Village Farms (VFF) Q4 2025 Earnings Transcript

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Date

March 12, 2026 at 8:30 a.m. ET

Call participants

• Chief Executive Officer — Mike DeGiglio
• Chief Financial Officer — Steve Ruffini
• Chief Operating Officer — Gilan Lefever
• Senior Vice President, Corporate Affairs — Sam Gibbons

Takeaways

• Consolidated net sales -- $49.6 million, up 9% year over year, led by Canadian cannabis and initial contributions from Netherlands operations.
• Net income from continuing operations -- $2.3 million, up from a net loss of $5.7 million in the prior year’s quarter.
• Adjusted EBITDA from continuing operations -- $8.6 million, compared with negative $2.9 million last year; adjusted EBITDA margin reached 17.3% versus negative 6.4% a year earlier.
• Cash flow from operations -- $11.4 million, up from $10.9 million year over year.
• Canadian cannabis net sales -- CAD 52.7 million, a 10% increase, with a 384% surge in international medicinal exports; retail branded sales remained flat due to biomass constraints and a labor strike.
• Canadian cannabis gross margin -- 43%, compared to 3% last year, surpassing the target range (30%-40%) for a fourth consecutive quarter.
• Canadian adjusted EBITDA margin -- 27% for the quarter; full-year margin was 29% on $67 million full-year adjusted EBITDA.
• Canadian cannabis cash flow from operations -- $21.5 million in Q4; $77.5 million for the year.
• International export sales -- Q4 international exports rose nearly 400% year over year, although some shipments to Germany were delayed to Q1, impacting quarterly results.
• Netherlands operations -- Sales of $3.3 million; Phase I facility performed at capacity, and margin was healthy despite higher operating expenses incurred for Phase II staffing.
• Planned capacity expansion -- Delta 2 (Canada) expansion to add 15 metric tons in 2026 and ultimately 40 metric tons annually by mid-2027, a 33% increase from 2025; Netherlands expansion to raise annual capacity from under 2 metric tons to approximately 10 metric tons as Phase II comes online.
• SG&A as a percentage of sales -- 22%, down from 28%, driven by ongoing efficiencies in Canadian cannabis.
• Retail excise taxes in Canada -- $21.5 million in Q4, accounting for nearly 40% of retail branded sales and almost double SG&A expenses.
• Credit facility amendment -- Secured CAD 15 million delayed-draw term loan at slightly over 5% interest; initial $5 million drawn, funds allocated for incremental EU GMP expansion.
• Cash and debt position -- $86 million cash (including $5 million restricted), total debt $34 million; net cash position is $53 million.
• Share repurchases -- Repurchased 813,000 shares for $3 million in Q4; continued into Q1 2026, buying 1.1 million shares for $3.7 million.
• Produce segment -- Sales declined 21% to $4.9 million; adjusted EBITDA negative $462,000, reflecting ongoing transition and sales commission to privatized operations.
• U.S. cannabis segment performance -- Q4 sales of $3.4 million, with margins at 60% but contributed a small negative adjusted EBITDA due to state market challenges.
• Tax loss utilization -- All carryover tax losses now used, resulting in a $16 million Canadian income tax accrual paid after year-end for 2025 earnings.

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Risks

• Management said, "we estimate reduced our Q4 sales by approximately $2.5 million," directly citing lost revenue due to operational disruption.
• Sequential decreases in production and revenue occurred during Q4, attributed to seasonality and supply constraints, which can elevate costs quarter over quarter.
• "Canadian retail branded sales for the fourth quarter were $55.6 million, essentially flat," with higher-margin focus offsetting softness, but underlying inventory and capacity limitations cause potential volatility.
• Steve Ruffini stated, "Q4 sales of $3.4 million continues to reflect the impact of various state actions and the ongoing proliferation of unregulated hemp products. Gross margin was down slightly year over year at 60%, resulting in a small negative adjusted EBITDA for the quarter," highlighting exposure to persistent competitive and regulatory headwinds.

