Good morning, ladies and gentlemen. Welcome to the Village Farms International's First Quarter 2018 Financial Results Conference Call. Yesterday, Village Farms issued a news release reporting its financial results for the first quarter ended March 31, 2018. That news release, along with the company's financial statements, are available on SEDAR and 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 the telephone and via the Internet beginning approximately 1 hour following completion of the call. Details of how to access the replays are available in yesterday's news release. Before we begin, let me remind you that forward-looking statements may be made today, during or after the formal part of 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 our various securities filings, including Village Farms' current annual information form the year ended December 31, 2017, and MD&A for the quarter ended March 31, 2018, as well as the press release issued by Village Farms and Emerald Health Therapeutics announcing their joint venture in June 2017, all of which are available on SEDAR. These forward-looking statements are made as 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.

Thank you, Denise, and thank you to everyone for joining us by telephone and Internet today. With me for today's call is Village Farms' Chief Financial Officer, Stephen Ruffini. In terms of the agenda for today's call, I'll be somewhat brief, but I'll begin with an update on the significant progress at Pure Sunfarms, our joint venture for large-scale, high-quality, low-cost cannabis production in Canada. Steve will then do a brief review of first quarter financial results, and I'll return for some concluding comments before Steve and I take your questions. Beginning with Pure Sunfarms. It's only been a little more than 1 month since our last quarterly call, but there is, nonetheless, a great deal of additional progress across the business to report on. Just this past Friday, Pure Sunfarms received an amendment to the cultivation license for the Delta 3 greenhouse for an additional 110,000 square feet, which now permits it to begin commercial-scale growing on a total of 133,000 square feet. And we're anticipating approval for the balance of the 250,000 square feet of the first quadrant of the 1.1 million square feet within the next month. We are planning out this first section this week and are targeting the entire first quadrant of 250,000 square feet to be fully planted out by the end of July, pending one final amendment to the cultivation license. And another milestone on schedule, and we're very excited to start our production ramp-up at Delta 3. This milestone is very important for the company, and we expect to begin planning out the second 250,000-square-foot quadrant in August. Since that, we anticipate having 0.5 million square feet in commercial production in September and remain on track to have the entire 1.1 million square feet in production by year-end. As I've discussed previously,…

Thanks, Mike. Welcome, everybody, to the call. As Mike said and our press release said, our sales were down 6% year-on-year. As Mike also mentioned, that was due to lower volumes. We also reported a lower net price year-on-year of 4%. Again, this is directly due to what Mike's already mentioned, the higher freight costs. So we report and analyze our sales always on a net basis. Actually, our gross selling price year-on-year was up $0.03 a pound, but that was more than negated by the incremental freight costs to get it to our customers. And as Mike mentioned, it was a nationwide impact. Those in Canada, you may not be aware, the Department of Transportation in the U.S. implemented electronic logs into all trucks, so they now monitor truck drivers who are not allowed to drive more than 10 hours. If they drive more than 10 hours, there's a fine. So needless to say, when that went into effect on January 1, it wreaked a bit of havoc in the U.S. trucking system. As Mike mentioned, it's since calmed down. We are forecasting, for the year, a $0.02 to $0.03 per pound increase in freight costs. And again, that -- whether it's shipping TVs or whether you're shipping from the Walmart distribution center to the Walmart store, everyone's incurring that incremental cost, unfortunately. Our cost of goods were down 5%. Again, this was due to lower volumes year-on-year as well as our own facilities. Our SG&A was up 5% or $174,000 due to various costs. The most part are due to our new cannabis initiatives such as full-scale IR, which we haven't had in the past, miscellaneous consultation and legal costs involved with that new business on the part of Village Farms. Our interest expense was down in Q1…

Thanks, Steve. And I'll just comment off the cuff. I mean, we are moving forward. We can see the bouquet of cash flow in Pure Sunfarms investment out on the horizon getting closer and closer. So taking a lot of the resources from Village Farms to ramp that partnership and that whole venture is going well. As you know, we haven't hired anyone in Village Farms. We're managing our GS&A across the board, so having some quarters that are rough -- again, half of the loss was tied to freight and the investment of time in Pure Sunfarms, but that will be changing going forward. We are profitable, and we have no burn rate, and we're pulling this off with internal resources, so I think it's a credit to the organization. We previously described the Canadian cannabis opportunity as a transformational move for Village Farms, an opportunity to leverage our established, large-scale, low-cost operations and deep experience as a vertically integrated agricultural producer to a significantly more profitable product. That transformational opportunity is quickly becoming a reality. In just 11 months, we have taken Pure Sunfarms from a joint venture agreement and a plant to a commercial-scale cannabis producer. Pure Sunfarms is on track to be one of the largest cannabis growing operations in Canada and a vertically integrated supplier. We have successfully executed on every milestone, and we are now poised to begin to realize the financial return from this investment. We're also excited about the coming months. With the significant anticipated demand for cannabis product in the coming months as the Canadian market approaches legalized recreational use, the ability to both ramp up scale and operate efficiently will be critical. We know that it won't be without challenges. It's large-scale agriculture. The main asset is the biological entity.…

[Operator Instructions] Your first question comes from Andrew Semple with Echelon Wealth Partners.

