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What changed in Village Farms International, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Village Farms International, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+655 added−581 removedSource: 10-K (2024-03-13) vs 10-K (2023-03-09)

Top changes in Village Farms International, Inc.'s 2023 10-K

655 paragraphs added · 581 removed · 405 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

225 edited+73 added−40 removed439 unchanged
Biggest changeThese risks and uncertainties include, but are not limited to, the following: Business and Operational Risk Factors • We may be unable to regain profitability. • We will need additional financing to maintain and further develop our business. • We are dependent on the success of Pure Sunfarms, which has a limited operating history in the cannabis industry. • We are subject to restrictive covenants under our Credit Facilities (as defined in Liquidity and Capital Resources below). • Rising interest rates will increase our debt service costs and negatively impact our cash flows, as well as add additional burden on our ability to meet our bank covenants. • We expect to incur ongoing costs and obligations related to infrastructure, growth, regulatory compliance, and operations for Pure Sunfarms. • There can be no assurance that our current acquisitions, investments or expansions of scope of existing relationships will have a beneficial impact on our business, financial condition and results of operations. • Our potential international expansion may heighten our operational risks. • There can be no assurance that future mergers, acquisitions, divestitures, alliances, joint ventures, investments or other strategic transactions will be consummated or have a positive impact on our business, prospects, financial condition, or results of operations.
Biggest changeIf we fail to remediate the errors in a timely manner, or at all, our shareholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our Common Shares. 16 • A rise in interest rates would increase our debt service costs and negatively impact our cash flows, as well as add additional burden on our ability to meet our bank covenants. • There can be no assurance that our previous, current, or potential future acquisitions, joint ventures, investments or expansions of scope of existing relationships will have a beneficial impact on our business, financial condition and results of operations. • Our international expansion may heighten our operational risks. • We may be negatively affected by the use of third-party transportation services for our products.
Pure Sunfarms Corp. (“Pure Sunfarms” or “PSF”) and Rose LifeScience Inc. (“Rose LifeScience or Rose”) comprise our Canadian cannabis businesses. Pure Sunfarms is one of the largest and most respected cannabis growers in the world and the best-selling flower brand in Canada. Rose is a leading vertically integrated, branded cannabis producer, supplier and commercialization expert in the Province of Quebec.
Pure Sunfarms Corp. (“Pure Sunfarms” or “PSF”) and Rose LifeScience Inc. (“Rose LifeScience" or "Rose”) comprise our Canadian cannabis businesses. Pure Sunfarms is one of the largest and most respected cannabis growers in the world and a best-selling flower brand in Canada. Rose is a leading vertically integrated, branded cannabis producer, supplier and commercialization expert in the Province of Quebec.
All Canadian provinces and territories have implemented mechanisms for the distribution and sale of cannabis for recreational purposes within those jurisdictions, and retail models vary between jurisdictions.
All Canadian provinces and territories have implemented mechanisms for the distribution and sale of cannabis for recreational purposes within those jurisdictions, and retail models vary between jurisdictions.
We make available free of charge at our website, www.villagefarms.com, all of our reports 15 filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 , as amended (“Exchange Act”) including our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K and amendments to those reports.
We make available free of charge at our website, www.villagefarms.com , all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 , as amended (“Exchange Act”) including our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K and amendments to those reports.
There is no assurance that any of the existing personnel who presently or may in the future require a security clearance will be able to obtain or renew such clearances or that new personnel who require a security clearance will be able to obtain one.
There is no assurance that any of the existing personnel who presently or may in the future require a security clearance will be able to obtain or renew such clearances or that new personnel who require security clearance will be able to obtain one.
Below are additional highlights of the Cannabis Act : • Places restrictions on the amount of cannabis that individuals can possess and distribute, and on public consumption and use, and prohibits the sale of cannabis unless authorized by the Cannabis Act . • Permits individuals who are 18 years of age or older to cultivate, propagate, and harvest up to and including four cannabis plants in their dwelling-house, propagated from a seed or plant material authorized by the Cannabis Act . • Restricts (but does not strictly prohibit) the promotion and display of cannabis, cannabis accessories and services related to cannabinoids to consumers, including restrictions on branding and a prohibition on false or misleading promotion and on sponsorships. • Permits the informational promotion of cannabis by entities licensed to produce, sell, or distribute cannabis in specified circumstances to individuals 18 years and older. • Introduces packaging and labelling requirements for cannabis and cannabis accessories and prohibits the sale of cannabis or cannabis accessories that could be appealing to young persons. • Provides the designated minister with the power to recall any cannabis or class of cannabis on reasonable grounds that such a recall is necessary to protect public health or public safety. • Establishes a national cannabis tracking system to monitor the movement of cannabis from where it is grown, to where it is processed, to where it is sold. • Provides powers to inspectors for the purpose of administering and enforcing the Cannabis Act and a system for administrative monetary penalties.
Below are additional highlights of the Cannabis Act : • Places restrictions on the amount of cannabis that individuals can possess and distribute, and on public consumption and use, and prohibits the sale of cannabis unless authorized by the Cannabis Act . • Permits individuals who are 18 years of age or older to cultivate, propagate, and harvest up to and including four cannabis plants in their dwelling-house, propagated from a seed or plant material authorized by the Cannabis Act . • Restricts (but does not strictly prohibit) the promotion and display of cannabis, cannabis accessories and services related to cannabinoids to consumers, including restrictions on branding and a prohibition on false or misleading promotion and on sponsorships. • Permits the informational promotion of cannabis by entities licensed to produce, sell, or distribute cannabis in specified circumstances to individuals 18 years and older. • Introduces packaging and labelling requirements for cannabis and cannabis accessories and prohibits the sale of cannabis or cannabis accessories that could be appealing to young persons. • Provides the designated minister with the power to recall any cannabis or class of cannabis on reasonable grounds that such a recall is necessary to protect public health or public safety. • Establishes a national cannabis tracking system to monitor the movement of cannabis from where it is grown, to where it is processed, to where it is sold. 5 • Provides powers to inspectors for the purpose of administering and enforcing the Cannabis Act and a system for administrative monetary penalties.
While the United States House of Representatives has passed the Secure and Fair Enforcement (“SAFE”) Banking Act, which would permit commercial banks to offer services to cannabis companies that are in compliance with state law, it remains under consideration by the Senate, and if Congress fails to pass the SAFE Banking Act, the Company’s inability, or limitations on the Company’s ability, to open or maintain bank accounts, obtain other banking services and/or accept credit card and debit card payments may make it difficult for the Company to operate and conduct its business as planned or to operate efficiently.
While the United States House of Representatives has passed the Secure and Fair Enforcement (“SAFE”) Banking Act, which would permit commercial banks to offer services to cannabis companies that are in compliance with state law, it remains under consideration by the Senate, and if Congress fails to pass the SAFE Banking Act or the SAFER Banking Act, the Company’s inability, or limitations on the Company’s ability, to open or maintain bank accounts, obtain other banking services and/or accept credit card and debit card payments may make it difficult for the Company to operate and conduct its business as planned or to operate efficiently.
Amendments to current laws, regulations and guidelines governing the production, sales and use of cannabis-based and CBD products, more stringent implementation of enforcement thereof or other unanticipated events, including changes in political conditions, regimes or political instability, currency controls, changes in taxation laws, restrictions on foreign exchange and repatriation between U.S. and Canada, governmental regulations relating to foreign investment and changes in the attitudes toward cannabis, are beyond our control 30 and could require extensive changes to our operations, which in turn may result in a material adverse effect on or business, financial condition and results of operations.
Amendments to current laws, regulations and guidelines governing the production, sales and use of cannabis-based and CBD products, more stringent implementation of enforcement thereof or other unanticipated events, including changes in political conditions, regimes or political instability, currency controls, changes in taxation laws, restrictions on foreign exchange and repatriation between U.S. and Canada, governmental regulations relating to foreign investment and changes in the attitudes toward cannabis, are beyond our control and could require extensive changes to our operations, which in turn may result in a material adverse effect on or business, financial condition and results of operations.
The ACMPR provided three possible alternatives for individuals to access cannabis for medical purposes: (i) they can continue to access quality-controlled cannabis by registering with federal License Holders; (ii) they can register with Health Canada to produce a limited amount of cannabis for their own medical purposes (starting materials must be obtained from a License Holder); or (iii) they can designate someone else who is registered with Health Canada to produce cannabis on their behalf (starting materials must be obtained from a License Holder).
The ACMPR provided three possible alternatives for individuals to access cannabis for medical purposes: (i) they can continue to access 4 quality-controlled cannabis by registering with federal License Holders; (ii) they can register with Health Canada to produce a limited amount of cannabis for their own medical purposes (starting materials must be obtained from a License Holder); or (iii) they can designate someone else who is registered with Health Canada to produce cannabis on their behalf (starting materials must be obtained from a License Holder).
No assurance can be given that new laws, regulations and guidelines will not be enacted or that existing laws, regulations and guidelines will not be amended, repealed, interpreted or applied in a manner which could require extensive changes to our operations, increase compliance costs, give rise to material liabilities or a revocation of our licenses and other permits, restrict growth opportunities that we currently anticipate or otherwise limit or curtail our operations.
In addition, no assurance can be given that new laws, regulations and guidelines will not be enacted or that existing laws, regulations and guidelines will not be amended, repealed, interpreted or applied in a manner which could require extensive changes to our operations, increase compliance costs, give rise to material liabilities or a revocation of our licenses and other permits, restrict growth opportunities that we currently anticipate or otherwise limit or curtail our operations.
The FinCEN guidance also does not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the DOJ, FinCEN or other federal regulators for banks and other financial institutions and can be amended or revoked at any time and therefore most financial institutions in the United States do not appear comfortable relying on this guidance to provide banking services to the cannabis industry.
The FinCEN guidance also does not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the DOJ, FinCEN or other federal regulators for banks and other financial institutions and can be amended or revoked at any time and therefore most financial 11 institutions in the United States do not appear comfortable relying on this guidance to provide banking services to the cannabis industry.
Rose LifeScience We acquired 70% ownership of privately-held Rose on November 15, 2021, with the 30% balance held by founders who have remained as senior operating management. Rose is the Quebec-based operational unit of our Canadian cannabis business, with its headquarters in Huntingdon, Quebec. Rose cultivates and processes cannabis at their Huntingdon-based 55,000 square-foot CEA facility.
Rose LifeScience We acquired 70% ownership of privately-held Rose on November 15, 2021, with the 30% balance held by founders who have remained as senior operating management. Rose is the Quebec-based operational unit of our Canadian cannabis business, with its headquarters in Huntingdon, Quebec. Rose cultivates and processes cannabis at its Huntingdon-based 55,000 square-foot CEA facility.
Our U.S. cannabis operations consist of wholly-owned, Colorado-based Balanced Health. Balanced Health owns and operates one of the leading brands in the hemp-derived CBD/cannabinoid market in the United States, providing us with access to the U.S. Cannabinoid market in a consumer products category adjacent to the high-tetrahydrocannabinol (“THC”) cannabis market, as well as the broader consumer packaged goods wellness arena.
Cannabis operations consist of wholly-owned, Colorado-based Balanced Health. Balanced Health owns and operates one of the leading brands in the hemp-derived CBD/cannabinoid market in the United States, providing us with access to the U.S. Cannabinoid market in a consumer products category adjacent to the high-tetrahydrocannabinol (“THC”) cannabis market, as well as the broader consumer packaged goods wellness arena.
However, in October of 2022, the Biden 10 Administration announced a mass pardon of persons who had been convicted of simple marijuana possession under federal law and also its intention to review the regulation of marijuana under the CSA by directing the Secretary of Health and Human Services and the Attorney General to initiate the administrative process to expeditiously review marijuana’s Schedule I status.
However, in October of 2022, the Biden Administration announced a mass pardon of persons who had been convicted of simple marijuana possession under federal law and also its intention to review the regulation of marijuana under the CSA by directing the Secretary of Health and Human Services and the Attorney General to initiate the administrative process to expeditiously review marijuana’s Schedule I status.
