In the world of weed stocks, doubles are not uncommon. And that's the main reason so many investors like the industry. With the right pot stock, big returns could be within reach.
It just so happens that some investors have been luckier than others. Much, much luckier.
I'm talking about investors who backed up the truck on Village Farms International Inc (NASDAQ:VFF), a greenhouse operator headquartered in Vancouver, British Columbia, Canada.
As a producer of greenhouse tomatoes, bell peppers, and cucumbers, Village Farms International has been around long before the stock market got excited about the legal pot industry. The company specializes in hydroponics, meaning its vegetables are grown without soil.
Right now, Village Farms has more than nine million square feet of controlled environment agriculture (CEA) greenhouses in British Columbia and Texas. The company provides fresh produce for grocery stores in the U.S. and Canada.
Greenhouse produce is nothing new. In fact, Village Farms has been developing and operating mega-scale greenhouses for three decades.
What makes Village Farms International Inc special is that, other than growing tomatoes, bell peppers, and cucumbers, the company is also in the pot business.
Village Farms has a 50% ownership in its Canadian joint venture Pure Sunfarms Corporation, which runs pot growing operations in British Columbia. While Pure Sunfarms is a relatively new player in the business, it already has some very impressive achievements.
For instance, the company managed to obtain multiple amendments to its cultivation license from Health Canada, allowing it to expand its licensed production area to more than one million square feet by March 2019.
Pure Sunfarms has also secured a supply agreement in Ontario to supply stores with its own branded products for non-medical use.
Furthermore, the company has entered into a wholesale distribution agreement with a Canadian licensed producer for 40% of the remainder of its 2019 production.
And while many producers are still reporting losses as they focus on growing their business, Pure Sunfarms was profitable right from the start.
In the fourth quarter of 2018—the company's first full quarter of sales—Pure Sunfarms generated a positive net income of $5.5 million. That gave Village Farms a proportional share of $2.8 million.
The business is also expected to get much bigger. Its joint venture is targeting 46,000 to 52,000 kilograms (101,412 to 114,640 pounds) of weed production in full-year 2019. For 2020, the amount is projected to be 75,000 kilograms (165,346 pounds).
Unlike many Canadian pot stocks, which trade over the counter in the U.S., Village Farms International Inc is playing in the big leagues. The company was trading on the Toronto Stock Exchange in Canada and over the counter in the U.S. for quite some time, but earlier this year, it got approved to list its shares on the Nasdaq Capital Market.
So now it's very convenient for American investors to invest in this soaring pot stock because they can simply purchase it on the Nasdaq.
Given that pot is an agricultural product that can be grown in greenhouses, Village Farms International's new pot business shouldn't come as a surprise. Nonetheless, the company's involvement in the industry has led to a major bull run in VFF stock.
Here is the performance chart of Village Farms stock from the first quarter of 2019:
|Chart courtesy of StockCharts.com|
As you can see, in just the first three months of 2019, the greenhouse grower's share price skyrocketed more than 330%. Using straight-line calculation (rather than compounding), that's a gain of more than 110% per month.
Obviously, for the rally to continue in VFF stock, the company's Canadian joint venture needs to further grow its business. However, as it stands, there is another opportunity that's waiting for Village Farms to capitalize on: hemp.
You see, the passing of the Agriculture Improvement Act of 2018 by U.S. Congress legalized hemp cultivation and hemp-derived products. And Village Farms is eyeing this new market.
As it turns out, the company already has greenhouse operations in the U.S., and these assets are independent of its joint venture in Canada.
To enter this new market, Village Farms has partnered with Jennings Group, an experienced hemp farm operator, to form another joint venture in which Village Farms owns 65%. This joint venture is expected to begin hemp cultivation in Spring 2019, with extraction operations to start by the end of this year.
In this day and age, it's quite common for a stock to see some correction after shooting through the roof. And that's basically what's happening to Village Farms stock at the moment. After an enormous bull run in the first three months of the year, VFF shares have experienced some pullback in April.
Still, if the company manages to capitalize on the U.S. hemp opportunity and continues to deliver solid financial results in its Canadian joint venture, the upward momentum in VFF stock could continue.
Full story at Profit Confidential