Summary

Village Farms International(NASDAQ:VFF) posted a return to consolidated profitability, strong cash flow generation, and a steep year-over-year improvement in adjusted EBITDA, driven primarily by Canadian cannabis and accelerating international export growth. The company's operational execution included segment margin expansion, significant advances in international markets, and an ongoing strategic transition away from produce toward cannabis, supported by capacity expansions in both Canada and the Netherlands. Management cited the ability to fund growth investments with cash on hand, while also actively managing capital allocation via a meaningful share repurchase program. The call highlighted the utilization of all Canadian tax loss carryforwards, resulting in a cash tax payment for the first time, and underlined plans for a continued focus on product innovation, operational efficiency, and market share growth in 2026.

• Executives detailed that "biomass constraints" are limiting sales growth near-term, but forthcoming capacity expansions are expected to relieve these constraints and position the company for additional growth.
• A sequential decline in German import volumes was noted, but according to Sam Gibbons, "regulatory uncertainty, and we think that, that caused pharmacies, distributors and importers to lower their inventories," and expectations for resumed growth in Q1 were communicated.
• Capital discipline was underscored; Mike DeGiglio said share buybacks were undertaken only after insuring "It's not going to meaningfully impact running the business or any opportunities we see for both internal investment or growth."
• Management explained ongoing cost and SG&A reductions are exceeding internal targets, despite increased expenses for new facility ramp-ups and the persistence of excise tax pressures.

Industry glossary

• EU GMP: Certification indicating products are manufactured in accordance with European Union Good Manufacturing Practice quality standards, critical for international cannabis exports.
• Adjusted EBITDA: Earnings before interest, taxes, depreciation, amortization, and certain other costs, adjusted to present operating profitability exclusive of nonrecurring and non-core items.
• Retail branded sales: Revenue from company-labeled products sold directly to retailers or consumers, distinct from bulk or international medicinal exports.
• SG&A: Selling, general, and administrative expenses encompassing overhead and operating costs outside direct production expenses.

Full Conference Call Transcript

Mike DeGiglio: Thank you, Liz. Good morning, everyone, and thank you for joining us. With me today are Steve Ruffini, our Chief Financial Officer; and Gilan Lefever, our Chief Operating Officer; and Sam Gibbons, our Senior Vice President of Corporate Affairs. So I'm very excited to report our 2025 results, and I'll begin with a review of highlights for the full year and the fourth quarter. Then I'll turn the call over to Steve for a review of the financials before some last closing remarks. Our fourth quarter results again delivered strong profitability, gross margin and cash flow from operations, which contributed to record levels of performance for each of these metrics in fiscal year 2025.

It was also a year that reflected the accumulation of many years of hard work and long-term strategic planning that has prepared us to capitalize on many of the catalysts that are now unlocking value for our stakeholders. Not only did we deliver record profitability and cash flow generation in 2025, but we did so with step function growth across several key metrics compared to 2024. We grew our global cannabis sales by 17% year-over-year with just a partial year of contributions from outstanding Netherlands business and international export sales increased more than sixfold as we continue to benefit from our leadership position as 1 of the world's largest EU GMP-certified cannabis operators.

This resulted in consolidated and record consolidated performance, including net income from continuing operations of $21 million or $0.19 per share. a $49 million improvement compared to the prior year. Adjusted EBITDA from continuing operations of $50 million, another improvement of $48 million. and cash flow from continuing operations of $58 million, an improvement of $44 million compared to 2024. Our full year performance is a result of solid execution against our long-term plan and a strategy focused on improving margin performance, profitability and cash generation to enable additional growth investments across our platform. Those of you who follow us the longest know that we started with a crawl-walk-run approach to scaling out of cannabis business.

And that's always been our view that we don't need to be first-mover advantage to build durable, defensible business models in our plant-based consumer goods. But what we do need is vision, patience, discipline and excellence in asset development operations and commercial activities, coupled with world-class people capable of leading us forward. We believe we demonstrated all of these qualities since we expanded the cannabis in 2018 and particularly in 2025. Since 2018, we've taken a methodical approach to scaling our capacity and capabilities in Canada, including early recognition of the potential power of EU GMP certification which we began pursuing nearly 6 years ago.

