Investor Presentation December September 2017

Transcription

1 Investor Presentation December 2017 September 2017

2 Forward looking statements 2 This presentation contains certain "forward looking statements". These statements relate to future events or future performance and reflect the Company's expectations regarding its growth, results of operations, performance, business prospects, opportunities or industry performance and trends. These forward looking statements reflect the Company's current internal projections, expectations or beliefs and are based on information currently available to the Company. In some cases, forward looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue" or the negative of these terms or other comparable terminology. A number of factors could cause actual events or results to differ materially from the results discussed in the forward looking statements. In evaluating these statements, you should specifically consider various factors, including, but not limited to, such risks and uncertainties as availability of resource, competitive pressures and changes in market activity, risks associated with U.S. and Canadian sales and foreign exchange, regulatory requirements and all of the other "Risk Factors" set out in the Company's current annual information form and management's discussion and analysis for the year ended December 31, 2016, which is available electronically at Actual results may differ materially from any forward looking statement. Although the Company believes that the forward looking statements contained in this presentation are based upon reasonable assumptions, you cannot be assured that actual results will be consistent with these forward looking statements. These forward looking statements are made as of the date of this presentation, and other than as specifically required by applicable law, the Company assumes no obligation to update or revise them to reflect new events or circumstances.

3 Market Facts 3 (As of November 28, 2017) LISTING SYMBOL PRICE MARKET CAPITALIZATION SHARES OUTSTANDING 52-WEEK HI/LOW MANAGEMENT & BOARD OWNERSHIP TSX:VFF OTCBB:VFFIF CDN$5.94 ~CDN$233M (basic) 39.2M (basic) CDN$6.25 ~30% ~CDN$246M (diluted) 41.4M (diluted) CDN$1.30

4 Industry Leader in Large-Scale, High Tech, Low-Cost Greenhouse Growing 4 OWN 10.5 M sq. ft. (240 ACRES) OF GREENHOUSE CAPACITY TECHNOLOGICALLY ADVANCED GREENHOUSE FACILITIES MASTER GROWER TEAM WITH 750 YEARS OF EXPERIENCE INDUSTRY LEADER IN PRODUCT QUALITY & SAFETY 30 YEARS IN OPERATION 2016 REVENUE 1 C$209M 2016 EBITDA 1 C$12.6M 1. Converted to Canadian dollars at $0.75.

5 Premium Produce Grown In the Most Sustainable, Resource-Efficient Manner 5 Vertically-integrated provider of premium produce to grocers across North America Greenhouse growing produces a more consistent, higher quality product that customers demand and that commands a premium price Exclusive varieties address consumer demand in the specialty growth segment Strategically located greenhouses and logistics and distribution chain ensure the freshest, highest quality produce Marquee customers across the U.S. and Canada

6 Strategically Located Operations and Distribution Network 6 British Columbia VF Owned 3 facilities / 110 acres (4.8M sq. ft.) Texas VF Owned Ontario Partner Greenhouses Ontario: 70 acres British Columbia: 25 acres 4 facilities / 130 acres (5.7M sq. ft.) Mexico Mexico: 50 acres Our logistics and distribution chain ensures the freshest, highest-quality produce reaches consumers across Canada and the U.S.

7 Financial Profile 7 (All figures in Canadian dollars unless otherwise stated) FY 2016 Revenue: $209 M (US$156 M) EBITDA: $12.6M (US$9.4 M) Margin: 6% REVENUE (C$ MILLIONS) At September 30, 2017 Cash: $5.5 M (US$4.3 M) Long-Term Debt: $55.0 M (US$43M) EBITDA (C$ MILLIONS) $250 $200 $150 $147.2 $158.9 $196.9 $209.1 $211.8 $15 $10 $13.8 $10.1 $14.1 $12.6 $11.3 $100 $5 $50 $ LTM Q3/17 $ LTM Q3/17 LTM Net Income of $6.4 M and LTM EPS of $0.16

8 PURE SUNFARMS CANNABIS JOINT VENTURE: A TRANSFORMATIONAL OPPORTUNITY Low Cost, Industry-Leading Scale with Speed To Market

9 Ability to Capitalize on Market Opportunity 9 Market Need Canadian Cannabis demand estimated to grow to ~734,000 kg by Projected shortfall of supply based on current capacity and market demand Transformational Opportunity Apply low-cost, high tech greenhouse growing expertise 4.8M sq. ft. of existing greenhouse capacity (potential yield of 300,000 kg) Potential to address substantial portion of the market 1. Legalized Cannabis: Fiscal Considerations Office of the Parliamentary Budget Officer, Government of Canada (2016)

