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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that impact our business. In particular, we encourage you to review the risks and uncertainties described in “Risk Factors” in Part I, Item 1A in this Annual Report on Form 10-K. These risks and uncertainties could cause actual results to differ materially from those projected or implied by our forward-looking statements contained in this report. These forward-looking statements are made as of the date of this management’s discussion and analysis, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law.

All amounts are expressed in thousands of United States dollars unless otherwise stated.

EXECUTIVE OVERVIEW

Village Farms International, Inc. (“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 Limited Partnership ("VFCLP"), Village Farms L.P. ("VFLP"), Pure Sunfarms Corp. (“Pure Sunfarms” or "PSF"), Balanced Health Botanicals, LLC (“Balanced Health”), Rose LifeScience Inc. ("Rose LifeScience” or “Rose”), VF Clean Energy, Inc. (“VFCE”), and Leli Holland B. V. ("Leli" or "Leli Holland").

The Company’s vision is to be recognized as an international leader in consumer products developed from plants, whereby we produce and market value-added products that are consistently preferred by consumers. To do so, we leverage decades of cultivation expertise, investment, and experience in fresh produce into branded and wholesale cannabis products within markets with legally permissible opportunities.

In Canada, we converted two produce facilities to grow cannabis for the Canadian legal adult use (recreational) market. Our focus for our Canadian Cannabis segment is to produce high quality cannabis, leveraging our low-cost production to provide preferred products at an attractive price that address the preferred consumer segments in the market. This market positioning, combined with our cultivation expertise, has enabled us to evolve into the third best-selling producer nationally and one of the few Canadian licensed producers with consistently strong operating results.

Additionally, through organic growth, exports and/or acquisitions, we have a strategy to participate in other international markets where cannabis attains legal status. In September 2021, our Canadian Cannabis business began exporting cannabis products to Australia for that country’s medical market. 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. In late 2022, Pure Sunfarms commenced exports to Israel and in 2023, Pure Sunfarms began exporting cannabis products to Germany and the United Kingdom for the medical markets in those countries. As a result of the typically higher margins in international medical markets, we expect international expansion to enhance our profitability while expanding our brand and experience into emerging legal cannabis markets.

During Q4 2024, we completed our acquisition of Leli Holland and we now report this business as a separate operating segment. Through our ownership of Leli Holland, we hold one of ten licenses to cultivate and distribute cannabis legally in the Netherlands under that country’s Controlled Cannabis Supply Chain Experiment, with sales beginning in the first quarter of 2025.

In the U.S., Balanced Health is our industry-leading cannabinoid business, extending our portfolio into cannabidiol (“CBD”) and hemp-derived 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 distribution companies and mass retail stores. We own and operate produce cultivation assets in Texas and Delta, B.C. and source produce from growing partners in Mexico and Canada.

Our intention is to use our assets, expertise and experience (across the cannabis, hemp, CBD and produce ecosystems) to participate in U.S. cannabis markets subject to compliance with applicable U.S. federal and state laws and applicable stock exchange rules.

Our Operating Segments

Canadian Cannabis Segment

Our Canadian Cannabis segment includes wholly owned Pure Sunfarms and 80% owned Rose LifeScience.

Pure Sunfarms is one of the single largest cannabis growing operations in the world, one of the lowest-cost greenhouse producers and the leading flower brand in Canada. Pure Sunfarms leverages our 30 years of experience as a vertically integrated greenhouse grower for cannabis growth opportunities in Canada with commercial distribution in all Canadian provinces and territories. Our long-term objective for Pure Sunfarms is to be the leading low-cost, high-quality cannabis producer in Canada.

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.

Our long-term objective for our Canadian Cannabis segment is to garner and sustain a leading retail market share in Canada, as well as a leading exporter of medicinal cannabis, stemming from our position as a leading low-cost, high-quality cannabis producer in Canada and expand our Canadian success into growing international cannabis markets across the globe.

U.S. Cannabis Segment

Our 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 and hemp-derived health and wellness products, distributing its diverse portfolio of consumer products through retail storefronts and its top-ranked e-commerce platform, CBDistilleryTM.

Produce Segment

Our Produce segment is composed of VF Fresh, which currently consists of Village Farms LP and Village Farms Canada LP.

Through VF Fresh, we grow, market and distribute premium-quality, greenhouse-grown produce in North America. These premium products are grown in sophisticated, highly intensive agricultural greenhouse facilities located in British Columbia and Texas. 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.

Energy Segment

Our Energy segment is comprised of wholly owned VF Clean Energy Inc.

VFCE, which has partnered with Terreva Renewables (formerly Mas Energy) for the Delta RNG Project based on VFCE’s 20-year contract (including a five-year option to extend) with the City of Vancouver to capture landfill gas at the Delta, B.C. landfill site (the "Delta RNG Project"). The Delta RNG Project, which commenced operations in 2024, converts VFCE’s previous landfill gas-to-electricity business into a state-of-the-art landfill gas to high-demand renewable natural gas ("RNG") facility. Terreva Renewables sells the renewable natural gas and VFCE will receive a portion of the revenue in the form of a royalty.

Leli Segment

Our Leli operating segment is comprised of wholly owned Leli Holland, which we acquired during Q4 2024.

Through Leli, we hold one of ten licenses to cultivate and distribute cannabis legally in the Netherlands under that country’s Closed Supply Chain Experiment program, with sales commencing in February 2025.

Legal, Regulatory and Other Macroeconomic and Political Trends

The future of our business continues to depend on the potential for U.S. federal legalization and/or rescheduling of cannabis, FDA regulation of CBD-derived products and the legal and regulatory landscape in Canada and other jurisdictions where we do business. See “Risk Factors—Legal and Regulatory Risk Factors—We cannot predict when, if ever, cannabis will be federally legal in the United States and any rescheduling of U.S. Schedule I cannabis to Schedule III would have an uncertain impact on our business”. Our business may also be materially affected by potential U.S./Canadian and U.S./Mexico tariffs and/or other trade restrictions, and our supply of labor may be negatively affected by immigration policy in the United States. See “Risk Factors—Industry Risk Factors—We face risks associated with cross-border trade and the potential for tariffs and other trade restrictions” and “Risk

Factors—Labor and Employment Risk Factors—“Our operations are dependent on labor availability which includes accessing government sponsored foreign labor programs in both the United States and Canada”.

In addition, our business has been affected, and we expect will continue to be affected for the foreseeable future, by rising inflation, and indirectly, world conflicts (e.g., Russia/Ukraine) which may negatively affect our operating results. Inflation has affected and continues to affect, amongst other items, supply chain and labor costs as well as purchasing decisions of consumers which may impact demand for our products.

Recent Developments and Updates

Canadian Cannabis

•

Remained a top three producer in Canada and was second fastest growing producer organically year-over1;

•

Further expanded its number one national market share position in dried flower1;

•

Held number two national market share position in the pre-roll category for 20242;

•

Held number two market share in the provinces of Ontario and Quebec for 20242;

•

Launched The Canna Czar presented by Soar in Q4, a 2.1g specialty twax blunt with unique construction, premium ingredients, and handcrafted process align with Soar’s tastemaker method, which emphasizes innovation and quality;

•

Launched Super Toast All-In-One Vape in Q4, combining grab n’ go functionality with classic fountain-inspired flavours and a built-in USB-C rechargeable battery and auto-draw functionality.

•

International medicinal sales in 2024 increased to $10.9 million, with continued growth in shipment volumes to Australia, Germany and the United Kingdom;

•

International sales volumes increased 124% year-over-year during the fourth quarter;

•

Continued to hold the #1 and #4 cultivars in the German market through a supply agreement; and

•

Subsequent to year end 2024, expanded international medical cannabis distribution to New Zealand through a supply agreement with Medleaf Therapeutics, an established New Zealand-based medical cannabis company with a comprehensive distribution network.

For the fourth quarter of 2024. Based on estimated retail sales from HiFyre, other third parties and provincial boards.

Based on estimated retail sales from HiFyre, other third parties and provincial boards

U.S. Cannabis

•

Subsequent to year end 2024, Balanced Health Botanicals’ CBDistilleryTM announced that its full range of hemp-derived gummies are now wholly manufactured in-house at its GMP-certified facility in Denver, Colorado. Internalization of manufacturing will enable greater innovation, operational flexibility, and inventory control in the future;

•

The Company’s application for a Texas medicinal marijuana license remains pending review by the Department of Public Services. If awarded, the Company plans to work with its listing authority to structure an acceptable ownership structure; and

•

The proliferation of unregulated, synthetic and intoxicating hemp-derived products in the U.S. market continues to challenge market share for the CBD industry and is causing certain states to impose significant restrictions on hemp-derived products. If legally permissible and economically beneficial for the Company in the future, the Company may seek to engage in the cultivation, manufacturing, and distribution of hemp and hemp-derived products.

VF Fresh (Produce)

•

Continued improvement in our Texas greenhouse operations resulting in a year-over-year decrease in cost per pound due to ongoing labor efficiencies and increased yields;

•

Implementing new cultivation technologies, including artificial intelligence, to drive further operational improvements;

•

The Company has an ongoing sale process for its Monahans (Permian Basin, Texas) greenhouse facility. It is also evaluating other uses for the site and facility, some of which are outside its historical produce business.

•

The Company is also exploring other options to sell Produce assets.

Leli Holland

•

We acquired the remaining 15% of Leli during Q4 2024 by exercising our purchase option. Leli Holland B.V. is now a wholly owned subsidiary of Village Farms International, Inc.

•

Completed its first harvest from its indoor cannabis production facility in Drachten, Netherlands in December 2024 and began deliveries of cannabis to Dutch coffee shops in February 2025, consistent with the Company’s previously-disclosed timeline to commencement of sales;

Village Farms Clean Energy

•

In April 2024, the Delta, British Columbia Renewable Natural Gas Project began operations, which immediately began contributing incremental profit to the Company; and

•

During the fourth quarter and full year 2024 periods, Village Farms Clean Energy produced net income of $0.4 million and $0.8 million, respectively, through royalty payments received from its clean energy partner.

