Good morning, ladies and gentlemen. Welcome to Village Farms International First Quarter 2019 Financial Results Conference Call. Yesterday, Village Farms issued a news release reporting its financial results for the first quarter ended March 31, 2019. 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 Investor’s heading. Please note that today’s call is being broadcast live over the Internet and will be archived for replay, both by telephone and via the Internet, beginning approximately 1 hour following completion of the call. Details of how to access the replay 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 are 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 security filings, including Village Farms current annual information form for the year ending December 31, 2018 and MD&A for the quarter ending March 31, 2019, which are available on SEDAR. These forward-looking statements are made as of today’s date, and except as required by applicable securities of law, we undertake no obligation to publicly update or revise such statements. I would now like to turn the call over to Michael DeGiglio, Chief Executive Officer of Village Farms International. Please go ahead.

Thanks, Marcello, and thank you to everyone joining us both by telephone and the Internet today. With me for today’s call is Village Farms’ Stephen Ruffini. The agenda for today’s call is first, update on the significant progress on both our Canadian cannabis joint venture, Pure Sunfarms, and our U.S. Hemp/CBD Program, led by outdoor program to Village Fields Hemp. Steve will review the first quarter financials, I’ll return with some closing thoughts and then open to Q&A. So with that, we feel – here management feels, we’re off to a good start for 2019. But before I begin, I want to take a moment to provide our perspective on the false and misleading claims that we – that were made publicly about our company a number of weeks back. I want to be clear that as a public company, we fundamentally believe in the right legitimate contrarian views of our company or any company for that matter, and we acknowledge that legitimate short-sellers have a play in value – and play a valuable role in the markets. But we despise parasites who engage in outright lies, distortions of the truth, partial misleading information and innuendo to manipulate the market for short-term entirely self-serving purposes. This kind of activity provides zero value to the marketplace and especially hurts individual shareholders of all sizes. Words we know the real culprits here aren’t even the public [per say on,] [ph] but as we say in Texas, these yellow-bellied cowards highly anonymously in the weeds causes issue. So unfortunately, it’s allowed to happen and as a company with strong share price, the successful listing on NASDAQ, strong trading volumes and the quiet period at the time as a result of our financing, we’re an ideal candidate for this type of manipulation. We recognize…

Thanks, Mike. I’ll make a few highlights and then we will open up to Q&A. So one of the items that is different this quarter is the gain on disposable of assets that had questions in that already, that is simply a reflection of the $25 million of Pure Sunfarms stock that we received in exchange for the contribution of the Delta 2 asset, which obviously have a book value of substantially less than $25 of values. So the $13 million, $500,000 gain on our income statement is simply a reflection of the fair market value of over and over the book value of our assets. The remaining assets on our book 210 acres are on our books for $70 million, so that clearly worth substantially more than the $70 million. And that is not the first time we also recognize a gain on disposable income when we contributed the Delta 2 asset. So if Delta 1 were to be option, which is the largest greenhouse North America, you would see a substantive gain on disposal of asset in that quarter as well. As [indiscernible] Pure Sunfarms were not going to give very specifics on to your Pure Sunfarms brand sold, grown, our program figures, we will likely have for Village Farms for years the directions and add some color. Again, as Mike said, this is an agricultural business and managing and reporting numbers quarter-to-quarter is not the way we manage the business. And I don’t think it’s a good way of analyzing the business. So the gross margins Pure Sunfarms in quarter one was 65%. The full Pure Sunfarms financials are contained in footnote 7 of the Village Farms financials in Canadian dollars for everyone to see. The 65% gross margin was very much in line with the gross…

