Village Farms International, Inc. (VFF) Q3 2026 Earnings Call Transcript

Thank you.

Good day, and thank you for standing by. Welcome to the Village Farms International Third Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's This conference is being recorded. I would now like to hand the conference over to your first speaker, Michael D'Gilio. Please go ahead.

Thank you, Tanya. And good morning, everyone, and thank you for joining us today. With me on the call are Hamid Chikachi, our Interim Financial Officer, and Gillen Lefebvre, our Chief Operating Officer, and Sam Gibbons, Senior Vice President of Corporate Affairs and Investor Relations. I'll start this morning with a review of our Q3 highlights, then Hamid will cover the financials before our closing comments and analyst questions. Before we begin, though, I'd like to extend a warm welcome to Hamid on his first call with Village Farms. Hamid stepped into his new role after serving as CFO of a Canadian cannabis business and has 18 years of combined financial leadership and operational experience in cannabis. He knows our business inside and out, and we're excited to welcome him to our C-suite as Stephen Ruffini transitions to lead our M&A efforts. Now on to the quarter. We delivered record cannabis revenues of $55 million, with approximately 43% of sales coming from some of the world's most attractive and fastest-growing international markets. Consolidated net sales was $67 million, up 5% sequentially. Net income was $10 million, or $0.08 per share. Adjusted EBITDA approved 18% sequentially to $18.2 million, or 27% of sales. And we delivered operating cash flow of $9.5 million. Most importantly, we're achieving these results before benefiting materially from increased production capacity we have been converting in our Delta, B.C. and Netherlands facilities, both of which position us for stronger revenue growth and profitability next year. As we noted in this morning's earning release, the year-over-year variance in our Q3 gross margins was driven predominantly by a softer spot market for trim in the Canadian wholesale channel and not a reflection of us lowering international export pricing. There is a strong market for our trim to B2B customers in Canada, and these sales typically provide strong contribution margins and profitability for our Canadian operators. However, during Q3, we observed what we believe to be a drop level of trim volumes and trim pricing, with spot trim pricing down about 75% year-over-year during the quarter. However, we expect these conditions to begin normalizing in Q4, given the visibility we have from our order book in October. As well as the commencement of some new trim supply agreements with higher contracted pricing, more in line with historical levels, which also began last month. Now, moving on to our international business, which remains a powerful point of distinction for our expanding global platform. International export sales grew 75% year-over-year to 20.8 million in line with last quarter's record as we remain somewhat supply-constrained while awaiting more meaningful production increases from the Delta II expansion. We said for the past few quarters that we expected EU GMP-compliant product would be more insulated from price compression and that we're observing in non-compliant areas of the European supply chain. Our Q3 results continue to prove it with resilient pricing that we've anticipated. Now, let me be clear. We have not lowered pricing for our EU GMP-compliant product. And our pricing outlook remains favorable with demand levels that continue to outpace our current supply capabilities. Our average net selling price in Q3 declined by 9% year-over-year, but this was entirely driven by a mixed shift to bulk flower and not a reflection of us aggressively lowering prices, as some market participants have speculated so far in this earnings season. Now, I'd like to discuss the broader regulatory landscape in Europe, which we believe is continuing to move more favorably in our direction. Many market participants have recently described price compression in Germany, particularly for converted product, meaning flour cultivated outside EUGMP conditions and certified later in the supply chain. UK and German regulators, including the Hassen government, are tightening requirements around these conversion pathways. A recent analyst estimates roughly 740 tons of EUGMP-certified flour capabilities globally, of which only about 57 percent, or roughly 420 tons, is EUGMP-certified At the source of production. This balance relies on conversion, and that's where pricing pressure has been most significant. Village Farms represents a very meaningful percentage of existing compliant, at-the-source, EUGMP capacity. As we've stated previously, our Delta production facility is the world's largest single-site EU-GMP-certified cannabis facility, and the vast majority of our production is completed under GMP conditions. Germany alone expects roughly 300 tons of imports this year, and Australia, Israel, and the UK import more than 150 tons combined. If GMP washing continues to be curtailed, as we've seen from the UK and German regulators, the market for truly at-the-source, compliant product could face shortages very quickly. And the market won't just move towards operators with GMP certification. It will move to operators with a consistent flow of quality, certified product at the right price that can consistently deliver. We don't believe anyone is better positioned to benefit from these dynamics than village farms. We believe this compliant supply chain organically with the foresight to begin working towards GMP certification nearly six years ago, and we continue to operate this business with industry-leading profitability, which what we feel is one of the most attractive, competitively distinct, and independent growth engines across