Village Farms International, Inc. Aktie

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.

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

This morning, Village Farms issued a news release reporting its financial results for the second quarter ended June 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 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 June 30, 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.

Well, thank you, [ Tanya ]. And good morning, and thank you for joining us today. With me are Steve Ruffini, our Chief Financial Officer; Ann Gillin Lefever, our Chief Operating Officer; Patti Smith of Corporate Controller; and [ San Gibbens ], Senior Vice President, Corporate Affairs. I'll begin with a brief summary of recent events and our second quarter highlights, and then I'll hand the call over to Steve before some last closing comments.

The second quarter was transformational. It was a transformational quarter for Village Farms, just to be clear, operationally and financially, with record levels of profitability that demonstrate the improving earnings power of our business and continued success in scaling a profitable global cannabis enterprise.

During the quarter, we announced and then quickly closed the transaction to privatize about 1/3 of our [indiscernible] assets and operations through the formation of a new partnership with [ Proven Private Investment Partners ]. Most on this call are familiar with the details of the new [ Vanguard ] partnership, and they are available in our various communications and filings, so I won't repeat them here. But I do want to take the opportunity to reiterate what all this means for Village Farms. Our future prospects, our partners and team members, and of course our shareholders.

First, we believe we have dramatically improved the long-term upside potential of our 36-year legacy in the [ produce ] industry. As a private company with access to significant financial resources that will add additional acquisitions in the future. Our commitment and experienced partners have created significant value for their shareholders in the past, and we are positioned to participate in this renewed opportunity through our near 38% equity ownership interest.

Second, we believe Village Farms has transformed into one of the most attractive platforms for revenue growth and margin expansion across the global cannabis industry. With proven operational capabilities we can now focus on our various cannabis opportunities around the world.

Third, the transaction generated $40 million in cash proceeds further strengthening our balance sheet, which along with our improving cash flow generation profile, we will support additional growth investments across the platform.

And finally, our shareholders and prospective investors can now see the improving earnings potential of our remaining global cannabis business, which significantly improved forward visibility into our financial performance that is evident in our second quarter results.

Before I get into the second quarter highlights, I want to make clear that the strength of our Q2 performance is not simply a result of us privatizing our produce business. The closing of that transaction has happened to coincide with several other powerful catalysts, including our recent commencement of sales in [ Holland's adult-use ] market, success of recent initiatives to align our product portfolio in Canada towards higher-margin SKUs. And finally, a continuing wave of additional countries around the world following Canada's lead with pragmatic approaches to regulating cannabis.

All of these events are coinciding with near impeccable timing. Yet it is the competitive strengths we've established over 36 years in controlled environmental agriculture that we are leveraging to deliver as one of the world's largest and most trusted scaled cannabis operators.

So now I'll shift to a review of our second quarter highlights, which I'll focus on our performance from continuing operations, excluding the impact of the gain of our sale of produce assets during the quarter. As we disclosed in this morning's press release, second quarter results reflected record levels of profitability for the company. And not just records since we expanded the cannabis in 2017, but record performance in our near 20-year history as a publicly traded company.

While consolidated sales increased 12% year-over-year, consolidated net income from continuing operations improved to $9.9 million, or $0.09 per share. Adjusted EBITDA from continuing operations was $17.1 million, or roughly 29% of sales, both of which reflect record performance and improved sustainability from Q2 of last year. And adjusted EBITDA margin was up over 2,300 basis points.

In our flagship market and Canadian cannabis business, retail branded sales in Q2 were in line with our expectations given our planned reduction in several low-margin domestic SKUs. We are not yet seeing the types of price increases that one might expect given the changing supply dynamic in the retail market, but we have been pleased to see stronger contribution margin from our retail branded sales in Q2, which demonstrates the success of our recent margin improvement initiatives.

In our wholesale channel, we continue to be optimistic in the contents of our focus on profitable sales. Q2 wholesale sales were consistent with the levels of last year or so. However, gross margin on these sales were up significantly on a year-over-year basis as we believe supply and demand dynamics are driving more favorable outcomes in the wholesale channel.

These dynamics resulted in another quarter of improvement in overall Canadian cannabis gross margin, which was at the top of our target range at 39%, and our best quarterly gross margin in 3 years. We now delivered 2 consecutive quarters of gross margin within the targeted 30% to 40% range, and we are optimistic about our ability to sustain gross margin at the upper end of this range for the foreseeable future.