Corporate

•

The ongoing Administrative Law Judge (ALJ) hearings regarding the proposed rescheduling of marijuana from a Schedule I to a Schedule III drug under the Controlled Substances Act are currently stayed pending an interlocutory appeal granted by the ALJ to resolve the Company’s alleged improper ex parte communications by DEA. The Company is continuing to work to ensure a fair and transparent process and remains a strong proponent of rescheduling cannabis to Schedule III;

•

On August 7, 2024, following the conclusion of an evaluation managed by the Audit Committee of the Board of Directors (the “Board”) of the Company, the Board approved the appointment of KPMG LLP (“KPMG”) as the Company’s independent registered public accounting firm effective August 8, 2024. In connection with the appointment of KPMG, on August 7, 2024, the Audit Committee approved the dismissal of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm effective with the issuance of the Company’s Form 10-Q for the quarterly period ended June 30, 2024 filed on August 8, 2024.

•

In October 2024, the Company received notification from Nasdaq that it is not in compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market (Nasdaq Listing Rule 5550(a)(2)) (the "Minimum Bid Requirement”) as the bid price for the Company closed below US$1.00 from September 6, 2024 to October 17, 2024 (the “Notification”). The Notification has no immediate effect on the listing of the Common Shares on the Nasdaq Capital Market. Under Nasdaq Listing Rule 5810(c)(3)(A), the Company has until April 16, 2025 to regain compliance with the Minimum Bid Requirement, at which point it may be eligible for a 180-day extension to regain compliance.

Presentation of Financial Results

Our consolidated results of operations for each of the three years ended December 31, 2024, 2023 and 2022 presented below reflect the operations of our consolidated wholly-owned subsidiaries, our 70% ownership in Rose LifeScience through March 31, 2024, our 80% ownership in Rose LifeScience beginning on April 1, 2024, our 85% ownership in Leli through September 22, 2024, and our 100% ownership in Leli beginning on September 23, 2024. The income (loss) from our equity method investment in Village Farms Hemp ("VF Hemp") is reflected in our net income (loss) for the year ended December 31, 2022 presented below.

Foreign Currency Exchange Rates

All currency amounts in this Annual Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of December 31, 2024, December 31, 2023, and December 31, 2022 for each of the fiscal years ending on such dates. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The condensed consolidated statements of operations and comprehensive income (loss) and condensed consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period.

The exchange rates used to translate from Canadian dollars to U.S. dollars is shown below:

As of December 31,

Results of Operations

Consolidated Financial Performance

(In thousands of U.S. dollars, except per share amounts)

For the Year Ended December 31,

Write-off of joint venture loan — — (592 )

Other impairments (439 ) — —

Loss from equity method investments — — (2,668 )

Basic loss per share $ (0.32 ) $ (0.32 ) $ (1.13 )

Diluted loss per share $ (0.32 ) $ (0.32 ) $ (1.13 )

(1)

For the years ended December 31, 2024, 2023 and 2022 Rose LifeScience’s financial results are fully consolidated in the financial results of the Company with the non-controlling interest presented in net loss attributable to non-controlling interests, net of tax. For the years ended December 31, 2024 and 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 non-controlling interest presented in net loss attributable to non-controlling interests, net of tax.

(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. 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 through March 31, 2024, 80% interest in Rose LifeScience beginning on April 1, 2024, 85% interest in Leli through September 22, 2024, and our 100% interest in Leli beginning on September 23, 2024., and 65% interest in VFH.

We caution that our results of operations for the years ended December 31, 2024, 2023 and 2022 may not be indicative of our future performance.

Discussion of Financial Results

A discussion of our consolidated results for the years ended December 31, 2024, 2023 and 2022 is included below. The consolidated results include all five of our operating segments, Produce, Cannabis-Canada, Cannabis-U.S., Energy, and Leli, along with all public company expenses. For a discussion of our segmented results, please see “Segmented Results of Operations” below

CONSOLIDATED RESULTS

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Sales

Sales for the year ended December 31, 2024 increased $50,578, or approximately 18%, to $336,181 compared to $285,603 for the year ended December 31, 2023. The increase in sales was primarily attributable to an increase in Canadian Cannabis sales of $34,826 and an increase in VF Fresh sales of $17,941, partially offset by a decrease in U.S. Cannabis sales of $2,940. For additional information, refer to "Segmented Results of Operations" below.

Cost of Sales

Cost of sales for the year ended December 31, 2024 increased $52,604, or 22%, to $288,781 from $236,177 for the year ended December 31, 2023. The increase in cost of sales due primarily to an increase in Canadian Cannabis cost of sales of $40,082 and VF Fresh cost of sales of $13,061, partially offset by a decrease in U.S. Cannabis cost of sales of $647. For additional information, refer to "Segmented Results of Operations" below.

Gross Margin

Gross margin for the year ended December 31, 2024 decreased $2,026, or 4%, to $47,400 from $49,426 for the year ended December 31, 2023. The decrease in gross margin was primarily attributable to a decrease in gross margin at Canadian Cannabis of $5,256 resulting from the non-cash inventory impairment in the fourth quarter of $10,436 (C$15,000), and a decrease in US Cannabis of $2,293, partially offset by an increase in gross margin at VF Fresh of $4,880. For additional information, refer to "Segmented Results of Operations" below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2024 increased $5,547 to $71,048, or 21% of sales, from $65,501, or 23% of sales, for the year ended December 31, 2023. The increase in sales, general and administrative expenses was due to an increase in operating expenses of $4,911, driven by higher commercial and marketing expenses at Canadian Cannabis, and an increase in share-based compensation of approximately $636. For additional information, refer to "Segmented Results of Operations" below.

For the Year Ended December 31,

Selling, general and administrative expenses $ 67,301 $ 62,390

Total selling, general and administrative expenses $ 71,048 $ 65,501

Interest Expense

Interest expense for the year ended December 31, 2024 decreased $1,144 to $3,365 from $4,509 for the year ended December 31, 2023. The decrease was due to a decrease in the overall borrowing base and a decrease in the Company's interest rates on its various debt instruments.

Interest Income

Interest income for the years ended December 31, 2024 and 2023 was $914 and $1,018, respectively.

Other Income (Expense)

Other income for the year ended December 31, 2024 was $4,015 as compared to $5,616 for the year ended December 31, 2023. Other income is primarily attributable to favorable vendor settlements relating to the partial recovery of operational losses from the Tomato Brown Rugose Fruit Virus (“ToBRFV”) infestation.

Goodwill and Intangible Asset Impairments

Goodwill and Intangible Assets Impairments for the year ended December 31, 2024 was $11,939 compared to $14,020 for the year ended December 31, 2023. The impairment was primarily related to the U.S. Cannabis reporting unit as a result of recent historical performance during the quarter which underperformed relative to budget, a revised June 30, 2024 forecast which resulted in a shortfall compared to the March 31, 2024 forecast, the new restrictions on CBD sales in an additional eight states at July 1, 2024, and the proliferation of unregulated hemp-derived products on the market which continues to challenge market share for the CBD industry.

Loss Before Taxes and Loss from Equity Method Investments

Loss before taxes and loss from equity method investments for the year ended December 31, 2024 was $37,305 compared to $27,368 for the year ended December 31, 2023, an increase of $9,937, or 36%. The increase was primarily due to a decrease in gross margin of $2,026, an increase in selling general and administrative expenses of $5,547, and an unfavorable effect of foreign exchange loss in 2024 of $2,843 compared to a gain in 2023 of $602.

(Provision for) Recovery of Income Taxes

The provision for income taxes for the years ended December 31, 2024 and 2023 was $1,662 and ($7,451), respectively. For the twelve months ended December 31, 2024, our effective tax rate, including both current and deferred income taxes was 4.5% which includes a change in valuation allowance against our deferred tax assets of $6,031.

Net Loss Attributable to Non-controlling Interests, Net of Tax

For the year ended December 31, 2024, the add back for net income attributable to non-controlling interests, net of tax was $207 compared to a net loss of $21 for the year ended December 31, 2023.

Net Loss Attributable to Village Farms International, Inc. Shareholders

Net loss attributable to Village Farms International, Inc. shareholders for the year ended December 31, 2024 was $35,850 as compared to $34,798 for the year ended December 31, 2023, an increase of $1,052, or 3%.

Adjusted EBITDA

Adjusted EBITDA for the year ended December 31, 2024 decreased by $5,797 to $1,788 from $7,585 for the year ended December 31, 2023. The decrease was primarily due to a decrease in adjusted EBITDA of Canadian Cannabis of $7,482 resulting from the non-cash inventory impairment in the fourth quarter of $10,436 (C$15,000), and a decrease in U.S. Cannabis of $1,533, partially offset by an improvement in VF Fresh of $1,651. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Sales

Sales for the year ended December 31, 2023 decreased $7,969, or 3%, to $285,603 compared to $293,572 for the year ended December 31, 2022. The decrease in sales was primarily attributable to a decrease in VF Fresh sales of $9,009 and a decrease in U.S. Cannabis sales of $2,972, partially offset by an increase in Canadian Cannabis sales of $4,148. For additional information, refer to "Segmented Results of Operations" below.

Cost of Sales

Cost of sales for the year ended December 31, 2023 decreased $29,898, or 11%, to $236,177 from $266,075 for the year ended December 31, 2022, due primarily to a decrease in VF Fresh cost of sales of $26,570, Canadian Cannabis cost of sales of $2,404, and U.S. Cannabis cost of sales of $641. For additional information, refer to "Segmented Results of Operations" below.

