6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 or 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of March, 2019

Commission file number: 001-38783

Village Farms International, Inc.

(Translation of Registrant’s name into English)

4700-80^th Street

Delta, British Columbia Canada

V4K 3N3

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

☐  Form 20-F             ☒  Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Attached as Exhibit 99.1 to this Report on Form 6-K are the Audited Financial Statements of Village Farms International, Inc. (the “Company”) for the Years Ended December 31, 2018 and 2017, attached as Exhibit 99.2 to this Report on Form 6-K is Management’s Discussion and Analysis of Financial Position for the Year Ended December 31, 2018, and attached as Exhibit 99.3 to this Report on Form 6-K is a press release of the Company dated March 13, 2019, announcing the Company’s results for the year ended December 31, 2018. Exhibits 99.1, 99.2 and 99.3 are incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Village Farms International, Inc.
	(Registrant)
	By:	/s/ Stephen C. Ruffini
		Stephen C. Ruffini
Date: March 13, 2019		Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Description
99.1	Audited Consolidated Annual Financial Statements, Years Ended December 31, 2018 and 2017.
99.2	Management’s Discussion and Analysis, Year Ended December 31, 2018.
99.3	Press release dated March 13, 2019.

EX-99.1

Exhibit 99.1

Village Farms International, Inc.

Consolidated Financial Statements

Years Ended December 31, 2018 and 2017

Village Farms International, Inc.

Consolidated Statements of (Loss) Income and Comprehensive Income

For the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share data)

	2018		2017
Sales (note 19)	$	150,000	$	158,406
Cost of sales (note 15)		(140,282)		(144,433)
Change in biological asset (note 6)		(834)		265
Selling, general and administrative expenses (note 15)		(15,562)		(15,413)
Loss from operations		(6,678)		(1,175)
Interest expense, net		2,407		2,695
Foreign exchange loss (gain)		1,047		(26)
Other income		(131)		(46)
Share of (income) loss from joint venture (note 8)		(2,381)		255
Gain on disposal of assets (note 8)		—		(8,013)
(Loss) income before income taxes		(7,620)		3,960
(Recovery of) provision for income taxes (note 16)		(2,475)		138
Net (loss) income	$	(5,145)	$	3,822
Basic (loss) income per share (note 21)	$	(0.11)	$	0.10
Diluted (loss) income per share (note 21)	$	(0.11)	$	0.10
Other comprehensive (loss) income:
Foreign currency translation adjustment		(171)		150
Gain on revaluation of land, net of tax (note 7)		—		(1,811)
Comprehensive (loss) income	$	(5,316)	$	2,161

The accompanying notes are an integral part of these consolidated financial statements.

1

Village Farms International, Inc.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars)

	2018		2017
Cash flows from operating activities:
Net (loss) income	$	(5,145)	$	3,822
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		7,027		7,586
Amortization of deferred charges		—		73
(Gain) loss on disposal of assets		—		(8,013)
Share of (income) loss from joint venture (note 8)		(2,381)		255
Interest expense		2,407		2,614
Share-based compensation		1,454		1,519
Deferred income taxes		(2,906)		109
Change in biological asset		834		(265)
Changes in non-cash working capital items (note 18)		(3,551)		(4,417)
Net cash (used in) provided by operating activities		(2,261)		3,283
Cash flows from investing activities:
Purchases of property, plant and equipment		(3,093)		(1,696)
Note receivable to joint venture (note 8)		(10,462)		—
Proceeds from sale of land		65		—
Net cash used in investing activities		(13,490)		(1,696)
Cash flows from financing activities:
Proceeds from borrowings		7,000		7,306
Repayments on borrowings		(7,706)		(14,320)
Interest paid on long-term debt		(2,417)		(2,614)
Proceeds from issuance of common stock, net		23,493		9,769
Proceeds from exercise of stock options		283		59
Payments on capital lease obligations		(71)		(59)
Net cash provided by financing activities		20,582		141
Effect of exchange rate changes on cash and cash equivalents		(2)		(10)
Increase in cash and cash equivalents		4,829		1,718
Cash and cash equivalents, beginning of year		7,091		5,373
Cash and cash equivalents, end of year	$	11,920	$	7,091
Supplemental cash flow information:
Income taxes paid (recovered)	$	290	$	(25)
Supplemental disclosure of non-cash information:
Purchases of capital expenditures by financing capital lease	$	—	$	190
Issuance of warrants	$	—	$	148

The accompanying notes are an integral part of these consolidated financial statements.

2

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

1 NATURE OF OPERATIONS

Village Farms International, Inc. (“VFF” the parent company, together with its subsidiaries, the “Company”) is incorporated under the Canada Business Corporation Act. VFF’s principal operating subsidiaries as at December 31, 2018 are Village Farms Canada Limited Partnership (“VFCLP”), Village Farms, L.P. (“VFLP”), and VF Clean Energy, Inc (“VFCE”). The address of the registered office of VFF is 4700 80^th Street, Delta, British Columbia, Canada, V4K 3N3. VFF owns a 50% equity interest in Pure Sunfarms Corp. (“Pure Sunfarms”), which is recorded as Investment in Joint Venture (note 8).

The Company’s shares are listed on the Toronto Stock Exchange under the symbol VFF and are also listed in the United States on the Nasdaq Capital Market (“Nasdaq”) under the symbol VFF (note 24).

The Company owns and operates sophisticated, highly intensive agricultural greenhouse facilities in British Columbia and Texas, where it produces, markets and sells premium-quality tomatoes, bell peppers, and cucumbers. The Company also markets and sells third party produce through its subsidiaries. The Company, through its subsidiary VFCE, owns and operates a 7.0 MW power plant that generates electricity. In addition, the Company’s joint venture, Pure Sunfarms, is a licensed producer and supplier of cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally.

2 BASIS OF PRESENTATION

Basis of Presentation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The consolidated financial statements were approved by the Board of Directors of the Company for issue on March 14, 2019. Management does not have the authority to amend the consolidated financial statements after the statements have been issued, without the approval by the Board of Directors of the Company. The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies.

Basis of Measurement

The consolidated annual financial statements have been prepared on the historical cost basis except for the following material items on the consolidated statements of financial position:

• biological assets are measured at fair value less costs to sell;

• land is valued at fair market value; and

• marketable equity securities are measured at fair value through profit and loss.

Functional and Presentation Currency

The functional currency for each entity included in these consolidated financial statements is the currency of the primary economic environment in which the entity operates. These consolidated financial statements are presented in United States dollars (“U.S. dollars”) which have been rounded to the nearest thousands, except per share amounts. Currency conversion to U.S. dollars is performed in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates.

3 SIGNIFICANT ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATION UNCERTAINTY

The significant accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

Consolidation

The consolidated financial statements of the Company consolidate the accounts of VFF and its subsidiaries. All intercompany transactions, balances and unrealized gains and losses from intercompany transactions are eliminated on consolidation.    

Joint Venture

A joint venture is a contractual arrangement whereby the Company and other parties undertake an economic activity through a jointly controlled entity. Joint control exists when strategic, financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control. Joint ventures are accounted for using the equity method and are recognized initially at cost. The Company recognizes its share of the post-acquisition income and expenses and equity movement in the venture. If the cumulative losses exceed the carrying amount of the equity investment, they are first applied to any additional advances that are receivable from the joint venture to the extent of the total amount receivable. Additional losses are recognized only to the extent that there exists a legal or constructive obligation.

3

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

Segment Reporting

Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer (“CEO”). Based on the aggregation criteria in IFRS 8, Operating Segments, the Company has identified two operating segments, the Produce Business and the Energy Business.

Foreign Currency Translation

Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rates in effect at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate in effect when the fair value was determined. Foreign currency differences are generally recognized in net income. Non-monetary items that are measured based on historical cost in a foreign currency are translated to the functional currency using the exchange rate in effect at the date of the transaction giving rise to the item.

Financial Instruments

Financial assets and liabilities are recognized when the Company becomes party to the contractual provisions of the financial instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when the obligation specified in the contract is discharged, cancelled or expired.

Financial assets and liabilities are offset and the net amount is reported on the consolidated statements of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

Classification and Measurement

The Company has assessed the classification and measurement of its financial assets and financial liabilities under IFRS 9 and has summarized the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 in the following table:

	Measurement Category
	Original (IAS 39)	New (IFRS 9)
Financial Assets:
Cash	Amortized cost	Amortized cost
Trade receivables	Amortized cost	Amortized cost
Marketable equity securities	Available-for-sale	Fair value through other comprehensive income
Other financial assets	Amortized cost	Amortized cost
Financial Liabilities:
Trade payables	Amortized cost	Amortized cost
Debt	Amortized cost	Amortized cost
Derivative instruments	Fair value through profit or loss	Fair value through profit or loss
Other financial liabilities	Amortized cost	Amortized cost

There has been no change in the carrying value of our financial instruments or to previously reported figures as a result of changes to the measurement categories in the table noted above.

Impairment of Financial Assets

Prior to January 1, 2018, at each reporting date, the Company assessed whether there was objective evidence that a financial asset was impaired. The criteria used to determine if objective evidence of an impairment loss exists include:

i) significant financial difficulty of the obligor;

ii) delinquencies in interest or principal payments; and

iii) it becomes probable that the borrower will enter bankruptcy or other financial reorganization.

If such evidence existed, the Company recognized an impairment loss as follows:

i) Financial assets carried at amortized cost: The loss equaled the difference between the amortized cost of the loan or receivable and the present value of the estimated future cash flows, discounted using the instrument’s original effective interest rate. The carrying amount of the asset was reduced by this amount either directly or indirectly through the use of an allowance account.

4

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

ii) Available-for-sale financial assets: The impairment loss equaled the difference between the original cost of the asset and its fair value at the measurement date, less any impairment losses previously recognized in the consolidated statements of (loss) income. This amount represented the cumulative loss in accumulated other comprehensive income that was reclassified to net income.

Subsequent to January 1, 2018, the Company assesses all information available, including, on a forward-looking basis, the expected credit losses associated with its assets carried at amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. To assess whether there is a significant increase in credit risk, the Company compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition based on all information available, and reasonable and supportive forward-looking information. For trade receivables only, the Company applies the simplified approach as permitted by IFRS 9 which requires expected lifetime losses to be recognized from initial recognition of the receivables.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash deposits held with banks, and other highly liquid short-term interest bearing securities with maturities at the date of purchase of three months or less.

Trade Receivables

Trade receivables are measured at amortized cost, net of allowance for uncollectible amounts. Credit is extended based on an evaluation of a customer’s financial condition. Accounts outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time accounts are past due, the Company’s previous loss history and the customer’s current ability to pay its obligation to the Company. Trade receivables are recorded net of lifetime expected credit losses.

Inventories

Inventories refer to deferred crop costs and other supplies and packaging which are incurred to date on current production and are not defined as a biological asset. Inventories of Company-grown produce consist of raw materials, labour and overhead costs incurred less costs charged to cost of sales throughout the various crop cycles, which end at various times throughout the year. Growing crops are accounted for in accordance with the Company’s policy on biological assets. Cost of sales is based on estimated costs over the crop cycle allocated to both actual and estimated future yields at each period-end date.

The carrying value of agricultural produce is its fair value less costs to sell and complete at the date of harvest and is presented with biological asset on the consolidated statements of financial position. Supplies and packaging are recorded at the lower of cost or replacement cost. The cost of produce inventory purchased from third parties is valued at the lower of cost or net realizable value.

Biological Asset

Biological asset consists of the Company’s produce on the vines at year-end. Measurement of the biological asset begins six weeks prior to harvest as management at this point has visibility on production and expected sales and it is probable that future economic benefits associated with the asset will flow to the entity. Costs related to the crop prior to this point are presented in deferred crop costs (inventories). The produce on the vine is measured at fair value less costs to sell and costs to complete, with any change therein recognized in income. Costs to sell include all costs that would be necessary to sell the assets, including finishing and transportation costs.

5

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

Property, Plant and Equipment

Recognition and measurement

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, except for land. Until the fiscal year ended December 31, 2016, land had been stated at cost, and is now stated at fair value and will be revalued every three years by an independent external appraiser. Any revaluation increase arising on appraisal of land is recognized in other comprehensive income on the consolidated statements of (loss) income and revaluation surplus on the statements of financial position. Any revaluation decrease arising on appraisal of land is also charged to other comprehensive income and, to the extent of any credit balance existing, debited to revaluation surplus in equity with the excess recognized in net income or loss,

Property, plant and equipment costs include expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowing costs.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is presented net within gain/loss on disposal of assets in the consolidated statements of (loss) income.

Depreciation

Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed, and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Depreciation expense is recognized on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Land is not depreciated. The estimated useful lives of the class of assets for the current and comparative periods are as follows:

Classification	Estimated Useful Lives
Leasehold and land improvements	5-20 years
Greenhouses and other buildings	4-30 years
Greenhouse equipment	3-30 years
Machinery and equipment	3-12 years

Construction in process reflects the cost of assets under construction, which are not depreciated until placed into service.

Impairment of Non-Financial Assets

Property, plant and equipment and intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purpose of testing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or “CGUs”). An impairment loss is recognized for the amount, if any, by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use (being the present value of the expected future cash flows of the relevant asset or CGUs).

Leased Assets

Leases where the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and rent expenses are recognized in the Company’s consolidated statements of (loss) income.

Borrowing Costs

Borrowing costs attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All other borrowing costs are recognized initially at fair value. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statements of (loss) income over the year of the borrowings using the effective interest method.

6

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

Revenue Recognition

Prior to January 1, 2018, revenue from the sale of produce in the course of ordinary activities was measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue from the production and sale of power was measured at the fair value of the consideration received or receivable. Revenue was recognized when persuasive evidence existed that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration was probable, the associated costs and possible return of goods could be estimated reliably, there was no continuing management involvement with the goods, and the amount of revenue could be measured reliably. If it was probable that discounts would be granted and the amount could be measured reliably, then the discount was recognized as a reduction of revenue as the sales were recognized. The timing of the transfer of risks and rewards occurred at the time the produce had been successfully delivered, the risk of loss had passed to the customer, and collectability was reasonably assured.

The Company adopted IFRS 15, Revenue from Contracts with Customers on January 1, 2018 using the modified retrospective transition approach and now recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. In order to achieve this core principle, the Company applies a five-step process. As part of this process, it analyzes the performance obligations in a customer contract and estimates the consideration it expects to receive. The evaluation of performance obligations requires that the Company identifies the promised goods and services in the contract. For contracts that contain more than one promised good and service, the Company then must determine whether the promises are capable of being distinct and if they are separately identifiable from other promises in the contract.

Income Taxes

The tax expense for the year comprises current and deferred tax. Tax is recognized in the consolidated statements of (loss) income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the consolidated statements of financial position dates in the relevant tax jurisdiction. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of the amounts expected to be paid to the tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted at the consolidated statements of financial position dates and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Offsetting of deferred income tax assets and liabilities occurs only when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Share-Based Compensation

The Company grants stock options and performance-based restricted share units (“RSUs”) to certain employees and directors.

Stock options generally vest over three years (33% per year following the grant date) and expire after ten years. Each tranche in an award is considered a separate award with its own vesting period. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over the tranche’s vesting period by increasing contributed surplus based on the number of awards expected to vest. The number of awards expected to vest is reviewed at least annually, with any impact recognized immediately.

The RSUs granted are expected to be settled using the Company’s own equity and issued from treasury. The equity-settled share-based compensation is measured at the fair value of the Company’s common shares as at the grant date in accordance with the terms of the RSU Plan. The fair value determined at the grant date is charged to income when performance based vesting conditions are met, based on the estimate of the number of RSUs that will eventually vest and be converted to common shares, with a corresponding increase in equity.

