Produce grower will plant cannabis in greenhouse
In a vast greenhouse about 30 miles outside Vancouver, British Columbia, hundreds of thousands of plants yield an abundance of colorful tomatoes.
Come this time next year, the massive 1.1 million-square-foot facility will be outfitted for a different kind of harvest: marijuana.
Village Farms International Inc. is jumping into the cannabis business just as Canada closes in on national marijuana legalization.
The company will convert that 1.1 million-square-foot greenhouse — about the size of 19 football fields — to cannabis and earmark another 3.7 million square feet of greenhouse space for potential cannabis cultivation as part of a newly established joint venture with Emerald Health Therapeutics, a licensed Canadian medical cannabis producer.
The partnership represents a “transformational opportunity” for the company that distributes hydroponically grown tomatoes, cucumbers, peppers and eggplants across much of North America, said Michael A. Degiglio, Village Farms’ chief executive officer.
Village Farms can apply nearly three decades of greenhouse expertise and utilize its massive facilities to supply a good swath of a brand-new market, Degiglio said.
Canada legalized medical marijuana in 2001 and the country’s government is working toward legalizing the recreational use of cannabis by July 2018.
The move into cannabis is all about business, he said. As a public company, Village Farms has a fiduciary responsibility to do right by its shareholders.
“It’s not about a moral issue,” Degiglio said. “We just had to take a hard look. Initially, when it was only medicinal, we didn’t really want to get into that.”
By the joint venture’s estimates, the initial greenhouse conversion could yield at least about 165,350 pounds of product annually. The output could be quite lucrative, officials said, noting projections that the cannabis could generate revenue 10 to 15 times that of produce.
The lessons learned in the vegetable industry will help the company make the “innovative move to grow,” Degiglio said.
“It’s farming, and it’s tough — it’s hard, things go wrong,” he said. “We’ve learned in three decades from the school of hard knocks, and we think that has some value.”
Village Farms’ annual sales have slowly increased in recent years, settling in at $155 million, according to the company’s financial filings. Tomato sales have been a little tepid, putting some additional squeeze on the margins.
Indoor cannabis is 9,000 times more productive than outdoor commodity farming and generated crops at about $112 per square foot, or about $4.8 million per acre, according to Agrilyst’s “2016 State of Farming” report. Cannabis could fetch $378.21 per pound as compared to $12.63 per pound of microgreens and herbs.
Investing millions to convert
Village Farms spent months analyzing the market, regulatory processes and players; communicating with Health Canada; and weighing whether to go it alone or alongside a partner. The goal, Degiglio said, was to become the lowest-cost greenhouse producer of cannabis in Canada without sacrificing the quality of the endproduct.
The company landed on a partnership with Emerald Health Therapeutics, a company with very little large-scale growing experience, but the stated goal of becoming the “world’s biggest marijuana producer.”
“It became very obvious to us that, rather than reinventing the wheel, that there were already experts,” Emerald Health’s chairman Dr. Avtar Dhillon said.
Emerald ponied up more than $16 million in cash to help fund the conversion of the first greenhouse, the companies announced in June. Each firm received a 50 percent stake in the joint venture.
With Canada-wide adult-use cannabis sales starting as early as July 1, the short-term is key for the joint venture. The companies hope to have at least half of the 25acre, 1.1 million-square-foot facility up and running by the first quarter of next year.
“There is a certain race to be able to supply to that demand,” Dhillon said.
Following this November’s tomato harvest, work will get underway to outfit the Village Farms facility for its new crop. The cost of retrofitting is estimated at $28 million, Dhillon said.
The majority of Village Farms’ 10.5 million square feet of greenhouse capacity will remain dedicated to veggie production.
Alicia Wallace: 303-954-1939, email@example.com or @aliciawallace