Good morning, ladies and gentlemen, and welcome to the Village Farms International's First Quarter 2024 Financial Results Conference Call. This morning, Village Farms issued a news release reporting its financial results for the first quarter ended March 31, 2024. That news release, along with the company's financial statements are available on the company's website at villagefarms.com under the Investors heading. Please note that today's call is being broadcast live over the Internet and will be archived for replay, both by telephone and via the Internet beginning approximately 1 hour following completion of the call. Details of how to access the replays are available in today's news release. Before we begin, let me remind you that forward-looking statements may be made today during or after the formal part of this conference call. Certain material assumptions were applied in providing these statements, many of which are beyond our control. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward-looking statements. A summary of these underlying assumptions, risks and uncertainties is contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10-K, MD&A for the year ended December 31, 2023, and 10-Q for the quarter ended March 31, 2024, which will be available on EDGAR and Cedars. These forward-looking statements are made as of today's date, and except as required by applicable security laws, we undertake no obligation to publicly update or revise any such statements. I would now like to turn the call over to Michael DeGiglio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DeGiglio.

Thanks, Eric. Good morning, and thank you for joining us today, and I'm happy to be here. With me are Steve Ruffini, Chief Financial Officer; and Gilan Lefever, Chief Operating Officer; and Patty Smith, Corporate Controller. For today's call, I'll begin with some perspective from my point of view on what's driving our strong start to 2024. Then I'll share my thoughts on how we are leveraging the unmatched capabilities we have built to lead in the global cannabis industry. My first topic will be Q1 highlights. Our Canadian cannabis business once again achieved several sales records while delivering profitability and cash flow. And our fresh produce business generated net income on solid year-over-year sales growth. Together, these drove a 21% increase in consolidated sales and a sixfold increase in adjusted EBITDA. Q1 was especially strong for our Canadian cannabis business. Retail branded sales grew 28% from Q1 last year, all of it organic, meaning we generated the sales growth entirely in-house without acquisitions. This drove a record net sales of over $50 million in Q1. This strong growth, nearly 4 times that of the Canadian market on a year-over-year basis, is a result of our focus on delighting consumers with quality and innovation across a range of brands positioned for different usage occasions and price points. I can't overemphasize how important or how difficult this is in any industry, but especially in the Canadian market with its highly restrictive marketing. In my view, our operational expertise is translating into higher quality products, which, in turn, is translating into market share success across all our brands. Of course, this growth would also not be possible without strong partnerships with our trusted provincial distributors and retailers. It was roughly a year ago that I challenged the Canadian cannabis team to find new opportunities for growth in our pursuit to be number one in the market and to renew our market share momentum in flower and deliver share gains beyond the core flower category. During Q1, we were the fastest-growing of the top 5 producers, further narrowing the gap to number one. Our share expansion, which has continued into April, our ninth consecutive month of market share growth, was driven by both the flower and pre-roll categories. We moved into the number two position nationally in pre-rolls, the result of a relentless focus on leveraging our high-quality flower into products that consumers trust. We will keep doing this in profitable categories. Importantly, the entire team embraced this challenge; leadership, growers, innovation and branding teams, production and sales teams, as well as our third-party producers. We are proving that we are the leaders, not just in cultivation, post-harvest disciplines, and manufacturing, but across all the competencies critical for our share growth, innovation, brand building, and understanding the consumer, specifically where consumer preferences are going. The second topic, examples of capability beyond cultivation. I want to share three examples that demonstrate this. The first is an innovation mindset across everything we do. This mindset