Village Farms: Is this Cannabis Stock a Strong Buy?

Village Farms (NASDAQ: VFF), is an interesting Canadian cannabis stock which is currently down 18% in value during FY 2020. Similar to most other marijuana companies, Village Farms has been quite volatile in the last 18 months. The question remains: is this cannabis stock a strong buy?

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JV with Emerald Therapeutics

VFF owns a majority stake of 58.7% in Pure Sunfarms. The latter is a massive marijuana greenhouse operator. The other portion of the stake in Pure Sunfarms is held by Emerald Therapeutics (TSXV: EMH).

Village Farms stock has nearly doubled since April and could be one of the best cannabis stocks for investors to add to their watchlists. The joint-venture with EMH places the hemp stock at an advantage as the lower cost of operations helps the company to stay profitable.

Consistent profitability indicates resilience amid uncertainty

Earlier this month, Village Farms reported its second-quarter results. VFF’s adjusted EBITDA came in at $2.3 million, which is lower than the $4.6 million in the same period last year. However, Village Farms has now clocked in positive adjusted EBITDA for the past two quarters, a rarity among pot stocks.

While the bottom-line maintained its momentum, the topline at $47.6 million also saw a 15% year-on-year (YoY) growth. This is the ex-cannabis revenue of Village Farms, which is generated through greenhouse agricultural produce. With $9.6 million in cash at the end of Q2, Village Farms is also in a comfortable position to navigate through clear and present economic uncertainty.

Solid financials and diversification underpin its strength

The strong financials of Village Farms and its stake in Pure Sunfarms makes it an appealing investment option. Being part of such a consistently profitable venture instills confidence among investors.

Pure Sunfarms, commands nearly 14% market share in the dried flower segment in Ontario. In the next few months, it also plans to unveil its Cannabis 2.0 range. Additionally, Village Farms has a presence in the fruits and vegetable segment as well and is a diversified cannabis player, making the stock a relatively safe bet for marijuana stock investors.

Expansion into the Asia-Pacific cannabis segment

Village Farms is also looking at acquisitions to drive long-term revenue growth. On August 4, the company acquired a 6.6% stake in Australia’s Altum International. Altum is one of the leading cannabinoid platforms in Asia-Pacific.

This strategic move is a part of Village Farm’s larger plan to foray into Australia and New Zealand’s legal marijuana markets. The cannabis stock already has a strong footprint in North America and now aims to gain traction in other international markets.

In a nutshell, Village Farms remains a lucrative option for long-term cannabis stock investors. The company has showcased operational efficiency and its profitability speaks a lot about its business strength. We believe that this cannabis stock is poised for more growth during the rest of 2020 and beyond.

Village Farms: Is this Cannabis Stock a Strong Buy?

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Village Farms: Is this Cannabis Stock a Strong Buy?