First question was just more on the sales channels. You're speaking to both -- looking at both provincial and other licensed producers. Where do you see more opportunity? And which channel would you prefer to sell to? And then finally, would there be any sort of preliminary guidance as to a split between the 2 that you could provide at this point?

So the strategy for Pure Sunfarms at this stage, without an executive in place, essentially is to flip-flop what Village Farms does today. So Village Farms today sells roughly 75% to 80% of all its produce direct. In this case, that means a retailer. Frankly, we don't sell to provincial produce stores. But at any rate, at the onset, obviously, it's going to -- the roll out schedule is going to be a challenge for the provincial boards that have to implement the federal law. So we are in discussions with LPs because we'd like to essentially flip that. So we'd like to sell 75% of the product, let's call it, to LPs, some on a contact, some at a spot. We believe the spot pricing will be higher than the contract price. And roughly 25% at the onset. So call it, late '18, early '19 to provincial governments. And then over the course of the 18 months, as we get to full ramp-up stage, get to the other way by the -- sometime in early 2020, 75% to provincial governments, 25% to other LPs. Even today, after 30 years, Village Farms does sell product and buy product from other growers in the U.S. The biggest challenge in the ag space is matching demand and supply. Cannabis will be a little bit easier since you can store the product. But ultimately, you can get imbalances. You have people ordering when you have product, or maybe people are ordering when you don't have product, in which case it's helpful to have strategic partners with other, in this instance, LPs that you can help one another to keep the provincial buyers happy.

Great. That's great color there. Just another question. Just for clarification. Is the Delta 2 facility fully unencumbered as of now? And what about Delta 1?

Delta 2 is fully unencumbered. Just to remind you that we paid off the debt on Delta 2 last December, so it's fully unencumbered. And there is a remaining -- Delta 1 still is in the collateral pool with Farm Credit of Canada at this point.

Okay. And what sort of conditions would you look for in the market before you would consider exercising the option at the joint venture level? I'm sure there would need to be an executive in place as well, but you can comment on the market conditions that would make exercise of the option accretive.

Well, I think the executive in place was always -- we always looked at that from day 1, but we -- the way we operate, I guess we take a more prudent approach, so we wanted to make sure that the joint venture, which is almost a year old next month, was continuing strong, that we were hitting on our milestones, that we will receive our cultivation license. And now the construction, the systems have all been evaluated. All those decisions were the right decisions. So the confidence level of the company has raised tremendously that we can execute going forward. And an option to increase capacity is not based on the executive coming in because if we trigger an option now, that conversion would probably start at the end of a current cycle of one of the current crops we have, so maybe year-end. And the focus of our executive team is really going to be downstream initially. There's enough talent on site there for the operational side and the conversion side. So that said, I think the market side, it's just too premature to understand where it's going to go. Our decision on the conversion would not be based that great on understanding where the market's going to go because the issue is the execution of all the other LPs, will they, in fact, be able to execute on their currently being built, converted or funded capacity and how long will that take. And we have confidence we can have very quick speed to market on additional conversions. So I think there's just too many unknowns on the market, so we would -- that would not be a huge part of the evaluation at this point going forward, at least for the next conversion. Maybe the third one, it would be.

[Operator Instructions] Your next question comes from Vahan Ajamian with Beacon Securities.

A couple of questions. First off, I know you haven't disclosed the price that Emerald will be paid to obtain the joint venture. But is it safe to assume that it's at the price -- that the wholesale price is prevailing in the market right now?

Yes. I think that's safe to assume because we announced that transaction. So we negotiated that on behalf of Pure Sunfarms as Village Farms to keep it arm's length. So we felt comfortable at this point with that. And based on the percentage that we allocated, even though they're our partner, we've treated it in a very professional manner. So that's safe to assume.

And is it a constant price over the, I guess, 1.5 years or slides up or down?

Yes, it's a constant price. It's a constant price. But if you look at it from this point for the 7,000 to 8,000 kilograms that, really, are going to come into production at the end of this year -- so it's through the end of '19. So basically, on any significant capacity, it's really for 2019, and it's a fixed price.

Right, okay. And you gave some good color on the potential other offtake agreements for the next 2 years, I guess the 60% that's still to allocate. Any sense of quantifying how many seriously interested parties you have or how many end customers you'd like to have at the end of the day for the next couple of years from a customer diversification point of view?