means that we are laser-focused on improvements to our existing brands and products. We do not launch them and leave them; we continually strive to improve them. These three quick examples illustrate this. First, two years ago, we invested to move our PC production to hang dry, the first and probably only to do so at scale. That conversion was just the beginning of an all-hands-on journey to improve our flower quality in other ways as well. In total, I believe all these incremental improvements are contributing to our market share gains. Second, in Quebec, our team has innovated around deep and accurate data insights to anticipate consumer needs, which they met by commercializing existing products differently. This has also contributed to our market share gains. And then finally, earlier this year, the team revisited packaging appeal like the pink bags we recently launched, which honors our iconic best-selling PinkCush products. Consumer and budtender engagement was wonderful. We also are evaluating selective packaging opportunities to further elevate product quality and freshness. The second example is last month's launch of our high-def pre-rolls, a true game changer in the pre-roll category. These are pure ground flower with THC of 36% to 44%, with no concentrates, no infusions, not even kief, just pure flower from Pure Sunfarms. There is nothing else like it on the market. Initial response from retailers and boards are exceeding our expectations. The third success story is our SuperToast brand launched last summer. SuperToast was our entry into the mill flower category, which we launched in Ontario where milled over-indexes compared to the rest of the country. SuperToast has taken share every month since launch. It's now the second best-selling mill-branded product in Ontario, with more than 20% share and is still growing. This product is top tier and competitively priced using the quality BC ground flower that we are known for. Quality is a theme here. It's our DNA, including our premium brands, notably SOR and Tantan. Importantly, while growing our cannabis business, we also delivered healthy results in fresh produce, our heritage business, which continues to build expertise we use in both produce and in cannabis. Q1 built on a steady improvement throughout last year and saw our best financial results in several years. We not only generated year-over-year sales growth but also another quarter of positive EBITDA, as well as profit. We look to build this through the rest of this year as we begin to benefit from our investments in cultivation, aided by AI, as well as implementing automation for labor savings and our unmatched world-class growers and support teams. The third topic is opportunity. The final topic I want to cover today is the global conversion momentum towards legalization of cannabis. First, my thoughts on Village Farms' competitive advantages. Our experience in Canada, which leverages our deep growing expertise and a stable core team every single day and where we are the profitable market share leader with broad capabilities in branding, marketing, and commercialization positions us very well to succeed and lead in emerging cannabis markets. We are leveraging our brand and product success in Canada through exports to four of the largest legal medical cannabis markets outside North America: Australia, Germany, the U.K., and Israel, and will add more markets as they open. Notably, April 1 saw a partial legalization in Germany, which will provide patients there with great access to high-quality legal products. As an expected large market, Germany is an important focus for our international medical cannabis strategy. In fact, our EU GMP certification was obtained through the district government of Dusseldorf. We began shipping our best-selling Canadian strands to Germany about this time last year and have been adding both local distributors and sales since then. We are launching the first recreational cannabis market in Europe, the Netherlands, expecting to start production in Q4 with revenues in 2025. We are the only North American participant in this limited-vised country, which like Canada, has a large legacy consumer base. Like Canada, it is a country where we have a long history, deep relationships, and huge respect for their growing expertise. Indications are that the respect is mutual. And then, relative to Canada, we have a significantly more favorable tax regime and supply chain, and the program is designed to support our capital investment. We also think it can be a springboard into other EU markets as they emerge. Our experience also bodes well for the cannabis opportunities here at home in the United States. But first, over to Steve for a more detailed review of the financials.

