Village Farms International, Inc. Stock

Good day, and welcome to the IAccess Alpha Virtual Best Ideas Fall Investment Conference 2026. Our next presenting company is Village Farms International, Inc. [Operator Instructions]

I'd now like to turn the floor over to today's host, Sam Gibbons, Senior Vice President of Corporate Affairs and Investor Relations at Village Farms International, Inc. Please go ahead.

Thank you, Matt. Glad to be here today. We are -- I think it's a timely -- time to revisit the space for potentially some generalist small-cap investors who don't traditionally look at our industry. So happy to be here today and take you all through the Village Farms story in a little more detail.

Village Farms today is a top 10 global cannabis operator by market capitalization. It's about a $350 million market cap. We are profitable. We are one of the most profitable cannabis companies in the world, about $290 million in trailing 12-month sales and a really attractive organic growth platform that we think is positioned for success regardless of any regulatory outcomes in the United States.

Before we get into the guts of the presentation, I'll just spend a few minutes talking about our history, and how we've built the company and our asset portfolio today, but we've actually been public since 2006, founded in 1989, almost 4-decade track record of execution in large-scale agriculture -- controlled environment agriculture. We are today the result of the combination of the two largest greenhouse operators in the U.S. and Canada, which occurred back in 2006. But our roots really began building and developing greenhouses, up and down the Northeast -- Eastern seaboard in the United States. And over time, sort of transitioned from developing these greenhouses to operating these greenhouses.

And eventually, we realized that in order to be successful, you really need to be large-scale, low cost, and that's the footprint that we have today. It's one of the largest scaled platforms in global cannabis. And through our 37-year history, we've kind of been crop agnostic. We started in cut flowers, stem flowers, roses, transitioned to produce. And when the Canadian government legalized cannabis back in 2017, began to convert our Canadian assets to cannabis cultivation. So just a little background on the company.

Move to the next slide here. Just a brief summary of some of the key investment highlights, which we'll run through today, which are sort of core to the thesis, and why we think we're an attractive global player in this industry. As I mentioned, one of the world's largest scale platforms to capitalize on increasing demand for regulated cannabis. We executed the transaction last year to privatize our legacy produce business which created a global cannabis pure play with industry-leading profitability. We'll get into some of the details of that transaction a little bit later. And our Canadian asset, which is 4.8 million square feet of production capacity in Delta, BC, is the world's largest EU-GMP-certified cannabis production facility in the world.

EU-GMP standards is the gold standard in getting product in the Europe -- compliant product into Europe. We have a rapidly expanding international business today. We are one of the lowest cost producers of cannabis in the world. And combined, these strengths, we think, give us durable long-term competitive advantages. And we've also attractive near- and long-term opportunities for continued revenue growth and value creation, which we'll get into as well. Balance sheet is in a great position today. Like I said, we're profitable -- sustainably profitable with a lot of incremental growth opportunities and investment opportunities on the horizon.

So we'll shift to the next slide here, which provides a little bit of a high-level overview of our asset portfolio today and 7.2 million square feet of advanced greenhouse and indoor cultivation assets across the world. The bulk of those two facilities is spread across our assets in Delta, BC and West Texas. We are -- also operate two indoor facilities in Quebec. When we -- initially, when the Canadian market started, you needed to operate in Quebec to sell product into that market. That's no longer the case today. But we also recently completed construction of our European headquarters effectively, which is in the Netherlands market. This is the bulk of the asset portfolio today, and we believe mega-scale greenhouse assets. These mega-scale greenhouse assets will allow us to scale cost effectively over time with continued increases in demand.

Our track record in controlled environment agriculture, plant-based consumer goods and really operating global supply chain through our legacy history in produce has helped us execute in these expanding international markets.

On the previous slide, actually, we'll go back and highlight, we're only cultivating cannabis in about 30% of our asset portfolio today. The assets in West Texas, a large portion of them have been leased back to produce partner with the transaction we executed last year, and our Delta, BC, platform is only growing cannabis about 2.2 million square feet of that 4.8 million square foot footprint. So a lot of incremental runway to continue to grow into this footprint over time.

Slide 6 is just an overview of kind of how we've scaled this cannabis platform over the last several years. As I mentioned, we were predominantly a produce company until the Canadian government legalized cannabis, but that transaction we executed in May of last year has created a global cannabis pure play. Almost the entire business is cannabis sales today. We do have about $20 million to $25 million in revenue from our Delta 1 greenhouse in Canada that's growing produce for our private equity partner. But I think some other keys on this slide are a methodical expansion into this capacity over time. We've scaled it prudently. We -- the Canadian business -- Canadian cannabis business has been profitable in perpetuity. We were very early in getting into the international export markets. It's become a very hot topic today, I think, in our industry, but we've been there for a long time, saw the opportunity, made the investments, and doing things the right way and building a compliant supply chain with our EU-GMP certification.

We started working on back in probably 2021 and first received in 2022, recertified in 2024, and in May of this year after some incremental investments we made in that facility, Delta production facility is now the world's largest single-site EU-GMP-certified facility.

As I've mentioned a couple of times last year, we completed a transaction to privatize the legacy produce business. That brought in about $40 million in cash. We still own 37.9% of the equity in that new platform, which is called Verdexa Holdings. And since that transaction closed, Village has been one of the most profitable cannabis companies in the world, I'm talking about on a net profit margin basis. And so the combination of the transaction, plus the rapid growth in the international markets and continued operational excellence and efficiency gains in our platform have created a really attractive profitable cannabis operator with continued runway for strong organic growth.

Slide 8 is just a quick summary of the brands. The top 3 brands you see, Pure Sunfarms, Super Toast and Fraser Valley, are really the core of the portfolio in Canada's adult-use market today. We are perennially a market share leader in dried flower. I think that's something that typically gets overlooked just with the size of our portfolio. There is a -- you're not successful if you're not producing quality products, and the Pure Sunfarms brand, Super Toast brand, Fraser Valley brand have all developed strong preference with consumers.

We consistently are delivering strains in the mid- to high 20s and even low 30s percent THC across the platform. And then I'll also note the CBDistillery brand on the bottom left is our U.S. platform that's direct to e-commerce CBD business. There is a pending hemp ban that's been delayed in the U.S. We're waiting for some clarity there. But that business has been looking at ways to participate in the new CMMI pilot, which Trump announced back in April. It's been a little slow to get off the ground, but there is still attractive long-term opportunity for that business if -- depending on how the regulations ultimately fall.

The brands on the bottom part of the slide are some of our more Quebec-leaning brands. But out of the portfolio we've developed. We'll move on to the next part of the presentation here with an aerial overview of the Delta production campus. As I mentioned, this is the world's largest EU-GMP-certified production facility. We initially converted the Delta 3 greenhouse to cannabis production back in 2018 after Canada legalized. And so the orange bubbles here are kind of placed in the middle of each of these facilities, D1, D2 and D3. The first half of that D2 greenhouse has been in cannabis production for several years, but we're nearing the completion of the expansion of the second half to cannabis.

So those two facilities, D2 and D3, will produce approximately 160 tonnes of dried trimmed cannabis flower annually. And I'll note that does not include trim. That is, I think, an important differentiator for folks to understand. But the -- I think the key on this slide is, we are doing a pretty substantial revenue over $200 million in trailing 12-month sales from these -- the D3 and half of the D2 facility, with plenty of runway to continue to grow into the D1 greenhouse over time with increasing demand. We are contracted to grow produce for our -- for Verdexa Holdings in the D1 greenhouse. We have the option of converting that on a 25% conversion rate every year for the next 4 or 5 years if we elect to do so. So we feel really good about the way we're positioned to continue to scale with increasing global demand.

Slide 10 is just going to provide a quick overview of our rapidly expanding international business. I'll focus a little bit on Europe because Europe is -- it seems like Europe's several years behind sort of the domino effect that occurred in the U.S. cannabis markets, which have been converting from medical to adult use over the course of the last 8 years or so. But Europe is kind of having that domino effect now, and we export from Canada to international medical markets. We have a leading market share in Germany's medical market that's well over a $1 billion medical market, continuing to grow really nicely. We think that market will continue to grow for the foreseeable future. We export to the U.K. We also export to Australia and New Zealand, and we've said that we expect to enter multiple new export markets later this year.

The color coding on this is really designed to just highlight which markets are kind of open and accessible in orange and the blue ones are countries that are kind of in the early days of getting more attractive programs off the ground running, and a lot of these countries are places where we see great long-term opportunities.

I'll just highlight the revenue trajectory, which -- our international sales now approaching $100 million run rate, including the Netherlands business, which we'll get into in a little more detail here. But really, this is a growing business that we see potential for continued strong organic growth for the foreseeable future. I also think we've talked on some of our recent public calls about the fact that our EU-GMP certification is a competitive advantage that we think is going to enable us to be more insulated from price compression as markets -- as these international markets continue to mature. There is scarcity of EU-GMP-compliant product. Customers are interested and willing to pay a premium for the ease of doing business that creates in their supply chain. The German government has started to crack down on noncompliant aspects of the supply chain, which really positions us well as a market leader.

Our Netherlands business, we are 1 of 10 license holders in the adult-use market over there. This is not a medical market. So we do not export to this market. We actually have assets and boots on the ground here. It's, I mean, a highly attractive long-term market for us. Of course, everybody knows the culture in the Netherlands is synonymous with cannabis in Amsterdam. It's a highly attractive market from a pricing standpoint. Pricing per gram in coffee shops is, in many cases, north of EUR 10 compared to -- in Canada, it's one of the most competitive markets in the world. It's a small fraction of that pricing. So we are incredibly proud of the Phase 2 facility we've built, completed earlier this year, serves as our European headquarters. That facility will be ramping to full production through Q1 of next year, which will bring our maximum production capacity to about 10 tonnes, that will help us really continue to drive strong revenue growth through next year in addition to the Delta 2 expansion that we have nearing completion in Canada.

I'll just note on Slide 13 here, some of the things that we are looking at and focused on executing from a growth standpoint, an investment standpoint. The Canadian market, it's approaching a $6 billion market today. It's growing mid-single digits. We expect to grow our Canadian business in line with that growth rate, and we'll continue to grow from increasing demand from our existing markets in Canada and our international markets as well as expansion to new service -- new customers and new international markets, as I mentioned, as well as potential participation in the CBD pilot program.

Talked about our growth investments in our Phase 2 facility in the Netherlands and Delta 2 expansion. That Delta 2 expansion is adding about 40 metric tons over the course of the next, call it, 6 months or so. That's about a 33% increase in our production -- in our Canadian production capacity compared to fiscal year 2025. With considerable runway to continue growing into that facility over time. And we're also looking at expansion into new product and category introductions, getting more -- a little more indexed into vapes, manufactured products, convenience products is an important focus for us long term. And we are also looking at strategic partnerships and M&A opportunities. We recently announced that our longtime CFO, Steve Ruffini, who's been with us for 17 years, is transitioning to lead our M&A efforts. There is a pretty attractive opportunity set globally. We think where there's opportunities for us to kind of hit singles to add incremental value to our portfolio and also opportunities in the United States, including in that opportunity set.

Our Texas assets are kind of the long term -- very long-term play. We're on record saying we expect to be in Texas someday. We plan to be in Texas someday, but that medical program is mired in some controversy right now on the issuance of new conditional licenses. We think it's going to take some time to play out, but we do expect to be there, and there's also a number of other opportunities for us to get into the U.S. market. But we likely won't do anything until we have complete regulatory clarity with the U.S. market, rescheduling of medical cannabis is kind of through the finish line here. The process to reschedule. Adult use is awaiting a final ALJ judge recommendation after concluding recent hearings to reschedule adult use, eagerly awaiting the outcome of that before we can make some decisions on activating our U.S. strategy. But regardless, the portfolio we've built, the execution we've built, our profitability has positioned us as really a partner of choice and acquirer of choice in many cases. But we will be extremely patient with respect to activating any of these opportunities with a focus on long-term value creation and strategic assets for how we see the future of regulated cannabis evolving over the course of the next several years, and frankly, decades.

Slide 14, we've talked a little bit about our Texas footprint. We've got about 50 acres of advanced greenhouse assets that we still own in Texas after closing the produce transaction we completed last year. Those assets represent about a $400 million revenue opportunity for us if we were able to convert to cannabis someday. And I'll also reiterate -- our view has always been that we don't need to be a first mover to win in these markets. We've executed and proven our strategy in our operational capabilities with the Canadian assets. If and when we're able to scale into Texas, we'll be positioned for long-term success, especially if there's a future state where interstate commerce is allowed. We're on the record of saying that we do believe our Texas footprint would actually be lower cost of production than our Canadian footprint is today. So highly attractive long-term opportunity for us. And as I mentioned, our CBDistillery platform is direct-to-consumer CBD platform. There are a number of ways that business may be able to participate in future U.S. cannabis market, including that CMMI pilot I mentioned earlier.

On Slide 15, just a quick summary of key financial performance from Q2 and over the course of the trailing 12 months. Important to note that this trailing 12 months is really the four quarters since we closed the produce transaction in May of last year. So phenomenal improvements in financial performance because of the catalysts we discussed with the produce transaction, increasing exposure to high-margin international markets and continued operational gains -- operational efficiency gains. A couple of other things I'll point out on the variances year-over-year in Q2. That's the quarter in which the produce transaction closed. So we did have about a $20 million gain on that sale in Q2 of last year, which drove the negative variance in net income for shareholders in Q2 of this year. And then on a trailing 12-month basis, still very strong profitability, EBITDA margins. And as we've mentioned, we feel like we're sustainably profitable to continue to grow our cash balance in the future, which will provide us opportunities to make attractive growth investments. About $73 million in cash on the balance sheet as of the end of Q2. It's a net cash position of about $33 million. I'll note here, it's been -- we've had these capacity expansion projects that we've been executing for the last year or so. Most of the CapEx on those is substantially complete at this point. So we will -- we do expect to have much stronger free cash flow generation in the second half of this year. Through the first 6 months of this year, in addition to paying $17 million in Canadian income taxes, $31 million in excise taxes and that $15 million in CapEx on those development projects, along with $7 million in share repurchases. We also completed a $15 million equity placement with two U.S. institutional investors back in June. That's been highly publicized, though it's -- we think having stronger long-term institutional interest in our shareholder base is an important part of the equation for the industry. Proud to have some lead steer institutional investors behind us now. And as I mentioned, we expect to grow our cash balance from positive cash flow from operations through year-end. And our insider ownership, about 10% of shares outstanding today. And also just note, as mentioned, after that recent equity placement with the U.S. institutional investors, we're about 25% institutionally held, which is actually well above average for our U.S. -- or sorry, our global cannabis competitive set.

That pretty much takes us through the prepared remarks here. We've got some time for questions. So I'll open it up to questions if anyone would like to get into it.