the global cannabis industry. Now I want to turn to the domestic Canadian business, where we're starting to see new opportunities to grow profitable market share as evolving competitive dynamics here are also leaning in our favor. Brand and sales with $25.3 million, and we continue to hold our top five overall market share positioned nationally with our brands in the top 10 in every major product category while building this business organically and not through mergers and acquisitions. We continue to make incremental market share gains in vapes and infused pre-rolls during the third quarter, and average net selling prices in the branded channel were up 6% year-over-year, reflecting our continued focus on higher-value products. Non-branded sales of $3.3 million were down from prior year quarter, with the variance driven predominantly by the spot market trim dynamics I discussed earlier. Now, I'll be candid. Canada is where we built a foundation for our business, and our objective remains to grow in line with the market at mid-single digits. We haven't achieved that goal in recent quarters, and we're not satisfied with that result. We remain committed to providing our provincial partners, retailers, and consumers consistent supply and service levels, and we've been allocating a majority of product from the initial harvest from our Delta II expansion to support The domestic Canadian market. From a competitive standpoint, over the course of the past several months, multiple competitors have indicated they are de-emphasizing Canadian-branded sales. Some are exiting the dry flower category entirely, and one in particular has publicly acknowledged that it can't compete with operators like Village Farms. That means improving competitive dynamics and more room for stronger operators like us with the scale, cost structure, and brands to win long term. We're also encouraged by recent actions by the Canadian government to aggressively combat the enlisted market activities in Canada, as well as by last week's news of the move to one federal cannabis excise stamp, which we will anticipate will create additional operating efficiencies for our business. Cannabis is now the number five cash crop nationally in Canada and the number two cash crop in the province of British Columbia. We're very encouraged by the government's increasing favorable view of this important growth driver for the Canadian economy, and this gives us even more confidence to continue investing in our production, our people, and our product portfolio in Canada. Our Delta II expansion remains on track for completion in the first quarter, with expectations to reach its full 40-metric ton annual run rate by the middle of next year. The expansion will support continued organic growth in both the domestic and international export markets through 2028, but as noted in this morning's release, we're already well ahead on planning for the next steps by exercising our conversion rights with the Dextra Holdings for our D1 greenhouse. That's our Delta 1 greenhouse. In mid-October, we notified Vindextra to exercise our contractual right to convert 25% of Delta 1 to cannabis production during 2027, which provides us the optionality to activate an additional 16 acres of 700,000 square feet of production. We have no formal conversion plan today, but giving increasing demand for EU GMP product and improving conditions in the domestic Canadian market, we felt it prudent to look at our flexibility to move as quickly as possible if and when that changes. In the Netherlands, Q3 sales were impacted by an increase in plant propagation activities, which supported the ramp-up of our operations at the Phase II facility in Cronogen. This resulted in a sequential decline in sales as compared to the second quarter, but the Cronogen facility is now fully planted, which we expect to begin driving stronger revenue growth in the fourth quarter and throughout next year. In September, the Dutch government published its first annual monitoring report conducted by a number of different agencies, and coffee shops, growers, municipalities, and regulators all described their experience with the program as positive. Product availability has widened, consumer rate price value more favorable than before the program started, and there was no clear difference in public health, livability, or safety compared to non-participating municipalities. Replacing a tolerated illegal supply chain with a regulated one is not an easy task, but the Dutch government has taken a very thoughtful approach, and so forth, showing a lot of signs of success. We believe consumers are developing a preference for the legal supply chain, and our team is continuing to work closely with local municipalities and policymakers to help build a model framework all stakeholders can be proud of. We're supportive of revised packaging and labeling requirements to prevent consumers from focusing on high-potency products, and we're optimistic that recent efforts to formalize administrative processes surrounding the issuance of coffee shop permits may lead to increased store counts in the pilot program in the near-term future. And then finally, in our U.S., our Balanced Health Botanical subsidiary is continuing to pursue pathways to participate in the Center for Medicaid and Medicare Innovation pilot program for CBD cannabinoid products. We are awaiting final clarity on the outcome of the pending December 11th federal hemp ban to further assess this opportunity. But we believe BHB is positioned to play a role in this market if federal regulations end up protecting our non-synthetic, full-spectrum products. I'll come back to some closing remarks with our views of the changing regulatory landscape across the U.S. and, in particular, Texas. But now I'd like to hand the call over to Amit for his review of the financials. Amit. Thanks, Mike.