Gross Margin

Gross margin for the year ended December 31, 2023 increased $21,929, or 80%, to $49,426 from $27,497 for the year ended December 31, 2022. The increase in gross margin was primarily attributable to an increase in gross margin at VF Fresh of $17,561 and Canadian Cannabis of $6,552, partially offset by a decrease in US Cannabis of $2,331. For additional information, refer to "Segmented Results of Operations" below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2023 decreased $6,764, or 9%, to $65,501 or 23% of sales from $72,265 or 25% of sales for the year ended December 31, 2022. The decrease in sales, general and administrative expenses was due to lower operating expenses of $5,888 attributable to improvements in all divisions and lower share-based compensation of approximately $876. For additional information, refer to "Segmented Results of Operations" below.

For the Year Ended December 31,

Selling, general and administrative expenses $ 62,390 $ 68,278

Total selling, general and administrative expenses $ 65,501 $ 72,265

Interest Expense

Interest expense for the year ended December 31, 2023 increased $1,265 to $4,509 from $3,244 for the year ended December 31, 2022. 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.

Other Income (Expense)

Other income for the year ended December 31, 2023 was $5,616 as compared to other expense of ($115) for the year ended December 31, 2022. The increase in other income (expense) was primarily attributable to a favorable vendor settlement relating to the partial recovery of operational losses from the Tomato Brown Rugose Fruit Virus (“ToBRFV”) infestation of $5,585 in the year ended December 31, 2023.

Loss Before Taxes and Loss from Equity Method Investments

Loss before taxes and loss from equity method investments for the year ended December 31, 2023 was ($27,368) compared to ($94,066) for the year ended December 31, 2022, an improvement of $66,698, or 71%. The improvement was primarily due to improved operating performance, with an increase in gross margin of $21,929, a lower impairment of goodwill and intangible assets of $14,020 in 2023 versus $43,299 for 2022, and a favorable vendor settlement relating to the partial recovery of operational losses from the ToBRFV infestation for the year ended December 31, 2023 of $5,585. In addition, there were lower selling, general and administrative expenses in all segments.

(Provision for) Recovery of Income Taxes

The provision for income taxes for the year ended December 31, 2023 and 2022 was $7,451 and $4,681, respectively. For the twelve months ended December 31, 2023, our effective tax rate, including both current and deferred income taxes was 27.2%, and included a change in valuation allowance against our U.S. deferred tax assets of $4,823, and a $4,288 valuation allowance against our Canadian deferred tax assets on a net basis, recorded as of December 31, 2023.

Net Loss Attributable to Non-controlling Interests, Net of Tax

For the year ended December 31, 2023, the add back for net loss attributable to non-controlling interests, net of tax was $21 compared to a net loss of $269 for the year ended December 31, 2022.

Loss from Equity Method Investments

Our share of losses from our equity method investments for the year ended December 31, 2023 was $0 compared to $2,668 for the year ended December 31, 2022. The decrease from the prior year was primarily due to a non-cash write-down of inventory at VF Hemp in 2022 that was not present in the 2023 period.

Net Loss Attributable to Village Farms International, Inc. Shareholders

Net loss attributable to Village Farms International, Inc. shareholders for the years ended December 31, 2023 was $34,798 as compared to $101,146 for the year ended respectively. an improvement of $66,348, or 66%, due to improved performance from VF Fresh and lower selling, general and administrative expenses in all segments.

Adjusted EBITDA

Adjusted EBITDA for the year ended December 31, 2023 increased $42,218 to $7,585 from ($34,633) for the year ended December 31, 2022, due to an improved adjusted EBITDA of VF Fresh of $24,875, as well as our Canadian cannabis division of $12,717 and our U.S. Cannabis division of $638. In addition, for the year ended December 31, 2022, we previously included adjustments for $11,038 of loss on inventory write-down to net realizable value for Canadian Cannabis and $2,284 of obsolete inventory associated with the JV exit that are now being excluded from 2022 Adjusted EBITDA in response to comments from and discussions with the Staff of the U.S. Securities and Exchange Commission. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

SEGMENTED RESULTS OF OPERATIONS

(In thousands of U.S. dollars, except per share amounts, and unless otherwise noted)

For the Year Ended December 31, 2024

Goodwill and intangible impairments — — (11,939 ) — — — (11,939 )

Other impairments — — (439 ) — — — (439 )

For the Year Ended December 31, 2023

Goodwill and intangible impairments — — (14,020 ) — — — (14,020 )

For the Year Ended December 31, 2022

Write-off of joint venture loan — — — — — (592 ) (592 )

Goodwill and intangible asset impairments — — (43,299 ) — — — (43,299 )

Loss from equity method investments — — — — — (2,668 ) (2,668 )

(1)

For the years ended December 31, 2024, 2023, and 2022, Rose LifeScience’s financial results are fully consolidated in the financial results of the Company with the non-controlling interest presented in net (income) loss attributable to non-controlling interests, net of tax. For the years ended December 31, 2024 and 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.

(2)

CANADIAN CANNABIS SEGMENT RESULTS

The Canadian Cannabis segment consists of Pure Sunfarms and Rose LifeScience. The comparative analysis for Canadian Cannabis is based on the consolidated results of Pure Sunfarms and Rose LifeScience for the years ended December 31, 2024, 2023, and 2022. The Rose LifeScience minority interest is presented in Net Loss Attributable to Non-controlling Interests, Net of Tax.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Sales

Canadian cannabis net sales for the years ended December 31, 2024 increased by $34,826, or 31%, to $148,856 from $114,030, for the year ended December 31, 2024. The increase in sales was due to an 26% increase in branded sales, an 86% increase in non-branded, and a 33% increase in international sales, partially offset by an unfavorable impact of exchange rate fluctuations. The increase in branded sales was due to market share gain across the flower, pre-roll and milled categories, driven by high quality cultivation and new product launches. The increase in non-branded sales resulted from improved industry supply conditions and pricing supported by a shift of many producers toward asset light models, as well as sales of non-brand-spec inventory.

Canadian Cannabis continues to pay a burdensome excise tax on its branded sales (sales to provincial distributors). For the year ended December 31, 2024, the Company incurred excise tax of $71,953 (C$98,442) versus $58,015 (C$78,315) for the year ended December 31, 2023. The increase of $13,938 (C$20,127), or 24%, in excise taxes was due to an increase in kilograms sold in the branded channel. The Canadian excise tax is our single largest cost of participating in the adult-use (branded) market in Canada.

For the year ended December 31, 2024, 75% of Canadian Cannabis net sales was generated from branded flower, pre-roll, and cannabis derivative products, net of excise tax. For the year ended December 31, 2023, 80% of Canadian Cannabis net sales was generated from branded flower, pre-roll sales and cannabis derivative products, net of excise tax. Non-branded accounted for 19% and

international accounted 4% of Canadian Cannabis net sales in 2024, as compared to non-branded of 14% and international of 4% in 2023. The increase in non-branded sales was driven by increased demand for bulk flower products.

The net average selling price of branded flower and pre-roll formats decreased in 2024 compared to 2023. Excluding pre-roll formats, the average net selling price of branded flower decreased by (2%) in 2024 due to a higher ratio of sales for our value brand Fraser Valley Weed Co and our milled and pre roll branded products. The net average selling price of bulk non-branded flower and trim increased by 45% in 2024 largely due to an increase in bulk flower, which are sold at a higher selling price, and higher demand for lower specification biomass which led to increased volumes and prices.

The following table presents sales by Canadian Cannabis revenue stream, together with the impact of excise tax, in U. S. dollars and Canadian dollars, for the years ended December 31, 2024 and 2023:

For The Year Ended

(in thousands of U.S. dollars) December 31, 2024 December 31, 2023

For The Year Ended

(in thousands of Canadian dollars) December 31, 2024 December 31, 2023

Cost of Sales

Cost of sales for the years ended December 31, 2024 increased $40,082, or 51%, to $118,172 from $78,090 for the year ended December 31, 2023. The increase was primarily due to a non-cash inventory impairment relative to its net realizable value of $10,436 (C$15,000) for the year ended December 31, 2024, resulting from older manufactured inventory products which required incremental rework costs that were higher than the resell value of the finished goods, so it was concluded to write off this inventory rather than to continue incurring incremental costs to sell it, and an increase in volume (kilograms) packaged and sold of branded products, as well as an increase in non-branded kilograms sold.

Gross Margin

Gross margin for the year ended December 31, 2024 decreased $5,256, or 15%, to $30,684 from $35,940 for the year ended December 31, 2023. Gross margin as a percentage of net sales for the periods ended December 31, 2024 and 2023 was 21% and 32%, respectively, the lower 2024 gross margin was primarily due to the non-cash inventory impairment in the fourth quarter of $10,436 (C$15,000). Excluding the inventory write down, gross margin as a percentage of net sales for the period ended December 31, 2024 was 28% compared to 32% for the year ended December 31, 2023

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2024 increased $4,753, or 16%, to $34,028, or 23% of net sales, from $29,275, or 26% of net sales, for the year ended December 31, 2023. The increase in selling, general and administrative expenses was primarily due to higher commercial and marketing expenses, which has helped drive increases in branded sales.

Other (Expense) Income, net

Other expense, net was $1,007 for the year ended December 31, 2024 compared to other to $2,136 for the year ended December 31, 2023, the decrease of $1,129 was due primarily to lower interest expense.

Net Income (Loss)

Net loss for the year ended December 31, 2024 was $3,181 and compared to net income of $2,936 for the year ended December 31, 2023. The change is primarily due to the inventory write down of $10,436 (C$15,000). Excluding the inventory write down, net income for the year ended December 31, 2024 was $7,255. The improvement was due primarily to increased sales, partially

offset by a lower margin, higher selling, general and administrative costs, and decrease in tax provision of $2,968 when compared to the prior year.