Continued growth in Q2 was driven mainly by the successful execution of our international growth strategy. International exports increased almost 700% year-over-year and we're up over 120% sequentially from the first quarter. We have proven that our international model works, and we are now scaling it with purpose and precision. At just the halfway point of the year, we have achieved our full year target of tripling our 2024 international export sales. And given continued strength in the third quarter, we expect similar levels of sales through the remainder of this year as compared to the first half. International prescribers and [ patients ] are constantly choosing our [ flower ] and we are seeing a strong preference for many of the strains that have been our most successful in Canada.

During Q2, we increased deliveries to existing customers and also onboarded several new partners. Most of this growth is being driven by continued strength of demand from Germany, along with further increases in the U.K., and steady performance across our other markets. Despite recent headlines about Germany's proposed telemedicine reforms potentially limiting growth, our sales in Germany [ are the partners ] operating within the traditional pharmacy network, and we do not currently work with any telemedicine platforms. We have not experienced any impact to existing patients, or disruption, with our pharmacy model customers and distributors.

I would also note that recent measures in Portugal to implement more stringent standards are also not impacting our business. We have been pleased to see more effective enforcement due to ensure product quality coming through this channel into Europe, which has contributed to our improving position as one of the world's premium providers of consistent and trusted sources of quality product.

Operational integrity and adherence to import standards are core to our success internationally. And I'm pleased to also report that we -- past our recertification inspection in July for [ GACP ] and certification inspection against [indiscernible] medical cannabis good agricultural practice requirements. These are in addition to our EU GMP certification and will enable us to continue exporting bulk flower to Israel, and continue to provide additional GACP flower and GMP finished products to international customers.

We also benefit from our first quarter of recreational cannabis sales in the Netherlands, where we are seeing strong momentum as our Phase 1 facility has begun to reach its full operational capacity. We now have product in 66 of the 80 participating coffee shops, reflecting a market penetration of 82.5%, and we are consistently hearing that our flowers are earning preference with such consumers.

The Holland market will be an incredibly exciting one for the company, where new opportunities will emerge. The [ realms ] of product innovation and consumer experience in coffee shops with a rich history of legacy in the cannabis industry. We are pleased to have the opportunity to participate in this dynamic market and look forward to launching additional products during the second half of the year, beginning with the launch of our hash offerings during the third quarter.

We are also making steady progress on our state-of-the-art Phase 2 facility in the Netherlands, which we expect to be operational during the first quarter of next year, and will quadruple our annual production capacity, helping drive continued profitability growth in '26 and beyond. We'd like to thank all of our global business partners with the continued trust and support of Village Farms. We are looking forward to continued success together in the years ahead.

So given the improving performance of our business, increasing demand in Canada, and from international partners, our strong cash position, we announced last week that our Board of Directors has unanimously approved the conversion of the remaining 550,000 square feet of our Delta 2 greenhouse in British Columbia to cannabis cultivation. This equates to about 40 additional metric tons of annual production once fully ramped. And as we always have, we will continue to prudently monitor demand as we onboard new supply, and carefully match our allocation of inventory with profitable sales.

Physical conversion is expected to begin in November this year, with the first planning of new grow rooms expected this coming spring. The additional capacity will come online in phases with a target for the full 550,000 square feet to be in full production by the first quarter of 2027. The total investment for this expansion project is expected to be approximately CAD 10 million, and will be funded through cash on hand and ongoing operational cash flows, and will be incurred mainly in 2026.

Given the improving profitability profile of our business, and our visibility into continued strength of demand from our international partners, as well as improving supply and demand dynamics in Canada, we believe this expansion will provide a substantial return on our investment. In stark contrast to the majority of our peers, our team has a proven track record of consistently matching our supply with demand from both our Canadian and international customers. And given our prudent and disciplined approach to CapEx, there is [ no ] clear indication of our confidence in the future of our cannabis business than our decision to make this investment.

We have always taken a crawl, walk, run approach to scaling our business. Our facilities and grow rooms have been designed to vary production capacity relatively quickly. We have also always enjoyed a strategic advantage of already owning our advanced greenhouse assets in the United States and Canada through our legacy in the produce business. This has helped us be more efficient with our capital than many operators who build their facilities from scratch. And we've also benefited from having an existing labor force in our greenhouses, which has been another important strategic advantage that limits execution risk when we convert additional growing space to cannabis.