Adverse future scientific research reports, findings, regulatory investigations or proceedings, and political statements, that are, or litigation, media attention or other publicity that is, perceived as less favorable than, or that questions, earlier research reports, findings or publicity (whether or not accurate or with merit) could result in a significant reduction in the demand for our Canadian cannabis or 25 cannabinoid products.
Adverse future scientific research reports, findings, regulatory investigations or proceedings, and political statements, that are, or litigation, media attention or other publicity that is, perceived as less favorable than, or that questions, earlier research reports, findings or publicity (whether or not accurate or with merit) could result in a significant reduction in the demand for our Canadian cannabis or cannabinoid products.
We invest in, and partner with companies, that share our values and respect for people and the environment. We believe a focus on innovation is a key driver of growth in our markets. We are extremely proud of many things that we achieved over the past three-plus decades, but none more than our highly responsible approach to the environment.
We invest in, and partner with, companies that share our values and respect for people and the environment. We believe a focus on innovation is a key driver of growth in our markets. 1 We are extremely proud of many things that we achieved over the past three-plus decades, but none more than our highly responsible approach to the environment.
Cannabis package labels must include specific information, such as (i) product source information, including brand name, the class of cannabis and the name, phone number and email of the licensed processor or cultivator, (ii) mandatory warnings, including rotating health warning messages on Health Canada’s list of standard health warnings; (iii) the Health Canada standardized cannabis symbol; and (iv) information specifying THC and CBD content.
Cannabis package labels must include specific information, such as (i) product source information, including brand name, the class of cannabis and the name, phone number and email of the licensed processor or cultivator, (ii) mandatory warnings, including rotating health warning 6 messages on Health Canada’s list of standard health warnings; (iii) the Health Canada standardized cannabis symbol; and (iv) information specifying THC and CBD content.
Such laws, rules, regulations, and policies are administered by various federal, state, provincial, regional, and local health agencies and other governmental authorities. Changes to any of these laws and regulations could have a significant impact on us. There can be no assurance that we will be able to cost effectively comply with future laws and regulations.
Such laws, rules, regulations, and policies are administered by various federal, 33 state, provincial, regional, and local health agencies and other governmental authorities. Changes to any of these laws and regulations could have a significant impact on us. There can be no assurance that we will be able to cost effectively comply with future laws and regulations.
Our Delta greenhouses use renewable hydroelectricity as the main power source, provide innovative energy screens to help capture the sun’s warmth and prevent heat loss, and employ blackout curtains to reduce light pollution, all in an effort to minimize our impact to the local community and ecosystem. Business Overview Village Farms International, Inc.
Our Delta greenhouses also use renewable hydroelectricity as the main power source, provide innovative energy screens to help capture the sun’s warmth and prevent heat loss, and employ blackout curtains to reduce light pollution, all in an effort to minimize our impact to the local community and ecosystem. Business Overview Village Farms International, Inc.
For example, on January 26, 2023, we completed a registered direct offering for the purchase and sale of an aggregate 18,350,000 Common Shares at a public offering price of US$1.35 per Common Share for gross proceeds of approximately US$25 million coupled with 18,350,000 warrants with an exercise price of US$1.65 (the “2023 Equity Offering”).
For example, on January 26, 2023, we completed a registered direct offering for the purchase and sale of an aggregate 18,350,000 Common Shares at a public offering price of US$1.35 per Common 19 Share for gross proceeds of approximately US$25 million coupled with 18,350,000 warrants with an exercise price of US$1.65 (the “2023 Equity Offering”).
The Cole Memorandum offered guidance to federal agencies on how to prioritize civil enforcement, criminal investigations, and prosecutions regarding marijuana in all states and quickly set a compliance standard for marijuana related businesses. The Cole Memorandum concluded that the Department of Justice should be focused on addressing only the most significant threats related to cannabis.
The Cole Memorandum offered 10 guidance to federal agencies on how to prioritize civil enforcement, criminal investigations, and prosecutions regarding marijuana in all states and quickly set a compliance standard for marijuana related businesses. The Cole Memorandum concluded that the Department of Justice should be focused on addressing only the most significant threats related to cannabis.
Furthermore, given the restrictions on regulated retail cannabis as well as higher costs and taxes for regulated products, it is possible that legal cannabis consumers revert to the illicit market as a matter of convenience and/or price. 26 Increasing legalization of cannabis and rapid growth and consolidation in the cannabis and CBD industries may further intensify competition.
Furthermore, given the restrictions on regulated retail cannabis as well as higher costs and taxes for regulated products, it is possible that legal cannabis consumers revert to the illicit market as a matter of convenience and/or price. Increasing legalization of cannabis and rapid growth and consolidation in the cannabis and CBD industries may further intensify competition.
Laws and regulations, applied generally, grant government agencies and self-regulatory bodies broad administrative discretion over our Canadian cannabis activities, including the power to limit or restrict business activities as well as impose additional disclosure requirements on its products and services. We endeavor to comply with all 28 relevant laws, regulations, and guidelines.
Laws and regulations, applied generally, grant government agencies and self-regulatory bodies broad administrative discretion over our Canadian cannabis activities, including the power to limit or restrict business activities as well as impose additional disclosure requirements on its products and services. We endeavor to comply with all relevant laws, regulations, and guidelines.
In such case, VF Canada GP and VF Canada LP generally would be required to file U.S. federal income tax 35 returns and would be subject to U.S. federal net income tax with respect to their business profits attributable to such PE. These tax consequences could have a material adverse effect on our business, financial condition, and results of operations.
In such case, VF Canada GP and VF Canada LP generally would be required to file U.S. federal income tax returns and would be subject to U.S. federal net income tax with respect to their business profits attributable to such PE. These tax consequences could have a material adverse effect on our business, financial condition, and results of operations.
Any debt financing secured in the future could involve additional restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including other future potential acquisitions. Our operations are subject to natural catastrophes.
Any debt financing secured in the future could involve additional restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including other future potential acquisitions. 21 Our operations are subject to natural catastrophes.
The failure to comply with such laws and regulations could result in significant penalties. We cannot predict the effect of current attempts to impose sales, income, or other taxes on e-commerce. New or modified taxes could increase the cost of doing business online and decrease the attractiveness of selling products over the Internet.
The failure to comply with such laws and regulations could result in significant penalties. We cannot predict the effect of current attempts to impose sales, income, or other taxes on e-commerce. New or modified taxes could increase the cost of 37 doing business online and decrease the attractiveness of selling products over the Internet.
We participate in federal and state permissible activities in the U.S. and do not engage nor intend to engage in direct or indirect business with any business that derives revenue, directly or indirectly, from the sale of cannabis or cannabis-related products in any jurisdiction where the production and sale of cannabis is unlawful under current applicable laws.
We participate in federal and state permissible activities in the U.S. and do not engage or intend to engage in direct or indirect business with any business that derives revenue, directly or indirectly, from the sale of cannabis or cannabis-related products in any jurisdiction where the production and sale of cannabis is unlawful under current applicable laws.
As a result, our current or future intellectual property portfolio may not provide us with sufficient rights to protect our business, including our products, processes, and brands. Termination or limitation of the scope of any intellectual property license may restrict or delay or eliminate our ability to develop and commercialize our products, which could adversely affect our business.
As a result, our current or future intellectual property portfolio may not provide us with sufficient rights to protect our business, including our products, processes, and brands. 24 Termination or limitation of the scope of any intellectual property license may restrict or delay or eliminate our ability to develop and commercialize our products, which could adversely affect our business.
ToBRFV leads reduced crop quantity, ending a crop cycle early or result in the loss of an entire crop in one of our greenhouse facilities. In addition, delivery of tomato crops across the U.S.-Mexico and U.S.-Canada borders encounters additional inspections due to ToBRFV and those crops may be denied entry.
ToBRFV leads reduced crop quantity, ending a crop cycle early or can result in the loss of an entire crop in one of our greenhouse facilities. In addition, delivery of tomato crops across the U.S.-Mexico and U.S.-Canada borders encounters additional inspections due to ToBRFV and those crops may be denied entry.
These perceptions relating to the cannabis industry may interfere with our relationship with service providers in the United States and Canada, as well as other countries, particularly in the financial services and insurance industries. Our Canadian and U.S. Cannabis businesses are subject to cannabis-related security breaches, which could result in significant losses.
These perceptions relating to the cannabis industry may interfere with our relationship with service providers in the United States and Canada, as well as other countries, particularly in the financial services and insurance industries. 28 Our Canadian and U.S. Cannabis businesses are subject to cannabis-related security breaches, which could result in significant losses.
Also, as a result of the above requirements, our operations and ownership, management and control of property carry an inherent risk of environmental liability (including potential civil actions, compliance or remediation orders, fines, and other penalties), including with respect to the disposal 31 of waste and the ownership, management, control or use of transport vehicles and real estate.
Also, as a result of the above requirements, our operations and ownership, management and control of property carry an inherent risk of environmental liability (including potential civil actions, compliance or remediation orders, fines, and other penalties), including with respect to the disposal of waste and the ownership, management, control or use of transport vehicles and real estate.
The H-2A workers have a mandated state-level minimum wage and we pay for some additional worker costs, such as transportation to/from our facilities, housing and visa expenses. Any disruption in the H2-A foreign worker program could have a detrimental impact on our ability to cultivate fresh produce.
The H-2A workers have a mandated state-level minimum wage and we pay for some additional worker costs, such as transportation to/from our facilities, housing and visa expenses. Any disruption in the H-2A foreign worker program could have a detrimental impact on our ability to cultivate fresh produce.
The earth's finite water supply is one of its most precious resources and our hydroponic growing method sterilizes and recirculates the same water multiple times, so that 100% of the water reaches the plants. 1 Our proficient growing methods deliver vastly more yield per acre compared to outdoor growing, without depleting the soil.
The earth's finite water supply is one of its most precious resources and our hydroponic growing method sterilizes and recirculates the same water multiple times, so that 100% of the water reaches the plants. Our proficient growing methods deliver vastly more yield per acre compared to outdoor growing, without depleting the soil.
The laws continue to evolve, and differences in provincial and territorial regulatory frameworks could result in, among other things, increased compliance costs, and increased supply costs. Municipal and regional governments may choose to impose additional requirements and regulations on the sale of recreational cannabis, adding further uncertainty and risk to our business.
The laws continue to evolve, and differences in provincial and territorial regulatory frameworks could result in, among other things, increased compliance costs, and increased supply costs. 7 Municipal and regional governments may choose to impose additional requirements and regulations on the sale of recreational cannabis, adding further uncertainty and risk to our business.
There is a risk that the outcome of the negotiations will result in the interprovincial and 29 interterritorial trade of cannabis for non-medical purposes in Canada being entirely restricted or subject to conditions that will negatively impact the ability of Pure Sunfarms or Rose LifeScience to sell cannabis in other Canadian provinces and territories.
There is a risk that the outcome of the negotiations will result in the interprovincial and interterritorial trade of cannabis for non-medical purposes in Canada being entirely restricted or subject to conditions that will negatively impact the ability of Pure Sunfarms or Rose LifeScience to sell cannabis in other Canadian provinces and territories.
We intend to post our privacy policy and practices concerning the use and 33 disclosure of user data on our website. Any failure by us to comply with our posted privacy policy, anti-spam legislation or other privacy-related laws and regulations could result in proceedings which could potentially harm our business.
We intend to post our privacy policy and practices concerning the use and disclosure of user data on our website. Any failure by us to comply with our posted privacy policy, anti-spam legislation or other privacy-related laws and regulations could result in proceedings which could potentially harm our business.
Recently in March 2023, Attorney General Merrick Garland stated during a senate hearing that “I think that it’s fair to expect what I said at my confirmation hearing with respect to marijuana and policy, that it will be very close to what was done in the Cole Memorandum”.
In March 2023, Attorney General Merrick Garland stated during a senate hearing that “I think that it’s fair to expect what I said at my confirmation hearing with respect to marijuana and policy, that it will be very close to what was done in the Cole Memorandum”.
A cyber incident is considered to be any adverse 22 event that threatens the confidentiality, integrity, or availability of our information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to information systems to disrupt operations, corrupt data or steal confidential information.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to information systems to disrupt operations, corrupt data or steal confidential information.