We've now been EU GMP certified for over 4 years and international customers are increasingly seeking our products as more stringent regulations abroad -- have been restricting routes to market of other operators who can't meet our production and quality standards. The recent financial contribution from our Netherlands business are also making -- we're also making years in the making. We acquired our Netherlands license 5 years ago and have been very patient and prudent with respect to commercializing our operations and aligning our commencement of sales with the launch of the pilot program last April.

We've modeled our business in an events to ensure return our investment in under a 4-year time line and our performance in 2025 clearly demonstrates Village Farms strong stewardship of capital on behalf of our shareholders, with positive net income for the year after only 3 quarters of revenue performance. And finally, our transaction this past May to privatize our legacy produce business also reflected many years of hard work and preparation, to achieve confidence that our cannabis business was ready to stand on its own and to structure transactions that enabled us to retain the attractive long-term optionality that we see for our portfolio of advanced greenhouse assets in Canada and Texas.

All of these improvement important developments began unlocking value for our stakeholders in 2025 and provide more evidence of the success of our initial crawl, walk, run approach to scaling our operations. And now we believe we're ready to run as 1 of the world's largest and most respected scaled cannabis operators. Before I continue discussion on the fourth quarter, I'd like to, again, take an opportunity to acknowledge all our folks who are enabling our success. At [indiscernible] does take a village, and our people raised the bar considerably last year. Congratulations to all our team members around the world on a tremendous year.

Now turning to the fourth quarter, which demonstrates our third consecutive quarter of positive consolidated net income from continuing operations, adjusted EBITDA and cash flow from operations.

Operator: Please standby.

Mike DeGiglio: Okay. Apologies, we lost connection. I'm not quite sure where we lost it. So I will back up a couple -- 30 seconds or so. And I apologize if I'm repeating certain things that were transmitted Talking about the Netherlands, our recent financial contribution to the Netherlands business are also many -- were many years in the making. We acquired the Netherlands license 5 years ago and have been very patient and prudent with respect to commercializing our operations and aligning our commencement of sales with the launch of our pilot program last April.

We've modeled our business in Netherlands to ensure a return on our investment under a 4-year time line. and our performance in 2025 clearly demonstrates Village Farm's strong stewardship of the capital on behalf of our shareholders, with positive net income for the year after only 3 quarters. And finally, our transition this past May to privatize our legacy Produce business also reflected many years of hard work and preparation to achieve confidence that our cannabis business was ready to stand on its own and to secure a transaction that enabled us to retain the attractive long-term optionality that we see for our portfolio of advanced greenhouse assets in Canada and Texas.

All of these important developments began unlocking value for our stakeholders in 2025 and provide more evidence of the success of our initial crawl walk run approach to scaling our operations. And now we believe we're ready to run as 1 of the world's largest and most respected scaled cannabis operators. Before I continue to discuss the fourth quarter, I'd like to again take an opportunity to acknowledge all our folks who are who are enabling our success. It truly does take a village and our people raised the bar considerably last year. Congratulations to all our team members around the world on a tremendous year.

Now turning to the fourth quarter, which demonstrated our third consecutive quarter of positive consolidated net income from continuing operations, adjusted EBITDA and cash flow from operations and further evidence of our progress to become consistently and sustainably profitable for the long term. We saw year-over-year growth in net sales of 9%, just shy of $50 million. Net income from operations of $2.3 million, adjusted EBITDA of $8.6 million and operating cash flow of $11.4 million. Our Canadian cannabis sales once again led the way where we continue to maintain a top 5 overall market share position and as of the end of last month, continue to hold the #1 position in dry flower.

Q4 sales grew 10% year-over-year, driven by a nearly 400% increase in international export sales. Retail branded sales were flat compared to Q4 last year, but with improved gross margins year-over-year, reflecting our success in shifting the business in Canada towards high-margin products throughout the course of the year. Gross margin performance in Canada, 43% was once again above our 30% to 40% target range for the fourth consecutive quarter and up meaningfully from Q4 last year. All of this translated to significant year-over-year improvements in profitability resulting in CAD 7.5 million in net income and adjusted EBITDA of CAD 14.3 million which is roughly 27% of sales and cash flow from operations increased to $21.5 million.