So in summary, we are growing organically, profitably and generating positive free cash flow, and the strength of our balance sheet and asset portfolio is enabling us to make additional growth investments that we believe will drive strong returns for shareholders.

So this concludes my initial prepared remarks, and I'll turn the call over to Steve to review financials before I make some closing remarks. Steve?

Thanks, Mike. With the produce privatization transaction closing on May 30, some of our produce assets were privatized and are now classified as discontinued operations. The reported financial results for comparative prior periods have been adjusted accordingly. Our ongoing investment in the new produce partnership is recorded as an investment on our balance sheet, and the operational results of the [ Produce ] partnership are not included in our financial results.

We recorded a gain on the sale of these produce assets net of tax of $19.1 million during the quarter. Results from continuing operations are composed of our cannabis and clean energy businesses, neither of which changed following the transaction, as well as the results of our Canadian produce operations that we retained.

I'll start with a review of our consolidated results. Consolidated net sales increased 12% to $59.9 million, mainly due to growth in our Canadian cannabis segment, and the first full quarter of sales from our recreational cannabis sales in the Netherlands. The increase in sales was matched by improved profitability across all segments.

On the continuing operations basis, net income improved to $19.9 million, or $0.09 per share, compared to a net loss of $16.6 million, or $0.15 per share in Q2 of last year. Consolidated adjusted EBITDA from continuing operations, excluding our gain on sale, was $17.1 million, compared with $2.9 million in Q2 of last year. Our adjusted EBITDA margin of 28.6% of sales, compared to 5.4% of sales in Q2 of last year, which, as Mike mentioned, is a record performance for the company.

Turning now to our cannabis businesses. I will start with our Canadian Cannabis segment, which I will discuss in Canadian dollars for comparative purposes. Total net sales were [ $51.4 million ], or a 10% increase versus Q2 last year, driven mainly by the very strong growth in international sales, as we continue to take share in these growing markets with increased sales from existing customers, as well as contributions from onboarding several new customers.

Export sales to our five international medicinal markets increased 690% from Q2 last year to $16.6 million, and are now roughly 1/2 the size of our retail branded sales net of excise tax. As Mike stated, we have hit our full year target of tripling 2024 international export sales just halfway through the year.

With our focus on profitable sales, our Canadian retail branded sales were 20% lower than Q2 last year at $34.5 million. However, with an improved gross margin, as we have realigned our SKU portfolio towards higher-margin opportunities. Canadian cannabis gross margin was 39%, up from 26% in Q2 last year, and at the high end of our target range of 30% to 40%, which provides clear evidence of success in both growing higher-margin international export sales, and our focus on higher-margin products in Canada.

Our success in expanding gross margin, combined with a small year-over-year decrease in SG&A expenses drove significant improvements in the profitability of our Canadian cannabis segment. SG&A expense as a percentage of sales was 19%, compared to 22% last year, primarily due to continuing efficiencies throughout our Canadian cannabis operations.

Q2 adjusted EBITDA for Canadian cannabis improved 150% year-over-year to our strongest performance in 6 years at $16.5 million, resulting in an adjusted EBITDA margin of 27%, which was more than double the 12% last year. Cash flow from operations decreased 233%, [ $18 million ], our strongest quarter of operating cash flow since we expanded into Canadian cannabis in 2017.

Finally, as we do each quarter, I will highlight that in Q2, we paid Canadian excise taxes on retail branded sales of $20.5 million, nearly 40% of retail branded sales, and almost double our SG&A. I will note, however, that the lower retail branded sales in Q2 as compared to last year resulted in lower excise taxes, which also contributes to our stronger profitability.

Turning now to our recreational cannabis business in the Netherlands. Q2 saw our first full quarter of sales from our [ Lely ] Holland operations. Sales were $2.5 million and adjusted EBITDA was $1.2 million, which are firmly in line with our expectations. Phase 1 -- our Phase 1 facility has now reached its full operational capacity, so we expect revenue performance from the Netherlands to be similar in Q3 and Q4, with similar profitability until the end of Q4, when we do expect to increase operating expenses ahead of the commencement of operations in the Phase 2 facility, which will be coming online during the first quarter.

