VANCOUVER, Apr 1, 2019 (Canada NewsWire via COMTEX) -- Village Farms International, Inc. ("Village Farms" or the "Company") (VFF) VFF, -6.33% today announced that its 50%-owned joint venture for large-scale, low-cost, high-quality cannabis production, Pure Sunfarms, has exercised its option on the existing 1.1 million square foot Delta 2 greenhouse facility currently owned by Village Farms in Delta, British Columbia. The Delta 2 facility is a newer, nearly identical "sister" facility immediately adjacent to the 1.1 million square foot Delta 3 greenhouse facility, which is already one of the largest cannabis production operations in the world.
The addition of the Delta 2 greenhouse operation doubles Pure Sunfarms' total production area to 2.2 million square feet and, with conservatively targeted annual production of approximately 75,000 kilograms of dried cannabis, doubles its annual cannabis production potential to approximately 150,000 kilograms. Pure Sunfarms also expects to benefit from further economies of scale resulting from the concentration of 2.2 million square feet of production area at a single location, which will further support the Company's goal to be the high-quality, low-cost cannabis producer in Canada. The existing automated propagation operation (nursery) in the Delta 3 facility will provide propagation for the Delta 2 facility, enabling more of the footprint of the Delta 2 facility to be devoted to flower rooms than in Delta 3, which is expected to generate further cost efficiencies.
"With an ongoing shortage of supply from Canadian cannabis producers, Village Farms is thrilled that Pure Sunfarms' has made the decision to more than double its production capacity with the addition of Delta 2 - just three weeks after the option became exercisable," said Michael DeGiglio, Chief Executive Officer, Village Farms and Co-Chair, Pure Sunfarms.
"Pure Sunfarms is setting itself apart amongst the top echelon of Canadian licensed producers, achieving its conversion and production ramp up milestones, meeting or exceeding expectations on quality, yield and cost, and delivering profitability in its first full quarter of operations. The unmitigated success of the conversion, licensing and production ramp up of the Delta 3 facility, alongside the outstanding performance of Pure Sunfarms' management and operational teams, gives us great confidence in their ability to execute on the Delta 2 facility. Delta 2 will also benefit from the continued support of Village Farms, with its decades of large-scale, low-cost operational experience and greenhouse design and systems acumen, as well as the significant learnings gained through the conversion and ramp up of the Delta 3 facility."
Mr. DeGiglio added, "Exceptional growing operations are the foundation of great agricultural brands. Pure Sunfarms is already one of the largest and most capable producers in the Canadian cannabis industry and more than doubling its production capacity will further leverage this crucial competitive advantage as it establishes itself as a premier vertically integrated supplier. I look forward to reporting on the continued progress at Pure Sunfarms, and the significant contribution of that progress to Village Farms' financial results and value for our shareholders."
Pure Sunfarms will immediately begin design and procurement for the conversion of the Delta 2 facility for cannabis production. As with the Delta 3 facility, Pure Sunfarms plans a phased conversion to expedite time to production and revenue generation. Conversion of the external infrastructure, including that for the electrical distribution system, is expected to commence in Summer 2019. Village Farms, on behalf of Pure Sunfarms, has already secured 24 MW of power from the local utility to support supplemental lighting and post-harvest equipment at the Delta 2 facility. As with the Delta 3 facility, personnel from the existing Village Farms growing and maintenance teams and skilled labour force will be transitioned to Pure Sunfarms. Pure Sunfarms is targeting to complete its first harvest at the Delta 2 facility by mid-2020 and achieve full run-rate production in the fourth quarter of 2020. All targeted production timelines are subject to the timing and receipt of requisite Health Canada licenses. Pure Sunfarms plans to begin the process of applying for a cultivation license for the Delta 2 facility as soon as possible, which it will pursue as a "second-site" license application.
In accordance with the terms of the joint venture agreement with Emerald Health Therapeutics ("Emerald") for Pure Sunfarms, Village Farms' is contributing the Delta 2 facility to the joint venture and Emerald will contribute an aggregate of CAD$25 million in cash. Emerald's cash contribution will fund a portion of the conversion of the Delta 2 facility to cannabis production, which is estimated to cost approximately CAD$60 million, consistent with the cost of conversion of the Delta 3 facility. The remainder of the conversion costs will be funded entirely by Pure Sunfarms.
Pure Sunfarms continues to have an option on the 2.6 million square foot Delta 1 greenhouse facility, one of the single largest greenhouse footprints in North America, which is immediately adjacent to the Delta 2 and Delta 3 facilities, and which continues to be owned and operated by Village Farms. The Delta 1 option expires on September 28, 2021. Should Pure Sunfarms fail to exercise the Delta 1 option, the terms if the joint venture agreement permit Village Farms to convert and operate the Delta 1 facility for the production of any agricultural crop.
Mr. DeGiglio commented, "As Pure Sunfarms progresses with the conversion of the Delta 2 facility, it will evaluate the opportunity around the Delta 1 option. If the Delta 1 option is exercised, Pure Sunfarms would have a total of 4.8 million square feet of production area, which is conservatively estimated to yield a total of 330,000 kilograms of cannabis production annually, providing the potential to address a considerable portion of the entire Canadian market, while providing even greater cost efficiencies."
Village Farms also announced that Pure Sunfarms has entered into a subsequent supply agreement with Emerald, which will commence upon the expiry of the current supply agreement at the end of 2019. Under the new supply agreement, Emerald will purchase up to 25% of Pure Sunfarms' production in 2020, 2021 and 2022 at prevailing wholesale market prices.