Before I move on to discuss progress of our ongoing capacity expansion projects, I'd like to take some time to address some of the sequential variances in our fourth quarter results as compared to a record third quarter. We're thrilled to deliver record results every quarter, and frankly, we had demand from our customers to do so once again in Q4. However, near-term supply constraints are temporary holding us back -- and as some of you may be aware, the flow of cannabis in the province of British Columbia was impacted by a labor strike in Q4, which we estimate reduced our Q4 sales by approximately $2.5 million.

As we noted in this morning's earnings release, our demand levels continue to meaningfully outpace our current supply capabilities. As some of you may recall, from our Q4 call last year, we entered 2025 with the leanest inventory position in more than 5 years. And for those of you who may be newer to our story, our Canadian cannabis business does experience seasonality due to variances in our growing climate throughout the course of the year. We typically experienced sequential declines in production and revenue during the fourth quarter, unless we've had new capacity come online, which tends to result in higher costs sequentially as compared to our third quarter.

We also ended the fourth quarter after back-to-back quarters of record performance in which we continue to sell all the cannabis we produce. In addition to the nuances of inventory levels, seasonality and our temporary supply constraints, the nature of our international export sales has introduce an extra layer of potential variability and quarterly performance due to the timing of shipments and both the size of order flows and profitabilities of these sales. and we did have some international oils from Germany that we expected to ship in late Q4, and that got delayed to Q1.

While we're operating with temporary supply constraints as we balance the increasing complex needs of our diverse customer base, importantly, -- the underlying fundamentals of our business remain very strong with continued strength of demand domestically in Canada and in our other international markets which will enable us to continue to drive profitable growth in 2026 and beyond. As we noted in this morning's earnings call, we are expecting to return to sequential growth in international exports in Q1 and continue to expect that we'll begin shipping to multiple new jurisdictions over the course of the next several months.

Biomass constraints are a proverbial good problem to have in our circumstances, and it's 1 we're well down the road of addressing with ongoing capacity expansion projects. I'll now turn to some updates on these initiatives in Canada and the Netherlands. I'm pleased to report that our previously announced expansion of our Delta 2 facility remains on track and on budget. We actually began planting the first half of this expansion on March 2 and expect to start seeing early contributions of this additional capacity in late Q2. We expect to harvest an incremental 15 metric tons of production from this expansion during the remainder of this year, while we continue optional providing optimizing the second half of the expansion.

Once we're operating at full capacity by mid '27, the D2 expansion will provide an incremental 40 metric tons of annual production compared to fiscal year 2025, which represents an increase of approximately 33%. In the Netherlands, our Phase 1 facility in [ Drafton ] continues to operate at full capacity with healthy growing margins even at limited scale, and we are also continuing to sell everything we produce. We are leveraging our experience in Canada to lead new product innovations and recently launched 10 new product offerings across multiple formats that are unique to this market.

We are continuing to see strong pricing with participating coffee shops and believe we're well positioned to capture market share in premium product categories as our new Phase II capacity comes online. I will note that Q4 profitability in the Netherlands was impacted by increased operating expenses as we've recently been adding head count to prepare for the launch of our Phase 2 facility in Groningen which I'm pleased to report is nearing completion and also remains on time and on budget. We anticipate our first Groningen Phase II facility will be painted towards the end of this month with full capacity completion expected in Q2 as we put the finishing touches on some post-harvest and processing capabilities.

The Groningen facility will ramp up to full capacity throughout the remainder of this year, at which point our total annual production capacity in the Netherlands will be approximately 10 metric tons. For comparative purposes, we had harvested just under 2 tons from Groningen fiscal year '25. Our capacity expansion products coming online in Canada and Netherlands will allow us to continue scaling profitably and increasing demand with -- and we believe the strength of our balance sheet will enable us to be opportunistic with respect to additional accretive organic and acquisitive growth investments in the future.

We funded the majority of our ongoing Canadian and Netherlands expansions from cash on hand but we did recently amend and extend our Canadian credit facility with an incremental $15 million delayed draw term loan at an interest rate of just over 5%. We intend to utilize this incremental debt financing to make additional enhancements to our existing operations beginning with an incremental $3 million investment to expand our EU GMP capabilities throughout the remainder of this year. We ended the year with approximately $86 million in cash after completing a $3 million share repurchase during the fourth quarter, and we remain in an excellent position to continue creating value for shareholders and driving profitable growth in 2026 and beyond.

