Pro­duce grower will plant cannabis in green­house

The Denver Post - - BUSINESS - By Ali­cia Wal­lace

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, awal­lace@den­ver­ or @ali­ci­awal­lace

Cour­tesy of Vil­lage Farms In­ter­na­tional

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