7

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

Provisions

Provisions, where applicable, are recognized in accrued liabilities when the Company has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the end of the reporting period, and are discounted to present value where the effect is material.

(Loss) Income Per Share

Basic income per share are computed using the weighted average number of common shares outstanding during the period. The treasury stock method is used for the calculation of diluted income per share. Under this method, the weighted average number of common shares outstanding assumes that the proceeds to be received on the exercise of dilutive share options are applied to repurchase common shares at the average market price for the period. Share options are dilutive when the average market price of the common shares during the period exceeds the exercise price of the options.

Significant Accounting Judgments and Estimation Uncertainties

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income, and expenses. These estimates and judgments have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in future periods.

Critical accounting estimates and judgments

i) Estimated useful lives of property, plant and equipment

Management estimates the useful lives of property, plant and equipment based on the period during which the assets are expected to be available for use. The amounts and timing of recorded expenses for depreciation of property, plant and equipment for any period are affected by these estimated useful lives. The estimates are reviewed at least annually and are updated if expectations change as a result of physical wear and tear, technical or commercial obsolescence and legal or other limits to use. It is possible that changes in these factors may cause significant changes in the estimated useful lives of the Company’s property, plant and equipment in the future.

ii) Biological asset

The fair value of the biological asset is derived using a discounted cash flow model. Management estimates the sales price of produce on the vine by utilizing actual sales prices for the first six weeks following the end of the reporting period and estimates the costs to sell and complete by projecting yields and crop, packaging, and transportation costs. The estimated costs are subject to fluctuations based on the timing of prevailing growing conditions and market conditions. Management has also used judgment in determining the point at which biological transformation has occurred to the point that they expect it is probable that future economic benefits associated with the crop will flow to the Company.

iii) Inventories and cost of sales

Cost of sales is based upon incurred costs, and estimated costs to be incurred, of each crop allocated to both actual and estimated future yields over each crop cycle. The estimates of future yields are reviewed at each reporting period for accuracy. However, numerous factors such as weather, diseases and prevailing market conditions can impact the estimation of pricing, costs, and future yields. The estimated costs to be incurred are based on references to historical costs and updated for discussions with suppliers and senior management. Inventories include the actual cost of the crop not yet defined as a biological asset, packaging supplies, and purchased produce, less the amounts that have been expensed in cost of sales.

iv) Income taxes and deferred income tax assets or liabilities

Management uses judgment and estimates in determining the appropriate rates and amounts in recording deferred taxes, giving consideration to timing and probability. Actual taxes could vary significantly from these estimates as a result of future events, including changes in income tax law or the outcome of reviews by tax authorities and related appeals. The resolution of these uncertainties and the associated final taxes may result in adjustment to the Company’s tax assets and tax liabilities. The recognition of deferred income tax assets is subject to judgment and estimation over whether these amounts can be realized.

4 CHANGES IN ACCOUNTING POLICIES

The Company has adopted the following new and revised standards and changes in accounting policies, along with any consequential amendments as at January 1, 2018. These changes were made in accordance with the applicable transitional provisions.

8

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

IFRS 9, Financial Instruments replaced the current IAS 39, Financial Instruments Recognition and Measurement. This standard sets out revised guidance for classifying and measuring financial assets and liabilities, introduces a new expected credit loss model for calculating impairment of financial assets and includes a reformed approach to hedge accounting. The standard also requires that when a financial liability at amortized cost is modified or exchanged, and such modification or exchange does not result in de-recognition, that the adjustment to the amortized cost of the financial liability is recognized in profit or loss. IFRS 9 was adopted without restating comparative information. The reclassifications arising from the new rules are therefore not reflected in the statement of financial position as at December 31, 2017, but are recognized in the opening statement of financial position on January 1, 2018.

Following the adoption of IFRS 9, the Company could no longer defer and amortize financing fees that resulted from the refinancing of borrowings in periods prior to January 1, 2018. As a result, the Company has restated the beginning balances noted in the table below to properly account for $260 of financing fees in accordance with IFRS 9. The standard was applied retrospectively therefore approximately $260 of deferred financing costs, net of accumulated amortization, remain netted against long-term debt on the consolidated statement of financial position, as at December 31, 2017.

The following tables show the adjustments recognized for each individual line item.

	December 31, 2017 As originally presented		IFRS 9 Adjustments			January 1, 2018 Restated
Statement of Financial Position (extract)
Non-current liabilities
Long-term debt	$	35,760	$	260		$	36,020
Total liabilities		61,298		260			61,558
Shareholders’ Equity
Retained earnings		39,272		(260	)		39,012
Total shareholders’ equity	$	81,043	$	(260	)	$	80,783
Statements of (Loss) Income and Comprehensive (Loss) Income (extract)
Interest expense	$	2,695	$	260		$	2,955
Income (loss) before income taxes		3,960		(260	)		3,700
Provision for income taxes		138		—			138
Net income (loss)	$	3,822	$	(260	)	$	3,562
Basic income (loss) per share	$	0.10	$	(0.01	)	$	0.09
Diluted income (loss) per share	$	0.10	$	(0.01	)	$	0.09

IFRS 15, Revenue from Contracts with Customers, replaces IAS 18, Revenue, and IAS 11, Construction Contracts, and the related Interpretations on revenue recognition. IFRS 15 establishes a single comprehensive model for recognizing revenues from contracts with customers. The standard requires revenue to be recognized in a manner that depicts the transfer of promised goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for transferring those goods and services.

The Company generates its revenue through the sale of produce, with standard shipping terms and discounts, and through the production and sale of power.

The Company’s produce revenue transactions consist of single performance obligations to transfer promised goods. Quantities to be delivered to the customer are determined at a point near the date of delivery through purchase orders it receive from the customer. The Company recognizes revenue when it has fulfilled a performance obligation, which is typically when the customer receives the goods and its performance obligation is complete. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring product. The amount of revenue recognized is reduced for estimated returns and other customer credits, such as discounts and rebates, based on the expected value to be realized. Payment terms are consistent with terms standard to the markets the Company serves. The Company maintains an allowance for doubtful accounts for the loss that would be incurred if a customer was unable to pay amounts due. The Company initially estimates the allowance required at the time of revenue recognition based on historical experience and makes changes to the allowance based on various factors, including changes in the customer’s financial condition or payment patterns.

9

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

The Company sells electricity to British Columbia Hydro and Power Authority. Revenues are recognized as the electricity is delivered to/consumed by the customer and is based on contractual usage rates and meter readings that measure electricity consumption.

The Company adopted IFRS 15, as of January 1, 2018, using the modified retrospective transition method, which involves not restating periods prior to the date of initial application. The application of IFRS 15 required no change in amounts recognized in the Company’s consolidated financial statements for the year ended December 31, 2018, as the amount and timing of substantially all of its revenues is, and will continue to be, recognized at a point in time. Disclosures required by IFRS 15 have been included in the financial statements.

Accounting Standards Issued

IFRS 16, Leases, issued in January 2016, replaces IAS 17, Leases, and related Interpretations. IFRS 16 establishes the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (lessee) and the supplier (lessor). IFRS 16 requires a lessee to recognize a right-of-use asset representing its right to use the underlying leased asset and a corresponding lease liability representing its obligation to make lease payments for all leases. A lessee recognizes the related expense as depreciation on the right-of-use asset and interest on the lease liability. Short-term (less than 12 months) and low-value asset leases are exempt from these requirements. IFRS 16 may be implemented using a retrospective approach or a modified retrospective approach, which permits the use of certain practical expedients upon transition. The Company expects to use the modified retrospective method upon transition with no restatement of comparative financial information. Under this approach, the Company will recognize the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of retained earnings at January 1, 2019. The Company will recognize a lease liability at the present value of the remaining lease payments discounted using the lease’s incremental borrowing rate at January 1, 2019 and a right-of-use asset at its carrying amount as if IFRS 16 had been applied since the commencement date but discounted using the Company’s incremental borrowing rate at January 1, 2019. Management expects that IFRS 16 will result in the following: a) an increase in assets and liabilities as fewer leases will be expensed as payments are made; b) an increase in depreciation expenses; and c) an increase in cash flow from operating activities as these lease payments will be recorded as financing outflows in the cash flow statements.

IFRS 11, Joint Arrangements, and IAS 28, Investments in Associates and Joint Ventures establishes the criteria for accounting for joint ventures. Investments in joint ventures are accounted for using the equity method. The equity method involves recording the initial investment at cost and subsequently adjusting the carrying value of the investment for the proportionate share of the profit or loss, other comprehensive income or loss and any other changes in the joint venture’s net assets such as dividends. At each consolidated statement of financial position date, the Company will consider whether there is objective evidence that its investment in the joint venture is impaired. If there is such evidence of impairment, the Company will determine the amount of the impairment and a loss will be recorded in the consolidated statement of (loss) income. IFRS 11 is effective for annual periods beginning on or after January 1, 2019.

5 INVENTORIES

	December 31, 2018			December 31, 2017
Deferred crop costs	$	24,649		$	19,070
Purchased produce inventory		643			396
Biological asset adjustment (note 6)		(2,871	)		(2,212	)
Spare parts inventory		64			55
	$	22,485		$	17,309

The cost of inventories recognized as expense and included in cost of sales for the year ended December 31, 2018 amounted to $114,236 (2017 - $120,509). The biological asset adjustment reclassifies actual costs incurred for the biological asset from inventories to biological asset on the consolidated statements of financial position.

6 BIOLOGICAL ASSET

Information about the biological asset presented on the consolidated statements of financial position and in the consolidated statements of (loss) income is as follows:

	December 31, 2018			December 31, 2017
Estimated sales value - biological asset	$	8,004		$	7,937
Less
Estimated remaining costs to complete		3,304			3,043
Estimated selling costs		470			489
Fair value of biological asset less costs to sell		4,230			4,405
Less actual costs (note 5)		2,871			2,212
Increase in fair value of biological asset over cost		1,359			2,193
Fair value over cost of harvested and sold biological asset—beginning of year		2,193			1,928
Change in biological asset	$	(834	)	$	265

10

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

7 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	Land			Leasehold and land improve- ments			Buildings			Machinery and Equipment			Construction in process			Total
Year ended December 31, 2017
Opening net book value	$	1,864		$	1,692		$	50,517		$	31,767		$	295		$	96,135
Additions/transfers		—			—			(416	)		789			1,412			1,785
Additions-Capital Lease		—			—			—			191			—			191
Placed in service		—			—			—			1,071			(1,164	)		(93	)
Disposals		(2,752	)		—			(5,524	)		(4,694	)		(75	)		(13,045	)
Accum deprec on disposal		—			—			1,601			2,521			—			4,122
Depreciation expense		—			(95	)		(2,858	)		(4,633	)		—			(7,586	)
Foreign currency translation adjustment		—			—			24			221			—			245
Closing net book value	$	9,112		$	1,597		$	43,344		$	27,233		$	468		$	81,754
At December 31, 2017
Cost	$	9,112		$	3,820		$	77,029		$	63,237		$	468		$	153,666
Accumulated depreciation		—			(2,223	)		(33,685	)		(36,004	)		—			(71,912	)
Net book value	$	9,112		$	1,597		$	43,344		$	27,233		$	468		$	81,754

11

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

Year ended December 31, 2018
Opening net book value	$	9,112		$	1,597		$	43,344		$	27,233		$	468		$	81,754
Additions/transfers		—			—						3,012			3,116			6,128
Placed in service		—			—			—						(3,035	)		(3,035	)
Disposals		(65	)		—			—			(565	)		—			(630	)
Accum deprec on disposal		—			—			—			565			—			565
Depreciation expense		—			(85	)		(2,604	)		(4,338	)		—			(7,027	)
Foreign currency translation adjustment		—			—			(26	)		(253	)		3			(276	)
Closing net book value	$	9,047		$	1,512		$	40,714		$	25,654		$	552		$	77,479
At December 31, 2018
Cost	$	9,047		$	3,820		$	77,003		$	65,996		$	552		$	156,418
Accumulated depreciation		—			(2,308	)		(36,289	)		(40,342	)		—			(78,939	)
Net book value	$	9,047		$	1,512		$	40,714		$	25,654		$	552		$	77,479

Depreciation related to the greenhouse facilities and equipment is expensed in cost of sales. Land is the only item of property, plant and equipment that is stated at fair values. As at December 31, 2017, land, greenhouse buildings, and greenhouse equipment at Delta 3 were contributed as the Company’s investment in the joint venture transaction (note 8). The revaluation surplus related to Delta 3 of $1.8 million, net of taxes, that was previously recorded as a component of equity, was reclassified and included as part of the gain on disposal of assets recorded in the consolidated statements of (loss) income .

8 INVESTMENT IN JOINT VENTURE

On June 6, 2017, the Company entered into an agreement to form Pure Sunfarms Corp. (“Pure Sunfarms”), a B.C. corporation, with Emerald Health Therapeutics Inc. (“Emerald”). The purpose of Pure Sunfarms is to pursue large-scale cannabis production in Canada. Village Farms has a 50% ownership interest in Pure Sunfarms in the form of common shares. The Company has concluded that the agreement constitutes a joint arrangement where joint control is shared with Emerald and therefore has accounted for Pure Sunfarms in accordance with IFRS 11 and IAS 28, using the equity method.

In conjunction with the formation of Pure Sunfarms, Village Farms contributed the rights to lease and purchase the Delta 3 land and greenhouse facility to the joint venture. The contribution of the rights has been accounted for as a reduction of the land and greenhouse facility in exchange for the investment in Pure Sunfarms Corp. It was determined that the land and greenhouse facility had a fair value of $14.9 million (CA$20 million) at the date of contribution. The fair value of the land was determined through an appraisal performed by an independent valuator. The fair value of the greenhouse was determined using the replacement cost model adjusted for the age of the greenhouse. This was a non-cash transaction. The Company recognized a gain of $8.0 million on the contribution of the land and greenhouse. The Company had previously recorded a fair value increase on the Delta 3 land (2016 - $2.1 million), which was recorded in accumulated other comprehensive income, net of taxes of $1.8 million. As a result of the contribution of the Delta 3 land, this amount has been recycled to the consolidated statements of (loss) income, and has been included in the gain noted above.

As part of the transaction, Village Farms incurred related transaction costs of $1.1 million (CA$1.4 million), which have been added to the amount of the investment in Pure Sunfarms Corp. in accordance with IAS 28. Included in these costs are 300,000 common share purchase warrants valued at $148 (CA$192), issued to an affiliate of a Canadian financial institution as partial consideration for services related to the joint venture agreement. As at December 31, 2018 the Investment in Joint Venture of $18.1 million (December 31, 2017 - $15.7 million) is recorded in the consolidated statement of financial position. For the year ended December 31, 2018, the Company’s share of net income from joint venture totaled $2,381 (CA$3,084) (2017 - $255), which is recorded in the consolidated statement of loss.

On July 5, 2018, the Company and Emerald Health Therapeutics Canada Inc. (a subsidiary of Emerald) (together, the “Shareholders”) entered into a Shareholder Loan Agreement (the “Loan Agreement”) with Pure Sunfarms, whereby, as at December 31, 2018, the Shareholders had each contributed CA$13,000 (US$9,959) the form of a demand loan to Pure Sunfarms. The loan amounts will initially bear simple interest at the rate of 8% per annum, calculated semi-annually. Interest will accrue and be payable upon demand being made by both Shareholders (see note 13).

