When people talk about having a green thumb, it’s easy to imagine the fruits of their labor in the garden, perhaps in the form of a greenish heirloom tomato being supported by a sagging vine.
While it hasn’t proven that it can grow marijuana as profitably as it grows tomatoes, shareholders are already pleased thanks to rapid revenue growth and the prospect of accessing the U.S.
While in the most recent quarter Village Farms grew its total revenue by 63% year over year, it also reported a drop of 63% in its adjusted earnings before interest, taxes, depreciation, and amortization .
Historically low tomato prices are more to blame for the recent earnings collapse than a decline in operational efficiency.
Given that this revenue is already significant in comparison to its $34.9 million in produce revenue, it’s entirely possible that the company’s dependence on tomato pricing will be significantly lessened moving forward.
It’s unclear whether the market has appropriately priced in the value of these warrants, given that they are proven to be capable of yielding more than the company’s cannabis segment in a single quarter.
That means investors get a bit more book value for each share with the stock than they might with an equivalent investment elsewhere in the industry.
If you’re willing to make a principled bet on Village Farms’ cannabis business taking off over the next few quarters, there’s no reason to avoid investing in it today.
It’s likely that at least some of the pricing issues in the tomato market are a result of residual weirdness in the supply chain that’s attributable to the coronavirus pandemic.