Thanks, Steve. So continuing just as an outlook moving forward, we’re very pleased with Pure Sunfarms opportunities unfolding during the – in this fast first quarter and clearly halfway through the second quarter I can tell you as well. We are feeling very confident. One of the few Canadian license producers that is profitable and even more impressive, given that Pure Sunfarms has been able to achieve this well in advance of reaching full production and with significant room to lower production costs. Unlike many of our peers, we are very focused on near-term cash flow and profitability. Building an institutional attractive business with key fundamental at home before casting our alliance all around the world is what we are doing. I mean, at some point, you just can’t be the biggest and you can’t be everything in this space for every consumer. Our focus is to continue to grow, but be much more focused and get it right on what we’re doing before we move on to something in. This has been the guiding principle for Pure Sunfarms Delta 3 operation from day one and it will be for Delta 2. And that’s part of building a very strong foundational ground and it will be for the CBD business in the U.S. Pure Sunfarms is well positioned for sales and earnings growth throughout 2019. We’re excited about the packaging and processing license, which are good at green light this quarter and starting to sell retail, all coming together over the next few months. Equally ramping up production on a full run rate early with the third quarter towards 75,000 kilos. We have and even been in the space 24 months. So it’s a real credit to the whole team and including the Pure Sunfarms new management team that have…

[Operator Instructions] Your first question comes from the line of Doug Cooper from Beacon Securities. Your line is open.

Good morning, guys. Great results. Let’s start with the – Stephen, the biologic assets. I just want to be clear, the $18.2 million of biologic assets for PSF at March 31 versus the $7.4 million as of December 31. You were talking directionally, obviously, positive. Is there any linear relationship we can draw, I guess, up 150%, all other things being equal, should that imply that we anticipate gross profit to be up a 150%, or is that – should we just look at directionally in quantitative as opposed to direct linear?

Yes, it’s not a specific linear. It’s certainly a strong indicator. This is not necessarily a linear percentage, but it’s a strong indicator. The biological asset for Pure Sunfarms is a function of the estimated, but on the plant on March 31 versus December 31. Obviously, as Michael said, we have more in production on March 31 and we’ll even have more as the year progresses. So that strong indication that there is more volume in April than there was in January and it’s – and all communication, the other driver of that could be margin. I’ve already said that the cost program were higher in Q1 due to the seasonal issues of energy news, which you will not see in Q2 and Q3 selling the market that cost program will be substantively lower on a program basis in the summer months than it’s been in the winter months and, again, margins are in. On the revenue side, our price are very strong.

Okay. Just moving on then maybe talk our work in the price into this. Mike, you said, the run rate 75,000 kgs in Q3, so that would imply obviously 18,750 kg run rate if we split equally amongst the quarters. My back of the envelope, would you have Q1 around 4,000 kilograms. You indicated that you were 25% capacity utilization essentially in Q1. What percentage utilization would you anticipate into Q3 – or excuse me, Q2 if Q3 is getting upwards of 100?

We’re not changing our projection. So we are staying on an annual basis that share with the 46,000 to 50,000 or so. So, I’m not – we’re just not – even though you can do the math based on one quarter being in the third and the first – and first quarter versus all four into second quarter. But we’ll have to use that to do the math, because we just want to stay with original projections and worked off of that, which for this year, again, 46,000, 50,000 and then on 75,000 next year. But that run rate on a 12-month basis starting with the third quarter of 75,000.

Okay. Can you just maybe walk through that, again, the quadrant sort of Q1, I couldn’t write…

quadrant 1, they basically take 1 million square feet divided by four, so that’s the quad. So Quadrant 1 was in production in the fourth quarter, but then we pulled it, because we had limited energy. We couldn’t like the whole greenhouse. So rather than waste time when we got the original cultivation like this for Quadrant 1 and continued to put the lighting in it, we just left it without lighting and did the lights in Q2. So we turned off Q1 in October, November or so after that last harvest and then we put Q2 fully lit with rental cogens in production. So that’s what when – that was fully in production during the first quarter, then we got Health Canada approved Quadrant 3 into this fourth flower room to their two and two. But that was not – even though we planted out half of Quadrant 3 in the first quarter, we had no harvest till the second quarter or now. So that was not in production at all. On the fourth quarter, we got approved in April, the fourth quadrant around there, and that was planted out in April. So – and simultaneously implanting out the fourth quarter, we came back, because we install the lights and over the winter and planted out the first quarter. So the beginning of April half to greenhouse is planted out, not in the first quarter. And the third quarter that was planted – the third quadrant that was planted in the first quarter was planted, but no harvest. Does that makes sense?

