Village Farms And TILT Holdings: A Tale Of Two Cannabis Companies Facing Diverging Fortunes

Village Farms International VFF and TILT Holdings TLLTF are both significant players in the cannabis sector, yet their recent financial reports reveal starkly contrasting trajectories. According to recent analyses by Pablo Zuanic of Zuanic & Associates, the future looks promising for one, while the other faces considerable challenges.

Village Farms International: Riding High on Strategic Moves

Village Farms International 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 yielded positive results. In Q2 2024, VFF's domestic branded recreational sales grew by 7% quarter-over-quarter and 34% year-over-year to C$41.8 million. The company's cannabis EBITDA margin also saw an increase, rising by 90 basis points to 11.8%.

However, while the cannabis unit performed well, Village Farms’ overall consolidated EBITDA was impacted by volatility in its produce unit, leading to 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, bolstered by its low-cost production advantage and strong market share.

TILT Holdings: Struggling Amidst Operational Challenges

In contrast, TILT Holdings received a downgrade from Zuanic & Associates, moving from an Overweight to a Neutral rating. The downgrade is attributed to several factors, including a lack of progress in EBITDA across its two divisions—vape hardware and plant-touching cannabis—along with higher-than-expected debt levels and uncertainty surrounding the future of its Jupiter vape hardware unit.

In Q2 2024, TILT’s Jupiter unit saw sales drop by 42% QoQ, 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.

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