Our U.S. cannabis business with [ Q2 sales ] of $3.8 million continues to reflect the impact of various state actions, trying to deal with the unregulated hemp products by restricting all intoxicating hemp-based products. We did, however, see gross margin improve year-over-year to 63%, which benefited from the internalization of our [ gummy ] production, resulting in a small positive adjusted EBITDA for the quarter.

Having been successful in our efforts to stabilize this business within the regulatory headwinds, we are working on a number of initiatives to invigorate sales of our responsible GMP-produced natural hemp products. In our remaining produce segment, sales increased 2% to $8.6 million. Our produce operations [ to Q2 ], and through the remainder of this year reflects contributions from our Delta 1 greenhouse, and half of our Delta 2 greenhouse. The Delta 2 greenhouse tomato crop will be [ pulled ] in November at the end of its life cycle to commence our conversion to canvas production for the entire Delta 2 facility.

Net income from continuing produce operations improved to $4.3 million, from a loss of $1.3 million. And adjusted EBITDA from continuing produce operations [indiscernible] [ $6.4 million ]. Both of those figures include a $4.3 million vendor settlement related to previous operating losses incurred by our continuing produce operations.

Our Canadian produce business is seasonal. Historically, the Delta produce assets report their highest revenue and EBITDA in the third quarter of each calendar year. We will continue to maintain our Permian Basin, Texas greenhouse, and while not operational at this time, it is reported as part of our continuing produce business segment.

Turning to consolidated cash flows and the balance sheet. Total cash flow from operations was $22.3 million in the first 6 months of the year. Our free cash flow during the first 6 months, including all our CapEx and debt service payments was $12 million. With the $40 million in proceeds from the privatization transaction, we ended Q2 with cash of $65 million, with a net cash position of $29 million. Our total debt at the end of Q2 was $39 million. But as noted in our 10-Q this morning, we paid down USD 3 million of our term debt as part of our produce lenders approval terms for the privatization transaction in August.

During the quarter, we refinanced our cannabis loan, consolidating the three previous loans into a single credit facility with two existing lenders. The new facility has a variable rate, which is currently below 6%, which reflects a 250 basis point improvement over the previous [ facilities ], with additional improved financial covenants, and now matures in February 2028.

In closing, our Q2 results demonstrate the improving earnings of our power of Village Farms, and our enhanced balance sheet liquidity easily supports our growth investments, beginning with our existing capacity expansion projects in both the Netherlands and Canada.

I'll now turn the call back to Mike.

Thanks, Steve. So in my closing remarks. Once again, our Q2 results reflect an exciting beginning for Village as next chapter, which is one we believe we can generate significant value for our shareholders. For anyone listening to today's call may be new to our story, I'd like you to know that I am firmly aligned with our shareholders as I remain Village Farms founder and largest shareholder, and we are intensely focused on protecting and enhancing our shareholder interest.

We have been hypersensitive to dilution, and we moved mountains recently to avoid a reverse stock split and retain our compliance with NASDAQ's listing requirements. And by the way, we've done this twice in the last 2 years without any share consolidation, and now our future has never looked brighter. I encourage anyone new to our story, or our industry, to take a look at our comparison of shares outstanding compared to our peers over the past several years. I think you'll find it pretty quickly that we take our fiduciary responsibility to our shareholders quite seriously.

In closing, we have transformed our company into a powerful global cannabis platform with a proven team of cannabis leaders, and unmatched portfolio of assets, a track record of operational success steadily expanding exposure to both international medical and recreational markets, and the tremendous upside potential from our ownership position in our private equity-backed produce partnership, and expansive U.S.-based greenhouse assets and operations.

While we are currently benefiting from multiple catalysts unlocking value for our stakeholders, but we also see significant potential for additional long-term value creation through these additional pathways to value creation, which provide investors with a unique upside potential in an investment opportunity. We have retained full control of Canadian greenhouse assets at Delta, British Columbia, as well as our Permian Basin facility, as well as optionality of one of our Marfa greenhouses, should future cannabis market optionality in the U.S., or the state of Texas occur.

We're excited about continued momentum in the U.S. cannabis policy and look forward to having a larger role this market in the future, and optimistic that our track record as one of the longest tenured operators in the Texas agricultural industry, and the regulated cannabis industry, that we are positioned well to replicate our success in Canada, in the U.S. in the future.