Okay. So first question, what is driving continued growth in international medical cannabis exports? I think it's regulatory change in many cases. It's access to these markets because of the way the EU rules work on import and export of medical cannabis and sort of the domino effect that we talked about earlier.

Just looking through the questions set here. What do you think investors most misunderstand about Village Farms today. I think people do not understand just the scale with which we operate and the fact that we have considerable runway to continue to grow into our asset portfolio. I think that's a key differentiator. I think there was a time when a lot of people were looking at this industry several years ago. There's been a lot of capital burned in people who have made poor investments. But we don't believe -- we're certainly not in that camp. We have a platform that's built to last. And hopefully, as people come back to look at the space more, I think we're one that stands out as really a long-term winner.

Next question, first report on the Netherlands experiment came out from the government, who purely talks about potential overproduction from growers. Yes, just upped capacity to 10 tonnes, what are your thoughts? We are still growing everything we sell from our Phase 1 facility. And as I mentioned, that Phase 2 facility will be coming online and -- not seeing any concerns on our ability to move our product today. I think our track record of executing and being in this industry for a long time is going to help us in this market. We're positioned with, we think, some of the highest quality product and the experiment with that facility we built over there. That's where we want to be in that market, kind of the premium end of the value chain. But we're absolutely optimistic that this program is going to be expanded long term. If that does wind up happening when the pilot program is over, it will be about a 10x increase in the addressable market and be really attractive home run for us.

Next question is about D3 to cannabis. Do we require any other electrical upgrades when we are ready to convert D1? That will depend on how we look at what -- I think there's a lot of optionality in how we could activate D1. It would certainly require some incremental investments in bringing in some incremental power and lighting, but if in the future state, when -- if we were interested in just having product for extraction in that facility, that's something we could look at cost effectively with some of our genetics. But I'll just note that the conversion from the second half of that D2 facility was about -- that's about a 12.5-acre expansion, and it costs about CAD 10 million for us to activate that. We're well able to fund that from cash flow from operations. So feel like those growth investments, if the demand is there, it was pretty easy for us to make those decisions.

How -- a couple of other questions here. How sustainable are the recent improvements in cannabis gross margin? So we've consistently, for the last several quarters, been doing gross margins well above what we've historically talked about as our target range. And for us, like a long-term target range where we need to be successful in our business, we've said it's sort of a 30% to 40% gross margin. We've been well above that. That's driven by the more higher-margin international markets and the growth over there, which we think will continue to grow. And we've talked about the EU-GMP capacity in our mind, helping insulate us from some price compression over there. Long term, we certainly expect these markets to mature. How quickly that will happen? It's hard to say. Regardless with our cost leadership, we do feel like we're built to last and built to win and be successful sort of regardless of the timing of these events. We don't give formal financial guidance. It's something that we've discussed doing, but we really kind of wanted to wait to have our capacity expansions in Delta, in the Netherlands online and fully ramped before we revisit that. So that's something we may look to do in the future.

I'll just refresh here. Looks like we've got a couple more minutes. Still on track to announce four international markets this year? It's certainly the hope. We said we expect to announce multiple new international markets this year. That is the plan. We've talked about the four. We haven't said which four we think we'll be into, but those four we do expect to enter. And looking forward to having that news out. We -- our process is to only announce once we have a first shipment to a market. We've got to deal with kind of getting onboarded with our permitting process and testing requirements to do those things, but still expect to enter multiple markets this year.

And then just some questions on pricing. The increase in demand for international flower has created some new dynamics in the Canadian market. I think the pricing has sort of stabilized in the adult-use market from our standpoint. But there is a little more inventory available through the wholesale channel, I think, is -- there may have been a lot more operators who thought they were going to be able to get products into Europe who've had trouble with that. And so wholesale pricing has come down. We do break out our sales by channel in our results and wholesale has been a lower -- lesser part of the business for the last little bit. But it's still an important market and still opportunities for us to be profitable in that channel. We're looking forward to having the incremental capacity coming online from D2 to help us drive growth, both in Canada and in these international markets.

I think that -- I'll just refresh one more time. And I think that will take us through the questions today. So I appreciate you all attending. We will be available for one-on-one meetings with the IAccess platform tomorrow. So please reach out to them if you'd like to spend some more time one-on-one. Thanks for listening to the story. We look forward to talking to many of you tomorrow.

Thank you. That concludes Village Farms International, Inc.'s presentation. You may now disconnect.

Thank you. Good morning, ladies and gentlemen. Welcome to Village Farms International's second quarter 2026 financial results conference call. This morning, Village Farms issued a news release reporting its financial results for the second quarter ended June 30, 2026. That news release, along with the company's financial statements, are available on the company's website at villagefarms.com under the Investors heading. Please note that today's call is being broadcast live over the Internet and will be archived for replay both by telephone and by the Internet, beginning approximately one hour following completion of the call. Details of how to access the replays are available in today'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 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. A summary of these underlying assumptions, risks, and uncertainties is contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10-K MD&A for the year ended December 31, 2025, and 10-Q for the quarter ended June 30, 2026, which will be available on EDGAR and CDAR+. 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 statements. I would now like to turn the call over to Michael DiGilio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DiGilio.

Thank you, Liz. And good morning, everyone. And thank you for joining us for our second quarter results. With me today are Steve Ruffini, our Chief Financial Officer, and Gillen Lefevre, our Chief Operating Officer, and Sam Gibbons, our Senior Vice President, Corporate Affairs and Investor Relations. I will begin with my customer review of our highlights from the quarter, then Steve will review the segments and financials in more detail before I make some last closing comments. Our second quarter results continue to demonstrate the strength of our expanding global cannabis platform, driven by record cannabis revenues as we continue growing in target markets and product categories in the countries we currently operate in. We delivered our fifth consecutive quarter of positive net income and earnings per share since we privatized our legacy produce business last year. And as we noted in this morning's press release, we're having a record year of production in our Delta British Columbia facilities, which has contributed to stronger margin performance.

Consolidated net sales growth was strong, and we achieved record cannabis harvest yields from our Delta facilities through the first half of 2026, with that including the first harvest from our Delta II expansion. Record yields combined with greater operating efficiencies have resulted in lower cost of production and favorable sales mix also helped drive nearly 10% points of year-over-year gross margin expansion, which translated to strong operating leverage as adjusted EBITDA and net income, meaningfully outpace total sales growth. I will also note that when excluding a one-time $4.3 million vendor settlement, which was tied to our legacy produce business, Our EBITDA received in the second quarter of last year as a comparison. Consolidated adjusted EBITDA increased meaningfully year-over-year to 15.4 million with a record Q2 cannabis segment performance. Moving on, in Canada, we've gained traction on our efforts to grow market share in convenience product categories. And for the first time, our brands have achieved top 10 market share in all major categories with continued growth in vapes and infused pre-rolls. We've discussed our focus on strengthening our position in convenience product categories for several quarters And we're encouraged by this progress, which has been entirely organic and builds in-house capabilities, which will apply to non-Canadian markets as well in the future.

It was also another record quarter of international export sales, which grew 74% year-over-year and 43% sequentially, as we continue to benefit from our competitive advantage with the world's largest EU GMP certified cannabis facility. We discussed on last quarter's call that we believe EU GMP certified product is a competitive advantage which drives strong growth and profitability, and we're pleased to prove it with today's results. This is an underappreciated village farm strength, strategically built over the past five years into the supply chain for our international customers. Without giving complete details for competitive reasons, our own sales mix of GACP to EU GMP certified product has improved significantly since we completed the facility upgrades we discussed last quarter. As we stated, these upgrades made our Delta campus the world's largest EU GMP certified facility by total compliant product volume, and our higher sales mix of EU GMP certified product improved our margins during the second quarter. Some of our peers have discussed these challenges on their earnings call publicly for the first time over the last couple weeks, and we've been saying demand for EGMP compliant product is continuing to increase. Importantly, the German market continues to grow, and so has our share of the total market thus far in 2020.

We most recently held four of the top 10 market share strains, and based on our own internal research, we believe we have the widest pharmacy distribution of any cultivator with product in Germany today. We have a strong growing share of Europe's total addressable cannabis market, and we remain very excited about the opportunities we see in the UK and Australia. And we continue to expect that we will enter new European jurisdictions in the second half of this year. For a quick reminder of our Delta II expansion project, the Delta II expansion is the conversion of the second half of the 1.1 million square foot Delta II greenhouse. As previously stated, we are completing the conversion in phases, one half of the expansion at a time. The first is completed and in production and the second half conversion will commence on September 1st. We continue to expect that we will harvest an incremental 15 metric tons of production from this D2 expansion this year. with an additional 25 tons harvested from the expansion in 2027.

We will be on a full 40 metric ton run rate starting with the third quarter of 2027 and with the full 40 tons of incremental capacity available beginning fiscal 2028. Once completed, the D2 expansion will bring out total annualized production in Delta to approximately 160 metric tons of dried, trimmed flour annually. All of this will drive further economies of scale, cost efficiencies, and improve flexibility to meet demand from our customers, consumers, and patients in Canada and around the world where we operate. As a reminder, any future conversion of our Delta I greenhouse would more than double our annualized production capacity. Turning now to our recreational cannabis business in the Netherlands. We are continuing to maintain strong distribution with participating coffee shops and have been focused on expanding our product assortment to create more value for coffee shop owners who are looking to differentiate their menus. We remain incredibly excited about the Netherlands market and feedback from participating municipalities and coffee shop owners about the pilot program has been overwhelmingly positive thus far.

The government is expected to issue a report with an internal review of the program later this summer And we're quite optimistic that this will also reflect positively on the program. As we discussed on last quarter's call, we experienced a slight delay with final approvals of our Phase 2 facility. But we did begin cultivating in the Cronogen facility in Q2. Cronogen is expected to ramp up to its full production capacity over the course of the next few quarters, positioning us for another step function of growth next year. We're committed to being a strong community partner and employer and believe there is tremendous long-term upside potential for village farms in the program if it is ultimately expanded, which could increase the total addressable market in the Netherlands for our products by nearly tenfold compared to where we are today. In summary, we are pleased with our second quarter results, which continue to reflect our disciplined execution. We closed the second quarter in a strong position with $73 million in cash after completing the previously disclosed equity placement with U.S. institutional investors.

We believe increasing institutional ownership alongside the support of retail shareholders will be critical for the cannabis industry to succeed. And we believe both will benefit long-term from their investment in village farms. With capital expenditures from our Canadian and Netherlands expansions nearly complete, we are in an excellent position to deliver stronger free cash flow and continuing growing of our cash balance during the second half of this year. This concludes my introductory remarks, and now I'll turn the call over to Steve.

Thanks, Mike. I'll start with a review of our consolidated Q2 results. All figures referenced reflect U.S. dollars and less otherwise noted. Validated net sales increased 27% sequentially and 7% year-over-year to $64 million, driven by continued international growth. Consolidated net income from continuing operations was $7.2 million, or $0.06 per share. unfavorable variance compared to last year was the result of a one-time vendor settlement of $4.3 million received in the second quarter of last year. Excluding this impact, net income from continuing operations would have increased significantly as a result of our record Q2 performance. Consolidating just EBITDA from continuing operations was 15.4 million, or 24% of sales, compared to 17.1 million, or 28.5% of sales in Q2 of last year. last year, with the unfavorable variant similarly driven by last year's vendor settlement. Excluding this impact, consolidated adjusted EBITDA would have increased approximately 20%.

Turning now to our cannabis segment. Total net sales was 53.5 million for a 5% increase versus Q2 of last year. The year-on-year improvement was driven by the strong performance in our international medical exports, which increased 74% over Q2 of last year and 43% sequentially, predominantly from village farms taking a larger share of the German market. As we discussed last quarter, we experienced a slight delay in the commencement of operations at our Phase II facility in the Netherlands. But Q2 sales increased 35% year over year to 3.3 million. ROTIGAN is now operational and will begin contributing to stronger growth. As Mike mentioned, we expect ROTIGAN to ramp to full production capacity by the end of Q1, positioning for continued growth through 2027.

Cannabis gross margin was 51% up 900 basis points from 42% in Q2 of last year, reflecting a favorable product mix, increased operating efficiencies, and a lower cost of production at our Delta production campus. Total SG&A as a percentage of sales was 28% compared to 23% in Q2 of last year, reflecting an update to the company's transfer pricing policies as well as higher commercial and marketing expenses. The update to our transfer pricing policy is directly attributable to the sale of our produce business a year ago. So a higher percentage of our corporate expenses are now directly allocated to our cannabis business versus prior years. Q2 adjusts EBITDA from continuing operations for cannabis-improved sources 16% to a record of 15.3 million, up from 13.1 million in Q2 of last year, resulting in an adjusted EBITDA margin of 29%. Q2 cash flow from cannabis operations was positive $8.9 million compared to a positive $19.2 million in Q2 of last year. The variance driven by Canadian income tax payments which did not occur during the prior year. as well as changes in non-cash working capital items as terms on export sales are generally longer than in the Canadian market and as we expand our production footprint in Delta II.

We believe we are the first and only major Canadian public cannabis LP in the position of paying corporate income taxes, which remains a testament to the strength of our operating capabilities and the sign of a sustainable, long-term, profitable platform. As we do each quarter, I will point out that in Q2 we also paid Canadian excise taxes on our retail range of sales of $15 million, nearly 40% of gross retail branded sales. Turning to the balance sheet, where I'll note that we no longer carry a restricted cash balance after the completion of the one-year escrow period as part of our produce transaction last May. We extended the, we ended the first half of the year with cash of approximately $73 million. For the first six months we generated close to $21 million from continuing operations before working capital adjustments. Working capital adjustments were significant in the first six months of this year, in particular due to the payment of essentially a full year and a half of Canadian income taxes, totaling $17 million, and that's in U.S. dollars. During the first six months, we also spent $15 million in CapEx, paid $30 $51 million in excise taxes, as well as $7 million in share buybacks, and completed a $15 million equity placement with two key U.S. institutional investors.

We remain very comfortable with our long-term debt level, which was approximately $40 million at a blended interest rate of 5.6% as of June 30, 2026. During the quarter, we do done an incremental in Canadian dollars, $8.3 million on our Pearson Farms credit facility to support our Delta facility upgrades and technology enhancements. We're in a net cash position of $33 million, and as Mike mentioned, we expect to grow our cash balance for the remainder of the year with stronger free cash flow during the second half. Our board and management will continue to evaluate capital allocation decisions on a quarterly basis, and we expect to maintain a balanced approach to capital allocation to drive returns to shareholders. I will now turn the call back to Mike for some closing comments. Thanks, Steve.

