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 that many of our shareholders wanted us to respond loud and strong publicly.

We have taken your comments and with that we do appreciate your input. However, we also heard from many others, including our advisors and others in the industry who advise us clearly to push past the distraction, turn off the coke feeds and focus our time and energy on continuing to execute on our multiple significant business opportunities.

So we chose the latter, and two days later we closed the $20 million financing with no sweetener straight-up equity at $20 a share. There’ll always be a ping in the capital markets, but what we always – what we will always shrimp [ph] the ping and there’s the undeniable business execution of financial results of both companies who are being targeted.

At the end of the day, we are confident that our shareholders will do their own due diligence. We encourage and welcome it and that they will make up their own minds and invest according.

The success of our company will ultimately be judged by our ability to execute on our business opportunities and deliver in growth – and growth in earnings and the integrity that we all have here in Village Farms that we have for 30 years. We are a very transparent, honest and company filled with integrity at every level and we’re very proud of that.

So with that said, that’s a great segue moving forward to our financial results. So as I mentioned, we are very pleased once again this quarter report positive net income for Pure Sunfarms.

The second consecutive quarter of profitability and with net income increasing substantially to $8.6 million from $5.5 million in Q4, that contributed to positive net income for Village Farms overall at $7.6 million, or $0.16 a share after-tax.

Pure Sunfarms sales in Canadian dollar tripled sequentially to $14.4 million, or US$10.8 million and EBITDA was CAD$4.3 million or US$6.4 million for an EBITDA margin of 59%, up meaningful – meaningfully from 48% in Q4. And here’s a quick note that we had a few questions around our JV partner pre-releasing Pure Sunfarms revenue number on May 1.

And I just want to say that it is our current policy here at Village Farms not to report preliminary numbers. So when spec to our numbers, it’s worth noting that Pure Sunfarms achieved these results with Delta 3, still very much in early ramp-up mode.

Only quadrant 2, which was –which is about a quarter of the 1 million square feet was harvesting throughout the entire quarter. Half of quadrant 3 was only licensed at the end of January and planted that in February and had no harvest in the first quarter.

And quadrant 4, the final one was only licensed mid-March by Health Canada and was brought in production in April of this quarter, and quadrant 1 was also brought back into production in early April after being offline for several months with the installation of lighting and those several months were during that first quarter.

So, we’re really proud that we sell based on just 25% of the operation harvesting. Having overseen the start-up of numerous large-scale greenhouse operations with 30-plus years, I can tell you that this is a significant achievement to be posting these types of numbers at this point in the ramp-up of the operations.

The performance makes Pure Sunfarms standout in a Canadian license producer landscape, despite most others having a significant head start in many cases years ahead and having spent tens or even hundreds of millions of dollars more to start up their operations.

I have said this many times before, but it bears repeating now, especially that Pure Sunfarms has exercised its option on the second Delta facility, Delta 2, which is approved on the back of the success with Delta 3 on the strength of the outstanding team that’s put together at Pure Sunfarms.

Converting an existing greenhouse with the additional benefit of experience and know-how in developing and ramping up large-scale operations, the largest in North America that Village Farms bring to the table, has a significant advantage. As I said before, lower capital costs to convert.

And as a reminder, we were able to secure 24 megawatts of power for each of the Delta 3 and 2 facilities directly from the utility without spending nearly $2 million of megawatts for cogeneration. That’s a huge capital cost savings versus competitors who have to put cogen in.

Secondly, the speed of conversion is much quicker than building a brownfield site new development, 750 years of combined grower experience I talked to that many times.

The experienced skilled force already in place that’s been on the slate 20 years, that by far number one in achieving these types of goals, years of chronological data that our grower team can base it on.

So we’re seeing the benefit at Pure Sunfarms and hopefully, we will be provided with the opportunity to demonstrate this same level of execution in Texas with Hemp. Two months ago, since our last call, numerous additional harvests have been completed.

I’m pleased to report the facility continues to perform well meeting our expectations, yield and quality are continuing to meet or exceed expectations.