I think you got mixed in there by quarters and quadrant, so.

Yes, I’m sorry about that.

Okay. The EBITDA margin is obviously best-in-class today amongst the peer group. Are they sustainable you think? And do we anticipate G&A cost maybe to increase as you get the packaging license and enroll at your brand portfolio?

Yes. I think, what we would like to keep our G&A costs like a normal operating company somewhere in the 8% to 12% of sales range. So, obviously, as we wrap up sales, it will go down, but as we put more cost into mark – into marketing package, it will go up. But at that full run rate that, we want to operate it like we will operate all our businesses in that level, so…

All right. So this quarter was 9.2% of sales. So that’s sort of in line with your anticipation?

Absolutely. And I think, we’ll see basically that’s based on higher volumes and higher sales to go down, but based on spending more money will go up. So that’s the variation, so we get fully operational on our packaging, marketing, distribution, while we’re ramping our production. So that’s sort of eight to 12 sweep spot we want to be in. We’re very cash flow-oriented in growing. I mean, we want to grow our top line, but we want to be profitable all the way.

Okay. And just a final question on the Hemp side. You talk 800 acres and Steve went through the math. If you’re just selling the biomass, I get 32 million in revenue U.S. You talked about your cost of $10, so that’s – that would leave gross profit US$24 million, your 65% of the joint venture, that’s $15.5 million of incremental gross profit. How much of that would you anticipate? You indicated you may not sell all of it this year in whole for some extraction, but how much would you anticipate biomass selling in this year, assuming, obviously, there’s no issues on the farming side?

It’s roughly 50%.

50%. That would be…

What we’re – again, what we’re currently anticipating, again, based on the timing and execution of our attraction.

Okay. And that would be sales, I guess, by the time you harvest and sell the biomass, would that be a Q4 event?

Q3 and Q4.

Okay.

Again, it’s important to understand the 800 acres are rolling. So they are not – it’s not all going to produce one, but it’s not one piece of land in any number of farms. So it’s a rolling production.

Different harvesting, drying is different everywhere, it depends on the humidity levels. So between harvesting, drying and the harvesting going on over 60, 70-day period, it’s in 3 – Q3 and Q4.

And how much available and does your partner bring to the table, like 800 acres? How much more could you have with your partner, not including Texas, but just with your partner? How many acres could you have in 2020?

We can have five times the amount. It’s just that, again, with the legislation being passed even in Georgia and the Governor sign that met this morning, you can’t cultivate in Georgia. I mean, the Commissioner of Agriculture of Georgia made it very clear that we know how to grow in Georgia this year, because every state that’s approving it, and this will be for Texas should they approve it. It’s going to wait for the federal USDA to come down with regulatory requirements. And they indicated don’t expect that any sooner than September, while you can’t front out in October outside. So nice – you can, but it’s very – you can and we’re looking at that, but it’s in a very limited area, where you can do. So that’s what you could use the land we have in Georgia this year.

But all other things is equally presumably your farmer partners will rip out soybeans or corn or whatever else they’re growing to do this as long as the profitability holds?

Yes. I think right now many growers can rip in that soybeans and to back up and things of that nature because of the very new industry and step on a lot of the farmers there very excited about growing Hemp this year at the margins we’re looking that. But that will change in the...

And my final question. Just on the last conference call, you had talked about the packaging license in the sort of April timeframe, obviously, that’s coming on. Any visibility on the government, or it’s hard to really to make any estimates on when the government might come in through?

Well, if you’d ask me the question yesterday, I’d probably say no. But today, I will say that, yes, we have visibility on it. We feel – we’re feeling much more confident. It will happen. Actually, I just said the second quarter, because it’s hard to predict things out of our control in this case, Health Canada, but April, June. So we’re in that timeframe and I feel pretty good that we’ll be there by the end of the second quarter, yes. And I’m actually saying that, but I don’t want to elaborate anymore on it.

Okay. And what is the incremental pricing difference between what you’ve got on the wholesale market today versus what you could’ve gone if you have sold directly to the retailers?

Where you kind of asked me to back where we’re getting now, which I don’t want to do. But let’s just say in….