Before we open the call to questions, I'd like to recognize the continued execution of our team members around the world. Our team have undertaken significant development projects this year while continuing to deliver outstanding results. Personally thank all our folks who continue to lead us forward. In closing, we feel we've had an excellent first half of 2026, and we're proud to continue demonstrating the strength and durability of our global operating model. With industry leading profitability and a global cannabis business that is approaching 50% of revenues from growing international markets, we're positioned for continued profitable growth regardless of our entry point or timing into the U.S. market. We remain encouraged by what we see in the U.S. regulatory landscape, and we're pleased to see that the U.S. Congress provided an extension for full-spectrum CBD products into December, which will give them time to potentially find a workable permanent solution.

As you know, we've never engaged in the production of CBD. of synthetic cannabinoids or related products, a BHB CBD distillery has always operated to the higher standards. We're incredibly proud of that team and still see a lot of opportunity for BHB depending on how things settle out. But we're looking forward to the rules of engagement being finalized so we can start planning accordingly. I will reiterate something I mentioned last quarter. We are pleased that we've become a partner of choice and are recognized as a strong leader in the global cannabis industry. But we will only pursue opportunities that are strategically compelling and supportive of long-term shareholder value creation. We have a considerable upside potential in our Netherlands business, Canadian and US assets, and ownership interest in Vindextra, and we believe Village Farms remains one of the most attractive cannabis growth platforms and investment opportunities in the world.

Liz will now take time to answer some questions. As a reminder, if you'd like to ask a question at this time, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Our first question comes from Erin Gray with Alliance Global Partners.

Good morning. Thank you for the questions and congrats on the strong quarter. I want to talk a little bit more about international and the medium-term opportunity. Maybe give some color in terms of some of the demand supply bottlenecks you might have near-term and how those get alleviated as as 1H and 2H expansion for Delta 2 are completed. And this may be just talk about long-term, your confidence to remain with a competitive advantage, even with potential for U.S. exports. Thank you.

Okay, good morning, Aaron. A few questions in there. Yes, we remain confident that we'll continue to expand. As I said in my call, we still have Delta 1 availability behind the expansion of Delta 2, and that's a 33% increase with expansion, bringing us to the 40 incremental metric tons going forward. So we don't talk much about Delta 1, but that is always a possibility for us, and it's even a possibility for export to the U.S. market, depending on how things shape out in the future. So we think we can continue to meet our EU GMP growth as well going forward, and we feel confident about Germany continuing to grow. going forward. As far as pricing, we haven't seen a decline in our pricing. There has been a decline in the non-compliance, so to speak, products that are flowing into Germany from multiple parts of the world. but you really need to be a EU GMP compliant partner.

And I could say this, as far as your question for the U.S., I'm not saying, you know, U.S., single state, multi-state operators won't be there. But I can tell you from our experience in the last six years, it is not easy. It's just not a matter of getting a DEA export license. not just qualifying for EU GMP. but not just getting there on your initial certification, but maintaining it is even more difficult. So, you know, I wish everybody luck, and as far as I'm concerned, we may be a U.S. exporter of EUGMP in the future as well. So I think we have a great position right now that we can continue to build on. And I think we're in a strong position going forward over really anybody who wants to focus on EU GMP for the European market.

Okay, great. Thanks very much for that detail. Second question for me, just talking about the EBITDA margin profile, I've seen some nice expansion in the past two quarters. How best to think about the long-term EBITDA margin aspirations as we think about all the puts and takes of your sales growth opportunities and potential broader sales pressure with the pricing pressure? within Canvas. Thank you.

Our continued long-term focus is the 30 to 40% for our gross margin, our EBITDA margin. Certainly in the mid-20s, it's possible. You know, we continue to be very focused on managing our costs. Obviously, the EBITDA margin and gross margin are also somewhat dependent on demand and supply. And, you know, as more people enter the market, there could be some price increases. pressure but now we're you were as Mike mentioned we're continuing to see very strong pricing for a ug MP and we'll continue to get some economies of scale as we expand our Delta facility platform over the ensuing years yes and if I could add to that just with.

The increase show the efficiency of our operation because complying with EUGMP significantly increases your cost of production. So when you're looking at others who may start to index on EUGMP out of the US, they should plan for much greater costs of production and overall costs to get there. So that's, well, You know, that's not really identifying in our numbers. It just shows the power of large-scale, efficient operations. And the bigger we get, the lower we believe our costs will be going forward. So we see that as a great advantage. You really need a large-scale footprint to index.

Thanks, Aaron. Great, Culler. Appreciate that. I'll jump back in the queue. Our next question comes from Doug Cooper with Beacon Securities.

Good morning, guys. Terrific work in the quarter. A couple of things. First of all, in Germany, you're up 70 odd percent year over year, up 43 percent sequentially. What did the market grow and therefore, what kind of market share did you gain, do you.

Hi, Doug. Good morning. It's really hard to know. There was some indication of that being tracked in Germany, which is not really happening, so we have to really rely on internal numbers And those numbers have been anywhere from sort of 8% to 15% internally, but I can't really verify it, so probably won't go there right now but but I can tell you that We have four of the ten top strains and with the percentage of growth, I think that outweighs others as far as the growth potential. Anne, do you want to put some color on it? Anne Cahill- yes, I agree. It's hard to quantify.

But there's also for us, we do monitor our distribution penetration and we have been growing in locations where we're distributing or where our cultivars are distributed.

Okay, that's good color. I guess there's visibility. How do investors view the visibility of growth in Germany? Like, obviously, it's a big part of your growth and margin expansion story. So, you know, looking out into 2027 and beyond, you know, how do we get comfort that they're going to continue to grow as much as they have been?.

I think projections are pretty astronomical over the next five to six years towards 8,000 tons. So even if it was half of that, it would be a huge upside. And patient enrollments overall are still very low. It's probably in the single digits. No single digits. Very low single digits. Yes, low single digits. So I think we're very confident. that the growth will continue at least for the foreseeable future at least five years maybe.

And do you foresee ultimately getting a footprint in Europe to feed that demand? Probably talk to you offline on that one. Thank you. A couple quick ones. CapEx remaining for the second half of 26 and 27?.

We really don't have anything on the front burner right now. for CapEx internally. We spent most of the CapEx now, even though we indicated that we're breaking ground on the second half of Delta 2 August 1. I mean, we procured all the material we need.

So I can't recall it. The Netherlands is fully built out, so there's really nothing right now that we're looking at. Okay, and final one, if I could, just on the produce side, I see, or produce and other, I guess, I see that gross margin expanded, to 26% from 11 last year. What do you attribute the profitability? I know it's not a huge part of your business anymore, but just what do you attribute that improvement in profitability to?.

Pricing was very strong in Q2, as well as we had strong production and we had strong pricing. So as we've said for years, Doug, it's a commodity-driven business. The demand was strong, in particular in April and May, and we had very good early production out of Delta One, which I continue to believe is one of the most profitable, or if not the most profitable greenhouse in North America, but obviously everyone else is private. I can't prove that, but someday hopefully we can prove.

with campus. Yes, and one of the catalysts, real quick, was under the US Trump administration. There's been this suspension agreement with Mexico for 22 years. And that suspension was stopped, which increased the 17% tariff on Mexican imports of tomatoes. So as Steve said, price demand that helped drive that balance better in favor of pricing in the USA. So that occurred about a year ago and seeing less capacity coming out of Mexico.

that business. Great. Excellent. Thanks, gentlemen and ladies.

Thanks, guys. Our next question comes from Frederico Gomez with ATB Coremark.

Yes, thanks. Good morning. Thanks for taking my questions. Congrats on the great quarter here. I want to go back to margins. Pretty impressive this quarter. You referenced, I guess, your long-term target of 30 to 40% again, but how sustainable do you think those you know high 40s margins are short term especially as you increase the sales mix uh towards international maybe reaching that 50% that you mentioned. So, you know, that's number one. And then secondly, obviously, I guess a portion that's not only sales mix, but cost of production. And you mentioned, improvements there but can you maybe just elaborate on that I mean what's driving that continued improvement and how can you be you know more efficient as you scale thank you.

Well, there's a number of drivers, but not just on pricing, which we see. For the foreseeable future, we see maintaining our margins in Germany. We feel very confident about that. But we've always mentioned for many years about continuous improvement and continuing to drive our costs down. I mean, that's number one and most prudent. You have to drive your costs down. And this was the first half of this year demonstrated. that we are able to continue to drive our cost of production down.

That's a factor of yield increases, more efficiency in how we operate. So that showed strongly this first half of the year. And that's... In our long history of growing multiple crops, there's no end to increasing efficiency. So you have to take that into account. If you look at Canada, I think Canada's become somewhat of a mature market now, 10 years later. It's got single-digit growth. And at some point, the pricing more or less is plateauing, depending on... convenience brands, Pure Flower, but it's not going to have great changes, I think, over the long term. So yes, we feel pretty comfortable.

I mean, Steve said, we've always said our target margin is 30 to 40, but that doesn't mean that we're not going to try to do better as we've demonstrated this quarter. And scale matters. It's just you can't get around it. The largest, you know, it's ultimately a fixed cost business. The variable component is very, very small, at least on the cultivation side. So the larger you can get, you can really hammer down your cost of production.

Thank you, Mike. I appreciate that. And then secondly, you mentioned that pricing is maybe plateauing in Canada. Can you comment on how the domestic prices have evolved recently? I know that we talked about how international is maybe benefiting domestic prices, but anything on the recent trend?.

in terms of pricing domestically. Thank you. Good morning, Federico. A couple of things. We are seeing some more supply come back into the Canadian market. We think it's tied to the testing requirements that the international markets have, as well as some crackdown on greenwashing. And so within the flower category in particular and some of the close derivatives, we're seeing a little bit of a mix emerging towards the lowest value segment, which we think is, you know, again, folks using that outlet to raise cash on existing biomass. We're continuing to invest. We've, as Mike highlighted in the remarks, we've spent a lot of time building into our convenience categories, and so, We see those plus the dominant position we have as flour as a way for us to continue to drive the mix and price in the market.

Thank you. Appreciate that. Thanks, Vinny. Our next question comes from Pablo Zwanek with Zwanek and Associates.

Good morning, everyone, and congratulations on the very strong export numbers. The first question, Mike, and I think we've talked about this before. You know, if you can give more color about your route to market in Europe, or is it pretty much an FOB model in which you sell to distributors and they take care of the distribution and sell into pharmacies? or color in terms of how your company is involved in that selling effort. That would help. And by the same token, you know, whether at some point you see opportunities to sell branded product there. Now, Now the second part of the question is, as you expand your scale and your capacity, does that model hold, or do you need to invest in downstream projects assets to gain more control over your distribution in Europe. Thank you.

On that branded question, I would say absolutely. As I said, we know our strengths, we have four of the top ten. So our brand is in work, that is part of the future. So absolutely there. As far as downstream, yes. You know, we sat back and watched what others have done. If you really look at, say, Germany as an example, going back eight to ten years, the evolution is pretty incredible from Malta to Portugal to others building small assets in Germany. We don't think they've ever made money.

So we've watched all this capital over many years being spent with really no return. And now, of course, The GACP magic wand approach is not really working. As Dan mentioned, that's why we see more capacity in the Canadian market, because this is a pharmaceutical-grade cannabis product, and the regulators are coming down on those who can't meet that uniform criteria. as EU GMP and that we've never strayed away from that. So, to answer your question, as we sat back and looked at the landscape, who's developing, we've looked at valuations, for example, in some cases. We puked when we saw some of these ridiculous valuations. We're taking our time, but I would say yes, we see ourselves being much more vertically integrated in the European theater going forward for sure. You know, and as far as your first question, what was your first question? I'm sorry.

I'll jump in. No, no, go ahead. Go ahead, Ann. Pablo, you asked about our route to market.

specifics. And I just want to roll back a little bit and say right now the playbook in international is not unlike how we set up in Canada. We, we were initially very much B2B oriented. And then as we got the, essentially the cost of goods sold right, the COGS line, we started to invest in the SG&A. So I think you should expect us to do that. We're some great distributor partners around the world, frankly. And we've stayed focused on getting the best quality product into the market as our first step.

Yes, no, no, that's that's great color. Thank you. And I'm sure you're hearing the cool relief conference call. They mentioned your key supplier of theirs. I don't think that's already happening or it's in the future, but congrats for that. Look, on the same topic, when I try to think of your 21Million dollar number for the quarter. I mean, in very simplistic terms, I would call that an FOB number. And what some of your peers, larger Canadian peers report, board, it's pretty much landed almost to pharmacy number, right? So the numbers are not comparable.

I mean, I don't know if we have a way to calculate this, but are you really the largest Canadian exporter by volume? Or am I exaggerating there? No.

We think we are the largest Canadian exporter by volume.

Okay, thank you. Look, and the last question, moving on to Texas, with the 12 licenses already issued, provisional licenses. Is that door pretty much shut? Is that window for village farms to win a license through the process, is that window shut? And the only option for you to enter Texas is by buying one of those drug licenses. Thank you. I would say no. I mean, first of all, as you pointed out, these are conditional licenses. They're not licenses yet.

and there's a lot of noise out there of what people are doing. And we know Texas well, so one, to answer your question, I don't necessarily think that it's 100% sure we won't get a license. If you, we've spent a lot of time and done a lot of homework on who received them. And I think it's still yet to be determined what the final number of those licenses will be. But I can't say one way or another we plan to be in Texas and just kind of leave it at that at this point. So that's it.

Thank you. Thank you, Papa. That concludes today's question and answer session. I'd like to turn the call back to Mr. DiGiglio for closing remarks.

Thank you everyone for participating in today's second quarter call and we very much look forward to reporting come November for our third quarter. Have a great week.

This concludes today's conference call. Thank you for participating. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Hello, and welcome to the Annual Meeting of Shareholders of Village Farms International, Inc. Please note that today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you'll be deemed to consent to the recording, transfer and use of same. If you disclose personal information of another person in today's meeting, you'll be deemed to represent and warrant to Computershare and the corporation that you first obtained all required consents for the disclosure, recording, transfer and use of such personal information from all appropriate persons before your disclosure.

It is now my pleasure to turn today's meeting over to Mr. John R. McLernon, Chairman of the Board of Directors. The floor is yours.

I'd like to welcome you to our virtual Annual Meeting of Shareholders of Village Farms International, Inc. My name is John McLernon, and I'm Chairman of the Board of Directors of the company, and I'll chair the meeting.

On behalf of the Board, our officers and employees, I'd like to thank you for attending our Annual Meeting of Shareholders. We are pleased to again conduct our annual meeting virtually via the web portal. We view this meeting format as a means of providing an efficient meeting process. The meeting will now come to order.

