# Village Farms International, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Village Farms International, Inc.](/companies/vff.md) (CIK 1584549)
- Form: 10-Q
- Filed: 2023-11-08
- Accepted by EDGAR: Nov 8, 2023, 12:05 ET
- Period: 2023-09-30
- Accession: 0000950170-23-060669
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1584549/000095017023060669/vff-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1584549/000095017023060669/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $69.5m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $211.4m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $54.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $173.0m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $14.6m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $38.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $15.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $50.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $988.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $3.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | −$1.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $269.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$1.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$9.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.09 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.09 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 110,239,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 108,214,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $6.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $4.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $35.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $153.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $477.7m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $68.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $141.4m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $39.8m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $9.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $320.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 89,111 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report and the Management’s Discussion and Analysis of Financial Condition and Results of Operations and consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2022 (our "Annual Report on Form 10-K"). This discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on assumptions and estimates that are inherently subject to significant risks and uncertainties, and our actual results could differ materially from the results anticipated by our forward-looking statements. We encourage you to review the risks and uncertainties described in “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K, and in Part II, Item 1A of this Quarterly Report. These risks and uncertainties could cause actual results to differ materially from those projected or implied by our forward-looking statements contained in this report. These forward-looking statements are made as of the date of this management’s discussion and analysis, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law.*

### EXECUTIVE OVERVIEW

Village Farms International, Inc. (“VFF”, together with its subsidiaries, the “Company”, “Village Farms”, “we” “us” or “our”) is a corporation existing under the Business Corporations Act (Ontario). The Company’s principal operating subsidiaries are Village Farms Canada LP ("VFCLP"), Village Farms LP ("VFLP"), Pure Sunfarms Corp (“Pure Sunfarms” or "PSF"), Balanced Health Botanicals, LLC (“Balanced Health”), and Rose LifeScience Inc. ("Rose LifeScience” or “Rose”).

The Company’s vision is to be recognized as an international leader in consumer products developed from plants, whereby we produce and market value-added products that are consistently preferred by consumers. To do so, we leverage decades of cultivation expertise, investment, and experience in fresh produce across profitable, high growth plant-based opportunities.

In Canada, we converted two produce facilities to grow cannabis for the Canadian legal adult use (recreational) market. Our focus for our Canadian Cannabis segment is to produce high quality cannabis, leveraging our low-cost production to provide preferred products at an attractive price that address the largest consumer segments in the market. This market positioning, combined with our cultivation expertise, has enabled us to evolve into the second best-selling Canadian licensed producer (“LP”) of dried flower products, the third best-selling Canadian producer overall (year-to-date 2023) and one of the few Canadian LPs with consistently strong operating results.

Additionally, through organic growth, acquisitions and/or exports, we have a strategy to participate in other international markets where cannabis attains legal status. In September 2021, our Canadian Cannabis business began exporting cannabis products to Australia for that country’s medical market. In March 2022, our Canadian Cannabis business received European Union Good Manufacturing Practice (“EU GMP”) certification for Pure Sunfarms’ 1.1 million square foot Delta 3 cannabis facility located in Delta, British Columbia (“B.C.”) which permits Pure Sunfarms to export EU GMP-certified medical cannabis to importers and distributors in international markets that require EU GMP certification. In late 2022, Pure Sunfarms commenced exports to Israel and in 2023, Pure Sunfarms began exporting cannabis products to Germany for the medical markets in those countries. As a result of the typically higher margins in international medical markets, we expect international expansion should enhance our profitability while expanding our brand and experience into emerging legal cannabis markets. We also have one of ten licenses to cultivate cannabis legally in the Netherlands under that country’s Closed Supply Chain Experiment program through our 85% ownership of Leli Holland.

Balanced Health, our industry-leading cannabinoid business, extends our cannabis portfolio into cannabidiol (“CBD”) consumer products, which are being sold in the United States.

We also operate a large, well-established, produce business (primarily tomatoes) under the Village Farms Fresh (“VF Fresh”) brand which sells to food and mass retail stores. We own and operate produce cultivation assets in Texas and Delta, B.C. and source produce from our growing partners, in Mexico and Canada. Our intention is to use our assets, expertise and experience (across cannabis, CBD and produce) to participate in the U.S. cannabis market subject to compliance with applicable US federal and state laws and stock exchange rules.

#### Our Operating Segments

#### Canadian Cannabis Segment

Our Canadian Cannabis segment is composed of wholly owned Pure Sunfarms and 70% owned Rose LifeScience.

Pure Sunfarms is one of the single largest cannabis growing operations in the world, one of the lowest-cost greenhouse producers and is one of the top selling dried flower brand in Canada. PSF leverages our 30 years of experience as a vertically integrated greenhouse grower for the high growth cannabis opportunity in Canada with commercial distribution in ten Canadian provinces and territories that represent 98% of total Canadian legal recreational cannabis sales. Our long-term objective for PSF is to be the leading low-cost, high-quality cannabis producer and brand in Canada.

Rose is one of the top-selling licensed producers of cannabis in the Province of Quebec, as well as a prominent cannabis products commercialization expert in Quebec, acting as the exclusive, direct-to-retail sales, marketing and distribution entity for some of the best-known brands in Canada, as well as Quebec-based micro and craft growers.

#### U.S. Cannabis Segment

Our U.S. Cannabis segment is composed of wholly owned Balanced Health.

Balanced Health is one of the leading cannabinoid brands and e-commerce platforms in the United States. Balanced Health develops and sells high-quality CBD-based health and wellness products, distributing their diverse portfolio of consumer products through retail storefronts and its top-ranked e-commerce platform, CBDistillery™.

#### Produce Segment

Our Produce segment is composed of VF Fresh, which currently consists of Village Farms LP and Village Farms Canada LP.

Through VF Fresh, we grow, market and distribute premium-quality, greenhouse-grown produce in North America. These premium products are grown in sophisticated, highly intensive agricultural greenhouse facilities located in British Columbia and Texas. We also market and distribute premium tomatoes, peppers and cucumbers produced under exclusive and non-exclusive arrangements from our greenhouse supply partners located in Mexico, B.C. and Ontario. We primarily market and distribute under our Village Farms® brand name to retail supermarkets and dedicated fresh food distribution companies throughout the United States and Canada.

#### Energy Segment

Our Energy segment is composed of wholly owned VF Clean Energy Inc.

VFCE, which has partnered with Terreva Renewables (formerly Mas Energy) for the Delta RNG Project based on VFCE’s 20-year contract, commencing in the fourth quarter of 2023 (which includes a five-year option to extend) with the City of Vancouver to capture landfill gas at the Delta, B.C. landfill site (the "Delta RNG Project"). The Delta RNG Project, which is in its final commercialization stages, will convert VFCE’s previous landfill gas-to-electricity business into a state-of-the-art landfill gas to high-demand renewable natural gas ("RNG") facility. Terreva Renewables will sell the renewable natural gas and VFCE will receive a portion of the revenue in the form of a royalty. The facility will also provide food-grade CO2 that can be used in both our cannabis and produce growing operations in Delta or can be provided to other users of CO2.

### Recent Developments and Updates

#### Canadian Cannabis Recent Developments and Updates

- In September 2023, Village Farms was named the Best Canadian Cannabis Company for the second consecutive year at the 2023 Benzinga Cannabis Awards.
- The Canadian Cannabis business (all brands in aggregate) maintained its top three market share position across all product categories in Canada and holds the number two position in market share in dried flower category in Canada nationally for the first nine months of 2023, according to independent third-party sources (amalgamated to cover all provinces).
- During the third quarter, the Canadian Cannabis business expanded its brand portfolio with the launch of Super Toast, a brand focused on convenience and ready-to-go products.

#### U.S. Cannabis Recent Developments and Updates

- Balanced Health Botanical’s CBDistillery brand recently unveiled a new look featuring the same great ingredients and benefits. Products can now be found in 5 different categories, with each category highlighting the product’s wellness benefit.
- The Company filed an application for a Texas Medicinal license in late April 2023. The Company is hopeful that its application will be awarded the highest or one of the highest marks, putting it in a good position, should the State of Texas award additional medicinal cannabis licenses. If awarded, the Company plans to work with its listing authority to structure an acceptable ownership structure.

#### Delta RNG Project Update

- The Delta, British Columbia Renewable Natural Gas Project is in its final commercialization stages.

#### VF Fresh (Produce)

- The Company has commenced the sale process of its Monahans (Permian Basin, Texas) greenhouse facility and is expecting initial indications of interest in the fourth quarter of 2023.
- VF Fresh employees partnered with two initiatives to give back to local communities. Together with a top customer, VF Fresh supported the Healthy Family Project to deliver 875,000 meals to 32 Feeding America food banks in multiple communities. In addition, VF Fresh sponsored the rehabilitation of a veteran’s home in partnership with Military Makeover.
- The Company has commenced the re-purposing of half of its Delta 2 facility back to producing tomatoes for the upcoming 2024 calendar year.

### Presentation of Financial Results

Our consolidated results of operations (prior to net income) for the three and nine months ended September 30, 2023 and September 30, 2022 presented below reflect the operations of our consolidated wholly-owned subsidiaries and our 70% ownership in Rose LifeScience. The loss from our equity method investment in Village Fields Hemp ("VFH") is reflected in our net income for the three and nine months ended September 30, 2022 presented below.

### Foreign currency exchange rates

All currency amounts in this Quarterly Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of September 30, 2023, September 30, 2022, and December 31, 2022. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The condensed consolidated statements of operations and comprehensive income (loss) and condensed consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period.

