Village Farms Q2 Earnings Show Where Scale May Actually Matter in Cannabis

Village Farms International (NASDAQ: VFF) reported second-quarter consolidated net sales of $64.0 million, up 7% year-over-year and 27% sequentially. Net income attributable to shareholders was $7.1 million, or $0.06 per share, while operating cash flow reached $8.9 million.

Cannabis operations generated record sales of $53.5 million.

Village Farms’ cannabis revenue increased just 5% year-over-year. Yet cannabis gross profit climbed 28% to $27.3 million, gross margin expanded to 51% from 42%, net income increased 21% to $8.6 million and adjusted EBITDA from continuing operations rose 16% to $15.3 million.

That widening gap between revenue growth and profit growth points toward something that has proved elusive across cannabis: economies of scale that are actually showing up in the financial statements.

Village Farms Is Getting More From What It Grows

In cannabis, a bigger footprint does not necessarily translate into better economics as price compression, taxes, underutilized cultivation and operating complexity weighed on returns.

Village Farms’ Q2 results offer a different version of scale.

The company achieved record harvest yields at its Delta, British Columbia facilities during the first half of 2026. Higher yields and operating efficiencies reduced its cost of production during Q2, according to management. Combined with a more favorable sales mix, those improvements helped expand cannabis gross margin by nine percentage points year-over-year.

In other words, Village Farms didn’t need anything close to 28% revenue growth to produce 28% gross-profit growth.

President and CEO Michael DeGiglio said adjusted EBITDA and net income were growing meaningfully faster than sales because of the combination of higher yields, lower production costs, and sales mix.

Scale Means Little Without Somewhere Profitable to Sell It

More cannabis production is not necessarily an advantage. In oversupplied markets, additional capacity can become a liability.

What makes Village Farms’ production story more interesting is where an increasing portion of its cannabis is going.

International export sales reached a record $20.9 million during Q2, up 74% year-over-year and 43% sequentially.

According to the company’s Q2 earnings release, Canadian branded cannabis sales declined to $23.0 million from $25.0 million a year earlier, while Canadian non-branded sales fell to $3.0 million from $7.1 million.

The composition of the business is therefore changing underneath relatively modest headline cannabis growth.

International exports accounted for roughly 39% of cannabis sales during the quarter, compared with about 24% a year earlier.

Netherlands branded revenue also increased to $3.3 million from $2.5 million.

Management says its global cannabis enterprise is approaching the point where international markets represent half of revenue.

That distinction matters. Thus, Village Farms seems to be pairing production scale with access to markets capable of absorbing that production.

EU-GMP Is Becoming Part of the Scale Equation

Todd Harrison highlighted another piece of that equation in his notes from the earnings call: management sees EU-GMP certification not simply as a regulatory requirement but as a competitive advantage that took years to develop.

According to Harrison’s call notes, Village Farms said the mix of EU-GMP product has increased substantially following facility upgrades and contributed to stronger Q2 margins.

Management also argued that obtaining — and maintaining — EU-GMP certification is considerably more difficult than simply obtaining permission to export cannabis.

That introduces an important distinction when discussing cannabis scale.

Production capacity by itself is relatively easy to understand, but compliant production capacity connected to international distribution is harder to replicate.

Village Farms says its Delta campus includes the world’s largest EU-GMP certified cannabis facility and that it holds a leading position in Germany, while expecting to enter additional European jurisdictions during the second half of the year.

Another 40 Tonnes Are Coming

Village Farms is about to test whether these economics can hold at considerably greater volume.

The company harvested its first crop from the first half of its Delta 2 greenhouse expansion during Q2.

Management expects the expansion to produce approximately 15 metric tonnes of dried, trimmed flower during the second half of 2026.

At full capacity, Delta 2 is expected to add 40 metric tonnes of annual production, taking the Delta campus to approximately 160 metric tonnes annually.

The Netherlands provides another growth leg.

Phase II cultivation has begun at Groningen, which is expected to bring maximum annual Dutch production capacity to approximately 10 metric tonnes as the facility ramps into 2027.

Management also said it continues to evaluate organic investments and acquisitions but intends to remain disciplined on valuation. Village Farms finished Q2 with $73 million in cash and expects positive operating cash flow to increase that balance through the remainder of the year.

That creates a potentially important inflection point: production capacity is still increasing even as Village Farms says the major expansion capex in Canada and the Netherlands is nearly complete.

There Are Still Numbers Investors Should Watch

The quarter wasn’t uniformly stronger.

Cannabis SG&A increased 31% year-over-year to $15.2 million, considerably faster than the segment’s 5% revenue growth. And cannabis operating cash flow declined to approximately $9.0 million from $19.2 million a year earlier.

Management attributed the variance partly to Canadian income-tax payments and working-capital movements. Village Farms reportedly paid approximately $17 million in income taxes during Q2 and $31 million in excise taxes during the first half of the year.

There is also a limit to how far current margins can be extrapolated.

Management acknowledged on the call that increasing competition could eventually pressure international pricing. It nevertheless said pricing for EU-GMP product remained strong and that further scale at Delta could produce additional efficiencies.

Those dynamics make the next several quarters particularly important.

Village Farms Is Testing a Different Cannabis Growth Model

Village Farms already possesses international infrastructure that many North American cannabis companies are still trying to build.

Village Farms is testing whether the more valuable form of scale may ultimately be operational — producing more cannabis at lower unit costs from large facilities, meeting difficult pharmaceutical-grade standards and directing that production toward multiple markets where pricing and demand justify the capacity.

The numbers are beginning to provide evidence for that model.

Cannabis revenue increased 5%. Gross profit increased 28%. Gross margin reached 51%. Adjusted EBITDA margin reached 28.5%. Exports increased 74%. And considerably more production capacity is still ramping.

The Other Side of Scale: Can Village Farms Sell What It Produces?

Increasing cultivation capacity only creates value if Village Farms can find profitable outlets for the additional production. Q2 provides some evidence that demand is keeping pace, although the company does not disclose a comparable sales-per-store metric.

In Canada, Village Farms maintained a top-five overall market share position and said its brands reached the top 10 nationally across all major product categories for the first time, with continued growth in vapes and infused pre-rolls.

The revenue numbers, however, show that domestic Canada was not the primary growth engine.

According to the company’s Q2 release, Canadian branded sales declined to $23.0 million from $25.0 million a year earlier, while Canadian non-branded sales fell to $3.0 million from $7.1 million.

International exports moved in the opposite direction, rising 74% to $20.9 million.

Europe provides another measure of commercial traction. Management said Village Farms has four of Germany’s top 10 strains by market share and believes its products have the widest pharmacy distribution in the country.

Village Farms has demonstrated that it can produce cannabis efficiently at scale. The next measure of that strategy will be whether international demand and distribution can absorb the additional volume without sacrificing pricing or margins.