The Company’s share of the joint venture consists of the following (in $000’s of USD):

Balance, January 1, 2018	$	15,727
Share of income for the year		2,381
Balance, December 31, 2018	$	18,108

12

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

Summarized financial information of Pure Sunfarms (in $000’s of CAD):

	December 31, 2018			December 31, 2017
Current assets
Cash and cash equivalents	$	2,362		$	2,907
Trade receivables		1,312			—
Inventory		8,356			25
Biological asset		7,388			—
Other current assets		996			450
Non-current assets		67,263			23,144
Current liabilities
Trade payables		(9,361	)		(253	)
Current maturities of long-term debt		(26,523	)		—
Other current liabilities		(3,582	)		(918	)
Non-current liabilities		(2,688	)		—
Net assets	$	45,523		$	25,355

	December 31, 2018			December 31, 2017
Reconciliation of net assets:
Accumulated deficit	$	5,523		$	(645	)
Contributions from joint venture partners		40,000			26,000
Net assets	$	45,523		$	25,355
	Year Ended December 31, 2018			Year Ended December 31, 2017
Revenue	$	4,917		$	—
Cost of sales		(1,542	)		—
Selling, general and administrative expenses		(3,386	)		(880	)
Change in fair value of bio-asset		8,785			—
Income (loss) from operations		8,774			(880	)
Interest expense, net		(97	)		—
Foreign exchange loss		(234	)		(4	)
Other income, net		24			—
Income (loss) before taxes		8,467			(884	)
(Provision for) recovery of income taxes		(2,298	)		239
Net income (loss)	$	6,169		$	(645	)

13

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

9 OTHER ASSETS

The following table summarizes the components of other assets:

	December 31, 2018		December 31, 2017
Patronage stock	$	386	$	437
Note receivable (note 13)		64		70
Security deposits		540		538
Cash surrender value - insurance		929		924
Other		288		35
Total	$	2,207	$	2,004

10 DEBT

	December 31, 2018			December 31, 2017
Long-term debt:
Opening balance	$	38,380		$	45,534
IFRS adjustment for deferred financing fees		260
Proceeds from long-term debt		—			306
Repayment of debt		(2,738	)		(7,320	)
Foreign currency translation		(43	)		120
Closing balance	$	35,859		$	38,640
Current portion	$	3,414		$	2,620
Non-current portion		32,445			36,020
Less: Unamortized deferred transaction costs		—			(260	)
	$	35,859		$	38,380

The Company has a Term Loan financing agreement with a Canadian creditor (“FCC Loan”). The non-revolving variable rate term loan has a maturity date of May 1, 2021 and a balance of $34,385 as at December 31, 2018. The outstanding balance is repayable by way of monthly installments of principal and interest based on an amortization period of 15 years, with the balance and any accrued interest to be paid in full on May 1, 2021. As at December 31, 2018, borrowings under the FCC Loan agreement are subject to an interest rate of 7.082% (December 31, 2017 - 5.885%) which is determined based on the Company’s Debt to EBITDA ratio and the applicable LIBOR rate.

The Company’s subsidiary VFCE has a loan agreement with a Canadian Chartered Bank that includes a non-revolving fixed rate loan of CA$3.0 million with a maturity date of June 2023 and fixed interest rate of 4.98%. As at December 31, 2018, the balance was US$1,279 (December 31, 2017 - US$1,658). The loan agreement also includes an uncommitted, non-revolving credit facility for up to CA$300 to cover Letters of Guarantee issued by the bank on behalf of the Company, with a maximum term of 365 days, renewable annually. The loan agreement also includes an uncommitted credit facility for up to CA$700 to support financing of certain capital expenditures. The Company received an initial advance of CA$250 in October 2017. Each advance is to be repaid on a five-year, straight-line amortization of principal, repaid in monthly installments of principal plus interest at an interest rate of CA$ prime rate plus 200 basis points. As at December 31, 2018, the balance was US$138 (December 31, 2017 - $192) .

The Company has a line of credit agreement with a Canadian Chartered Bank ( “Operating Loan”). The revolving Operating Loan has a line of credit up to CA$13,000 and variable interest rates with a maturity date on May 31, 2021, and is subject to margin requirements stipulated by the bank. As at December 31, 2018, US$2,000 was drawn on this facility (December 31, 2017 - $nil), which is available to a maximum of CA$13,000, less outstanding letters of credit totaling US$261 and CA$38.

The Company’s borrowings (“Credit Facilities”) are subject to certain positive and negative covenants. As at December 31, 2018 the Company was in compliance with all covenants on its Credit Facilities with the exception of two of its FCC Loan covenants. The Company received a waiver for its Debt Service Coverage and Debt to EBITDA covenants as at December 31, 2018.

14

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

Accrued interest payable on the credit facilities and loans as at December 31, 2018 was $184 (December 31, 2017 - $193) and these amounts are included in accrued liabilities in the interim statement of financial position.

The aggregate annual maturities of long-term debt for the next five years and thereafter are as follows:

2019	$	3,414
2020		3,409
2021		28,551
2022		330
2023		155
Thereafter		—
	$	35,859

11 COMMITMENTS

Operating Leases

The Company has entered into certain operating lease commitments for land, office space and equipment through 2022. The future minimum lease payments for the next five years and thereafter are as follows:

2019	$	1,253
2020		1,039
2021		1,052
2022		841
2023		618
Thereafter		261
	$	5,064

The Company made payments of $1,732 during the year ended December 31, 2018 (2017 - $1,682). Payments include common area amounts and fees paid to the lessors.

12 FINANCIAL INSTRUMENTS

The following table summarizes the carrying and fair value of the Company’s financial instruments:

	December 31, 2018		December 31, 2017
Cash and cash equivalents	$	11,920	$	7,091
Trade receivables	$	11,292	$	11,259
Other financial assets	$	11,659	$	2,491
Other financial liabilities	$	57,198	$	56,718

Financial assets and liabilities are recognized on the consolidated statements of financial position at fair value in a hierarchy that is based on significance of the inputs used in making the measurements. The levels in the hierarchy are:

• Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities

• Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

• Level 3 - Inputs for the asset or liability that are not based on observable market data (i.e., unobservable inputs).

At December 31, 2018 and 2017, the Company’s financial instruments included cash and cash equivalents, trade receivables, notes receivable, other receivables, patronage stock, accounts payable, other current liabilities and notes payable. Due to the short-term maturities of cash and cash equivalents, accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate fair value at the respective balance sheet dates. The carrying value of the notes receivable and notes payable approximate their fair value based on a comparison with the prevailing market interest rates. The fair values of the Company’s notes receivable and notes payable are level 2 measurements in the fair value hierarchy. All other financial assets and liabilities are level 1. None were classified as level 3.

15

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

There were no financial instruments categorized as Level 2 or 3 as at December 31, 2018 and 2017. There were no transfers of assets or liabilities between levels during the years ended December 31, 2018 and 2017.

Interest income, expense and gains and losses from loans, receivables and other financial liabilities are recognized in the consolidated statements of (loss) income. The following table summarizes interest income and expense for the years ended December 31:

	2018		2017
Interest income earned on cash and cash equivalents	$	311	$	—
Interest expense from other financial liabilities	$	2,718	$	2,695

Management of financial risks

The Company, through its financial assets and liabilities, is exposed to various risks. The following provides a measurement of some of these risks as at December 31, 2018 and 2017. The Company uses financial instruments only for risk management purposes, not for generating trading profit.

i) Credit risk

Credit risk is the risk that the Company will incur a loss due to the failure by its customers or other parties to meet their contractual obligations. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, trade receivables and other receivables. The Company limits its exposure to credit risk by placing its cash and cash equivalents with high credit quality financial institutions.

The Company’s trade receivables had two customers that represented more than 10% of the balance of trade receivables, representing 13.8% and 11.5% of the balance of trade receivables as at December 31, 2018 (2017 - two customers represented 16.0% and 14.8%). The Company believes that its expected credit losses are limited due to the protection afforded to the Company by the Perishable Agricultural Commodities Act (the “PACA”) for its sales in the United States, which represent the majority of the Company’s annual sales. The PACA protection gives a claim filed under the PACA first lien on all PACA assets (which include cash and trade receivables of the debtor).

Trade receivables were evaluated for possible indicators of impairment and an allowance for doubtful accounts has been estimated based on the lifetime expected credit losses. At December 31, 2018, the allowance for doubtful accounts balance was $50 (2017 - $50).

At December 31, 2018, 90.3% (2017 - 89.4%) of trade receivables were outstanding less than 30 days, 8.3% (2017 – 7.4%) were outstanding for between 30 and 90 days and the remaining 1.4% (2017 - 3.2%) were outstanding for more than 90 days. Trade receivables are considered past due based on the contract terms agreed to with a customer. Aged receivables that are past due are not considered impaired unless customer specific information indicates otherwise.

ii) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its long-term debt, for which the interest rates charged fluctuate based on the 90-day LIBOR rate. If interest rates had been 50 basis points higher, the net loss during the year ended December 31, 2018 would have been higher by $182. This represents $182 in increased interest expense (2017 - $201).

iii) Foreign exchange risk

At December 31, 2018, the Canadian/U.S. foreign exchange rate was CA$1.00 = US$0.7336 (2017 – US$0.7966). Assuming that all other variables remain constant, an increase of $0.10 in the Canadian dollar would have the following impact on the ending balances of certain consolidated statements of financial position items at December 31, 2018 and December 31, 2017 with the net foreign exchange gain or loss directly impacting net income (loss) for the years.

16

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

	December 31, 2018			December 31, 2017
Financial assets
Cash and cash equivalents	$	841		$	287
Trade receivables		328			349
JV Note receivable		1,335
Financial liabilities
Trade payables and accrued liabilities		(373	)		(371	)
Loan payable		(193	)		(232	)
Net foreign exchange gain (loss)	$	(1,936	)	$	(167	)

iv) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The following are the contractual maturities of financial liabilities as at December 31, 2018:

Financial liabilities	Total		1 year		2-3 years		4-5 years		More than 5 years
Long-term debt	$	35,859	$	3,414	$	31,959	$	486	$	—
Line of credit		2,000		2,000		—		—		—
Trade payables		14,601		14,601		—		—		—
Accrued liabilities		3,509		3,509		—		—		—
Obligation under capital lease		180		78		92		10		—
Other liabilities		1,050		—		1,050		—		—
Total	$	57,199	$	23,602	$	33,101	$	496	$	—

It is the Company’s intention to meet these obligations through the collection of current accounts receivable and cash from sales. If the current resources and cash generated from operations are insufficient to satisfy its obligations, the Company may seek to issue additional equity or to arrange debt or other financing. In addition, as at December 31, 2018, the Company has an operating credit facility of up to CA$13,000, less outstanding letters of credit totaling US$261 and CA$38.

v) Fair values

The carrying amount of short-term financial instruments, less provisions for impairment if applicable, is consistent with the fair value of such instruments. The Company’s debt bears a variable interest rate tied to market rates and therefore its carrying value approximates its fair value.

13 RELATED PARTY TRANSACTIONS AND BALANCES

As at December 31, 2018, the Company had amounts due from its joint venture, Pure Sunfarms, totaling $1,179 (December 31, 2017 - $411) primarily for consulting services and the reimbursement of expenses which occurred in the year. These amounts were non-interest bearing and were due on demand. On July 5, 2018, the Shareholders entered into a Loan Agreement with Pure Sunfarms, whereby, as at December 31, 2018, the Shareholders had each contributed CA$13,000 (US$9,959) in the form of a demand loan to Pure Sunfarms. The loan amounts will initially bear simple interest at the rate of 8% per annum, calculated semi-annually. Interest will accrue and be payable upon demand being made by either Shareholder. These amounts are included in amounts due from joint venture in the consolidated statements of financial position.

One of the Company’s employees is related to a member of the Company’s executive management team and received $108 in salary and benefits during the year ended December 31, 2018 (2017 - $98).

Included in other assets as at December 31, 2018 is a $64 (December 31, 2017 - $70) promissory note that represents the unpaid amount the Company advanced to an employee in connection with a relocation at the request of the Company.

17

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

14 COMPENSATION OF KEY MANAGEMENT

Key management includes the Company’s officers and vice presidents:

	Year Ended December 31, 2018		Year Ended December 31, 2017
Salaries and other employee benefits	$	2,184	$	1,778
Share-based payments		629		1,104
	$	2,813	$	2,882

EXPENSES BY NATURE

The following table outlines the Company’s significant expenses by nature:

Cost of sales	Year Ended December 31, 2018		Year Ended December 31, 2017
Purchased produce	$	44,110	$	41,978
Raw materials and consumables used		32,096		40,365
Depreciation and amortization		6,911		7,447
Transportation and storage		21,074		19,999
Employee compensation and benefits		36,091		34,644
	$	140,282	$	144,433

Selling, general and administrative expenses	Year Ended December 31, 2018		Year Ended December 31, 2017
Employee benefits - salaries and short-term benefits	$	8,360	$	8,422
Employee benefits - share-based payments		1,454		1,519
Marketing		504		617
Professional services		2,120		1,705
Office expenses		1,680		1,671
Other		1,444		1,479
	$	15,562	$	15,413

Employee compensation and benefits	Year Ended December 31, 2018		Year Ended December 31, 2017
Salaries and short-term employee benefits	$	44,451	$	43,066
Share-based compensation		1,454		1,519
	$	45,905	$	44,585

15 INCOME TAX EXPENSE

The provision for (recovery of) income taxes consists of the following components:

	Year Ended December 31, 2018			Year Ended December 31, 2017
Current	$	431		$	29
Deferred		(2,906	)		109
Provision for (recovery of) income taxes	$	(2,475	)	$	138

18

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

The provision for (recovery of) income taxes reflected in the consolidated statements of (loss) income for the years ended December 31, 2018 and December 31, 2017 differs from the amounts computed at the federal statutory tax rates. The principal differences between the statutory income tax (recovery) and the effective provision for (recovery of) income taxes are summarized as follows:

	Year Ended December 31, 2018			Year Ended December 31, 2017
Income (loss) before income taxes	$	(5,145	)	$	3,960
Tax (recovery) calculated at domestic tax rates applicable in the respective countries		(1,595	)		674
Non-deductible items		394			422
True up of prior year income tax estimates		(206	)		—
Tax rate differences on deferred taxes		—			(482	)
State tax adjustments		—			(36	)
Foreign exchange on translation		—			132
Unrealized foreign exchange		(309	)		116
Differences attributed to joint venture capital transactions		(56	)		(698	)
Share of losses from joint venture		(611	)		66
Other		(92	)		(56	)
Provision for (recovery of) income taxes	$	(2,475	)	$	138

The statutory tax rate in effect for the year ended December 31, 2018 was 27.0% (2017 - 26.0%) in Canada and 21.0% (2017 - 23.0%) in the United States.

As a result of the US tax reform, the US federal tax rate was substantively enacted on December 22, 2017 and a reduced federal tax rate will be effective from January 1, 2018 in accordance with the Tax Cuts and Jobs Act of 2017. Accordingly, the relevant deferred tax balances have been re-measured with the new rate. As additional interpretations and regulatory guidance becomes available, the Company will continue to assess the impact of the new legislation.

The weighted average applicable tax rate was 36.5% tax benefit for 2018 (2017 – 3.5%).

16 DEFERRED INCOME TAXES

The deferred tax assets and liabilities presented on the consolidated statements of financial position are net amounts corresponding to their reporting jurisdiction. The deferred tax assets and liabilities presented in the note disclosure are grouped based on asset and liability classification without consideration of their corresponding reporting jurisdiction.