The exchange rates used to translate from Canadian dollars ("C") to dollars is shown below:

|  | As of September 30, 2023 | September 30, 2022 | December 31, 2022 |
| --- | ---: | ---: | --- |
| Spot rate | 0.7363 | 0.7277 | 0.7380 |
| Nine-month period ended | 0.7431 | 0.7797 | N/A |
| Three-month period ended | 0.7453 | 0.7664 | N/A |

16

### RESULTS OF OPERATIONS

#### (In thousands of U.S. dollars, except per share amounts, and unless otherwise noted)

### Consolidated Financial Performance

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Sales | $69,510 | $71,056 | $211,378 | $224,115 |
| Cost of sales | (54,889) | (62,682) | (172,958) | (199,514) |
| Gross margin | 14,621 | 8,374 | 38,420 | 24,601 |
| Selling, general and administrative expenses | (15,822) | (17,794) | (49,980) | (54,245) |
| Interest expense | (988) | (982) | (3,532) | (2,330) |
| Interest income | 262 | 60 | 741 | 129 |
| Foreign exchange loss | (971) | (1,963) | (302) | (2,171) |
| Other (expense) income, net | (19) | (10) | 5,613 | (7) |
| Write-off of joint venture loan | — | — | — | (592) |
| Impairments | — | — | — | (29,799) |
| Loss before taxes and loss from equity method investments | (2,917) | (12,315) | (9,040) | (64,414) |
| Recovery of (provision for) income taxes | 1,664 | 3,183 | (269) | 14,563 |
| Loss including non-controlling interests and before equity losses | (1,253) | (9,132) | (9,309) | (49,851) |
| Less: net (income) loss attributable to non-controlling interests, net of tax | (46) | 387 | (6) | 701 |
| Loss from equity method investments | — | — | — | (2,667) |
| Net loss attributable to Village Farms International Inc. | $(1,299) | $(8,745) | $(9,315) | $(51,817) |
| Adjusted EBITDA (1) | $3,248 | $(2,233) | $8,243 | $(20,642) |
| Basic loss per share | $(0.01) | $(0.10) | $(0.09) | $(0.59) |
| Diluted loss per share | $(0.01) | $(0.10) | $(0.09) | $(0.59) |

(1) Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recurring and other items that do not reflect our business performance. Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience. For the nine months ended September 30, 2022, we previously included an adjustment for $2,284 of obsolete inventory associated with the winding down of the Village Fields Hemp ("VFH") joint venture (the "JV exit") that is now being excluded in response to comments from and discussions with the Staff of the U.S. Securities and Exchange Commission.

We caution that our results of operations for the three and nine months ended September 30, 2023 and 2022 may not be indicative of our future performance, particularly in light of the ongoing global Tomato brown rugose fruit virus (ToBRFV), the potential impact of inflation and/or the potential impact of supply-chain shortages due to conflicts abroad.

### Discussion of Financial Results

A discussion of our consolidated results for the three and nine months ended September 30, 2023 and 2022 is included below. The consolidated results include all four of our operating segments: Produce, Canadian Cannabis, U. S. Cannabis, and Energy, along with all public company expenses. For a discussion of our segmented results, please see “Segmented Results of Operations” below.

### CONSOLIDATED RESULTS

### Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

### Sales

Sales for the three months ended September 30, 2023 were $69,510 compared to $71,056 for the three months ended September 30, 2022. The decrease in sales of ($1,546) or (2%) was primarily attributable to a decrease in Canadian Cannabis sales of ($1,584) and a decrease in U.S Cannabis sales of ($147), partially offset by an increase in VF Fresh sales of $185. For additional information, refer to "Segmented Results of Operations" below.

### Cost of Sales

Cost of sales for the three months ended September 30, 2023 were $54,889 compared to $62,682 for the three months ended September 30, 2022. The decrease in cost of sales of $7,793, or 12%, was primarily attributable to a reduction in the cost of sales at

VF Fresh of $4,610 and Canadian Cannabis of $3,330, partially offset by an increase in U.S Cannabis of ($191). For additional information, refer to "Segmented Results of Operations" below.

### Gross Margin

Gross margin for the three months ended September 30, 2023 increased $6,247 to $14,621, or 75%, from $8,374 for the three months ended September 30, 2022. The increase in gross margin was primarily attributable to an increase in gross margin at VF Fresh of $4,795 and Canadian Cannabis of $1,746, partially offset by a decrease in U.S Cannabis of ($338). For additional information, refer to "Segmented Results of Operations" below.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2023 decreased $1,972, or 11%, to $15,822 (23% of sales), compared to $17,794 (25% of sales), for the three months ended September 30, 2022. The decrease in sales, general and administration expenses was due to lower operating expenses of $1,793 attributable to improvements in all divisions and lower share-based compensation of approximately $179. For additional information, refer to "Segmented Results of Operations" below.

|  | For The Three Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| Selling, general and administrative expenses | $15,075 | $16,868 |
| Share-based compensation | 747 | 926 |
| **Total selling, general and administrative expenses** | $15,822 | $17,794 |

### Other (Expense) Income

Other expense for the three months ended September 30, 2023 was ($19) compared to ($10) for the three months ended September 30, 2022.

### Loss Before Taxes and Loss from Equity Method Investments

Loss before taxes and loss from equity method investments for the three months ended September 30, 2023 was ($2,917) compared to ($12,315) for the three months ended September 30, 2022, an improvement of $9,398, or 76%. The improvement in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 was primarily due to improved operating performance from VF Fresh and lower selling, general and administrative expenses in all segments.

### Net Loss Attributable to Village Farms International, Inc. Shareholders

Net loss attributable to Village Farms International, Inc. shareholders for the three months ended September 30, 2023 was ($1,299) as compared to ($8,745) for the three months ended September 30, 2022, an improvement of $7,446, or 85%, due to improved operating performance from VF Fresh and lower selling, general and administrative expenses in all segments.

### Adjusted EBITDA

Adjusted EBITDA for the three months ended September 30, 2023 was $3,248 compared to ($2,233) for the three months ended September 30, 2022. The improvement was mainly driven by a stronger performance from VF Fresh. See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

### Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

### Sales

Sales for the nine months ended September 30, 2023 were $211,378 compared to $224,115 for the nine months ended September 30, 2022. The decrease in sales of ($12,737) or (6%) was primarily attributable to a decrease in VF Fresh sales of ($9,927), primarily arising in the first six months of 2023, and a decrease in U.S Cannabis sales of ($2,705), partially offset by an increase in Canadian Cannabis sales of $31. For additional information, refer to "Segmented Results of Operations" below.

### Cost of Sales

Cost of sales for the nine months ended September 30, 2023 were $172,958 as compared to $199,514 for the nine months ended September 30, 2022. The decrease in cost of sales of $26,556, or 13%, was primarily attributable to a reduction in cost of sales in the VF Fresh segment of $25,833, and the U.S Cannabis segment of $614, partially offset by an increase in the Canadian Cannabis segment of ($133). For additional information, refer to "Segmented Results of Operations" below.

### Gross Margin

Gross margin for the nine months ended September 30, 2023 increased $13,819 to $38,420, or 56%. The increase in gross margin was primarily attributable to an increase in gross margin in the VF Fresh segment of $15,906, partially offset by decreases in the Canadian Cannabis segment and the U.S Cannabis segment of ($102) and ($2,091), respectively. For additional information, refer to "Segmented Results of Operations" below.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended September 30, 2023 decreased $4,265, or an improvement of 8%, to $49,980, or 24% of sales, compared to $54,245, or 24% of sales, for the nine months ended September 30, 2022. The decrease in sales, general and administration expenses was attributable to decreases in operating expenses of $4,396, partially offset by an increase in share-based compensation of approximately ($131). For additional information, refer to "Segmented Results" of Operations below.

|  | For The Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| Selling, general and administrative expenses | $46,845 | $51,241 |
| Share-based compensation | 3,135 | 3,004 |
| **Total selling, general and administrative expenses** | $49,980 | $54,245 |

### Other (Expense) Income

Other income for the nine months ended September 30, 2023 was $5,613 as compared to other expense of ($7) for the nine months ended September 30, 2022. The increase in other income (expense) was primarily attributable to a favorable vendor settlement of $5,585 in the nine months ended September 30, 2023.

### Loss Before Taxes and Loss from Equity Method Investments

Loss before taxes and loss from equity method investments for the nine months ended September 30, 2023 was ($9,040) compared to ($64,414) for the nine months ended September 30, 2022, an increase of $55,374, or 86%. The improvement was primarily due to a $13,819 improvement in gross margin for the nine months ended September 30, 2023, and no impairment of goodwill and intangibles in 2023, versus non-recurring costs incurred during the nine months ended September 30, 2022 of ($29,799) for impairment of goodwill and intangible assets, and a favorable vendor settlement relating to the partial recovery of operational losses from the Tomato Brown Rugose Fruit Virus (“ToBRFV”) infestation in the nine months ended September 30, 2023 of $5,585. The improvement in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was also attributable to improved operating performance from VF Fresh, and lower selling, general and administrative expenses in all segments.

### Net Loss Attributable to Village Farms International, Inc. Shareholders

Net loss attributable to Village Farms International, Inc. shareholders for the nine months ended September 30, 2023 was ($9,315) as compared to ($51,817) for the nine months ended September 30, 2022, an improvement of $42,502, or 82%, due to improved performance from VF Fresh and lower selling, general and administrative expenses in all segments.

### Adjusted EBITDA

Adjusted EBITDA for the nine months ended September 30, 2023 was $8,243 compared to ($20,642) for nine months ended September 30, 2022. The improvement was mainly driven by a stronger performance from VF Fresh. See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