Stephen Ruffini, the Chief Financial Officer of the company, will act as Secretary of the meeting, and Computershare will act as scrutineer. The Board of Directors fixed the close of business on April 28, 2026, as the record date for determining the shareholders entitled to vote at the meeting. Notice of the meeting, the related proxy statement and our most recent 10-K were mailed to shareholders on or before May 11, 2026, as confirmed by Computershare and Broadridge. The shareholder list shows that as of the record date, there were 114,288,686 common shares outstanding and entitled to vote. I direct that a copy of the meeting materials, together with the applicable confirmations of mailing be kept with the records of this meeting.

I wish to express thanks to those shareholders who have submitted their proxies in advance. The company has received the preliminary scrutineers' report, which indicates that proxies representing a total of 49.91% of our outstanding common shares have been properly deposited prior to the meeting, and I declare that a quorum is present. I'll now proceed with the business of the meeting.

The next item is the presentation of the consolidated financial statements of Village Farms, Inc. and its subsidiaries as of December 31, 2025, and the independent auditor's report thereon. I ask Steve Ruffini, the Chief Financial Officer, to table the consolidated financial statements of the company and its subsidiaries as of December 31, 2025.

I've been advised by Stephen Ruffini that for efficiency purposes, he's prepared to second each of the upcoming motions in respect to the items of business outlined in the company's proxy statement dated April 29, 2026. Accordingly, I will take such motions as seconded with no further action needed. After presenting all items of business, I'll then ask registered shareholders or their duly appointed proxy holders to cast their votes.

We'll now proceed with the election of the directors of the company. 7 directors of the company are to be elected to hold office until the next Annual Meeting of Shareholders or until his or her successor is elected or appointed. Information regarding the nominees proposed by the management is set out in the company's proxy statement, April 29, 2026. The Board has adopted the majority voting policy that will apply if any of the directors receive a number of for votes that is less than the majority of the votes cast.

I have the pleasure of nominating the following persons for election as directors of the company to hold office until the next Annual Meeting of the Shareholders or until their successors are elected or appointed: Michael A. DeGiglio; John P. Henry; John R. McLernon; Christopher C. Woodward; Kathleen M. Mahoney; David Holewinski; and Carolyn Hauger.

The company's bylaws require that nominations of directors by shareholders be received by the Board of Directors of the company in a prescribed manner in advance of this meeting in order to be valid. As no nominations were received, I declare that the nominations for directors are closed.

Accordingly, I move that each of the above-mentioned persons for the election of directors of the company be elected to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed.

The next item of business is the approval of the compensation of the company's named executive officers on an advisory nonbinding basis. Accordingly, I move that the company's named executive officers' compensation be approved on an advisory nonbinding basis.

The next item of business is the reappointment of the auditors of the company. to hold office until the next annual meeting of shareholders or until successors is named. I'll take a moment to ask any registered holders or duly appointed proxy holders who have not yet voted or who may wish to change their vote with respect to those motions to do so now by clicking on the Vote Here button on the web portal. And following the instructions, you must hit submit for your vote to be counted.

We will leave the polls open for a minute for registered holders and proxy holders who have properly logged in with the control numbers and wish to vote.

[Voting]

Now that everyone has had an opportunity to vote on each of the matters, I now declare the polls for the 2026 Village Farms International, Inc. Annual Shareholder Meeting closed.

I've been advised by the scrutineer that the preliminary voting report shows that each of the director nominees for the election to the Board have been duly elected and that all other applicable motions have been approved. We will report the final detailed voting results on a Form 8-K in a SEDAR+ filing today's meeting.

As there is no further business to be brought forward, it is my responsibility to terminate the meeting. However, I have a couple of thoughts to cover. After some 25 years, I will submit my resignation as Chairman as of the Board meeting following this shareholders' meeting. And I attend to continue as a director of the company. It's definitely an honor for me to have worked with this company, and I really appreciate the relationship I've had with Mike DeGiglio, who's a unique individual who respects his people and his clients and all around.

So that's my comments, and I've had a great years as the Chairman. So thank you very much, everyone, for joining us. We thank you for your interest, and you may now disconnect. Thank you.

Good morning, ladies and gentlemen. Welcome to Village Farms International's First Quarter 2026 Financial Results Conference Call. This morning, Village Farms issued a news release reporting its Financial Results for the first quarter ended March 31, 2026. That news release, along with the company's financial statements, are available on the company's website at villagefarms.com under the Investors 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 completion of the call. Details of how to access the replays are available in today'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 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. A summary of these underlying assumptions, risks, uncertainties is contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10-K MD&A for the year ended December 31, 2025, and 10-Q for the quarter ended March 31, 2026, which will be available on EDGAR and SEDAR+. 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.

Thank you, Latif. Good morning, and thank you for joining us for our first quarter results call. With me today are Steve Ruffini, our Chief Financial Officer; Ann Gillin Lefever, our Chief Operating Officer; and Sam Gibbons, our Senior Vice President of Corporate Affairs. I will begin with my customary review of our highlights from the quarter, and then Steve will review the financials in more detail before I provide some last closing comments. Before we begin, though, a quick note to everyone on some changes to our SEC segment financial reporting after effectively becoming a pure-play cannabis company following the completion of our produce transaction last year. We're all in our global cannabis, one global company with purpose-built production facilities that serve our commercial sales channels. Accordingly, we have now realigned our operating structure and financial disclosures to reflect a singular unified cannabis business with a single cannabis segment. The change reflects the true nature and focus of our business today. Steve will address the new reporting in more detail momentarily. Okay, so let's move to our first quarter performance, which reflects a strong start to the fiscal 2026 year for Village Farms. We are pleased to begin this year with continued momentum in our largest markets. We generated total net sales growth of 27% year-over-year, driven by our international business and continued leadership in Canada. In terms of sequential performance from Q4, revenue was up roughly 2%, which was in line with our expectations given our capacity constraints ahead of our expansion projects coming online during the second half of this year. Consolidated adjusted EBITDA growth of 118% year-over-year significantly outpaced sales, and we delivered a fourth consecutive quarter of positive net income, clearly demonstrating the sustainable profitability of our expanding global cannabis enterprise. The continued strength of our international medical business was once again a powerful driver of growth and profitability with international export sales increasing 171% year-over-year and 60% sequentially to a record of nearly $15 million. And I will note here, we achieved this record net of the orders initially expected to ship in Q4 that slipped into Q1, which we mentioned on our last call. The German market continues to stand out in terms of its contribution to our international sales. We continue to have 3 of the top 5 leading cultivars in Germany and 4 of the top 10 through our distribution partners, and we're capturing increasing share of the market, which continues to grow after the temporary decline we observed during the fourth quarter. We mentioned on last quarter's earnings call that we anticipated returning to sequential growth in Germany during Q1, and we did. Outside of Germany, we're experiencing steady performance in our other international markets, and we continue to expand -- I'm sorry, we continue to expect that we will enter multiple new jurisdictions during the remainder of the year. Our team has also begun to explore opportunities outside of flower for us to potentially export other form factors to our growing list of international partners. Finally, I'll note that demand from our international customers continues to increase, and that pricing for our EU GMP compliant flower is holding steady, whereas we are seeing price compression in many other parts of the supply chain. There have been several reports recently about declining pharmacy sales over the past year. While price normalization is a known trend in early-stage cannabis markets, key price differentiators are emerging in international markets that result from our ability to consistently deliver compliant product at industrial scale. We have good visibility and confidence that our pricing in Germany will remain relatively stable for the foreseeable future, which should give the investment community greater confidence in the continuing strength of profitability and our expanded capacity comes online and contributes to increased sales during the back half of this year. Demand for our products continues to increase, and our partners are increasingly seeking our EU GMP compliant product in the wake of stricter regulations and enforcement that are restricting the flow of non-compliant product in several jurisdictions. In response to increasing demand, we recently completed facility upgrades at our production campus in British Columbia, which significantly expanded our total production capacity for EU GMP-compliant cannabis. As a result, we now believe we operate the world's largest EU GMP certified cannabis facility, which further strengthens this competitive advantage to our business. Before I shift my discussion to operating highlights from other regions, I want to make clear that our success in international markets did not happen overnight. Delivering consistent EU GMP compliant product is a complex process requiring multiple disciplines to work perfectly. Our team had the foresight to pursue EU GMP certification 6 years ago, and it was quite difficult to achieve. And it's even harder to recertify, which we have also done. The investment is costly and time consuming and the learning curve to capably service these markets from an infrastructure, compliance, quality assurance, stability, product attributes and supply chain excellence perspective is very steep, not to mention the fact that our size, scale and efficiency of operations are not easily duplicated. There has been speculation about the potential for U.S. cannabis exports following the recent order to reschedule medical cannabis. I will be clear that we are thrilled with the final order because we have built a compliant supply chain for medical cannabis that can succeed or be replicated with our assets in the United States. And in fact, if you extend the speculation of potential outcomes of the final order, we would be even more thrilled by continued progression towards free trade and open borders with Canada for imports of medical cannabis in the U.S. market in the future. Our viewpoint has always been that to be successful in plant-based consumer goods, you must simultaneously be a low-cost producer while delivering exceptional quality and value for customers. While we don't disclose our cost of production, we can confidently say that we are one of the low-cost advanced greenhouse producers of cannabis in the world, and we work every day to continue driving our costs lower, and we continue to see opportunities to improve our cost of production. I'll now shift to review of our Q1 performance in the Canadian market, where we continue to benefit from the success of our shift -- shift towards higher-margin products last year. Branded sales were up about 5% year-over-year with sequential performance in line with our expectations given seasonal and ongoing capacity constraints that we have discussed. I'd also like to take the opportunity to acknowledge that while some of our competitors have shifted their focus away from the branded sales channel in Canada, we remain committed to servicing our Canadian customers. We're very proud of the consumer and brand loyalty we developed in Canada over the past 8 years, and we've been especially pleased to witness recent improvements of our performance in several of our targeted sales channel and product categories. We continue to maintain a top 5 overall share position in Canada's adult-use market and hold the #1 market share position in dried flower. I see, we expect to occupy for the foreseeable future based on our current view of the competitive landscape. Notably, our flagship Pure Sunfarms brand achieved its 15th consecutive month of market share gains in the flower category during the month of April, and our Fraser Valley brand is also making similar strides in addition to several other wins for our team with recent product launches in the vape and infused pre-roll categories. I also think it's important to point out that our team has achieved all of this organically with a strict focus on optimizing profitability and enhancing our balance sheet strength as compared to many of our competitors. In March, we began planting the first half of our additional capacity at our Delta 2 greenhouse. We are realizing the benefits of having done this before and are thrilled with what we're seeing so far from this first planting. Our first harvest is expected to occur in the week of May 18, and we expect initial contributions in sales in late second quarter or early Q3. As a reminder, the Delta 2 expansion will ramp up its expected 40 metric tons of annual capacity by mid next year, which represents a 33% increase in our British Columbia cannabis production compared to fiscal year '25, and we will continue to expect that we will harvest an incremental 15 metric tons of production from the expansion this year. All of this will drive economies of scale, cost efficiencies and improved flexibility to meet demand across our various sales channels. Turning now to our recreational cannabis business in the Netherlands, where I'll note that we believe the minor sequential sales decline we observed from our Drachten facility reflects typical Dutch consumer behaviors and seasonality following the holiday season. We recently hosted a ribbon-cutting ceremony for the celebration of the completion of construction of our Phase 2 facility in Groningen on April 24. We hope you were all able to see the video we shared on social media channels last week celebrating this important milestone. We're incredibly proud of this facility, and we believe it to be one of the most advanced precision agricultural facilities, not just in the Netherlands, but potentially the world. Our asset management and facilities development teams have been designing, building and operating cultivation assets across the world for over 30 years and the environmental, HVAC and notably odor controls in this facility are truly next level. As a reminder to those of you who may not be aware, the Groningen facility has access to 3x our current electricity needs, and the building was designed to accommodate a second story, if needed for expansion in the future. While we have previously communicated that we expected to have our first plants in the facility in late March, we are still waiting final certification and regulatory approval to commence full operations, which we expect will occur over the next couple of weeks. We have received both written and verbal communication that formal approval documentation is forthcoming in May, and we are looking forward to commencing all operations in Groningen before the end of Q2. I will also add that we don't expect the Netherlands delay to impact our sales outlook for the full year given the quality of plants we are seeing in our Delta 2 expansion in Canada. In summary, our first quarter was one of disciplined execution and performance that was in line with our expectations. And we're experiencing no meaningful changes with respect to our medium- and long-term outlook for the business. We believe we have one of the most attractive cannabis growth platforms in the world, and we're looking forward to showcasing the combined strengths of our expanding footprint as the year progresses. We'll start the year on strong footing and what we believe is a clear line of sight to continue profitable growth for the remainder of this year and through 2027. This concludes my introductory remarks. And now I'll turn the call over to Steve. Steve?