Thanks, Mike. Some details on the quarter. Total sales grew 21% year-over-year to $78.1 million, with strong growth in both cannabis and produce. Net loss improved to negative $2.9 million or $0.03 per share, a $3.8 million improvement from last year, with adjusted EBITDA improved by $3.1 million to $3.6 million. Looking at the individual business segments: Canadian Cannabis delivered record sales, record retail branded sales, and another quarter of positive adjusted EBITDA and cash flow. As Mike noted, net sales were up 49% year-over-year to $50.5 million. Reminder that all Canadian cannabis figures are in the local currency. Within this total, retail branded sales grew 28% to $39.2 million. In our non-branded channel, we continue to take advantage of the improved wholesale market conditions to monetize non-branded spec biomass inventory, not designated for our branded and growth areas. Non-branded sales were $8.7 million, which was 181% higher than Q1 last year and 10% higher than Q4. International export sales for Q1 were $2 million, roughly in line with Q1 last year, which included a load in the order to Australia ahead of a change to market regulations. Q1 2024 export sales were nearly double that of Q4 2023, led by repeat orders to the U.K. and Germany. While we expect export sales to remain lumpy quarter by quarter, we are on track to deliver solid year-over-year growth in 2024. Canadian cannabis gross margin improved from Q4 to 25%, but was still impacted by the lower-margin non-branded spec biomass sales. Excluding these sales, gross margins were 31%, at the low end of our annual 30% to 40% target range. A reminder that it costs more to grow in the winter months. SG&A expenses as a percentage of sales for Q1 improved to 21%, down from 27%. We continue to expect the SG&A to sales ratio for 2024 to be a couple of points lower than last year. Q1 adjusted EBITDA for Canadian cannabis of $5.5 million was a 4% increase from Q1 last year. Finally, for Canadian cannabis, we generated nearly $5 million in total cash, right in line with adjusted EBITDA, and it was another quarter of strong free cash flow of $6.3 million, up 20% from last year. Turning to our U.S. cannabis business, Q1 sales were $4.5 million with a gross margin of 59%. Adjusted EBITDA loss was $600,000 or a net loss of $700,000. The business is being challenged by two factors: the prevalence of synthetic hemp-based products, primarily Delta, which consumers are not differentiating from naturally occurring hemp-based THC. Second, not surprisingly, these products are also being challenged in states where legal cannabis is being sold. Unless or until we get FDA clarity, these challenges will remain. We believe the future of the CBD market is a viable alternative to the higher THC products and continue to hone our capabilities, including internalizing our gummy production, a category which continues to have strong growth. We are also acting on a number of strategies designed to optimize revenue in the current environment, including building on our strong subscription-based sales and adjusting our price structure as we continue to manage costs. We've already seen some encouraging improvements in the velocity of purchases by our subscribers. Moving to fresh produce. Q1 sales increased to $36.1 million, with positive gross profit for the third straight quarter of $3.3 million. Adjusted EBITDA was also positive at $2 million. That makes three out of the last four quarters in positive territory, with a trailing 12-month total of more than $3.5 million, and Q1 was our best quarter since Q4 2021. I'm pleased to report we achieved profitability for fresh produce in Q1 with net income improving more than $2.7 million to a positive $100,000. Turning to our consolidated cash flows and the balance sheet. Cash flow from operations for the quarter improved by $3.6 million to breakeven. We ended Q1 with total cash of $31.7 million and working capital of $78.2 million. Total term debt at the end of Q1 was $46 million, composed of $22 million for fresh produce due in May 2027 and $24 million of cannabis debt, which matures starting in February 2026. I remain comfortable with our net debt level of $18 million, which includes our $4 million produced operating line. Finally, note that in early April, our Clean Energy subsidiary saw the startup of operations at the renewable natural gas facility adjacent to our grow operations in Delta, B.C. facility, which was financed and built by our partner, Tariva Renewables, converts landfill gas under our contract with the city of Vancouver to natural gas. We receive a royalty from the facility's revenues, and you will see resulting profitability beginning in our Q2 results. Now I'll turn the call back to Mike.

Well, thank you, Steve. So like most in the industry, we were disappointed that we did not see a change to the excise duty in April's Canadian budget. We are, however, encouraged that it has the attention of a number of federal agencies, including a review by the finance department. We will continue to work and partner with government and peers on this important initiative that will support the industry long term, which is not only contributing to local economies and safety for consumers but supporting our product category that has increasingly shown to have a range of health benefits. In the interim, we remain uniquely positioned in Canada and the Canadian market to deliver market share and sales growth with profitability and positive cash flow. The momentum towards cannabis legalization in the United States appears again to be getting its rightful priority with those who can affect needed change in Washington. We applaud the many leaders who are pressing the conversation into action. It is critical for those who are still unjustly criminalized and for the safety of those currently working in the industry. Full federal legalization has been proven in Canada to reduce access to illicit products, particularly for underage users, ensure a safe, consistent product for all consumers, and contribute to both employment and tax revenues for local communities. The United States needs to remove all criminalization inconsistencies, open access to capital markets with the safety and viability of the industry, and realize the benefits of full federal legalization, and we deserve nothing less than that. And then finally, we are often asked how we translate our leading Canadian expertise into a U.S. strategy once we are committed to do so as a NASDAQ-listed company. Much of the detail depends on how far Washington proceeds towards legalization. But we will either find a way or make a way. Our preferred option is to deploy assets in Texas, which are very similar to and larger than the Canadian assets from which we built our leading profitable cannabis business. As we assess all options, be assured we'll take a measured approach to optimize any investments for our shareholders. Let me be clear, we remain as focused on the U.S. market as we were before entering the Canadian market. I have every confidence we will succeed. We are even more cannabis experienced with five years in Canada; as Frank Sinatra once said, if you can make it there, you can make it anywhere. So with that, operator, I'll turn it over to you for Q&A.