10 Complementary Partners 10 50% Ownership High-tech, low-cost greenhouse growing & agricultural product safety expertise Initial Contribution: 1.1 M sq. ft. (25 acre) greenhouse (leased to Pure Sunfarms) Joint Venture: Pure Sunfarms Large-scale, high-quality, low-cost cannabis production Pure Sunfarms will sell dried cannabis and develop and sell its own extractionbased products 50% Ownership Cannabis industry compliance and licensing expertise Cannabis IP, including portfolio of high-quality genetics Initial Contribution: $20M cash Options for an additional 3.7 M sq. ft. (85 acres) of growing capacity

11 Leaders in High-Tech, Low Cost Greenhouse Growing 11 Deep Greenhouse Growing Experience Passionate about growing Combined 750 years of master grower experience from multiple growing regions around the world Have achieved record production yields for the industry Experts in agricultural product safety Pesticide registrations Biological control Advanced Greenhouse Technology Leader in agricultural research and foremost in North America for developing improvements in greenhouse production technology Applied Research Division continually making advancements in Climate Engineering, Plant Biology & Pathology, Entomology, and Ecology Cannabis is an agricultural product like any other

12 Advantages of Greenhouse Growing/Use of Existing Large-Scale Facilities 12 Greenhouse Growing Proven at a Large Scale Greenhouse systems and controls create a good growing climate for the crop in almost any location. Greater Energy Efficiency Using all available natural sunlight results in significantly lower energy needs (far less artificial lighting, with little to no heat extraction requirements). Use of Existing Large-Scale Facilities Speed to Market Experience is an Asset Existing state-of-the-art greenhouses are significantly quicker to bring into production than new construction. Management/growing teams at established greenhouses know their systems, have years of experience managing local climate conditions and, most importantly, have established labor workforces with an ingrained quality culture.

13 GOAL: Be the Low-Cost, High-Quality Cannabis Producer in Canada 13 Ingrained culture of high-quality, low-cost production built over decades Greenhouse growing provides significant capital and operating cost efficiencies Lower energy needs Greater economies of scale Allows for greater scale conservative target of <$1.00/gram 1 vs. industry avg. of $2.20/gram 1 Existing state-of-the-art greenhouses with significant scale minimize capital costs 1. Four largest LPs ACB, APH, LEAF, WEED. Source: Public company filings and independent analyst. Village Farms is one of the lowest-cost greenhouse growers of tomatoes & cucumbers in Canada/U.S.

14 Phase 1: Delta 3 Greenhouse M sq. ft. of greenhouse capacity (25 acres) conservative projected yield of 75,000 kg annually potential to generate revenue of 10-15x that of produce projected EBITDA margins of >50% vs. mid-single digits for produce in Canada Significantly more profitable use of existing greenhouse assets

15 Step-Function Future Growth Opportunity 15 Delta 3 Delta 2 Delta M sq. ft. (25 acres) 1.1 M sq. ft. (25 acres) 2.6 M sq. ft. (60 acres) 4.8M sq. ft. (110 acres) of total growing capacity Pure Sunfarms has options for Delta 1 and Delta 2 greenhouses conservative projected yield of 300,000 kg annually

16 Critical Path and Key Milestones 16 Initiate Cultivation License Process File Cultivation License Application Commence Conversion of Delta 3 to Cannabis Licensing Standards Complete Conversion of First Quadrant of Delta 3 to Licensing Standards Obtain Cultivation License Obtain Selling License Generate First Cannabis Revenue June 2017 September 2017 October 2017 Target: February 2018 Expect to begin commercial production prior to July 1, Subject to receipt of cultivation and sales licenses. Target: 75,000 kg of production in 2020

17 Canadian Cannabis Market Fundamentals 17 + Medical Market Canadian industry for legalized medical cannabis was born in the early 2000s Currently regulated by the Access to Cannabis for Medical Purposes Regulation Currently 79 licenses granted Registered patient base has grown 10% month-over-month and 200%+ annually since June 2014 Average price across public LPs is ~$8.00/gram Non-therapeutic Market Legislation tabled for the legalization of non-therapeutic cannabis Estimated that >30% of Canadians would use cannabis if it was legalized 1 $5 to $9B market opportunity 2 Poised to grow 10-fold to $1.3 B by Health Canada. 2. Recreational Marijuana Insights and Opportunities Deloitte (2016)

