VIDEO: Village Farms International Inc.on Growing Pot: Low-Cost Producers Will Be The Only Ones To Survive
Village Farms International Inc. (TSE:VFF) (OTCMKTS:VFFIF) (FRA:O2V) CEO Michael DeGiglio talks about how Cannabis is a crop that must be farmed like any other. He believes their extensive farming experience will give them an competitive edge in cost and sustainability. Village Farms has entered into a Joint Venture with Emerald Health therapeutics (CVE:EMH), (OTCMKTS:EMHTF) called “Pure Sun Farms” of which each entity will have a 50/50 stake interest.
James West: Mike, thanks for joining me today.
Michael DeGiglio: You bet.
James West: Mike, let’s talk about Village Farms’ plan to become a cannabis producer in Canada. Tell me about your business now and how you’re going to morph into cannabis.
Michael DeGiglio: Well, Village Farms has been farming in high tech greenhouses for 29 years, so in three decades of doing it, we’ve built 15, 16 major projects throughout the United States, Canada, even other countries. And we’ve grown a tremendous amount of different types of crops, from vegetable crops – peppers, cucumbers, tomatoes, roses, herbs, lettuces – and we’ve done that for 30 years. We’re a vertically integrated company, so we design the greenhouses, build them on the assets, do all the growing, post-harvest, and then all the fulfillment: sales, marketing, distribution. We sell national retail grocers throughout the United States and Canada.
So that’s what we do, it’s farming.
James West: Right.
Michael DeGiglio: Cannabis, to us, is another crop. Not to say, every crop is unique, and there’s a learning curve with every crop, but what we’re doing that’s different is, we’re converting existing operating greenhouses with a very knowledgeable workforce that has been working in these facilities for 20, 25 years. So we’re just changing the crop out, of course making a transition on the growing systems and security. But at the end of the day, it’s a transformation of the crops we’re growing, not a startup, and that’s what’s unique about it.
James West: Okay. So your first project is a joint venture with Emerald Health, and that is converting 1 million square feet within a 5 million square foot footprint, into marijuana?
Michael DeGiglio: Yes. So we have three separate divisions, more or less all on one footprint, and we’re converting the smallest greenhouse, which is 1.1 million square feet. We did a joint venture with Emerald Health; the name of the joint venture is Pure Sun Farms, and our first conversion is the 1.1 million square feet.
We commended the conversion in October of last year, and the first quarter of it, 250,000, will be complete by March 1st. and each other of the four quadrants will continue to be built. We’re putting 24 megawatts of supplemental lighting in the greenhouse; that’s quite a bit, especially when you consider roughly one megawatt would power about 1,000 homes.
James West: Sure.
Michael DeGiglio: So, a lot of power. And we’re looking to be in production by July.
James West: Do you have a sense of what quantity of cannabis a million square feet will produce a year, using your systems?
Michael DeGiglio: Well, based on doing this for 30 years, we’re very conservative, because there’s always a ramp-up. So we’re estimating once we’re in full production on the 1.1 million square feet, approximately 75,000 kilograms per year on an annualized basis. And we’ll be harvesting a portion of it every week, so there’s different grow areas within that 1.1 million square feet. This way, we can keep a very regulated labour force with minimal oscillation in the amount of yield that comes out weekly.
And then if we were to convert the entire three facilities, it would be north of about 300,000 kilograms, but we’re starting here for now.
James West: Okay, sure. So I guess the association with Emerald Health is, they’re going to actually handle the distribution and cannabis business licensed distribution aspect of the cannabis business?
Michael DeGiglio: Now, I mean, Emerald Health already is a medical cannabis entity. They’re doing a lot of research and development looking for therapies for specific diseases, and they will continue that on a medicinal side as well. But the joint venture, Pure Sun Farms, will create its own brand. It has its right to, of course, sell Emerald and any other LP, and create its own brand and retail it as we go forward. So to be sort of in parallel. And Pure Sun Farms will put the product where it’s the best return for Pure Sun Farms, and Emerald has a 50 percent sharehold on like Village Farms. We structured the deal specifically for that.
James West: I see.