Is it 20% premium or 30% premium, or…?

Yes. Other than the 40% that’s earmarked this year, it would be minimal 20%.

20%, okay. Okay, great. That’s it for me. Thank you, guys.

Thanks.

Your next question comes from the line of Aaron Grey from Alliance Global Partners. Your line is open.

Thanks for the question, guys, and congrats on a quarter.

Thanks, Aaron.

So just two high-level questions for me. First, on the competitive landscape, can you talk about how you see that involving, especially with the change in new licensing, that Health Canada just kind of rolled down – they announced yesterday assuming that does kind of weed out some of the players who aren’t really ready to compete and leads to expediting licensing. How do you think that impacts the industry dynamics in terms of when you see Canada kind of reach equilibrium of supply and demand and how that can impact your strategy going forward?

Well, we’re analyzing it specifically, it was a little bit nebulous. So our team up in Pure Sunfarms is working on it over the next day to really understand it. But I can understand Health Canada being inundated with so much and they have to deal with a lot of your time processing the initial license request from companies that will never do anything. They really need to take that noise off, because they have their hand phone, I feel for them. So I think that’s a very positive move. And I think there should have been sort of events. People should’ve been screened in the beginning even years ago and not just supply for licenses online. I mean, that’s why we took a different course of action, because we thought we were going to go alone, but it could have taken a long time to get there. So that’s a positive thing from – that’s just my personal opinion. However, if that is the case, then I think it’s going to start separating – the train has left the station. And if you’re not in it now, in my opinion, because, again, we say everything commoditize is out and it’s a price demand situation. So as LPs continue to ramp up their production, it’s going to – the day is going to come when the music stops, because we say in Village Farms and that’s the day when there is one too many birds out there. And so I think if I was – if somebody is looking to put capital into a new start-up, I think it’s going to be pretty tough, because if you’re not in a game now, by the time we ramp up, you could be talking three, four years for some of these types who have no experience with these companies. So I think that’s a big positive and may even lead to some consolidation of existing players moving forward. So, yes, I think it does well for us going in that direction. And then the other thing across the production, I mean, you have to look at what is the cost ultimately of different companies? I mean, if you have – my opinion, if you’re growing indoors and I’m not going to get into people’s quality and this quality and that quality and all this. But at some point, the high-cost guys are they going to be able to survive long-term, and we’ll not talk in the next few years down the road. So, yes, I think putting some procurement on it was a good thing.

All right. Great, thanks. That’s helpful. And then just can you kind of discuss your plans in terms of novel form factors as they come online later this year and into 2020. Was there any partnerships you might be looking to form to help our post-products or any color there on your strategy?

No, I think we feel really confident where were at with Pure Sunfarms. The teams – our CEOs put together is dynamite. They really – there is – so they’re in a good way. So, that’s not to say, we would – the company, Pure Sunfarms, can operate anywhere they want in the world, they have no restrictions. They have a tremendous amount of independence, and – but yet they decided let’s get it right first at Delta 3, let’s launch the brand, let’s get our retail sales going, let’s build out the next million square feet, let’s continue to execute, generate cash flow, and I think that’s the right decision for the management team. But that doesn’t mean that they would look at opportunities, or acquisitions, or partnerships, or even moving outside of Canada when the time is right. So, we like where they are at this point building up that experienced base of knowledge. And certainly they could look at many opportunities going forward.

Okay. Great, thanks. And then just to clarify, I guess, most of the guys talking about with the novel form factors, wafer, edibles and beverages and no plans kind of with your branded product going forward to kind of go in those categories, you’re going to kind of stick more to wafer from extract?

Absolutely positive, simply they do. So…

Okay. Yes, that’s more…

….processing license. So the first thing will be pre-rolled and other current products that are allowed by Health Canada there. That is all in place right now and extraction by year-end, because it’s got a start at the extraction point. And as soon as that gets going and it’s working well and up to seed, then it’s about product development roll out. So, yes, they’re keenly on that going forward. And we’ve had sort of – I think it’s been a great thing that Health Canada moved too forward on that than everybody catch their breath so far. It’s a very fast-moving industry before you take it to the next level. So we think we are positioned timing-wise very well there.