Your first question comes from Aaron Grey with Alliance Global Partners.

Congrats on the quarter, turning really nice there. So first question for me. I just want to talk a bit about wholesale. You've had a couple of nice quarters of wholesale growth at CAD 9 million in the Q. Can you speak a little bit more to how you see the segment evolving over the year, provide more color in terms of maybe the customer base and contract structure for that business today? You mentioned some spot within it, which was lower margin. Is there also some contract mix within that? Just how we can maybe provide some more color in terms of what's involved within that number and how we can think about that evolving.

This is Steve. The sales in Q1 were primarily spot. We have a few small contracts with a couple of the smaller LPs on the supply side, but no material supply agreements in place. Again, taking advantage of what we perceive to be a lower supply availability, as either the supposed excess supply is either aged out or, quite frankly, wasn't good quality. So we have been able to take advantage of that. It is agriculture, and not everything we grow is brand quality. So based on size or potency, but there is good demand out there, and we've been able to take advantage of that.

Yes. And I'll answer that. Nowhere in the script do we talk much about the B2B business. We're very focused on building our brand globally. That's number one; that's what we talk about. However, we have a large footprint. And every time we expand that footprint, the B2B business is important to us as we develop new products, new innovations to penetrate the branded categories more so. In addition, we do have relationships with some other LPs, and I think that's good for the industry, working together. So I think it's going to be, to your question, probably part of the future, but it's not our primary focus, and we'll leave it at that. The other thing I’d just say is the way the Canadian structure is set up with the tax structure, and we're very cognizant of dilution. And we're investing as a growth company heavily in Europe. We're gearing up for the U.S. We know it's imminent. And the B2B business without the excise tax, just like our international business, is a great business for us from a margin perspective. So that's important right now.

Okay. Great. I appreciate that. That was really helpful color. And then second question, I did want to turn to retail branded sales, which have continued to trend upward for you and seeing some nice share gains, which correlate with just in terms of overall strategy on the branded side. You guys started off under more of a single brand with Pearson Farms. You've expanded out right Fraser Valley as well as more recently in SuperToast and Sour. So can you speak today to how you feel your comfortability in terms of where the house of brand stands today? Do you believe there's still opportunity to launch additional brands, particularly as you look to increase share in some of the novel former categories that you're still under-penetrated today, just in terms of your overall strategy in terms of how you're feeling about entering these new categories or were you under-penetrated via new brands versus existing brands and how that's evolved?

Yes. Well, I think we've done a great job. I mean, we purposely stayed with that one brand until we developed our experience in the marketplace, understood the consumer very well, and then slowly watched as the market was having separation to value and premium. In fact, we're very proud of our premium penetration. It's often said you can get 5% to 10%. I think we're on track to do that. We have a couple of products, as you know, with Sour and TAM TAM. So it's going well. We've seen the consumer, especially starting on the West Coast and then traveling further east, looking for value. We have solid value with our Fraser Valley brand and SuperToast as well. I think we're pretty much in the total range of price points tied to price as well. Now we're very focused on innovation of products within those brands. It's not to say we won't launch any brands in the future, but there has to be a reason to launch another brand, and we have to make sure it will be profitable. We're also looking at how these brands will work for us, extending them globally as we penetrate into national markets, and I'm very excited about what we're going to be doing in the Netherlands with our brands there as well. For now, I think in Canada, we want to maximize the penetration and profitability of our current brands. We have a number of brands coming out of our Quebec business there that are doing very well. As I mentioned, Quebec is just, they are the pillar when it comes to understanding the consumer, and that translates across all our cannabis business in Canada and abroad.