Demand for product revenues, product remains strong, wholesale pricing remains buoyant and Pure Sunfarms is taking full advantage selling essentially everything that’s producing to drive near-term cash flows.

As per plan, last month Delta 3 facility was fully planted out, as I mentioned, and we are now growing on the entire 1 million square feet of growing area. The Delta 3 facility will very shortly be operating at its projected annual production of 75,000 kilograms on a run rate basis when we start harvesting quadrant 1 and 4 this summer.

I want to take this afternoon to provide some content for our projected production numbers of 75,000 kilograms anywhere from our 1.1 million square foot facility. We have had a lot of questions and some criticism around these numbers. Many believe even most of our peers are projecting higher yields per square foot.

Our projections are admittedly conservative, but we have three decades. As a large-scale grower, we feel we have an advantage in our perspective. It takes time to ramp-up a new growing operation even one with inherent advantages I discussed a moment ago.

It’s a process that cannot be cut short and ultimately it’s farming subject to a number of factors out of our control, temperature, sunlight, it’s not about what goes right, it’s about what doesn’t go the way you had hoped and how quickly the team evaluates and finds a solution and implements a strategy to correct it.

So we believe providing conservative production numbers as we ramp-up is a prudent way to go. That said, I have no doubt that when Pure Sunfarms and all of its peers will be realizing yields at a minimum or on par with the industry average. And again, I think, we’re being conservative.

So Pure Sunfarms on the extraction front continuing to move for our extraction plants forward, very much still on track to have in-house extraction operations in place by year-end this year and scalable to cover both Delta 3 and 2, or over 2 million square feet.

Oils and derivative products, we produce [ph] overall product strategy and to the extent that we need to be ahead of having own capabilities in place, where we use third-party extracted short-term and we’re having those discussions right now. We’re very comfortable with the progress and the path forward.

As I said in the past, we take a serial approach initially and that’s get the operation converted, built on the foundation, put together a great corporation and team, get through the production ramp-up, post harvest and now the process to move forward to extraction.

So with the Delta 2, we announced that a few weeks back, the next greenhouse another million square feet with the unmitigated success with Delta 3 and the confidence level that the entire team has today, including the Board, conversion, licensing, production, ramp-up, the quality of product, we were thrilled that we exercised the option jointly with our partner on Village Farms additional Delta 2 facility, which is nearly identical to Delta 3 and adjacent to it.

At a minimum double Pure Sunfarms’ projected annual production to 150,000 kilograms, again, this is conservative number. We expect benefit from the significant learnings around Delta 3.

As a reminder, Village Farms contributed the Delta 2 facility and our JV partners contributing $25 million towards the estimated $60 million conversion cost, with the remainder to be blended to Pure Sunfarms own cash flow and the recent $20 million credit facility with Bank of Montreal and Farm Credit Canada.

Timeline, we’re beginning the conversion of external areas this summer and the conversion of the internal growing area in the fall, expecting first harvest mid-next year and the full run rate annual production in Q4 next year. Yesterday, as many of you know, Health Canada announced a revised licensing application process for license producers.

We understand it may require new applicants to build out their facilities and its entirely before submitting their application. There’s some uncertainty and we’re investigating what that exactly means right now.

But it could be using upheld Canada’s workload and clearly there are many applicants that have no intention of going forward due to lack of capital or assets. So that could be a positive, I think for the industry. Regarding our product branding and strategies, significant process has been made.

We’ve continued to build a superior branding team now well advanced and we expect to grand launch the Pure Sunfarms brand. The management team of Pure Sunfarms will be launching that by the end of this quarter. Packaging and processing license also continue to be expected before the end of this quarter.

We know that Ontario is very impressed with our operational product and is very eager to get our product to their system and we expect to begin shipping very quickly after the licenses are in place, as well as adding other potential buyers who are waiting. So I think in the third and fourth quarter, we’ll see that coming to fruition.

So I can assure you that the process is moving forward and we continue to plan around receiving the licenses in Q2 as mentioned. So let’s move to the U.S., very quickly moving forward with our U.S. Hemp/CBD initiative opportune to be an early move in the space. Some background there.