The amounts in the consolidated statements of financial position reconcile to the amounts disclosed in this note as follows:

	December 31, 2018			December 31, 2017
Deferred tax assets	$	9,599		$	7,606
Deferred tax liabilities		(11,519	)		(12,431	)
	$	(1,920	)	$	(4,825	)

	Tax losses/ other credits			LT Debt/ Interest			Inventory			Intangibles			Other			Total
Deferred tax assets:
At January 1, 2017	$	7,413		$	3,190		$	518		$	399		$	437		$	11,957
Charged to statement of income (loss)		(2,289	)		(968	)		(144	)		(399	)		(551	)		(4,351	)
At December 31, 2017	$	5,124		$	2,222		$	374		$	—		$	(114	)	$	7,606
Credited (charged) to statement of (loss) income		1,053			524			133			—			283			1,993
At December 31, 2018	$	6,177		$	2,746		$	507		$	—		$	169		$	9,599

19

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

	Accelerated tax depreciation			Biological asset			Revaluation Surplus			Joint Venture Shares			Total
Deferred tax liabilities:
At January 1, 2017	$	(15,205	)	$	(674	)	$	(1,065	)	$	—		$	(16,944	)
Credited (charged) to statement of income (loss)		6,179			214			—			(2,151	)		4,242
Charged to statements of other comprehensive (loss) income		—			—			271			—			271
At December 31, 2017	$	(9,026	)	$	(460	)	$	(794	)	$	(2,151	)	$	(12,431	)
Credited to statement of (loss) income		567			175			—			170			912
At December 31, 2018	$	(8,459	)	$	(285	)	$	(794	)	$	(1,981	)	$	(11,519	)

The analysis of deferred tax assets and deferred tax liabilities is as follows:

	December 31, 2018						December 31, 2017
	Canada			U.S.			Canada			U.S.
Deferred tax assets:
Expected to be recovered in more than 12 months	$	1,155		$	7,465		$	747		$	5,753
Expected to be recovered within 12 months		312			667			388			718
Deferred tax liabilities:
Expected to be settled in more than 12 months		(4,181	)		(6,251	)		(4,606	)		(6,569	)
Expected to be settled within 12 months		(41	)		(1,046	)		(40	)		(1,216	)
Deferred tax liabilities, net of assets	$	(2,755	)	$	835		$	(3,511	)	$	(1,314	)

Non-capital and farm losses expire as follows:

	Canada		U.S.		Total
2021	$	—	$	8,402	$	8,402
2022		—		5,043		5,043
2023		—		5,117		5,117
2024		—		4,015		4,015
2025		—		8,757		8,757
2027		25		—		25
2028		4		—		4
2029		25		64		89
2030		7		—		7
2031		4		988		992
2032		4		14,895		14,899
2033		4		—		4
2034		4		11,665		11,669
2035		108		7,445		7,553
2036		98		3,583		3,681
2037		98		5,570		5,668
2038		4		9,325		9,329
	$	385	$	84,869	$	85,254

Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future profits is probable.

20

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

17 CHANGES IN NON-CASH WORKING CAPITAL ITEMS

	For the Years Ended December 31,
	2018			2017
Trade receivables	$	(46	)	$	(1,059	)
Inventories		(5,180	)		(1,197	)
Inventories reclassified to biological asset		(659	)		306
Other receivables		172			(1,396	)
Income taxes payable		68			(246	)
Prepaid expenses and deposits		734			41
Trade payables		1,440			394
Accrued liabilities		(121	)		(955	)
Other assets, net of other liabilities		41			(305	)
	$	(3,551	)	$	(4,417	)

18 SEGMENT AND GEOGRAPHIC INFORMATION

The Company’s two reporting segments include the Produce business and the Energy business. The Produce business produces, markets, and sells the product group which consists of premium quality tomatoes, bell peppers and cucumbers. The Energy business produces power that it sells per a long-term contract to its one customer.

The Company’s primary operations are in the United States and Canada. Net sales by the countries in which its customers are located are as follows:

	For the Years Ended December 31,
	2018		2017
Sales
Produce - U.S.	$	124,699	$	132,464
Produce - Canada		23,355		24,020
Energy - Canada		1,946		1,922
	$	150,000	$	158,406

The Company’s property, plant and equipment, net of accumulated depreciation, are located as follows:

	December 31, 2018		December 31, 2017
United States	$	43,651	$	46,922
Canada		30,459		31,183
Energy - Canada		3,369		3,649
	$	77,479	$	81,754

The depreciation and amortization charges for the year ended December 31, 2018 in the Produce business were $6,154 (2017 - $6,791) and $873 (2017 - $795) in the Energy business.

19 SHARE CAPITAL AND EQUITY

The following is a summary of share capital:

	The VFF Common Shares
	# of Shares		Amount
Share capital - January 1, 2017		38,882,945	$	24,954
Shares issued pursuant to public offering, net		2,500,000		9,769
Shares issued from vesting of RSUs		768,000		1,333
Shares issued on exercise of options		91,667		59
Share capital - December 31, 2017		42,242,612		36,115
Shares issued pursuant to public offering, net		3,097,200		15,737
Shares issued pursuant to private placement, net		1,886,793		7,755
Shares issued from vesting of RSUs		50,334		831
Shares issued on exercise of options		365,732		283
Share capital - December 31, 2018		47,642,671	$	60,721

21

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

VFF is authorized to issue an unlimited number of common shares and preferred shares, issuable in series. These shares have no par value.

(i) Common shares:

The common shares entitle the holders thereof to one vote per share at all shareholder meetings of VFF. The holders of the common shares are entitled to receive any dividend declared by VFF on the common shares. Subject to the rights, privileges, restrictions and conditions attached to any other class of shares of VFF, the holders of the common shares are entitled to receive, pro rata, the remaining property or assets of VFF upon its dissolution, liquidation or wind-up.

(ii) Preferred shares:

The preferred shares may be issued in one or more series, with such rights and conditions as may be determined by resolution of the directors of VFF who shall determine the designation, rights, privileges, conditions and restrictions to be attached to the preferred shares of such series. There are no voting rights attached to the preferred shares except as prescribed by law. In the event of the liquidation, dissolution or wind-up of VFF, or any other distribution of assets of VFF among its shareholders for the purpose of winding up its affairs, the holders of the preferred shares of each series are entitled to receive, among other things, with priority over the common shares and any other shares ranking junior to the preferred shares of VFF, an amount equal to any cumulative dividends, whether or not declared, or declared thereon but unpaid and no more. The preferred shares for each series are also entitled to such other preferences over the common shares and any other shares ranking junior to the preferred shares as may be determined as to their respective series authorized to be issued. The preferred shares of each series shall be on a parity basis with the preferred shares of every other series with respect to payment of dividends and return of capital. There are no preferred shares currently issued and outstanding.

20 INCOME PER SHARE

Basic income per share is calculated by dividing the net income attributable to owners of the Company by the weighted average number of common shares in issue during the year excluding common shares purchased by the Company and held as treasury shares.

	For the Years Ended December 31,
	2018			2017
Net income (loss) attributable to owners of the Company	$	(5,145	)	$	3,822
Weighted average number of common shares outstanding (thousands)		45,172			39,144
Basic income (loss) per share	$	( 0.11	)	$	0.10

Diluted income per share is calculated by adjusting the weighted average number of common shares outstanding to assume conversion of all dilutive potential common shares. The Company’s share options are potentially dilutive to common shares. A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average market share price of the Company’s shares for the year) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated above is compared with the number of shares that would have been issued assuming the exercise of the share options. If dilutive effect is less than zero, then issuance is anti-dilutive and is excluded from dilutive income per share calculation.

For the year ended December 31, 2018, there were options to purchase 2,175 (2017 - nil) shares of the Company’s common stock that were excluded from the diluted loss per share computation because the impact of the assumed exercise of such stock options would have been anti-dilutive during the respective periods.

22

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

	For the Years Ended December 31,
	2018			2017
Net income (loss) attributable to owners of the Company	$	(5,145	)	$	3,822
Weighted average number of common shares outstanding (thousands)		45,172			39,144
Adjustment for:
Share options (thousands)		—			1,164
Weighted average number of common shares outstanding for diluted income per share (thousands)		45,172			40,308
Diluted income (loss) per share	$	(0.11	)	$	0.10

21 CAPITAL DISCLOSURES

The Company’s objectives when managing capital are to safeguard its assets and maintain a competitive cost structure, continue as a going concern and provide returns to its shareholders. In addition, the Company works with all relevant stakeholders to ensure the safety of its operations and employees and remain in compliance with all environmental regulations.

The Company’s main objectives when managing capital are:

• to structure the repayment of obligations in line with the expected lives of the Company’s principal revenue generating assets;

• to ensure the Company has access to capital to fund contractual obligations as they become due and to ensure adequate cash levels to withstand the impact of unfavorable economic conditions;

• to maintain the Company’s credit ratings to facilitate access to capital markets at competitive interest rates; and

• to access capital markets to fund its growth initiatives.

The Company’s capital comprises net debt and equity:

	December 31, 2018			December 31, 2017
Total bank debt	$	37,859		$	38,640
Less cash and cash equivalents		(11,920	)		(7,091	)
Net debt		25,939			31,549
Total equity		100,696			81,043
	$	126,635		$	112,592

It is the Company’s intention to meet its obligations through the collection of current accounts receivable and cash. As at December 31, 2018, the Company has access to an operating loan facility up to CA$13,000, less $261 and CA$38 outstanding letters of credit.

As at December 31, 2018, $2,000 was outstanding on the operating loan (as at December 31, 2017, $nil was outstanding on the operating loan, and $261 and CA$38 outstanding on the letters of credit). As at December 31, 2018, the operating loan borrowing base was CA$11,509 based on a percentage of the Company’s outstanding accounts receivable less the issued letters of credit. If the current resources and cash generated from operations are insufficient to satisfy its obligations, the Company may seek to issue additional equity or to arrange debt or other financing.

22 SHARE-BASED COMPENSATION PLAN

The Company has a share-based compensation plan. The maximum number of common shares that can be issued upon the exercise of options granted is equal to 10% of the aggregate number of common shares issued and outstanding from time to time. The term during which an option may be exercised is 10 years from the date of the grant. Options vest at a rate of 33% per year, beginning one year following the grant date of the options. Share-based compensation expense for the year ended December 31, 2018 of $1,454 (2017 - $1,519) was recorded in selling, general and administrative expenses and the corresponding amount credited to contributed surplus.

23

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

The following table presents the assumptions used to establish the fair value assigned to the options issued using the Black-Scholes valuation model:

	2018			2017
Expected volatility		55.5	%		52.7	%
Dividend	$	nil		$	nil
Risk-free interest rate		2.70	%		2.05	%
Expected life		6.5 years			6.5 years
Fair value	$	3.2541		$	3.1869

The changes in the stock options for the years ended December 31, 2018 and 2017 were as follows:

	For the Years Ended December 31,
	2018					2017
	Stock options			Weighted average exercise price		Stock options			Weighted average exercise price
Beginning of year		2,337,732		CA$	1.59		2,116,065		CA$	1.19
Granted		203,000		CA$	5.79		320,000		CA$	4.04
Exercised		(365,733	)	CA$	0.98		(91,667	)	CA$	0.90
Forfeitures		(10,000	)	CA$	1.48		(6,666	)	CA$	1.48
End of year		2,164,999		CA$	2.10		2,337,732		CA$	1.59

The following table summarizes stock options outstanding and granted as at December 31, 2018:

Exercise price	Number outstanding		Remaining contractual life (years)		Number of exercisable options
CA$1.24		425,000		2.4		425,000
CA$1.27		150,000		3.2		150,000
CA$0.85		100,000		4.2		100,000
CA$1.10		202,000		4.7		202,000
CA$1.48		345,000		5.2		345,000
CA$0.94		100,000		6.2		100,000
CA$0.83		20,000		6.8		20,000
CA$0.80		16,666		6.9		16,666
CA$1.43		233,333		7.3		150,002
CA$1.55		50,000		7.5		33,334
CA$2.20		165,000		8.5		54,999
CA$6.00		155,000		9.0		51,669
CA$5.79		203,000		9.6		Nil
		2,164,999

Share options outstanding at the end of the year have the following expiry dates and exercise prices:

	Exercise price in CA$ per share		December 31, 2018		December 31, 2017
Expiry date - January 13, 2020		0.70		—		149,399
Expiry date - May 20, 2021		1.24		425,000		565,000
Expiry date - March 13, 2022		1.27		150,000		150,000
Expiry date - March 13, 2023		0.85		100,000		100,000
Expiry date - September 26, 2023		1.10		202,000		215,000
Expiry date - March 18, 2024		1.48		345,000		360,000
Expiry date - March 19, 2025		0.94		100,000		100,000
Expiry date - October 6, 2025		0.83		20,000		28,333
Expiry date - November 16, 2025		0.80		16,666		50,000
Expiry date - March 29, 2026		1.43		233,333		250,000
Expiry date - June 30, 2026		1.55		50,000		50,000
Expiry date - June 14, 2027		2.20		165,000		165,000
Expiry date - December 22, 2027		6.00		155,000		155,000
Expiry date - June 5, 2028		5.79		203,000		—
				2,164,999		2,337,732

24

VILLAGE FARMS INTERNATIONAL, INC.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

(In thousands of United States dollars, except per share amounts and unless otherwise noted)

During 2018, 979,000 performance-based restricted share units were issued to Village Farms employees involved with future developments of the Company. Once a performance target is met and the share units are deemed earned and vested, compensation expense based on the fair value of the share units on the grant date is recorded in selling, general and administrative expenses in the consolidated statements of income. There were 1,056,666 performance-based restricted share units outstanding as at December 31, 2018, of which 881,333 were not vested as at December 31, 2018.

The following table summarizes 979,000 performance-based restricted share units that were issued during the year.

	2018					2017
	Performance- based restricted share units			Weighted average grant date fair value in CA$		Performance- based restricted share units			Weighted average grant date fair value in CA$
Beginning of year		128,000		CA$	2.82		—
Issued		979,000		CA$	5.79		885,000		CA$	2.20
Issued		—					21,000		CA$	6.00
Vested		(50,334	)	CA$	3.06		(768,000	)	CA$	2.20
Expired		—					(10,000	)	CA$	2.20
Outstanding at end of year		1,056,666		CA$	5.56		128,000		CA$	2.82
Earned but unissued at end of year		175,333		CA$	5.08		—

23 SUBSEQUENT EVENT

On February 15, 2019 the Company announced that its common shares were approved for listing on the Nasdaq Capital Market under the symbol “VFF”. The initial trading date was February 21, 2019. Concurrent with the commencement of trading of its common shares on Nasdaq, the Company voluntarily delisted its common shares from the OTCQX.

On March 1, 2019 the Company announced that it had entered into an agreement with Nature Crisp LLC (“Nature Crisp”) to form a joint venture for the outdoor cultivation of high-cannabidiol (CBD) hemp and CBD extraction in multiple states throughout the United States (the “Joint Venture Agreement”). The joint venture, Village Fields Hemp (“Village Fields”), will be 65% owned by Village Farms and 35% owned by Nature Crisp. Under the terms of the Joint Venture Agreement, Village Farms will contribute approximately US$15 million to Village Fields for start-up costs and working capital.

25

EX-99.2

Exhibit 99.2

Village Farms International, Inc.

Management’s Discussion and Analysis

Year Ended December 31, 2018

March 13, 2019

Village Farms International, Inc.

Management’s Discussion and Analysis

Information is presented in thousands of United States dollars (“U.S. dollars”) unless otherwise noted.