Municipalities had until January 22, 2019 to pass such by-laws, and several municipalities have formally opted-out of the retail market. Municipalities that opted out can later lift the prohibition on retail cannabis stores by subsequent resolution, which cannot be reversed at a later date.
Municipalities had until January 22, 2019 to pass such by-laws, and several municipalities have formally opted-out of the retail market. Municipalities that opted out can later lift the prohibition on retail cannabis stores by 8 subsequent resolution, which cannot be reversed at a later date.
In addition, a default on all or some portion of the Credit Facilities may result in foreclosure on our collateral, which includes promissory notes, a first mortgage on the owned controlled environment agriculture (high tech greenhouse) properties, and general security agreements over 19 our assets.
In addition, a default on all or some portion of the Credit Facilities may result in foreclosure on our collateral, which includes promissory notes, a first mortgage on the owned controlled environment agriculture (high tech greenhouse) properties, and general security agreements over our assets.
Quebec : All recreational cannabis is managed and sold by Société Québécoise du cannabis (the “SQDC”) outlets and is available for sale online. The entire process controlled by the SQDC. 8 Newfoundland and Labrador : Recreational cannabis is sold through private stores, with the crown-owned liquor corporation, the Newfoundland and Labrador Liquor Corp.
Quebec : All recreational cannabis is managed and sold by Société Québécoise du cannabis (the “SQDC”) outlets and is available for sale online. The entire process is controlled by the SQDC. Newfoundland and Labrador : Recreational cannabis is sold through private stores, with the crown-owned liquor corporation, the Newfoundland and Labrador Liquor Corp.
Prospective investors seeking or needing dividend income or liquidity, or who cannot afford to lose the entire amount of their investment in our Common Shares, should not purchase our Common Shares. GENERAL RISK FACTORS Inflation may continue to rise and increase our operating costs.
Prospective investors seeking or needing dividend income or liquidity, or who cannot afford to lose the entire amount of their investment in our Common Shares, should not purchase our Common Shares. 39 GENERAL RISK FACTORS Inflation may continue to rise and increase our operating costs.
The IHR defines industrial hemp as a cannabis plant, or any part of that plant, in which the concentration of tetrahydrocannabinol (“THC”) is 0.3 % or less in the flowering heads and leaves. Our U.S. Cannabis Segment Our U.S. cannabis segment is Balanced Health Botanicals, LLC ("BHB").
The IHR defines industrial hemp as a cannabis plant, or any part of that plant, in which the concentration of tetrahydrocannabinol (“THC”) is 0.3% or less in the flowering heads and leaves. 9 Our U.S. Cannabis Segment Our U.S. Cannabis segment is Balanced Health Botanicals, LLC ("BHB").
The consequences of any of the foregoing events may have a material adverse effect on our financial condition and results of operations. Our produce business is subject to certain regulations. Our greenhouse produce business is subject to extensive laws and regulations with respect to the production, handling, distribution, packaging and labelling of our products.
The consequences of any of the foregoing events may have a material adverse effect on our financial condition and results of operations. Our greenhouse produce business is subject to extensive regulations. Our greenhouse produce business is subject to extensive laws and regulations with respect to the production, handling, distribution, packaging and labelling of our products.
Some states, provinces, territories and municipalities in Canada and the United States have already taken steps to prohibit the sale or distribution of vaping products, restrict the sale and distribution of such products or impose restrictions on flavours or use of such vaporizers. This trend may continue, accelerate and expand.
Some states, provinces, territories and municipalities in Canada and the United States have already taken steps to prohibit 34 the sale or distribution of vaping products, restrict the sale and distribution of such products or impose restrictions on flavours or use of such vaporizers. This trend may continue, accelerate and expand.
Moreover, cannabis is phytoremediative, meaning that it may extract toxins or other undesirable chemicals or compounds from the ground in which it is planted. Various regulatory agencies have established maximum limits for pathogens, toxins, chemicals, and other compounds that may be present in agricultural materials.
Moreover, cannabis is phytoremediative, meaning that it may extract toxins or other undesirable chemicals or compounds from the 25 ground in which it is planted. Various regulatory agencies have established maximum limits for pathogens, toxins, chemicals, and other compounds that may be present in agricultural materials.
As a result of continuing consolidation of the retail grocery industry, our U.S. retail customers grow larger and become more sophisticated enabling them to demand lower pricing, special packaging or varieties as well as increased promotional programs.
As a result of continuing consolidation of the retail grocery industry, our U.S. retail customers grow larger and become more sophisticated enabling them to demand lower pricing, special packaging or varieties as well 29 as increased promotional programs.
On October 17, 2018, the Cannabis License Act, 2018 (Ontario) became law and other legislation, including the Cannabis Control Act, 2017 , the Ontario Cannabis Retail Corporation Act, 2017 and the Liquor Control Act were amended to create a private 7 retail framework for the sale of recreational cannabis in Ontario.
On October 17, 2018, the Cannabis License Act, 2018 (Ontario) became law and other legislation, including the Cannabis Control Act, 2017 , the Ontario Cannabis Retail Corporation Act, 2017 and the Liquor Control Act were amended to create a private retail framework for the sale of recreational cannabis in Ontario.
(the “NLC”), issuing private retailer licenses and overseeing the distribution to private sellers who may sell to consumers. The NLC also controls the possession, sale, and delivery of cannabis, and sets prices. The NLC is also the online retailer, although licenses may later be issued to private interests.
(the “NLC”), issuing private retailer licenses and overseeing the distribution to private sellers who may sell to consumers. The NLC also controls the possession, sale, and delivery of cannabis, and sets prices. The NLC is also an online retailer, although licenses may later be issued to private interests.
Due to the perishable and premium nature of our produce products, we depend on fast and efficient road transportation to distribute our products. Any prolonged disruption of this transportation network could have an adverse effect on our financial condition and results of operations.
Due to the perishable and premium nature of our produce products, we depend on fast and efficient transportation to distribute our products. Any prolonged disruption of this transportation network could have an adverse effect on our financial condition and results of operations.
We are strategically positioned, utilizing decades of agricultural experience coupled with its Pure Sunfarms’ operational and product expertise, to convert all or a part of our existing greenhouses when legally permitted to do so.
We are strategically positioned, utilizing decades of agricultural experience coupled with Pure Sunfarms’ operational and product expertise, to convert all or a part of our existing greenhouses when legally permitted to do so.
There can be no assurance that we will be in compliance with the future financial covenants and that we would be able to obtain a future waiver from our creditors for any non-compliance in connection with the next testing date.
There can be no assurance that we will be in compliance with the future financial covenants and that we will be able to obtain a future waiver from our creditors for any non-compliance in connection with the next testing date.
A security breach at one of our facilities could result in a significant loss of available product and could expose us to additional liability under applicable regulations and to potentially costly litigation, increase expenses relating to the resolution and future prevention of these breaches and may deter potential patients from choosing the products of Pure Sunfarms or Rose LifeScience, any of which could have an adverse effect on our business, financial condition, results of operations and prospects.
A security breach at one of our facilities could result in a significant loss of available product and could expose us to additional liability under applicable regulations and to potentially costly litigation, increase expenses relating to the resolution and future prevention of these breaches and may deter potential patients from choosing the products of Pure Sunfarms or Rose LifeScience, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
New 12 greenhouse facilities have recently been completed and planned in the northern U.S. to be closer to major population centers. These facilities have lights to allow for production in the winter months.
New greenhouse facilities have recently been completed and planned in the northern U.S. to be closer to major population centers. These facilities have lights to allow for production in the winter months.
The FD&C Act is intended to assure the consumer that drugs and devices are safe and effective for their intended uses and that all labeling and packaging is truthful, informative, and not deceptive.
The FD&C Act is intended to assure the consumer that drugs and devices are safe and effective for their intended uses and that all labeling and packaging is truthful, 32 informative, and not deceptive.
If applicable data privacy and marketing laws become more restrictive at the international, federal, provincial, or state levels, our compliance costs may increase, our ability to effectively engage customers via personalized marketing may decrease, our investment in its e-commerce platform may not be fully realized, our opportunities for growth may be curtailed by our compliance burden and our potential reputational harm or liability for security breaches may increase.
If applicable data privacy and marketing laws become more restrictive at the international, federal, provincial, or state levels, our compliance costs may increase, our ability to effectively engage customers via personalized marketing may decrease, our investment in our e-commerce platform may not 35 be fully realized, our opportunities for growth may be curtailed by our compliance burden and our potential reputational harm or liability for security breaches may increase.
The Cole Memorandum was rescinded by Attorney General Jeff Sessions in January 2018 and instructed that "[i]n deciding which marijuana activities to prosecute with the [DOJ's] finite resources, prosecuters should follow the well-established principles that govern all federal prosecutions." Namely, these include the seriousness of the offense, history of criminal activity, deterrent effect of prosecutions, the interests of victims, and other principles.
The Cole Memorandum was rescinded by Attorney General Jeff Sessions in January 2018 and instructed that "[i]n deciding which marijuana activities to prosecute with the [DOJ's] finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions." Namely, these include the seriousness of the offense, history of criminal activity, deterrent effect of prosecutions, the interests of victims, and other principles.
Changes as we grow may have a negative impact on our operations, and cost increases resulting from our inability to effectively manage our 20 growth could adversely impact our profitability.
Changes as we grow may have a negative impact on our operations, and cost increases resulting from our inability to effectively manage our growth could adversely impact our profitability.
Further, changes in either intellectual property laws or interpretation of intellectual property laws in the U.S, 23 Canada and other countries may diminish the value of our intellectual property rights or narrow the scope of our intellectual property protection.
Further, changes in either intellectual property laws or interpretation of intellectual property laws in the U.S, Canada and other countries may diminish the value of our intellectual property rights or narrow the scope of our intellectual property protection.
The failure to raise such capital could result in the delay or indefinite postponement of our current business objectives or may require us to cease to carry on business.
The failure to raise such capital could result in a delay or indefinite postponement of our current business objectives or may require us to cease to carry on business.
Our management team is dedicated to ensuring the fulfillment of this policy with respect to recruitment, hiring, placement, promotion, transfer, training, compensation, benefits, employee activities, access to facilities and programs, and general treatment during employment. We are proud to bring together individuals from a wide breadth of industries, backgrounds, and experiences, and promotes a culture of belonging.
Our management team is dedicated to ensuring the fulfillment of this policy with respect to recruitment, hiring, placement, promotion, transfer, training, compensation, benefits, employee activities, access to facilities and programs, and general treatment during employment. We are proud to bring together individuals from a wide breadth of industries, backgrounds, and experiences, and promote a culture of belonging.
The continued operations and development of our business may require additional financing, which may be in the form of future equity securities offerings or any form of debt financing.
The continued operations and development of our business will require additional financing, which may be in the form of future equity securities offerings or any form of debt financing.
Any prolonged disruption in the flow of our product across the U.S.-Canada and U.S-Mexico border could have an adverse effect on our financial condition and results of our produce operations. Our Canadian Cannabis business exports certain products to international markets (currently Australia and Israel) and may export products to other international markets in the future.
Any prolonged disruption in the flow of our product across the U.S.-Canada and U.S-Mexico border could have an adverse effect on our financial condition and results of our produce operations. Our Canadian Cannabis business exports certain products to international markets (currently Germany, the U.K., Australia and Israel) and may export products to other international markets in the future.
Pure Sunfarms is one of the single largest cannabis cultivation operations in the world, one of the lowest-cost greenhouse producers and one of the best-selling brands in Canada. Pure Sunfarms leverages our 30-plus years of experience as a vertically integrated greenhouse grower for the legal cannabis industry in Canada with commercial distribution in 10 Canadian provinces and territories.
Pure Sunfarms is one of the single largest cannabis cultivation operations in the world, one of the lowest-cost greenhouse producers and one of the best-selling brands in Canada. Pure Sunfarms leverages our 30-plus years of experience as a vertically integrated greenhouse grower for the legal cannabis industry in Canada with commercial distribution in 12 Canadian provinces and territories.
Licenses, Permits and Authorizations The Cannabis Regulations establish the following classes of licenses: • license for cultivation; • license for processing; • license for analytical testing; 5 • license for sale; • license for research; and • a cannabis drug license.
