today announced its financial results for the first quarter ended March 31, 2021.
The Company’s financial statements for the three months ended March 31, 2021, as well as the comparative periods for 2020, have been prepared and presented under United States Generally Accepted Accounting Principals , as the full acquisition of the remaining interest in Pure Sunfarms occurred November 2, 2020.
We are confident that our unparalleled large-scale, low-cost cultivation capabilities, alongside one of the largest high-tech greenhouse footprints in the country, will provide a meaningful advantage to capitalize on this significant opportunity.
Village Farms and Pure Sunfarms adhere to the highest health and safety standards in their operations and each has put in place heightened hygiene practices and safety protocols, including more stringent cleaning and sanitization, and are taking appropriate precautions throughout all operations as per the recommendations of health authorities.
Pure Sunfarms was acquired in its entirety on November 2, 2020; for the three months ended March 31, 2021, the operating results of Pure Sunfarms are consolidated in our Consolidated Statements of Income .
We also present a discussion of the operating results of Pure Sunfarms, before any allocation to Village Farms, which were not consolidated in our financial results for the three months ended March 31, 2020 but were consolidated in our results for the three months ended March 31, 2021.
The increase in sales was primarily due to the inclusion of Pure Sunfarms’ Q1 2021 revenues of $17,460 and an increase in produce supply partner sales of $4,139, partially offset by a decrease in our own produce sales of .
The decrease in our own produce sales was due to a decrease in the average selling price of tomatoes in the three months ended March 31, 2021 versus March 31, 2020, partially offset by a 14% increase in our own production volume.
The increase in cost of sales was primarily due to the addition of Pure Sunfarms’ Q1 2021 cost of sales of $15,248, an increase in produce supply partner costs of $3,282 and higher clean energy costs of $356, partially offset by a decrease in our own production cost of sales.
Gross margin for the three months ended March 31, 2021 increased $4,467 to $5,232, for a 10% gross margin increased primarily due to the inclusion of Pure Sunfarms’ 2021 gross margin of $5,137.
The increase was primarily due to the inclusion of Pure Sunfarms’ expenses of $3,966 and an increase in corporate expenses, primarily related to public company costs such as investor relations, legal and regulatory fees, listing fees for the TSX , the January 2021 equity raise, and incremental costs of U.S.
Share-based compensation expenses for the three months ended March 31, 2021 were $1,998 as compared to $529 for the three months ended March 31, 2020.
The decrease in Adjusted EBITDA was primarily due to lower operating results of both Pure Sunfarms and the produce business.
Pure Sunfarms’ comparative analysis are based on the consolidated results of Pure Sunfarms for the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, not accounting for the percentage owned by Village Farms. As a result of the Pure Sunfarms Acquisition, Pure Sunfarms recognized an increase in the fair value of its inventory on-hand on the acquisition date, resulting in a C$3,679 charge to cost of sales in the first quarter of 2021 and a C$4,223 charge to cost of sales in the fourth quarter of 2020 from the revaluation of its inventory to fair value.
Pure Sunfarms’ net sales for the three months ended March 31, 2021 were C$22,092 as compared to C$22,527 for the three months ended December 31, 2020.
Pure Sunfarms’ cost of sales for the three months ended March 31, 2021 were C$15,600 for the three months ended December 31, 2020.
Gross margin for the three months ended March 31, 2021 decreased for the three months ended December 31, 2020.
Share-based compensation expenses for the three months ended March 31, 2021 were C$1,392 as compared to C$78 for the three months ended December 31, 2020.
The higher net loss between comparable periods was driven by lower gross margin, largely attributable to a lower average selling price for non-branded sales and increased share-based compensation, partially offset by lower selling, general and administrative expenses.
The increase in Adjusted EBITDA was driven by higher net sales and lower selling, general and administrative expenses in the three months ended March 31, 2021 as compared to the three months ended December 31, 2020.
The decrease in non-branded sales between periods was driven primarily by an oversaturated wholesale market combined with the impact of several provincial boards initiating SKU rationalization and management of their March 31, 2021 fiscal year-end inventory levels, which decreased demand from other LPs in the wholesale market.
Pure Sunfarms’ cost of sales for the three months ended March 31, 2021 were C$15,600 as compared to C$8,607 for the three months ended March 31, 2020.
Gross margin for the three months ended March 31, 2021 decreased in comparison to C$9,397 for a 52% gross margin for the three months ended March 31, 2020.
Share-based compensation expenses for the three months ended March 31, 2021 were C$1,392 as compared to nil for the three months ended March 31, 2020.
Pure Sunfarms recognized income of C$6,044 in the first quarter of 2020 as an outcome of the March 2, 2020 Settlement Agreement between Pure Sunfarms, Emerald Health and the Company.
The decrease in net income between periods was primarily due to lower gross margin, higher selling, general and administrative expenses and share-based compensation in Q1 2021, while Q1 2020 also included the gain on the settlement of net liabilities of C$6,044.
For the three months ended March 31, 2020, the average selling price for non-branded sales was higher than the three months ended March 31, 2020 as the wholesale market faced oversaturation in 2021.
References in this news release to “Adjusted EBITDA” are to earnings , 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 other adjustments set forth in “Reconciliation of Net Income to Adjusted EBITDA” below.
We believe that the ability of investors to assess our overall performance may be improved by the disclosure of proportionate segment Adjusted EBITDA, earnings per share and diluted earnings per share, given that our joint ventures represent a significant percentage of our net income.
Village Farms’ management team will host a conference call today, Monday, May 10-, 2021, at 8:30 a.m.
For those unable to participate in the conference call at the scheduled time, it will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call.
Village Farms is one of the largest and longest-operating greenhouse growers in North America.
Village Farms has one of the largest greenhouse operations in the country and is strategically positioned to utilize its agricultural experience and Pure Sunfarms’ operational and product expertise, to pursue potential high-THC cannabis opportunities when legally permitted to do so.