Introduction

This management’s discussion and analysis (“MD&A”) should be read in conjunction with the annual consolidated financial statements and accompanying notes of Village Farms International, Inc. (“VFF” and, together with its subsidiaries, the “Company”), for the year ended December 31, 2018 (the “Consolidated Financial Statements”). The information provided in this MD&A is current to March 13, 2019 unless otherwise noted.

VFF is a corporation existing under the Canada Business Corporations Act. The Company’s principal operating subsidiaries as at December 31, 2018 were Village Farms Canada Limited Partnership (“VFCLP”), Village Farms, L.P. (“VFLP”) and VF Clean Energy, Inc. (“VFCE”). On June 6, 2017, VFF entered into a shareholders’ agreement in respect of the operation and governance of Pure Sunfarms Corp. (“Pure Sunfarms”) in which VFF owns a 50% interest.

Basis of Presentation

The annual data included in the MD&A presented, is consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), unless otherwise noted.

The consolidated financial statements were approved by the Board of Directors of the Company for issue on March 13, 2019. Management does not have the authority to amend the consolidated financial statements after the statements have been issued, without the approval by the Board of Directors of the Company. The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies.

Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive officer (”CEO”). Based on the aggregation criteria in IFRS 8, Operating Segments, the operating segments of the Company are treated as two reporting segments.

Functional and Presentation Currency

The functional currency for each entity included in these consolidated financial statements is the currency of the primary economic environment in which the entity operates. These consolidated financial statements are presented in United States dollars (“U.S. dollars”) which have been rounded to the nearest thousands, except per share amounts. Currency conversion to U.S. dollars is performed in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates.

Business Overview

Management believes that the Company is one of the largest producers, marketers and distributors of premium-quality, greenhouse-grown tomatoes, bell peppers and cucumbers in North America. These premium products are grown in sophisticated, highly intensive agricultural greenhouse facilities located in British Columbia and Texas. The Company also markets and distributes premium tomatoes, peppers and cucumbers produced under exclusive arrangements with other greenhouse producers. The Company primarily markets and distributes under its Village Farms^® brand name, to retail supermarkets and dedicated fresh food distribution companies throughout the United States and Canada. It currently operates two distribution centres, one in the United States and one in Canada. Since its inception, the Company has been guided by a sustainable agriculture policy which integrates four main goals – environmental health, economic profitability, social equality and economic equality.

- 2 -

Village Farms International, Inc.

The Company, through its subsidiary VFCE, owns and operates a 7.0 megawatt (“MW”) power plant from landfill gas that generates electricity and provides thermal heat, in colder months, to one of the Company’s adjacent British Columbia greenhouse facilities and sells electricity to the British Columbia Hydro and Power Authority (“BC Hydro”).

In June 2017, the Company entered into a joint venture (“Joint Venture”) with Emerald Health Therapeutics, Inc. (together with its affiliates, “Emerald”). The joint venture was formed by way of a corporation named “Pure Sunfarms Corp.”. a licensed producer and supplier of cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally. On March 8, 2018, Pure Sunfarms was granted a cultivation license and on July 30, 2018 a sales license, both under the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) by Health Canada (repealed October 17, 2018 and replaced by the Cannabis Act, S.C. 2018, c. 16).

The Company embraces sustainable agriculture and environmentally-friendly growing practices by:

• utilizing integrated pest management techniques that incorporate “beneficial bugs” to control unwanted pests. The use of natural biological control technology keeps plants and their products virtually free of chemical agents. The process includes regular monitoring techniques for threat identification and the development and execution of appropriate, tailored responses;

• capturing rainwater from various greenhouse roofs for irrigation purposes;

• capturing landfill gas under a long term contract with the City of Vancouver, to generate and sell electricity to BC Hydro and provide thermal heat for one of the Company’s adjacent greenhouses;

• recycling water and nutrients during the production process;

• growing plants in a natural medium, including coconut fibre and rock wool, as opposed to growing in the soil and depleting nutrients; and

• using dedicated computer systems which monitor and control virtually all aspects of the growing environment, thereby maximizing the efficient use of energy.

The Company’s assets, as of the reporting date, include six operating produce greenhouses providing approximately 849,958 square metres (or approximately 210 acres) of growing space in Canada and the United States. During 2017, the Company granted rights to what was its seventh greenhouse, located in Delta, BC (the “Delta 3 Greenhouse”), to Pure Sunfarms. The Delta 3 Greenhouse has been completely converted for the purpose of achieving large scale low-cost high quality cannabis production.

All of the Company’s greenhouses are constructed of glass, aluminum and steel, and are located on land owned or leased by the Company. The Company also has marketing agreements with growers in Canada, the United States and Mexico that currently operate approximately 808,000 square metres (or approximately 200 acres) of growing area.

The following table outlines the Company’s greenhouse facilities:

	Growing Area
Greenhouse Facility	Square Feet		Square Metres		Acres		Products Grown
Marfa, TX (2 greenhouses)		2,527,312		234,795		60	Tomatoes on-the-vine, beefsteak tomatoes, specialty tomatoes
Fort Davis, TX (1 greenhouse)		1,684,874		156,530		40	Specialty tomatoes
Monahans, TX (1 greenhouse) (Permian Basin facility)		1,272,294		118,200		30	Tomatoes on-the-vine, long English cucumbers
Delta, BC (2 greenhouses)		3,664,390		340,433		85	Tomatoes on-the-vine, beefsteak tomatoes, specialty tomatoes
Total		9,148,870		849,958		215

Produce Marketing

The Company is a leading marketer of premium-quality, value-added, branded greenhouse-grown produce in North America, and is a significant producer of the following tomato types: tomatoes on-the-vine, beefsteak, cocktail, grape, cherry, roma, Mini San Marzano (a tomato variety for which the Company currently has an exclusive agreement with

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Village Farms International, Inc.

the seed provider to be the sole grower in North America), other speciality tomatoes under exclusive agreements and long English cucumbers at its facilities. The Company also distributes and markets premium tomatoes, bell peppers and cucumbers in the United States and Canada produced by other greenhouse growers located in Canada and Mexico. The Company maintains high standards of food safety and requires the same of its contract growers, while providing on-time, effective and efficient distribution.

The Company strives to continually exceed the expectations of its customers by consistently providing superior product, including adding new product varieties and packaging innovations.

The Company has distribution capabilities that it believes exceed those of most of its competitors in the North American greenhouse vegetable industry. With leased distribution centres in Texas and British Columbia, the Company provides its customers with flexibility in purchasing. For the year ended December 31, 2018, the Company had an on-time delivery record of approximately 98.4%, while maintaining competitive freight rates that management of the Company believes to be among the best in the industry.

The Company’s marketing strategy is to strategically position the Company to be the supplier of choice for retailers offering greenhouse produce by focusing on the following:

• Year-Round Supplier. The Company’s year-round production capability enhances customer relationships, resulting in more consistent pricing.

• Quality and Food Safety. Sales are made directly to retailers which ensures control of the product from seed to customer and results in higher levels of food safety, shelf life and quality control. Food safety is an integral part of the Company’s operations, and management believes that it has led, and currently leads, the industry in adopting Good Agricultural Practices. This program is modeled after the U.S. Food and Drug Administration’s Good Manufacturing Practices using the Primus Labs^® format and third party auditors. All of the Company’s packing facilities undergo comprehensive food safety audits by Primus Labs^®.

• Quality Packaging and Presentation. Product is selected at a uniform size and picked at the same stage of vine ripeness. The packaging for the product is “display ready”, ensuring retail customers have a full view of the product on the supermarket shelf.

• Exclusive Varieties. The Company expands its product profile, to create and drive exclusive varietal relationships in North America that enable the Company to present consumers with an enhanced eating experience with the Village Farms brand.

• Direct Sale to Retailer Customers. Greenhouse produce (produce grown by the Company plus supply partner produce) is sold directly to supermarket chains, including, Associated Grocers, Associated Wholesale Grocers, BJ’s Wholesale Club Inc., Costco Wholesale, Fred Meyer, The Fresh Market, Inc., Giant Eagle, Harris Teeter Supermarkets, Inc., HEB Grocery Company, The Kroger Co., Loblaw Companies Limited, Publix Super Markets, Inc., Roundy’s Supermarkets, Inc., Safeway Inc., Sobeys Inc., Sam’s Club, Trader Joe’s, United Supermarkets, Unified Western Grocers, Wakefern Food Corp., Wal-Mart Stores, Inc., Whole Foods Market and Winco Foods LLC.

• Excellence in Customer Service and Logistics. Logistics and distribution capability are key factors in ensuring fresh high quality product meets consumer demands. Management of the Company believes it has a competitive advantage through its logistics and distribution networks, which includes strategically located distribution centres.

Investment in Joint Venture

On June 6, 2017, the Company and Emerald formed a new corporation named “Pure Sunfarms”. The Company and Emerald each own 50% of the equity in Pure Sunfarms. VFF contributed rights to one of its 25-acre greenhouse facilities in Delta, British Colombia as its equity contribution and Emerald contributed CA$20,000,000 to fund the conversion of the facility, which was fully funded as of April 2018. Pure Sunfarms has commenced the cultivation of cannabis in the licensed portion of the facility and received its sales license for the facility on July 30, 2018 from Health Canada, and has commenced with selling and distributing cannabis.

On July 5, 2018, the Company and Emerald (together, the “Shareholders”) entered into a Shareholder Loan Agreement (the “Loan Agreement”) with Pure Sunfarms, whereby, as at December 31, 2018 the Shareholders had each contributed CA$13,000 (US$9,536) in the form of a demand loan to Pure Sunfarms. The loan amounts will initially bear simple interest at the rate of 8% per annum, calculated semi-annually. Interest will accrue and be payable upon demand being made by either Shareholder.

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Village Farms International, Inc.

Formation of Village Fields Hemp USA, LLC.

On March 1, 2019, the Company entered into a joint venture with Nature Crisp, LLC to form Village Fields Hemp USA, LLC (the “VF Hemp”), for the objective of outdoor cultivation of high percentage cannabidiol (“CBD”) hemp and CBD extraction in multiple states throughout the United States (the “VF Hemp Joint Venture Agreement”). VF Hemp is 65% owned by the Company and 35% owned by Nature Crisp. Under the terms of the VF Hemp Joint Venture Agreement, the Company will contribute approximately US$15 million to VF Hemp for start-up costs and working capital. Capital investment for extraction capabilities is to be determined and dependent on future decisions with respect to the locations of hemp production and the extraction operations.

Results of Operations

Consolidated Financial Performance

(In thousands of U.S. dollars, except per share amounts)

	For the three months ended December 31 ,
	2018			2017
Sales	$	38,787		$	36,864
Cost of sales		(36,367	)		(31,908	)
Selling, general and administrative expenses		(3,622	)		(4,019	)
Stock compensation expense		(1,007	)		(959	)
Change in biological asset (1)		158			1,082
(Loss) income from operations		(2,051	)		1,060
Interest expense, net		(501	)		(679	)
Foreign exchange loss		(960	)		(31	)
Other income		(70	)		(50	)
Share of income (loss) from joint venture		2,750			(35	)
Loss on disposal of assets		—			(551	)
(Recovery of) provision for income taxes		(962	)		(321	)
Net income (loss)		270			(607	)
Consolidated EBITDA (2)		1,484			2,591
Earnings (loss) per share – basic and diluted	$	0.01		($	0.02	)

(1) Biological assets consists of the Company’s produce on the vines at the period end. Details of the changes are described in note 6 of the Company’s interim consolidated financial statements for the three months ended December 31, 2018.

(2) EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented by other issuers. See “Non-IFRS Measures”. Management believes that EBITDA is a useful supplemental measure in evaluating the performance of the Company. Consolidated EBITDA includes the Company’s 50% share of its joint venture Pure Sunfarms.

Results of Operations for the Three Months Ended December 31, 2018 compared to the Three Months Ended December 31, 2017

Sales

Sales for the three months ended December 31, 2018 increased by $1,923, or 5%, to $38,787 from $36,864 for the three months ended December 31, 2017. The increase in sales is primarily due an increase in supply partner revenue of 18% partially offset by the lost production from the Company’s Delta 3 Greenhouse which was contributed to Pure Sunfarms.

The average selling price of tomatoes was flat for the three months ended December 31, 2018 and the three months ended December 31, 2017. Cucumber pricing increased by 8% and pepper pricing increased by 15% in the fourth quarter of 2018 compared to the fourth quarter of 2017.    

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Village Farms International, Inc.

Cost of Sales

Cost of sales for the three months ended December 31, 2018 increased by $4,459, or 14%, to $36,367 from $31,908 for the three months ended December 31, 2017; primarily due to an increase in supply partner costs of 20% and an increase in costs from the Company’s Texas facilities of 11% and an increase of freight cost of 20% partially offset by a decrease in cost from the Delta 3 facility that did not have tomato operations. The increase in the Texas facility costs is mostly caused by increases of labour costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended December 31, 2018 decreased by ($397), or (10%), to $3,622 from $4,019 for the three months ended December 31, 2017. The decrease is due to public company costs and a decrease in sales and marketing costs.

Stock Compensation Expenses

Stock compensation expenses for the three months ended December 31, 2018 were $1,007 up from $959 for the three months ended December 31, 2017.

Change in Biological Asset

The net change in fair value of the biological asset for the three months ended December 31, 2018 decreased by ($924) to $158 from $1,082 for the three months ended December 31, 2017. The decrease is primarily due to a higher expected cost of the pounds available for sale at December 2018 compared to December 2017, due to higher costs at the Texas facilities. The fair value of the biological asset as at December 31, 2018 was $4,230 as compared to $4,405 as at December 31, 2017.

(Loss) income from Operations

(Loss) income from operations for the three months ended December 31, 2018 decreased ($3,111) to a loss of ($2,051) from income of $1,060 for the three months ended December 31, 2017. The decrease is due to an increase in cost of sales and decrease in the change in biological asset, partially offset by an increase in revenue.

Interest Expense, net

Interest expense, net, for the three months ended December 31, 2018 decreased ($178) to $501 compared to $679 for the three months ended December 31, 2017. This decrease is primarily due to interest income in the three month ended December 31, 2018.    

Share of Income (Loss) from Joint Venture

The Company’s share of income from its Joint Venture for the three months ended December 31, 2018 was $2,750 compared to a loss of ($35) for the three months ended December 31, 2017. The income primarily consists of the change in biological asset offset by salaries and other administrative costs. The value of the biological asset is the effective gross margin (revenues in excess of costs of goods) for the buds that existed on the plant and in inventory on December 31, 2018.

(Recovery of) Provision for Income Taxes

Income tax recovery for the three months ended December 31, 2018 was ($962) from $321 for the three month period ended December 31, 2017. The income tax recovery increase is due to the loss from operations ($2,051) in the three months ended December 31, 2018 compared to an income of $1,060 in the same period in 2017.

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Village Farms International, Inc.

Net Income (Loss) Income

Net income for the three months ended December 31, 2018 was $270 compared to a net loss of ($607) for the three months ended December 31, 2017 primarily due to an increase in the share of income from the Joint Venture.

EBITDA⁽²⁾

EBITDA for the three months ended December 31, 2018 decreased by $1,107, to $1,484 from $2,591for the three months ended December 31, 2017. See the EBITDA calculation in “Non-IFRS Measures—Reconciliation of Net Income to EBITDA”.