Licenses, Permits and Authorizations The Cannabis Regulations establish the following classes of licenses: • license for cultivation; • license for processing; • license for analytical testing; • license for sale; • license for research; and • a cannabis drug license.
Under the terms of our Credit Facilities, we are subject to a number of covenants, including debt service covenants. These covenants could reduce our flexibility in conducting our operations by limiting our ability to borrow money and expand into new business lines. For more information, see “We are subject to restrictive covenants under our Credit Facilities” below.
Under the terms of our Credit Facilities, we are subject to a number of covenants, including debt service covenants. These covenants could reduce our flexibility in conducting our operations by limiting our ability to borrow money and expanding into new business lines. For more information, see “We are subject to restrictive covenants under our Credit Facilities” below.
Generally, non-compliance with our covenants may increase a risk of default on our debt (including by a cross-default to other credit agreements.
Generally, non-compliance with our covenants may increase the risk of default on our debt (including by a cross-default to other credit agreements).
We also have the following trademarks registered for Pure Sunfarms in Canada: Pure Sunfarms TM , Pure Sunfarms BC Grown TM , Everyday Premium TM , Farm to Flower TM , Hit The Gas TM , No Sun No Flower TM , Plants and People First TM , Pure Provisions TM , Rise with the Sun TM , Soar TM , Soar Cannabis TM , The Bakery TM , Purple Sun God TM , The Original Fraser Valley Weed Co.
We also have the following trademarks registered for Pure Sunfarms in Canada: Pure Sunfarms TM , Pure Sunfarms BC Grown TM , Pure Sun CBD TM , Everyday Premium TM , Farm to Flower TM , Hit The Gas TM , No Sun No Flower TM , Plants and People First TM , Pure Provisions TM , Rise with the Sun TM , Sundaises TM , Soar TM , Soar Cannabis TM , The Bakery TM , Purple Sun God TM , The Original Fraser Valley Weed Co.
Any disruption in the Canadian foreign worker program could have a detrimental impact on our ability to cultivate fresh produce. In the case of the facilities in west Texas, a significant portion of our labor are documented workers residing in Mexico who cross the U.S. border on a daily basis into Texas.
Any disruption in the Canadian foreign worker program could have a detrimental impact on our ability to cultivate fresh produce. In the case of the facilities in west Texas, a significant portion of our labor is documented workers residing in Mexico who cross the U.S. border on a daily basis into Texas.
To fulfill these requirements, the Minister of Health and the Minister of Mental Health and Addictions have announced that an independent Expert Panel will lead the legislative review. The Panel will provide independent, expert advice to both Ministers on progress made towards achieving the Act's objectives, and will help identify priority areas for improving the functioning of the legislation.
To fulfill these requirements, the Minister of Health and the Minister of Mental Health and Addictions announced an independent Expert Panel to lead the legislative review, and provide independent, expert advice to both Ministers on progress made towards achieving the Act's objectives and will help identify priority areas for improving the functioning of the legislation.
Our primary objective for Pure Sunfarms is to be the leading low-cost, high-quality cannabis producer in Canada and in selected international markets. Rose is a leading vertically integrated, branded cannabis producer, supplier and commercialization expert in the Province of Quebec and is the Quebec operational unit of our Canadian cannabis segment.
Our primary objective for Pure Sunfarms is to be the leading low-cost, high-quality cannabis producer in Canada and in selected international markets. Rose is a leading vertically integrated, branded cannabis producer, supplier and commercialization expert in the Province of Quebec and is the Quebec operational unit of our Canadian cannabis segment. Our U.S.
The majority of sales are within the United States. Balanced Health operates an industry-leading e-commerce platform with an extensive customer base and has a presence in over 4,000 retail locations across health and wellness, independent pharmacies, convenience stores and lifestyle shops.
The majority of sales are within the United States. BHB operates an industry-leading e-commerce platform with an extensive customer base and has a presence in over 4,000 retail locations across health and wellness, independent pharmacies, convenience stores and lifestyle shops.
Rose is also a leading third-party cannabis products commercialization expert in the Province of 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.
Rose is also a leading third-party cannabis products commercialization expert in the Province of Quebec, acting as the exclusive, direct-to-retail sales, marketing and distribution entity for other best-known brands in Canada as well as Quebec-based micro and craft growers.
We maintain a “key person” insurance policy on one member of our management team. Our future success will depend on, among other things, our ability to keep the services of this key executives and to hire other highly qualified employees at all levels.
We maintain a “key person” insurance policy on one member of our management team. Our future success will depend on, among other things, our ability to keep the services of these key executives and to hire other highly qualified employees at all levels.
Permitted wholesalers can sell to permitted retailers and other permitted wholesalers but not to the general public. Wholesale operations must be physically located within Saskatchewan and product can only be sold and distributed within Saskatchewan. Further, only federally licensed producers registered with SLGA will be allowed to sell into the Saskatchewan market.
Permitted wholesalers can sell to permitted retailers and other permitted wholesalers but not to the general public. Wholesale operations must be physically located within Saskatchewan and products can only be sold and distributed within Saskatchewan. Further, only federally licensed producers registered with SLGA will be allowed to sell into the Saskatchewan market.
On December 31, 2022, we were not in compliance with one financial covenant under our Term Loan and accordingly we obtained a waiver from FCC for the annual test on December 31, 2022 for the one financial covenant. FCC measures our financial covenants once a year on the last calendar day of the year.
On December 31, 2023, we were not in compliance with one financial covenant under our Term Loan and accordingly we obtained a waiver from FCC for the annual test on December 31, 2023 for the one financial covenant. FCC measures our financial covenants once a year on the last calendar day of the year.
New taxes could also significantly increase our costs of capturing date and collecting and remitting taxes. Any of these consequences could have a material adverse effect on our business, financial condition, and results of operations. We may be exposed to transfer pricing risks.
New taxes could also significantly increase our costs of capturing data and collecting and remitting taxes. Any of these consequences could have a material adverse effect on our business, financial condition, and results of operations. We may be exposed to transfer pricing risks.
Thus, most legitimate cannabis-related companies have established relationships with state banks and financial institutions. Also, since these legitimate cannabis firms do not have access to traditional bank financing, they primarily rely on private capital to address their financing needs. The SAFE Banking Act passed the House of Representatives in September 2019 but did not pass the Senate.
Thus, most legitimate cannabis-related companies have established relationships with state banks and financial institutions. Also, since these legitimate cannabis firms do not have access to traditional bank financing, they primarily rely on private capital to address their financing needs. The SAFE Banking Act passed the House of Representatives in September 2019 but has yet to pass the Senate.
Our Canadian cannabis business is focused on recreational (adult-use) sales which are primarily sold through the various Provincial boards who are effectively the sole wholesaler in their respective Provinces. As such, we had a concentration of adult-use branded sales to our three biggest provincial boards for the years ended December 31, 2022 and 2021 of 93% and 94%, respectively.
Our Canadian cannabis business is focused on recreational (adult-use) sales which are primarily sold through the various Provincial boards who are effectively the sole wholesaler in their respective Provinces. As such, we had a concentration of adult-use branded sales to our three biggest provincial boards for the years ended December 31, 2023 and 2022 of 93% and 93%, respectively.
As of March 6, 2023 there were 6,151,854 Common Shares issuable upon exercise of outstanding options at a weighted-average exercise price of $4.14 per share; 4,161,317 Common Shares reserved and available for issuance upon exercise of additional options and other stock-based awards that may be granted in the future under our equity compensation plans.
As of March 9, 2024 there were 6,151,854 Common Shares issuable upon exercise of outstanding options at a weighted-average exercise price of $4.14 per share; 4,161,317 Common Shares reserved and available for issuance upon exercise of additional options and other stock-based awards that may be granted in the future under our equity compensation plans.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeGrowing Area Greenhouse Facility Square Feet Square Meters Acres Products Grown Marfa, TX (2 greenhouses) 2,527,312 234,795 60 Tomatoes on-the-vine, beefsteak and specialty tomatoes Fort Davis, TX (1 greenhouse) 1,684,874 156,530 40 Specialty tomatoes Monahans, TX (1 greenhouse) (Permian Basin facility) 1,272,294 118,200 30 Specialty tomatoes Delta, BC (1 greenhouse) 2,588,860 240,513 60 Tomatoes on-the-vine, beefsteak and specialty tomatoes Total produce operations 8,073,340 750,038 190 Delta, BC (1 greenhouse) Leased to Pure Sunfarms 1,075,530 99,920 25 Cannabis Delta, BC (1 greenhouse) Owned by Pure SunFarms 1,100,000 100,000 25 Cannabis Huntingdon, Quebec (1 indoor controlled growing facility) owned by Rose LifeScience 55,000 2,300 1 Cannabis Total cannabis operations 2,230,530 202,220 51 We believe that our existing facilities are adequate for our needs.
Biggest changeGrowing Area Greenhouse Facility Square Feet Square Meters Acres Products Grown Marfa, TX (2 greenhouses) 2,527,312 234,795 60 Tomatoes on-the-vine, beefsteak and specialty tomatoes Fort Davis, TX (1 greenhouse) 1,684,874 156,530 40 Specialty tomatoes Monahans, TX (1 greenhouse) (Permian Basin facility) 1,272,294 118,200 30 For sale Delta, BC (Delta 1) (1 greenhouse) 2,588,860 240,513 60 Tomatoes on-the-vine, beefsteak and specialty tomatoes Delta, BC (Delta 2) (1/2 greenhouse) Leased to Pure Sunfarms 537,765 49,960 13 Tomatoes on-the-vine, beefsteak and specialty tomatoes Total produce operations 8,611,105 799,998 203 Delta, BC (Delta 2) (1/2 greenhouse) Leased to Pure Sunfarms 537,765 49,960 13 Cannabis Delta, BC (Delta 3) (1 greenhouse) Owned by Pure Sunfarms 1,100,000 100,000 25 Cannabis Huntingdon, Quebec (1 indoor controlled growing facility) owned by Rose LifeScience 55,000 2,300 1 Cannabis Total cannabis operations 1,692,765 152,260 39 We believe that our existing facilities are adequate for our needs.
ITEM 2. P ROPERTIES Our headquarters are located at 4700-80th Street Delta, British Columbia, Canada V4K 3N3. The following table outlines the Company’s operating greenhouse facilities.
ITEM 2. P ROPERTIES Our headquarters are located at 4700-80th Street Delta, British Columbia, Canada V4K 3N3. The following table outlines the Company’s greenhouse facilities.
Should we require additional facilities in the future, we believe that such facilities can be acquired or leased on commercially reasonable terms. 39 ITEM 3. LEGAL PROCEEDINGS We are not currently party to any material legal proceedings. ITEM 4. MINE SAF ETY DISCLOSURES Not applicable. 40 PAR T II
Should we require additional facilities in the future, we believe that such facilities can be acquired or leased on commercially reasonable terms.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeCommon shares that are held by financial institutions as nominees for beneficial owners are deposited into participant accounts at either Depository Trust Company or The Canadian Depository for Securities Ltd and are considered to be held of record by Cede & Co. or CDS & Co., each such depository representing one shareholder of record.
Biggest changeCommon shares that are held by financial institutions as nominees for beneficial owners are deposited into participant accounts at either Depository Trust Company or The Canadian Depository for Securities Ltd., which represents one shareholder of record.
Resident Holder: (i) that is an insurer carrying on an insurance business in Canada and elsewhere, (ii) that is an “authorized foreign bank” (as defined in the Tax Act), (iii) that is a “financial institution” (as defined in the Tax Act) for purposes of the “mark-to-market property” rules; (ii) an interest in which is or would constitute a “tax shelter investment” (as defined in the Tax Act); (iii) that is a “specified financial institution” (as defined in the Tax Act); or (iv) that has or will enter into a “synthetic disposition arrangement” or a “derivative forward agreement” (as those terms are defined in the Tax 41 Act) in respect of our Common Shares, Common Warrants and Common Warrant Shares.