Okay. Great. And I'll go ahead and jump back into the queue.

Your next question comes from the line of Frederico Gomes with ATB.

This is Eric Lifshitz in for Federico Gomez. Just in regards to your produce segment. So over the past several quarters, we've obviously seen some nice improvements there, especially on the profitability front. Could you just give some more color into what's driving these improvements? And how sustainable you think they are?

Well, as we've communicated over the last couple of years, ourselves as well as every tomato grower—not that we just grow tomatoes, but it is our largest category in fresh produce—all suffered from a devastating virus that was uncurable. TIL resistance was being bred in the genetics by the seed companies, which took about seven years to get where we are today. So that was pretty devastating for the industry; many companies didn't make it, and we weathered that storm. None of that change has been tied to going from tolerant varieties to now fully resistant varieties, and we can see that change. The produce business is a mature commodity business. As you know, it's a NAFTA business that competes with Mexico and Canada. It's never going to be a huge margin business, but it's an important business for us because all of our technology, when you really look at us as a leading cannabis company, and you just take the cultivation segment, which is one portion of our success, is driven by our deep 35-year knowledge and DNA. As we pursue the U.S. market, that's going to be very apparent that we maintain those businesses even if they work in parallel with each other. The technology changes, the way we grow, the knowledge, it's very important. So we're happy with the results of this quarter, and I think we're on our way to having a decent produce business, but there are other reasons why that business will continue to be part of our organization.

Your next question comes from the line of Mike Regan with Excelsior.

Can you update us on what you're seeing regarding the supply and demand dynamics now that the CRA is starting to garnish the unpaid taxes from some of the LPs that haven't paid them and how that's affecting the pricing at this point?

Well, we haven't seen that really; that's not at a level where we can identify if that's going to improve pricing going forward. I think it's pretty lumpy with what the CRA is doing. In some cases, they're taking a very tough stance and others, they're extending terms. So I think it's too premature to say, and I also don't want to talk for them, but we're not necessarily seeing that driving the benefits in the industry as opposed to. I mean, there's a number of reasons, just not companies owing the CRA. It's companies that can have the right cost of production or the quality. Ultimately, I think that will be the more important driver that will lead to better pricing going forward and more stable capacity in the marketplace.

Got it. And then I think the press release indicated that you actually expect harvest from the, or I guess, production starting in the Netherlands. Is that, I guess, producing this year, but then actually seeing sales next year? Or could that actually generate sales in 2024?

No. We'll go into production. When you look at the time you need to go from tissue culture or cuttings, which we're actually starting to produce right now in the Netherlands, to taking that into production in a facility, growing the plant, and then, as you know, there's a tremendous amount of post-harvest and manufacturing work that goes in. So we're looking at being planted out in full production in the fourth quarter of this year, with generating revenues in the first quarter of 2025.

Got it. Okay. And just one follow-up question, if I may. Like you said the produce looks like it's been one of the strongest quarters in a couple of years, at least. And Q1 is typically sort of a seasonally slower quarter. So is this sort of level of productivity we could see continue as then the volume starts to ramp up in the seasonally stronger quarters going forward?

This is Steve. Over the historical results of the produce business, which we've been reporting publicly on since 2006, the seasonality definitely shows up quarter-by-quarter. Q1 has been a challenge, as Mike alluded to, due to the virus. Q1 historically is one of our better pricing months, which does drive profitability. Q2 tends to be a challenge because Canadians, Mexicans, and U.S. producers are all producing in that quarter. So do we expect to see positive EBITDA every single quarter? It would be nice, but typically, Q2 is our challenging quarter, and Q1, Q3, and Q4 are typically profitable EBITDA quarters for us.