Annual Consolidated Financial Performance

(in thousands, except per Share amounts)	For the year ended December 31,
	2018			2017			2016
Sales	$	150,000		$	158,406		$	155,502
Cost of Sales		(140,282	)		(144,433	)		(140,778	)
Selling, general and administrative		(14,108	)		(13,894	)		(13,525	)
Stock compensation expense		(1,454	)		(1,519	)		(195	)
Change in biological asset(1)		(834	)		265			(1,501	)
(Loss) income from operations		(6,678	)		(1,175	)		(497	)
Interest expense, net		(2,407	)		(2,695	)		(2,514	)
Foreign exchange (loss) gain		(1,047	)		26			(86	)
Other income (expense), net		(131	)		46			22
Share of income (loss) from joint venture		2,381			(255	)		—
(Gain) loss on disposal of assets		—			(8,013	)		12
Provision for (Recovery of) income taxes		(2,475	)		138			(1,104	)
Net income (loss)		(5,145	)		3,822			(1,983	)
EBITDA(2)	$	2,878		$	7,363		$	9,385
(Loss) earnings per share – basic and diluted	($	0.11	)	$	0.10		($	0.05	)

(1) Biological asset consists of the Company’s produce on the vines at the period end. Details of the changes are described in note 6 of the Company’s annual consolidated financial statements for the year ended December 31, 2018.

(2) EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented by other issuers. See “Non-IFRS Measures”. Management believes that EBITDA is a useful supplemental measure in evaluating the performance of the Company.

Results of Operations for the Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017

Net Sales

Net sales for the year ended December 31, 2018 decreased ($8,406), or (5%), to $150,000 compared to $158,406 for the years ended December 31, 2017. The decrease in net sales is due to the loss of tomato production from the Delta 3 facility, which was contributed to Pure Sunfarms in 2017, and the Company’s lower production at its Texas facilities.

The net price for all tomato pounds sold was an increase of 4% for the year ended December 31, 2018 compared to the year ended December 31, 2017 due to a higher percent of higher priced tomato production in 2018 compared to 2017. Pepper prices decreased (2%) and pounds increased 38% over the comparable period in 2017. Cucumber prices decreased (1%) and pieces decreased (15%) for the year ended December 31, 2018 as compared to the year ended December 31, 2017.

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Village Farms International, Inc.

Cost of Sales

Cost of sales for the year ended December 31, 2018 decreased ($4,151), or (3%), to $140,282 from $144,433 for the year ended December 31, 2017, primarily due to the loss of the Delta 3 facility ($5,371) and a decrease in costs in Texas from a decrease on pounds sold from the Texas facilities partially offset by an increase of 6% in contract sales costs.

Change in fair value of biological asset, net

The net change in fair value of biological asset for the year ended December 31, 2018 decreased ($1,099) to ($834) from $265 for the year ended December 31, 2017. The decrease is due to higher expected cost of the tomato crop.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2018 increased $214, or 2%, to $14,108 from $13,894 for the year period ended December 31, 2017. The increase is due to public company costs such as investor relations, legal and listing fees.

Stock Compensation Expenses

Stock compensation expenses for the year ended December 31, 2018 was $1,454 from $1,519 for the year ended December 31, 2017.

(Loss) from Operations

(Loss) from operations for the year ended December 31, 2018 was ($6,678), an increased (loss) of ($5,503) from a loss of ($1,175) for the year ended December 31, 2017. The increased (loss) is due to a decrease in net sales caused by the loss of the Delta 3 facility and production shortfalls in Texas and partially offset by a decrease in the cost of sales. The production shortfall in Texas increases the cost of the tomatoes sold as all the fixed cost are expensed over less pounds.

Interest Expense, net

Interest expense, net, for the year ended December 31, 2018 decreased ($288) to $2,407 from $2,695 for the year period ended December 31, 20173. The decrease is due to interest income of $311 in the year ended December 31, 2018.    

Income Taxes (Recovery)

Income tax provision (recovery) for the year ended December 31, 2018 was a recovery ($2,475) compared to a provision of $138 for the year ended December 31, 2017. The income tax recovery is due to the gain on sale of assets in 2017 that did not occur in 2018 and lower income from operations.

Share of Income (Loss) from Joint Venture

The Company’s share of income from its Joint Venture for the year ended December 31, 2018 was $2,381 compared to a loss of ($255) for the year ended December 31, 2017. The income is primarily attributed to the Company’s share of the Joint Venture’s change in biological asset offset by salaries and other administrative costs. The value of the biological asset is the effective gross margin (revenues in excess of costs of goods sold) for the buds that existed on plant and in inventory on December 31, 2018.

Gain on Sale of Assets

No gains were recognized in 2018. The Company recognized for the year period ended December 31, 2017 a gain of $8,013 on the contribution of the Delta 3 Greenhouse to Pure Sunfarms in exchange for a 50% equity stake in Pure Sunfarms. See “Investment in Joint Venture” above.

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Village Farms International, Inc.

Net Income (Loss)

Net income (loss) for the year ended December 31, 2018 decreased to a loss of ($5,145) from income of $3,822 for the year ended December 31, 2017. The decrease is a result of a gain on assets in 2017 of $8,013, a decrease in income from operations, partially offset by the share of income from the Joint Venture.

EBITDA

EBITDA for the year period ended December 31, 2018 decreased ($4,485) to $2,878 from $7,363 for the year period ended December 31, 2017, primarily as a result of a decrease in income from operations. See the EBITDA calculation in “Non-IFRS Measures—Reconciliation of Net Earnings to EBITDA”.

Results of Operations for the Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016

Net Sales

Net sales for the year ended December 31, 2017 increased $2,904, or 2%, to $158,406 compared to $155,502 for the year ended December 31, 2016. The increase in net sales is due to an increase in supply partner revenues of 4% over the comparable period in 2016, an increase of 4% in the Company’s product volume, partially offset by a decrease of (4%) in the average selling price of the Company’s facilities product for the year ended December 31, 2017 compared to the year ended December 31, 2016.

The net price for tomatoes decreased (1%) and pounds sold increased 3% for the year ended December 31, 2017 compared to the year ended December 31, 2016. Pepper prices decreased (9%) and pounds sold increased 10% over the comparable period in 2016. Cucumber prices decreased (3%) and pieces decreased (2%) for the year ended December 31, 2017 over the comparable period in 2016.

Cost of Sales

Cost of sales for the year ended December 31, 2017 increased ($3,655), or (3%), to $144,433 from $140,778 for the year ended December 31, 2016. The increase is due to the increase in supply partner cost of sales of 4%, additional freight cost due to 6% more produce being shipped and higher costs from the Company’s facilities due to 4% higher production volume. The cost at the Company’s facilities decreased by (3%) on a per-pound basis compared to the same period in 2016.

Change in Biological Asset

The net change in fair value of biological asset for the year ended December 31, 2017 increased $1,766 to $265 from ($1,501) for the year ended December 31, 2016. The increase is due to a lower beginning value on January 1, 2017 compared to January 1, 2016.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2017 increased ($369), or (3%), to $13,894 from $13,525 for the year ended December 31, 2016.    The increase is due to higher sales and marketing costs.

Stock Compensation Expense

Stock compensation expense for the year ended December 31, 2017 was $1,519 up from $195 for the year ended December 31, 2016, due to the issuance of restricted share units during the year ended December 31, 2017. The stock compensation consists of share grants to executive officers related to the Company investment in Pure Sunfarms Corp.

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Village Farms International, Inc.

Loss from Operations

Loss from operations for the year ended December 31, 2017 is ($1,175), an increased (loss) of ($678) from a loss of ($497) for the year ended December 31, 2016. The decrease in operating results is due to an increase in cost of sales and stock compensation expenses partially offset by an increase in sales and an increase in the change in biological asset.

Interest Expense, net

Interest expense, net, for the year ended December 31, 2017 increased ($180) to $2,695 from $2,514 for the year ended December 31, 2016. The increase is due to an increase in the Company’s long term debt borrowing rate.

Share of (loss) from Joint Venture

The Company’s share of the loss in respect of Pure Sunfarms, for the year ended December 31, 2017 is ($255), which consists primarily of travel and other administrative costs.

Provision for (Recovery of) Income Taxes

Income tax provision for the year ended December 31, 2017 was $138 compared to a recovery of ($1,104) for the year ended December 31, 2016. The income tax expense increase is due to a change in the United States’ future tax rate that caused a reduction in the tax asset value in the United States.

Gain (loss) on Disposal of Assets

For the year December 31, 2017, the Company recognized a gain of $8,013 on the contribution of rights to one of the Company’s Delta greenhouse facilities and land to Pure Sunfarms in exchange for a 50% equity stake in Pure Sunfarms. See “Investment in Joint Venture” above. For the period ended December 31, 2016, the Company had a loss of ($12).

Net Income (Loss)

Net Income (loss) for the year ended December 31, 2017 improved by $5,805 to a net income of $3,822 from a net loss of ($1,983) for the year ended December 31, 2016. The increase is a result of a gain on assets partially offset by the decrease in income from operations, and an increase in the provision for income taxes.

EBITDA

EBITDA for the year ended December 31, 2017 decreased by ($2,022) to $7,363 from $9,385 for the year ended December 31, 2016 primarily due to a decrease of (4%) in the average selling price of the Company’s produce product. See the EBITDA calculation in “Non-IFRS Measures—Reconciliation of Net Earnings to EBITDA”.

Selected Statement of Financial Position Data

	As at December 31,		As at December 31,
	2018		2017
Total assets	$	159,815	$	142,341
Total liabilities	$	59,119	$	61,298
Shareholders’ equity	$	100,696	$	81,043

Non-IFRS Measures

References in this MD&A to “EBITDA” are to earnings before interest, taxes, depreciation, amortization, foreign currency exchange gains and losses on translation of long-term debt, unrealized gains on the changes in the value of derivative instruments, unrealized change in biological asset, stock compensation, and gains and losses on asset sales. EBITDA is a cash flow measure that is not recognized under IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented by other issuers. Investors are cautioned that EBITDA should not be construed as an alternative to net income or loss determined in accordance with IFRS as an indicator of the Company’s performance or to cash flows from operating, investing and financing activities as measures of liquidity and cash flows. Management believes that EBITDA is an important measure in evaluating the historical performance of the Company.

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Village Farms International, Inc.

Reconciliation of Net Income to EBITDA

The following table reflects a reconciliation of net income to EBITDA, as presented by the Company:

(in thousands of U.S. dollars)	For the three months ended December 31,						For the year ended December 31 ,
	2018			2017			2018			2017			2016
Net (loss) income	$	270		($	607	)	($	5,145	)	$	3,822		($	1,983	)
Add:
Amortization		1,756			1,833			7,027			7,586			8,164
Foreign currency exchange loss (gain)		960			31			1,047			(26	)		86
Interest expense		501			679			2,407			2,695			2,514
Income taxes (recovery)		(962	)		321			(2,475	)		138			(1,104	)
Stock based compensation		1,006			959			1,453			1,519			195
Change in biological asset		(158	)		(1,082	)		834			(265	)		1,501
Change in biological asset from JV		(2,962	)		—			(3,390	)		—			—
Interest expense from JV		37			—			37			—			—
Amortization from JV		69			—			106			—			—
Foreign currency exchange loss (gain) from JV		80			—			90			—			—
Income taxes (recovery) from JV		887			(93	)		887			(93	)		—
Gain on disposal of assets		—			551			—			(8,013	)		12
EBITDA	$	1,484		$	2,592		$	2,878		$	7,363		$	9,385
EBITDA for JV (50% share)(See table below)	$	861		($	128	)	$	111		($	348	)		—
EBITDA excluding JV	$	623		$	2,720		$	2,767		$	7,711		$	9,385

The following table reflects a reconciliation of Share of income (loss) from Joint Venture to EBITDA, as presented by the Company:

(in thousands of U.S. dollars)	For the three months ended December 31,						For the year ended December 31 ,
	2018			2017			2018			2017			2016
Share of income (loss) from Joint Venture	$	2,750		($	35	)	$	2,381		($	255	)	$	—
Add:
Amortization		69			—			106			—			—
Foreign currency exchange loss (gain)		80			—			90			—			—
Interest expense		37			—			377			—			—
Income taxes (recovery)		887			(93	)		887			(93	)		—
Change in biological asset		(2,962	)		—			(3,390	)		—			—
EBITDA for JV (50% share)	$	861		($	128	)	$	111		($	348	)	$	—

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Village Farms International, Inc.

Reconciliation of IFRS to Proportionate Results

The following tables are a reconciliation of the IFRS results to the proportionate results (which include the Company’s proportionate share of the Pure Sunfarms operations):

	For the three months ended December 31, 2018									For the three months ended December 31, 2017
	Produce			Cannabis1			Total			Produce			Cannabis1			Total
Sales	$	38,787		$	1,803		$	40,590		$	36,864		$	—		$	36,864
Cost of sales		(36,367	)		(529	)		(36,896	)		(31,908	)		—			(31,908	)
Selling, general and administrative expenses		(3,622	)		(491	)		(4,113	)		(4,019	)		(128	)		(4,147	)
Change in biological asset (1)		158			2,962			3,120			1,082			—			1,082
(Gain) loss on sale of assets		—			—			—			(511	)		—			(511	)
(Recovery of) provision for income taxes		(962	)		887			(75	)		321			(93	)		228
Net (loss) income		(2,480	)		2,750			270			(572	)		(35	)		(607	)
EBITDA (2)	$	623		$	861		$	1,484			2,720			(128	)		2,592
(Loss) earnings per share – basic and diluted	($	0.05	)	$	0.06		$	0.01		($	0.02	)	$	0.00		($	0.02	)
	For the year ended December 31 , 2018									For the year ended December 31, 2017
	Produce			Cannabis1			Total			Produce			Cannabis1			Total
Sales	$	150,000		$	1,897		$	151,913		$	158,406		$	—		$	158,406
Cost of sales		(140,282	)		(595	)		(140,882	)		(144,433	)		—			(144,433	)
Selling, general and administrative expenses		(14,108	)		(1,306	)		(15,414	)		(13,894	)		(348	)		(14,242	)
Change in biological asset (1)		(834	)		3,386			2,552			265			—			265
(Gain) loss on sale of assets		—			—			—			(8,013	)		—			(8,013	)
(Recovery of) provision for income taxes		(2,475	)		887			(1,588	)		138			94			232
Net (loss) income		(7,526	)		2,381			(5,145	)		4,077			(255	)		3,822
EBITDA (2)	$	2,767		$	111			2,878		$	7,456		($	93	)	$	7,363
(Loss) earnings per share – basic and diluted	($	0.16	)	$	0.05		($	0.11	)	$	0.10		$	0.00		$	0.10

Notes:

(1) The adjusted consolidated financial results have been adjusted to include the Company’s share of revenues and expenses from its Joint Venture on a proportionate accounting basis, which management bases its operating decisions and performance evaluation. IFRS does not allow for the inclusion of the Joint Venture on a proportionate basis. These results include additional non-IFRS measures such as EBITDA.

The adjusted results are not generally accepted measures of financial performance under IFRS. The Company’s method of calculating these financial performance measures may differ from other companies and accordingly, they may not be comparable to measures used by other companies. Refer to the MD&A for a reconciliation of these non-IFRS measures and adjusted results.

(2) Biological assets consist of the Company’s produce on the vines and Pure Sunfarms’ crop at the period end. Details of the changes are described in note 5 of the Company’s annual consolidated financial statements for the year ended December 31, 2018.

(3) EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented by other issuers. See “Non-IFRS Measures”. Management believes that EBITDA is a useful supplemental measure in evaluating the performance of the Company. Consolidated EBITDA includes the Company’s 50% share of its joint venture Pure Sunfarms.