Our retained greenhouse assets in United States and Canada represent a combined incremental 4.2 million square feet of owned advanced greenhouse assets for future expansion potential and cannabis. These critical strategic assets provide a clear runway for us to continue replicating our proven success in operating at scale globally, and considerable expansion capacity compared to our current 2.3 million square feet of operational capacity today.

Also, not to mention the fact that we are operating and growing this business without violating any federal regulations in the United States, and are already a NASDAQ-listed company that satisfies its tax obligations, and generates positive free cash flow and net income.

Finally, I would like to take a moment to thank and congratulate our fantastic team members on their recent achievements and the progress they've continued to make to enable our success. None of this is possible without their determination and focus. We've assembled a world-class team of experts in all areas of our business, and right now, they are firing on all cylinders. We are a global multicultural organization, with team members on the ground in the United States, Canada and Europe, and servicing an increasingly complex global supply chain with a growing list of strong international partners. And we are all energized by the many upside opportunities that we see in front of us in virtually all aspects of our business.

We are proud to be part of an emerging, vibrant, global cannabis ecosystem, proud to be leveraging our 36 years in highly intensive technology-driven agriculture to become a partner of choice in the cannabis community, and proud to be in a leadership position that is enabling us to self-fund our first and our second state-of-the-art cultivation facilities in the Netherlands, as well as the additional 40 metric tons of annual cultivation capacity to serve our Canadian international customers.

Our improving fundamental financial performance from our existing operations, combined with the expansion of our cultivation capacity in Canada, and the completion of our Phase 2 facility in the Netherlands, positions Village with a clear pathway to continued revenue growth and margin expansion in the years ahead.

That concludes our prepared remarks. And operator, we'll turn it over to you for any questions.

[Operator Instructions] Our first question will be coming from Aaron Grey of Alliance Global Partners.

Congrats on the strong quarter on all fronts. First question for me. I just want to speak to your decision to expand Delta 2 facility, obviously, speaks to your confidence in the market opportunities. So based on the quarter, obviously, it appears a lot of this was driven by potential international market opportunities.

But if you could offer some more color in terms of what went into [ decision ]? I know it's something you've been thinking about for some time. So is it more so a combination of what you're seeing on the international markets also wanting to maintain where you hold within the Canadian market today. Is it more your branded sales versus B2B opportunities?

And then maybe more broadly in terms of pricing expectations that you're seeing going forward for the next few years given [ what coming ] online until 2027 for a full ramp?

Thanks, Aaron. Look, for one, it's a very low dollar investment for us. So we're not building new assets. Our business model was predicated on converting existing assets. So this is not like we're going out and building a new $100 million facility. This is a USD 7 million investment. The asset is there, and we're just converting it to cannabis. So that risk and investment is fairly low for us.

Secondly, the way we've designed our facilities, we have many, many separate grow rooms. So with that, we can alter the amount of capacity coming out. We can decrease grow rooms by 3, 4, 5. We can increase it. And we've demonstrated that we've always been prudent with matching supply with demand, unlike many others. And you've seen that oversupply in Canada, which is really from the smoke and mirror days of Canada back in 2019 and '20. We were never really caught up in that.

So we're not really worried about it. There's always ebb and flow to supply and demand, and we can adjust accordingly. Right now, though, we're not fulfilling our commitments. We're probably leaving around $50 million of revenue on the table right now. So we have to manage our business and fulfill our customer needs. And we're not concerned with the risk of being in an oversupply position.

That's really helpful color there. And on that front, I will switch to international for a bit. Really strong quarter there, coming in above your expectations, already hitting the mark for tripling for the year in the first half.

So maybe just some more color in terms of some of the strong drivers in 2Q for international. I think you mentioned Germany was a standout, also within the U.K. And then for the back half [indiscernible] I think you said 2H would roughly match 1H. So maybe sitting towards what you just alluded to in terms of having to allocate some products? Is that just your needs to maybe manage to why -- maybe it doesn't hold to the 2Q rate, but holds to the 1H rate in 2H? So just any kind of comments on what drove 2Q, and the expectations for 2H for international?

Okay. I'm going to let Ann comment. Go ahead, Ann.

So I think we did purposely say Germany and U.K. and onboarding new customers has been the driver. We're our growth aligns with where the growth of international markets is hottest. So we're there, and the team has done a great job of working very closely with some trusted distributor partners that we've been working with for some time. And I think it's also important that Canada is really leading this initiative, Canadian LPs, and we're proud to be part of that group.