We realized that even with a number of states passing legislation currently going on that Georgia – I don’t mention, the Governor Georgia signed it into law this morning for Georgia. We realize that by the time the USDA has all the regulatory processes at even the states that are permitted now will not be able to produce this year in 2019 outdoors.

So we focus on the 2014 Farm Bill States and there was a great move, I think, by our partners who is doing so. So kudos to those guys who had the vision to see that. So as a reminder, in December the 2000 Farm Bill was passed legalizing Hemp with CBD level at the federal level.

And we issued a press release, say, next day, moving forward aggressively in the space and the sector has a concerted projection to about $16 billion market.

Our goal is to be vertically integrated consumer package goods company, that’s our focus going forward, growing, extracting, producing our own products for the retail space, and many of those are existing customer that we reported before and is an expanding consumer space to many channels.

Moving first as an outdoor grower, Village Fields Hemp 65% joint venture we formed in March of this year with the Jennings Group very experienced in Hemp. So [indiscernible] please report that we have started germination preparation for planting on more than 800 acres in three states.

We’re evaluating opportunities for additional acreage, will depend to some extent of regulatory developments. And as I just mentioned this morning, the Governor of Georgia, where Village Fields Hemp is headquartered and where we expect to locate our personalized extraction operation signed its law in that State [indiscernible] cultivation.

In anticipating of being – in anticipation of beginning to grow this spring, last fall, we secured more than $2 million worth of seed, which is in the short supply and we will – which will be more inadequate to address our plan for this year.

The timeline is we already started germination for all the 800 acres last week transplanting the field over the next two to three weeks. All acres should be platted by mid-June planting five different varieties of seeds, all with good genetics from a very strong breeder, still harvesting, still harvesting this summer.

We’ll initially sell biomass as we get extraction operations in place, evaluating several site locations in Georgia and targeting extraction by Q4 into Q1 begin CBD oil on a wholesale basis next year and the transition into production of brand in a way label CBD products to existing national customers and new channels going into mid-to-late 2020.

Aspirations for our parallel greenhouse program to leverage our existing large-scale operations in Texas, let’s talk about that in March.

Texas has scheduled, Hemp is a controlled substance bringing its status in line with that, which is fairly legal, but can’t grow our Texas patent law to create a Hemp program, which would provide the regulatory framework for the cultivation and processing of Hemp and production of Hemp/CBD products.

Hemp though was passed by Texas House with the unanimous voters and is now on its way to Senate strong supporter of the Hemp Bill that we are encouraged by the process – progress to date that’s being made. I would now like to turn the call over to Steve, who’ll walk through the financial results.

Steve?.

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 margin in the fourth quarter of – which was 68%. So very consistent in March. You heard us say that the 2018 cost per gram was roughly $1.

We all said that due to seasonal and operational cost involving lights, in our case, cogen [ph] in this first quarter of this year, we expected higher cost in a dollar program, which was, in fact, the case. Roughly one-third of the Pure Sunfarms Q1 cost of sales were due to seasonal factors, which will not be incurred in Q2 and Q3.

So since the gross margin was at 65% comparing to prior 68%, that essentially – which is essentially flat quarter-on-quarter, that obviously mean with higher cost per gram, that our revenues per gram also increased on a quarter-on-quarter basis.

The increase in the revenue program is a reflection of ever improving quality, as Mike said, it’s a ramp-up operation, particularly in the post harvest operation of Pure Sunfarms. Again, the the full notes of the financials are in note 7.

And I also want to call out note 7, the increase in bio-asset on the balance sheet March 31 was $18.2 million, compared to be the opening balance of January 1 at $7.4 million, so that’s a strong leading indicator that the gross margin for Pure Sunfarms will be subsequently higher than Q2 than it was in Q1.

On the produce business, as reflected in our press release, it was a tough quarter. As reflected, as I’ve said on our cost program on Pure Sunfarms, it’s the same in our produce business. We don’t get into cost per pound that is how we track or cost internally due to production issues at our Texas asset in the winter. We did have crop issues.