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Village Farms International, Inc.

Liquidity    

Cash flows

The Company expects to provide adequate financing to maintain and improve its property, plant and equipment, to fund working capital needs and invest in Pure Sunfarms for the foreseeable future from cash flows from operations, and, if needed, from additional borrowings under the Credit Facilities (as defined below) or additional equity financing.

For the three months ended December 31, 2018, cash flows from operating activities before changes in non-cash working capital and changes in biological asset, totalled $212 (2017 – $4,142) and for the year ended December 31, 2018 totalled $456 (2017—$7,965).

Cash flow from investing activities totalled $4,163 ($3,681 in note to Joint Venture and $547 in capital expenditures) in for the three months ended December 31, 2018 (2017—$525 in capital expenditures) and $13,490 ($10,462 in note to Joint Venture and $3,093 in capital expenditures) for the year ended December 31, 2018 (2017 – $1,696 in capital expenditures).

The cash provided by (used in) financing activities for the three months ended December 31, 2018 totalled $9,236 (2017 – ($1,478)) and for the year ended December 31, 2018 totalled $20,582 (2017 – $141). For the three months ended December 31, 2018, the cash provided by financing activities primarily consisted of proceeds from the issuance of common share of $15,738, debt payments of ($5,940), interest payments of ($544), and payments on capital lease obligations of ($26) (2017 – proceeds from the issuance of common share of $9,769 offset by operating loan payments of ($3,000), net term debt payments of ($4,639) and interest payments of ($665)).

For the year ended December 31, 2018, the cash provided by financing activities primarily consisted of the issuance of common shares of $23,493, operating loan borrowings of $7,000, proceeds from the exercise of share options of $282, debt payments of ($10,123), interest payments of ($2,417), and payments on capital lease obligations of ($71) (2017 proceeds from the issuance of common shares $9,769, offset by net term debt payments of ($7,014) and interest payments of ($2,614)).

Capital Resources    

(in thousands of U.S. dollars unless otherwise noted)	Maximum		Outstanding December 31, 2018
Operating Loan	CA$	13,000	$	2,000
Term Loan	$	34,385	$	34,385
VFCE Loan	CA$	1,930	CA$	1,930

The Company is party to a term loan financing agreement with a Canadian creditor (“FCC Loan”). This non-revolving variable rate term loan was amended in March 2016 and now has a maturity date of May 1, 2021 and a balance of $34,385 as at December 31, 2018. The outstanding balance is repayable by way of monthly installments of principal and interest based on an amortization period of 15 years, with the balance and any accrued interest to be paid in full on maturity. In December 2017, the Company made a pre-payment on the FCC Loan of $4,000 to release the Delta 2 asset as collateral. The Company was not required to make monthly principal payments of $253 from January to March 2018. As at December 31, 2018, borrowings under the FCC Loan were subject to an interest rate of 7.082% per annum (December 31, 2017 – 5.88483% per annum). The Company’s interest rate on the FCC Loan is determined based on the Company’s Debt to EBITDA ratio on December 31 of the prior year and the current monthly applicable LIBOR rate.

The Company’s subsidiary, VFCE, has a loan agreement with a Canadian Chartered Bank that includes a non-revolving fixed rate loan of CA$3.0 million with a maturity date of June 30,2023 and a fixed interest rate of 4.98%. As at December 31, 2018, the balance was US$1,279 (December 31, 2017—US$1,658). The loan agreement also includes an uncommitted, non-revolving credit facility for up to CA$300 to cover letters of guarantee issued by the bank on behalf of the Company, with a maximum term of 365 days, renewable annually. The loan agreement also includes an uncommitted credit facility for up to CA$700 to support financing of certain capital expenditures. The Company received an initial advance of CA$250 in October 2017. Each advance is to be repaid on a five-year, straight-line amortization of principal, repaid in monthly installments of principal plus interest at an interest rate of CA$ prime rate plus 200 basis points. As at December 31, 2018, the balance was US$138 (December 31, 2017—$192).

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Village Farms International, Inc.

The Company is also party to a variable rate line of credit agreement with a Canadian chartered bank that has a maturity date of May 31, 2021 (the “Operating Loan” and together with the FCC Loan, the “Credit Facilities”). The Operating Loan is subject to margin requirements stipulated by the bank. As at December 31, 2018, $2,000 was drawn on the Operating Loan (December 31, 2017—$nil), which is available to a maximum of CA$13,000, less outstanding letters of credit of US$261 and CA$38 (or US$27).

As security for the FCC Loan, the Company has provided promissory notes, a first mortgage on the VFF-owned greenhouse properties (excluding the Delta 3 and Delta 2 greenhouse facilities), and general security agreements over its assets. In addition, the Company has provided full recourse guarantees and has granted security therein. The carrying value of the assets and securities pledged as collateral as at December 31, 2018 was $114,554 (December 31, 2017 – $120,815).

As security for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory. In addition, the Company has granted full recourse guarantees and security therein. The carrying value of the assets pledged as collateral as at December 31, 2018 was $38,007 (December 31, 2017—$32,883).

The borrowings are subject to certain positive and negative covenants, which include debt coverage ratios. As at December 31, 2018, the Company was in compliance with all of its covenants.

Accrued interest payable on the credit facilities and loans as at December 31, 2018 was $184 (December 31, 2017—$193) and these amounts are included in accrued liabilities in the interim statements of financial position.

Contractual Obligations and Commitments

Information regarding the Company’s contractual obligations as at December 31, 2018 is set forth in the table below:

(in thousands of U.S. dollars)	Total		1 year		2-3 years		4-5 years		More than 5 years
Long-term debt	$	38,588	$	3,698	$	34,296	$	594	$	—
Line of Credit		2,000		2,000		—		—		—
Operating leases		5,064		1,253		2,091		1,459		261
Capital leases		180		78		102		—		—
Total	$	46,552	$	7,029	$	36,489	$	2,053	$	261

Capital Expenditures

During the three months and year ended December 31, 2018, the Company purchased approximately $547 and $3,093 of capital assets, respectively. Capital expenditures incurred for 2018 were used for replacements and improvements to existing facilities related mostly to improvements at VFCE, wherein two major engine overhauls and employee housing at the Texas facilities were completed.

Management continues to review new capital expenditures to support its strategic plan of achieving cost efficiencies through increased productivity. Management may elect, where appropriate, to sell inefficient or non-strategic assets to produce cash to wholly or partially finance new capital expenditures. The Company will also borrow to maintain, improve and replace capital assets when the return on such investments exceed targeted thresholds for internal rates of return. There can be no assurance, however, that sources of financing will be available, or will be available on terms favourable to the Company, or that these strategic initiatives will achieve adequate cost reduction in actual implementation or in light of the competitive pressures on the cost of raw materials and other factors of production. Management believes that its recurring capital expenditures will be funded and supported from its ongoing operations.

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Village Farms International, Inc.

During the three months and year ended December 31, 2018, the Company incurred $879 and $2,747, respectively, in costs to maintain its capital assets. These expenses are classified as repair and maintenance and are included in cost of sales. Management forecasts approximately $2,500 of annual costs to maintain the Company’s capital assets.

Summary of Quarterly Results

For the three months ended:

(in thousands of U.S. Dollars, except per share amounts)	Dec 31, 2018		Sept 30, 2018			Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Sept 30, 2017		Jun 30, 2017		Mar 31, 2017
Sales	$	38,787	$	39,684		$	42,039		$	29,490		$	36,864		$	44,735	$	45,530	$	31,277
Net income (loss)	$	270	($	1,989	)	($	2,282	)	($	1,143	)	($	607	)	$	294	$	4,325	($	190	)
Basic earnings (loss) per share	$	0.01	($	0.04	)	($	0.05	)	($	0.03	)	($	0.02	)	$	0.01	$	0.11	($	0.00	)
Diluted earnings (loss) per share	$	0.01	($	0.04	)	($	0.05	)	($	0.03	)	($	0.02	)	$	0.01	$	0.11	($	0.00	)

The Company’s Canadian peak vegetable growing production is in the summer months, with no production during the winter season. As a result, prices for vegetable products from the Company’s Canadian operations have historically followed a seasonal trend of higher prices at the start and end of its crop year, with lower prices in the summer months when the supply of product is greatest. Conversely, the Company’s U.S. vegetable operations’ winter production allows it to realize higher prices during the October through March period, due to the reduced supply of greenhouse produce in North America during the winter months. The complementary nature of the growing seasons of the Company’s Canadian and U.S. vegetable operations allows the Company to maintain and service its core vegetable retail accounts year round.

Financial Instruments and Risk Management

Risk Management

The Company is exposed to the following risks as a result of holding financial instruments: market risk, credit risk, interest rate risk, foreign exchange risk and liquidity risk. The following is a description of these risks and how they are managed by the Company.

Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the market place.

Credit Risk

Credit risk is the risk that the Company will incur a loss due to the failure by its customers or other parties to meet their contractual obligations. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and trade receivables.

The Company limits its exposure to credit risk by placing its cash and cash equivalents with high credit quality financial institutions.

The Company’s trade receivables had two customers that represented more than 10% of the balance of trade receivables, representing 13.8% and 11.5% of the balance of trade receivables as at December 31, 2018 (2017 – two customers represented 16.0% and 14.8%). The Company believes that its trade receivables risk is limited due to the high credit quality of its customers and the protection afforded to the Company by the United States Perishable Agricultural Commodities Act (the “PACA”) for its vegetable sales in the United States, which represent approximately 85% of the Company’s annual sales. PACA protection gives a claim filed under PACA a first lien on all PACA assets (which include cash and trade receivables). PACA fosters trading practices in the marketing of fresh and frozen fruits and vegetables in interstate and foreign commerce. It prohibits unfair and fraudulent practices and provides a means of enforcing contracts. Historical write-offs have represented less than one-half of 1% of sales.

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Village Farms International, Inc.

Trade receivables for each customer were evaluated for collectability and an allowance for doubtful accounts has been estimated. At December 31, 2018, the allowance for doubtful accounts balance was $50 (2017 – $50). The Company has not recorded bad debt expense during the three and nine months ended December 31, 2018 (2017 – $nil and $nil, respectively).    

At December 31, 2018, 89.4% (December 2017 – 89.4%) of trade receivables were outstanding less than 30 days, 8.3% (December 2017 – 7.4%) were outstanding for between 30 and 90 days and the remaining 1.4% (December 2017 – 3.2%) were outstanding for more than 90 days. Trade receivables are considered past due based on the contract terms agreed to with a customer. Aged receivables that are past due are not considered impaired unless customer specific information indicates otherwise.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company has used derivative instruments to reduce market exposure to changes in interest rates. The Company has used derivative instruments only for risk management purposes and not for generating trading profits.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. The following are the contractual maturities of financial liabilities as at December 31, 2018:

(in thousands of U.S. dollars) Financial liabilities	Contractual cash flows		0 to 12 months		12 to 24 months		After 24 months
Accounts payable and accrued liabilities	$	18,110	$	18,110	$	—	$	—
Bank debt		35,859		3,414		3,409		29,036
	$	53,969	$	21,524	$	3,409	$	29,036

It is the Company’s intention to meet these obligations through the collection of current accounts receivables and cash. The Company has available lines of credit of up to CA$13,000 (as at December 31, 2018, $2,000 was outstanding and US$261 and CA$38 was utilized in the form of outstanding letters of credit). If the current resources and cash generated from operations are insufficient to satisfy its obligations, the Company may seek to issue additional equity or to arrange debt or other financing.

Under the terms of the Credit Facilities, the Company is subject to a number of covenants, including debt service covenants. These covenants could reduce the Company’s flexibility in conducting the Company’s operations by limiting the Company’s ability to borrow money and may create a risk of default on the Company’s debt (including by a cross-default to other credit agreements) if the Company cannot satisfy or continue to satisfy these covenants. In the event that the Company cannot comply with a debt covenant, or anticipates that it will be unable to comply with a debt covenant in the future, management may seek a waiver and/or amendment from the applicable lenders in respect of any such covenant in order to avoid any breach or default that might otherwise result therefrom. If the Company defaults under any of the Credit Facilities and the default is not waived by the applicable lenders, the debt extended pursuant to all of its debt instruments could become due and payable prior to its stated due date. The Company cannot give any assurance that (i) its lenders will continue to agree to any covenant amendments or waive any covenant breaches or defaults that may occur under the applicable debt instruments, and (ii) it could pay this debt if it became due prior to its stated due date. Accordingly, any default by the Company under its existing debt that is not waived by the applicable lenders could materially adversely impact the Company’s results of operations and financial results and may have a material adverse effect on the trading price of its common shares. See also “Risk Factors—Dependence Upon Credit Facilities” in the Company’s current Annual Information Form.

Environmental, Health and Safety Risk

The Company’s operations are subject to national, regional and local environmental, health and safety laws and regulations governing, among other things, discharge to air, land and water, the handling and storage of fresh produce, waste disposal, the protection of employee health, safety and the environment. The Company’s greenhouse facilities could experience incidents, malfunctions or other unplanned events that could result in discharges in excess of

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Village Farms International, Inc.

permitted levels resulting in personal injury, fines, penalties or other sanctions and property damage. The Company must maintain a number of environmental and other permits from various governmental authorities in order to operate. Failure to maintain compliance with these requirements could result in operational interruptions, fines or penalties, or the need to install potentially costly pollution control technology. Compliance with current and future environmental laws and regulations, which are likely to become more stringent over time, including those governing greenhouse gas emissions, may impose additional capital costs and financial expenditures, which could adversely affect the Company’s operational results and profitability.

The Company is committed to protecting the health and safety of employees and the general public, and to sound environmental stewardship. The Company believes that prevention of incidents and injuries, and protection of the environment, benefits everyone and delivers increased value to its shareholders, customers and employees. The Company has health and safety and environmental management and systems and has established policies, programs and practices for conducting safe and environmentally sound operations. Regular reviews and audits are conducted to assess compliance with legislation and Company policy.

Overview

The forward-looking statements contained in this section and elsewhere in this MD&A are not historical facts, but rather, reflect the Company’s current expectations regarding future results or events and are based on information currently available to Management. Certain material factors and assumptions were applied in providing these forward-looking statements. See the “Forward-Looking Statements” section of this MD&A.

On June 6, 2017, the Company announced an initiative into growing cannabis through a joint venture with an existing licensed producer, pursuant to which the Company would contribute rights to one of its Delta greenhouses and growing knowledge in exchange for a 50% equity position. Emerald has contributed CA$20 million for its 50% equity interest. The joint venture is named “Pure Sunfarms Corp.” Pure Sunfarms received its cultivation license from Health Canada for the Delta 3 Greenhouse on March 2, 2018. Pure Sunfarms received its sales license from Health Canada on July 30, 2018. Pure Sunfarms has been harvesting cannabis since the middle of May 2018 and with its sales license has commenced the sales of dried bud to other Licensed Producers. Pure Sunfarms continues to convert the unlicensed sections of the Company’s Delta 3 greenhouse to grow cannabis and meet the required security standards for licensing under the ACMPR. The entire facility is licensed and it is one the largest commercial cannabis production facilities in Canada. Management believes it will produce cannabis for CA$1 per gram with margins of 50% in late 2019. As such, the Company’s 50% equity interest in Pure Sunfarms is capable of generating substantially higher revenue and profits than prior revenues and profits from the tomato crop previously grown in the facility.

Since July 2018, each of the Shareholders of Pure Sunfarms has provided CAD $13.0 million of capital in the form of demand shareholder loans.

