Village Farms (VFF) Q3 2025: Canadian Cannabis Margin Soars to 56% as International Exports Surge
Village Farms delivered record profitability in Q3, propelled by a 56% gross margin in Canadian cannabis and robust international demand. Strategic SKU mix shifts and operational discipline drove margin outperformance, while expanded European exports and a fivefold Dutch capacity ramp signal further upside for 2026. Management’s capital allocation—highlighted by a new share repurchase program—signals confidence in both the business model and long-term international growth catalysts.
Summary
- Margin Expansion: Canadian cannabis gross margin reached a record 56% through mix optimization and operational gains.
- International Acceleration: Exports to Europe and medical channels grew over 750%, with Germany and the Netherlands driving share gains.
- Capacity Ramp: Major greenhouse expansions in Canada and the Netherlands set the stage for continued growth in 2026 and beyond.
Performance Analysis
Village Farms’ Q3 performance was defined by material improvements in both profitability and cash generation, as consolidated net sales grew 21% year over year, underpinned by a 29% increase in Canadian cannabis sales. The company’s Canadian cannabis segment delivered standout results, with net sales hitting a new high and adjusted EBITDA up 309% year over year. International medical exports, particularly to Germany, surged 758% to $16.3 million, reflecting Village Farms’ growing dominance as a supplier to Europe.
Gross margin for Canadian cannabis came in at 56%, well above the targeted 30-40% range, driven by a deliberate SKU mix shift toward higher-margin products, strong pricing, and operational efficiencies. Cash flow from operations reached a record $24.4 million, supporting a strengthened balance sheet and providing the flexibility for both expansion and buybacks. Meanwhile, the Netherlands business ramped quickly, with Q3 sales up 44% sequentially and the first facility now at full capacity, setting up for a fivefold increase as the second facility comes online.
- SKU Mix Realignment: Intentional shift to premium, higher-margin products improved both price realization and profitability.
- Export Momentum: International medical sales, especially to Germany, now represent a critical growth lever and margin driver.
- Operating Leverage: SG&A as a percentage of sales fell to 20%, while cash conversion improved markedly, supporting capital return initiatives.
Legacy produce operations were stable and now represent a smaller share of the business, with the primary growth story focused on cannabis and international expansion.
Executive Commentary
"Our Canadian cannabis business delivered 29% year-over-year growth in net sales, reaching a new high of $64.1 million in Q3, driven by strong performance in our targeted channels, improving sales mix, which has led to higher average pricing, and continued momentum in the International Medical Export Division, which we were up more than 750% year over year."
Michael DiGilio, Chief Executive Officer
"Canadian cannabis gross margin was 56%, up from 26% in Q3 last year, and well above the high end of our target range of 30% to 40%. Our improved gross margin was helped by favorable pricing as compared to the prior year, and we also benefited from increased international export sales, lower packaging inputs, improved productivity, and higher crop yields during the past summer growing season."
Steve Ruffini, Chief Financial Officer
Strategic Positioning
1. Premiumization and Channel Focus
Village Farms’ shift toward premium, higher-margin SKUs in Canadian cannabis has resulted in significant price realization and improved contribution margin. Management’s analysis and consumer feedback indicated that product quality warranted higher price points, and the transition away from value tiers has delivered both market share stability and profitability gains. This strategic SKU realignment is now fully embedded, and management expects to maintain these benefits as capacity expands in 2026.
2. International Expansion and EU GMP Leadership
International medical exports have become a defining growth engine, with Germany at the center of Village Farms’ European strategy. The company’s Delta BC facility, EU GMP (Good Manufacturing Practice) certified since 2022, allows direct shipments to European partners, bypassing riskier supply chain routes. Recent German regulatory changes and increased import quotas further validate Village Farms’ position as a top European exporter, with new markets expected to come online in 2026.
3. Capacity Expansion in Canada and the Netherlands
Capacity ramp is a central pillar for future growth. In Canada, a 40-metric ton expansion is underway, set to increase production capacity by 33% and come online in 2026, with further conversion potential at the Delta One facility. In the Netherlands, the phase two facility will increase production fivefold, positioning Village Farms to capture a larger share of a nascent but rapidly growing recreational market. Management is increasing headcount and operating expenses in anticipation, reflecting high conviction in the market opportunity.