And good morning, everyone. All figures I'll reference today are in U.S. dollars unless otherwise noted. Q3 consolidated net sales were $66.9 million, up 5% sequentially, and level with Q3 last year, driven by record cannabis sales and continued international growth. Consolidated gross margin was 44% compared to 48% last year and 47% in Q2. With the variance driven by softer spot trim market conditions Mike discussed earlier, offset somewhat but stronger performance in our other segment. SG&A was 24% of sales compared to 23% in Q3 of last year, reflecting higher commercial and marketing spend and the transfer pricing update we discussed last quarter. As a reminder, following the Verdexa transaction last year, more corporate costs are allocated directly to cannabis, and I'd also like to point out that SG&A as a percentage of sales improved by 500 basis points sequentially as compared to Q2. Adjusted EBITDA from continuing operations was $18.2 million, or 27% of sales, compared to our record performance of $20.7 million in Q3 of last year, and up 18% sequentially from $15.4 million in Q2. I'd also like to put our year-to-date performance in context. Year-to-date adjusted EBITDA was $43.5 million compared to $41.2 million, which included last year's one-time $4.3 million vendor settlement. Excluding the vendor settlement, year-to-date adjusted EBITDA is up 18%, continuing to outpace revenue growth with a steady pace of improvement we've been delivering throughout 2026. Net income from continuing operations was $10 million, or $0.08 per share, compared to $10.8 million, or $0.09, in Q3 last year, and up $7.2 million in Q2. Cash flow from operations was $9.5 million in the quarter. Turning to the cannabis segment. Net sales increased 3% to a record $55 million. International exports increased 75% to 20.8 million, driven by continued strong European demand, and in line with Q2's record performance as we remain somewhat supply constrained while emitting more meaningful contributions from the Delta II expansion. Canadian branded sales were $25.3 million, down 6% year-over-year on lower value brand volumes, with an average net selling price up 6%. Canadian non-branded sales were $3.3 million, compared to $7.3 million last year, with the variance driven primarily by lower trim sales. Netherlands sales declined to 2.8 million as a result of the increase in propagation activities, which Mike discussed. U.S. cannabis sales from Balanced Health Botanicals were 2.8 million and reflected continued challenges created by unregulated intoxicating hemp products and related state regulatory restrictions. Cannabis gross margin was 48%, compared to 55% last year and 51% in Q2, with the year-over-year variance driven primarily by softer trim sales and a more minor impact of the mixed shift of international sales towards bulk flour. Cannabis-adjusted EBITDA was 14.7 million, or 27% of sales, compared to 20.2 million in Q3. Cannabis net income was $7.8 million, compared to $12 million last year, with the variance driven by lower gross margins and increased operating expenses to support future growth. Cannabis cash flow from operations was $7.3 million, compared to $20.6 million, with the variance driven by Canadian income tax installments that did not occur last year, some longer payment terms on export sales, And a planned inventory build we feel is important to support an increasingly complex global supply chain. And finally, as we always point out, we incurred Canadian excise taxes of $16.5 million in Q3, or 39% of gross branded sales. In our other segment, which includes clean energy and the remaining produce operations in our Delta One greenhouse, we generated net sales of $11.9 million, net income of $2.3 million, and adjusted EBITDA of $3.4 million, with year-over-year improvements driven primarily by stronger yields and pricing. Now, turning to the balance sheet. We ended the quarter with approximately $80 million in cash, up $6.3 million sequentially, delivering the stronger second-half pre-cash flows we discussed on last quarter's call. Year-to-date, we generated $35 million from continued operations before working capital adjustments. Working capital adjustments have included approximately $19.7 million of income tax payments, Essentially, a year and nine months of Canadian income taxes, along with higher receivables and inventory. We invested $17.3 million in CapEx year-to-date, primarily expansion CapEx for Delta II and Groningen, both of which are now substantially complete. Long-term debt was approximately $39 million at a weighted average rate of 5.7%, and our $10 million revolver is undrawn, and we remain in a strong net cash position of $41 million. Before I hand the call back to Mike, a brief reminder of fourth quarter seasonality in our business. For those of you who are new to our story, there is essentially seasonality in our business related to changes in our growing climate for Delta throughout the year. Contracted produce sales from our Delta One greenhouse to our partner, Verdexa Holdings, always peak in the second and third quarters. Last year, they declined about 60% in Q4, and we would expect a similar trend this year in line with this typical seasonality. Additionally, while our international medical business is still relatively new, last year, European order volume slowed significantly over the holiday period in Q4 and resulted in a sequential revenue decline compared to the third quarter. While we haven't observed any material changes in international customer behavior in October, we think it's prudent to remind investors that we may experience similar holiday period seasonality again in 2026. International shipment timing and order sizes can create great quarter-to-quarter variability in our financial performance, so we encourage investors to evaluate the performance of this business over a longer time horizon than one quarter. Back to you, Mike, for closing comments. Thanks, Amit.

