction here very shortly, in the next month or two, which will now start our oil extraction going forward. But we haven’t revealed anything yet as for the products we’re working on. Again, as I said in my briefing, the team there has been very prudent in their decisions so far in watching maybe some of the errors other make and then capitalizing on that, and that’s still a work in progress. So other than pre-rolls and just oils, but specific to other derivatives, that’s yet to be announced.

Thanks, Eric.

Fair enough. And then last one for me, just regarding the further increased ownership of Pure Sunfarms to close to 59%. Just given the history with Emerald, I’m just wondering if you expect any potential dispute from that or if this was kind of expected on their end after the previous settlement? Thanks.

Eric, this is Steve. It was all part of the settlement. This equity investment was part of the settlement agreement. So there will be no dispute with respect to it fully approved. And again, it was in conjunction with an amendment and expansion of our existing credit facility. So we’re very excited about it. I think it shows third party support from a large Canadian bank who essentially financed many companies and they’re essentially showing their support in particular for Pure Sunfarms. And I think that helps, over the market, identify what will go on in 2020, which is the selection of horses. So no longer should everyone bet on all horses, you got to pick your horses now. So Pure Sunfarms will be there for the long run and we hope to see our brand shares and market shares significantly increase from about 13%.

That’s great to hear. Excited to see what’s in store for Pure Sunfarms. Thanks, guys.

Thanks.

[Operator Instructions]. And we have a question from Andrew Partheniou with Stifel GMP.

Hi. Thanks for taking my questions. All my questions have been answered, but maybe if I could follow up from Eric with the Pure Sunfarms increasing ownership in – with Village Farms increasing ownership in Pure Sunfarms in your last press release. There’s still some extra interest that you guys might be able to take in the future. How much more of this can we expect? And is there any kind of cadence that maybe you can provide with potential future contributions?

Really can’t comment on that, Andrew. We’re pretty happy where we are right now. It’s all part of kind of global settlement with them, including this piece. So what tomorrow brings neither of us know at this point.

Very fair. And maybe another one relating to your processing center. I fully expect that that could increase the quality of your products. Are you thinking about maybe segmenting your product portfolio? And if so, what can we see which relates to the dried cannabis products and average pricing?

Well, I think dried – on the dried flower, we think that we would like – one of our goals right here on the dried flower side is to increase – is to takes sort of our 13.5% current market share that we have in Ontario and increase that along with the other provinces we’re selling. And we’d like to get to a 20% market share in those provinces. That’s the goal we have. And if we’re successful, we’d like to think we can get to 20% market share in Canada. And then on the cultural side, we see that maybe we can get to 20%, 25%, maybe even north of that one day of the cultural side of cannabis in Canada. And so that’s number one. And then number two, again on the pricing, we have to take it step by step to see how much that pricing is going to drive market share. We just see it as an important part of market share, because again it’s a cannibalization of the illicit trade. And it’s best to take that in steps, not come down too much. But we also think as we go in that direction, it’s positive because the sooner that the field kind of thins out, the better for the survivors. So I think this year we’ll provide greater clarity to answer that question better, certainly after the second, third quarter.

Okay. Thanks.

And at this time, I’ll turn the call over to the presenters.

Okay. Well, I want to thank everyone. It’s been about four and a half months since we spoke last time, and it will be about six weeks until the update on the first quarter, which we’re looking forward to. And I thank you for supporting Village Farms. The last few months have been a time of clarity for the company in the direction we’re going. And thanks for your participation. Please, our thoughts and prayers are with everyone during this current crisis that we’re all suffering from. Thank you. Thank you, operator.

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