Adjusted EBITDA

Adjusted EBITDA was $7,282 for the year ended December 31, 2024 and $14,764 for the year ended December 31, 2023. The decrease of $7,482, or 51%, between periods was due to an inventory impairment charge of $10,436 (C$15,000) during the year ended December 31, 2024. Excluding the inventory write down, adjusted EBITDA was $17,718, an increase of 20% compared to the year ended December 31, 2023. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Sales

Canadian cannabis net sales for the years ended December 31, 2023 and 2022 was $114,030 and $109,882, respectively, a year over year increase of 4%, or $4,148. The increase in sales was due to an 11% increase in branded sales, partially offset by a (10%) decrease in non-branded sales and an unfavorable impact of exchange rate fluctuations. The 11% increase in branded sales was due to an increase in sales in Quebec and Alberta. Canadian cannabis branded sales growth was primarily in large and small formats of flower and pre-rolls. The (10%) decrease in non-branded sales was primarily due to an oversupplied LP market and continuing desperation pricing by some LPs in the early portion of calendar year 2023. International sales increased by $731 for the year ended December 31, 2023, or 19%, to $4,600 versus $3,869 for the year ended December 31, 2022. The increase was primarily driven by incremental sales to Australia and Germany.

Canadian Cannabis continues to pay a burdensome excise tax on its branded sales (provincial sales). For the year ended December 31, 2023, the Company incurred excise tax of $58,015 (C$78,315) versus $50,126 (C$65,555) for the year ended December 31, 2022. The increase of $7,889 (C$12,760) was due to higher kilograms sold in the provincial

For the year ended December 31, 2023, 80% of Canadian Cannabis net sales was generated from branded flower, pre-roll sales, and cannabis derivative products, net of excise tax. For the year ended December 31, 2022, 77% of Canadian Cannabis net sales was generated from branded flower, pre-roll sales and cannabis derivative products, net of excise tax. Non-branded, international, and other sales accounted for 20% of Canadian Cannabis net sales in 2023, as compared to 23% in 2022. The decrease in non-branded sales was driven by the oversupplied LP market, particularly for lower specification biomass, which drove down prices.

The net average selling price of branded flower and pre-roll formats decreased in 2023 as compared to 2022. Excluding pre-roll formats, the average net selling price of branded flower decreased by (16%) in 2023 due to a higher ratio of large format products to small format products and an increase in sales for our value brand Fraser Valley Weed Co. The decrease in the net average selling price is also attributable to the strong demand of Fraser Valley Weed Co., which targets the value segment of the market. The net average selling price of bulk non-branded flower and trim increased by 7% in 2023 largely due to a decreased volume of trim sales and an increase in bulk flower which are sold at a higher selling price relative to trim, particularly in the second half of 2023.

The following table presents sales by Canadian Cannabis revenue stream, together with the impact of excise tax, in U. S. dollars and Canadian dollars, for the years ended December 31, 2023 and 2022:

For The Year Ended

(in thousands of U.S. dollars) December 31, 2023 December 31, 2022

For The Year Ended

(in thousands of Canadian dollars) December 31, 2023 December 31, 2022

Cost of Sales

Cost of sales for the years ended December 31, 2023 and 2022 was $78,090 and $80,494, respectively, representing a decrease of 3%, or $2,404. The primary reason for the decrease from the prior year was due to a non-cash inventory write down of $11,038 (C$15,000) during the year ended December 31, 2022, which represented lower potency flower that was harvested in 2021 or earlier. The decrease was mostly offset by an increase in branded kilograms sold which had an incremental cost of production to manufacture and package over bulk product sold in the wholesale channel.

Gross Margin

Gross margin for the year ended December 31, 2023 increased $6,552, or 22%, to $35,940 from $29,388 for the year ended December 31, 2022. Gross margin as a percentage of net sales for the periods ended December 31, 2023 and 2022 was 32% and 27%, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2023 were $29,275, or 26%, of net sales compared to $31,608, or 29% of net sales for the year ended December 31, 2022. The decrease in selling, general and administrative expenses was primarily due to reduced labor costs from the ongoing optimization of operations.

Other (Expense) Income, net

Other expense, net was $2,136 for the year ended December 31, 2023 compared to $2,023 for the year ended December 31, 2022.

Net Income

Net income for the years ended December 31, 2023 and 2022 was $2,936 and $117 respectively. The increase is primarily due to the improvement in gross margin and reduced selling, general and administrative expenses, partially offset by the current year provision for income tax of $1,431.

Adjusted EBITDA

Adjusted EBITDA was $14,764 for the year ended December 31, 2023 and $2,047 for the year ended December 31, 2022. The increase of $12,717, or 621%, between periods was primarily due to an inventory impairment charge of $11,038 during the year ended December 31, 2022 and lower selling, general and administrative expenditures in 2023 versus 2022. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

U. S. CANNABIS SEGMENT RESULTS

The U.S. Cannabis segment currently consists of Balanced Health. VF Hemp was a joint venture which ceased operations in 2022, and its results are included in “Loss from Equity Method Investments” for the year ended December 31, 2022.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Sales

U.S. Cannabis net sales for the year ended December 31, 2024 decreased $2,940, or 14%, to $17,390, from $20,330 for the year ended December 31, 2023. The decrease was primarily due to new restrictions on CBD sales in eight states beginning July 1, 2024 and lower direct-to-consumer sales resulting from the proliferation of unregulated hemp-derived products on the market. All U.S. Cannabis sales were generated in the United States, with gross sales composed of 92% e-commerce sales, 7% retail sales and 1% miscellaneous.

Cost of Sales

U.S. Cannabis cost of sales for the year ended December 31, 2024 decreased $647, or 9%, to $6,355 from $7,002 for the year ended December 31, 2023. The decrease was primarily due to lower sales.

Gross Margin

U.S. Cannabis gross margin for the year ended December 31, 2024 was $11,035, or 63%, compared to $13,328, or 66% for the year ended December 31, 2023.

Selling, General and Administrative Expenses

U.S. Cannabis selling, general and administrative expenses for the year ended December 31, 2024 were $11,990, or 69% of sales, compared to $13,118, or 65% of sales, for the year ended December 31, 2023. The improvement in selling, general and administrative expenses when compared to the same prior year period is due to more efficient marketing and brand spending and contract renegotiation.

Goodwill and Intangible Asset Impairments

Goodwill and Intangible Assets Impairments for the year ended December 31, 2024 was $11,939 compared to $14,020 for the year ended December 31, 2023. The impairment was primarily related to the U.S. Cannabis reporting unit as a result of recent historical performance during the quarter which underperformed relative to budget, a revised June 30, 2024 forecast which resulted in a shortfall compared to the March 31, 2024 forecast the new restrictions on CBD sales in an additional eight states at July 1, 2024, and the proliferation of unregulated hemp-derived products on the market which continues to challenge market share for the CBD industry.

Net Loss

U.S. Cannabis net loss for the year ended December 31, 2024 was $13,333 compared to the loss of $13,828 for the prior year ended December 31, 2023. The decrease in U.S. Cannabis net loss was primarily due to a lower impairment cost in 2024 of $12,378 compared to an impairment cost of $14,020 for the calendar year 2023.

Adjusted EBITDA

U.S. Cannabis adjusted EBITDA for the year ended December 31, 2024 was ($672) compared to $861 for the year ended December 31, 2023. The decline in the adjusted EBITDA was due primarily to lower sales at a lower gross margin. See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Measures—Reconciliation of Net Earnings to Adjusted EBITDA”.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Sales

U.S. Cannabis net sales for the year ended December 31, 2023 were $20,330, a decrease of $2,972 or 13%, from the prior year net sales of $23,302. The decrease was primarily due to lower direct-to-consumer sales due to the proliferation of hemp derived cannabinoid sales. All U.S. Cannabis sales were generated in the United States, with sales composed of 82% e-commerce sales, 9% retail sales 7% freight income and 2% miscellaneous income.

Cost of Sales

U.S. Cannabis cost of sales for the year ended December 31, 2023 were $7,002 as compared to $7,643 for the year ended December 31, 2022. The decrease in cost of sales of 8% was primarily due to lower volumes sold in 2023 versus 2022, as margins on most products remained consistent between years, and was partially offset by a shift in product mix as consumers moved to gummy sales rather than the higher margin tincture products.

Gross Margin

U.S. Cannabis gross margin for the year ended December 31, 2023 was $13,328, or 66%, compared to $15,659, or 67% for the year ended December 31, 2022.

Selling, General and Administrative Expenses

U.S. Cannabis selling, general and administrative expenses for the year ended December 31, 2023 were $13,118, or 65% of sales, compared to $16,305, or 70% of sales, for the year ended December 31, 2022. The improvement in selling, general and administrative expenses when compared to the same prior year period is due to reductions in headcount, contract renegotiation and more efficient marketing and brand spending.

Net (Loss) Income

U.S. Cannabis net loss for the year ended December 31, 2023 was $13,828 as compared to the loss of $44,192 for the prior year ended December 31, 2022. The decrease in U.S. Cannabis net loss was primarily due to a lower impairment cost in 2023 of $14,020 compared to an impairment cost of $43,299 for the calendar year 2022.

Adjusted EBITDA

U.S. Cannabis adjusted EBITDA for the year ended December 31, 2023 was $861 as compared to $223 for the year ended December 31, 2022. The increase in the adjusted EBITDA was due primarily to lower selling and administrative expenses. 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, 2024 Compared to the Year Ended December 31, 2023

Sales

Produce sales for the year ended December 31, 2024 increased by $17,941, or 12% , to $169,184, compared to $151,243 for the year ended December 31, 2023. The increase was primarily due to an increase of 13% in pounds sold and an increase in supply partner average selling price, partially offset by a decrease in the average selling price from Company-owned greenhouses.

The average selling price for the specific varieties of produce sold during the year ended December 31, 2024, as compared to the year ended December 31, 2023 was as follows: tomato prices decreased 2.9%, pepper prices increased 23%, cucumber prices decreased 5% and mini cucumber prices decreased 8%.

Cost of Sales

Produce cost of sales for the year ended December 31, 2024 increased $13,061, or 9%, to $164,125 from $151,064 for the year ended December 31, 2023. The increase is primarily due to increases in supply partner costs of $12,986 due to a higher average cost per pound.