Resident Holder: (i) that is an insurer carrying on an insurance business in Canada and elsewhere, (ii) that is an “authorized foreign bank” (as defined in the Tax Act), (iii) that is a “financial institution” (as defined in the Tax Act) for purposes of the “mark-to-market property” rules; (ii) an interest in which is or would constitute a “tax shelter investment” (as defined in the Tax Act); (iii) that is a “specified financial institution” (as defined in the Tax Act); or (iv) that has or will enter into a “synthetic disposition arrangement” or a “derivative forward agreement” (as those terms are defined in the Tax Act) in respect of our Common Shares, Common Warrants and Common Warrant Shares.
Resident Holder does not hold such shares and Common Warrants in the course of carrying on a business of trading or dealing in securities and has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade.
Resident Holder does not hold such shares and Common Warrants 43 in the course of carrying on a business of trading or dealing in securities and has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade.
Resident Holder or a person described in (ii) holds a membership interest directly or indirectly through one or more partnerships; and (b) more than 50% of the fair market value of the Common Share and Common Warrant Shares, as applicable, was derived, directly or indirectly, from one or any combination of: (i) real or immovable property situated in Canada, (ii) “Canadian resource properties” (as defined in the Tax Act), (iii) “timber resource properties” (as defined in the Tax Act), and (iv) options in respect of, or interests in, or for civil law rights in, property described in any of (b)(i) to (iii), whether or not the property exists.
Resident Holder or a person described in (ii) holds a membership interest directly or indirectly through one or more partnerships; and (b) more than 50% of the fair market value of the Common Shares and Common Warrant Shares, as applicable, was derived, directly or indirectly, from one or any combination of: (i) real or immovable property situated in Canada, (ii) “Canadian resource properties” (as defined in the Tax Act), (iii) “timber resource properties” (as defined in the Tax Act), 44 and (iv) options in respect of, or interests in, or for civil law rights in, property described in any of (b)(i) to (iii), whether or not the property exists.
Resident Holder, (ii) persons with whom the U.S. Resident Holder did not deal at arm’s length for purposes of the Tax Act, and (iii) 42 partnerships in which the U.S.
Resident Holder, (ii) persons with whom the U.S. Resident Holder did not deal at arm’s length for purposes of the Tax Act, and (iii) partnerships in which the U.S.
Securities Authorized for Issuance under Equity Compensation Plans Information about our equity compensation plan is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K. Repurchases of Equity Securities The Company did not repurchase any of its Common Shares during the three months ended December 31, 2022.
Securities Authorized for Issuance under Equity Compensation Plans Information about our equity compensation plan is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K. Repurchases of Equity Securities The Company did not repurchase any of its Common Shares during the three months ended December 31, 2023.
Resident Holder at the time of the disposition and the U.S. Resident Holder is not entitled to relief under the Treaty. Generally, a Common Share, Common Warrant and Common Warrant Share of a particular U.S. Resident Holder will not be “taxable Canadian property” of such U.S.
Resident Holder at the time of the disposition and the U.S. Resident Holder is not entitled to relief under the Treaty. Generally, the Common Shares, Common Warrants and Common Warrant Shares of a particular U.S. Resident Holder will not be “taxable Canadian property” of such U.S.
Notwithstanding the foregoing, a Common Share, Common Warrant and Common Warrant Share may otherwise be deemed to be “taxable Canadian property” in certain circumstances as set out in the Tax Act. In the case of a U.S.
Notwithstanding the foregoing, the Common Shares, Common Warrants and Common Warrant Shares may otherwise be deemed to be “taxable Canadian property” in certain circumstances as set out in the Tax Act. In the case of a U.S.
Holders of Record As of February 28, 2023, there were approximately 10 shareholders of record of our Common Shares, which included Cede & Co., a nominee for Depository Trust Company, and CDS & Co., a nominee for The Canadian Depository for Securities Ltd.
Holders of Record As of March 6, 2024, there were approximately 10 shareholders of record of our Common Shares, which included Cede & Co., a nominee for Depository Trust Company, which represents two shareholders of record and CDS & Co., a nominee for The Canadian Depository for Securities Ltd.
In the event that a Common Share, Common Warrant and Common Warrant Share is “taxable Canadian property,” within the meaning of the Tax Act, to a U.S. Resident Holder, such U.S. Resident Holder should consult their own tax advisor as to the Canadian federal income tax consequences of the disposition.
In the event that a Common Share, Common Warrant and Common Warrant Share is “taxable Canadian property,” within the meaning of the Tax Act, to a U.S. Resident Holder, such U.S.
Added
Resident Holder should consult their own tax advisor as to the Canadian federal income tax consequences of the disposition, including potential compliance requirements and withholding under section 116 of the Tax Act.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeWe have presented a similar measure in 2021, which accounts for VF Hemp and Rose LifeScience on a proportionate basis, for comparability purposes. 60 Reconciliation of Net Income to Adjusted EBITDA The following table reflects a reconciliation of net income to Adjusted EBITDA, as presented by the Company: For the Year Ended December 31, (in thousands of U.S. dollars) 2022 (1) 2021 (1) 2020 (2) Net (loss) income $ (101,146 ) $ (9,079 ) $ 11,608 Add: Amortization 10,260 13,004 6,527 Foreign currency exchange loss 2,268 329 136 Interest expense, net 3,038 2,709 1,431 Provision for (recovery of) income taxes 7,136 (3,526 ) (2,790 ) Share-based compensation 3,808 7,533 6,142 Interest expense for JVs 38 53 774 Amortization for JVs 1,554 71 1,503 Foreign currency exchange loss (gain) for JVs 1 — 120 (Recovery of) provision for income taxes for JV's (1,718 ) — 1,600 Share-based compensation for JV's 124 Other expense, net for JV's (26 ) Deferred financing fees 214 300 — Incremental utility costs due to storm — 1,400 — Impairments 43,299 — — Gain on acquisition (3) — — (23,631 ) Gain on settlement agreement (4) — — (4,681 ) Loss on inventory write-down to net realizable value 11,038 — 3,275 Purchase price adjustment (5) (4,268 ) 980 3,295 Gain on settlement of net liabilities from JV — — (2,496 ) (Gain) loss on disposal of assets (7 ) 254 819 Share of loss on JV inventory impairment 2,284 — — Write-off of note receivable 592 — 3,791 Other expense, net 200 (16 ) — Adjustment to reflect true economic value for Pure Sunfarms (6) — — (12 ) Adjusted EBITDA (7) $ (21,311 ) $ 14,012 $ 7,411 Adjusted EBITDA for JV's $ (327 ) $ (260 ) $ 5,663 Adjusted EBITDA excluding JV's $ (20,984 ) $ 14,272 $ 1,748 Notes: (1) For the year ended December 31, 2022 and 2021, Pure Sunfarms is fully consolidated in the financial results of the Company.
Biggest changeManagement believes that our non-GAAP measures 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. 62 Reconciliation of Net Income to Adjusted EBITDA The following table reflects a reconciliation of net income to Adjusted EBITDA, as presented by the Company: For the Year Ended December 31, (in thousands of U.S. dollars) 2023 (1) 2022 (1) 2021 (1) Net loss $ (31,798 ) $ (101,146 ) $ (9,079 ) Add: Amortization 12,828 10,260 13,004 Foreign currency exchange (gain) loss (750 ) 2,268 329 Interest expense, net 3,353 3,038 2,709 Provision for (recovery of) income taxes 4,451 4,681 (3,526 ) (Provision for) recovery of income taxes attributable to non-controlling interest (98 ) 737 — Share-based compensation 2,898 3,808 7,533 Interest expense for JV's 97 38 53 Amortization for JV's 2,331 1,554 71 Foreign currency exchange loss for JV's 7 1 — Share-based compensation for JV's 151 124 — Other expense, net for JV's (63 ) (26 ) — Deferred financing fees 136 214 300 Incremental utility costs due to storm — — 1,400 Impairments (2) 14,020 43,299 — (Gain) loss on disposal of assets — (7 ) 254 Other expense, net 22 200 (16 ) JV exit-related costs (3) — 592 — Purchase price adjustment (4) — (4,268 ) 980 Adjusted EBITDA (5) $ 7,585 $ (34,633 ) $ 14,012 Adjusted EBITDA for JV's $ — $ (327 ) $ (260 ) Adjusted EBITDA excluding JV's (6) $ 7,585 $ (34,306 ) $ 14,272 Notes: (1) For the years ended December 31, 2023 and 2022 and for the period August 16, 2021 to December 31, 2021, Balanced Health is fully consolidated in the financial results of the Company.
For the year ended December 31, 2022, 73% of the revenue was generated from branded flower and pre-roll sales, with an additional 4% from branded cannabis derivative products. For the year ended December 31, 2021, 64% of the revenue was generated from branded flower and pre-roll sales, with an additional 10% from branded cannabis derivative products.
For the year ended December 31, 2022, 73% of sales was generated from branded flower and pre-roll sales, with an additional 4% from branded cannabis derivative products. For the year ended December 31, 2021, 64% of the revenue was generated from branded flower and pre-roll sales, with an additional 10% from branded cannabis derivative products.
Share-Based Compensation Share-based compensation for the years ended December 31, 2022 and 2021 was $1,373 and $2,738, respectively. The decrease in 2022, is due to the 2021 vesting of performance share grants that were earned in the Canadian cannabis segment for Pure Sunfarms’ management.
Share-based compensation for the years ended December 31, 2022 and 2021 was $1,373 and $2,738, respectively. The decrease in 2022, is due to the 2021 vesting of performance share grants that were earned in the Canadian cannabis segment for Pure Sunfarms’ management.
The increase is primarily due to a net increase in volume, coupled with increases in many essential inputs such as labor, freight, fertilizer and packaging, which were partially offset by lower payments to supply partners due to lower volumes in 2022 versus 2021. The increase in freight cost is due to driver shortages and an increase in fuel.
The increase is primarily due to a net increase in volume, coupled with increases in many essential inputs such as labor, freight, fertilizer and packaging, which were partially offset by lower payments to supply partners due to lower volumes in 2022 versus 2021. The increase in freight cost is due to driver shortages and an increase in fuel prices.
The Company acquired 70% of Rose LifeScience on November 15, 2021 and its results are presented in the operations of our consolidated wholly-owned subsidiaries and the minority interest is presented in Net Income (Loss) Attributable to Non-controlling Interests, Net of Tax for the period November 15, 2021 through December 31, 2021.
The Company acquired 70% of Rose LifeScience on November 15, 2021 and its results are presented in the operations of our consolidated wholly-owned subsidiaries and the minority interest is presented in Net Income (Loss) Attributable to Non-controlling Interests, Net of Tax for the period November 15, 2021 through December 31, 2023.
The Company acquired 85% of Leli on July 19, 2022. For the period July 19, 2022 through December 31, 2022 its results are presented in the operations of our consolidated wholly-owned subsidiaries and the minority interest is presented in Net Income (Loss) Attributable to Non-controlling Interests, Net of Tax.
The Company acquired 85% of Leli on July 19, 2022. For the period July 19, 2022 through December 31, 2023 its results are presented in the operations of our consolidated wholly-owned subsidiaries and the minority interest is presented in Net Income (Loss) Attributable to Non-controlling Interests, Net of Tax.
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 57 full recourse guarantees and has granted security interests in respect of the FCC Term Loan.
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 investing activities for the year ended December 31, 2022 primarily consisted of $14,292 in capital expenditures for Pure Sunfarms’ conversion of its Delta 2 facility and the addition of hang drying rooms at its Delta 3 facility, and $4,693 invested in an additional 85% ownership in Leli.
The investing activities for the year ended December 31, 2022 primarily consisted of $14,292 in capital 61 expenditures for Pure Sunfarms’ conversion of its Delta 2 facility and the addition of hang drying rooms at its Delta 3 facility, and $4,693 invested in an additional 85% ownership in Leli.
Changes in the redemption value are recognized immediately as they occur and the carrying amount of the redeemable NCI is adjusted to equal the redemption value at the 64 end of each reporting period. This method views the end of the reporting period as if it were also the redemption date for the instrument.
Changes in the redemption value are recognized immediately as they occur and the carrying amount of the redeemable NCI is adjusted to equal the redemption value at the end of each reporting period. This method views the end of the reporting period as if it were also the redemption date for the instrument.