Your second question with respect to outlook. We are geared up for continued growth we're not going to guide as to what it's going to be. We were obviously off on our first half guidance. But the one thing I would just say is it's an area where a lot of folks are getting involved. And so we're going to continue to participate in the growth of the market, and there will be others that we know are adding capacity to be there with us. So that's important.

And then concurrently, we'll continue to support our retail partners in Canada. That's a critical and very much an important channel for us as well.

Our next question will be coming from Doug Cooper of Beacon Securities.

Terrific work on the quarter. Steve, or Mike, I just want to confirm the numbers by segment, if I could. So Canadian cannabis, [ USD 11.9 million EBITDA ], let's call it U.S. cannabis small positive. The Netherlands, USD 1.2 million, that gets me [ $13.1 million ]. You now [ 17.1 ] of EBITDA.

So I guess the question is -- what was it, vendor settlement, $4.3 million. Would -- do I exclude that? I'm assuming I exclude that on an ongoing basis, so that would imply EBITDA from the produce sector in Canada was $2.1 million?

Well, the adjusted EBITDA from continuing operations [indiscernible] was $6.4 million, and it includes the [ $4.3 million ]. Because the [indiscernible] was [ higher ] losses [indiscernible] continuing [ asset ]. All of our greenhouses experienced the [indiscernible], and this settlement pertain to the assets that we've retained.

But that's nonrecurring, correct?

It's nonrecurring, but I also said that these assets that we've retained generally have their highest revenue and highest EBITDA in the third quarter.

Right. Okay. So Just in -- maybe you can just, in general, then, if we're looking to model the company out, it just has -- going forward is just going to be [ D1 ] essentially, right? So on an annual basis, do you expect that to be...

In 2026, yes. For 2025, D2 is a contributor to a positive EBITDA contributor to our business.

Yes, I'm just thinking about 2026. So 2026 and beyond, this is a net income positive business on an annual basis, correct?

Yes. Every year [indiscernible] gross year.

And as well the $9.9 million of profit, that's pretax, correct?

Yes.

Okay. And that also includes the settlement gain, correct?

Yes.

Okay. Okay. I just want to touch on maybe just what Aaron talked about, just in the Canadian cannabis market. We've seen a number of your competitors continue to report revenue down year-over-year in the Canadian cannabis [ rec ] market.

Who's left? And maybe that speaks to, Mike, your positive supply-demand dynamics that you referred to?

Well, Doug, my mom always said if you can't say anything good, don't say anything at all. So I'd rather not talk about our competitors.

Okay. Maybe just a comment about the dynamics, how the Canadian rec market dynamics look right now? Like the $40 million of excess?

I'll let Ann talk.

I'll help you out here Doug. Funny enough, even though we've seen pricing strengthen in the wholesale markets for well over a year now, we're only seeing it stabilize, which is good news in the Canadian retail environment. But we're not yet seeing pricing at the retail market level, which tells us there's still plenty of supply, or suppliers, to the market who are probably trying to take cash proceeds out, or take market share.

I think it is fair, though, that among those that are reporting, you are seeing improving profitability. You're seeing folks focus on the portfolio and where they're making profits versus not. And I think that's to use an [ adage ], you're starting to see the cream rise to the top within the Canadian producers.

So I think there's a lot of good players that we respect. We love having that group with us in the market. And I think if we can just start to see some normal market dynamics, supply demand and price respond, I think that will be a positive. And I think that's important as Canada continues to lead the global market.

Okay. Just as we look forward into 2026 or 2027, international sales as a percentage of total cannabis -- Canadian cannabis revenue. Would you think it looks somewhat similar to what you just reported in Q2? Or what do you think the SKU is not included in the Netherlands business?

I would say, easiest bet is to say it could be where it is. The challenge is that the growth is still a little bit hotter overseas than in Canada. So keeping pace with market growth, or exceeding it, would mean you'd kind of have a similar mix in 2027.

If I can add some color. I mean you have to, at some point, Canadian LPs have to be profitable. I mean the day is going to come and you're measuring fundamentals, and you just can't keep raising capital and continuing to fund operations. Like any other normal business, you have to be profitable at some point.

So the question is how long can they go continuing with ATMs and so on to continue to flourish, or continue to exist, I should say? So who knows what the next couple of years, the dynamics will be in Canada. We'll have to wait and see.