### SEGMENTED RESULTS OF OPERATIONS

#### (In thousands of U.S. dollars, except per share amounts, and unless otherwise noted)

|  | For The Three Months Ended September 30, 2023 VF Fresh (Produce) | Cannabis Canada | Cannabis U.S. | Clean Energy | Corporate | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales | $35,712 | $28,810 | $4,988 | $— | $— | $69,510 |
| Cost of sales | (34,220) | (18,866) | (1,803) | — | — | (54,889) |
| Selling, general and administrative expenses | (2,066) | (7,598) | (3,095) | — | (3,063) | (15,822) |
| Other expense, net | (598) | (428) | (11) | (58) | (621) | (1,716) |
| Operating (loss) income | (1,172) | 1,918 | 79 | (58) | (3,684) | (2,917) |
| Recovery of income taxes | 221 | 1,034 | — | — | 409 | 1,664 |
| (Loss) income from consolidated entities | (951) | 2,952 | 79 | (58) | (3,275) | (1,253) |
| Less: net (income) loss attributable to non-controlling interests, net of tax | — | (89) | — | — | 43 | (46) |
| Net (loss) income | $(951) | $2,863 | $79 | $(58) | $(3,232) | $(1,299) |
| Adjusted EBITDA (1) | $774 | $4,585 | $221 | $(57) | $(2,275) | $3,248 |
| Basic (loss) income per share | $(0.01) | $0.03 | $0.00 | $(0.00) | $(0.03) | $(0.01) |
| Diluted (loss) income per share | $(0.01) | $0.03 | $0.00 | $(0.00) | $(0.03) | $(0.01) |

|  | For The Three Months Ended September 30, 2022 VF Fresh (Produce) | Cannabis Canada | Cannabis U.S. | Clean Energy | Corporate | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales | $35,527 | $30,394 | $5,135 | $— | $— | $71,056 |
| Cost of sales | (38,830) | (22,196) | (1,612) | (44) | — | (62,682) |
| Selling, general and administrative expenses | (2,777) | (7,885) | (3,720) | (14) | (3,398) | (17,794) |
| Other expense, net | (344) | (513) | (142) | — | (1,896) | (2,895) |
| Operating loss | (6,424) | (200) | (339) | (58) | (5,294) | (12,315) |
| Recovery of (provision for) income taxes | 1,780 | (38) | — | — | 1,441 | 3,183 |
| Loss from consolidated entities | (4,644) | (238) | (339) | (58) | (3,853) | (9,132) |
| Less: net loss attributable to non-controlling interests, net of tax | — | 387 | — | — | — | 387 |
| Net (loss) income | $(4,644) | $149 | $(339) | $(58) | $(3,853) | $(8,745) |
| Adjusted EBITDA (1) | $(4,879) | $5,417 | $10 | $(58) | $(2,723) | $(2,233) |
| Basic (loss) income per share | $(0.05) | $0.00 | $(0.00) | $(0.00) | $(0.04) | $(0.10) |
| Diluted (loss) income per share | $(0.05) | $0.00 | $(0.00) | $(0.00) | $(0.04) | $(0.10) |

|  | For The Nine Months Ended September 30, 2023 VF Fresh (Produce) | Cannabis Canada | Cannabis U.S. | Clean Energy | Corporate | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales | $114,125 | $81,987 | $15,266 | $— | $— | $211,378 |
| Cost of sales | (114,779) | (52,873) | (5,285) | (21) | — | (172,958) |
| Selling, general and administrative expenses | (7,836) | (22,273) | (10,098) | (30) | (9,743) | (49,980) |
| Other income (expense), net | 3,993 | (1,838) | (8) | (77) | 450 | 2,520 |
| Operating (loss) income | (4,497) | 5,003 | (125) | (128) | (9,293) | (9,040) |
| Recovery of (provision for) income taxes | 229 | (922) | — | — | 424 | (269) |
| (Loss) income from consolidated entities | (4,268) | 4,081 | (125) | (128) | (8,869) | (9,309) |
| Less: net (income) loss attributable to non-controlling interests, net of tax | — | (149) | — | — | 143 | (6) |
| Net (loss) income | $(4,268) | $3,932 | $(125) | $(128) | $(8,726) | $(9,315) |
| Adjusted EBITDA (1) | $1,110 | $13,273 | $424 | $(128) | $(6,436) | $8,243 |
| Basic (loss) income per share | $(0.04) | $0.04 | $(0.00) | $(0.00) | $(0.08) | $(0.09) |
| Diluted (loss) income per share | $(0.04) | $0.04 | $(0.00) | $(0.00) | $(0.08) | $(0.09) |

20

|  | For The Nine Months Ended September 30, 2022 VF Fresh (Produce) | Cannabis Canada | Cannabis U.S. | Clean Energy | Corporate (2) | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales | $124,052 | $81,956 | $17,971 | $136 | $— | $224,115 |
| Cost of sales | (140,612) | (52,740) | (5,899) | (263) | — | (199,514) |
| Selling, general and administrative expenses | (8,725) | (23,801) | (12,480) | (53) | (9,186) | (54,245) |
| Other expense, net | (776) | (1,490) | (154) | (6) | (1,953) | (4,379) |
| Write-off of joint venture loan | — | — | — | — | (592) | (592) |
| Impairments | — | — | (29,799) | — | — | (29,799) |
| Operating (loss) income | (26,061) | 3,925 | (30,361) | (186) | (11,731) | (64,414) |
| Recovery of (provision for) income taxes | 6,322 | (1,668) | 7,025 | — | 2,884 | 14,563 |
| (Loss) income from consolidated entities | (19,739) | 2,257 | (23,336) | (186) | (8,847) | (49,851) |
| Less: net loss attributable to non-controlling interests, net of tax | — | 701 | — | — | — | 701 |
| Loss from equity method investments | — | — | (383) | — | (2,284) | (2,667) |
| Net (loss) income | $(19,739) | $2,958 | $(23,719) | $(186) | $(11,131) | $(51,817) |
| Adjusted EBITDA (1) | $(21,362) | $10,558 | $(43) | $(180) | $(9,615) | $(20,642) |
| Basic (loss) income per share | $(0.22) | $0.03 | $(0.26) | $(0.00) | $(0.14) | $(0.59) |
| Diluted (loss) income per share | $(0.22) | $0.03 | $(0.26) | $(0.00) | $(0.14) | $(0.59) |

(1) Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recurring and other items that do not reflect our business performance. Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience.

(2) For the nine months ended September 30, 2022, we previously included an adjustment for $2,284 of obsolete inventory associated with the JV exit that is now being excluded in response to comments from and discussions with the Staff of the U.S. Securities and Exchange Commission.

### PRODUCE SEGMENT RESULTS – VF FRESH

The produce segment, VF Fresh, currently consists of Village Farms LP and Village Farms Canada LP. VF Fresh’s comparative analysis are based on the consolidated results of Village Farms LP and Village Farms Canada LP for the three and nine months ended September 30, 2023 and 2022.

### Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

### Sales

VF Fresh sales for the three months ended September 30, 2023 were $35,712, compared to $35,527 for the three months ended September 30, 2022. The increase in sales of $185, or 1%, was due to an increase in sales from the VF Fresh-owned greenhouses of $4,118, partially offset by a decrease in supply partner revenues of ($3,933). The Company’s own sales increased 28% due to a 26% increase in average selling price and an 8% increase in pounds produced. The decrease in supply partner sales is due to a decrease of (13%) in product volume.

The average selling price for all produce sold during the three months ended September 30, 2023, versus the three months ended September 30, 2022, changed as follows: tomatoes increased 11%, peppers decreased (10%), cucumbers increased 8% and mini cucumbers increased 54%. The price changes are due primarily to product mix and higher market pricing in 2023 versus 2022.

### Cost of Sales

VF Fresh cost of sales for the three months ended September 30, 2023 decreased by $4,610, or 12%, to $34,220 compared to $38,830 for the three months ended September 30, 2022. The decrease in cost of goods sold is primarily due to an improvement of VF Fresh-owned greenhouses of $912, lower supply partner costs of $2,498, and lower freight expense of $1,204. The decrease in VF Fresh-owned greenhouses cost of goods is due to an 18% improvement in cost per pound, partially offset by an 11% increase in pounds sold. The decrease in supply partner cost of goods is due to a decrease of (13%) in product volume. The decrease in freight cost is due to increased available drivers and decreases in fuel prices.

### Gross Margin

The gross margin for VF Fresh was $1,492 for the three months ended September 30, 2023 compared to ($3,303) for the three months ended September 30, 2022. The gross margin percentage was 4% for the three months ended September 30, 2023, compared to (9%) for the three months ended September 30, 2022. The improvement in gross margin was due to an 11% increase in the average selling price of tomatoes, a decrease in our own per pound cost and a decrease in freight costs when compared to the prior year period.

### Selling, General and Administrative Expenses

VF Fresh selling, general and administrative expenses for the three months ended September 30, 2023 decreased by $711, or 26%, to $2,066 (6% of sales), compared to $2,777 (8% of sales) for the three months ended September 30, 2022.

### Net (Loss) Income

VF Fresh net loss for the three months ended September 30, 2023 improved by $3,693, or (80%), to ($951) compared to ($4,644) for the three months ended September 30, 2022. The decrease in net loss was primarily due to improvements in gross margin versus the prior year period as discussed above, as well as decreased selling, general and administrative expenses in the segment.

### Adjusted EBITDA

VF Fresh Adjusted EBITDA increased to $774 for the three months ended September 30, 2023 compared to ($4,879) for the three months ended September 30, 2022. The improvement in Adjusted EBITDA was primarily due to improvements in gross margin for the reasons mentioned above. See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

### Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

### Sales

VF Fresh sales for the nine months ended September 30, 2023 were $114,125 compared to $124,052 for the nine months ended September 30, 2022. The decrease in sales of ($9,927) or (8%) was due to a decrease in supply partner sales of ($14,245), of which ($10,948) was attributable to the first six months of 2023, partially offset by an increase in sales from the VF Fresh-owned greenhouses of $4,319, of which $836 was attributable to the first six months of 2023. The decrease in supply partner sales is due to a decrease of (18%) in product volume as a result of the loss of two larger growers in late 2022. Sales at VF Fresh-owned greenhouses increased 8% due to an 18% increase in the average selling price partially offset by a decrease of (7%) in pounds produced. The decrease in production pounds is due to a (65%) decrease in planted area at the Permian Basin facility as well as a decrease of (15%) at the Marfa 2 facility.

The average selling price for all produce sold during the nine months ended September 30, 2023 versus the nine months ended September 30, 2022, changed as follows: tomatoes increased 11%, peppers decreased (7%), cucumbers increased 28% and mini cucumbers increased 60%. The price increases are due to both higher market pricing in 2023 versus 2022, as well as a higher percentage of VF Fresh sales going direct to retail accounts.

### Cost of Sales

VF Fresh cost of sales for the nine months ended September 30, 2023, decreased by $25,833 or 18% to $114,779 compared to $140,612 for the nine months ended September 30, 2022. The decrease was primarily due to decreases in supply partner costs of $9,990, reduced costs from the Texas greenhouses of $9,318, and lower freight expense of $6,204. The decrease in cost of sales from the Texas greenhouses is primarily due to fewer pounds produced, cost reductions, and reduced losses from the ToBRFV infestation. The decrease in supply partner cost is related to the (18%) decrease in pounds received. The decrease in freight cost is due to increased available drivers, decreases in fuel prices, and fewer pounds shipped.