Gross Margin

Produce gross margin for the year ended December 31, 2024 increased $4,880 to $5,059 from a gross margin of $179 for the year ended December 31, 2023. Total gross margin percentage was 3% for the year ended December 31, 2024, compared to 0% for the year ended December 31, 2023. The improvements in both gross profit and gross margin percentage were due to an increase from Company-owned greenhouse sales, an increase in supply partner sales, a decrease from Company-owned greenhouse cost per pound, and a decrease in freight costs.

Selling, General and Administrative Expenses

Produce selling, general and administrative expenses for the year ended December 31, 2024 increased $1,624, or 15%, to $12,249 from $10,625 for the year ended December 31, 2023. The increase was primarily due to higher consulting, accounting, and legal fees partially offset by a recovery of prior period legal costs, associated with vendor settlements, for the year ended December 31, 2023.

Net Loss

Produce net loss for the year ended December 31, 2024 improved to $5,882 from $11,235 for the year ended December 31, 2023. The improvement in net loss was primarily due to a higher gross margin in 2024 and decrease in tax provision of $4,184 when compared to the prior year.

Adjusted EBITDA

Produce adjusted EBITDA for the year ended December 31, 2024 improved to $2,157 from $506 for the year ended December 31, 2023. The improvement in Adjusted EBITDA was due to the improvement in gross margin for the year ended December 31, 2024. 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, 2023 Compared to the Year Ended December 31, 2022

Sales

Sales for the year ended December 31, 2023 decreased by $9,009 to $151,243, compared to $160,252 for the year ended December 31, 2022. The decrease in sales of 6% was primarily due to a decrease in supply partner revenues of $14,141, partially offset by an increase in sales at the VF Fresh owned greenhouses of $5,132. The supply partner revenue decrease is due to lower volumes of 11%, with a 5% decrease in tomato pounds sold, a 26% decrease in pepper pounds sold, an 11% decrease in cucumber pounds sold, and a 13% decrease in mini cucumber pounds sold. The decrease in supply partner pounds is mostly due to the loss of two larger growers in late 2022. Sales at VF Fresh-owned greenhouses increased 7% due to a 14% increase in the selling price partially offset by a decrease of 3% in pounds produced. The decrease of 3% in production pounds was due to a planned reduction of 71% in the planted area at the Permian Basin facility as well as a decrease of 17% at the Marfa 2 facility.

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%.

Cost of Sales

Cost of sales decreased $26,570, or 15%, to $151,064 for the year ended December 31, 2023, from $177,634 for the year ended December 31, 2022. The decrease is primarily due to decreases in supply partner costs of $9,043, reduced costs from the VF owned greenhouses of $10,872, and lower freight expense of $6,653. The decrease in cost of sales from the greenhouses is primarily

due to lower pounds produced, cost reductions, and reduced losses from the ToBRFV infestation at the Texas greenhouses. The decrease in supply partner cost is related to the 11% decrease in pounds received from our supply partners. The decrease in freight cost is due to increased available drivers, decreases in fuel prices, and fewer pounds shipped. These decreases in cost of sales were partially offset by an increase in depreciation expense included in cost of sales of $5,136 for 2023 versus $4,823 for 2022.

Gross Margin

Gross margin increased $17,561 to $179 for the year ended December 31, 2023, from a gross margin of ($17,382) for the year ended December 31, 2022. Total gross margin percentage was close to zero for the year ended December 31, 2023, compared to (11%) for the year ended December 31, 2022. The gross profit for VF owned produce sales was (10%) for the year ended December 31, 2023, compared to (30%) for the same period in 2022. The improvement in gross margin is due to higher pricing in 2023 versus the same period in 2022 as well as a decrease in cost per pound from our Texas facilities, in 2023 versus 2022, due to higher yields, due to better controls over the ongoing ToBRFV infestation, and lower freight costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2023 decreased $1,379, or 11%, to $10,625 from $12,004 for the year period ended December 31, 2022 due to better cost management and the recovery of prior period legal costs associated with the vendor settlements.

Net Loss

Net loss for the year ended December 31, 2023 was $11,235 compared to $40,487 for the year ended December 31, 2022. The improvement in net loss was primarily due to a favorable vendor settlement relating to the partial recovery of operational losses from the ToBRFV infestation of $5,585, a higher gross margin in 2023 and lower selling, general and administrative expenses.

Adjusted EBITDA

Adjusted EBITDA for the year ended December 31, 2023 improved to $506 from ($24,369) for the year ended December 31, 2022. The improvement in Adjusted EBITDA was due to the favorable vendor settlement of $5,585 as described above, a 3.7% increase in the average selling price of tomatoes, a decrease in cost per pound at VF Fresh-owned greenhouses and a decrease in freight costs for the year ended December 31, 2023. See the reconciliation of Adjusted EBITDA to net (loss) income in “Non-GAAP Measures—Reconciliation of Net Loss to Adjusted EBITDA.”

LIQUIDITY AND CAPITAL RESOURCES

Capital Resources

As of December 31, 2024, we had $24,631 in cash and cash equivalents and $53,800 of working capital, compared to $35,291 in cash, cash equivalents and restricted cash and $79,612 of working capital as of December 31, 2023. We believe that cash generated from our operating activities, together with availability under the Operating Loan and Pure Sunfarms Loans (each as defined below), will provide sufficient liquidity to meet our working capital needs, repayments of long-term debt, future contractual obligations and planned capital expenditures for the next 12 months. 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.

Pure Sunfarms Revolving Line of Credit C$ 15,000 $ —

The Company is required to comply with financial covenants, measured either quarterly or annually depending on the covenant. The Company was not in compliance with financial covenants related to the fixed charge coverage ratio under the FCC Loan and the Pure Sunfarm's Term Loans, for which it received waivers. The covenants will be reinstated at the end of the first quarter for the Pure Sunfarm's Term Loans and at the end of the fiscal year 2025 for the FCC loan. Management expects to regain compliance during the next testing period. FCC measures the Company's financial covenants once a year on the last day of the year and the Pure Sunfarm's Term Loan covenants are measured once a quarter on the last day of the quarter. We can provide no assurance that we will be in compliance, or receive a waiver, for any non-compliance as of the next annual date. 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, 2024 and 2023 was $271 and $398, respectively, and these amounts are included in accrued liabilities in the Consolidated Statements of Financial Position.

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 $20,821 and $24,755 on December 31, 2024 and 2023, 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, 2024 and 2023, borrowings under the FCC Term Loan agreement were subject to an interest rate of 8.12% and 8.96% per annum, respectively.

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 carrying value of the assets and securities pledged as collateral as of December 31, 2024 and 2023 was $77,682 and $114,293, respectively.

Operating Loan

The Company has a revolving line of credit agreement with a Canadian chartered bank (the "Operating Loan"). The Operating Loan is subject to margin requirements stipulated by the lender. The Operating Loan had an outstanding balance of $4,000 as of December 31, 2024 and 2023 and future availability of $2,931 on December 31, 2024.

On May 24, 2024, the Company entered into an amendment to the Operating Loan, which extended the maturity date of the Operating Loan to May 24, 2027.

As collateral for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory. In addition, the Company has granted full recourse guarantees and security therein. The carrying value of the assets pledged as collateral as of December 31, 2024 and 2023 was $27,136 and $28,034, respectively.

Pure Sunfarms Loans and Revolving Line of Credit

Pure Sunfarms has a credit facility with the Business Development Bank of Canada (the "BDC Credit Facility"), a non-revolving credit facility (the “PSF Non-Revolving Facility”) and a term loan (the “PSF Term Loan”) with two Canadian chartered banks (collectively, with the BDC Credit Facility, the PSF Non-Revolving Facility, and the PSF Term Loan the “Pure Sunfarms Loans”). In addition, Pure Sunfarms has a revolving line of credit (the “PSF Revolving Line of Credit”) with a Canadian chartered bank.

The PSF Revolving Line of Credit can be drawn for advances of up to C$15,000 and had an outstanding balance of $0 as of December 31, 2024 and 2023. Pure Sunfarms had an outstanding letter of credit issued to BC Hydro at December 31, 2024 and 2023. Advances under the PSF Revolving Line of Credit may be used for working capital purposes, general corporate purposes and capital expenditures, of which capital expenditures may not exceed C$7,500 in aggregate use of the outstanding advances, with a maturity date of February 7, 2026. Interest under the PSF Revolving Line of Credit is payable at the Canadian prime rate plus an applicable margin per annum (7.45% at December 31, 2024), payable monthly.

The PSF Non-Revolving Facility is secured by the Delta 2 and Delta 3 greenhouse facilities and contains customary financial and restrictive covenants. As of December 31, 2024, Pure Sunfarms was in compliance with these financial covenants. The outstanding amount on the PSF Non-Revolving Facility was $6,262 on December 31, 2024 and $8,298 on December 31, 2023, with a maturity date of February 7, 2026. Interest under the PSF Non-Revolving Facility is payable quarterly at an interest rate of 7.45% and 8.95% per annum, respectively.

The outstanding amount on the PSF Term Loan was $10,436 on December 31, 2024 and $13,201 on December 31, 2023, with a maturity date of February 7, 2026. Interest under the PSF Term Loan is payable quarterly at an interest rate of 7.45% and 8.95% per annum, respectively.

The outstanding amount on the BDC Credit Facility was $3,043 on December 31, 2024 and $3,771 on December 31, 2023. The BDC Credit Facility is a non-revolving demand loan with interest payable monthly at an interest rate of 9.20% and 10.25% per annum, respectively, and the amount outstanding matures on December 31, 2031.

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"). 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.

On August 9, 2022, Village Farms entered into a Controlled Equity Offering Sales Agreement ("Sales Agreement") pursuant to which the Company may offer and sell Common Shares having an aggregate offering price up to $50 million from time to time to or through Cantor Fitzgerald & Co. and A.G.P./Alliance Global Partners.