Okay. Just on the balance sheet, obviously, a tremendous improvement there. Are you seeing any M&A opportunities, whether it be in the Netherlands or Canada?

Well, we -- first of all, we are so proud that we are predominantly growing organically. We always have everything we're doing on the international markets, we've done organically. We haven't purchased any companies to get where we are in international today. Because I think it's easy for companies to purchase a company and then spend a huge amount on M&A and then be able to say, well, I'm #1 market share, or I have these revenues. We don't do that.

But that's not to say that M&A isn't on our list, and it would have to be very accretive or very strategic. And so far, we continue to not see that happening. I think we're the partner of choice for a lot of the European companies we're working with. So M&A is not off the table. Certainly, in the Netherlands. If we look at the U.S., I think M&A will play a role in the U.S. when and if we can enter that market. But right now in Canada, unless there's a very strategic reason tied to maybe technology or something else. I just don't see us looking at that in the near term.

Okay. Final one for me. Just on -- market looks to be up significantly this morning based on some reporting that [indiscernible] is sort of returning to favor in the U.S. administration.

Thoughts on that and thoughts on what the implication is for your Texas greenhouse that didn't -- that remains in the portfolio?

Well, look, the largest market in the world is the U.S., and I think everyone is feeling the momentum today. It's not if, it's just when. And we have worked very hard the last couple of years to continue to look at option A, B and C for our entry point to the U.S. outside of what we're currently in, which is on the [ cannabinoid ] side because that is legal and accepted by the NASDAQ.

[ Schedule 3 ] comes, I think it's a stepping stone to safe banking. I still believe that a lot of the U.S. model is experimental. And what I mean by that is if it changes, and at some point, even in the state commerce, I think at that time, large scale, low cost, just like the winning [ 4 million Canada ] and other places has to prevail. So I think there will be a change in the market.

Again, with our Texas assets, to go out and spend hundreds of millions of dollars to build the capacity, we currently have the optionality on, we're ready to go there, whether that's a stepping point in Texas. And Texas alone could be a very huge market as our entry point. And as I said earlier, M&A is on the table for the U.S. market. But we -- the timing -- like we were very frustrated with the last administration making campaign promises and doing nothing. But on the other hand, the timing really worked out for us because it continued to strengthen our position in Canada as a top-tier player. And more importantly, it allowed us in those last few years to have a footprint in the first adult-use recreational market in Europe, which could be -- which we could leverage up that into other countries in the future, should they go [ rec ].

Secondly, it allowed us to take a very commanding position in the international medicinal market, without being diluted on our U.S. strategy. So that foundation is in place now. We just got to keep executing and building upon it. And the timing is actually better for us as the U.S. looks to open up. So we feel, from a timing perspective, we're in a very good place.

And just to be clear, the U.S. federal rescheduling, does that have to follow suit in Texas? Or can they somehow opt out of that? .

Well, it's interesting. Texas has the Republic of Texas, that they do have a mandate that they have to follow federal guidelines. So it's been kind of nebulous, for a lack of a better term, in Texas these days. But they do have to follow those guidelines. And there's going to be a lot of swinging going on till it stabilizes in the next couple of years. So Texas would have to follow that.

And the other thing on [indiscernible] as Medical, it could open up the doors for us to export medical marijuana from Canada to the United States, which is a whole another conduit that no one else is really thinking about right now. So we think we're in a good way. So -- but for Texas, we love Texas. We've been there, as I said in my remarks, 20 years. We'll see what happens with the [ K-Cup ] licensing here in the next month.

So -- and we've always been patient. And I think that's one of the virtues of Village is, we're patient. We don't react to -- we know what the game rules are, what the regulations are. We just -- we're not here to waste money and have some costs. So yes, I feel like we're in a good position via Texas or the U.S. as a whole.

[Operator Instructions] Our next question will be coming from Frederico Gomes of ATB Capital Markets.

Congrats on the great quarter here. First question on your Canadian cannabis gross margins, very strong there. I guess, on the high end of your 30% to 40% range.

But do you think there is upside to those margins considering what you're seeing in international? Could we be at a point here where we could see your target range moving above that 40% level?

With the [indiscernible] mix and the customer mix, it's possible [indiscernible] some markets, we believe could be more lucrative like the U.K. Again, that's in emerging markets, and we'll see, but that certainly is possible. We could be reporting prior numbers.