### Gross Margin

VF Fresh gross margin for the nine months ended September 30, 2023 was ($654) compared to ($16,560) for the nine months ended September 30, 2022. The gross margin percentage was (1%) for the nine months ended September 30, 2023, compared to (13%) for the nine months ended September 30, 2022. The improvement in gross margin is due to higher pricing in 2023 versus the same period in 2022 and a decrease in cost per pound at our Texas facilities, in 2023 versus 2022, due to higher yields and lower freight costs.

### Selling, General and Administrative Expenses

VF Fresh selling, general and administrative expenses for the nine months ended September 30, 2023 decreased by $889, or 10%, to $7,836, (7% of sales) compared to $8,725 (7% of sales) for the nine months ended September 30, 2022.

### Net (Loss) Income

VF Fresh net loss for the nine months ended September 30, 2023 was ($4,268) compared to ($19,739) for the nine months ended September 30, 2022. The improvement in net loss was primarily due to a favorable vendor settlement relating to the partial recovery of operational losses from the ToBRFV infestation of $5,585, a higher gross margin in 2023 and lower selling, general and administrative expenses.

### Adjusted EBITDA

Adjusted EBITDA for VF Fresh was $1,110 for the nine months ended September 30, 2023 as compared to ($21,362) for the nine months ended September 30, 2022. The improvement in Adjusted EBITDA was due to the favorable vendor settlement of $5,585 as described above, an 11% increase in the average selling price of tomatoes, a decrease in cost per pound at VF Fresh-owned greenhouses and a decrease in freight costs when compared to the nine months ended September 30, 2022. See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

### CANADIAN CANNABIS SEGMENT RESULTS

The Canadian Cannabis segment currently consists of Pure Sunfarms and Rose LifeScience. The comparative analysis for Canadian Cannabis is based on the consolidated results of Pure Sunfarms and Rose LifeScience for the three and nine months ended September 30, 2023 and 2022.

### Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

### Sales

Canadian Cannabis net sales for the three months ended September 30, 2023 were $28,810 compared to $30,394 for the three months ended September 30, 2022. The decrease between comparable quarters was driven by a (6%) decrease in branded sales, as well as an unfavorable impact of exchange rate fluctuations, partially offset by a 21% increase in non-branded sales. The 21% increase in non-branded sales was due to higher sales in the licensed producer ("LP") market. The decline in Canadian Cannabis branded sales was primarily due to lower sales of small and large format products. International sales decreased by (17%) for the three months ended September 30, 2023 versus the three months ended September 30, 2022. The decrease was primarily driven by lower sales to Australia.

Canadian Cannabis continues to pay a burdensome excise tax on its branded sales (provincial sales). For the three months ended September 30, 2023, the Company incurred excise tax of $14,396 (C$19,314) versus $14,765 (C$19,148) for the three months ended September 30, 2022. The increase of (C$166) in excise taxes was due to an increase in kilograms sold in the provincial (branded) channel in the third quarter of 2023 versus the third quarter of 2022. The Canadian excise tax is our single largest cost of participating in the adult-use (branded) market in Canada.

For the three months ended September 30, 2023, 79% of sales were generated from branded flower, inclusive of pre-rolls, 5% of sales from cannabis derivative products and 16% from non-branded sales as compared to 81% of sales from branded flower, inclusive of pre-rolls, 4% from cannabis derivative products and 15% from non-branded sales for the three months ended September 30, 2022.

The following table presents sales by Canadian Cannabis revenue stream, together with the impact of the excise tax, in U.S. dollars and Canadian dollars, for the three months ended September 30, 2023 and 2022:

*(in thousands of U.S. dollars)*

|  | For The Three Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| Branded sales | $37,459 | $39,808 |
| International sales | 701 | 847 |
| Non-branded sales | 4,469 | 3,707 |
| Other | 577 | 707 |
| Less: excise taxes | (14,396) | (14,675) |
| **Net Sales** | $28,810 | $30,394 |

*(in thousands of Canadian dollars)*

|  | For The Three Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| Branded sales | $50,259 | $51,943 |
| International sales | 940 | 1,105 |
| Non-branded sales | 6,048 | 4,943 |
| Other | 774 | 923 |
| Less: excise taxes | (19,314) | (19,148) |
| **Net Sales** | $38,707 | $39,766 |

23

### Cost of Sales

Canadian Cannabis cost of sales for the three months ended September 30, 2023 were $18,866 compared to $22,196 for the three months ended September 30, 2022. The decrease of $3,330, or 15%, was primarily due to a lower bulk cost per gram and a favorable impact of exchange rate fluctuations, partially offset by increases in branded products' kilograms produced, packaged and sold. The third quarter of 2022 cost of sales included a purchase price adjustment (increase in cost of sales) of $1,683 from the revaluation of Pure Sunfarms' inventory to fair value at acquisition date of November 2, 2020.

### Gross Margin

Canadian Cannabis gross margin for the three months ended September 30, 2023 increased $1,746, an improvement of 21%, to $9,944, or a 35% gross margin, compared to $8,198, or a 27% gross margin, for the three months ended September 30, 2022. The increase was due to an improvement in cost of sales, partially offset by a slight reduction in net sales as described above.

### Selling, General and Administrative Expenses

Canadian Cannabis selling, general and administrative expenses for the three months ended September 30, 2023 decreased $287 to $7,598 or 26% of sales compared to $7,885 or 26% of sales for the three months ended September 30, 2022. The decrease in selling, general and administrative expenses was primarily due to reduced labor costs from the ongoing optimization of operations.

### Net (Loss) Income

Canadian Cannabis net income for the three months ended September 30, 2023 was $2,863 compared to net income of $149 for the three months ended September 30, 2022. The increase in net income between periods was primarily due to an increase in gross margin, a slight decrease in selling, general and administrative expenses, and a tax benefit of approximately $1,034.

### Adjusted EBITDA

Adjusted EBITDA for Canadian Cannabis for the three months ended September 30, 2023 was $4,585 compared to $5,417 for the three months ended September 30, 2022. The decrease in Adjusted EBITDA between periods was primarily due to the effect on gross margin of the purchase price adjustment relating to Pure Sunfarms, which included a $1,404 catch up of intangible amortization, for the three months ended September 30, 2022 and was not applicable for the three month period ended September 30, 2023. See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

### Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

### Sales

Canadian Cannabis net sales for the nine months ended September 30, 2023 were $81,987 compared to $81,956 for the nine months ended September 30, 2022. During the nine months ended September 30, 2023 there was a 13% increase in branded sales partially offset by a (42%) decrease in non-branded sales and the unfavorable impact of exchange rate fluctuations. The 13% increase in branded sales was due to increased sales in British Columbia, Alberta, Manitoba and Quebec. Canadian Cannabis branded revenue growth was primarily in the large format-single and pre-roll products offset by a decrease in small format, milled and cannabis derivative products for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The (42%) decrease in non-branded sales was primarily due to an oversupplied LP market and continuing desperation pricing by some LPs, which has resulted in strategic decisions to reduce non-branded sales. International sales increased by $2,269 for the nine months ended September 30, 2023, or 152%, to $3,765 versus $1,496 for the nine months ended September 30, 2022. The increase was primarily driven by incremental sales to Australia, Germany and Israel.

Canadian Cannabis continues to pay a burdensome excise tax on its branded sales (provincial sales). For the nine months ended September 30, 2023, the Company incurred excise tax of $41,724 (C$56,145) versus $34,833 (C$44,793) for the nine months ended September 30, 2022. The increase of $6,891 (C$11,352) was due to higher kilograms sold in the provincial (branded) channel. The Canadian excise tax is our single largest cost of participating in the adult-use market in Canada.

For the nine months ended September 30, 2023, 84% of sales were generated from branded flower, inclusive of pre-rolls, 4% of sales from cannabis derivative products and 12% from non-branded sales as compared to 72% of sales from branded flower, inclusive of pre-rolls, 5% from cannabis derivative products and 23% from non-branded sales for the nine months ended September 30, 2022.

The following table presents sales by Canadian Cannabis revenue stream, together with the impact of the excise tax, in U.S. dollars and Canadian dollars, for the nine months ended September 30, 2023 and 2022:

*(in thousands of U.S. dollars)*

|  | For The Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| Branded sales | $108,731 | $96,248 |
| International sales | 3,765 | 1,496 |
| Non-branded sales | 9,706 | 16,730 |
| Other | 1,510 | 2,315 |
| Less: excise taxes | (41,724) | (34,833) |
| **Net Sales** | $81,988 | $81,956 |

*(in thousands of Canadian dollars)*

|  | For The Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| Branded sales | $146,299 | $123,745 |
| International sales | 5,071 | 1,932 |
| Non-branded sales | 13,109 | 21,523 |
| Other | 2,030 | 2,968 |
| Less: excise taxes | (56,145) | (44,793) |
| **Net Sales** | $110,364 | $105,375 |

### Cost of Sales

Canadian Cannabis cost of sales for the nine months ended September 30, 2023 were $52,873 compared to $52,740 for the nine months ended September 30, 2022. Although the cost of sales were flat during the nine months ended September 30, 2023, the change in product mix to the higher margin branded products, away from the lower margin non-branded products, and the favorable impact of exchange rate fluctuations in the first nine months of 2023, was offset by a positive purchase price adjustment (decrease in cost of sales) relating to Pure Sunfarms of $2,132 for the nine months ended September 30, 2022.

### Gross Margin

Canadian Cannabis gross margin for the nine months ended September 30, 2023 decreased ($102) to $29,114 compared to $29,216 for the nine months ended September 30, 2022. The gross margin percentage of 36% was the same for both periods.

### Selling, General and Administrative Expenses

Canadian Cannabis selling, general and administrative expenses for the nine months ended September 30, 2023 decreased $1,528, or 6%, to $22,273 (27% of sales) compared to $23,801 (29% of sales) for the nine months ended September 30, 2022.The decrease in selling, general and administrative expenses was primarily due to reduced labor costs from the ongoing optimization of operations.

### Net (Loss) Income

Canadian Cannabis net income for the nine months ended September 30, 2023 was $3,932 compared to net income of $2,958 for the nine months ended September 30, 2022. The increase in net income between periods was primarily due to lower selling, general and administrative expenses in the segment.