On January 20, 2021, Village Farms completed a registered direct offering for the purchase and sale of an aggregate of 10,887,097 Common Shares at a purchase price of $12.40 per Common Share for gross proceeds of approximately $135,000.
On January 20, 2021, Village Farms completed a registered direct offering for the purchase and sale of an aggregate of 10,887,097 Common Shares at a purchase price of $12.40 per Common Share for gross proceeds of approximately $135,000 (the "2021 Equity Offering").
An additional potential source of liquidity is access to capital markets for additional equity or debt financing. We intend to use our cash on hand for daily funding requirements.
An additional potential source of liquidity is access to capital markets for additional equity or debt financing. We intend to use our cash on hand for daily operational funding requirements.
Shipping and handling costs are included in cost of sales as incurred or at the time revenue is recognized for the related goods, whichever comes first.
Shipping and handling costs are included in cost of sales as incurred or at the time revenue is recognized for the related goods, whichever comes first. 71
Gross Margin U.S. cannabis gross margin for the year ended December 31, 2022 was $15,659, or 67%, compared to $7,947, or 70% for the period of August 16, 2021 to December 31, 2021. The slight decrease in the gross margin percentage was driven by the increase in the gummy sales versus tinctures, as tinctures have a higher product gross margin.
Cannabis gross margin for the year ended December 31, 2022 was $15,659, or 67%, compared to $7,947, or 70% for the period of August 16, 2021 to December 31, 2021. The slight decrease in the gross margin percentage was driven by the increase in the gummy sales versus tinctures, as tinctures have a higher product gross margin.
The increase in 2022 was primarily due to higher Health Canada regulatory fees, which are based on cannabis sales, a full year of expenses from Rose LifeSciences, as well as incremental year over year expenses for sales, marketing and headcount to support the growth of the Canadian cannabis segment.
The increase in 2022 was primarily due to higher Health Canada regulatory fees, which are based on cannabis sales, a full year of expenses from Rose LifeScience, as well as incremental year over year expenses for sales, marketing and headcount to support the growth of the Canadian cannabis segment.
The increase from Canadian cannabis cost of sales was primarily due to a fourth quarter inventory impairment charge of $11,038 as well as the inclusion of twelve months of costs for Rose LifeScience, which resulted in $10,536 of the year on year increase.
Cannabis cost of sales of $4,245. The increase from Canadian cannabis cost of sales was primarily due to a fourth quarter inventory impairment charge of $11,038 as well as the inclusion of twelve months of costs for Rose LifeScience, which resulted in $10,536 of the year on year increase.
Adjusted EBITDA U.S. cannabis adjusted EBITDA for the year ended December 31, 2022 was $223 as compared to $2,363 for the prior year period of August 16, 2021 to December 31, 2021. The decrease in the adjusted EBITDA was due to a lower margin as well as a full year of U.S. cannabis selling and administrative expenses.
Cannabis adjusted EBITDA for the year ended December 31, 2022 was $223 as compared to $2,672 for the prior year period of August 16, 2021 to December 31, 2021. The decrease in the adjusted EBITDA was due to a lower margin as well as a full year of U.S. Cannabis selling and administrative expenses.
The year over year increase in Canadian cannabis sales is primarily due to the benefit of a full year of sales in 2022 from Rose LifeScience, which was acquired on November 15, 2021, which resulted in a year on year increase of $12,462.
The year over year increase in Canadian cannabis sales is primarily due to the benefit of a full year of sales in 2022 from Rose LifeScience, which was acquired on November 15, 2021, which resulted in a year on year increase of $12,462. The increase from U.S.
The increase in produce cost of sales was due to higher volumes of tomatoes, peppers and cucumbers which drove higher freight costs, inflationary pressure on both labor, fertilizer, energy and packaging material.
The increase in produce cost of sales was due to higher volumes of tomatoes, peppers and cucumbers which drove higher freight costs, inflationary pressure on both labor, fertilizer, energy and packaging material. The increase in U.S.
The year over year increase was primarily due to the inclusion of a full year of selling, general and administrative expenses from Rose Life Sciences and our U.S. cannabis businesses.
The year over year increase was primarily due to the inclusion of a full year of selling, general and administrative expenses from Rose Life Sciences and our U.S. cannabis business.
Cost of Sales U.S. cannabis cost of sales for the year ended December 31, 2022 were $7,643 as compared to $3,398 for the prior year period of August 16, 2021 to December 31, 2021.
Cannabis cost of sales for the year ended December 31, 2022 were $7,643 as compared to $3,398 for the prior year period of August 16, 2021 to December 31, 2021.
Cost of Sales Cost of sales for the years ended December 31, 2022 and 2021 was $80,494 and $58,888, respectively, an increase of 36%, or $21,269. The largest driver of the year on year increase was the Company’s fourth quarter inventory write down of $11,038 (C$15,000), which represented lower potency flower that was over 12 months old.
Cost of Sales Cost of sales for the years ended December 31, 2022 and 2021 was $80,494 and $59,225, respectively, an increase of 36%, or $21,269. The largest driver of the year on year increase was the Company’s fourth quarter inventory write down of $11,038 (C$15,000), which represented lower potency flower that was over 12 months old.
Revenue Recognition The Company’s produce revenue transactions consist of single performance obligations to transfer promised goods at a fixed price. Quantities to be delivered to the customer are determined at a point near the date of delivery through purchase orders they receive from the customer.
Revenue Recognition The Company’s produce revenue transactions consist of single performance obligations to transfer promised goods at a fixed price. Quantities to be delivered to the customer are determined at a point near the date of delivery through purchase orders received from the customer.
In March 2022, Pure Sunfarms received European Union Good Manufacturing Practice (“EU GMP”) certification for its 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 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.
Cost of Sales Cost of sales for the year ended December 31, 2022 increased $43,234, or 19%, to $266,075 from $222,841 for the year ended December 31, 2021, due primarily to an increase in Canadian cannabis cost of sales of $21,606, an increase in produce cost of sales of $19,329 and an increase in U.S. cannabis cost of sales of $4,195.
Cost of Sales Cost of sales for the year ended December 31, 2022 increased ($43,234), or (19%), to $266,075 from $222,841 for the year ended December 31, 2021, due primarily to an increase in Canadian Cannabis cost of sales of $21,269, an increase in produce cost of sales of $19,329 and an increase in U.S.
Adjusted EBITDA Adjusted EBITDA for the year ended December 31, 2022 decreased to $24,369 from $1,959 for the year ended December 31, 2021, primarily due to lower gross margin as a result of the brown rugose virus at the Company's Delta, B.C. tomato greenhouse and across the board increases in raw material costs, production costs and freight costs.
Adjusted EBITDA Adjusted EBITDA for the year ended December 31, 2022 decreased to ($24,369) from ($1,959) for the year ended December 31, 2021, primarily due to lower gross margin as a result of the ToBRFV infestation at the Company's Delta, B.C. tomato greenhouse and across the board increases in raw material costs, production costs and freight costs.
Balanced Health was acquired on August 16, 2021 and their results are presented in the operations of our consolidated wholly-owned subsidiaries from August 16, 2021 to December 31, 2021.
Balanced Health was acquired on August 16, 2021 and its results are presented in the operations of our consolidated wholly-owned subsidiaries from August 16, 2021 to December 31, 2023.
For the year ended December 31, 2022 and for the period November 15, 2021 to December 31,2021, Rose LifeScience’s financial results are fully consolidated in the financial results of the Company with the minority non-controlling interest presented in net loss attributable to non-controlling interests, net of tax.
For the years ended December 31, 2023 and 2022 and for the period November 15, 2021 to December 31,2021, Rose LifeScience’s financial results are fully consolidated in the financial results of the Company with the minority non-controlling interest presented in net (income) loss attributable to non-controlling interests, net of tax.
The financing activities for the year ended December 31, 2021 consisted of net proceeds from the issuance of Common Shares of $127,489, proceeds from the exercise of warrants of $18,495 and net proceeds of borrowings of $10,215, partially offset by the payment of the note payable to Emerald of $15,498 and share repurchases of $5,000.
The financing activities for the year ended December 31, 2021 consisted of net proceeds from the 2021 Equity Offering of $127,489, proceeds from the exercise of warrants of $18,495, and net proceeds of borrowings of $10,215, partially offset by the payment of the note payable to Emerald of $15,498 and share repurchases of $5,000.
Impact of Inflation and the Russia/Ukraine Conflict Our business has been affected, and we expect will continue to be affected for the foreseeable future, by rising inflation and supply chain issues arising from COVID-19, and indirectly, the Russia/Ukraine conflict which may negatively affect our operating results.
Impact of Inflation and World Conflicts Our business has been affected, and we expect will continue to be affected for the foreseeable future, by rising inflation and supply chain issues arising from COVID-19, and indirectly, world conflicts (e.g., Russia/Ukraine) which may negatively affect our operating results.
The increase in U.S. cannabis cost of sales was due to the inclusion of the cost of sales for a full year versus prior year from its acquisition date of August 16, 2021. 47 Gross Margin Gross margin for the year ended December 31, 2022 decreased $17,682, or 39%, to $27,497 from $45,179 for the year ended December 31, 2021.
Cannabis cost of sales was due to the inclusion of the cost of sales for a full year versus prior year from its acquisition date of August 16, 2021. Gross Margin Gross margin for the year ended December 31, 2022 decreased ($17,682), or (39%), to $27,497 from $45,179 for the year ended December 31, 2021.
For the year ended December 31, 2022 and for the period August 16, 2021 to December 31, 2021, Balanced Health is fully consolidated in the financial results of the Company.
For the years ended December 31, 2023 and 2022 and for the period August 16, 2021 to December 31, 2021, Balanced Health is fully consolidated in the financial results of the Company.
The increase from U.S. cannabis sales in 2022 was due to the benefit of a full year of sales from Balanced Health, which was acquired on August 16, 2021.
Cannabis sales in 2022 was due to the benefit of a full year of sales from Balanced Health, which was acquired on August 16, 2021.
For the year ended December 31, 2022 and for the period August 16, 2021 to December 31, 2021, Balanced Health is fully consolidated in the financial results of the Company.
For the years ended December 31, 2023 and 2022 and for the period August 16, 2021 to December 31, 2021, Balanced Health is fully consolidated in the financial results of the Company.
The Company recognizes revenue when it has fulfilled a performance obligation, which is typically when the customer receives the goods and their performance obligation is complete. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring product.
The Company recognizes revenue when it has fulfilled a performance obligation, which is typically when the customer receives the goods. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring the goods.
The increase relative to sales is primarily due to an increase in eCommerce marketing As the U.S. cannabis business derives a significant number of sales through its online technology platforms, the primary expense categories within selling, general and administrative include sales and marketing, merchant fees, e-commerce support and IT services.
The increase relative to sales is primarily due to an increase in eCommerce marketing As the U.S. Cannabis business derives a significant number of sales through its online technology platforms, the primary expense categories within selling, general and administrative include sales and marketing, merchant fees, e-commerce support, share-based compensation and IT services. Net (Loss) Income U.S.
For the year ended December 31, 2022 and for the period November 15, 2021 to December 31,2021, f Rose LifeScience’s financial results are fully consolidated in the financial results of the Company with the minority non-controlling interest presented in net loss attributable to non-controlling interests, net of tax.
For the years ended December 31, 2023 and 2022 and for the period November 15, 2021 to December 31,2021, Rose LifeScience’s financial results are fully consolidated in the financial results of the Company with the minority non-controlling interest presented in net (income) loss attributable to non-controlling interests, net of tax.
Cost of sales are attributed directly to e-commerce, retail and bulk cost of sales with all other costs categorized within other manufacturing costs of sales which include warehouse expenses, freight and shipping supplies.
Cost of sales are attributed directly to e-commerce, retail and bulk cost of sales with all other costs categorized within other manufacturing costs of sales which include warehouse expenses, freight and shipping supplies. Gross Margin U.S.
The slight increase is primarily due to an 18% increase in production at our Texas facilities, a decrease of (17%) in production from our Delta tomato facility as a direct result of the brown rugose tomato virus on essentially flat year on year pricing.