Thanks, Mike. With the start of a new fiscal year, as Mike noted earlier, the company realigned its global operating model enough as required its financial reporting. The company's operations are now organized, managed and classified into one reportable segment, reflecting our global cannabis business. The company's remaining operations are now classified as other. We continue to report our consolidated segment results in U.S. dollars and financial results for comparative prior periods have been adjusted accordingly. Also starting this quarter, we are allocating costs for shared corporate services to the respective operating units. Most of these costs were previously recorded within our corporate unit. I'll start with a review of our consolidated Q1 results. Consolidated net sales increased 27% to $50.2 million, driven by continued strong performance in our largest cannabis markets, as Mike discussed. Consolidated net income from continuing operations improved to $2.7 million or $0.03 per share compared with a net loss of $2.1 million or $0.02 per share loss in Q1 of last year. Consolidated adjusted EBITDA from continuing operations increased 118% to $9.9 million from $4.5 million in Q1 of last year, resulting in an adjusted EBITDA margin of 20%, up from 11.4% in Q1 of last year. As I mentioned last quarter, in 2025, we accrued Canadian corporate income taxes of CAD 16.4 million or USD 12.1 million, which was paid in February of this year, along with monthly prepayments towards 2026 Canadian corporate income tax. In prior years, we did not pay income tax due to carryover tax losses, all of which we have now utilized. The impact of the large Canadian corporate income taxes in Q1 resulted in negative cash flow from operations of $16.8 million. Cash flow from operations was also impacted by noncash changes in working capital, which reflects some investments made during the quarter to support our domestic business in Canada. And I'll note that we expect to return to positive consolidated cash flow from operations during Q2 and through the remainder of this year. Turning now to our cannabis segment. Net sales were $49.9 million or a 27% increase versus Q1 of last year. The year-on-year improvement was driven by the strong performance in our international medical exports, which increased 171% over Q1 of last year and 60% sequentially, predominantly from Village Farms taking larger share of Germany's growing market with continued stable performance in other markets as well as a full quarter of performance from our Drachten facility in the Netherlands compared to a partial quarter last year. As Mike mentioned, we've experienced a slight delay in the commencement of operations in our Phase 2 facility in Holland, but continue to expect this facility will contribute to stronger sales and adjusted EBITDA performance as it continues to ramp during the second half of this year. Cannabis gross margin was 43%, up from 39% in Q1 of last year, reflecting higher international export sales as well as a larger contribution from our Netherlands operations and benefits from our strategic shift toward higher-margin products in Canada. This reflects another consecutive quarter of gross margin performance above our targeted 30% to 40% range. SG&A as a percentage of sales was 30% level with Q1 of last year, reflecting the continued efficiency across our cannabis operations, offset by the ramp-up staffing to support the launch of our Phase 2 facility in the Netherlands. Q1 adjusted EBITDA from continuing operations for cannabis improved 48% to $10.2 million from $6.9 million in Q1 of last year, resulting in an adjusted EBITDA margin of 20.5% of sales. Q1 cash flow from cannabis operations was negative $11.8 million compared to positive $2.9 million. Excluding the impact of our tax payments, I mentioned a moment ago, cash flow from operations would have been $4.1 million. I'll note that we believe we are the only major Canadian cannabis LP in the position of paying corporate income taxes, which is a testament to the strength of our operating capabilities and strong stewardship of capital on behalf of our shareholders and a sign of a sustainable long-term profitable business platform. As we do each quarter, I will point out that in Q1, we also paid Canadian excise taxes on our retail branded sales of $15.9 million or nearly 40% of gross retail branded sales. Turning to the balance sheet. We ended Q1 with cash of approximately $56 million, which includes restricted cash of $5 million with a net cash -- in a net cash position of $20 million. With expected strong cash flow from operations throughout the remainder of the year and taking into account the $15 million of income taxes, $9.2 million in capital expenditures and $6.4 million of share repurchases in Q1, we expect to increase our cash balance from positive cash flow from operations through the remainder of this year. Our total debt at the end of Q1 was $36 million. We remain very comfortable with our debt level. During the quarter, we favorably amended and extended our loan agreement with Farm Credit Canada with an improved interest rate and extended the maturity date by nearly 4 years to February 2031. Finally, we continue to be active with our share repurchase program. As a reminder, our Board approved up to a $10 million buyback, but under Canadian statute, we could purchase up to 5% of our shares in a 12-month period. During Q1, we purchased over 2 million shares at an aggregate cost of $6.4 million. And during the second quarter, we completed the Board-approved repurchase authorization in its entirety. Our Board and management will continue to evaluate capital allocation decisions on a quarterly basis, and we expect to maintain a balanced approach to capital allocation to drive returns to shareholders. I will now turn the call back to Mike for some closing comments.

Thanks, Steve. In closing, our first quarter results again demonstrated the strength, durability and scalability of our operating model as well as the world-class talent, expertise and execution from our impressive global team. We believe we are positioned as one of the most attractive cannabis growth platforms internationally with a clear path to continue profitable growth in our existing markets. Before we open up the call to questions, I'd like to make some final comments regarding our perspective on rescheduling in the U.S. and how we are thinking about evaluating the many growth opportunities we see in front of us. As I mentioned earlier, we are thrilled with the rescheduling process, and the contents of the final order were more favorable than we were anticipating. This finally gives us the type of regulatory progress we need to start reevaluating our U.S. strategy. However, a lot still remains unclear with how rescheduling is going to play out at the federal level and a lot of uncertainty remains in the state of Texas. So we are going to remain patient. Our interpretation suggests that if we were to obtain a state medical license with DEA approval, then we may be able to maintain our NASDAQ listing, which we have both direct oversight and consolidate those financials in the same way we oversee and account for all our businesses. We support the structure for longer shareholder value creation. Without diverging sensitive nonpublic competitive information on the call, we can share with confidence that based on our ongoing conversations, we are emerging as a partner of choice and a potential acquirer of choice in the global cannabis industry, and that also includes the United States. There are many operators of all sizes across the world who would love to become part of our proven and profitable global platforms, and there is an abundance of opportunity for us to consider. Now having said that, I would also make it abundantly clear that we are not going to do deals just for the sake of doing deals. We believe good deals come from those who are prepared, patient and selective. I remain one of our largest shareholders, and I often say that the best deals sometimes are the ones you don't make. We will be extremely cautious, prudent and highly disciplined with respect to any strategic M&A activity that we consider, and we will only pursue opportunities that are strategically compelling, financially attractive and supportive of long-term shareholder value creation. This should not come as a surprise to anyone in the investment community who knows us well. But for those who don't, there's no greater way for me to illustrate our commitment to a disciplined shareholder-friendly approach to M&A than to appoint our long-term CFO, Stephen Ruffini, to lead this important function for us. Steve has been our CFO for over 17 years and has been instrumental in evolution to world leader in cannabinoid-based consumer packaged goods, and he is invaluable and a trusted adviser to our Board of Directors and management team, and he's also a large shareholder. Steve, on behalf of everyone at Village Farms, we thank you for your leadership in these past 17 years and for your strong stewardship of capital for shareholders. We are honored for you that you've agreed to delay your retirement to step in this role, and we are all excited to continue working together. Thank you all. Operator, we'll take any call.

[Operator Instructions] Our first question comes from the line of Aaron Grey of AGP.

So first, I just want to talk about some of the commentary you made for international and some of the pricing dynamics with your outlook for 2026 as you bring additional capacity online from Delta 2 expansion. Can you provide some detail in terms of the confidence -- where you're getting the confidence of your own price stability versus others calling out pricing pressure? And then could you provide some color in terms of the degree of margin difference between Canada and the international exports, if you could just remind us of that.

Sure. I'm not going to give you any color on the margin. That's -- we keep that internal. But regarding price compression, we -- as I said on the call, for our -- specifically our EU GMP certified product, we have not seen really any margin compression. That's being driven, as I said, by our product and meeting all the attributes that are required. We've seen the compression for others tied to GACP, greenwashing, as I call it, the magic wand to try to get a compliant product. That's where that compression is coming from. But for us, we feel with our product specifically, as I said, Village Farms, we don't foresee much compression.

Okay. Great. Appreciate that color. And Steve, congrats on your time as CFO and best of luck in your next venture leading M&A. Next question on that front. You alluded to some of the opportunities that are coming up both in the U.S. with rescheduling as well as international, but wanting to take a prudent approach. So how best to think about how aggressive you guys potentially get in acquisitions, given you talked about potential exports in the U.S., potentially exporting from your Drach facility into the U.S., just given some of the pretty notable unknowns and what that could mean towards your current footprint and what you need in addition. How do we think about how aggressive you might get in M&A? And what would be additive to your portfolio amid different potential outcomes of what reform could mean?

Well, internally, we keep focusing on what we know is possible with the new order, not what is not possible because the clarity will really probably start showing up in the next -- between the next 2 to 6 months. And that's why we need to be patient. I've said all along that we do not want to make decisions that involve capital without knowing absolutely what the regulations are. And you learn from your mistakes, and we've always had that, but I'll just be very candid and upfront. When we acquired the CBD business some years ago, when it was scheduled in '17 under the President Trump's descheduling order under the Farm Bill, it was very clear to us that CBD and other cannabinoids from hemp made it. Well, when you see what's happening today, they're trying to put the toothpaste back in the tube. And here we sit and wait for November for some new clarity on what the future is. That's an example of not deploying capital without knowing for sure. We're not being prudent and patient because we're lazy. We want to know what the ground rules are before we move forward. And I think that clarity will be much clearer in 3 to 6 months. We predicted that once the executive order was final, there would be lawsuits. And as you know, Sam filed and it's going to have to go through a number of gyrations of lawsuits. The DEA is starting a review at the end of June through mid-July. We're going to wait to see what the outcome is. Where does the DEA pencil in support or nonsupport. So that just gives you an example, Aaron, of why we need to be prudent. The other thing is valuations. Sometimes I just scratch my head a lot on the valuations other companies are willing to pay for certain assets. And there's a huge discrepancy between public company valuations and private company valuations. So that's another example of not going after a shiny object and just paying -- overpaying for it. So I hope that gives you some color on that.

Next up, we have Frederico Gomes of ATB Cormack Capital Markets.

Congrats on a great quarter. Just want to follow up on Germany. You mentioned you're capturing increasing share of that market and you continue to see a stable pricing environment for your products specifically. So can you help us understand how are you being able to capture that share and keep that pricing stable? Is it related to the high quality of your product maybe that competitors can't compete at your price level or distribution relationships? Or is it your brand? If you just could provide more color there.

Okay. I'll start it off, and then I'm going to give Ann some time on that. So as I said in my remarks, it's been a 6-year journey here. And in order to -- and our focus has always been the high road. We have done nothing but EU GMP from the start. So we didn't try to cut corners at all. We never did. And as I said, taking GACP or non-EU GMP product and washing it through a facility to try to get compliant. You've seen how that's sort of backfired with all the tens of millions of dollars that went into Portugal, even in Malta in the early years by so many companies spending money to circumvent strict EU GMP. And those products are the ones that are compressing down the market. We've seen regulators now providing very strict enforcement, not only in those other countries that are trying to supply Northern Europe, but in Canada as well. So that was our decision, and it was the right decision, and we're continuing to expand. Our campus is almost fully EU GMP compliant for the whole facility in British Columbia, which is an incredible achievement. But those other attributes I mentioned, there is no more -- this is almost pharmaceutical grade. There is no more stringent requirement than to meet these requirements, as I said, from stability testing that can take a year for strain to get to. And just having -- and then being able to actually execute and deliver products on time. So without getting too deep into those key attributes that we've been able to achieve, that's really what's driving it. And I hope that answers your question, Federico. Ann, do you want to give some color?

Not much to add. I think Mike covered it. But the only thing I would say is wrap it all up into we have invested in our supply chain and not just in the last year, but over multiple years. And so that gets us scale, consistency and price. And then layer on that, as you know, Federico, our belief in quality and leading with strains of high quality, which we try to do throughout the world that just feeds into the supply chain as well.

I appreciate that. And then a second question on the Netherlands. I guess you mentioned some seasonality in that market, but could you talk about the supply-demand dynamics there? Any update? Has it changed? I think you mentioned in the past that the market was a little bit supply constrained. Is that still the case as well as any commentary on pricing in the Netherlands?

Yes, go ahead.

Sure. So I think all supply -- all competitors are now fully up and running. So supply has improved. And that dynamic then plays out with some pricing softness across the category, which we did anticipate as we modeled the market. So nothing out of spec to what we anticipated.

[Operator Instructions] Our next question comes from the line of Pablo Zuanic of Zuanic & Associates.

This is Milton on for Pablo. To start, regarding the Netherlands, could there be any changes to the pilot program after this summer's review? And please comment on market conditions in your pilot towns, the market size, growth trends, competitive dynamics and pricing?

Well, I'll start off and then hand it over to Ann. So my gut feeling is it can only be more positive after this 1-year review. Due to the fact that what we're hearing from the regulators is they're very satisfied. The amount of infractions are minimal. There's no one selling to the illicit trade. And I think it's going to be a positive report based on the first year out. As far as the market and do you want to add some color?

I'm not sure about the second part of your question. Mike answered the first. You mentioned about dynamics in our specific market. I just maybe pause here to say we sell throughout the Netherlands. We don't have -- we're not restricted to the market we produce in. It's a little bit of a different structure. So if I missed the point of that question, feel free to clarify.

So sort of any expansion on the competitive dynamics in your specific areas? And obviously, if you're throughout the Netherlands, which you are operating in, just the growth trends and market conditions you've been seeing? Obviously, you answered Frederico, but any expansion would be helpful.

Well, I mean, it's a finite market. So there's, as you know, 590 coffee shops in the Netherlands, about 80 are in this first phase legalization. We sell almost all 80, maybe 75 of the 80 throughout the Netherlands and those municipalities are scattered around the Netherlands. So at this point, there is no indication that there will be added municipalities at the near future. That could come. But at this point, it's pretty finite. So you have 10 license holders and about 80 of the participating coffee shops involved in it. As far as Ann touched on, I mean, when we did our model out, we modeled it out over 4 years. And like any other market, there would be compression at that time. And I'll just illustrate that what we refer in the Netherlands is not really stores or dispensaries. These are coffee shops that have more of a lounge type of environment and the government wants to continue that. Most municipalities do not want to move to a dispensary format, but keep it as a social and combined with being able to purchase cannabis. But many of our consumers there buy daily. They don't buy -- in fact, our biggest sales are 1 gram flower package, which, of course, you know is more expensive to produce, but that's what the consumers want. They like coming in every day and buying some of them or most of them staying in the coffee shop and others, of course, leave. So I hope that...

Nelson, the only thing I would just add is in terms of your question around expansion and growth is we are seeing -- and faster than we saw in other markets, we're seeing an expansion into forms factor. And that would be logical given that there already was an existing market in place. So the consumer is sophisticated, and we're getting great feedback from the coffee shop partners that we sell into and the consumer as to how our products are doing.

Thank you for that, it colors on the consumer behavior. Just one more follow-up on Germany. Assuming MSOs are allowed to export to Germany, do you believe they can be cost competitive?

I'm not going to -- I don't want to assume they can be or cannot be. I think I'd rather -- the way we look at it is we know how difficult it is to scale up to that size to do it. And I'm not saying they couldn't do it. It's going to take time. The regulatory process. If the DEA allows exports, every single shipment will have to have DEA approval. There's a lot that's going to go into it. So I would just say that like us, we would look at -- I think you should look at what your cost of production is going to be further out, not just where it is today.

And Milton, I would just add that Mike was pretty clear. We are -- we believe we're the world leader right now in cost of production. And we're not stopping at the current cost of production.

Congrats on the fiscal quarter. That's all.

[Operator Instructions]

I think that's it then, right?

Yes, sir. I would like to turn the call back over to Mike DeGiglio for closing remarks. Go ahead, sir.

All right. Thanks, operator. Thank you, everyone, for listening today. We look forward to reporting on the second quarter in August. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good morning, ladies and gentlemen. Welcome to Village Farms International's Fourth Quarter and Year-End 2025 Financial Results Conference Call. This morning, Village Farms issued a news release reporting its financial results for the fourth quarter and year ended December 31, 2025. That news release, along with the company's financial statements, are available on the company's website at villagefarms.com under the Investors 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 completion of the call. Details of how to access the replays are available in today'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 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. A summary of these underlying assumptions, risks and uncertainties is contained in the company's various security filings with the SEC and Canadian regulators, including its Form 10-K, MD&A for the year ended December 31, 2025, which will be available on EDGAR and SEDAR+. 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.

Thank you, [ Liz. ] Good morning, everyone, and thank you for joining us. With me today are Steve Ruffini, our Chief Financial Officer; Ann Gillin Lefever, our Chief Operating Officer; and Sam Gibbons, our Senior Vice President, Corporate Affairs. So I'm very excited to report our 2025 results, and I'll begin with a review of highlights for the full year and the fourth quarter. Then I'll turn the call over to Steve for a review of the financials before some last closing remarks.