### Adjusted EBITDA

Adjusted EBITDA for Canadian Cannabis for the nine months ended September 30, 2023 increased $2,715, or 26%, to $13,273 from $10,558 for the nine month period ended September 30, 2022. The improvement between periods was primarily due to lower selling, general and administrative expenditures in 2023 versus 2022 and the effect on gross margin of the purchase price adjustment relating to Pure Sunfarms for the nine months ended September 30, 2022. See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

### U. S. CANNABIS SEGMENT RESULTS

The U.S. Cannabis segment currently consists of Balanced Health. For the three and nine months ended September 30, 2023 and 2022, U.S. Cannabis financial results are based on the consolidated results of Balanced Health. VFH was a joint venture which ceased operations in 2022, and its results are included in “Loss from Equity Method Investments” for the three and nine months ended September 30, 2022.

### Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

### Sales

U.S. Cannabis net sales for the three months ended September 30, 2023 decreased ($147), or (3%), to $4,988 compared to $5,135 for the three months ended September 30, 2022. The decrease was primarily due to lower direct-to-consumer sales due to the proliferation of hemp derived cannabinoid sales. All U.S. Cannabis sales were generated in the United States, with gross sales composed of 85% e-commerce sales, 8% retail sales, and 7% freight income.

### Cost of Sales

U.S. Cannabis cost of sales for the three months ended September 30, 2023 was $1,803 compared to $1,612 for the three months ended September 30, 2022. The (12%) increase was primarily due to a shift in product mix as consumers moved to gummy sales away from the higher margin tincture products.

### Gross Margin

U.S Cannabis gross margin for the three months ended September 30, 2023 decreased ($338) to $3,185, or a 64% gross margin, compared to $3,523, or a 69% gross margin, for the three months ended September 30, 2022.

### Selling, General and Administrative Expenses

U.S. Cannabis selling general and administrative expenses for the three months ended September 30, 2023 decreased $625, or 17%, to $3,095 compared to $3,720 for the three months ended September 30, 2022. The improvement in selling, general and administrative expenses when compared to the same prior year period is due to more efficient marketing and brand spending, reductions in headcount, and contract renegotiation.

### Net (Loss) Income

U.S. Cannabis net income for the three months ended September 30, 2023 was $79 compared to a net loss of ($339) for the three months ended September 30, 2022. The improvement in U.S. Cannabis net income was driven by the improvement in selling, general and administrative expenses, partially offset by a decrease in U.S. Cannabis net sales.

### Adjusted EBITDA

U.S. Cannabis adjusted EBITDA for the three months ended September 30, 2023 was $221 compared to $10 for the three months ended September 30, 2022 due to improvements in selling, general and administrative expenses. See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

### Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

### Sales

U.S. Cannabis net sales for the nine months ended September 30, 2023 were $15,266 compared to $17,971 for the nine months ended September 30, 2022, a decrease of (15%). The decrease was primarily driven by lower direct-to-consumer sales, due to the proliferation of hemp derived cannabinoid sales. All sales were generated in the United States, with gross sales composed of 84% e-commerce sales, 9% retail sales, and 7% freight income.

### Cost of Sales

U.S. Cannabis cost of sales for the nine months ended September 30, 2023 was $5,285 compared to $5,899 for the nine months ended September 30, 2022. The improvement in cost of sales of 10% is primarily due to lower volumes sold in 2023 versus 2022, as margins on most products remained consistent between years, and was partially offset by the shift in product mix described above for the three months ended September 30, 2023.

### Gross Margin

U.S Cannabis gross margin for the nine months ended September 30, 2023 decreased ($2,091) to $9,981, or a 65% gross margin, compared to $12,072, or 67%, for the nine months ended September 30, 2022.

### Selling, General and Administrative Expenses

U.S. Cannabis selling general and administrative expenses for the nine months ended September 30, 2023 decreased by $2,382, or 19%, to $10,098 compared to $12,480 for the nine months ended September 30, 2022. The improvement in selling, general and administrative expenses when compared to the same prior year period is due to reductions in headcount, contract renegotiation and more efficient marketing and brand spending.

### Net (Loss) Income

U.S. Cannabis net loss for the nine months ended September 30, 2023 was ($125) as compared to a net loss of ($23,719) for the nine months ended September 30, 2022. The improvement was driven by non-recurring non-cash impairments of goodwill and intangible assets of ($29,799) in the prior period and the improvement in selling, general and administrative expenses, which were partially offset by a decrease in U.S. Cannabis net sales as discussed above.

### Adjusted EBITDA

U.S. Cannabis adjusted EBITDA for the nine months ended September 30, 2023 was $424 as compared to ($43) for the nine months ended September 30, 2022 due to improvements in selling, general and administrative expenses. See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA”.

### Liquidity and Capital Resources

### Capital Resources

As of September 30, 2023, we had $40,483 in cash, cash equivalents and restricted cash and $84,277 of working capital, compared to $21,676 in cash, cash equivalents and restricted cash and $60,769 of working capital as of December 31, 2022. The increase was primarily due to cash proceeds from the January 2023 Equity Offering (as defined below). We believe that our existing cash, together with cash generated from our operating activities, the remaining availability under our Operating Loan (as defined below), our PSF revolving line of credit, and future availability under our ATM (as defined below), will provide us with sufficient liquidity to meet our working capital needs, repayments of our long-term debt and future contractual obligations and fund our planned capital expenditures for the next 12 months. In addition, we may obtain additional liquidity from potential equity or debt financing in the future. We intend to use our cash on hand for daily operational funding requirements.

*(in thousands of U.S. dollars unless otherwise noted)*

|  | Maximum Availability | Outstanding as of September 30, 2023 |
| --- | --- | ---: |
| Operating Loan | C$ 10,000 | $4,000 |
| FCC Term Loan | $23,280 | $23,280 |
| Pure Sunfarms Loans | C$ 35,062 | $25,815 |
| Pure Sunfarms Revolving Line of Credit | C$ 15,000 | $— |

The Company’s borrowings under the FCC Term Loan (as defined below) and the Operating Loan (as defined below) (collectively the “Credit Facilities”) are subject to certain positive and negative covenants, including debt ratios, and the Company is required to maintain certain minimum working capital. As of September 30, 2023, the Company was in compliance with all of its covenants under its Credit Facilities. Prior to December 31, 2022, the Company received a waiver from FCC for the annual test for one of its financial covenants under our FCC Term Loan. FCC measures our financial covenants once a year on the last calendar day of the year and our next annual testing date will be on December 31, 2023. We can provide no assurance that we will be in compliance, or receive a waiver, for any non-compliance as of the next annual testing date.

Accrued interest payable on the Credit Facilities and Pure Sunfarms Loans as of September 30, 2023 and December 31, 2022 was $385 and $398, respectively. These amounts are included in accrued liabilities in the accompanying Condensed Consolidated Statements of Financial Position.

#### FCC Term Loan

The Company has a term loan financing agreement with Farm Credit Canada, a Canadian creditor (the “FCC Term Loan”). The non-revolving variable rate term loan has a maturity date of April 1, 2025 and a balance of $23,280 on September 30, 2023 and $24,755 on December 31, 2022. The outstanding balance is repayable by way of monthly installments of principal and interest, with the balance and any accrued interest to be paid in full on April 1, 2025. As of September 30, 2023, borrowings under the FCC Term Loan agreement were subject to an interest rate of 8.93% per annum.

As collateral for the FCC Term Loan, the Company has provided promissory notes, a first mortgage on the VFF-owned Delta 1 and Texas greenhouse facilities, and general security agreements over its assets. In addition, the Company has provided full recourse guarantees and has granted security interests in respect of the FCC Term Loan. The carrying value of the assets and securities pledged as collateral as of September 30, 2023 and December 31, 2022 was $122,823 and $113,159, respectively.

#### Operating Loan

The Company has a revolving line of credit agreement with a Canadian chartered bank (the "Operating Loan"). On March 13, 2023, the Company entered into a Note Modification Agreement (the “Modification”) to the Operating Loan. The Modification eliminated the use of LIBOR as a basis to determine certain interest rates under the Operating Loan and transitioned to the Secured Overnight Financing Rate (“SOFR”) for such purposes. The Company does not expect the Modification to materially change the amount of interest payable under the Operating Loan. The Operating Loan is subject to margin requirements stipulated by the lender.

The Operating Loan had an outstanding balance of $4,000 and future availability of $6,000 on September 30, 2023 and December 31, 2022.

As collateral for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory. In addition, the Company has granted full recourse guarantees and security therein. The carrying value of the assets pledged as collateral as of September 30, 2023 and December 31, 2022 was $25,553 and $26,666, respectively.

#### Pure Sunfarms Loans

Pure Sunfarms has a revolving line of credit (the “PSF Revolving Line of Credit”), a non-revolving credit facility (the “PSF Non-Revolving Facility”), and a term loan (the “PSF Term Loan” and collectively, with the PSF Revolving Line of Credit and the PSF Non-Revolving Facility, the “PSF Loans”) with three Canadian chartered banks. On May 5, 2023, the PSF Loans were extended from a maturity date of February 7, 2024 to February 7, 2026 by the syndicate lenders under the same terms, conditions and covenants as the original PSF Loans maturing on February 7, 2024. Due to the extension, the classification of the PSF Loans on September 30, 2023 remains the same as December 31, 2022.

The PSF Revolving Line of Credit had an outstanding balance of $0 as of September 30, 2023 and $3,529 as of December 31, 2022. Pure Sunfarms had an outstanding letter of credit issued to BC Hydro against the PSF Revolving Line of Credit of C$0 at September 30, 2023 and C$4,145 December 31, 2022.

The PSF Non-Revolving Facility is secured by the Delta 2 and Delta 3 greenhouse facilities and contains customary financial and restrictive covenants. The other terms and conditions of the PSF Non-Revolving Facility remain substantially the same. As of September 30, 2023, Pure Sunfarms was in compliance with these financial covenants. The outstanding amount on the PSF Non-Revolving Facility was $8,534 on September 30, 2023 and $9,664 on December 31, 2022.

The outstanding amount on the PSF Term Loan was $13,449 on September 30, 2023 and $14,867 on December 31, 2022.

The outstanding amount on Pure Sunfarms' credit facility with the Business Development Bank of Canada was $3,832 on September 30, 2023 and $4,181 on December 31, 2022.