The slight increase is primarily due to an 18% increase in production at our Texas facilities, a decrease of (17%) in production from our Delta tomato facility as a direct result of the ToBRFV infestation on essentially flat year on year pricing.
The increase in the Company’s produce sales was primarily due to a 18% increase in pounds produced in Texas, offset by a (17%) decrease in pounds produced at the Company’s Delta tomato greenhouse facility, due to the Brown Rugose virus, as well as a (9%) decrease in supply partner volume.
The increase in the Company’s produce sales was primarily due to a 18% increase in pounds produced in Texas, offset by a (17%) decrease in pounds produced at the Company’s Delta tomato greenhouse facility, due to the ToBRFV infestation, as well as a (9%) decrease in supply partner volume.
We caution that our results of operations for the years ended December 31, 2022, 2021 and 2020 may not be indicative of our future performance. Discussion of Financial Results A discussion of our consolidated results for the years ended December 31, 2022, 2021 and 2020 is included below.
Securities and Exchange Commission. We caution that our results of operations for the years ended December 31, 2023, 2022 and 2021 may not be indicative of our future performance. Discussion of Financial Results A discussion of our consolidated results for the years ended December 31, 2023, 2022 and 2021 is included below.
For the period July 19, 2022 to December 31, 2022, Leli’s financial results are fully consolidated in the financial results of the Company with the minority non-controlling interest presented in net loss attributable to non-controlling interests, net of tax.
For the year ended December 31, 2023 and for the period July 19, 2022 to December 31, 2022, Leli’s financial results are fully consolidated in the financial results of the Company with the minority non-controlling interest presented in net (income) loss attributable to non-controlling interests, net of tax.
The increase was primarily due to legal fees and a legal settlement of $466. (Provision for) Recovery of Income Taxes The (provision for) recovery of income taxes for the years ended December 31, 2022 and 2021, was ($9,914) and $2,278, respectively. The decrease was primarily due to the valuation allowance on the Company's existing U.S. deferred tax asset.
(Provision for) Recovery of Income Taxes The (provision for) recovery of income taxes for the years ended December 31, 2022 and 2021, was ($9,914) and $2,278, respectively. The decrease was primarily due to the valuation allowance on the Company's existing U.S. deferred tax asset.
The “Cannabis Segment Results - Canada” also include the operating results of Rose LifeScience, which are consolidated in our financial results and the minority interest is presented in Net Income (Loss) Attributable to Non-controlling Interests, Net of Tax, for the year ended December 31, 2022 and for the period November 15, 2021 to December 31, 2021.
The “Cannabis Segment Results - Canada” also include the operating results of Rose LifeScience, which are consolidated in our financial results and the minority interest is presented in loss attributable to non-controlling interests, net of tax, for the years ended December 31, 2023 and 2022 and for the period November 15, 2021 to December 31, 2021. Under “U.S.
Net (Loss) Income U.S. cannabis net loss for the year ended December 31, 2022 was ($47,452) as compared to the income of $2,200 for the prior year period of August 16, 2021 to December 31, 2021. The decrease was primarily due to the impairment charges to goodwill.
Cannabis net loss for the year ended December 31, 2022 was ($44,192) as compared to net income of $2,200 for the prior year period of August 16, 2021 to December 31, 2021. The decrease was primarily due to the impairment charges to goodwill. Adjusted EBITDA U.S.
As part of the equity offering the Company also issued 18,350,000 Common Warrants at an exercise price of $1.65 per share. The Common Warrants cannot be exercised until after July 30, 2023, and expire on June 30, 2028.
As part of the 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 after July 30, 2023, and expire on June 30, 2028.
Summary of Cash Flows For the Year Ended December 31, (in thousands) 2022 2021 Cash beginning of year $ 58,667 $ 25,679 Net cash flow provided by (used in): Operating activities (19,889 ) (39,567 ) Investing activities (20,899 ) (63,470 ) Financing activities 4,496 135,883 Net cash (decrease) increase for the year (36,292 ) 32,846 Effect of exchange rate changes on cash (699 ) 142 Cash, end of the year $ 21,676 $ 58,667 Operating Activities For the years ended December 31, 2022 and 2021, cash flows used in operating activities were $19,889 and $39,567, respectively.
Summary of Cash Flows For the Year Ended December 31, (in Thousands) 2023 2022 2021 Cash beginning of year $ 21,676 $ 58,667 $ 25,679 Net cash flow provided by (used in): Operating activities 5,315 (19,889 ) (39,567 ) Investing activities (6,231 ) (20,899 ) (63,470 ) Financing activities 14,137 4,496 135,883 Net cash increase (decrease) for the year 13,221 (36,292 ) 32,846 Effect of exchange rate changes on cash 394 (699 ) 142 Cash, end of the year $ 35,291 $ 21,676 $ 58,667 Operating Activities For the years ended December 31, 2023 and 2022 and 2021 cash flows provided by (used in) operating activities were $5,315, ($19,899), and ($39,567), respectively.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Sales U.S. cannabis net sales for the year ended December 31, 2022 were $23,302, an increase of $11,957 or 105%, from the prior partial year net sales of $11,345.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Sales U.S. Cannabis net sales for the year ended December 31, 2022 were $23,302, an increase of $11,957 or 105%, from the prior partial year net sales of $11,345. While the year on year sales resulted in an increase, the annualized sales for the Company's U.S.
The Company’s Delta B.C. tomato greenhouse is the primary driver of its produce gross margin in most years. In 2022, the brown rugose virus essentially erased the Delta B.C. greenhouse’s gross margin in its entirety.
The Company’s Delta B.C. tomato greenhouse is the primary driver of its produce gross margin in most years. In 2022, the ToBRFV infestation essentially erased the Delta B.C. greenhouse’s gross margin in its entirety.
See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”. PRODUCE SEGMENT RESULTS Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Sales Sales for the year ended December 31, 2022 of $160,252, were essentially flat with the prior year period sales of $159,996.
See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA.” Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Sales Sales for the year ended December 31, 2022 of $160,252, were essentially flat with the prior year period sales of $159,996.
The increase in sales was primarily due to an increase in Canadian cannabis sales of $13,886, U.S. cannabis sales of $11,947, and our own produce revenue of $7,152, an increase in freight revenue of $5,311 offset by a decrease in produce supply partner revenue of $6,896.
The increase in sales was primarily due to an increase in Canadian cannabis sales of $13,448, U.S. Cannabis sales of $11,957, and our own produce revenue of $7,152, offset by a decrease in produce supply partner revenue of ($6,896).
(“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, Village Farms LP, Pure Sunfarms Corp (“Pure Sunfarms”), Balanced Health Botanicals, LLC (“Balanced Health”), Rose LifeScience Inc. ("Rose LifeScience” or “Rose”) and VF Clean Energy, Inc. (“VFCE”).
(“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”), Rose LifeScience Inc.
Other (Expense) Income, net Other (expense) income, net was ($163) for the year ended December 31, 2022 compared to ($295) for the year ended December 31, 2021. Net Income Net income for the years ended December 31, 2022 and 2021 was $117 and $9,165 respectively. The decrease is primarily due to the $11,038 inventory impairment recorded at December 31, 2022.
Other (Expense) Income, net Other (expense) income, net was ($2,023) for the year ended December 31, 2022 compared to ($2,682) for the year ended December 31, 2021. Net Income Net income for the years ended December 31, 2022 and 2021 was $117 and $9,210 respectively. The decrease is primarily due to the $11,038 inventory impairment recorded at 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 December 31, 2022 and 2021, borrowings under the FCC Term Loan agreement were subject to an interest rate of 7.71% and 3.79% per annum, respectively.
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 May 3, 2027. As of December 31, 2023 and 2022, borrowings under the FCC Term Loan agreement were subject to an interest rate of 8.96% and 7.71% per annum, respectively.
The increase was solely due to an increase in the Company's interest rates, on its various debt instruments. Interest Income Interest income for the years ended December 31, 2022 and 2021 was $207 and $126, respectively.
The increase was due to an increase in the Company's interest rates on its various debt instruments. Interest Income Interest income for the years ended December 31, 2023 and 2022 was $1,018 and $207, respectively.
The financing activities for the year ended December 31, 2022 consisted primarily of net repayments on borrowings of $2,388 offset by the proceeds from the issuance of common stock and warrants.
The financing activities for the year ended December 31, 2022 consisted primarily of net repayments on borrowings of $2,388 offset by the proceeds from the issuance of common shares under the Sales Agreement and proceeds from the exercise of outstanding warrants.
Adjusted EBITDA is a measure of operating performance that is not recognized under GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers.
(2) 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.
(Provision for) Recovery of Income Taxes The (provision for) recovery of income taxes for the years ended December 31, 2022 and 2021 was $4,681 and $3,526, respectively. For the twelve months ended December 31, 2022, our effective tax rate, including both current and deferred income taxes was 4.8%, and included a $30,419 valuation allowance against our U.S. deferred tax assets.
For the twelve months ended December 31, 2022, our effective tax rate, including both current and deferred income taxes was 4.8%, and included a $30,419 valuation allowance against our U.S. deferred tax assets.
Selling, General and Administrative Expenses U.S. cannabis selling, general and administrative expenses for the year ended December 31, 2022 were $16,000, or 69% of sales compared $5,604, or 49% of sales for the short prior year period of August 16, 2021 to December 31, 2021.
Selling, General and Administrative Expenses U.S. Cannabis selling, general and administrative expenses for the year ended December 31, 2022 were $16,305, or 70% of sales compared $5,763, or 51% of sales for the short prior year period of August 16, 2021 to December 31, 2021.
Non-GAAP Measures References in this MD&A to “Adjusted EBITDA” are to earnings (including the equity earnings of our joint ventures) before interest, taxes, depreciation, and amortization (“EBITDA”), as further adjusted to exclude foreign currency exchange gains and losses on translation of long-term debt, unrealized gains on the changes in the value of derivative instruments, share-based compensation, gains and losses on asset sales and the other adjustments set forth in the table below.
Non-GAAP Measures References in this Management’s Discussion and Analysis to “Adjusted EBITDA” are to earnings (including the equity losses of the VFH joint venture) 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.
Under “Cannabis Segment Results – U.S.”, we present a discussion of the operating results of Balanced Health for the year ended December 31, 2022 and the period of August 16, 2021 to December 31, 2021, which were consolidated in the Company’s financial results for the year ended December 31, 2021.
Cannabis Segment Results”, we present a discussion of the operating results of Balanced Health for the years ended December 31, 2023 and 2022 and the period of August 16, 2021 to December 31, 2021, which were consolidated in the Company’s financial results for the year ended December 31, 2021.
Rose is a leading LP of cannabis in the Province of Quebec as well as a prominent third-party 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.
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.
The investing activities for the year ended December 31, 2021 consisted primarily of $40,685 in net acquisition costs for Balanced Health and Rose LifeScience, $21,656 in purchases primarily for Pure Sunfarms’ conversion of its Delta 2 facility and maintenance of VF Fresh property, plant and equipment and $1,109 in minority investments in Altum. 59 Financing Activities For the years ended December 31, 2022 and 2021, cash flows provided by financing activities were $4,496 and $135,883, respectively.
The investing activities for the year ended December 31, 2021 consisted primarily of $40,685 in net acquisition costs for Balanced Health and Rose LifeScience, $21,656 in purchases primarily for Pure Sunfarms’ conversion of its Delta 2 facility and maintenance of VF Fresh property, plant and equipment and $1,109 in minority investments in Altum.
The average selling price for all produce sold during the year ended December 31, 2022, as compared to the year ended December 31, 2021 was as follows; tomato prices increased 0.3%, pepper prices decreased (13%), cucumber prices decreased (14%) and mini cucumber prices decreased (13%).
The average selling price for all produce sold during the year ended December 31, 2023, as compared to the year ended December 31, 2022 was as follows: tomato prices increased 3.7%, pepper prices decreased (8%), cucumber prices increased 25% and mini cucumber prices increased 42%.
The increase in net (loss) was driven by a decrease in gross margin from our Fresh Produce business, goodwill and intangible impairment charges, an inventory write- down and a valuation allowance on the Company's existing U.S. deferred tax asset.