Michael DeGiglio: So I think on the recreational side, if the law is granted and rec comes to fruition in July, then Pure Sun Farms would probably concentrate more on that conduit as opposed to the medicinal side, which Emerald is doing.
James West: Okay. So is the joint venture, has it already got an ACMPR license?
Michael DeGiglio: No, we should have it, we’re estimating having it next month.
James West: Okay.
Michael DeGiglio: So, all the applications, and because we started the first conversion will be done by the end of February. So we anticipate having it by sometime the end of February.
James West: Sure. And your approach to growing cannabis itself, are you going to use existing systems within the greenhouse, or have you got some purpose-built alternative that you’re swapping out old systems?
Michael DeGiglio: Yeah, we’re swapping the entire growing system out, and it would be no different for us when we’ve switched, say, a tomato production facility to cucumbers; it’s a different system. Peppers…so they’re all unique, and we’re putting a specific grow system in for cannabis, along with blackout curtains and different types of shade cloth, different types of irrigation systems, different types of ventilation systems. So a lot’s going in to be specific to that crop, and it would be no different, as I say, if we were switching to roses from tomatoes; we’d have to make those changes.
James West: Sure. For Village Farms, is this more or less an experiment, you’re dipping your toe in the water? I mean, considering your pretty substantial footprint around North America, this is not an all-in commitment to the cannabis space, but rather a first look at the space, and how it’s going to…
Michael DeGiglio: Well, we’re still very much involved, and will be, in the produce business. I mean, we’re very large in that space, and growing food has many rewards. We’re very proud of the products we grow; we’re very proud of our track record, our safety record. We produce products that people ingest, and we take it serious. Food safety is really high. We created a really great brand in the 30 years we’ve been doing it, and I can tell you, creating brand in a biological product like food is much harder. It’s not like, you know, looking at a can of soup where you’re buying the label; the product speaks for itself, so it has to look good, taste good, and be safe. And it’s really the same with cannabis as well.
So we’re really committed. I mean, this is initially a huge investment, $55 million to convert Phase I; we’re very committed. But at the end of the day, one thing we know for sure is, in the end, it’s the low cost producer survives. In my tenure, I can tell you that every agricultural product, at some point in time, will commoditize out. Now, that may not happen here for a while, and there will always be the high end side of the business, and of course, you want to go after the high end side of the business. But to survive and be sustainable long term, you have to be the low cost producer.
So every decision we make is based on some number we’ve looked at down the road and saying, at this number, can we be viable? And the answer is yes or we wouldn’t have gone through it. We think we can clearly be the low cost producer in the space, and that’s why we’ve survived on the produce side, because every day we’re dealing with NAFTA and with countries that have labour rates of $4 to $8 a day versus $15 an hour.
James West: Right.
Michael DeGiglio: To be able to do that, your DNA has to be centred around low cost production.
James West: Interesting. So then, if assuming that the cannabis business, everybody’s dreams come true and there’s just all the demand in the world, how fast do you think you could bring 5 million square feet of greenhouse growing capacity to bear on the cannabis industry, if it made sense to do so?
Michael DeGiglio: Well, if it made sense to do so, I think we can do it very fast, because again, the assets are there, they’re in production, the people are there, we’re a going concern, and a very large one, at that. I mean, just the tomatoes we produce in British Columbia, we could supply tomatoes to every man, woman and child in British Columbia based on 23 lbs of consumption per year. That’s the kind of order of magnitude we have.
James West: Wow.
Michael DeGiglio: So it would just be a matter of converting the greenhouse growing systems and the requirements of Health Canada to do so. And depending on how quick the energy could roll in for supplemental lighting off the grid, putting that aside, we could convert a million square foot greenhouse in six to eight months.
James West: Can I ask, what is the cost per kilowatt hour of electricity that you have to pay?
Michael DeGiglio: About $0.12.
James West: Twelve cents. All right, that’s great, Mike, we’re going to leave it there for now. we’re going to watch with interest; we’ll come back to you in a couple quarters and see how you’re doing.
Michael DeGiglio: I look forward to it.
James West: Thanks for joining me.
Michael DeGiglio: You bet. Thank you.
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