Good morning, ladies and gentlemen. Welcome to Village Farms International Third Quarter 2019 Financial Results Conference Call. Yesterday, after market close, Village Farms issued a news release reporting it's financial results for the third quarter ended September 30, 2019. That news release, along with 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 one hour following completion of the call. Details on 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 security filings, including Village Farms current annual information form for the year ending December 31, 2018 and MD&A for the quarter ended September 30, 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, Mr. DeGiglio.

Thank you, Casey, and thank you, everyone for joining us by telephone and Internet today. With me for today's call is Village Farms, Chief Financial Officer, Stephen Ruffini.Agenda for today's call, I will start with a review of another quarter that continues to set Pure Sunfarms apart from its peers both operationally and financially. I'll provide an update on the progress of our U.S. hemp CBD initiatives, highlighted by the solid results from our first outdoor growing season. Steve, will review our Q3 financial results in detail and I returned to discuss why are we are more confident in Village Farm's ability to capitalize on these new high growth opportunities in cannabis and CBD and why 2020 and beyond holds so much promise for our company. And then we'll take some questions.Q3 continues to showcase Pure Sunfarms as a best-in-class vertically integrated cannabis supplier. Pure Sunfarms continues to set the standard for operational performance, which was once again clear in these financial results.Let's get right to the numbers, which once again ranks Pure Sunfarms among a large most efficient and most profitable licensed producers. As a reminder, all of Pure Sunfarms numbers that I will discuss here are before Village Farms' 50% share and are in Canadian dollars.So net sales were $24 million and I remind you that the entirety of that sales figure and sales of cannabis product solely. I would also note this amount does not include $7.2 million that Pure Sunfarms invoice but due to accounting rules was not -- was unable to recognize in Q3 because the customer, Emerald Health Therapeutics is disputing its liability under terms of the supply agreement.Gross margin was 69% driven by -- throughout knowledge continues to be an industry low greenhouse cost of production of just $0.63 a gram, down sequentially…

Thanks, Mike. I'll break my comments down by business line and touch on some corporate matters rather than just regurgitate statutory figures, which everyone can read on their own. First, cannabis is a subject that everybody wants to hear about. Pure Sunfarms continues to demonstrate strong financial results.For the fourth quarter in a row, Pure Sunfarms sold approximately 12,000 kilograms in Q3 of bud and trim, with net sales of CAD24 million, for an average price of around CAD2 per gram combining flower and trim, for what was in the second quarter of 2019, a CAD4 per gram wholesale flower market. Q3 did have more trim sales than Q2. Those sales were to extraction customers at attractive prices.Sales to provincial government started very late in Q3, and were roughly 10% of the quarterly sales for Q3. Pure Sunfarms generated a 69% gross margin in Q3, as it continues to lower its cost of production. As Mike mentioned, all-in cost of CAD0.63 per gram, $0.47 per gram U.S.Pure Sunfarms produced approximately 17,000 kilos in the quarter. With the last few grower rooms not starting till mid -- late July, it is producing at the expected annual run rate of 75,000 kilos per annum.Note, this is not -- this is farming. This is not a linear figure. It is farming to light levels, planning cycles varieties grown in the world fluctuate our production between quarters as Mike has said in prior comments, we look at these greenhouses on an annual basis, but we're very confident with their 75,000 kilos annual run rate for Delta 3.As reported previously, the cost of production of Pure Sunfarms in all greenhouse producers in Canada will increase in the winter months due to the use of artificial light, systems versus summer production. By this, we've also previously…

Thanks, Steve. So in closing, let me just say that, we appreciate that this is a volatile period for the Canadian cannabis industry. We knew the market challenges would come. We clearly knew it from day one. The crash has comes a little sooner than expected. But we built Pure Sunfarms for good times, but planned for the tough time, and Pure Sunfarms continues to execute exceptionally well, and what is under its control, low cost production alongside powerful brand positioning, high quality safe products that are in demand at an attractive price point.This has and will continue to serve us very well, as we navigate the choppy waters in the Canadian market, and now enter the U.S. CBD market, which may experience similar growing pains in the coming years. It's not anything, we haven't seen before, and it's not anything we haven't done before, another benefit of our more than 30 years of experience.We are moving forward, but remain prudent and thoughtful, as we pursue all of our opportunities, mindful of long-term sustainable profitability, as the market develops and matures into a multi-billion dollar industry and likely takes on the illicit market.With Pure Sunfarms self sufficient and self-funding situation, Village Farms management team is focused on this next opportunity, which is the CBD market in the U.S. and beyond. We're off to a great start and look forward to reporting on our progress, which we will not only expect to drive shareholder value for years to come, but also, firmly position ourselves for the Holy Grail, which we consider the federal legalization of cannabis in the U.S. in the future.So with that, I'd like to open it up to a few questions. Operator?