So the fixed cost is essentially when we pull a portion of the crop or we have lower yield, does drive up our cost of production, which is reflected in or cost of sales in the first quarter. We are keenly aware of the production issues they had been addressed.

There’ll be a little bit of carryover on some of the more expensive Texas pounds in the beginning of the second quarter. But the second crop in Texas, as well as Canadian crop looks good, and we expect improvements in our produce margins in the second quarter and as the year progresses.

With respect to adding a little color to Village Fields Hemp at a high-level, we disclosed 800 acres for the year. You’ll hear in the industry estimates of production between 1,000 to – all the way up to 2,500 pound, where in Village Farms we’re going to be conservative.

So we’re going to use 1,000 pounds per acre, so that’s roughly 800 pounds in biomass, as Mike said. Some of that will be sold direct to third-party extraction as biomass is some will be retained for our own extraction, which won’t be up and running until late 2019 into 2020.

So in that regard, it use the benchmark of $40 pound of biomass, 800,000 pound full $32 million of revenue will not be realized all in 2019. Some of that will carry into 2020 and that will be decisions made by Village Fields Hemp. Based on our own extraction, as Michael said, were all about cash flow.

So we would certainly sell enough of our own biomass into the market to certainly cover our cash flow needs for this crop, as well as for some of our extraction crops and then we’ll retail some of that for ourselves to launch our own extraction, which had substantially higher margins.

But we are projecting a cost per pound for Fields Hemp of roughly $10 a pound in the field. So with that, I’ll turn it back over to Mike..

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 taken a bit of time and done extremely well, not even 24 months.

And we’re very pleased with how quick we’re moving and deliverables as well. So commence conversion of Delta 2, that’s expected now. We’re already in the planning and procurement phase, and we learned a lot on the Delta 3 conversion. So it should go fast and smooth and perhaps even at a lower cost.

Option on our Delta 1 facility, we regularly get questions about the economic sense of adding another 2.6 million square feet, or another 180,000 grams as we had said just on that one footprint converting now with the two conversions and three if we did Delta 1, we can do a significant amount in the Canadian market.

But I’m not concerned with the – with that going forward. As we said, our philosophy is that this is forming as far as the cultural side of this business and you need to be low-cost producer. So at the end of the day, it’s not just any overcapacity issues, it suites the low-cost producer, everybody was getting a seat at the table when the music stops.

So we think we’re in a great position moving forward. Hemp CBD outlook parallel outdoor is greenhouse opportunity for us. We did a market segmentation business model, where we – we’re breaking at about 85% CBD, derived from fields and 10% to 15% from controlled environment hitting different markets.

We feel very strongly with that and $16 billion to $20 billion market is not enough. High-tech greenhouse in au U.S. even come remotely close to that number. So cultivation is going to start planting, as I said, very quickly and with cash flow generation, as Steve said.

And we think we’re positioned as an early mover for this massive opportunity already. A supplier to the big boss and retailers, we think and we’re having discussions with them about their CBD strategy. So we’re excited over the next couple of years that can bring as we transition more to a CPG company under that banner of Hemp.

Greenhouse, we expect in a very short-lived Texas and put a program in place, it’s eminent, maybe within the next 10 days. And we are ready to move it, because you can see from the U.S. Hemp initiative, we knew what out weird secure, where we’re going to be growing and we secured the seed early on.

And I can tell you, were ready to go on the controlled environment side. And one thing to keep in mind is, as we – if the Hemp program goes forward in Texas and we convert athletes and growing systems as we’ve done in Canada, those will be the same growing systems, whether it’s low THC, CBD Hemp varieties or or high THC. So if legislation in the U.S.

changes for high THC, we are ready to go in the greatest growing climate anyone in the Continental United States for growing Cannabis or Hemp and with a 6 – nearly 6 million square foot footprint. We think we can be a major player in the U.S. moving forward. So it’s going to be a very busy year for us, and we look forward to talking to you in August.

Thanks for participating in the call today, we’ll open now for some Q&A.

Operator?.

[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..