During the year ended December 31, 2022, the Company issued and sold 3,175,000 Common Shares under the Sales Agreement, resulting in net proceeds of approximately $6,692 after deducting commissions and offering expenses. During the years

ended December 31, 2024 and 2023, the Company did not issue or sell any Common Shares under the Sales Agreement and as of December 31, 2024, no additional sales of Common Shares may be made under the Sales Agreement.

Summary of Cash Flows

For the Year Ended December 31,

Net cash flow provided by (used in):

Effect of exchange rate changes on cash (1,241 ) 394 (699 )

Operating Activities

For the years ended December 31, 2024 and 2023 and 2022 cash flows provided by (used in) operating activities were $10,348, $5,315, and ($19,899), respectively. The operating activities for 2024 consisted of $579 in changes of non-cash working capital items and $9,769 in changes before working capital items, the operating activities for 2023 consisted of ($2,081) in changes of non-cash working capital items and $7,396 in changes before working capital items, the operating activities for 2022 consisted of ($2,460) in changes in non-cash working capital items and ($17,429) in changes before non-cash working capital items. The improvement in 2024 as compared to 2023 was primarily due to higher sales for Canadian Cannabis and VF Fresh and lower net loss from VF Fresh in 2024 compared to 2023. The improvement in 2023 as compared to 2022 was primarily due to lower net loss from VF Fresh in 2023 compared to 2022, proceeds from a vendor settlement in 2023, and lower goodwill and intangibles impairments in 2023 as compared to 2022.

Investing Activities

For the years ended December 31, 2024, 2023, and 2022 cash flows used in investing activities were $10,241, $6,231, and $20,889, respectively. The investing activities for the year ended December 31, 2024 consisted primarily of $6,061 in capital expenditures for Leli and $4,022 in capital expenditures to support the VF Fresh, Canadian Cannabis, and U.S. Cannabis operations. The investing activities for the year ended December 31, 2023 primarily consisted of $6,518 invested in capital expenditures to support the VF Fresh, Canadian Cannabis, and U.S. Cannabis operations, partially offset by the collection of a promissory note. The investing activities for the year ended December 31, 2022 primarily consisted of $14,292 in capital expenditures for Pure Sunfarms’ partial conversion of its Delta 2 facility and the addition of hang drying rooms at its Delta 3 facility, and $4,693 invested the acquisition of our 85% ownership in Leli.

Financing Activities

For the years ended December 31, 2024, 2023, and 2022 cash flows provided by (used in) financing activities were ($9,562), $14,137, and $4,496, respectively. The financing activities for the year ended December 31, 2024 consisted primarily of debt repayments of ($5,709) and cash used for the acquisition of an additional 10% ownership interest in Rose LifeScience and additional 15% ownership interest in Leli. The financing activities for the year ended December 31, 2023 cash flows provided by financing activities consisted of $23,335 in proceeds from the 2023 Equity Offering net of issuance costs, $83 in proceeds from the exercise of stock options offset by debt repayment of ($9,281). 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.

Contractual Obligations and Commitments

We expect to meet our contractual obligations and commitments through the use of our working capital and our other available liquidity sources as described above. We currently do not have any material cash requirements in the near future, other than in respect of long-term debt repayment obligations as described above.

In addition, we currently have material long-term debt and lines of credit that we rely on to meet the financing needs of the Company. The long-term debt and lines of credit have interest rate terms that may be affected by rising interest rates which can impact the cost of capital for the Company. For the sensitivity of our borrowing costs to fluctuations in interest rates, see “Item 7A – Qualitative and Quantitative Disclosures About Market Risk – Interest Rate Risk” below for additional information.

Non-GAAP Measures

References in this Management’s Discussion and Analysis to “Adjusted EBITDA” are to earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as further adjusted to exclude foreign currency exchange gains and losses, share-based

compensation, gains and losses on asset sales and the other adjustments set forth in the table below. In addition, we present below “Adjusted EBITDA – Constant Currency” which excludes the effect of foreign currency rate fluctuations. See “—Constant Currency” below. Adjusted EBITDA and Adjusted EBITDA - Constant Currency are measures of operating performance that are not recognized under GAAP and do not have a standardized meaning prescribed by GAAP. Therefore, these non-GAAP measures may not be comparable to similar measures presented by other issuers. Investors are cautioned that our non-GAAP measures should not be construed as an alternative to net income or loss determined in accordance with GAAP as an indicator of our performance. Our non-GAAP measures are used as additional measures to evaluate the operating and financial performance of our segments. Management believes that our non-GAAP measures are important measures in evaluating the historical performance of the Company because it excludes items that do not reflect our business performance.

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,

Add:

Foreign currency exchange loss (gain) 2,635 (740 ) 2,269

Other intangibles 439 — —

Loss (gain) on disposal of assets 17 — (7 )

Other expense, net — (67 ) 161

Adjustments attributable to non-controlling interest (776 ) (946 ) 29

Interest expense for JV's — — 38

JV exit-related costs (3) — — 592

Purchase price adjustment (4) — — (4,268 )

Adjusted EBITDA for JV's $ — $ — $ (327 )

Notes:

(1)

For the years ended December 31, 2024, 2023 and 2022, 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. For the year ended December 31, 2024 and 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.

(2)

For the year ended December 31, 2024, impairments included impairments to goodwill of $10,039 and intangible assets of $1,900. For the year ended December 31, 2023, impairments included impairments to goodwill of $11,300 and intangible assets of $2,720. For the year ended December 31, 2022, impairments included impairments to goodwill of $38,669 and intangible assets of $4,630. See “Critical Accounting Policies, Estimates and Judgments” below for more information.

(3)

Represents exit-related costs incurred due to the winding down of the VFH joint venture.

(4)

The purchase price adjustment primarily reflects the non-cash accounting charge resulting from the revaluation of Pure Sunfarms’ inventory to fair value at the acquisition date. In 2022, when distillate inventory acquired from Pure Sunfarms was sold, the Company realized a gain of $4,268 that offset the initial inventory write-down taken in connection with the 2020 acquisition of the business. This gain did not accurately reflect the actual economic impact on the Company’s operations because the distillate was sold for more than it was valued in 2020 according to the purchase price accounting rules. Accordingly, the Company included a non-GAAP adjustment of $(4,268) in 2022 to reduce Adjusted EBITDA to better reflect the actual effect of sales of distillate inventory on the Company’s results.

(5)

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. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes items that do not reflect our business performance. Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience through March 31, 2024, 80% interest in Rose

LifeScience beginning on April 1, 2024, 85% interest in Leli through September 22, 2024, and our 100% interest in Leli beginning on September 23, 2024., and 65% interest in VFH.

(6)

Adjusted EBITDA excluding JV’s is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP, and therefore may not be comparable to similar measures presented by other issuers. 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 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 reflects the principal operations of the business.

Reconciliation of Segmented Net (Loss) Income to Adjusted EBITDA

The following table reflects a reconciliation of segmented net loss to Adjusted EBITDA, as presented by the Company:

For the Year Ended December 31, 2024

Add:

Deferred financing fees — 10 — — — — 10

Goodwill and intangible impairments (2) — — 11,939 — — — 11,939

Other impairments — — 439 — — — 439

Loss on disposal of assets 17 — — — — — 17

For the Year Ended December 31, 2023

Add:

Foreign currency exchange (gain) loss (2 ) (64 ) 19 — — (693 ) (740 )

Deferred financing fees — 136 — — — — 136

Goodwill and intangible impairments (2) — — 14,020 — — — 14,020

Other expense — (89 ) 22 — — — (67 )

For the Year Ended December 31, 2022

Add:

Deferred financing fees — 214 — — — — 214

Goodwill and intangible impairments (2) — — 43,299 — — — 43,299

Gain on disposal of assets (7 ) — — — — — (7 )

Adjustments attributable to non-controlling interest — 29 — — — — 29

Interest expense for JV's — — — — — 38 38

JV exit-related costs (3) — — — — — 592 592

Purchase price adjustment (4) — (4,268 ) — — — — (4,268 )

Adjusted EBITDA for JV's $ - $ - $ - $ - $ - $ (327 ) $ (327 )

Notes:

(1)

For the years ended December 31, 2024, 2023, and 2022, 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. For the years ended December 31, 2024 and 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.

(2)

(3)

Represents exit-related costs incurred due to the winding down of the VFH joint venture.

(4)

(5)

Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA presented for these segments may not be comparable to similar measures presented for comparable segments by other issuers. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes items that do not reflect our business performance. Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience through March 31, 2024, 80% interest in Rose LifeScience beginning on April 1, 2024, 85% interest in Leli through September 22, 2024, and our 100% interest in Leli beginning on September 23, 2024., and 65% interest in VFH.

(6)

Constant Currency

To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented constant currency adjusted financial measures for sales, cost of sales, selling, general and administrative, other income (expense), operating (loss) income, loss from consolidated entities, net loss, and Adjusted EBITDA for the year ended December 31, 2024 and 2023, which are

considered non-GAAP financial measures. We present constant currency information to provide a framework for assessing how our underlying operations performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period income statement results in currencies other than U.S. dollars are converted into U.S. dollars using the average exchange rates from the annual comparative period rather than the actual average exchange rates in effect during the respective current periods. All growth comparisons relate to the corresponding periods. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our segments without taking into account the effect of exchange rate fluctuations. The non-GAAP financial measures presented in this Quarterly Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP.

The tables below set forth certain measures of consolidated results from continuing operations on a constant currency basis for the year ended December 31, 2024 compared with the year ended December 31, 2023 on an as reported and constant currency basis (in thousands):

As Reported As Adjusted for Constant Currency (1)

Notes:

(1)

Assumes a constant exchange rate of C$1.00 = US$0.7689 (the CDN/U.S. average exchange rate for the year ended December 31, 2023) for each of the years ended December 31, 2024 and 2023.

