Village Farms International (VFF) and TILT Holdings (TLLTF) are both significant players in the cannabis sector, but recent financial reports reveal starkly contrasting paths for these companies. According to a recent analysis by Pablo Zuanic of Zuanic & Associates, one company’s future appears bright, while the other faces considerable challenges.
Village Farms International: Strategic Success
Village Farms continues to solidify its position in the cannabis market, particularly within the Canadian domestic scene. The company’s strategic decision to prioritize branded domestic cannabis and international sales has paid off. In Q2 2024, VFF’s domestic branded recreational sales grew by 7% quarter-over-quarter and 34% year-over-year, reaching C$41.8 million. The company’s cannabis EBITDA margin also saw an increase, rising by 90 basis points to 11.8%.
While the cannabis unit performed well, Village Farms’ overall consolidated EBITDA was impacted by volatility in its produce unit, resulting in a total consolidated EBITDA of -$3.6 million for Q2 2024. Despite this, Village Farms remains an attractive investment with a valuation of 0.5x FactSet consolidated sales estimates for CY24. This attractiveness is bolstered by its low-cost production advantage and strong market share.
TILT Holdings: Facing Operational Headwinds
In contrast, TILT Holdings has received a downgrade from Zuanic & Associates, moving from an Overweight to a Neutral rating. The downgrade stems from several factors, including a lack of progress in EBITDA across its two divisions—vape hardware and plant-touching cannabis. Additionally, the company is facing higher-than-expected debt levels and uncertainty surrounding the future of its Jupiter vape hardware unit.
In Q2 2024, TILT’s Jupiter unit experienced a 42% QoQ drop in sales, leading to a sharp decline in gross profits and a shift to negative EBITDA. The company’s net debt also increased to $59 million, raising concerns about its financial stability. Despite these challenges, TILT’s valuation remains relatively low at 0.8x CY24 sales, but the current lack of near-term catalysts and the uncertainty surrounding its business model justify the caution in Zuanic’s assessment.
