Village Farms International, Inc.

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Good morning, ladies and gentlemen. Welcome to Village Farm. International's fourth quarter 2020 financial results conference call. This morning, Village Farms issued a news release reporting its financial results for the fourth quarter and full year ended December 31st, 2020. That news release, along with the company's financial statements, are available 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 the completion of the call. Details of how to access the replays are available in yesterday's news release. Before we begin, let me remind you that forward-looking statements may be made today, during or after the formal part of this conference call. Certain material assumptions 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 the company's various security filings with the SEC and Canadian regulators, including its Form 10-K and DNA for the year ended December 31, 2020, which are available on EDGAR. These forward-looking statements are made as of today's date, except as required by applicable securities law. We undertake no obligation to publicly update or revise any such statement. And I'd like to turn a call over to Michael DiGiulio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DiGiulio.

Thank you, Sharon. Hey, good morning, everyone. With me on today's call is Village Farms Chief Financial Officer Steve Ruffini. This morning I'm going to spend a few minutes highlighting the key takeaways for the quarter. Steve will then review financial results and I'll return with some concluding thoughts before we open up the call to your questions. So before I begin, I want to note on the onset that Q4 was somewhat of a noisy quarter that, to a degree, masked the underlying strong performance of the PureSun Farms business. Under GAAP accounting, upon the acquisition of the balance of Pure Sun Farms, we were required to revalue Pure Sun Farms' inventory to its net reliable value. That meant writing up the portion of Pure Sun Farms' inventory we acquired from its exceptionally low cost of production to what we expected to sell it for. The end result was that from an accounting perspective, the inventory was sold through with a cost of goods sold equal to the selling price or for zero margin. This resulted in a $3.3 million non-cash impact on Pure Sun Farms' reported gross margin and net income for the fourth quarter. So, this is one of those accounting requirements that causes many of us non-accountants like myself, and I think even a lot of actual accountants, to scratch our heads as the accounting moves clearly don't reflect the true underlying nature of actual transactions. There you go. So, for me, it actually underscores a significant value Pearson Farms is adding with its cultivation expertise, but I did want to call that out since it's unusual. But on a positive side, however, we realize a $23.6 million gain from Pure Sun Farms' acquisition that flowed through Village Farms' income savings separately, and also as a one-time item in the fourth quarter. We believe this gain, to a very large extent, reflects the significant and sustainable value we have created in Pure Sun Farms since our original contribution in establishing the business. Now, Steve, who understands this much better than I, will walk through all of this in detail in a few minutes, but I did want to highlight them for context before getting into the numbers. So for the fourth quarter, you know, we feel it was a very solid finish to a year of significant achievement for Village Farms. The highlight of the year was the acquisition of the remaining shares of Pure Sun Farms and welcoming that group into Village Farms' family. Fully into it. But 2020 was a year in which Pure Sloan Farms clearly established itself as Canada's premier cannabis company and, importantly, validates three core principles of the business model. The clear leader in cost of production in Canada, consistently the top-selling dry cannabis brand in Canada's largest provincial market, and consistently profitable. This is a model that has not changed since day one. With such a productive year, it's easy to forget that 2020 was very much a ramp up year as we transitioned our focus to branded products for the retail market from the wholesale market. And I couldn't be more pleased with our success. As 2021 and 2022 will also be ramp up years for different reasons as we double our production to meet the growing demand for our retail branded products. As a reminder, we only began selling our branded retail products towards the very end of 2019 with the receipt of our distribution license. 97% of our sales in 2019 were to other cannabis producers during a period of very elevated pricing. The fourth quarter continued the momentum in retail branded sales to provincial distributors that we drove throughout the year, with those sales increasing 40% sequentially. And that was on top of a 40% jump from just Q2 to Q3. The strong retail branded sales growth was driven by several factors. Even amidst the pandemic, the overall market continues its very healthy pace of growth, increasingly being driven by the transition from illicit sales to legal sales, and the number of retail stores providing greater access for Canadians, particularly in Canada's largest provincial market, Ontario. The number of Ontario stores nearly doubled from Q3 to Q4 of last year for a total of 324 stores and appears to be on track for over 1,000 this year.