Village Farms eyes Dutch adult-use marijuana market via option deal

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Village Farms International struck a deal that gives the British Columbia-based cannabis company an option to purchase an 80% stake in Netherlands-based Leli Holland B.V., one of 10 lottery winners selected to cultivate and distribute adult-use marijuana to retailers under a government-backed pilot program unique for Europe.

The option, which comes with a price tag of 50,000 euros ($58,400), is exercisable at the sole discretion of Village Farms, according to a news release issued Tuesday.

Exercising the option to acquire 80% of Leli’s shares will cost Village Farms 3.95 million euros, of which 950,000 euros will be payable immediately.

The remainder will be due in three installments, subject to the company reaching certain milestones.

In a research note, Stifel GMP analyst Andrew Partheniou wrote that the deal makes Village Farms “attractively positioned to be an early-mover in the one of the first European rec markets with an already established retail network.”

In an email to MJBizDaily, a Village Farms spokesperson said the decision to exercise the option is contingent on Leli’s own regulatory approval, including regulatory matters related to the Dutch supply experiment itself.

The pilot program involves 10 cultivators supplying almost 80 retailers, known as “coffee shops,” which currently operate in a system where sales are legally tolerated but cultivation is prohibited.

Ten municipalities are taking part in the program with all their coffee shops, but the growing locations do not necessarily need to be in those localities.

In a recent interview with MJBizDaily, Village Farms CEO Michael DeGiglio said any expansion by his company into Europe would have to include built-in consumers – in other words, markets where customers are included in the regulatory framework.

“The rec side is where we shine, and if the European Union opens up on rec, that’s where we want to play. Why? Because you have a built-in consumer (in Europe), which you don’t have on the medicinal side – you have to earn it,” he said.

DeGiglio said the Dutch experiment, which will go for four years, mandates that the coffee shops buy all their product from one of those 10 license holders.

“So, right there, you have a built-in customer who has to buy, regulated by the government,” he said.

If Village exercises the option to buy 80% of Leli’s shares, the two businesses plan to construct two indoor production facilities, according to the news release.

Village said the total supply of cannabis for the 10 producers that are participating in the experiment will be a minimum of approximately 65,000 kilograms (143,300 pounds) of dried flower annually.

“”Building on the successes of Pure Sunfarms in Canada, we look forward to leading the market in another legal, regulated recreational cannabis market, with an existing, large consumer base, in what we hope becomes a national and permanent policy,” DeGiglio said in the release.

“Europe, more broadly, represents a significant long-term opportunity in cannabis.”

Shares of Village Farms trade on the Nasdaq as VFF.