Thank you. [Operator Instructions] And your first question here comes from the line of Doug Cooper with Beacon Securities. Please go ahead. Your line is now open.

Hi, good morning, Mike and Steve, and congratulations on a tough environment. Good quarter. A couple of things first come to mind, what's the dispute mechanism with Emerald for that CAD7.2 million?

Doug, everything we have to say in the Emerald subject is in the press release, and we're just going to leave it at that, at this point.

Okay. Second question, just I guess looking into Q4, can you talk a little bit about the expectations in volume and pricing both in Canada, excuse me – in Canada. And then maybe Mike, you can touch upon the current biomass pricing for the hemp in the U.S.?

While in Q4, I think on the retail side, segregating the retail side, I think we just established that price point last month, and I think that we're pretty well continue through the fourth quarter. On the wholesale side, I think that's yet to be determined, because what appears to be happening more and more is that it's very weighted towards the end of the quarter, as far as purchasing. Also, I think probably similar in my opinion, to what we saw in the third quarter. And I think that will start revealing itself some time in December.Obviously, it's a race between the buyers and the sellers and they all know that everybody wants to make their quarterly numbers. So wait till the last result and then see who flinches and that will set the pace, at least through weathering these choppy waters. And I think eventually, 2020, we will get through that and find balance. But I think we're looking at another quarter similar to the third quarter.

And your next question here comes from the line...

Let me just finish. I'm sorry. On the CBD side, so on the CBD side, there has been price compression, very rapidly. I mean for this year, since legalization last December everyone has rather sort of jumped in the market. People who have never grown an agricultural crop before -- there are so many growers out there they didn't even know how to dry. So it's just sort of a gold rush and we've seen price compression since April through October, depending on quantities upwards of 45%. So I think there'll be some significant price compression into the new year on the CBD side.

And your next question here comes from the line of Andrew Partheniou from GMP Securities. Please go ahead. Your line is now open.

Thanks and congrats on the impressive performance so far in rec. I wanted to ask a little bit about your post harvesting area. You mentioned that you're going to be launching pre-rolls very soon, and I think you've already launched a new strain in the market as well recently. What can we expect in terms of new strains or potentially differently processed products, hand trimmed products that may carry different pricing?

Well, I think it's -- Andrew, thank you for your comments. And I mentioned in the call that we're going to be somewhat tight-lipped on what our innovation is? But innovation, clearly as part of going forward, there has been a lot accomplished this year, including this build-out of this certified -- GMP certified extraction area and we have a lot of plans also on Delta 2 to do some very unique things there, that we're not ready to put out.So I think the innovation is going to drive it. But I think the prudent approach that the Pure Sunfarms leadership is taking is, not to rush into it. As I mentioned looking more second, third quarter. But strain development is a huge undertaking, and I think personally, I'm impressed with what they've accomplished with the amount of strains -- not only putting strains out, different strains that people want, and that's evident by the market share dominance that they've shown early on. So I think that will continue.

Thanks. And on another note, I believe your JV partner still requires some capital to contribute in Delta 2 building it out. As of Q2, I think that was somewhere around CAD17 million. Just wondering if you could provide an update on that?

That is an ongoing equity contribution on Emerald's part and that – we will just leave it at that, at this moment.

Your next question here comes from the line of Scott Fortune with ROTH Capital. Please go ahead, your line is now open.

Good morning and thanks for the call. Real quick to follow-up, on the Emerald Health allocation moving forward, so 4Q you don't expect Emerald Health to take any further allocation here?

I don't think so. They haven't taken any at all in the second quarter to speak of -- I'm sorry, in the third quarter. So, so far in the fourth quarter, zero. So, I can't speak for them, but I think just based on what we've seen, it doesn't appear they will take any of the allocation.

Okay. And then follow-up on category segmentation at the province side of things, they're selling at a good, better, kind of, a best price level. Where is the strength and where you're -- some of the competitors are now announcing more value offerings at the provincial brand side of things, where are you seeing your strength on the Ontario in October that you highlighted there as far as the easy segmentation from the category side of things?