So I'll close the call with some final thoughts on priorities for '26, but now I'll turn the call over to Steve for his review of Q4 financials. Steve?

Steve Ruffini: Thanks, Mike. As a reminder, as of May 30, the majority of our legacy produce assets were privatized and are now classified as discontinued operations. Reported financial results for comparative prior periods have been adjusted accordingly. I'll start with a review of our consolidated Q4 results and a reminder that comparable performance to the fourth quarter of last year reflects the impacts of a $10.5 million noncash impairment charge during Q4 of 2024, and related to nonflower inventory purchased primarily from third parties that we determined did not meet our quality standards.

Consolidated net sales increased 9% to $49.6 million, driven by growth in our Canadian cannabis segment as well as the third full quarter of contributions of recreational cannabis sales from our Phase 1 facility in the Netherlands. Net income from continuing operations improved to $2.3 million or $0.02 per share compared with a net loss of $5.7 million or $0.04 per share in Q4 of last year. Consolidated adjusted EBITDA from continuing operations was $8.6 million compared to negative $2.9 million in Q4 of last year. resulting in an adjusted EBITDA margin of 17.3% in the quarter compared with a negative 6.4% in Q4 of last year, which was driven by the noncash inventory impairment I just referenced.

Our cash flow from operations improved to $11.4 million compared to $10.9 million in Q4 of last year. Turning now to our segmented results. I will start with Canadian cannabis, which I will discuss in Canadian dollars. Total net sales were $52.7 million for a 10% increase versus Q4 of last year. The year-on-year improvement was driven by the strong performance in our international medicinal exports, which increased 384% over Q4 of last year. For the year, Canadian Cannabis net sales were up 12% to a record $228 million.

Canadian retail branded sales for the fourth quarter were $55.6 million, essentially flat with the fourth quarter of last year and reflects both the realignment of our product portfolio to higher-margin SKUs as well as biomass constraints. As Mike noted, our retail branded sales in Q4 were impacted by a labor strike in B.C. which we estimate negatively impacted the revenues by $2.5 million. Canadian cannabis gross margin was 43%, up from 3% in Q4 of last year, which was impacted by the inventory impairment. -- reflecting a higher proportion of higher-margin international export sales as well as our focus on higher-margin SKUs in the retail branded channel in Canada.

This drove a full year gross margin of 44% and with both the fourth quarter and full year 2025 above the high end of our target range of 30% to 40%. SG&A as a percentage of sales was 22% and down from 28% last year as we continued to drive efficiencies throughout our Canadian cannabis operations. Q4 adjusted EBITDA from continuing operations for Canadian cannabis improved to $14.3 million from negative $9.1 million in Q4 of last year. resulting in an adjusted EBITDA margin of 27%. For the full year, adjusted EBITDA increased nearly $58 million to $67 million for an adjusted EBITDA margin of 29%. Q4 cash flow from operations increased $24.8 million to $21.5 million.

For the full year, cash flow from operations increased $61.4 million to $77.5 million. Finally, as we do each quarter, I will point out that in Q4, we paid Canadian excise taxes on a retail branded sales of $21.5 million nearly 40% of retail branded sales and almost double our SG&A costs. I'd also like to discuss our Canadian income tax situation, which will impact our cash flow from operations in 2026. In 2025, we accrued Canadian income taxes of $16 million, which was paid as required in February 28 of this year. In prior years, we did not pay income tax due to carryover tax losses, all of which have now been utilized.

I'll note that we are the only major Canadian cannabis LP positions, which is a testament to the strength of our operating capabilities and strong stewardship of capital on behalf of our shareholders and a sign of a sustainable, long-term, profitable business platform. Turning now to our recreational cannabis business in the Netherlands. Q4 saw our third full quarter of sales from our Netherlands operations. Sales were $3.3 million with adjusted EBITDA of $700,000 and which, as Mike noted, includes a sequential increase in operating expenses compared to Q3 as we began to ramp up staffing to support the launch of our Phase II facility.