(2)

Adjusted EBITDA - Constant Currency is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA - Constant Currency may not be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA - Constant Currency 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 through March 31, 2024, 80% interest in Rose LifeScience beginning on April 1, 2024, 85% interest in Leli through September 22, 2024, and our 100% interest in Leli beginning on September 23, 2024.

The table below sets forth certain measures of consolidated results from continuing operations on a constant currency basis for the year ended December 31, 2023 compared to the year ended December 31, 2022 on an as reported and constant currency basis (in thousands):

As Reported As Adjusted for Constant Currency (1)

Notes:

(1)

Assumes a constant exchange rate of C$1.00 = US$0.7689 (the CDN/U.S. average exchange rate for the year ended December 31, 2022) for each of the years ended December 31, 2023 and 2022.

(2)

Adjusted EBITDA - Constant Currency is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA - Constant Currency may not be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA - Constant Currency is a useful supplemental measure in evaluating the performance of the Company because it excludes items that do not reflect our business performance. Adjusted EBITDA - Constant Currency includes the Company’s 70% interest in Rose LifeScience since acquisition, 85% interest in Leli since acquisition, and 65% interest in VFH.

Recent Accounting Pronouncements Not Yet Adopted

See Note 1, “Business, Basis of Presentation and Significant Accounting Policies – New Accounting Pronouncements,” of the notes to the consolidated financial statements included in Part II, Item 8 “Financial Statements and Supplementary Data” of our Annual Report for additional information about new accounting pronouncements.

Critical Accounting Policies, Estimates and Judgments

Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, including the potential future effects of macroeconomic trends and events, such as inflation and interest rate levels; supply chain disruptions; uncertainty from potential recessionary effects; climate-related matters; market, industry and regulatory factors; global events, and public health matters. These estimates form the basis for making judgments about our operating results and the carrying values of assets and liabilities, that are not readily apparent from other sources. Given that management estimates, by their nature, involve judgments regarding future uncertainties, actual results could differ materially from these estimates if conditions change or if certain key assumptions used in making these estimates ultimately prove to be inaccurate. Our accounting policies and critical accounting estimates are reviewed periodically by the Audit Committee of the Board of Directors.

We believe that our accounting estimates pertaining to the valuations of goodwill and intangible assets are the most critical in the preparation of our consolidated financial statements as they require significant or complex judgment and estimates on the part of management. Actual results could, however, vary materially from these accounting estimates.

Refer to Note 1 - Business, Basis of Presentation and Significant Accounting Policies in the notes to the audited consolidated financial statements, which is included in this Annual Report on Form 10-K, for a more detailed discussion of our significant accounting policies and critical accounting estimates.

Assessment for Indicators of Impairment

Goodwill

Year Ended December 31, 2024

Cannabis – Canada – Goodwill

The fair value of the reporting unit was determined based on a discounted cash flow projections from budgets approved for 2025, which was extended to 2029 with a compound annual revenue growth rate of 7.5% from 2025 to 2029, followed by terminal growth rate of 3%. Management concluded that the fair value was higher than its carrying amount by approximately $9,740 as of December 31, 2024 and therefore no impairment to goodwill was required.

The significant assumptions applied to the determination of the fair value are described below:

•

Post-tax discount rate: An increase of approximately 0.3% in the discount rate would result in the fair value being equal to the carrying value, and each additional 0.5% increase would result in an impairment of approximately $13,219.

•

Terminal growth rate: A decrease in approximately 0.6% in the terminal growth rate would result in the fair value being equal to the carrying value, and each additional 0.5% decrease would result in an impairment of approximately $6,957.

•

Forecasted Revenues: A decrease in forecasted revenues by approximately 4.1% would result in the fair value being equal to the carrying value, and each additional 5% decrease would result in an impairment of approximately $12,523.

•

Net working capital: Net working capital requirements are approximately 29.8% of revenue. An increase of approximately 3.8% in net working capital investment would result in the fair value being equal to the carrying value, and each additional 5% increase would result in an impairment of approximately $12,523.

Cannabis – Canada – Brand

The fair value of the brand was determined based on a discounted cash flow projection, covering a five-year period. Specifically, the Company utilized a relief from royalty valuation technique to arrive at the fair value of the brand. Management concluded that the fair value was higher than its carrying value of $3,270 by approximately $626 as of December 31, 2024 and therefore, no impairment to brand was allocated to the reporting unit.

The significant assumptions applied to the determination of the fair value are described below:

•

Post-tax discount rate: An increase in the discount rate by approximately 1.5% would result in the fair value being equal to the carrying value, and each additional 1% increase in the discount rate would result in an impairment of approximately $348.

•

Royalty rate: An incremental royalty rate of 3.5% of revenues was applied to brand-specific revenues. A decrease to the incremental royalty rate by approximately 0.2% would result in the recoverable amount being equal to the carrying value.

•

Future revenues: A decrease in future revenues by 4%would result in the fair value being equal to the carrying value, and each additional 10% decrease in the future revenues would result in an impairment of approximately $1,252.

Cannabis - U.S.

At June 30, 2024, when the Company considered qualitative factors in assessing impairment indicators, it concluded that the Company's U.S. - Cannabis segment more likely than not was impaired. The Company reviewed the reportable segment's assets, including goodwill and intangible assets. Based on recent historical performance during the quarter which underperformed relative to budget, a revised June 30, 2024 forecast which resulted in a shortfall compared to the March 31, 2024 forecast, the new restrictions on CBD sales in an additional eight states at July 1, 2024, and the proliferation of unregulated hemp-derived products on the market which continues to challenge market share for the CBD industry, the Company concluded that as of June 30, 2024, the fair value of the brand intangible asset and goodwill was fully impaired and an impairment charge to goodwill of $10,039 and a charge to intangibles of $1,900 was recorded to the U.S. Cannabis reporting unit.

Cannabis - U.S. - Goodwill

The fair value of the reporting unit was determined based on a discounted cash flow projection using projections for the remainder of 2024 to 2028 with an average revenue growth rate of 6% between 2025 to 2028, followed by a terminal growth rate of 2%. Management concluded that as of June 30, 2024, the fair value was lower than its carrying amount and as a result, an impairment charge to goodwill of $10,039 was recorded to the reporting unit.

The significant assumptions applied to the determination of the fair value are described below:

•

Post-tax discount rate: A market participant post-tax discount rate applied to the after-tax forecast cash flows was 12%. A decrease of 1% to the discount rate, would not result in a material change to the impairment charge.

•

Terminal growth rate: An increase of 1% in the terminal growth rate would not result in a material change to the impairment charge.

•

Future cash flows: An increase in future cash flows by 10% would not result in a material change to the impairment charge.

Cannabis – U.S. Brand

The fair value of the brand was determined based on a discounted cash flow projection. Specifically, the Company utilized a relief from royalty valuation technique to arrive at the fair value of the brand. Management concluded that as of June 30, 2024, the fair value was lower than its carrying value of $1,900 as the notional brand maintenance costs exceeded the incremental royalty of 3.5%. Therefore, an impairment charge to the brand intangible of $1,900 was allocated to the reporting unit.

Year Ended December 31, 2023

As of December 31, 2023, when the Company considered qualitative factors in assessing impairment indicators it concluded that the Company's U.S. - Cannabis segment more likely than not was impaired. The Company tested that segment’s assets, including goodwill and intangible assets for impairment.

Cannabis - U.S. - Goodwill

The fair value of the reporting unit was determined based on a discounted cash flow projection from budgets approved by senior management for 2024 to 2029 with an average revenue growth rate of 8% over 6 years, followed by terminal growth rate of 4.1%. Management concluded that as of December 31, 2023, the fair value was lower than its carrying amount and as a result, an impairment charge to goodwill of $11,300 was allocated to the reporting unit.

The significant assumptions applied to the determination of the fair value are described below:

•

Post-tax discount rate: A market participant post-tax discount rate applied to the after-tax forecast cash flows was 11%. An increase of 1% to the discount rate, would increase the impairment by approximately $1,700.

•

Terminal growth rate: A decrease of 0.5% in the terminal growth rate would increase the impairment by approximately $700.

•

Future cash flows: A decrease in future cash flows by 10% would increase the impairment by approximately $1,300.

Cannabis – U.S. – Brand

The fair value of the brand was determined based on a discounted cash flow projection. Specifically, the Company utilized a relief from royalty valuation technique to arrive at the fair value of the brand. An average revenue growth rate of 8% was used over 6 years, followed by terminal growth rate of 4.1%. Management concluded that as of December 31, 2023, the fair value was lower than its carrying amount and as a result, an impairment charge to the brand intangible of $2,720 was allocated to the reporting unit.

The significant assumptions applied to the determination of the fair value are described below:

•

Royalty rate: An incremental royalty rate of 3.5% of revenues was applied to brand-specific revenues. A decrease to the incremental royalty rate by 0.5% would increase the impairment to brand by $1,600.

•

Future revenues: A decrease in future revenues by 10% would increase the impairment by approximately $200.

Cannabis – Canada – Goodwill

The fair value of the reporting unit was determined based on a discounted cash flow projection from budgets approved for 2024, which was extended to 2027 with a compound annual revenue growth rate of 16% from 2024 to 2027, followed by terminal growth rate of 4%. Management concluded that the fair value was higher than its carrying amount by approximately $2,565 as of December 31, 2023 and therefore no impairment to goodwill was required.

The significant assumptions applied to the determination of the fair value are described below:

•

Post-tax discount rate: An increase of approximately 0.07% in the discount rate would result in the fair value being equal to the carrying value, and each additional 0.5% increase would result in an impairment of approximately $18,858.

•

Terminal growth rate: A decrease in approximately 0.1% in the terminal growth rate would result in the fair value being equal to the carrying value, and each additional 0.5% decrease would result in an impairment of approximately $17,350.