Our fourth quarter results again delivered strong profitability, gross margin and cash flow from operations, which contributed to record levels of performance for each of these metrics in fiscal year 2025. It was also a year that reflected the accumulation of many years of hard work and long-term strategic planning that has prepared us to capitalize on many of the catalysts that are now unlocking value for our stakeholders. Not only did we deliver record profitability and cash flow generation in 2025, but we did so with step function growth across several key metrics compared to 2024. We grew our global cannabis sales by 17% year-over-year with just a partial year of contributions from our expanding Netherlands business and international export sales increased more than sixfold as we continue to benefit from our leadership position as one of the world's largest EU-GMP certified cannabis operators.

This resulted in consolidated -- and record consolidated performance, including net income from continuing operations of $21 million or $0.19 per share, a $49 million improvement compared to the prior year. Adjusted EBITDA from continuing operations of $50 million, another improvement of $48 million and cash flow from continuing operations of $58 million, an improvement of $44 million compared to 2024. Our full year performance is a result of solid execution against our long-term plan and a strategy focused on improving margin performance, profitability and cash generation to enable additional growth investments across our platform.

Those of you who followed us the longest know that we started with a crawl, walk, run approach to scaling our cannabis business. And that's always been our view that we don't need to be first-mover advantage to build durable, defensible business models in our plant-based consumer goods. But what we do need is vision, patience, discipline and excellence with asset development, operations and commercial activities, coupled with world-class people capable of leading us forward. We believe we demonstrated all of these qualities since we expanded the cannabis in 2018 and particularly in 2025. Since 2018, we've taken a methodical approach to scaling our capacity and capabilities in Canada, including early recognition of the potential power of EU-GMP certification, which we began pursuing nearly 6 years ago. We've now been EU-GMP certified for over 4 years and international customers are increasingly seeking our products as more stringent regulations abroad have been restricting routes to market of other operators who can't meet our production and quality standards.

The recent financial contribution from our Netherlands business are also making -- we're also making years in the making. We acquired our Netherlands license 5 years ago and have been very patient and prudent with respect to commercializing our operations and aligning our commencement of sales with the launch of the pilot program last April. We've modeled our business in the Netherlands to ensure return our investment in under a 4-year time line, and our performance in 2025 clearly demonstrates Village Farms' strong stewardship of capital on behalf of our shareholders with positive net income for the year after only 3 quarters of revenue performance.

And finally, our transaction this past May to privatize our legacy produce business also reflected many years of hard work in preparation to achieve confidence that our cannabis business was ready to stand on its own and to structure a transaction that enabled us to retain the attractive long-term optionality that we see for our portfolio of advanced greenhouse assets in Canada and Texas. All of these improvement -- important developments began unlocking value for our stakeholders in 2025 and provide more evidence of the success of our initial crawl, walk, run approach to scaling our operations. And now we believe we're ready to run as one of the world's largest and most respected scaled cannabis operators.

Before I continue discussion on the fourth quarter, I'd like to again take an opportunity to acknowledge all our folks who are enabling our success. It truly does take a village and our people raised the bar considerably last year. Congratulations to all our team members around the world on a tremendous year.

Now turning to the fourth quarter, which demonstrates our third consecutive quarter of positive consolidated net income from continuing operations, adjusted EBITDA and cash flow from operations.

Ladies and gentlemen, please standby.

Apologies, we lost connection. I'm not quite sure where we lost it. So I will back up couple 30 seconds or so. And I apologize if I'm repeating certain things that were transmitted.

Talking about the Netherlands, our recent financial contribution from the Netherlands business are also many -- were many years in the making. We acquired the Netherlands license 5 years ago and have been very patient and prudent with respect to commercializing our operations and aligning our commencement of sales with the launch of our pilot program last April. We've modeled our business in Netherlands to ensure a return on our investment under a 4-year time line and our performance in 2025 clearly demonstrates Village Farms' strong stewardship of the capital on behalf of our shareholders with positive net income for the year after only 3 quarters. And finally, our transition this past May to privatize our legacy produce business also reflected many years of hard work and preparation to achieve confidence that our cannabis business was ready to stand on its own and to secure a transaction that enabled us to retain the attractive long-term optionality that we see for our portfolio of advanced greenhouse assets in Canada and Texas.

All of these important developments began unlocking value for our stakeholders in 2025 and provide more evidence of the success of our initial crawl, walk, run approach to scaling our operations. And now we believe we're ready to run as one of the world's largest and most respected scaled cannabis operators.

Before I continue to discuss the fourth quarter, I'd like to again take an opportunity to acknowledge all our folks who are enabling our success. It truly does take a village and our people raised the bar considerably last year. Congratulations to all our team members around the world on a tremendous year. Now turning to the fourth quarter, which demonstrated our third consecutive quarter of positive consolidated net income from continuing operations, adjusted EBITDA and cash flow from operations and further evidence of our progress to become consistently and sustainably profitable for the long term.

We saw year-over-year growth in net sales of 9%, just shy of $50 million, net income from operations of $2.3 million, adjusted EBITDA of $8.6 million and operating cash flow of $11.4 million. Our Canadian cannabis sales once again led the way where we continue to maintain a top 5 overall market share position and as of the end of last month, continue to hold the #1 position in dried flower. Q4 sales grew 10% year-over-year, driven by a nearly 400% increase in international export sales. Retail branded sales were flat compared to Q4 last year, but with improved gross margins year-over-year, reflecting our success in shifting the business in Canada towards high-margin products throughout the course of the year.

Gross margin performance in Canada of 43% was once again above our 30% to 40% target range for the fourth consecutive quarter and up meaningfully from Q4 last year. All of this translated to significant year-over-year improvements in profitability, resulting in CAD 7.5 million in net income and adjusted EBITDA of CAD 14.3 million and which is roughly 27% of sales and cash flow from operations increased to $21.5 million.

Before I move on to discuss progress of our ongoing capacity expansion projects, I'd like to take some time to address some of the sequential variances in our fourth quarter results as compared to our record third quarter. We're thrilled to deliver record results every quarter. And frankly, we had demand from our customers to do so once again in Q4. However, near-term supply constraints are temporarily holding us back. And as some of you may be aware, the flow of cannabis in the province of British Columbia was impacted by a labor strike in Q4, which we estimate reduced our Q4 sales by approximately $2.5 million. As we noted in this morning's earnings release, our demand levels continue to meaningfully outpace our current supply capabilities. As some of you may recall from our Q4 call last year, we entered 2025 with the leanest inventory position in more than 5 years. And for those of you who may be newer to our story, our Canadian cannabis business does experience seasonality due to variances in our growing climate throughout the course of the year.

We typically experience sequential declines in production and revenue during the fourth quarter unless we've had new capacity come online, which tends to result in higher costs sequentially as compared to our third quarter. We also entered the fourth quarter after back-to-back quarters of record performance in which we continue to sell all the cannabis we produce. In addition to the nuances of inventory levels, seasonality and our temporary supply constraints, the nature of our international export sales has introduced an extra layer of potential variability in quarterly performance due to the timing of shipments and both the size of order flows and profitabilities of these sales. And we did have some international orders from Germany that we expected to ship in late Q4 and that got delayed to Q1.

While we're operating with temporary supply constraints as we balance the increasing complex needs of our diverse customer base, importantly, the underlying fundamentals of our business remain very strong with continued strength of demand domestically in Canada and in our other international markets, which will enable us to continue to drive profitable growth in 2026 and beyond. As we noted in this morning's earnings call, we are expecting to return to sequential growth in international exports in Q1 and continue to expect that we'll begin shipping to multiple new jurisdictions over the course of the next several months. Biomass constraints are a proverbial good problem to have in our circumstances, and it's one we're well down the road of addressing with ongoing capacity expansion projects.

I'll now turn to some updates on these initiatives in Canada and the Netherlands. I'm pleased to report that our previously announced expansion of our Delta 2 facility remains on track and on budget. We actually began planting the first half of this expansion on March 2 and expect to start seeing early contributions of this additional capacity in late Q2. We expect to harvest an incremental 15 metric tons of production from this expansion during the remainder of this year, while we continue providing optimizing the second half of the expansion. Once we're operating at full capacity by mid-'27, the D2 expansion will provide an incremental 40 metric tons of annual production compared to fiscal year 2025, which represents an increase of approximately 33%.

In the Netherlands, our Phase 1 facility in Drachten continues to operate at full capacity with healthy gross margins even at limited scale, and we are also continuing to sell everything we produce. We are leveraging our experience in Canada to lead new product innovations and recently launched 10 new product offerings across multiple formats that are unique to this market. We are continuing to see strong pricing with participating coffee shops and believe we're well positioned to capture market share in premium product categories as our new Phase 2 capacity comes online. I will note that Q4 profitability in Netherlands was impacted by increased operating expenses as we've recently been adding headcount to prepare for the launch of our Phase 2 facility in Groningen, which I'm pleased to report is nearing completion and also remains on time and on budget.

We anticipate our first Groningen Phase 2 facility will be planted towards the end of this month with full capacity completion expected in Q2 as we put the finishing touches on some post-harvest and processing capabilities. The Groningen facility will ramp up to full capacity throughout the remainder of this year, at which point our total annual production capacity in the Netherlands will be approximately 10 metric tons. For comparative purposes, we harvested just under 2 tons from Drachten in fiscal year '25. Our capacity expansion products coming online in Canada and Netherlands will allow us to continue scaling profitably and increasing demand with and we believe the strength of our balance sheet will enable us to be opportunistic with respect to additional accretive organic and acquisitive growth investments in the future.

We funded the majority of our ongoing Canadian and Netherlands expansions from cash on hand, but we did recently amend and extend our Canadian credit facility with an incremental $15 million delayed draw term loan at an interest rate of just over 5%. We intend to utilize this incremental debt financing to make additional enhancements to our existing operations, beginning with an incremental $3 million investment to expand our EU-GMP capabilities throughout the remainder of this year. We ended the year with approximately $86 million in cash after completing a $3 million share repurchase during the fourth quarter, and we remain in an excellent position to continue creating value for shareholders and driving profitable growth in 2026 and beyond.

So I'll close the call with some final thoughts on priorities for '26, but now I'll turn the call over to Steve for his review of Q4 financials. Steve?

Thanks, Mike. As a reminder, as of May 30, the majority of our legacy produce assets were privatized and are now classified as discontinued operations. Reported financial results for comparative prior periods have been adjusted accordingly. I'll start with a review of our consolidated Q4 results and a reminder that comparable performance to the fourth quarter of last year reflects the impacts of a $10.5 million noncash impairment charge during Q4 of 2024 related to non-flower inventory purchased primarily from third parties that we determined did not meet our quality standards.

Consolidated net sales increased 9% to $49.6 million, driven by growth in our Canadian cannabis segment as well as the third full quarter of contributions of recreational cannabis sales from our Phase 1 facility in the Netherlands. Net income from continuing operations improved to $2.3 million or $0.02 per share compared with a net loss of $5.7 million or $0.04 per share in Q4 of last year. Consolidated adjusted EBITDA from continuing operations was $8.6 million compared to negative $2.9 million in Q4 of last year, resulting in an adjusted EBITDA margin of 17.3% in the quarter compared with a negative 6.4% in Q4 of last year, which was driven by the noncash inventory impairment I just referenced. Our cash flow from operations improved to $11.4 million compared to $10.9 million in Q4 of last year.

Turning now to our segmented results. I will start with Canadian cannabis, which I will discuss in Canadian dollars. Total net sales were $52.7 million for a 10% increase versus Q4 of last year. The year-on-year improvement was driven by the strong performance in our international medicinal exports, which increased 384% over Q4 of last year. For the year, Canadian cannabis net sales were up 12% to a record $228 million. Canadian retail branded sales for the fourth quarter were $55.6 million, essentially flat with the fourth quarter of last year and reflects both the realignment of our product portfolio to higher-margin SKUs as well as biomass constraints. As Mike noted, our retail branded sales in Q4 were impacted by a labor strike in BC, which we estimate negatively impacted our revenues by $2.5 million.

Canadian cannabis gross margin was 43%, up from 3% in Q4 of last year, which was impacted by the inventory impairment, reflecting a higher proportion of higher-margin international export sales as well as our focus on higher-margin SKUs in the retail branded channel in Canada. This drove a full year gross margin of 44% with both the fourth quarter and full year 2025 above the high end of our target range of 30% to 40%. SG&A as a percentage of sales was 22%, down from 28% last year as we continue to drive efficiencies throughout our Canadian cannabis operations. Q4 adjusted EBITDA from continuing operations for Canadian cannabis improved to $14.3 million from negative $9.1 million in Q4 of last year, resulting in an adjusted EBITDA margin of 27%. For the full year, adjusted EBITDA increased nearly $58 million to $67 million for an adjusted EBITDA margin of 29%.

Q4 cash flow from operations increased $24.8 million to $21.5 million. For the full year, cash flow from operations increased $61.4 million to $77.5 million. Finally, as we do each quarter, I will point out that in Q4, we paid Canadian excise taxes on our retail branded sales of $21.5 million, nearly 40% of retail branded sales and almost double our SG&A costs. I'd also like to discuss our Canadian income tax situation, which will impact our cash flow from operations in 2026. In 2025, we accrued Canadian income taxes of $16 million, which was paid as required in February 28 of this year. In prior years, we did not pay income tax due to carryover tax losses, all of which have now been utilized. I'll note that we are the only major Canadian cannabis LP in this position, which is a testament to the strength of our operating capabilities and strong stewardship of capital on behalf of our shareholders and a sign of a sustainable long-term profitable business platform.

Turning now to our recreational cannabis business in the Netherlands. Q4 saw our third full quarter of sales from our Netherlands operations. Sales were $3.3 million with adjusted EBITDA of $700,000, which, as Mike noted, includes a sequential increase in operating expenses compared to Q3 as we begun to ramp up staffing to support the launch of our Phase 2 facility. We continue to expect our Phase 2 facility to drive a substantial increase in revenue and EBITDA performance in the Netherlands during the second half of this year.

Turning now to our U.S. cannabis business. Q4 sales of $3.4 million continues to reflect the impact of various state actions and the ongoing proliferation of unregulated hemp products. Gross margin was down slightly year-over-year at 60%, resulting in a small negative adjusted EBITDA for the quarter. In our continuing produce operations, sales of $4.9 million were 21% lower than Q4 last year, reflecting the impacts of softer year-on-year pricing as well as the sales commission paid to our newly privatized produce business. In previous years, we were the exclusive sales agent for our produce as well as for others. Net loss from continuing produce operations was $1.6 million with adjusted EBITDA of negative $462,000. As a reminder, our produce operations moving forward will reflect contributions from our Delta 1 greenhouse as well as operating costs of our Monahans facility in Texas, which remains idle at this time. Our last tomato crop from the Delta 2 greenhouse was pulled in November to begin the conversion to cannabis.