Well, I think as we said, it's sort of a four-legged stool, in a way, it's a value proposition that the management team, coin their strategy was affordable luxury. But it doesn't matter what the price is if you don't have what consumers want. So, I think this four-pronged approach of clearly high quality product, that's safe and strains that the market wants and we're talking about the customer that's been a user -- of adult use for many, many years, very knowledgeable customer base.And having strains that they want and then finally, at a price point that resonates well with them. And I think that is -- that whole package of our value proposition is where you really need to be and pricing plays into that because the pricing has more or less been established for decades on the illicit trade.The illicit trade is a very large market. It's an existing large market. So, I don't think it's all about building the market; it's just cannibalizing it from the illicit side to the legal side.And that -- and pricing plays into that and I think the management team at Pure Sunfarms is very clear and steadfast on what they need to do going forward. And again that's why we always talk being a low-cost producer, but not at the sake of quality of brand that all plays into equally. You have to have the whole program, but pricing will determine how quick -- along with the roll-out of additional stores and so on. But pricing plays that well, because illicit traders, they set that bar early.

Your next question here comes from the line of Aaron Grey with Alliance Global Partners. Please go ahead. Your line is now open.

Good morning and thanks for the question. First question I have is just on the wholesale market and pricing. Can you dig a little bit deeper in terms of price per gram in the quarter? Are you seeing different kind of pricing between the trim and then also within the flower, whether or not high or low THC? So, we can kind of give a breakdown, kind of, between those, also in terms of mix and how to expect that kind of ranging going forward? Thank you.

Thanks for the question Aaron. For commercial reasons, obviously, we're not going to break -- we don't break that down. Yes, there is a range. There is a wide range of tomato pricing, there's a wide range with the cannabis pricing based on demand, based on contractual agreements with provincial governments, and it does vary by variety based on THC or Pure Sunfarms also has a high CBD strain that is doing well. And there is a difference between flower pricing and trim pricing. But we're knowingly not going to break that down, because it's commercially sensitive information.

Okay, great. Thanks. I appreciate that. And then just on volume, 12,000 kilograms for the quarter. You mentioned also whole flower and trim, a little bit more trim this quarter. How best to think about I guess that volume as we go forward? Do you feel like at least that mix between flower and trim will hold, or you can get more increase towards flower? And how we should think about overall volume sales relative to – not just the full run rate of 75,000 kilograms annual for the year – for the Delta facility that's now in full production. Thanks.

Predominantly, our production is flower, and that figure that I gave you, is a strong predominance of that. With respect to trim sales, it was opportunistic, extraction companies like trim. And ultimately, some of it will change, obviously we'll start taking that trim ourselves, putting it through our own extraction on a go-forward basis. So the mix of flower and trim – certainly, in 2020, we will have a mixture of flower trim oils. Pre-rolls will start this quarter. So it will all get mixed in.

And your next question here comes from the line of Eric Des Lauriers with Craig-Hallum. Please go ahead. Your line is now open.

All right, great. Thank you for taking my questions guys. I wanted to try one more on the wholesale pricing. So clearly, looking like – or expecting similar results in Q4 compared to Q3, as it relates to wholesale pricing. I'm wondering as we look out to maybe 2020 and beyond, where you guys see spot prices, maybe finding equilibrium already below cost of a number of other LPs, would just love to hear your thoughts, as we look out beyond Q4? Thanks.

Well, I think a lot of – not just other LPs, but extractors at some point will decide more, who they want to buy from, based on quality of strains that are there. I think, today there is so much – there's a lot of choppy water out there. So everybody's negotiating without necessarily indicating, who their preferred supplier is based on the strains and quality that they have. But I think that's going to start to separate in 2020.As I said, the fourth quarter maybe reminiscent of the third quarter. But I think there is that break out. And there is a lot of quality out there that other LPs really don't want. And certainly extractors don't. But I think they all use that in the negotiation of pricing right now because of the way the market is. The roll out is just too slow on the retail side. So there is a backup on that. But I think that's going to separate, and it may even – eventually firm up, wholesale pricing going into 2020. So it's just a matter of getting through this time, and I think there is going to be a compression of the amount of suppliers in the marketplace. I think that's inevitable going forward. And we'll see who emerges as the dominant suppliers in the marketplace.So I decided to look forward to 2020. As I said, we have always planned for the best. We hope for the best and plan for the worst, and we always look that there would be price compression. Did not think it would happen quite as quick, but it is what it is and that's why being a low-cost producer is very important. Among the other attributes you have, you have to weather the storm, and that's why we shot for profitability day one to have positive cash flow to weather times like this.So, we'll see what the wholesale shakes up in 2020. But I think it's yet to be determined for the fourth quarter. I think, if you look at cash flow generation on the quarter-to-quarter, you see it's very weighted towards the end of the quarter. So that's where a lot of the sales start to occur and that will happen here in December.

All right. That makes sense. I appreciate the color there. And then maybe just one follow-up. Wondering if you can provide some -- maybe just some anecdotal commentary on the willingness of provinces to sign more supply agreements, given the elevated inventory levels, introduction of Cannabis 2.0 products. And any comments on Alberta specifically would be great. Thanks.