#### Equity Offerings

On January 30, 2023, the Company issued and sold 18,350,000 Common Shares under a registered direct equity offering, at a price of $1.35 per share, resulting in net proceeds for approximately $23,300 after deducting commissions and offering expenses (the "January 2023 Equity Offering"). As part of the January 2023 Equity Offering the Company also issued 18,350,000 Common Warrants at an exercise price of $1.65 per share. The Common Warrants became exercisable on July 31, 2023, and expire on July 30, 2028.

On August 9, 2022, Village Farms entered into a Controlled Equity Offering Sales Agreement ("Sales Agreement") pursuant to which the Company may offer and sell Common Shares having an aggregate offering price up to $50 million from time to time to or through A.G.P./Alliance Global Partners and Cantor Fitzgerald & Co. Under the Sales Agreement, the Company may offer and sell Common Shares through A.G.P./Alliance Global Partners and Cantor Fitzgerald & Co. by any method deemed to be an “at the market offering” ("ATM") as defined in Rule 415 of the U.S. Securities Act of 1933, as amended, including sales made directly on The Nasdaq Capital Market. During the nine months ended September 30, 2023 there were no shares sold under this ATM.

### Summary of Cash Flows

*(in Thousands)*

|  | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Cash, beginning of period | $21,676 | $58,667 |
| Net cash flow provided by (used in) by: |  |  |
| Operating activities | 6,805 | (13,216) |
| Investing activities | (3,523) | (19,476) |
| Financing activities | 15,560 | (2,028) |
| Net cash increase (decrease) for the period | 18,842 | (34,720) |
| Effect of exchange rate changes on cash | (35) | (782) |
| Cash, end of the period | $40,483 | $23,165 |

#### Operating Activities

For the nine months ended September 30, 2023 and 2022, cash flows provided by (used in) operating activities were $6,805 and ($13,216), respectively. The operating activities for the nine months ended September 30, 2023 consisted of ($1,451) in changes in non-cash working capital items and $8,256 in changes before non-cash working capital items, while operating activities for the nine months ended September 30, 2022 consisted of $11,621 in changes in non-cash working capital items and ($24,837) in changes before non-cash working capital items. The changes before non-cash working capital items for 2023 compared to 2022 was primarily due to a lower net loss from VF Fresh in 2023 compared to 2022, proceeds from a vendor settlement in 2023, and goodwill and intangibles impairments in 2022 that were non-recurring, partially offset by slightly lower net income from the Canadian Cannabis and U.S. Cannabis businesses.

#### Investing Activities

For the nine months ended September 30, 2023 and 2022, cash flows used in investing activities were ($3,523) and ($19,476), respectively. The investing activities for the nine months ended September 30, 2023 consisted of ($4,358) invested in capital expenditures to support the VF Fresh, Canadian, and U.S. Cannabis operations, partially offset by the repayment of the promissory note by Altum. The investing activities for the nine months ended September 30, 2022 consisted primarily of a ($4,693) investment to acquire Leli, ($1,180) resulting from the final purchase price adjustment on the acquisition of Rose, a promissory note to Altum of ($734), and ($12,869) invested in capital expenditures, primarily to support Canadian Cannabis operations.

#### Financing Activities

For the nine months ended September 30, 2023, cash flows provided by financing activities were $15,560 and cash flows used in financing activities were ($2,028) for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, cash flows provided by financing activities consisted of $23,335 in proceeds from the issuance of Common Shares net of issuance costs, $83 in proceeds from the exercise of stock options offset by debt repayment of ($7,858). For the nine months ended September 30, 2022, cash flows used in financing activities consisted of $4,000 of proceeds from the Operating Loan, $824 from the issuance of Common Shares, $192 from proceeds from the exercise of stocks offset by debt repayment of ($6,262).

### Contractual Obligations and Commitments

We expect to meet our contractual obligations and commitments using our working capital and our other resources described under “Capital Resources” above. Other than with respect to our long-term debt described above, we currently do not have any material cash requirements in the near future.

### Non-GAAP Measures

References in this Management’s Discussion and Analysis to “Adjusted EBITDA” and "Adjusted EBITDA - Constant Currency" are to earnings (including the equity losses of the joint venture, VFH) before interest, taxes, depreciation, and amortization (“EBITDA”), as further adjusted to exclude foreign currency exchange gains and losses on translation of long-term debt, share-based compensation, gains and losses on asset sales and the other adjustments set forth in the table below. Adjusted EBITDA and Adjusted EBITDA - Constant Currency are measures of operating performance that are not recognized under GAAP and do not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA and Adjusted EBITDA - Constant Currency may not be comparable to similar measures presented by other issuers. Investors are cautioned that Adjusted EBITDA and Adjusted EBITDA - Constant Currency should not be construed as an alternative to net income or loss determined in accordance with GAAP as an indicator of our performance. Adjusted EBITDA and Adjusted EBITDA - Constant Currency are used as additional measures to evaluate the operating and financial performance of our segments. Management believes that Adjusted EBITDA and Adjusted EBITDA - Constant Currency are important measures in evaluating the historical performance of the Company because it excludes non-recurring and other items that do not reflect our business performance.

### Reconciliation of Net Loss to Adjusted EBITDA

The following table reflects a reconciliation of net loss to Adjusted EBITDA, as presented by the Company:

*(in thousands of U.S. dollars)*

|  | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(1,299) | $(8,745) | $(9,315) | $(51,817) |
| Add: |  |  |  |  |
| Amortization | 3,195 | 3,007 | 9,384 | 8,479 |
| Foreign currency exchange gain | 929 | 1,934 | 196 | 2,182 |
| Interest expense, net | 708 | 922 | 2,724 | 2,201 |
| (Recovery of) provision for income taxes | (1,664) | (3,183) | 269 | (14,563) |
| Share-based compensation | 690 | 926 | 2,973 | 3,004 |
| Interest expense for JV's | 13 | — | 47 | 39 |
| Amortization for JVs | 603 | 1,197 | 1,762 | 1,288 |
| Foreign currency exchange gain for JVs | 3 | 1 | 5 | 2 |
| Share-based compensation for JV's | 39 | — | 113 | — |
| Other expense, net for JV's | (14) | — | (29) | — |
| Deferred financing fees | 34 | 44 | 102 | 171 |
| Impairments(1) | — | — | — | 29,799 |
| JV exit-related costs(2) | — | — | — | 592 |
| Gain on disposal of assets | — | — | — | — |
| Other expense, net | 11 | (19) | 12 | 113 |
| Purchase price adjustment (3) | — | 1,683 | — | (2,132) |
| Adjusted EBITDA (4) | $3,248 | $(2,233) | $8,243 | $(20,642) |
| Adjusted EBITDA for JVs (5) | $— | $— | $— | $(327) |
| Adjusted EBITDA excluding JVs | $3,248 | $(2,233) | $8,243 | $(20,315) |

(1) Represents impairments to goodwill of ($25,159) and intangible assets of ($4,630) that were triggered by inflationary effects on consumer spending, decreases in market capitalization of CBD companies and the continued federal regulation lack of clarity with respect to CBD.

(2) Represents exit related costs incurred due to the winding down of the VFH joint venture. For the nine months ended September 30, 2022, we previously included an adjustment for $2,284 of obsolete inventory associated with the JV exit that is now being excluded in response to comments from and discussions with the Staff of the U.S. Securities and Exchange Commission.

(3) The purchase price adjustment primarily reflects the non-cash accounting charge resulting from the revaluation of Pure Sunfarms’ inventory to fair value at the acquisition date on November 2, 2020, Pure Sunfarms' intangible amortization and Rose's intangible amortization resulting from the September 30, 2022 finalization of the Rose purchase price accounting.

(4) Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA presented for these segments may not be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recurring and other items that do not reflect the underlying business performance of the Company.

(5) The Adjusted EBITDA for JVs consists of the VFH Adjusted EBITDA.

### Reconciliation of Segmented Net Loss to Adjusted EBITDA

The following table reflects a reconciliation of segmented net loss to Adjusted EBITDA, as presented by the Company:

*(in thousands of U.S. dollars)*

|  | For The Three Months Ended September 30, 2023 VF Fresh (Produce) | Cannabis Canada | Cannabis U.S. | Clean Energy | Corporate | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net (loss) income | $(951) | $2,863 | $79 | $(58) | $(3,232) | $(1,299) |
| Add: |  |  |  |  |  |  |
| Amortization | 1,283 | 1,795 | 53 | — | 64 | 3,195 |
| Foreign currency exchange gain | 66 | 28 | — | 1 | 834 | 929 |
| Interest expense (income), net | 597 | 326 | — | — | (215) | 708 |
| Recovery of income taxes | (221) | (1,034) | — | — | (409) | (1,664) |
| Share-based compensation | — | 160 | 78 | — | 452 | 690 |
| Interest expense for JV's | — | 13 | — | — | — | 13 |
| Amortization for JVs | — | 372 | — | — | 231 | 603 |
| Foreign currency exchange loss for JVs | — | 3 | — | — | — | 3 |
| Share-based compensation for JV's | — | 39 | — | — | — | 39 |
| Other expenses for JV's | — | (14) | — | — | — | (14) |
| Deferred financing fees | — | 34 | — | — | — | 34 |
| Other expense | — | — | 11 | — | — | 11 |
| Adjusted EBITDA (4) | $774 | $4,585 | $221 | $(57) | $(2,275) | $3,248 |

*(in thousands of U.S. dollars)*

|  | For The Nine Months Ended September 30, 2023 VF Fresh (Produce) | Cannabis Canada | Cannabis U.S. | Clean Energy | Corporate | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net (loss) income | $(4,268) | $3,932 | $(125) | $(128) | $(8,726) | $(9,315) |
| Add: |  |  |  |  |  |  |
| Amortization | 3,839 | 5,078 | 279 | — | 188 | 9,384 |
| Foreign currency exchange loss (gain) | 40 | (8) | 19 | — | 145 | 196 |
| Interest expense (income), net | 1,728 | 1,615 | (24) | — | (595) | 2,724 |
| (Recovery of) provision for income taxes | (229) | 922 | — | — | (424) | 269 |
| Share-based compensation | — | 424 | 263 | — | 2,286 | 2,973 |
| Interest expense for JV's | — | 47 | — | — | — | 47 |
| Amortization for JVs | — | 1,072 | — | — | 690 | 1,762 |
| Foreign currency exchange loss for JVs | — | 5 | — | — | — | 5 |
| Share-based compensation for JV's | — | 113 | — | — | — | 113 |
| Other expense for JV's | — | (29) | — | — | — | (29) |
| Deferred financing fees | — | 102 | — | — | — | 102 |
| Other expense, net | — | — | 12 | — | — | 12 |
| Adjusted EBITDA (4) | $1,110 | $13,273 | $424 | $(128) | $(6,436) | $8,243 |