In summary, our Q3 results reflect another very strong quarter of financial performance with yet. Without yet experiencing material benefit from our expansion projects, as I mentioned. Year-to-date, we delivered double-digit growth in cannabis sales, nearly doubled international exports, delivered six straight quarters of positive net income as a pure-play global cannabis company, and we remain in excellent financial position with $80 million in cash to continue investing in our platform. Our competitive position in Canada is improving. Demand for our EU GMP-compliant product remains very strong, and we've, importantly, not lowered pricing. Our Delta II and chronogen expansions are on the cusp of continuing stronger revenues, and we're carefully laying the groundwork to continue scaling our footprint through our Delta I greenhouse and activation of our Texas assets. Now, for some last remarks on our view of the U.S. regulatory landscape following last week's midterm elections. U.S. voters overwhelmingly chose access to cannabis over prohibition. Candidates who supported sensible cannabis policy won across the country and across party lines. Incoming governors in Ohio, Iowa. Wisconsin and Texas campaigned on cannabis reform, and newly elected senators in both parties did the same. In Massachusetts, roughly three-quarters of the voters chose to keep adult use legalization. In Idaho, voters defeated by a wide margin and measure that would have taken away their ability to enact future cannabis reform. Several states are now poised to take up more meaningful reforms, including Pennsylvania, Iowa, Kansas, Wisconsin, and Texas, where voter opposition to the state's recent THC ban was a central issue in the race for Lieutenant Governor. The incumbent who championed the THC ban in Texas and was the largest roadblock for cannabis reform was defeated after telling voters to vote him out if they disagreed with a THC ban. Impact extends to Washington. Leadership is changing at the Appropriations Committee, where federal reform has historically stalled, and we believe this incoming Congress will be the most supportive of cannabis reform in American history, just as we await the DEA potential rescheduling of legal adult cannabis to Schedule 3. The message from voters is clear. Americans want safe, regulated, and affordable access to cannabis, and they want their leaders to deliver it. The landscape just shifted quickly, especially in Texas, and we are optimistic about what it means for patients, consumers, and responsible operators like Village Farms. Now, in Texas specifically, we believe the outcomes of the midterms We're as big of a move for that market as the April final rescheduling order was for medical operators across the U.S. There is considerable political pressure for Democrats in Texas to bring back THC, and they now have the votes in the Texas House, which flipped Democratic and potentially the Senate, which shifted less Republicans to significantly reform its medical program and potentially even more towards full legalization. We believe it is likely we'll see meaningful changes during this upcoming legislative session, and we're very encouraged by the things we're already hearing about, how new leadership may be thinking about this major voter issue. Village Farms has been operating in Texas for over 30 years as one of the largest employers in two separate counties, and we're uniquely positioned to quickly operationalize the critical infrastructure necessary to build a successful cannabis market in Texas. In response to the changing regulatory climate following the Texas midterms, we announced this morning that we are actively mobilizing plans to optionalize our standalone 30-acre, 1.3 million square foot greenhouse in Monahans, Texas, for cannabis production. Monaghan's is the youngest, most advanced production asset in our portfolio. I personally, along with our asset development and operational teams, have visited the site several times over the course of the past few months, and we have a clear and cost-efficient plan that can bring this facility online within a 12-month time frame. If Texas policymakers are truly serious about enabling their citizens' affordable access to high-quality cannabis, They should not continue to ignore the operational expertise in infrastructural village farms. As we have said many times in the past, we expect to be in Texas cannabis, and we clearly remain focused on pursuing all potential pathways to initiate our U.S. market entry with a commencement of production in Texas. Looking ahead, we believe we are still in the very early innings of global cannabis adoption. And that there is a long runway of global growth and opportunities for value creation for village farms. For nearly four decades, we have led in large-scale controlled environmental agriculture, and today we are one of the world's largest and lowest-cost producers of high-quality cannabis. Scale matters, but scale alone is not our only destination. We intend to evolve from being defined by what we grow to owning the capabilities that determine what is grown, how it performs, where it can be sold, and how much value it creates. We are focused on building a platform that expands globally and participates in new value pools as regulated markets evolve. While cultivation, product innovation, and distribution remain at the center of our engine today, around that core, we see tremendous long-term potential for broader applications of cannabinoids across global markets that will be driven by truly protectable intellectual property. In the coming years, our industry will drive advancement in scientific and analytical capabilities, accelerate innovation of novel products and commercialization opportunities, and advance development of botanical drugs for medical and therapeutic purposes. Our objective is to own more of the value, more of the intellectual property, and the economies created from the plan, which will be sought by patients and consumers to build a more valuable cannabis company for our shareholders. The same framework is guiding our approach to M&A. We prefer organic growth opportunities, but we will pursue... Accretive opportunities that accelerate these capabilities, and we will remain patient and disciplined on valuation and permissible regulatory frameworks. If a deal isn't strategically compelling to create long-term shareholder value, we simply won't do it. So I'd like to close with another acknowledgement and thanks to our teams around the world. You all continue to raise the bar for village farms in every market we operate, and it's because of you. That we are building one of the most powerful and different types of cannabis platforms in global cannabis. With that operator, we can open the call now for questions.