Well, Vahan, I can tell you there's no shortage of phone calls or meetings with other LPs. No shortage of that. So I think one of the things that's important is we know, in 30 years of operating on the produce side, that where we've made very strong relationships years ago with other competitors, other growers, that those relationships have been accretive in many different ways over the years. So I think what we're looking for are companies that, one, we can trust; and two, will be here in the future, especially when you look at the future, the M&A environment. Those agreements, we may not want agreements which span an M&A, an acquisition, for example. Where their location is, is very important for us. If they have an advantage in a certain area, where being a local producer gives them a certain advantage over someone else, that we think can yield them a slight premium in the marketplace, thus, giving us a better pricing, that will come into play. So it's not just looking for the first guy out there who wants to buy capacity. They have to be willing to take or pay. We're not going to -- even if a province is going to not necessarily secure or do a consignment type of promotion, we're not interested in that if we make an arrangement because there's plenty of other opportunity. So I think we're evaluating that right now, but there's no shortage of LPs out there that would like to work with us. As Steve articulated, clearly, BC [indiscernible] being in BC, and one of the predominant growers in BC, we're very interested in working in that region specifically. So I think that's our first foray with the government is on the West Coast and then working with some LPs across the board.

And in terms of number of customers, I guess, one is already taking 40%. Is it safe to say you want to select, say, less than a handful of overall customers that you can kind of grow with as an accretive partnership in the future? Is that the right way to visualize it?

Yes, I would say a handful is good. But at this point, it's not all based on the price only, but that is a big part of it, that and the relationship. But to manage it effectively and be able to -- we don't want to make commitments we can't deliver, and we don't want them to make commitments they can't deliver on. So managing a handful would be prudent. And we probably wouldn't look at any type of arrangements going beyond the end of '19 because I think there's going to be -- once we see what the governments do, those contracts that they issued to LPs who -- they may only be 6 months in length or a year at most.

Okay. And going back to the Emerald, I guess, offtake agreement. That's only for dry flowers, is that correct? Or is there extracts kind of contemplated in the offtake agreement?

It's only for dry flower. And Pure Sunfarms will be doing its own extraction very soon. So as its first -- I mean, we look at extraction to oil as really more of a post-harvest process that you have to do and have to have before you actually get to downstream products. So the agreement is only for pure flower, but what they do with it in their product line is up to them. But we will be extracting at Pure Sunfarms in '19.

Okay. And I know there was some discussion about your extraction strategy, how to best do it, what type of equipment to get. Has that been ironed out yet or still kind of looking into it?

Well, we're working on a lot of different strategies. I don't probably want to articulate that because I think the extraction process is a proprietary strategy and should be for many different companies. It's still a nascent industry in the conversion, and we're talking to multiple companies. And actually, I think we have some exciting things down the road that we can be looking at. So I'll limit it to that to suffice.

Okay. And finally, on branding. I think when we spoke last month on the call, you mentioned that the rules still weren't out yet in BC, and you're kind of waiting for that to decide if developing your own brand would be a worthwhile investment or not. And I think we've seen some of the preliminary rule out of British Columbia. Is that -- any update on that you can share?

Well, we're always going to be -- as we said, Pure Sunfarms will be a vertically integrated producer, and it will compete with anyone in the market. So branding is going to be a big part of what we do, even if it's just a name to start with. But I think it's going to take years to develop a brand. I mean, it's taken our experience -- it takes years and years, especially when you're dealing with a product that's coming from a biological asset as opposed to a processed product. And we hear people talking about, "We're going to build iconic brands out of the box." And you don't build iconic brands in a year or 2. I just don't see that. I mean, it's almost comical to me how companies talk. But I can tell you, at the end of the day, if you listen to Warren Buffett on his very recent shareholder speech, he talked about the companies he looks for have very strong brands but are the low-cost producers. And that's always been our strategy from day 1, is fundamentally make sure that our cost of production is low, so we can be the survivor or a survivor in the marketplace and then build the brand on it. And we've spent the last 11 months in this ramp-up focused on systems in order to make us a low-cost producer with high quality and now bringing in the team that will do product development and, ultimately, branding because I think putting a brand on just a strain of cannabis where everyone says they have the best strains is going to be very difficult to differentiate yourself in the marketplace. I think it's going to come through product development and differentiation of products for the adult use market. And that doesn't happen overnight. But it's clearly the strategy that we will pursue. But again, short term, we're not here blowing millions of dollars out of the gate. As Steve articulated, our strategy is to start working with LPs, keeping our cost down as we develop product and develop branding strategies, generate positive cash flow and reinvest that cash flow in further expansions. So that is the sort of short-term horizon that we're looking at.

There are no further questions queued up at this time. I'll turn the call back over to the presenters. Sorry, no. There's no more questions. Sorry.

Okay. Well, thank you, everyone, for listening. Appreciate it, and we look forward to our next call shortly in a couple of months. Have a good day.

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