Turning to consolidated cash flows and the balance sheet. Total cash flow from operations was $11.4 million for the fourth quarter, bringing the total for the year to $58.1 million. We ended Q4 with cash of approximately $86 million, which includes restricted cash of $5 million, putting us in a strong net cash position of $53 million. Our total debt at the end of Q4 was $34 million, and we remain very comfortable with our debt levels, inclusive of the incremental CAD 15 million delayed draw term loan that Mike mentioned earlier, of which we've drawn $5 million. Finally, we have been active with our share repurchase program that our Board approved at the end of September. As a reminder, the program provides for the purchase of up to just under 5 million common shares or 5% of our issued and outstanding shares as of the date of the announcement.

During Q4, we purchased just under 813,000 shares at an aggregate cost of $3 million. And we have continued the program activity into Q1 of 2026 with the repurchase of roughly 1.1 million shares at an aggregate cost of $3.7 million. Our management team and Board continue to believe this reflects a prudent and balanced approach to capital allocation to drive returns to our shareholders, and we expect to remain active in this regard in the near term.

I will now turn the call back to Mike for some closing comments.

Thanks, Steve. So in closing, 2025 was a watershed year for Village Farms as we steadily and successfully executed on our strategy to scale our global cannabis platform, generating not just record results, but a step function transformation in profitability and cash generation. Our performance in 2025 set a new baseline as we realize the benefits of our investments in capacity to continue transition demand growth into long-term sustainable growth in earnings and cash flow, and we are continuing to benefit from multiple catalysts in unlocking value for our stakeholders. Our focus remains on execution, but we are looking to the remainder of this year with a growth-oriented mindset. We are investing behind our proven teams with enhancement to our operating facilities, and we expect to maintain a balanced approach to capital allocation to deliver value for our shareholders.

We are continuing to capitalize on the opportunity to enhance shareholder value through our ongoing share repurchase program, we're also giving prudent consideration to incremental growth, accretive organic and acquisition growth investments. Our expanding global platform, combined with our strong balance sheet, industry-leading cost of capital and incredibly talented global team, we believe we're well positioned for continued success in 2026 and beyond.

With that, Liz, we're now ready to open the call for questions.

[Operator Instructions]

Our first question comes from Frederico Gomes with ATB Capital Markets.

My first question is regarding your share repurchases. I guess from a capital allocation standpoint, what does that tell investors in regards to how you view your current valuation and the trajectory of the business as well as the opportunities you see for maybe additional investments in the business and M&A?

Well, the business always comes first, but we were very confident in the cash generation that we just reported and going forward. So we felt it's not going to -- the amount of share repurchase that was approved by our Board of $10 million is not going to meaningfully impact running the business or any opportunities we see for both internal investment or growth. So we've taken a balanced approach. We are always concerned with shareholder value. And at the time and currently, we thought it was prudent. So we have no necessarily plans at this point for more once this goes, but we'll reevaluate it as we execute going forward.

I appreciate that. And then my second question is on Germany. So we saw, I guess, a sequential decline in import volumes in Q4 for that market according to the data from there. So I think that was impacted by some issues in Portugal and maybe the quota permits. But in terms of the growth and the demand coming from that market, I mean, is there -- should investors be worried about growth there? Or are you continuing to see that increasing and import volumes there increasing for that market?

Fred, it's Ann. Thanks for the question. So you're right, the official stats are that German imports fell 4% and Canadian imports were down 11%. And you're right that there was regulatory uncertainty, and we think that, that caused pharmacies, distributors and importers to lower their inventories. But we are seeing that those concerns have since abated and we expect to return to growth in Q1. Also notably, we had -- and as Mike noted, we had some orders in Q4 that got delayed to Q1. And just to give you context, if those hadn't been pushed, our performance in Q4 in Germany would have outperformed the market's performance. So just a caution that the nature of the export market means that there's going to be variability, but we are continuing to experience increasing demand as regulators in Germany have now started to apply more stringent restrictions on the quality and routes to market. And frankly, that's where our model shines.

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

Thanks for the commentary there and in terms of quantifying some of the shipment order delays. I want to kind of carry on from that in terms of some of the capacity constraints that you touched on and some of the near-term variability. We understand the appeal of prioritizing international markets for the incremental capacity that we expect to come online with Delta 2 ramping up. But I just want to get some further color in terms of how you look to utilize that capacity for international versus Canada. Is it still fair to say that predominantly most of that will be for international? And could you talk about the lens of how you're looking to maybe see Canadian market share aspirations as you might be utilizing more of the incremental capacity for international?

Well, Aaron, first, let me just clarify. I mean, Canada is first and foremost, that's our initial market. We're balancing all the time the demand we have from international and meeting our commitments in Canada. And I think we're doing a very good job of that, but it could have some variability month-to-month, but that's why we're making tremendous investments in additional capacity. And keep in mind that there's no stopping capacity in our footprint in Canada with current assets. So that's what we are measuring all the time. But I would not say international is priority of Canada. They're equal.

Aaron, just a couple of things to add. We did regain our #1 flower share position in January. And we expect that to be something you'll continue to see in 2026. We had several significant restocks during Q4 and new launches in Q4, which are starting to show up in Q1. And then with respect to our 3 primary brands, Pure Sunfarms brand grew share of dried flower for 12 consecutive months in 2025, and that was a sequential growth. It also -- our Fraser Valley brand grew share of dried flower consecutively between January and September. That short-term supply constraint did kick in for that brand in October, but it recovered by December. And then finally, in our convenience category, we've had a very successful launch of Super Toast liquid diamonds, 510 vapes in Q4, and the team is constantly posting updates on the success of that basis point by basis point in market share.

Yes. And one final point is for Canada and International with current assets, we have the capability of more than doubling our 2027 forecast where I mentioned the 40 additional metric tons in 2027.

Okay. That's really helpful color in terms of how you're looking to prioritize both markets there. Second question for me, just kind of going back to some of the Village Farms' grassroots, talking about cultivation costs. I know you stopped disclosing cost per gram a while back, but it'd be great to get some color in terms of initiatives that you have to further lower the cost of production, potentially leveraging innovation that exists in the broader produce segments, like I know you spoke to in the past. And then also potentially touching on expected savings from leveraging costs with the second half of Delta 2 facility coming online.

Well, we're not going to get into the specifics, obviously, but we continue to improve our cost, let's just say that. And we're very pleased with continuing reduction in cost. So when I touched on my comment, you have to look at the cost really over a full year. There is some seasonality low light, higher light, so on and so forth. But on an annual basis, we continue to drive those costs lower, just like Steve mentioned on SG&A as well. So in fact, I would say it's exceeding the target of cost improvement in the company today.

That concludes today's question-and-answer session. I'd like to turn the call back to Mr. DeGiglio for closing remarks.

Okay. I want to thank everyone for joining us today. It was a great year in 2025, and we look forward that it would just be a short amount of time before we be reporting our first quarter and look forward to that date in early May. Thank you, operator.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good morning, ladies and gentlemen. Welcome to Village Farms International Third Quarter 2025 Financial Results Conference Call.

This morning, Village Farms issued a news release reporting its financial results for the third quarter ended September 30, 2025. That news release, along with the company's financial statements, are available on the company's website at villagefarms.com under the Investors 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 completion of the call. Details of how to access the replays are available in today'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 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. A summary of these underlying assumptions, risks and uncertainties is contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10-K MD&A for the year ended December 31, 2024, and 10-Q for the quarter ended September 30, 2025, which will be available on EDGAR and SEDAR+. These forward-looking statements are made of today's date, and except as required by applicable securities laws, 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.

Thank you, Sherry. Good morning, everyone, and thank you for joining us today. With me on the call are Steve Ruffini, our Chief Financial Officer; and Gillin Lefever, our Chief Operating Officer; Patti Smith, our Corporate Controller; and Sam Gibbons, Senior Vice President of Corporate Affairs. I'll begin with a review of highlights from the third quarter, then Steve will review the financials in more detail before I provide some last closing comments.

As we discussed in this morning's earnings release, our third quarter was another one of many records for Village Farms. Our last quarter's call, we talked about our confidence in the sustainability of the positive trends we were seeing across the business as we continue executing and scaling a profitable global enterprise. Today's results, only 3 months later, validate the expectations we discussed, and we remain confident that our competitive strengths, combined with the incremental growth catalysts we see on horizon, position us for a very strong future.

Consolidated net sales increased 21% year-over-year in Q3, and net income from continuing operations was $10.8 million or $0.09 a share, an increase of almost 10% sequentially compared to the record we set last quarter. For the second consecutive quarter, we also achieved new records for adjusted EBITDA and adjusted EBITDA margin from continuing operations of $20.7 million and 31% of sales. And we continue to see excellent cash conversion with consolidated cash flow from operations of $24.4 million, another record for Village Farms. Our Canadian cannabis business delivered 29% year-over-year growth in net sales, reaching a new high of $64.1 million in Q3, driven by strong performance in our targeted channels, improving sales mix, which has led to higher average pricing and continued momentum in the international medical export division, which we were up more than 750% year-over-year.

What is enabling us to deliver these levels of performance? Well, we believe it comes from 3 critical factors. First is our capabilities as a premier provider of quality and consistent cannabis flower at scale and at the lowest cost. Second is our commitment to manufacturing excellence and our EU GMP capabilities. And finally, it's a tremendous execution of our global team. Our execution on all fronts has been paramount to our success and all the Village Farms team members are worthy of considerable praise. Canadian cannabis retail sales were in line with our expectations with stronger contribution margin from retail branded sales in Q3, driven by our recent success in aligning our product portfolio towards higher margin SKUs.

As a reminder, we first began discussing our plan to realign our product offerings towards the end of last year as our analysis and consumer feedback suggest that the quality of our flower should command a higher price point. Since that time, we've observed significant improvements in profitability and because of our deliberate move away from some value-oriented tiers of the market and our core Pure Sunfarms brand has experienced steady growth in market share since last December. We're pleased to be seeing relative stability in overall share performance as we begin to anniversary the implementation of these changes, and we're looking forward to benefiting from expanded production capacity next year, which will enable us to continue supporting growth in the Canadian market.

Our non-branded wholesale channel in Canada continued to show consistent top line performance as we've observed the past 7 quarters. And as mentioned previously, our international medical business continued to expand rapidly during the third quarter with over 750% sales growth year-over-year. Germany continues to be a driver of increasing international demand, and we believe we've expanded market share sequentially in this market during each of the past 4 quarters.

Based on local government data and internal estimates, we believe Village Farms is now the largest exporter of medical cannabis to Europe and that we're well positioned long term to continue expanding into new markets as additional countries around the world embrace the many benefits of regulated cannabis. I also want to make clear that our international business did not experience any disruptions to deliveries or order flow during the third quarter. And in fact, the German government recently increased its import limit of medical cannabis by an additional 70 metric tons. As a reminder, our Delta, British Columbia facility has been EU GMP certified since 2022. This certification was recently renewed, which underscores our rigorous commitment to our operational excellence and enables us to ship directly to partners across the world who are seeking GMP flower. We have never shipped through Portugal, having identified this as a compliance and supply chain risk some time ago.

Our consistent product quality, potency and reliability of on-time delivery of our products continues to differentiate Village Farms from our competitors on the global stage, and we expect to expand to multiple new international jurisdictions during the first half of next year. As a reminder to investors who may be new to our story, we are only using approximately 35% of our nearly 5 million square feet of advanced greenhouses in Canada for cannabis production today. We have proven our playbook in scaling our Delta, BC production campus, partly thanks to our nearly 40-year track record in highly intensive agriculture. And we have a strong labor force that knows how to execute and operate these facilities efficiently.

To support continued growth in Canada and abroad, the 40 metric ton capacity expansion project we announced last quarter is now underway, and we anticipate it will increase our annual production capacity in Canada by approximately 33%. The incremental capacity is expected to begin coming online in Q2 of next year and be fully ramped in early 2027. At that time, 45% of our greenhouse capacity in Canada will be in full cannabis production, leaving our largest 60-acre Delta 1 greenhouse facility available for future phased conversion to cannabis beginning as early as 2027, if we deem necessary. As many of you know, increasing global demand for cannabis has currently resulted in a relatively supply-constrained environment in the domestic Canadian market for much of the past year. These dynamics have supported an improved pricing environment in Canada. And along with improvements in our operating efficiency helped us achieve record gross margin with improved profitability in all our various sales channels during the third quarter.

Canadian cannabis gross margin of 56% was above the high-end of our targeted range due to a variety of factors, which Steve will discuss momentarily. Our Q3 sales growth, improved gross margin performance and continued cost discipline resulted in a 309% increase in adjusted EBITDA in Canadian cannabis to $19.3 million or 41% of sales. We believe this sets an all-time quarterly record in profitability from continuing operations of any public Canadian cannabis company.

In the Netherlands, our first facility in Drachten reached full production capacity during Q3 and sales increased 44% sequentially with healthy profitability and cash generation. We also expanded our market penetration in coffee shops sequentially with our products now in 91% of participating coffee shops, and we are continuing to introduce new products, including several hash offerings and pre-rolls that we anticipate will enjoy popularity in one of the world's most famed cannabis markets.

Construction of our second and large Dutch facility, which will increase our total production capacity in the Netherlands fivefold is progressing on schedule and remains on track to begin operating in late Q1 of next year. We have been increasing headcount in the Netherlands during the fall to prepare for this expansion, and we anticipate incremental operating expenses at Leli Holland over the course of the next few quarters to support this growth. However, as the Phase 2 facility comes online through the first half of next year, we expect our Netherlands business to be a strong driver of revenue growth for us in 2026 and to help us maintain relative strength in our overall margin performance as compared to a majority of our public cannabis company peers.

In our produce business, sales were roughly flat after accounting for sales commissions paid to Vanguard Foods LP. Our ongoing produce segment is now comprised almost entirely of our Delta 1 greenhouse operations, which historically has generated positive net income and cash flow and can still be converted to a cannabis facility in the future. Our second and third quarters will always be our seasonally strongest quarters for produce. Net income improved more than fourfold in Q3 to $1.3 million and adjusted EBITDA improved nearly 50% to $2.5 million from $1.7 million.

Our U.S. Cannabis and Clean Energy segments also performed in line with our expectations during the quarter. We are pleased with the incremental net income that Clean Energy contributes to the company, and we continue to believe that these segments, despite being small portions of our business today, there is meaningful potential for both of these businesses to provide investors with additional upside, which we further believe differentiates Village Farms as an attractive investment opportunity.