Certainly. As a reminder, to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile our Q&A roster. Our first question will be coming from the line of Aaron Gray of AGP Alliance Global Partners. Your line is open, Aaron.

Hi, good morning. Congrats on the quarter, and thank you for the question and the detailed remarks and the prepared. First question I have is relating to the Germany pricing dynamics. Mike, appreciate the color you provide in terms of where you believe VFS stands and the broader market. I'm just going to maybe summarize, so it seems like... Even without clamping down on EUGMP compliance, you feel confident in your ability to compete in the international market, and then if greenwashing were more meaningfully cut off, as we've seen in some countries, you see that could prevent meaningful upside given the expected undersupply of fully EUG-compliant product. So I just wanted to get some further color in terms of that's how you're seeing the current dynamics for international things.

Yeah, I mean, we're very confident that the EUGMP compliant product will continue to gain traction going forward, so the regulators are showing that. And there's been a couple of situations. I mean, Portugal, as you know, the country of Portugal took a position about a year ago due to a lot of product coming out of Portugal to illicit markets to really restrict growers from exports. That created a large inventory that has aged out. Thank you. We think that had some short-term impact at the pharmacy level as well. So there are other dynamics. We've even heard, you know, everybody's trying to jump on a bandwagon. There's been a field flower trying to make its way through the process as well. So, you know, I think it's going to be, there'll be some headwinds going forward, but we're just going to stick to continuing to build out EU GMP. Anne, you want to give some color?