The next question comes from the line of Eric Des Lauriers with Craig-Hallum Capital.

Congrats on the strong results here. Another question on the non-branded Canadian cannabis dynamics here. Just wondering if you could sort of help provide some more color on the dynamics between the secular trend of producers moving to more asset-light models versus the impacts of seasonality here. I guess I'm wondering if the secular trend here is strong enough that you expect this sort of sequential growth that we've seen over the past few quarters to continue or if there's seasonality, either in demand or perhaps in the quality of your supply that might cause higher non-branded sales in the winter months and lower in the summer months? Just looking for a bit more color on some of the dynamics that you're seeing within non-branded in Canada.

Yes, I think it's hard to predict that on a quarter-to-quarter basis. We have to constantly measure that we have a large footprint there, and we can continue to expand our footprint in cannabis; it just depends on what's going to happen with our International division. We're very steadfast on expanding internationally, and every time we expand the footprint to penetrate the emerging market, there is a product that would be available, as Steve alluded to, that we would look at the B2B partners to supply that product. In addition, we're not opposed to working with B2B partners that may come to us and look for a program. If it makes sense for us, we'll take a look at that. But again, I want to reiterate, we are a global cannabis company on a mission to be number one globally with branded products and cannabis. The cultivation side of our business, we don't have a machine making cannabis; it's a farming operation, and there are variations in size and other attributes in the product. So working with partners that may take the product for their manufacturing purposes is positive for us. We will continue to pursue that. But it's hard to say for sure; it's just not our primary focus, what that will be on a quarterly basis at this point.

That's helpful. I appreciate that color. Next question for me. So you've mentioned some of these technological improvements in the produce business that have helped improve productivity and profitability here. You also mentioned that you're sort of taking some of those insights and bringing them over to the cannabis business as well. Could you just provide some more color or some tangible examples of some of the technology that you've sort of tested out in produce and are now bringing to cannabis as well? It seems like a source of this potential innovation that you are highlighting as one of your strengths going forward. And I'm just wondering if you...

Yes. I mean I'd rather address that with you in the Q&A; I can talk openly on the phone. I mean these are trade secrets and secret sauce that we have. That's what we've always talked about: our 35 years of DNA and knowledge. I think it's fair to say, and I've said this in the most humble way, that the results and the proof are in the pudding in what we've done in Canada versus our competitors, and there is a reason for that; it's not pure luck. But I'm happy to address that one-on-one, but I certainly don't want to put that information out publicly.

The next question comes from the line of Doug Cooper with Beacon Security.

Just a couple of quick ones for me. Michael, in your whole sale, is there any sales vesting for the international market in that number? Or is that all Canadians for the Canadian market?

Yes. I mean, there's certainly a lot of our wholesale business, probably most of it is going internationally, just to be transparent with that. And we sort of know where it's going, and we're okay with it going internationally. We're probably not as okay with it domestically depending on the type of product it is. So I'd rather not get too deep in that; I don't think that's right to talk about it publicly. But there is a chunk of it going internationally for sure on the B2B side.

Okay. And what do you think the market share differential now between you and I can tell here, number one? You said you've narrowed the gap. Where do you think that is now?

Can you repeat that? Us and who? Okay. Well, I think I will just comment that I think we're consistently striving to be number one. That's our goal in Canada and doing that, as I said in my remarks, organically. Each time we get very close, it seems certain companies buy another company and then they jump up again. So we find that pretty amusing and like it because it challenges us. But we're steadfast to be number one. I don't track exactly the points yet, but the momentum is there, and we'll be celebrating when that day comes, I can tell you that.

Your next question comes from the line of Pablo Zuanic with Zuanic & Associates.