We continue to expect our Phase II facilities to drive a substantial increase in revenue and EBITDA performance in the Netherlands during the second half of this year. Turning now to our U.S. cannabis business. Q4 sales of $3.4 million continues to reflect the impact of various state actions and the ongoing proliferation of unregulated hemp products. Gross margin was down slightly year-over-year at 60%, resulting in a small negative adjusted EBITDA for the quarter. In our continuing produce operations, sales of $4.9 million were 21% lower than Q4 last year. reflecting the impacts of softer year-on-year pricing as well as the sales commission paid to our newly privatized produce business.

In previous years, we were the exclusive sales agent for our produce as well as for others. Net loss from continuing gross operations was $1.6 million with adjusted EBITDA of negative $462,000. As a reminder, our produce operations moving forward will reflect contributions from our Delta One greenhouse as well as operating cost of our [ Monahans ] facility in Texas, which remains idle at this time. Our last tomato crop from the Delta 2 greenhouse was pulled in November to begin the conversion to cannabis. Turning to consolidated cash flows and the balance sheet. Total cash flow from operations to $11.4 million for the fourth quarter, bringing the total for the year to $58.1 million.

We ended Q4 with cash of approximately $86 million which includes restricted cash of $5 million, putting us in a strong net cash position of $53 million. Our total debt at the end of Q4 was $34 million, and we remain very comfortable with our debt levels, inclusive of the incremental CAD 15 million delayed draw term loan that Mike mentioned earlier, of which we've drawn $5 million. Finally, we have been active with our share repurchase program that our Board approved at the end of September. As a reminder, the program provides the purchase of up to just under 5 million common shares or 5% of our issued and outstanding shares as of the date of the announcement.

During Q4, we purchased just under 813,000 shares at an aggregate cost of $3 million. And we have continued the program activity into Q1 of 2026 with the repurchase of roughly 1.1 million shares at an aggregate cost of $3.7 million. Our management team and Board continue to believe this reflects a prudent and balanced approach to capital allocation to drive returns to our shareholders, and we expect to remain active in this regard in the near term. I will now turn the call back to Mike for some closing comments.

Mike DeGiglio: Thanks, Steve. So in closing, 2025 was a watershed year for Village Farms as we steadily and successfully executed on our strategy to scale our global cannabis platform, generating not just record results but a step function transformation and profitability and cash generation. Our performance in 2025 for a new baseline as we realize the benefits of our investments in capacity to continue transition demand growth into long-term sustainable growth in earnings and cash flow, and we are continuing to benefit from multiple catalysts and unlocking value for our stakeholders. Our focus remains on execution. -- but we are looking to the remainder of this year with a growth-oriented mindset.

We are investing behind our proven teams with enhancement to our operating facilities and we expect to maintain a balanced approach to capital allocation to deliver value for our shareholders. We are continuing to capitalize on the opportunity to enhance shareholder value through our ongoing share repurchase program. We're also given prudent consideration to incremental -- incremental growth, accretive organic and acquisition growth investments. Our expanding global platform, combined with our strong balance sheet, industry-leading cost of capital, an incredibly talented global team, we believe we're well positioned for continued success in 2026 and beyond. With that, Liz, we're now ready to open the call for questions.

Operator:[Operator Instructions] Our first question comes from Frederico Gomes with ATB Capital Markets.

Frederico Yokota Gomes: My first question is regarding your share repurchases. I guess, from a capital allocation standpoint, -- what does that tell investors in regards to how you view your current valuation and the trajectory of the business as well as the opportunities you see for maybe additional investments in the business and M&A. .

Mike DeGiglio: Well, the business always comes first, but we were very confident in the cash generation that we just reported and going forward -- so we felt it's not going to -- in the amount of share repurchase that was approved by more of $10 million. It's not going to meaningfully impact running the business or any opportunities we see for both internal investment or growth. So we've taken a balanced approach. We are always concerned with shareholder value. And at the time and currently, we thought it was prudent. So we have no necessary plans at this point for more once it goes, but we'll reevaluate it as we execute going forward.

Frederico Yokota Gomes: Mike. I appreciate that. And then my second question is on Germany. So we saw, I guess, a sequential decline in import volumes in Q4 for that market according to the data from there. So I think that was impacted by some issues in Portugal and maybe the quota permits. But in terms of the growth and the demand coming from that market? I mean is there -- should investors be worried about growth there? Or are you continuing to see that increasing and the important volumes there increasing for that market?