Yes. Good morning, Erin. Just two more things. Just reiterating we have not lowered our pricing on EUGMP. Biomass product, and number two, I think your analysis of supply-demand is very accurate. Obviously, the more sought-after EUGM product still has a very large backlog of demand behind it.

Okay, great. Thanks, Mike and Ann, for that. Second question for me, just in terms of, you know, capacity allocation, in your prior remarks, you mentioned that some of the initial half of the second half of Delta going to the Canadian market versus potentially international, obviously not all, but just allocating some there as you look to defend share. So maybe just talk about how you value your position in the Canadian market on a longer-term basis, particularly given you might be able to get some higher margin sales initially if you allocated it towards international. Thanks.

Yeah, well, it's been a difficult balance. That's really why it led to, over a year ago, the plans to expand the Delta II facility, which is now, as we indicated, coming on board. So we're going to continue to balance the portfolio. Canada's very important to us, as I mentioned, but we've made a statement years ago that we're only chasing profitable market share, so we continue to try to be more efficient in our portfolio going forward, and we believe, as I mentioned, there are some of our competitors that may be deciding not to pursue Canada, so we think with the growth we're having, And the fact that the government, the first time in my tenure, is really starting to acknowledge the impact to the overall Canadian economy is getting behind cutting back on illicit trade. So we think growth is in Canada. It's a very important market for us, and we think we'll have the capacity to continue to penetrate increases in the Canadian market. Okay, great.

Thanks very much for the color. I'll jump back in the queue.

Next question will be coming from the line of Douglas Cooper of Beacon Securities. Your line is open, Douglas.

Hey, good morning, everybody, and congrats on a great quarter. Mike, I just wanted to sort of jump around into various geographies to just confirm to follow on from Aaron. Can you confirm the number you just said earlier in your presentation about what percentage of EU GMP certified product you believe Village has? What percentage of the overall market?

Good morning, Doug. We do not put that out there. We gave you some numbers as to what we see happening on the macro scale, and you know the size of our footprint in Delta, but we don't confirm that number publicly.

Okay, so you just wanted to – maybe I didn't quite hear. So you just said you have the largest single facility of EU GMP-certified product. Is that – Correct?

We believe we do. We believe we are the largest single facility.

But we just decided to make the campus EUGMP compliant, so even if it goes to other channels, including domestic. Okay.

And what would it be? It was a lot of work. I'll just add that. It wasn't just a quick decision. Quite a bit of work that our teams put in to scale that way.

Okay. And sticking with the Delta complex, Mike, you talked about exercising the option for 25% conversion of D1 potentially. What else needs to be done before you actually put, I'm going to say shovels in the ground to convert 25% of that? And what would be the tonnage you would expect from that if it were converted? And how would you need to make that EU GMP certified facility about 25%?

Well, that 25 percent is actually bigger than the expansion of Delta II, which is 40 tons, so probably in the area of 50 to 60. We have the optionality to convert one quarter of it over a four-year period, so we just, just to be clear, we trigger the optionality if we were going to convert it sometime next year for 28. No decision has been made, but we have the right to do that. So that's what it could lead to, because 700,000 square feet, the Delta II second half conversion was about 550,000. So doing the math, it'd probably be about 50 metric tons for that additional quarter. Sure. Okay. And then go back to that.

Doug, I'll just add that if it's concurrent with, you know, putting shovels in the ground, we'd be working on the processing side where the EUGMP certification lies, and so we'd be running both of those in parallel, just like we've done throughout this year as we add capacity.

Mike, you said you thought to trim pricing that troughed in Q3, it was down 75% year over year. Was there any material change in pricing between Q3 and Q2, the prior quarter?

I don't think so. I think it was just a fall away of the demand, Doug, but no change in pricing.

Okay. And final one for me, just on the U.S. side. Obviously, you're very bullish about the progress in Texas. You don't have a license, I don't believe. So what does it take for you to actually get in the cannabis production space and be able to participate in that market if it opens up?