•

Future cash flows: A decrease in the future cash flows before net working capital by approximately 1.0% would result in the fair value being equal to the carrying value, and each additional 5% decrease would result in an impairment of approximately $16,595.

•

Net working capital: Net working capital ranges between 40% and 45% of revenue. An increase of 6% in net working capital investment would result in the fair value being equal to the carrying value, and each additional 5% increase would result in an impairment of approximately $3,017.

Cannabis – Canada – Brand

The fair value of the brand was determined based on a discounted cash flow projection, covering a four-year period. Specifically, the Company utilized a relief from royalty valuation technique to arrive at the fair value of the brand. Management concluded that the fair value was higher than its carrying value of $3,545 by approximately $453 as of December 31, 2023 and therefore, no impairment to brand was allocated to the reporting unit.

The significant assumptions applied to the determination of the fair value are described below:

•

Post-tax discount rate: An increase in the discount rate by 1% would result in the fair value being equal to the carrying value, and each additional 1% increase in the discount rate would result in an impairment of approximately $302.

•

Royalty rate: An incremental royalty rate of 3.5% of revenues was applied to brand-specific revenues. A decrease to the incremental royalty rate by 0.12% would result in the recoverable amount being equal to the carrying value.

•

Future revenues: A decrease in future revenues by 12% would result in the fair value being equal to the carrying value, and each additional 10% decrease in the future revenues would result in an impairment of approximately $317.

Inventories

Inventories are valued at the lower of cost or net realizable value. The cost of inventory includes capitalized production costs, including labor, materials, post-harvest costs and depreciation. Inventoriable costs are expensed to cost of goods sold on the Consolidated Statement of Operations in the same period as finished products are sold. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period when the write-down or loss occurs. Inventory write-downs for the year ended December 31, 2024 were $11,038 which consisted of older manufactured products which required incremental rework costs that were higher than the resell value of the finished goods, so it was concluded to write off this inventory rather than to continue incurring incremental costs to sell it. There were no inventory impairments recognized for the year ended December 31, 2023.

Revenue Recognition

The Company’s produce and cannabis revenue transactions consist of a single performance obligation 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. 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 amount of revenue recognized is measured at the fair value of the consideration received or receivable, reduced for excise duty, returns, and other customer credits, such as trade discounts and volume rebates. Payment terms are consistent with terms standard to the markets the Company serves.

Direct-to-consumer product sales for loyalty members contain two distinct performance obligations for which the Company allocates the transaction price based on the relative stand-alone value of each performance obligation, such that both revenue related to the delivery of the underlying purchased goods and deferred revenue for loyalty points issued to the customer are recognized based on the allocated consideration of value, after giving consideration to loyalty point breakage. The loyalty liability represents a performance obligation to provide goods for free or at a discount to loyalty members in exchange for the redemptions of points earned from past activities.

Judgment is required in determining whether the Company is the principal or agent in certain transactions. We evaluate the presentation of revenue on a gross or net basis based on whether we control the service provided to the end-user and are the principal (i.e. “gross”), or we arrange for other parties to provide the service to the end-user and are an agent (i.e. “net”).

For each identified performance obligation in the contract with the customer, we assess whether our agency or the third-party supplier is the principal or agent. We control the specified services before transferring those services to the customer and act as the principal if we are primarily responsible for fulfilling the promise to provide the specified good or service, have inventory risk, or discretion in establishing pricing. For performance obligations in which we act as principal, we record the gross amount billed to the customer within total revenue and the related incremental direct costs incurred as billable expenses.

If the third-party supplier, rather than the Company, is primarily responsible for the performance and deliverable to our customer, then we generally act as the agent and solely arrange for the third-party supplier to provide services to the customer. For performance obligations for which we act as the agent, we record our revenue as the net amount of our gross billings less pass-through expenses charged to a customer.

Revenue received from shipping and handling fees is reflected in net sales. 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.

ITEM 7A.QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

As of December 31, 2024, our variable interest rate debt was primarily related to our Credit Facilities and Term Loans. 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. As of December 31, 2024, we had approximately $4,000 aggregate principal amount of outstanding revolving loans under our Operating Loan with an interest rate of 8.0% and we had approximately $40,562 in aggregate principal amounts with Term Loans with a weighted average interest rate of 8.4%. The current interest rates for outstanding revolving loans under our Credit Facility and Term Loans reflect basis point decrease of approximately 0.7% over the comparable period in 2023.

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. An 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 $222 and $254 for the years ended December 31, 2024 and 2023, 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, 2024 and 2023, the Canadian/U.S. foreign exchange rate was C$1.00 = US$0.7301 and C$1.00 = US$0.7543, 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, 2024 and 2023 with the net foreign exchange gain or loss directly impacting net income (loss).

Financial assets

Cash and cash equivalents $ 2,260 $ 1,686

Financial liabilities

Trade payables and accrued liabilities (4,025 ) (5,623 )

Net foreign exchange gain $ 3,036 $ 4,568

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.

ITEM 8.FINANCIAL STATEMENTS 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 ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

I ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were not effective at a reasonable assurance level due to the material weaknesses described in management’s report on internal control over financial reporting.

Management's Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our Principal Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

The Company's Management, with participation of the Principal Executive Officer and Principal Finance Officer, under the oversight of our Board of Directors, conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2024 using the framework established in Internal Control — Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that the Company's internal control over financial reporting was not effective as of December 31, 2024 due to the following material weaknesses that were caused by an ineffective risk assessment process.

Information Technology - We identified a failure to effectively design and implement internal controls related to our information technology general controls (“ITGCs”) in the areas of user access and program change-management over the information technology (“IT”) system that is utilized to support the Produce segment’s financial reporting processes. Specifically, under our existing ITGCs, we

determined that there were insufficient controls to limit user access to this system and to enable oversight of changes being made to the financial inputs under this system. As a result, business process controls (automated and manual) that are dependent on and use information produced from the affected ITGCs were also deemed ineffective because they could have been adversely impacted by inappropriate user access or financial input changes.

Journal Entries – We identified a failure to effectively design and implement internal controls over the review, approval, and documentation of manual journal entries by individuals separate from the preparer at our Produce segment which resulted in the unmitigated risk of management override of manual journal entries.

We did not identify any misstatements to the Consolidated Financial Statements because of these control deficiencies and there were no changes to previously released financial results. However, the control deficiencies described above created a reasonable possibility that a material misstatement to the Consolidated Financial Statements would not be prevented or detected on a timely basis. Therefore, we concluded that the deficiencies represent a material weakness in the Company’s internal control over financial reporting as of December 31, 2024.

Our independent registered public accounting firm, KPMG LLP, who audited the Consolidated Financial Statements included in this Annual Report on Form 10-K issued an adverse opinion on the effectiveness of the Company’s internal control over financial reporting, which is included at the end of Part II, Item 9A of this Form 10-K.

Remediation Plans

The Company’s management, under the oversight of the Audit Committee, is in the process of designing controls to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively. These remediation actions are ongoing and include or are expected to include:

Information Technology

•

Enhancing risk assessment and control identification procedures for our Produce segment’s system environment;

•

Enhancing existing controls to address the design and operation of IT general controls within our Produce segment’s IT environment in order to, among other things, limit privileged user access; and

•

Implementing controls around timely identification and review of system access and changes. Enhancing and maintaining policy documentation underlying IT general controls to promote knowledge transfer upon personnel and function changes.

Journal Entries

•

Enhancing existing controls and/or applying other appropriate procedures to ensure that manual journal entries recorded in our financial records are properly reviewed and approved preventing the potential for management override of controls.

As we continue to evaluate and enhance our internal control over financial reporting, we may determine that additional measures to address the material weaknesses or adjustments to the remediation plan may be required. Once controls are designed and implemented, the controls must be operating effectively for a sufficient period of time and be tested by management in order to consider them remediated and conclude that the design is effective to address the risks of material misstatement.

Subsequent to the identification of the material weaknesses, a privileged access management tool was implemented within the Produce segment to assist with managing and monitoring privileged access. In addition, management implemented procedures to monitor changes to the system. Also, management has enhanced their journal entry control activities to review for appropriate approval. Management believes that upon testing of the operating effectiveness of the implemented controls, they will be effective and, the material weaknesses will be remediated. However, no assurance can be given regarding the effectiveness of such controls or the timing of such remediation.

Remediation of Material Weakness Identified as of December 31, 2023

As disclosed in Part II Item 9A Controls and Procedures in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, we identified a material weakness in internal control over financial reporting as the Company did not effectively design and maintain controls over financial reporting due to errors in the calculation of the fair value of its goodwill and intangible assets, which was subsequently modified, resulting in no change in management’s determination of the fair value of its goodwill and intangible assets.

During the year ended December 31, 2024, the Company designed and implemented corrective actions to remediate the controls over the review of the determination of the recoverable amount of its goodwill and intangible assets.

During the quarter ended December 31, 2024, we completed our testing of the operating effectiveness of the implemented controls and found them to be effective. As a result, we have concluded the material weakness relating to the calculation of the fair value of the Company's goodwill and intangible assets has been remediated as of December 31, 2024.

Changes in Internal Control Over Financial Reporting

Except for the changes in connection with our implementation of the remediation plan and the remediation of our previously identified material weakness as discussed above, there have been no other changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations of Internal Controls

Our management, including the Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

ITEM 9B. OTHER INFORMATION

During the quarter ended December 31, 2024, no director or officer (as defined in Rule 16a-1(f) promulgated under the Exchange Act) of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" (as each term is defined in Item 408 of Regulation S-K).

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

None.

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required to be furnished by this Item 10 is incorporated herein by reference to the definitive proxy statement for our annual meeting of shareholders (the “2025 Proxy Statement”) to be filed within 120 days of December 31, 2024 (subject to any applicable extension period to the extent such 120th date is not a business day).

VFF US Equity

VFF · 10-K · period ended 2024-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A.QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

VFF US Equity☆

VFF · 10-K · period ended 2024-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A.QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

VFF US Equity