Okay, great. Thanks.

You’re welcome.

[Operator Instructions] Your next question comes from the line of Ryan McDonald from GMP [indiscernible] Securities. Your line is open.

Hi, good morning, guys.

Good morning.

Good morning.

Just – most of my questions have been answered so far. I’m just wondering on the Hemp side in the press release you mentioned the potential to explore and cultivation in Latin America and Mexico. Could you elaborate a little bit on this? In particular, have you explored the possibility of importing that raw material into the U.S. and/or the Cannabis extract or just sort of the Hemp extract into the U.S.?

From Canada?

No, I’m sorry, from Latin America and Mexico into the U.S.?

That is yet, but that’s clearly on – we’re clearly – let me put it this way. We’re well aware that there may be a possibility. If you look, we did mention before and in our press release that as we move forward with the U.S., the foundation of the U.S. strategy to grow upon were clearly looking down south. We have great relationship South of the border, we have ongoing conversation. So let me put it to you this way. If I knew what I knew now 30 years ago, when I built the first greenhouse in Pennsylvania, I would have built the first greenhouse in Mexico simultaneously. Based on political decisions that recap on the industry and it’s not just greenhouse tomatoes and vegetables, strawberry guys in the U.S. are suffering. So it would be naïve to not take that experience level and be prepared for things that change, both for Canada and the U.S. and not have a relationship at least in Latin America. And so that’s a kind of back of the way of answering your question, but yes.

Yes. Thank you. That’s good color. Also on Hemp, you mentioned that you’re going to be using five genetics for the initial cultivation in 2019. Can you share with us what the expected concentrations are for those genetics for CBD?

They all different. In general, we’re shooting for 10% this year, that’s our goal. People are incentivized based on that percentage, but a lot is going to into it. It’s a very – as it scales up. I mean, more and more of the harvesting manufacturers now are looking at the space. You have to treat the harvest different than others. So I think it’s going to get better as it goes. I mean, the genetics, just starting with these genetics, we have a whole host of genetics that we’re looking at going forward. The difficulty in the U.S. is the 0.3 THC level, hopefully, that changes in the future. But at the same time, it’s really working on a genetics to have better CBD possibilities, while maintaining that 0.3. So we work hard even on the legislation to have the 0.3 being measured at the extraction point, where we can take out that THC if it’s hard. But it’s – we’d just be happy to get legislation passed this time around and work on it for the next time.

Cool, cool. And for transitioning Pure Sunfarms on the cost lines and margins, do you continue to expect that as production scales up and the production costs per gram go down that you – with the added packaging costs once you start shipping direct to provinces, you can maintain your margins longer-term at their current levels in the 65% to 70% range on the gross margin line?

Well, certainly, when we add oils, oils come with a higher margin than that. So there may be some percentage pressure later in the year depending on how fast the extraction is up and running and, of course, license by Health Canada. So – but the gross margins, all-in cost of your extracted oils is much higher than our current dry margins, which are great, certainly come with tomato perspective. Their 60%-plus gross margins are phenomenal compared to our traditional crops.

Yes, and also on the labor side, unlike produce, I mean, post harvest labor in Canada business is huge. It’s equal to the – it’s higher even than the cultural side. So as you extract, you reduce the cost, which is pretty significant going forward.

Cool, yes. Okay, thanks for the color there. And lastly for me, I appreciate all the color you guys gave on the timing of the licensing and the planting of Delta 3 quadrant. So just kind of a high-level question. It sounds like revenue in Q2 could actually double from Q1. Is that reasonable?

Well, we’ve more than doubled the bio asset quarter-on-quarter from 7.4 to 18.2. So that’s again a leading indicator gross margin of how strong Q2 could be. And again, that’s the gross margin, that’s not the sales figure.

Okay. Okay, that’s all for me. Thank you.

Thanks.

There are no further questions.

Thank you, everyone. Look forward to the next report come August, and thank you so much for participating this call and being part of Village Farms family here. It’s much appreciated. Thank you, operator.

There are no further questions. Have a great day.