Well, I just say that we plan to be in Texas one way or another. So how we do it, we'll have to see. We think there's going to be a number of regulatory changes in this session coming up in February to the T-Cup program. Which may include increasing licenses, that could be a vector for us or another way to get into the market. But we're very confident that we can and will pursue all permissible pathways for us, but we want to start getting this facility ready, so we're kind of going to run it in the parallel track as opposed to serial. The facility is there. It's just a matter of sort of gearing it up and then providing conversion, and we may do that in phases as we go, not all at once.

And how long would that take, and how much?

Well, if you look at Delta II, the conversions are like six months. So we'd probably do some work to it ahead of time before we actually started the conversion on the growing systems. The unique thing about that area, which is very unique, as you know, that part of Texas is about the lowest latitude in the United States, so you don't need supplemental lighting to run a cannabis crop through the winter. I mean, it could help increase yield, but it's not required. So, we think we'll have even a cost advantage over our Delta facilities longer term, and that makes it very unique in that regard.

Perfect. Thanks very much.

Thanks. Our next question will be coming from the line of Frederico Gomes of ATB Cormark. Your line is open, Frederico.

Yeah, good morning. Thanks for the questions here, and congrats on a great quarter. I want to go back to the... The comment about EUGNP and the fact that your pricing has been relatively resilient and steady, I guess, could you talk about that? I mean, why is it that from a pricing standpoint, EUGNP-compliant product is more resilient compared to, I guess, greenwash product? And then second, I know that you mentioned the potential for tightening controls around the greenwashing, but are you actually seeing that happening? I mean, how likely is it to happen? And, you know, how likely is it that we could see, I guess, a product shortage of EUGMP-compliant product at the source? Thank you.

Well, I'll start it out, and then I'll hand it over to Anna. I think, you know, the program was really originally set up to have EU GMP certification at the source, so that's really what the program's about. There are other ways to get there in the supply chain, as I mentioned in my prepared remarks. There will probably always be a country trying to do that. And there are distributors who, you know, in order to get the capacity that they need are buying GACP product and then converting it through the supply chain. So we think we're, you know, anybody producing EUGMP product at the source is sort of the... is the standard, but there are other ways to do it. Ann, do you want to add some color?

Yeah, I would just say that I think the wins seem to be in favor of the EUGMP compliant product, as we've seen in the UK and in the Hessem State, and so we think that that's Noteworthy, and frankly, what we've talked about for a couple of quarters now. So the demand profile is still there, supporting the price, Federico. And we think that that's, you know, how do you ensure an efficient supply chain, frankly, from the source up right through to the consumer. And the supply chain cares very much about that.

You want to add some color?

Yeah, just to add a bit of color on that, I mean, one thing is looking at price, and one thing is looking at, you know, the level of scale of EU GMP-compliant product that we produce that's low-cost and high-quality, and the supply chains are very complex, and there is a... There is a value to be ascribed to being able to provide a large volume of EU GMP compliant product, as opposed to various small lofts that are often we see in the marketplace. And that's a competitive moat that we have, and we believe, and one of the key factors that we believe will maintain price as we look forward.

Thank you. Appreciate that. That makes sense. And then in regards to the, I guess, the decline and price of trim, and you think that's the bottom in Q3, why is that? And, you know, in terms of the supply-demand balance in Canada, it seems like you're more constructive going forward. Can you talk a little bit about that as well? Thank you.

Yeah, I mean, the variances that we ascribed in their remarks was really a year-over-year perspective. And, you know, the market has changed over the course of a year. However, we do believe that there was a buildup of large producers that were more in the 2.0 space, and those inventory bills have largely dissipated. And we are seeing increasing demand and requests from our peer group for high-quality trim. So we are seeing that demand and supply rebalance, and we're confident of the forward-looking projections of our trimmer.

Great. Thank you.

You're welcome.

As a reminder, to ask a question, please press star 11 from your telephone and wait for your name to be announced. Our next question will be coming from the line of Pablo Zuniek of Zuniek and Associates. Your line is open, Pablo.

Thank you, and good morning, everyone. Mike, I guess a two-part question. Can you talk about how concentrated is your international business? Is it, you know, one, two customers, or is it a long list? Is, you know, one of your customers 50, 60% of your sales? I don't know how much you can talk about that, but obviously, congrats on the $56 million year-to-date in international exports and 21 in the third quarter, but if you can talk about that. And then the second point, which I have asked in prior calls, You know, obviously, the power right now, it's on the supply chain, EU GMP compliant, low-cost, high-quality cultivation, which you have, but given everything that's happening on the M&A front, do you see a need now to start investing in route-to-market in markets like Germany and the UK? Thank you.