18 Projected Near-Term Shortfall of Supply in Canada 18 Estimated Demand by 2021: ~734,000 kg 1 Estimated Demand by 2021: Estimated Existing Industry Capacity: ~118,000 kg Pure Sunfarms has the potential to address ~1/2 of the overall market 1. Legalized Cannabis: Fiscal Considerations Office of the Parliamentary Budget Officer, Government of Canada (2016)

19 Phased Conversion Expedites Cash Flow Generation 19 Quadrant 4 ~250,000 sq. ft. 18,750 kg/yr Quadrant 3 ~250,000 sq. ft. 18,750 kg/yr Quadrant 2 ~250,000 sq. ft. 18,750 kg/yr Quadrant 1 ~250,000 sq. ft. 18,750 kg/yr Target Sales Sept. March 1 July 1 Oct Off-line Estimated Demand by 2021: March ,000 kgs (6 mos. post July 1) 35 40,000 kgs Oct. 75,000 kgs Greenhouse conversion Commercially producing greenhouse

20 Industry Capacity 20 Pure Sunfarms can quickly become the largest scale producer of cannabis Existing LPs will attempt to meet demand through greenfield development requiring hundreds of millions of dollars Existing and Announced Future Capacity of Public LPs with Market Capitalization Greater than $400 million 300, , , ,000 Existing Capacity (kg) Future Capacity (kg) 86,000 76,000 62,000 46,000 28,000 23,000 Pure Sunfarms (JV) Market Cap (C$M) n/a $3,827 $ 3,901 $1,858 $1,635 $647 $682 $901 $401 $500 Capacity Growth 12x 28x 17x 7x 15x 3x 9x 10x 3x At Nov. 28/17. Market cap fully diluted. Source: Research analyst estimates and company filings based on last reported capacity and disclosed growth strategy. Pure Sunfarms will be a large-scale producer of cannabis

21 Compelling Value Proposition 21 Comparative Value: 2020 Planned Production Capacity LPs with >$400M Market Cap 2 ~64,400kg average ~$1,595M average $24.77 average Planned Production Market Cap 1 Market Cap/Gram of Planned Production 37,500kg 50% of Potential Pure Sunfarms production ~$246M $ Fully diluted. At Nov 28, WEED, ACB, APH, CMED, FIRE, MJN, LEAF, OGI, TRST. PLUS produce business and potential addition of 112,500 kg of production

22 Illustrative Financial Impact 22 Targeted Output in 2020: 75,000 kg Price $8.00/gram $6.00/gram $4.00/gram $2.00/gram Pure Sunfarms Revenue $600.0 M $450.0 M $300.0 M $150.0 M Pure Sunfarms EBITDA (Target production cost: $1.00/gram) $525.0 M $375.0 M $225.0 M $75.0 M Village Farms Share of EBITDA (50%) $262.5 M $187.5 M $112.5 M $37.5 M Multiple of Village Farms 2016 EBITDA 21x 15x 9x 3x Significantly more profitable use of existing greenhouse assets

23 Significantly De-Risked Opportunity 23 Cannabis is an agricultural product like any other 30-year operating history as high-quality, low-cost greenhouse grower Use of existing, state-of-the-art greenhouses High barriers to entry to greenhouse growing due to capital costs and requisite expertise Agricultural product expertise Greenhouse growing has significant quality, scale, and cost benefits Growth opportunity through lease options v on additional existing greenhouses Partner with direct cannabis industry/licensing experience and portfolio of high-quality genetics v Speed to market to address non-therapeutic opportunity

24 JV Provides Strengthened Ability to Execute on Produce Growth Strategy 24 Village Farms will continue to be one of the largest, highest-quality, lowest-cost greenhouse growers of produce serving national grocers in the U.S. and Canada Organic initiatives to expand capacity at U.S. operations Well positioned to lead consolidation of a fragmented industry Only greenhouse grower in North America to have completed a major acquisition

25 Investment Proposition 25 Diversification into cannabis is a transformational opportunity Pure Sunfarms creates large-scale cannabis entity with the goal and capability to be the low-cost producer in Canada Use of existing greenhouse facilities for cannabis production provides advantage of speed to market to address near-term supply shortfall Solid produce business as one of the largest, most experienced, high quality, low-cost greenhouse growers Key JV Metrics 50% Ownership of Pure Sunfarms Annual Output: Delta 3 Facility: 75,000 kg All Facilities: 300,000 kg Production Cost: <$1.00/gram EBITDA Margin: >50% Growth opportunities in both existing produce and cannabis JV

26 Investor Presentation December 2017 September 2017