Sam Gibbons: Fred, it's Sam. Thanks for the question. So you're right, the official stats are that German imports fell 4%, and Canadian imports were down 11%. And you're right that there was regulatory uncertainty, and we think that, that caused pharmacies, distributors and importers to lower their inventories. But we are seeing that those concerns have since abated and we expect to return to growth in Q1. Also notably, we had, and as Mike noted, we had some orders in that got delayed to Q1. And just to give you context, if those hadn't been pushed, our performance in Q4 in Germany would have outperformed the market performance.

So just a caution that the nature of the export market means that there's going to be variability, but we are continuing to experience increasing demand as regulators in Germany have now started to apply more stringent restrictions on the quality and routes to market. And frankly, that's where our model shines.

Operator: Our next question comes from Aaron Grey with Alliance Global Partners. .

Aaron Grey: Very much for the questions here, and thanks for the commentary and in terms of quantifying some of the shipment order delays. I wanted to kind of carry on from that in terms of some of the capacity constraints that you touch on in some of the near-term variability we understand the appeal of prioritizing international markets for the incremental capacity that we expect to come online with the Delta 2 ramping up. But I just want to get some further contents of how you look to utilize that capacity for international versus Canada? Is it still fair to say that predominantly, most of that will be for international.

And could you talk about the lens of how you're looking to maybe see Canadian market share aspirations as you might be utilizing more the incremental capacity for international? .

Mike DeGiglio: Aaron, first, let me just clarify. I mean, Canada's first and foremost, that's our additional market where we're balancing all the time the demand we have from international and meeting our commitments in Canada. And I think we're doing a very good job at that, but it could have some variability month to month, but that's why we're making tremendous investments in additional capacity. And keep in mind that there's no stopping capacity in our footprint in Canada with current assets. So that's what we are measuring a lot of time. But I would not say international's priority over Canada, a bit equal.

Sam Gibbons: Aaron, just a couple of things to add. We did regain our #1 flower share position in January. And we expect that to be something you'll continue to see in 2026. We had several significant restock during Q4 and new launches in Q4, which are starting to show up in Q1. And then with respect to our 3 primary brands, Pure Sunfarms brand, [indiscernible] dried flower for 12 consecutive months in 2025, and that was a sequential growth. It also -- our Fraser Valley brand grew share of dry flower consecutively between January and September, that short-term supply constraints did kick in for that brand in October, but it recovered by December.

And then finally, our -- in our convenience category, we've had a very successful launch of Super Toast, Liquid diamonds, 510 Bates in Q4. and the team is constantly posting updates on the success of that basis point by basis point in market share. .

Mike DeGiglio: Yes. And 1 final point is for Canada and international with current assets, we have the capability of more than doubling our 2027 forecast where I mentioned the 40 additional metric tons in 2027.

Aaron Grey: Okay. And that's really helpful color in terms of how you're going to prioritize both markets there. Second question for me is kind of going back to some of the Village Farms grassroot talking about cultivation costs. I know you stopped disclosing cost per gram a while back, but it'd be great to get some color in terms of initiatives that you have to further lower the cost of production potentially leveraging innovation that exists in the broader produce segments, like I know you've spoken to in the past and then also potentially touching on expected savings from leveraging costs with the second half of Delta 2 facility coming online. .

Mike DeGiglio: Well, we're not going to get into the specifics, obviously, but we continue to improve our costs. Let's just say that, and we're very pleased with continuing reduction in costs. So when I touched on my comment, you have to look at the cost really over a full year. There is some seasonality low light, higher light, so on and so forth. But on an annual basis, we continue to drive those costs lower, just like Steve mentioned, on SG&A as well. So -- in fact, I would say it's exceeding the target of cost improvement in the company today.

Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Mr. DeGiglio for closing remarks. .

Mike DeGiglio: Okay. I want to thank everyone for joining us today. It was a great year in 2025 and we look forward that would just be a short amount of time before we be reporting our first quarter and look forward to that day in early May. Thank you, operator.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

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