I think that's a forthcoming, standby of that. And, as we said, the team there has surgically decided where they wanted to go first, second, third, and I think you're right on, with that guess. And it's just really being run by the population and the amount of penetration that's available through the retail side, and I think, Alberta, clearly, is way up there on top of the echelon.But I think there's a lot of -- I think like any other customer, it's what strains can I get, that the consumers they have want, because they want to drive sales as well, and I think that's where Pure Sunfarms has already demonstrated success with two of the initial provinces. And again, this just all started basically in September, so pretty massive. So, I think, standby on that, and I think you'll see some news coming.

And your next question here comes from the line of Rahul Sarugaser from Raymond James. Please go ahead, your line is now open.

Great. Thank you. Good morning, Mike and Steve. Thanks so much for taking our questions. Congratulations on the quarter. I mean, just going to reiterate my counterparts, its rough waters out there. So coming back to the wholesale market, and the -- particularly outdoor grow that's starting to come online.How are you, sort of, positioning yourself to compete in that market particularly as the outdoor grow, which is being -- which we're starting to see numbers of sort of $0.05 to $0.10 per gram level coming onto market?

Are you talking specifically in Canada?

Correct.

Well, I haven't seen anybody document $0.05 a gram and I think most of the outdoor grows I've heard of have not been successful. May be I'm missing something there. But, I'm really not that concerned with it. Based on my experience, outdoor grow, I think, in Canada, the latitudes they’re at, they've had a place in the illicit trade.But I think ultimately Ag technology will be the dividing force. And I think where we are today on our value proposition, which includes pricing and you're looking at our cost, we think we can continue to drive that cost down. So it's just not about cost out of the field.And honestly, the amount of -- without having any tools available in this industry in terms of what you can do to steer the crop and mitigate infection virus and vectors from insects that cause disease, the pressures and the stresses on the plant in an outdoor environment, I'm not sure those numbers are realistic at all. And honestly, I'm just not that concerned with the long term.

Okay. Fair enough. And then, just a follow-up question then. In terms of the cost of goods you've been talking about, $0.48, CAD 0.63, what you recognized is that will very based on seasonality. And also, I recognize that, Steve in particular, you always make sure to put in depreciation, whereas a lot of the market is also publishing numbers that illustrate cash cost reduction. Are you planning on, at any point, disclosing those numbers?

Well, our cash cost is lower we'll say that. But excluding depreciation, it’s just fundamentally wrong in our view. I mean, the cost of capital and high-tech agriculture growing should be included in one's cost of goods sold and not buried below some income line or in SG&A or something like that. It is a cost of production and it should be included.Yes our cash cost are higher. And that's indicated, obviously, one can figure out depreciation charges if he want by looking at our cash flow statement, which does describe depreciation and amortization. So you can figure it out if you want to. But fundamentally, we think it should be included and that's why stated our all-in costs includes depreciation at CAD0.63 per gram for the quarter.

And you're next question here comes from the line of Stefan Mykytiuk with Grays Lane Capital. Please go ahead. Your line is now open.

Good morning. Thanks for taking the questions. Two question, I guess. The first off, the $2 a gram of average price that's obviously being dinged by the $7.2 million of revenue you couldn't recognize. Do I have that right?

Well, we take the gram sold the 12,000 kilograms divided into the 24 and yes we could not recognize a $7.2 million.

Right. So it's roughly 2.60, if that had been recognizes as revenue, I just want to make sure I got that right?

Yes.

Okay. And then Steve you said -- I think you said roughly 10% of volume in Q3 was sold direct. And it was only a couple of weeks. Just given the success that you're having in B.C. and in Ontario, what you think that direct mix could be in Q4 then?

Well, my answer to that question, which I asked you tell me how many stores are going to be open and I can back into the number. We are starting to get Ontario in particular does give us good sell-through data. So you can start doing the math, which will be helpful going forward.But the fundamental issue there everyone stating its just the number of stores. So I know there is plans to open, I think B.C. right now has 15 stores active plus or minus and has issued 90 to retail licenses. So depending on how fast those stores get up, obviously, I expect it to be improved in a higher percentage in Q4 versus Q3. But what the final percentage is I just don't know because I just don't know the number of stores. Nobody does.

And I'm showing no further questions in queue at this time. I will now turn the call back over to Michael DeGiglio for any closing remarks.

Well, thank you everybody for participating. As I said it's choppy waters right now in Canada. But we're bullish as ever long-term and we look forward to transitioning to GAAP, starting January 1st, reporting in March going forward on our progress both in Canada and the U.S. And thank you for sharing in the time and Village Farms look forward to talking to you next time.

And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.