I would also just say that as we add unit volume to our existing footprint that improves our cost base. And so you're seeing some of that in the margins as well. And the team on the ground has worked very hard on continuous improvement as well. So those are also contributing.

And just the last thing I would add is the price equation in some of our newer markets is still settling out. And so I think we're being prudent by just keeping this price -- this gross margin range as we know the story of Canadian cannabis price compression, and we're prepared for it.

Appreciate that. And then just talking about the growth, I guess, for the second half of this year. I guess just thinking that you're seeing more demand than you can supply at this point, which I think is a good problem to have. But in terms of drivers for growth in the second half, how should we think about that?

Well, I think the second half, we feel -- we just don't want to get ahead of ourselves. That's the main thing. So we're basically saying that for the remainder of the year, we think we'll be tracking pretty similar. And with maybe the exception of [ Lally ], who is continuing to ramp up, as you know, we just got in production, we're approaching fully ramped up and diversifying the SKUs there. So we think we'll see continuous growth there. And coupled with quadrupling our capacity for next year. We see that as a strong ramp up internationally.

But I think right now, we're pretty constrained for anything more than we've seen in the first half.

I would now like to turn the call back to Mike for closing remarks.

Well, thanks, everyone, for participating today. We really appreciate listening to our second quarter results. We are excited about the future and very much look forward to further communication and reporting our third quarter here in November. Thank you, operator.

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

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 will 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 will 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.

And it is now my pleasure to turn today's meeting over to Mr. John McLernon, Chairman of Village Farms International. John, the floor is yours.

Thank you. Good morning, everybody. 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 will chair the meeting.

On behalf of the Board, our officers and employees, I would 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 -- will be now brought 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 May 9, 2025, as the record date for determining shareholders entitled to vote at the meeting. Notice of the Meeting, related proxy statement and our most recent 10-K were mailed to shareholders on or before May 26, '25, as confirmed by Computershare and bridge Broadridge. The shareholder list shows that as of record there were 112,337,049 common shares outstanding and entitled to vote. I direct 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 scrutineer's report, which indicates the proxies representing a total of 47.6% of our outstanding common shares have been properly deposited prior to the meeting, and I declare that a quorum is present.

I will now proceed with the business of the meeting. The next item of business is a presentation of consolidated financial statements of Village Farms and its subsidiaries as of December 31, 2024, and the independent auditor's report thereon. I ask Stephen Ruffini, the Chief Financial Officer, to table the consolidated financial statements of the company and its subsidiaries as of December 31, 2024.

I've been advised by Stephen Ruffini that for efficiency purposes, he's prepared to second each of the upcoming motions with respect to the items of business outlined in the company's proxy statement dated May 12, 2025. Accordingly, I will take such motions as seconded with no further action needed.

After presenting all items of business, I will then ask registered shareholders or their duly appointed proxy holders to cast their votes.

We will now proceed with the election of directors of the company. Eight 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 management is set out in the company's proxy statement dated May 12, 2025. The Board has adopted a 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; Carolyn Hauger; and Stephen Ruffini. The company's bylaws require that nominations of directors by shareholders be received by the Board of Directors of the company in the prescribed manner in advance of the meeting in order to be valid.

As no known nominations were received, I declare that nominations for directors are closed. Accordingly, I move that each of the above-mentioned persons for election as directors of the company be elected to hold office until 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 officer compensation be approved on an advisory nonbinding basis.

Is there a seconder? Thank you.

Next item of business is the reappointment of the auditors of the company. Accordingly, I move that the KPMG LLP be reappointed auditors of the company to hold office until the next Annual Meeting of Shareholders or until a successor 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 these motions to do so now by clicking on the Vote Here button on the web portal and follow 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 their control numbers and wish to vote. I'll pause for a moment.

[Voting]

Thank you. Now that everyone has had an opportunity to vote on each of the matters, I now declare the polls of the 2025 Village Farms International Annual Shareholder Meeting closed.

I've been advised by the scrutineer that the preliminary voting report shows that each of the director nominees for 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 and in the SEDAR+ filing following today's meeting.

As there's no further business to be brought before the meeting, I hereby move that this meeting be terminated. Thank you very much for everyone for joining us, and we thank you for your interest, and you may now disconnect. Thank you.