As a reminder, for anyone new to our story, we still have certain greenhouse assets in West Texas that we believe offer us a clear opportunity to replicate our success in Canada if and when U.S. regulations allow. Finally, as noted on this morning's earnings call, we closed the quarter with approximately $88 million in cash on our balance sheet, reflecting an increase of nearly $23 million since the end of Q2, following another quarter of strong free cash flow generation.

Finally, our significantly improved cash flow generation profile and balance sheet strength gave our Board of Directors confidence to implement a share repurchase program at the end of September as part of our balanced approach to capital allocation to drive shareholder returns. We believe we are in an excellent position to continue growing and investing behind our business, and we see significant opportunities for us to continue profitably scaling our global cannabis enterprise in 2026 and beyond.

I'll turn the call over to Steve to review the financials now. Steve?

Thanks, Mike. As a reminder, as of May 30, some of our produce assets were privatized and are now classified as discontinued operations. Reported financial results for comparative prior periods have been adjusted accordingly. I'll start with a review of our consolidated results. Consolidated net sales increased 21% to $66.7 million, driven by growth in our Canadian cannabis segment as well as the second full quarter of contribution from our recreational cannabis sales in the Netherlands.

Net income from continuing operations improved to $10.8 million or $0.09 per share compared to a net loss of $800,000 or $0.01 per share in Q3 of last year. Consolidated adjusted EBITDA from continuing operations was $20.7 million compared with $4.7 million in Q3 of last year, resulting in adjusted EBITDA margin of 31% in the quarter compared to 8.5% in Q3 of last year. Our cash flow from operations improved to $24.4 million compared with $6.1 million in Q3 of last year.

Turning now to our segmented results. I will start with Canadian cannabis, which I will discuss in Canadian dollars for comparative purposes. Total net sales were CAD 64.1 million for a 29% increase versus Q3 last year. The year-on-year improvement was driven by strong performances in our targeted channels, improved pricing and continued momentum in our international medical exports, which increased 758% from Q3 last year to CAD 16.3 million.

Canadian retail branded sales were CAD 37 million, in line with our expectations following the realignment of our product portfolio to higher-margin SKUs. Canadian cannabis gross margin was 56%, up from 26% in Q3 last year and well above the high-end of our target range of 30% to 40%. As Mike mentioned earlier, our improved gross margin was helped by favorable pricing as compared to the prior year, and we also benefited from increased international export sales, lower packaging inputs, improved productivity and higher crop yields during the past summer growing season.

SG&A expenses as a percentage of sales were 20%, an improvement of 22% last year as we continue to drive efficiencies throughout our Canadian cannabis operations. Q3 adjusted EBITDA for Canadian cannabis improved 309% year-over-year to our strongest performance ever at CAD 26.6 million, resulting in an adjusted EBITDA margin of 41%, which was more than triple the 13% of last year. Cash flow from operations increased 339% to CAD 26.8 million, our strongest quarter of operating cash flow since we expanded into Canadian cannabis in 2017. Finally, as we do each quarter, I will point out that in Q3, we paid Canadian excise taxes on our retail branded sales of CAD 21.6 million, nearly 40% of retail branded sales and almost double our SG&A costs.

Turning now to our recreational cannabis business in the Netherlands. Q3 saw our second full quarter of sales from our Leli Holland operations. Sales were $3.6 million with adjusted EBITDA of $1.3 million, both meaningful increases quarter-over-quarter and firmly in line with our expectations. With our Phase 1 facility now operating at full capacity, we expect our Netherlands sales performance in Q4 to be similar to Q3, although with increased operating expenses, which Mike mentioned, will be rising into Q1 as we get ahead of our larger Phase 2 facility.

Turning now to our U.S. Cannabis business. Q3 sales of $3.3 million continues to reflect the impact of various state actions dealing with the ongoing proliferation of unregulated hemp products. Gross margin was down slightly year-over-year at 60%, resulting in a small negative adjusted EBITDA for the quarter. Having stabilized this business amidst strong regulatory headwinds, we are working on a number of initiatives to invigorate sales of our responsible GMP-produced natural hemp products. In our continuing produce operations, sales decreased 10% year-over-year to $12.8 million, although this is a result of incurring a sales commission in 2025 to our privatized produce business.

In previous years, we were the exclusive sales agent for our produce as well as for others. However, our net income from continuing operations was up $1 million to $1.3 million with our adjusted EBITDA margin improving to $2.5 million. I will remind investors that our produce operations in Q3 and through the remainder of this year reflect contributions from our Delta 1 greenhouse and half of our Delta 2 greenhouse. The Delta 2 tomato crop is being pulled this week for us to commence the conversion to cannabis production. which will bring our total operational square footage of cannabis production in Delta to 2.2 million square feet.

Turning to consolidated cash flows and the balance sheet. Total cash flow from operations was $46.7 million through the first 9 months of the year. We ended Q3 with cash of nearly $88 million, which includes restricted cash of $5 million with a net cash position of $53 million. Our total debt at the end of Q3 was $35 million. As noted in our 10-Q this morning, in August, we paid down $3 million of U.S. term debt as part of the produce privatization transaction. We had a blended borrowing rate of approximately 6.5% at the end of the quarter with additional debt capacity as we evaluate the most efficient ways to fund our growth. Our healthy cash flow and strengthening balance sheet will enable us to continue supporting future expansion projects.

And as Mike mentioned, we'll also support the $10 million share repurchase program that our Board approved at the end of September. The program provides for the purchase of up to just under 5.7 million common shares or 5% of our issued and outstanding shares as of the date of the announcement. Our management team and Board believe this reflects a prudent and balanced approach to capital allocation to drive returns to shareholders.

I'll now turn the call back to Mike for some closing comments.

Well, thank you, Steve. And thanks and congratulations to all the Village team members around the world whose hard work, tenacity and integrity are continuing to raise the bar for ourselves and our industry. In addition to delivering record profitability in the Canadian cannabis industry, our performance this quarter also surpasses the profitability of any U.S. operators who have reported thus far in this current earnings season. Village Farms is now one of the most profitable cannabis businesses on planet Earth, and we remain highly motivated to exceed our own expectations.

We are growing our business organically, funding our growth with our own cash generated from operations, and we believe we still have a considerable amount of future organic growth catalysts on our horizon. We are confident in our ability to continue driving growth in revenue and EBITDA, supported by our proven operational and manufacturing expertise, our culture of cost discipline and continuous improvement and of course, through the continued excellence and leadership of our people. I'm incredibly proud of all the progress our teams have made together this year and know that we are all looking forward to another strong year of growth in 2026.

Operator, that concludes our prepared remarks, and we'll take questions now.

[Operator Instructions] And our first question will come from the line of Aaron Grey with Alliance Global Partners.

Congrats on the strong quarter here. First question for me, I want to talk a bit about cannabis gross margin, 56%. You talked about some of the year-over-year improvement, but I want to talk even sequentially, right, some very strong improvement. So some of the drivers you saw there, when we think about international mix, it's pretty similar quarter-over-quarter, but still saw some pretty meaningful expansion there. So was there some improvements in pricing and mix within international? Was it some of the more meaningful operating efficiency? So just some of the specific drivers in terms of some of the sequential trends there? And then how best to think about that gross margin going forward and how sustainable gross margins more close to these levels are?

Thanks, Aaron. So overall, we had improved efficiency. One of our DNA KPIs is continuous improvement on cost and efficiency. So that improved efficiency and productivity. We had higher crop yields we normally do in the summer than the winter. Favorable pricing, as I mentioned, compared to the prior year tied to mostly a function of SKU mix, which I mentioned on the call, lower packaging inputs and improved margins and of course, international export, which has solid margins. Those were key drivers to those results. Ann, do you want to add some color?

I think you covered it.

As far as gross margin, as we said, our sweet spot is always 30% to 40% because you have to look long term. There's always different ebb and flows in the market, but we are always trying to exceed that, but we're not really changing that guidance between 30% and 40%. This was a strong quarter for us, and we're certainly take it. And we're going to always strive to exceed, but we're going to stick to those -- that sweet spot we mentioned consistently over the last few years.

Okay. Great. Appreciate that. And then on the international front, more thinking about the top line. Can you mention in terms of the competitive environment, maybe some -- you mentioned that you haven't had as many issues, but have some of the supply challenges from some of your peers you're hearing about or some of the quality issues, has that provided you more of an opportunity to take meaningful share gains within the past 2 quarters? And it seems like you think that's pretty sustainable over the near-to-medium term with second half of Delta 2 coming online and even some emphasis to potential for Delta 1 coming online in 2027. So maybe talking about some of the dynamics you're seeing internationally and what's making you so constructive at least in the near-to-medium term for some continued opportunities there?

Yes. Well, I think it's still a nascent industry. I mean, when I look at the cannabis business 10 or 15 years from now, it's going to be interesting to see how it segments from commercial side, innovation side to cultivation. But at this stage, cultivation rules. I mean, at the end of the day, you have to be able to consistently perform super high quality every single day. And we always strive to do that at the lowest possible cost. Our original business model was based on that, and the team is executing.

So without having consistent, solid, good quality, nothing else really matters. That coupled with EU GMP, the team has executed brilliantly. We had a renewal after our first 3 years with flying colors, and we're actually expanding that whole EU GMP processing side for the future. And then coupled with -- it's not so much, as I said in my comments, 1, 2, 3, you have to have all 3. It's sort of like a 3-legged stool. If one of those legs fall off, you topple over. And the final one is the execution of the team, both on the commercial and international side and on the cultivation manufacturing side. And I think that's what we've communicated from day 1 when we got into cannabis, and it's a matter of how well you can execute.

Our next question will come from the line of Frederico Gomes with ATB Capital Markets.

Congrats on the outstanding quarter here. First question on the Netherlands, very strong performance in adjusted EBITDA there. So I guess just 2 questions there. One is gross margin declined a bit sequentially. So could you talk about what drove that decline, if it's related to mix or investment or something else? And then second question on the Netherlands as well. I know that you have a 30% to 40% gross margin target for Canadian cannabis, but I'm curious about if you have the same sort of target for the Netherlands long-term?

Yes, we absolutely have the same goals on the gross margin long term for the Netherlands. It's a start-up. I mean we just started producing in the end of the first, second quarter. So when you really look at some of the competitors and taking years, if not decades, to ramp up their business, I think we've done pretty well within the first year. It hasn't even been a year of cultivation. So you'll definitely see some lumpiness as we get stable going forward. So I think that shouldn't reflect that we're coming off on gross margin in any given quarter over the long term.

And then second question on Germany. you mentioned you gained market share sequentially there in each of the past 4 quarters. So could you provide maybe a number in terms of where you think your market share is right now and whether you think that market share momentum is going to continue in terms of gaining share sequentially over the next few quarters?

Well, I'm never going to -- first of all, we're not putting out what we think the market share is, but I wouldn't be surprised if we're #1 in whatever that market share number is. And the reason I don't want to comment it is because there really are no clear statistics as of yet. So I would be just surmising it at this point. But I believe we're by far the #1 market share in Germany.

And I think for the reasons I mentioned earlier and in my remarks to answer Aaron's question as well. I think that we took an approach in let's control what we can control. And that's where we believe we differentiate ourselves. We didn't look at Portugal. We thought Portugal was a risk and a liability, both in supply chain and regulatory side. So we just built our business for Europe based on our own production, our own people direct to our customers. And I think that seems to be a winning formula at this point in time. And I believe the German market is going to continue to grow as well going forward.

One moment for our next question and that will come from the line of Pablo Zuanic with Zuanic & Associates.

Look, my question is really a 3-part question on Texas. I mean, obviously, in my interpretation, the regulatory changes in the medical program there are quite favorable, especially for the 3 incumbents there, right? There may be 15 more licenses issued, but there will be a bit of a lag, a time lag for those new licenses, not even clear when they will be issued. So I just want to have a sense of how aggressive is Village Farms willing to be in Texas in terms of M&A activity? And what could that mean for your NASDAQ listing? How would you think about that? Because when we look at cannabis growth of SNDL, it seems that other companies have not been willing to give up their NASDAQ listing. But what can you say publicly on this topic?

Pablo, I'm going to first let Steve answer a couple of the first points on Texas, and then we can kind of come back to some others. So regarding the Republic of Texas, Steve, comments?

Yes. We're certainly anticipating and excited and understand that the Department of Public Safety is still online to issue its licenses on December 1st. So we should hopefully know something, but --

That would be 12 additional, not --

Yes, 12 additional. So we'll see if they keep on their time line. We've heard nothing to the contrary of that. Texas has improved its medicinal definition and expanded the illnesses that can access the system. That being said, it's not quite as open as something like Florida, but we are certainly excited about the opportunity.

Yes. And I think regarding NASDAQ, we feel very confident that we can find a suitable structure going forward. We've been working on that for a couple of years. So when and if we'll probably move forward, but we're not going to jeopardize at any time on NASDAQ listing, Pablo.

Okay. Understood. And then the second question, just regarding Quebec, the province of Quebec, I think you've said in the past, it's about 40% of your revenues. I don't know if it's 40% of your Canadian domestic earnings on the cannabis side but there's been some regulatory changes there. Vape is allowed now. I think there were other regulatory changes on caps, maybe more stores. What's your outlook for Quebec province and how are you positioned to benefit? And if you can correct me if I'm wrong in terms of the percent -- the relevance of Quebec to your business on the recreational side?

Pablo, it's Ann. Quebec is very important, but your number is on the high side. It's not 40% of total cannabis. We've traditionally been a little bit higher than the spread of revenue across provinces, just to give you some sense of that. There are some changes coming. Vape is one of the big changes. We think the SQDC has done a great job of assessing where they're not able to grab the lid or legacy market share, and this is going to be a big form factor to move into the private market -- sorry, the legal market and we are participating in that as we go forward.

Look, I'm going to ask -- I have a third one. I know it's only 2, but let me break the rule this one time. On the Dutch side, I know that there's 10 licensees on the production side, but it seems that not all of them are up and running. Some of them have had problems. It seems that you are one of the few that's actually expanding capacity, in this case, about 5x. So it seems that you're in a very good position, right? And there are other people that maybe started first are in a weaker position now. Do you want to comment on the competitive landscape on the production side in Holland right now?

Sure. Well, I think 8 are in production, 2 more will be coming on in the next quarter or so. I think of the 10, 1 will probably be more of a light-asset model. There are issues with others, quite a few that I've heard of but that can always be an opportunity for us. But we're very focused on getting -- as I said, this next facility will increase our capacity fivefold. So our focus is getting it up and running, crawl, walk, run. And then we'll see what opportunities lie ahead. And we're very excited about those opportunities in the future in the Netherlands for us as well, Pablo.

I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. DeGiglio for any closing remarks. Thank you.

Okay. Thank you again for joining us today, and we hope you have a wonderful holiday season. We look forward to our next update for year-end in March and wishing everybody a happy new year as well. Thank you, operator.

This concludes today's program. Thank you all for participating. You may now disconnect.