4. Disciplined Capital Allocation
Strong cash generation has enabled a balanced approach to capital allocation, including a $10 million share repurchase program. The company’s net cash position and low leverage provide flexibility to fund both organic growth and opportunistic M&A, especially as regulatory changes unfold in the U.S. and Europe.
5. U.S. Optionality and Clean Energy Upside
Village Farms maintains strategic greenhouse assets in Texas, ready for conversion to cannabis production if U.S. regulations permit. Management is monitoring state-level developments and has structured its business to preserve its NASDAQ listing while keeping U.S. expansion optionality intact. The clean energy segment, while small, continues to contribute incremental net income, providing diversification and future upside potential.
Key Considerations
This quarter marked a critical inflection for Village Farms, as the company solidified its leadership in Canadian cannabis profitability and accelerated its international expansion. Investors should weigh the following:
Key Considerations:
- Margin Durability: Management reiterates a long-term gross margin target of 30-40% for cannabis, though current levels are above range due to favorable market and mix dynamics.
- Export Share Gains: Village Farms is now likely the top exporter to Germany, and expects further international market entries in 2026.
- Capacity Ramp Risks: Execution on Canadian and Dutch expansions will be a key determinant of 2026 revenue and margin trajectory.
- Regulatory Tailwinds: German import quota increases and Dutch recreational market liberalization are creating unique windows for share capture.
- Capital Return: Initiation of a share repurchase program signals management’s confidence in the underlying cash flow and growth outlook.
Risks
Village Farms faces several risks, including regulatory uncertainty in both core and emerging markets, potential pricing pressure if Canadian supply constraints ease, and execution risk as new capacity ramps in the Netherlands and Canada. U.S. expansion remains contingent on federal and state-level reforms, and international competition could intensify as more jurisdictions legalize cannabis. Management’s margin guidance acknowledges potential volatility, and continued operational discipline will be critical to sustaining current profitability levels.
Forward Outlook
For Q4, Village Farms guided to:
- Continued strength in Canadian cannabis with stable gross margin, though some normalization is expected from Q3 peak levels.
- Netherlands revenue in line with Q3, with higher operating expenses ahead of the phase two facility launch.
For full-year 2025, management maintained its focus on:
- 30-40% gross margin target for cannabis, with upside potential as international sales mix rises.
Management highlighted several factors that will drive 2026 performance:
- Incremental capacity coming online in both Canada and the Netherlands.
- Expansion into new international jurisdictions and further penetration in Germany.
Takeaways
Village Farms has emerged as a global leader in cannabis profitability and operational discipline, with international expansion and capacity ramp setting up for continued growth.
- Canadian Cannabis Margin Outperformance: Strategic SKU shifts and operational gains have elevated gross margins well above peer averages, but investors should monitor for normalization as supply dynamics evolve.
- International Scale as a Growth Lever: Germany and the Netherlands are now core to the growth story, with regulatory changes and capacity investments creating a long runway for export-led expansion.
- 2026 Execution Watch: Successful ramp of new facilities and sustained market share gains in Europe will be critical to maintaining Village Farms’ industry-leading profitability.
Conclusion
Village Farms’ Q3 results confirm its transformation into one of the world’s most profitable cannabis operators, with a clear path for further international growth. Margin discipline, export momentum, and capacity expansion are the pillars of its forward strategy, positioning the company for continued outperformance as global cannabis markets evolve.
Industry Read-Through
Village Farms’ record margins and export growth highlight the advantages of vertical integration, operational scale, and EU GMP certification in the global cannabis industry. As European markets liberalize and demand accelerates, operators with proven cultivation, compliance, and direct export capabilities are poised to outpace peers. The Canadian market’s supply constraints and improved pricing environment may be temporary, but Village Farms’ ability to shift mix and scale internationally sets a new standard for margin durability. Other cannabis producers and greenhouse operators should note the increasing importance of international medical and recreational channels, as well as the need for disciplined capital allocation as the sector matures.