Look, two quick questions on the domestic business. So of course, congratulations on the growth, the EBITDA margin now running around 10%, 11% in domestic in your cannabis business. Last year, first quarter was around 16%. Is that something that we should think is a norm now going forward? And then related to that, in terms of the strong growth you had in the direct market, expand a little bit in terms of what you're doing on pre-rolls. Is that just normal pre-rolls? Or are you working on infused? Just what's driving that share gain that brought you to number two in pre-rolls?

Well, on the second question, I mean, as I said with High Def, we have a lot of innovation, very focused, laser-focused on innovation across the board, but especially pre-rolls infused. We do infuse pre-rolls, all kinds of pre-rolls, and continue to invest in our technology to produce them, driving our costs lower. The high-def, as an example, nobody else has it in the market. It sold out in a day. It's done very well. So we are number two in pre-rolls across the board, and that's a goal to be number one there as well. That's a product that we focused very hard on over the last year on innovation and producing it in a profitable way. And we'll continue to look at other categories going forward. As far as margins, as we've stated, the margins still remain between 30% and 40% overall gross margin. Over the five years as a ramp-up cannabis industry, we produce different products. So if you take any agriculture commodity, it produces different products on the same plant. In cannabis, you have small, and if the preference is large, you have to do something with the smalls, whether you put that into a manufacturing process to create powder or a mill product or a pre-roll, or you find a customer that wants smalls at a reduced price. You have to deal with these issues, and sometimes when those inventories creep up before we can find another way to get that product in the market at a decent margin, we'll take the hit on that compression for that quarter. Overall, once we get back in step right now, our goal is to not have any inventory beyond six months. Honestly, you really can't sell a product from the time you harvest it under four to five months. It just goes through drying, manufacturing, you have to jump through tremendous hoops to ship the product and test it, and it takes time to do so. We're getting back in step, and I think you'll see those margins stabilizing in that range soon.

That's good. And just a follow-up on that. I mean, for Steve, maybe, obviously, your non-branded business continues to be a very relevant part of the business, the cannabis business. What’s the price difference roughly? I mean we’re talking about one dollar per gram, two dollars per gram. Just give some guide in terms of how dilutive to margins non-branded is or maybe it's not.

Well, obviously, the non-branded margin is lower than the branded margin since we reported that we were at 31% for branded margins. The price point that we're selling for the non-branded depends on who we're selling it to, as Mike alluded to. The market price for small certainly has come up, but it's not as good as the non-branded market price for larger bud with higher potency. As Mike said, we have good relationships with certain LPs, and that product may be leaving Canada going to foreign markets, and we get a very nice price and a very nice margin on those sales.

Your next question comes from the line of Scott Fortune with Roth MKM.

This is Nick on for Scott. Congrats on the good quarter. First question for me on cash flow. It was a good quarter in terms of profitability. Just curious how you view your potential cash generation while evaluating investments internationally and the opportunity in the U.S. here with some of these markets moving forward. Just wondering how you plan to balance the profitability side versus allocating future growth capital.

Well, we continue to report that we're self-funding. The Netherlands is a huge investment. This is the first of probably two production facilities that we'll be building. And that's 100% paid for out of our cash. We have no debt on it. We didn't raise any capital to do so. We may not have the balance sheet of other companies, but certainly, we've diluted our shareholders quite a bit less, and we're always very prudent. Of course, the return on our invested capital is what we always are focused on. We think there'll be a short window on getting out our return on investment and the investments we're making. The same thing for the U.S. Look, at some point, as I've said with the U.S., many times, it's an experiment because until there's clear federal legalization, the whole production side is going to change. You just can't operate 35 production facilities across 20 states. It will go large-scale, low cost. That's where we shine. That's where we lead. We have assets. And yes, we're in Texas, and it's probably one of the most conservative states. But as the terrible guy said, not the hair. So in the long run, we're going to get there. I think we'll have the best quality, lowest-cost production. Look, there's a model in the U.S. I won't mention the company; it's not one of my favorite states, but I will say that they see what we see. I think that's where we'll end up one day, and we'll see who can manage it. So as far as capital, it's the same in Canada; we use existing assets. We were able to convert them, remain in the produce business while we convert it and a fraction of the cost. In the end, Scott mentioned many times that, that was the least most important. What was more important was the 30 years of knowledge of growing, regardless if it was different crops and cannabis. I think we're excited about the day we can enter the U.S. market and be a major player. I know that may not answer exactly your question, but I wanted to put some added color in.