*(in thousands of U.S. dollars)*

|  | For The Three Months Ended September 30, 2022 VF Fresh (Produce) | Cannabis Canada | Cannabis U.S. | Clean Energy | Corporate | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net (loss) income | $(4,644) | $149 | $(339) | $(58) | $(3,853) | $(8,745) |
| Add: |  |  |  |  |  |  |
| Amortization | 1,251 | 1,613 | 143 | — | — | 3,007 |
| Foreign currency exchange loss | (236) | (37) | 7 | — | 2,200 | 1,934 |
| Interest expense (income), net | 543 | 579 | — | — | (200) | 922 |
| (Recovery of) provision for income taxes | (1,780) | 38 | — | — | (1,441) | (3,183) |
| Share-based compensation | — | 312 | 66 | — | 548 | 926 |
| Amortization for JVs | — | 1,197 | — | — | — | 1,197 |
| Foreign currency exchange gain for JVs | — | 1 | — | — | — | 1 |
| Deferred financing fees | — | 44 | — | — | — | 44 |
| Purchase price adjustment (3) | — | 1,683 | — | — | — | 1,683 |
| Other expense, net | (13) | (162) | 133 | — | 23 | (19) |
| Adjusted EBITDA (4) | $(4,879) | $5,417 | $10 | $(58) | $(2,723) | $(2,233) |

31

*(in thousands of U.S. dollars)*

|  | For The Nine Months Ended September 30, 2022 VF Fresh (Produce) | Cannabis Canada | Cannabis U.S. | Clean Energy | Corporate | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net (loss) income | $(19,739) | $2,958 | $(23,719) | $(186) | $(11,131) | $(51,817) |
| Add: |  |  |  |  |  |  |
| Amortization | 3,752 | 4,302 | 425 | — | — | 8,479 |
| Foreign currency exchange loss | — | 77 | 21 | 2 | 2,082 | 2,182 |
| Interest expense (income), net | 971 | 1,356 | — | 4 | (130) | 2,201 |
| (Recovery of) provision for income taxes | (6,322) | 1,668 | (7,025) | — | (2,884) | (14,563) |
| Share-based compensation | — | 898 | 268 | — | 1,838 | 3,004 |
| Interest expense for JV's | — | — | 39 | — | — | 39 |
| Amortization for JVs | — | 1,288 | — | — | — | 1,288 |
| Foreign currency exchange loss for JVs | — | 2 | — | — | — | 2 |
| Deferred financing fees | — | 171 | — | — | — | 171 |
| Impairments(1) | — | — | 29,799 | — | — | 29,799 |
| JV exit-related costs(2) | — | — | — | — | 592 | 592 |
| Purchase price adjustment (3) | — | (2,132) | — | — | — | (2,132) |
| Other expense, net | (24) | (30) | 149 | — | 18 | 113 |
| Adjusted EBITDA (4) | $(21,362) | $10,558 | $(43) | $(180) | $(9,615) | $(20,642) |

(1) Represents impairments to goodwill of ($25,159) and intangible assets of ($4,630) that were triggered by inflationary effects on consumer spending, decreases in market capitalization of CBD companies and the continued federal regulation lack of clarity with respect to CBD.

(2) Represents exit related costs due to the winding down of the VFH joint venture. For the nine months ended September 30, 2022, we previously included an adjustment for $2,284 of obsolete inventory associated with the JV exit that is now being excluded in response to comments from and discussions with the Staff of the U.S. Securities and Exchange Commission.

(3) The purchase price adjustment primarily reflects the non-cash accounting charge resulting from the revaluation of Pure Sunfarms’ inventory to fair value at the acquisition date on November 2, 2020, Pure Sunfarms' intangible amortization and Rose intangible amortization resulting from the September 30, 2022 finalization of the Rose purchase price accounting.

(4) Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA presented for these segments may not be comparable to similar measures presented for comparable segments by other issuers. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company’s segments because it excludes non-recurring and other items that do not reflect the business performance of our segments. Adjusted EBITDA for Canadian Cannabis includes the 70% interest in Rose LifeScience and Adjusted EBITDA for “Corporate” and “Total” includes our 65% interest in VFH.

### Constant Currency

To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented constant currency adjusted financial measures for sales, cost of sales, selling, general and administrative, other income (expense), operating (loss) income, loss from consolidated entities, net loss, and Adjusted EBITDA for the three and nine months ended September 30, 2023, which are considered non-GAAP financial measures. We present constant currency information to provide a framework for assessing how our underlying operations performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period income statement results in currencies other than U.S. dollars are converted into U.S. dollars using the average exchange rates from the three and nine month comparative periods in 2022 rather than the actual average exchange rates in effect during the respective current periods. All growth comparisons relate to the corresponding period in 2022. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our segments without taking into account the effect of exchange rate fluctuations. The non-GAAP financial measures presented in this Quarterly Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP.

The table below sets forth certain measures of consolidated results from continuing operations on a constant currency basis for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022 on an as reported and constant currency basis (in thousands):

|  | As Reported For The Three Months Ended September 30, 2023 | 2022 | As Reported Change $% |  | As Adjusted for Constant Currency For The Three Months Ended September 30, 2023 | Constant Currency Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales | $69,510 | $71,056 | $(1,546) | (2%) | $70,370 | $(686) | (1%) |
| Cost of sales | (54,889) | (62,682) | 7,793 | 12% | (55,517) | 7,165 | 11% |
| Selling, general and administrative expenses | (15,822) | (17,794) | 1,972 | 11% | (16,045) | 1,749 | 10% |
| Other (expense) income, net | (1,716) | (2,895) | 1,179 | 41% | (1,731) | 1,164 | 40% |
| Operating (loss) income | (2,917) | (12,315) | 9,398 | 76% | (2,923) | 9,392 | 76% |
| Loss including non-controlling interests | (1,253) | (9,132) | 7,879 | 86% | (1,259) | 7,873 | 86% |
| Net loss | (1,299) | (8,745) | 7,446 | 85% | (1,306) | 7,439 | 85% |
| Adjusted EBITDA - Constant Currency(1) | 3,248 | (2,233) | 5,481 | 245% | 3,259 | 5,492 | 246% |

|  | As Reported For The Nine Months Ended September 30, 2023 | 2022 | As Reported Change $% |  | As Adjusted for Constant Currency For The Nine Months Ended September 30, 2023 | Constant Currency Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales | $211,378 | $224,115 | $(12,737) | (6%) | $215,416 | $(8,699) | (4%) |
| Cost of sales | (172,958) | (199,514) | 26,556 | 13% | (175,563) | 23,951 | 12% |
| Selling, general and administrative expenses | (49,980) | (54,245) | 4,265 | 8% | (51,078) | 3,167 | 6% |
| Other (expense) income, net | 2,520 | (4,379) | 6,899 | 158% | 2,426 | 6,805 | 155% |
| Write-off of joint venture loan | — | (592) | 592 | 100% | — | 592 | 100% |
| Impairments | — | (29,799) | 29,799 | 100% | — | 29,799 | 100% |
| Operating (loss) income | (9,040) | (64,414) | 55,374 | 86% | (8,799) | 55,615 | 86% |
| Loss including non-controlling interests | (9,309) | (49,851) | 40,542 | 81% | (9,114) | 40,737 | 82% |
| Net loss | (9,315) | (51,817) | 42,502 | 82% | (9,128) | 42,689 | 82% |
| Adjusted EBITDA - Constant Currency(1) | 8,243 | (20,642) | 28,885 | 140% | 8,890 | 29,532 | 143% |

(1) Adjusted EBITDA - Constant Currency is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA - Constant Currency presented for these segments may not be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA - Constant Currency is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recurring and other items that do not reflect the underlying business performance of the Company. For the nine months ended

September 30, 2022, we previously included an adjustment for $2,284 of obsolete inventory associated with the JV exit that is now being excluded in response to comments from and discussions with the Staff of the U.S. Securities and Exchange Commission.

### Recent Accounting Pronouncements Not Yet Adopted

No accounting pronouncements recently issued or newly effective have had, or are expected to have, a material impact on the Company’s condensed consolidated financial statements.

### Critical Accounting Estimates and Judgments

Our discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Interim Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses and related disclosure of contingent assets and liabilities.

We believe that the estimates, assumptions and judgments involved in the accounting policies described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Actual results could differ from the estimates we use in applying our critical accounting policies. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

### Assessment for Indicators of Impairment

### Goodwill

### Factors Affecting Goodwill

The Company has experienced macroeconomic challenges, such as a decrease in market capitalization driven by decreases in transaction multiples for cannabis and CBD companies, as well as the continued ambiguity in federal regulations with respect to the U.S. CBD market. Macroeconomic challenges include inflation, which affects cultivation costs, distribution costs and operating expenses, as well as rising interest rates, supply shortages and volatile commodity prices.

The U.S. CBD market and the comparable market capitalizations for our CBD competitors declined throughout 2022 as a result of continued ambiguity in federal regulations. CBD was taken off the controlled substance list in the Farm Bill of 2018. In 2019, the FDA ruled that CBD was deemed to be a “medicine”. However, CBD remains subject to further study by the FDA in order to receive FDA approval to include CBD based products in food and beverages. Until the FDA receives either more scientifically-based health and wellness studies, or further Congressional direction, the FDA will not allow CBD to be put into food or beverages. As such, there has been a negative impact on the sales of all CBD products across the country since the initial interest in CBD products in 2019 and 2020. This has resulted in U.S. retailers moving away from carrying CBD based products in light of potential FDA scrutiny and has had a negative impact on the sales of all CBD products across the United States.

The FDA continues to not only publish guidance indicating their unwillingness to pursue rulemaking allowing the use of CBD in dietary supplements or conventional foods, but also issue warning letters to some CBD companies that are making health and wellness claims, which has increased regulatory uncertainty regarding CBD and has pushed U.S. retailers further away from CBD products.

As a result of the foregoing factors, the Company and other cannabis and CBD companies have suffered a decline in the price of their common shares and their overall market capitalizations. These declines represented an indicator of possible goodwill and intangible asset impairment for the Company.