The increase in net loss was driven by a decrease in gross margin from our Fresh Produce business, goodwill and intangible impairment charges, inventory write-downs (both in Canadian Cannabis and US VF Hemp) as well as a valuation allowance on the Company's existing U.S. deferred tax asset.
We also present VF Hemp which is an equity method joint venture and its results are included in “(Losses) Income from Equity Method Investments” for the years ended December 31, 2022, 2021 and 2020.
We also present VF Hemp which was an equity method joint venture which ceased operations in 2022 and its results are included in losses from equity method investments for the years ended December 31, 2022 and 2021.
Cannabis Segment Village Farms’ U.S. cannabis segment includes 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, CBDistilleryTM.
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 and hemp-based health and wellness products, distributing its diverse portfolio of consumer products through retail storefronts and its top-ranked e-commerce platform, CBDistillery TM .
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.
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.
FCC Term Loan The Company has a term loan financing agreement with Farm Credit Canada (“FCC”), 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 $24,755 and $26,723 on December 31, 2022 and 2021, respectively.
FCC Term Loan The Company has a term loan financing agreement with Farm Credit Canada (“FCC”), a Canadian creditor (the “FCC Term Loan”). The non-revolving variable rate term loan has a maturity date of May 3, 2027 and a balance of $22,788 and $24,755 on December 31, 2023 and 2022, respectively.
The improvement in non-cash working capital items was primarily due to increases in accrued expenses and accrued taxes payable driven by the Canadian cannabis segment. The decrease in changes before non-cash working capital items was primarily due to declines in the operating performance of the produce segment and the Canadian cannabis segment in 2022 as compared to 2021.
The improvement in 2022 as compared to 2021 was primarily due to increases in accrued expenses and accrued taxes payable driven by the Canadian cannabis segment, partially offset by declines in the operating performance of the produce segment and the Canadian cannabis segment in 2022 as compared to 2021.
Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income (losses) in the years in which those temporary differences are expected to be recovered or settled.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income (losses) in the years in which those temporary differences are expected to be recovered or settled.
(1) Clean Energy Corporate Total Sales $ 160,252 $ 109,882 $ 23,302 $ 136 $ — $ 293,572 Cost of sales (177,634 ) (80,494 ) (7,643 ) (304 ) — (266,075 ) Selling, general and administrative expenses (12,004 ) (30,235 ) (16,000 ) (58 ) (9,981 ) (68,278 ) Share-based compensation — (1,373 ) (305 ) — (2,309 ) (3,987 ) Other expense, net (1,187 ) (2,023 ) (247 ) (43 ) (1,907 ) (5,407 ) Write-off of note receivable — — (592 ) — — (592 ) Impairments (2) — — (43,299 ) — — (43,299 ) (Provision for) recovery of income taxes (9,914 ) 4,091 — — 1,142 (4,681 ) Loss from consolidated entities (40,487 ) (152 ) (44,784 ) (269 ) (13,055 ) (98,747 ) Less: net loss attributable to non-controlling interests, net of tax — 269 — — — 269 Loss from equity method investments — — (2,668 ) — — (2,668 ) Net (loss) income $ (40,487 ) $ 117 $ (47,452 ) $ (269 ) $ (13,055 ) $ (101,146 ) Adjusted EBITDA (2) $ (24,369 ) $ 13,085 $ 223 $ (263 ) $ (9,987 ) $ (21,311 ) Basic (loss) income per share $ (0.45 ) $ 0.00 $ (0.52 ) $ 0.00 $ (0.16 ) $ (1.13 ) Diluted (loss) income per share $ (0.45 ) $ 0.00 $ (0.52 ) $ 0.00 $ (0.16 ) $ (1.13 ) For the Year Ended December 31, 2021 Produce Cannabis - Canada (1) Cannabis- U.S.
(1) Clean Energy Corporate Total Sales $ 160,252 $ 109,882 $ 23,302 $ 136 $ — $ 293,572 Cost of sales (177,634 ) (80,494 ) (7,643 ) (304 ) — (266,075 ) Selling, general and administrative expenses (12,004 ) (31,608 ) (16,305 ) (58 ) (12,290 ) (72,265 ) Other expense, net (1,187 ) (2,023 ) (247 ) (43 ) (1,907 ) (5,407 ) Write-off of joint venture loan — — — — (592 ) (592 ) Impairments — — (43,299 ) — — (43,299 ) Operating loss (30,573 ) (4,243 ) (44,192 ) (269 ) (14,789 ) (94,066 ) (Provision for) recovery of income taxes (9,914 ) 4,091 — — 1,142 (4,681 ) Loss from consolidated entities (40,487 ) (152 ) (44,192 ) (269 ) (13,647 ) (98,747 ) Less: net loss attributable to non-controlling interests, net of tax — 269 — — — 269 Loss from equity method investments — — — — (2,668 ) (2,668 ) Net (loss) income $ (40,487 ) $ 117 $ (44,192 ) $ (269 ) $ (16,315 ) $ (101,146 ) Adjusted EBITDA (2) $ (24,369 ) $ 2,047 $ 223 $ (263 ) $ (12,271 ) $ (34,633 ) Basic (loss) income per share $ (0.45 ) $ 0.00 $ (0.52 ) $ 0.00 $ (0.16 ) $ (1.13 ) Diluted (loss) income per share $ (0.45 ) $ 0.00 $ (0.52 ) $ 0.00 $ (0.16 ) $ (1.13 ) For the Year Ended December 31, 2021 VF Fresh (Produce) Cannabis Canada (1) Cannabis U.S.
Equity Offerings Subsequent to December 31, 2022, 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 $22,000 after deducting commissions and offering expenses.
Interest under the BDC Loan is payable at an interest rate of 10.95%, payable monthly. 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 $22,000 after deducting commissions and offering expenses (the "2023 Equity Offering").
Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recuring and other items that do not reflect our business performance.
Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recuring and other items that do not reflect our business performance. Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience since acquisition, 85% interest in Leli since acquisition, and 65% interest in VFH.
The Company also markets and distributes premium tomatoes, peppers and cucumbers produced under exclusive arrangements with other greenhouse producers located primarily in Mexico, B.C. and Ontario. The Company primarily markets and distributes under its Village Farms® brand name to retail supermarkets and dedicated fresh food distribution companies throughout the United States and Canada.
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.
See “Risk Factors—We may need additional financing to further develop our business.” Accrued interest payable on the Credit Facilities and Pure Sunfarms Loans as of December 31, 2022 and 2021 was $398 and $304, respectively, and these amounts are included in accrued liabilities in the Consolidated Statements of Financial Position.
See “Risk Factors—Business and Operational Risk Factors—We are subject to restrictive covenants under our Credit Facilities.” Accrued interest payable on the Credit Facilities and Pure Sunfarms Loans as of December 31, 2023 and 2022 was $390 and $398, respectively, and these amounts are included in accrued liabilities in the Consolidated Statements of Financial Position.
The gross margin percentage for supply partner sales decreased to (9%) for the year ended December 31, 2022, from 12% for the same prior year period due to change in mix and more spot business. 55 Selling, General and Administrative Expenses Selling, general and administrative expenses for the year ended December 31, 2022 increased $1,024, or 9%, to $12,004 from $10,980 for the year period ended December 31, 2021.
The gross margin percentage for supply partner sales decreased to (9%) for the year ended December 31, 2022, from 12% for the same prior year period due to change in mix and more spot business.
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.
Management believes that Adjusted EBITDA excluding JV’s is a useful supplemental measure in evaluating the performance of the Company because in addition to excluding non-recurring and other items that do not reflect our business performance, as reflected in Adjusted EBITDA, it further excludes the results of our joint ventures that management does not believes reflect the principal operations of the business.
The year on year decrease in gross margin was driven by the Company’s produce division with a year on year decrease of $19,073, the Company’s Canadian cannabis division gross margin decreased by $7,720, which were offset by a year on year increase in the Company’s US cannabis gross margin of $7,752.
The year on year decrease in gross margin was driven by the Company’s produce division with a year over year decrease of $19,073 and the Company’s Canadian cannabis division with a year over year decrease of $7,821, this was partially offset by a year over year increase in the Company’s US cannabis gross margin of $7,712.
The PSF Revolving Line of Credit had an outstanding balance of C$4,745 and C$9,855 as of December 31, 2022 and 2021, respectively As of December 31, 2022 and 2021, Pure Sunfarms had an outstanding letter of credit issued to BC Hydro against the revolving line of credit of $C4,145.
Pure Sunfarms had an outstanding letter of credit issued to BC Hydro against the PSF Revolving Line of Credit of C$0 at December 31, 2023 and C$4,145 December 31, 2022.
We expect international expansion should enhance our profitability while expanding our brand and experience into emerging new legal cannabis markets. Balanced Health, our industry-leading cannabinoid business, extends our portfolio into cannabidiol (“CBD”) consumer products. We also operate a large, well-established produce business under the Village Farms Fresh (“VF Fresh”) brand which sells into food and mass retail stores.
Balanced Health, our industry-leading cannabinoid business, extends our portfolio into cannabidiol (“CBD”) consumer products. 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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+5 added−3 removed0 unchanged
Biggest changeIf interest rates had been 50 basis points higher, the net income during the years ended December 31, 2022 and 2021 would have been lower by $288) and $315, respectively. This represents $288 and $315 in increased interest expense for the years ended December 31, 2022 and 2021, respectively.
Biggest changeAn 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 $254 and $288 for the years ended December 31, 2023 and 2022, respectively.
Assuming that 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 December 31, 2022 and 2021 with the net foreign exchange gain or loss directly impacting net income (loss).
Assuming that 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 December 31, 2023 and 2022 with the net foreign exchange gain or loss directly impacting net income (loss).
ITEM 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA The financial statements required by this item are included beginning on page 70 of this Annual Report on Form 10-K. See also Item 15, “Exhibits, Financial Statement Schedules.” ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
ITEM 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA The financial statements required by this item are included beginning on page 80 of this Annual Report on Form 10-K. See also Item 15, “Exhibits, Financial Statement Schedules.” ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
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. 65 Foreign Exchange Risk As of December 31, 2022 and 2021, the Canadian/U.S. foreign exchange rate was C$1.00 = US$0.7380 and C$1.00 = US$0.7874, 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 December 31, 2023 and 2022, the Canadian/U.S. foreign exchange rate was C$1.00 = US$0.7543 and C$1.00 = US$0.7380, respectively.
December 31, 2022 December 31, 2021 Financial assets Cash and cash equivalents $ 978 $ 1,131 Trade receivables 2,758 2,887 Inventories 7,386 5,145 Prepaid and deposits 979 1,069 Financial liabilities Trade payables and accrued liabilities (4,701 ) (2,715 ) Loan payable (4,369 ) (4,460 ) Deferred Tax Liability (2,794 ) (2,571 ) Net foreign exchange gain $ 237 $ 486 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.
December 31, 2023 December 31, 2022 Financial assets Cash and cash equivalents $ 1,686 $ 978 Trade receivables 3,005 2,758 Inventories 8,211 7,386 Prepaid and deposits 667 979 Financial liabilities Trade payables and accrued liabilities (5,623 ) (4,701 ) Loan payable (3,378 ) (4,369 ) Net foreign exchange gain $ 4,568 $ 3,031 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.
Removed
ITEM 7A. QUALITATIVE AND QUANTITAT IVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
Added
ITEM 7A. QUALITATIVE AND QUANTITAT IVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk As of December 31, 2023, our variable interest rate debt was primarily related to our Credit Facilities and Term Loans.
Removed
The Company is exposed to interest rate risk on its long-term debt, for which the interest rates charged fluctuate based on the 90-day LIBOR rate. The Company has a line of credit that incorporates LIBOR as a referenced interest rate.
Added
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.
Removed
It is difficult to predict what effect, if any, the phase-out of LIBOR and the use of alternative benchmarks may have on the Company’s business or on the overall financial markets.
Added
As of December 31, 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 $48,058 in aggregate principal amounts with Term Loans with a weighted average interest rate of 9.1%.
Added
The current interest rates for outstanding revolving loans under our Credit Facility and Term Loans reflect basis point increases of approximately 0.7% 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.
Added
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.

Other VFF 10-K year-over-year comparisons