Yeah, we don't really disclose, Pablo, how many customers we have, but it's more than one. No, just kidding aside, we have multiple customers in Europe, but I don't want to really disclose those numbers. And we see that increasing over the next couple years. You know, we were planning, and this is one topic I didn't touch on, to enter some other countries in Europe. But to be honest with you, we're sort of curtailed that because we're capacity constrained in meeting the demand of current customers in the markets we're in. So I think that has a chance of opening up once again next year as this additional capacity comes on, and that will increase the amount of distributors we work with. Uh, so that's that question. As far as M&A, uh, you know.

Route to market question.

Say again?

Um, Pablo asked us about the route to market, if we have any interest in, in pursuing that.

Well, we do. I mean, you know, it depends how we look. I probably won't go too deep into this, but really look, what's that landscape going to look like in two or three years from now as opposed to right now, I think. There may be some dynamics that the future could be somewhat different than it is today. That being said, valuation always plays a role in that, and I'll be honest with you, I think some values are... Are crazy, for lack of a better term. So, we're not going to do a deal that isn't accretive or doesn't make sense just for the sake of doing it. But we are always in discussions and looking at opportunities there. Vertical integration is part of our DNA, and at some point, we're going to get there one way or another.

Okay, thank you. And then just one last question on the Netherlands. You know, some of your peers there are Complaining about price compression. I don't know if you want to put that in context there. How bad is it? I know you're still capacity-constraining that market, but as prices come down, doesn't that move, you know, I guess it gives the balance or towards the more the lower cost greenhouse operators versus the indoor ones. But again, if you can give us some context there, that's the first part to the Netherlands question. And the second one, you know, I think we are down now to 70 coffee shops from the initial 85. So is that creating a problem? And how do you see that changing? Thank you.

Well, again, you know, let me answer the second question first. I mean, when we got involved in the Netherlands, there was a risk to it in that it's a four-year deemed experiment. We knew that each year the Dutch government will publish their findings. We know that they want to move to a legalized, regulated structure at some point. But we don't have a crystal ball to protect, you know, really. To be able to guarantee where it will be in three years from now. But we're working together, and we're actually working with some others to open more doors. You know, it's very oriented to the municipality. The municipalities in the Netherlands are like each one operates independently and has significant power to decide if they want to move to a legal platform. So, yes, some coffee shops dropped out, but as capacity increases, there could be some pricing pressure. There may be, but we feel we're in a pretty steady state for at least next year, and we'll reevaluate. As far as your first question, Price compression. Price compression, yeah. I mean, you know, I don't want to talk about our competitors necessarily. I mean, we've heard a lot of things sometimes question the source, where it's coming from. But, you know, as Amit had said on the call, just having EUGMP compliant product at the source like we do is just one component of the success you need to have to be able to deliver large-scale This is a huge undertaking, and I think it's very underestimated by many others in the space. You're talking pharmaceutical-grade product that there is no higher standard that you need to meet day in and day out. So it's not just the fact that you have EU GMPs, the fact that you can deliver on these orders and you have an organization behind it to do it. So. I think others are scrambling because they don't have EUGMP or they haven't been able to get certified, so they're looking at many other ways to circumvent the system, and I think there will be a reckoning coming in the next year or two in which way it goes. That's the best color I can give you, Pablo.

Okay, that's good. Thank you.

And I would now like to turn the conference back to Mike DiGiolio for closing remarks.

Well, I just want to thank everybody's participation. I think it's very exciting times globally and now even more so in the U.S. I think the U.S. is going to go through quite a change in who the survivor is going to be. At some point, more states opening up, interstate commerce down the road. We certainly want to have scale and be a very low cost producer. We thank you for joining us today and look forward to a wonderful holiday season for everybody and updating in the new year. Thank you, operator.

This concludes today's program. Thank you for participating. You may now disconnect.