### Cannabis U.S.

As a result of foregoing factors, we performed a goodwill impairment assessment for the Company’s Cannabis – U.S. segment as of June 30, 2022. On June 30, 2022, the estimated fair value of goodwill for the Cannabis – U.S. segment using the market-based approach. The most significant assumption used in applying the market approach was a market-based revenue multiple of 1.6x based on transaction multiples of somewhat similar CBD-based companies. We concluded that as of June 30, 2022, the recoverable amount was lower than its carrying amount and as a result, an impairment charge to goodwill of $25,169 was allocated to the Cannabis – U.S. segment for the six months ended June 30, 2022.

In addition, due to further erosion in the market values publicly traded CBD companies relating to the ongoing uncertainty regarding the regulatory status of CBD and the corresponding decline in retail sales of CBD products, we concluded that as of December 31, 2022, the recoverable amount of goodwill for the U.S. – Cannabis segment was lower than its carrying amount and as a result, an additional impairment charge to goodwill of $13,500 was allocated to the U.S. – Cannabis segment. Accordingly, we recognized a total goodwill impairment charge of $38,669 in 2022. For more information, see Note 11 to our audited annual financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

As of September 30, 2023, there were no goodwill impairment indicators for the Company’s Cannabis – U.S. segment. Accordingly, the Company did not perform a goodwill impairment assessment for the Company’s Cannabis – U.S. segment as of September 30, 2023. Given this, no goodwill impairment charge was required for the Cannabis – U.S. segment.

The carrying value of goodwill associated with our Cannabis – U.S. segment was $21,339 at September 30, 2023 and December 31, 2022.

### Cannabis Canada

There were no goodwill impairment indicators for the Cannabis – Canada segment throughout 2022 and 2023. Accordingly, the Company did not perform a goodwill impairment assessment for the Company’s Cannabis – Canada segment.

The carrying value of goodwill associated with our Cannabis – Canada segment was $44,779 at September 30, 2023 and $44,886 at December 31, 2022.

### Future Periods; Further Information

To the extent we continue to observe impairment indicators for our Cannabis – U.S. and/or Cannabis – Canada segments or our other reporting units, we may be required to perform quantitative goodwill impairment assessments for such reporting units in future periods.

For further information regarding our goodwill and any applicable impairment testing, see Note 11 to our audited annual financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 and Note 4 to our interim financial statements included in this Quarterly Report on Form 10-Q.

### Intangible Assets

### Factors Affecting Intangible Assets

Intangible assets include licenses, brands and trademarks, customer relationships, computer software and other indefinite-lived intangible assets, which were impacted by the same factors as those affecting goodwill (see “—Factors Affecting Goodwill” above).

### Cannabis U.S.

As a result of foregoing factors, we performed a brand impairment assessment for the Company’s Cannabis – U.S. segment as of June 30, 2022. On June 30, 2022, the estimated fair value of the Cannabis – U.S. brand was determined using a discounted cash flow projection. We concluded that as of June 30, 2022, the recoverable amount was lower than its carrying amount and as a result, an impairment charge to the brand intangible of $4,630 was allocated to the Cannabis – U.S. segment.

As of September 30, 2023, there were no brand impairment indicators for the Company’s Cannabis – U.S. segment. Accordingly, the Company did not perform a brand impairment assessment for the Company’s Cannabis – U.S. segment as of September 30, 2023.

### Cannabis Canada

There were no impairment indicators for identifiable intangibles for the Cannabis – Canada segment throughout 2022 and 2023. Accordingly, the Company did not perform impairment assessments for the Company’s Cannabis – Canada.

### Future Periods; Further Information

To the extent we continue to experience intangible assets impairment indicators for our Cannabis – U.S. and/or Cannabis – Canada segments or our other reporting units, we may be required to perform quantitative intangible asset impairment assessments for such reporting units in future periods.

For additional information regarding our intangible assets and applicable impairment testing, see Note 11 to our audited annual financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 and Note 4 to our interim financial statements included in this Quarterly Report on Form 10-Q.

## Market risk

As filed, 3,205 characters.

### Interest Rate Risk

As of September 30, 2023, our variable interest rate debt was primarily related to our Credit Facilities and Term Loans. Outstanding borrowings under our Credit Facility and Term Loans bear interest at either the (a) Secured Overnight Financing Rate (“SOFR”) or (b) Canadian Prime Rate, as defined in the agreement, plus an applicable margin. As of September 30, 2023, we had approximately $4,000 aggregate principal amount of outstanding revolving loans under our Operating Loan with an interest rate of 6.9% and we had approximately $49,095 in aggregate principal amounts with Term Loans with a weighted average interest rate of 9.2%. The current interest rates for outstanding revolving loans under our Credit Facility and Term Loans reflect basis point increases of approximately 3.6% over the comparable period in 2022.

Our interest expense is affected by the overall interest rate environment. Our variable rate interest debt subjects us to risk from increases in prevailing interest rates. This risk increases in the current inflationary environment, in which the Federal Reserve has increased interest rates, resulting in an increase in our variable interest rates and related interest expense. An additional 50 basis point increase in the applicable interest rates under our Credit Facility and Term Loan would have increased our interest expense by approximately $64 and $192 for the three and nine months ended September 30, 2023, respectively $73 and $218 for the three and nine months ended September 30, 2022, respectively.

While we cannot predict our ability to refinance existing debt or the significance of the impact that interest rate movements will have on our existing debt, management evaluates our financial position on an ongoing basis.

### Foreign Exchange Risk

As of September 30, 2023 and 2022, the Canadian/U.S. foreign exchange rate was C$1.00 = US$0.7363 and C$1.00 = US$0.7277, respectively. If all other variables remain constant, an increase of $0.10 in the Canadian dollar would have the following impact on the ending balances of certain statements of financial position items at September 30, 2023 and 2022 with the net foreign exchange gain or loss directly impacting net income (loss).

| Financial assets | September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents | $1,659 | $1,280 |
| Trade receivables | 2,958 | 3,589 |
| Inventories | 8,408 | 8,003 |
| Prepaid and deposits | 573 | 1,189 |
| **Financial liabilities** |  |  |
| Trade payables and accrued liabilities | (5,842) | (6,411) |
| Loan payable | (3,549) | (4,492) |
| Deferred tax liability | (2,843) | (2,399) |
| **Net foreign exchange gain** | $1,364 | $759 |

Our exposure to foreign exchange risk and the impact of foreign exchange rates are monitored by the Company’s management but generally the Company tries to match its sales (trade receivables) and vendor payments (trade payables) such that the net impact is not material.

Other than the interest rate risk and foreign exchange risk discussed above, there have been no material changes to our market risks from those disclosed in Part II, Item 7A of our Annual Report on Form 10-K.

## Controls and procedures

As filed, 3,863 characters.

### Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified by the U.S. Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, our disclosure controls and procedures are not effective at a reasonable assurance level due to the material weakness described in Management’s Report on Internal Control over Financial Reporting in our Annual Report on Form 10-K for the year ended December 31, 2022.

### Material Weakness in Internal Controls Over Financial Reporting

As of December 31, 2022, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control –Integrated Framework (2013). Based on this assessment, our management concluded that, as of December 31, 2022, our internal control over financial reporting was not effective based on those criteria because a material weakness in internal control over financial reporting existed as of that date, as described below.

The Company did not operate effective controls over the calculation of the recoverable amount of goodwill and intangible assets. The Company’s controls related to the calculation of the recoverable amount of goodwill failed to prevent or detect an error in the revision of certain of the formulas and significant assumptions within the calculation of recoverable amount. There was no impact on the Company’s December 31, 2022 financial statements.

### Remediation Plan and Status

In the nine months ended September 30, 2023, the Company implemented remediation to improve the operation of its controls over the review of the determination of the recoverable amount of its goodwill and intangible assets. The Company will continue to review, optimize and enhance its financial reporting controls and procedures to ensure the remediation measures are effective and controls are operating effectively. The Company expects implementation of its remediation plan by December 31, 2023.

### Changes in Internal Control over Financial Reporting

The Company’s management, including the Chief Executive Officer and Principal Financial and Accounting Officer, has reviewed the Company’s internal control over financial reporting. There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act), other than to address the material weakness described in management's report on internal control over financial reporting, during the nine months ended September 30, 2023 (as described above) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 2,594 characters.

Our business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described in Part I, Item 1A, “Risk Factors” contained in our Annual Report on Form 10-K, as filed with the SEC on March 9, 2023, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings filed with the SEC in connection with evaluating us, our business, and the forward-looking statements contained in this Quarterly Report on Form 10-Q. During the nine months ended September 30, 2023, other than as described in the Quarterly Report on Form 10-Q and as set forth below, there have been no material changes from the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K.

***Our Common Shares may be delisted from the Nasdaq Capital Market if we do not regain compliance with the minimum bid price requirements by April 15, 2024.***

On April 20, 2023, the Company received notification from Nasdaq that the Company is not in compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market as the bid price of the Common Shares on Nasdaq closed below $1.00 (the “Minimum Bid Requirement”) for 30 consecutive trading days from March 7 to April 19, 2023 (the “Notification”). As set forth in the Notification, the Company had until October 17, 2023 to regain compliance with the Minimum Bid Requirement, which has subsequently been extended by Nasdaq until April 15, 2024 (the “Compliance Period”). However, if the Company fails to remedy this deficiency during the Compliance Period, Nasdaq will provide notice that the Company’s Common Shares are subject to delisting.

We can provide no assurance that we will regain compliance with the Minimum Bid Requirement by the end of the Compliance Period. Additionally, even if we regain compliance with the Minimum Bid Requirement there can be no assurance that we will continue to maintain compliance with the other Nasdaq requirements for listing our Common Shares on Nasdaq. The delisting of our Common Shares from the Nasdaq Capital Market would likely result in decreased liquidity and increased volatility in the price and trading of our Common Shares and may adversely affect our ability to raise additional capital or to enter into strategic transactions. The delisting of our Common Shares from the Nasdaq Capital Market would also make it more difficult for our shareholders to sell our Common Shares in the public market.

Filed Nov 8, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-060669. Last ingested by Listed: Oct 24, 2026, 15:14 ET. No prices; not investment advice.