No, I appreciate that color. And then the second one for me, just on cultivation costs. Wondering if you could provide any puts and takes on the cannabis COGS side. You mentioned hang drying and other initiatives to improve product and lower cost. Can you maybe quantify any improvements you've seen over the past couple of quarters? Just how you expect COGS to trend throughout 2024 on the cannabis side.

We're not going to give our costs any more. We made that mistake earlier, so we're not going to do that again. But I can tell you that it is a continuous improvement process. It's really the strains you develop, not just tied to meeting the attributes of the consumer in the case of high THC levels and whatnot, but also in terms of yield profile, of course, where you grow them, how you grow them. The other thing is scale; as we now expanded our Delta 2 facility and half of it, and again, scale drives costs down. So we're pretty bullish that over time we will continue to drive our costs down going forward.

And this is Steve. There is some seasonality on the cannabis side. Obviously, we have to run the lights in the winter. There is a higher cost on those grams. In the summer, we don't run the lights. So there is some seasonality quarter-by-quarter to our cost program.

Yes. And that's why we always say in sort of an agriculture operation, you really need to look at your costs on an annual basis for those reasons. Steve alluded to, not on a quarter-to-quarter basis.

Your next question comes from the line of Pablo Zuanic with Zuanic & Associates LLC.

Mike, this is just more of a big picture general question and ties connected before. When you see NDL, or you see kind of growth apparently take control of U.S. assets, right, relevant, sizable U.S. assets, and are able to keep their NASDAQ listing. Does that make you think that maybe you have to do something sooner rather than later, right? And it's also simple because of the regulatory issue, but you have examples of two Canadian companies moving in, right? If we get to a point that we have full legalization or it's easier for foreign companies to buy U.S. assets, by then it may be too late, right, because the U.S. assets will have repriced. So how do you think about that? And then the second question, which is related to this, of course, just a reminder of the scale of your Texas greenhouses, how long will it take you to flip them to cannabis? Is it a matter of one, two, three years? And just to remind you of the scale.

Well, we have a huge footprint in Texas. So we would probably never flip all of them. If we were, we would probably be controlling a strong percentage of the Texas and adjacent states. So we have a very large footprint approaching six million square feet there. I have said many times, I believe it's the best location in the Continental United States to grow cannabis. That takes into account friendly states versus non-friendly states, not just chronological issues. That said, we always look for the pathways of other companies. If some of these companies you mentioned have decided to take different pathways, I'd imagine if I looked at their legal bills; it'd probably be about the same as our revenue. But I think that they're finding these pathways to do it. Both those companies you mentioned are approaching it differently, whether it's the stress assets or rolling up. We're on that every single day. I can tell you openly there was a conversation that lasted an hour with Nasdaq yesterday. At the end of the day, we are not convinced right at this table, this hour that that's being allowed. We will know sooner than later, but I can tell you right here, we're waiting to get confirmation, and I don't see it yet. So as much as there's a lot of news out there and press releases, we haven't seen it. We haven't seen the DEA. We haven't seen a lot of these things. We've always said that we're not going to make any moves until we understand clearly the playing field and be measured in our approach going forward. But if it happens, we will look at those pathways, and we will go forward.

I will now turn the call back over to Michael DeGiglio for closing remarks. Please go ahead.

All right. Well, first and foremost, I want to thank the Village Farms for all the incredible hard work to drive these great results. We have such a motivated, great team. One of the things is our team has been in place for a while. That says something about our organization. People want to be here. They love what they do, and I think it shows in the products we produce. Without good people, no matter where your assets are, how good they are, you really don't have a business. So heartfelt thanks to them. With that, thank you for participating in today's call. We look forward to getting back together in August for our second quarter results. With that, we can conclude the call.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.