Currently, management has no intention of growing cannabis at its U.S. greenhouse facilities or holding any equity investments in U.S. cannabis cultivation businesses, in each case until it is federally legal to do so.

The Company continues to focus on increasing its produce revenues and profits on its core crops – tomatoes, cucumbers and peppers. The Company also continues to actively explore whether to produce certain higher margin alternative crops at the Company’s continuing produce facilities, such as hemp as well as evaluate other cannabis related business opportunities.

Growth expenditures

The Company expects to spend between $2.5 to $3.0 million on capital expenditures in 2019. These expenditures are to repair and enhance existing growing and pack house systems either due to obsolesces of the system or to improve operational efficiencies.

Under the terms of the VF Hemp Joint Venture Agreement, the Company will contribute approximately US$15 million to VF Hemp for start-up costs and working capital. Capital investment for extraction capabilities is to be determined and dependent on future decisions with respect to the locations of hemp production and the extraction operations.

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Village Farms International, Inc.

Disclosure Controls and Procedures

Disclosure controls and procedures have been designed to ensure that information to be disclosed by the Company is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosures. The Chief Executive Officer and Chief Financial Officer have concluded, as of the end of the period covered by the interim and year end filings, that the Company’s disclosure controls and procedures are appropriately designed and operating effectively to provide reasonable assurance that material information relating to the Company is made known to them by others within the Company.

Internal Control over Financial Reporting

NI 52-109 also requires CEOs and Chief Financial Officers (“CFOs”) to certify, among other things, that they are responsible for establishing and maintaining internal controls over financial reporting for the issuer, that those internal controls have been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS, and that the issuer has disclosed any changes to its internal controls during its most recent period that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

For the year ended December 31, 2018, the Company’s management evaluated the effectiveness of the Company’s internal control over financial reporting, as defined under rules adopted by the Canadian Securities Administrators (“CSA”). This evaluation was performed under the supervision of, and with the participation of, the Company’s CEO and CFO.    

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting, no matter how well designed has inherent limitations. Therefore, internal control over financial reporting can provide only reasonable, not absolute, assurance with respect to financial statement preparation and may not prevent or detect all misstatements.

Based on this evaluation, the Company’s CEO and CFO have concluded that, subject to the inherent limitations noted above, the Company’s internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.

There were no changes in the Company’s internal control over financial reporting during the year ended December 31, 2018 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Risks and Uncertainties

The Company is subject to various risks and uncertainties which are summarized below, as well as those discussed in this MD&A. Additional details are contained in the Company’s current Annual Information Form dated March 13, 2019 filed on SEDAR, which can be accessed electronically at www.sedar.com.

Risks Relating to the Company

• Product Pricing

• Maintain Profitability

• Risks Inherent in the Agricultural Business

• Natural Catastrophes

• Covenant Risk

• Dependence Upon Credit Facilities

• Labour Availability

• Mexican Trade Agreement

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Village Farms International, Inc.

• Competition

• Transportation Disruptions

• Key Executives

• Uninsured and Underinsured Losses

• Governmental Regulations

• Product Liability

• Cyber Security

• Vulnerability to Rising Energy Cost

• Risks of Regulatory Change

• Environmental, Health and Safety Risk

• Risks Associated with Cross Border Trade

• Retail Consolidation

• Foreign Exchange Exposure

• Technological Advances

• Accounting Estimates

• Growth

• Intellectual Property

Risks Related to VF Hemp

• State Legalization

• FDA and USDA regulation

• Risks Inherent in the Agricultural Business

• Key Executives of VF Hemp

• Risk Related to VF Hemp

• Failure to Realize Growth Strategy

• Research and Development and Product Obsolescence

• Intellectual Property Protection May Be Suboptimal

• Product Liability

• Product Recalls

• Fluctuating Prices of Raw Materials

• Environmental Regulations and Risks

Risks Related to the Joint Venture

• Reliance on Licenses

• Risks Associated with Changes in Laws, Regulations and Guidelines

• Regulatory Compliance Risks

• Failure of Regulatory Compliance

• Failure of Supplier Standards Compliance

• Marketing Restrictions

• Unfavourable Publicity or Consumer Perception

• Third Party Reputational Risks

• Rapid Growth and Consolidation in the Cannabis Industry

• Competition

• Risks Inherent in an Agricultural Business

• Risks Related to the Joint Venture

• Reliance on a Single Facility

• Limited Operating History in the Cannabis Industry

• Failure to Realize Growth Strategy

• Ongoing Costs and Obligations Related to Infrastructure, Growth, Regulatory Compliance and Operations

• No Assurance of Profitability or Immediate Revenues

• Attracting and Retaining Key Personnel

• Research and Development and Product Obsolescence

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Village Farms International, Inc.

• Understanding of CBD and THC May Change

• Consumer Preferences May Change

• Products May Not Have Intended Effects

• Product Liability

• Product Recalls

• Fluctuating Prices of Raw Materials

• Supply and demand Fluctuations

• Reduced Market Due to Personal Cultivation

• Quantification of Size of Target Market

• Premium Segment of Cannabis Market

• Reliance of Third Party Transportation

• Reliance on Third Party Distributors

• Reliance on Key Inputs

• Reliance on Effective Quality Control

• Possible Restricted Trade by the Canadian Free Trade Agreement

• Environmental regulations and Risks

• Insurance Coverage in the Cannabis Industry

• Liability of Illegal Activities by Employees, Contractors or Consultants

• Use of Customer Information and Other Personal and Confidential Information

• Breach of Security

Risks Related to Tax

• Potential U.S. Permanent Establishment of VF Canada GP, VFCLP and VFF

• Advances by VF Operations Canada Inc. to U.S. Holdings

• Transfer Pricing

• U.S. Real Property Holding Corporation

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Critical Accounting Estimates

Trade Receivables

Trade receivables are measured at amortized cost, net of allowance for expected credit losses. Credit is extended based on an evaluation of a customer’s financial condition. Accounts outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time accounts are past due, the Company’s previous loss history and the customer’s current ability to pay its obligation to the Company. Trade receivables are recorded net of lifetime expected credit losses.

Inventories

Inventories of Company-grown produce consist of raw materials, labour and overhead costs incurred less costs charged to cost of sales throughout the various crop cycles, which end at various times throughout the year and exclude biological assets (see below). Cost of sales is based upon incurred and estimated costs to be incurred from each crop allocated to both actual and estimated future yields over each crop cycle. The cost of produce inventory purchased from third parties is valued at the lower of cost or net realizable value.

Biological Assets

Biological assets consist of the Company’s produce on the vines at the period end. The produce on the vine is measured at fair value less costs to sell and complete, with any change therein recognized in profit or loss. Costs to sell include all costs that would be necessary to sell and complete the assets, including finishing and transportation costs.

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Village Farms International, Inc.

Income Taxes

The Company utilizes the assets and liability method of accounting for income taxes under which future income tax assets and liabilities are recognized for the estimated future income tax consequences attributable to differences between the financial statement carrying value amount and the tax basis of assets and liabilities. Management uses judgment and estimates in determining the appropriate rates and amounts in recording future taxes, giving consideration to timing and probability. Actual taxes could significantly vary from these estimates as a result of future events, including changes in income tax law or the outcome of reviews by tax authorities and related appeals. The resolution of these uncertainties and the associated final taxes may result in adjustment to the Company’s tax assets and tax liabilities.

Future income tax assets are recognized to the extent that realization is considered more likely than not. The Company considers past results, current trends and outlooks for future years in assessing realization of income tax assets.

Impairment of Financial and Non-Financial Assets

At the end of each reporting period, the Company reviews the carrying amounts of its long lived assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. The Company estimates the recoverable amounts of the cash-generating unit (“CGU”) to which the asset belongs.

Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGU’s, or otherwise they are allocated to the smallest group of CGU’s for which a reasonable and consistent allocation basis can be identified. Identifiable cash flows are largely independent of the cash flows of other assets and liabilities. This was determined to be the Canadian and U.S. operations.

Recoverable amount is the higher of the fair value less costs to sell and the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of income.

Where an impairment loss subsequently reverses for assets with a finite useful life, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or CGU in prior periods. A reversal of an impairment loss is recognized immediately in the statement of income.

Due to the above-noted considerations, which are based on the Company’s best available information, the Company has not recorded any impairment charge on its non-financial assets during the three months ended December 31, 2018.

Property, Plant and Equipment – Useful Lives

Management estimates the useful lives of property, plant and equipment based on the period during which the assets are expected to be available for use. The amounts and timing of recorded expenses for depreciation of property, plant and equipment for any period are affected by these estimated useful lives. The estimates are reviewed at least annually and are updated if expectations change as a result of physical wear and tear, technical or commercial obsolescence and legal or other limits to use. It is possible that changes in these factors may cause significant changes in the estimated useful lives of the Company’s property, plant and equipment in the future.

Land Revaluation

Management concluded that given significant changes in the fair market value of the Company’s land assets, the revaluation method of accounting for land used in production is a more appropriate accounting policy than historical cost. IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, allows for prospective application of this policy change and therefore the policy change has been applied to year ended December 31, 2016.

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Village Farms International, Inc.

Accounting Standards Issued and Not Applied

The IASB periodically issues new standards and amendments or interpretations to existing standards. The new pronouncements listed below are those policy changes that management considers relevant to the Company now or in the future. This is not intended to be a complete list of new pronouncements made during the year.

IFRS 16, Leases, issued in January 2016, replaces IAS 17, Leases, and related Interpretations. IFRS 16 establishes the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (lessee) and the supplier (lessor). IFRS 16 requires a lessee to recognize a right-of-use asset representing its right to use the underlying leased asset and a corresponding lease liability representing its obligation to make lease payments for all leases. A lessee recognizes the related expense as depreciation on the right-of-use asset and interest on the lease liability. Short-term (less than 12 months) and low-value asset leases are exempt from these requirements. IFRS 16 may be implemented using a retrospective approach or a modified retrospective approach, which permits the use of certain practical expedients upon transition. The Company expects to use the modified retrospective method upon transition with no restatement of comparative financial information. Under this approach, the Company will recognize the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of retained earnings at January 1, 2019. The Company will recognize a lease liability at the present value of the remaining lease payments discounted using the lease’s incremental borrowing rate at January 1, 2019 and a right-of-use asset at its carrying amount as if IFRS 16 had been applied since the commencement date but discounted using the Company’s incremental borrowing rate at January 1, 2019. Management expects that IFRS 16 will result in the following: a) an increase in assets and liabilities as fewer leases will be expensed as payments are made; b) an increase in depreciation expenses; and c) an increase in cash flow from operating activities as these lease payments will be recorded as financing outflows in the cash flow statements.

Amendends to IFRS 11, Joint Arrangements, and IAS 28, Investments in Associates and Joint Ventures establishes the criteria for accounting for joint ventures. Investments in joint ventures are accounted for using the equity method. The equity method involves recording the initial investment at cost and subsequently adjusting the carrying value of the investment for the proportionate share of the profit or loss, other comprehensive income or loss and any other changes in the joint venture’s net assets such as dividends. At each consolidated statement of financial position date, the Company will consider whether there is objective evidence that its investment in the joint venture is impaired. If there is such evidence of impairment, the Company will determine the amount of the impairment and a loss will be recorded in the consolidated statement of (loss) income. Amendments to IFRS 11 is effective for annual periods beginning on or after January 1, 2019. Management is currently assessing the impact of IFRS 11 on its consolidated financial statements.

Further details of new accounting standards and potential impact on the Company can be found in the Company’s consolidated financial statements for the year ended December 31, 2018.

Changes in Accounting Policies

IFRS 9, Financial Instruments replaced the current IAS 39, Financial Instruments Recognition and Measurement. This standard sets out revised guidance for classifying and measuring financial assets and liabilities, introduces a new expected credit loss model for calculating impairment of financial assets and includes a reformed approach to hedge accounting. The standard also requires that when a financial liability at amortized cost is modified or exchanged, and such modification or exchange does not result in de-recognition, that the adjustment to the amortized cost of the financial liability is recognized in profit or loss. IFRS 9 was adopted without restating comparative information. The reclassifications arising from the new rules are therefore not reflected in the statement of financial position as at December 31, 2017, but are recognized in the opening statement of financial position on January 1, 2018.

Following the adoption of IFRS 9, the Company could no longer defer and amortize financing fees that resulted from the refinancing of borrowings in periods prior to January 1, 2018. As a result, the Company has restated the beginning balances noted in the table below to properly account for $260 of financing fees in accordance with IFRS 9. The standard was applied retrospectively therefore approximately $260 of deferred financing costs, net of accumulated amortization, remain netted against long-term debt on the consolidated statement of financial position, as at December 31, 2017.

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Village Farms International, Inc.

The following tables show the adjustments recognized for each individual line item:

Statement of Financial Position (extract)	December 31, 2017 As originally presented		IFRS 9 Adjustments			January 1, 2018 Restated
Non-current liabilities Long-term debt	$	35,760	$	260		$	36,020
Total liabilities		61,298		260			61,558
Shareholders’ Equity Retained earnings		39,272		(260	)		39,012
Total shareholders’ equity	$	81,043	$	(260	)	$	80,783

IFRS 15, Revenue from Contracts with Customers, replaces IAS 18, Revenue, and IAS 11, Construction Contracts, and the related Interpretations on revenue recognition. IFRS 15 establishes a single comprehensive model for recognizing revenues from contracts with customers. The standard requires revenue to be recognized in a manner that depicts the transfer of promised goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for transferring those goods and services.

The Company generates its revenue through the sale of produce, with standard shipping terms and discounts, and through the production and sale of power.

The Company’s produce revenue transactions consist of single performance obligations to transfer promised goods. Quantities to be delivered to the customer are determined at a point near the date of delivery through purchase orders it receive from the customer. The Company recognizes revenue when it has fulfilled a performance obligation, which is typically when the customer receives the goods and its performance obligation is complete. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring product. The amount of revenue recognized is reduced for estimated returns and other customer credits, such as discounts and rebates, based on the expected value to be realized. Payment terms are consistent with terms standard to the markets the Company serves. The Company maintains an allowance for doubtful accounts for the loss that would be incurred if a customer was unable to pay amounts due. The Company initially estimates the allowance required at the time of revenue recognition based on historical experience and makes changes to the allowance based on various factors, including changes in the customer’s financial condition or payment patterns.

The Company sells electricity to British Columbia Hydro and Power Authority. Revenues are recognized as the electricity is delivered to/consumed by the customer and is based on contractual usage rates and meter readings that measure electricity consumption.

The Company adopted IFRS 15, as of January 1, 2018, using the modified retrospective transition method, which involves not restating periods prior to the date of initial application. The application of IFRS 15 required no change in amounts recognized in the Company’s consolidated financial statements for the year ended December 31, 2018, as the amount and timing of substantially all of its revenues is, and will continue to be, recognized at a point in time. Disclosures required by IFRS 15 have been included in the financial statements.

Related Party Transactions

As at December 31, 2018, the Company had amounts due from its joint venture, Pure Sunfarms, totaling $1,103 (December 31, 2017 - $411) primarily for consulting services and the reimbursement of expenses which occurred in the year. These amounts were non-interest bearing and were due on demand. On July 5, 2018, the Shareholders entered into a Loan Agreement with Pure Sunfarms, whereby, as at December 31, 2018, the Shareholders had each contributed

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Village Farms International, Inc.

CA$13,000 (US$9,959) in the form of a demand loan to Pure Sunfarms. The loan amounts will initially bear simple interest at the rate of 8% per annum, calculated semi-annually. Interest accrues and will be payable upon demand being made by either Shareholder. These amounts are included in amounts due from the Joint Venture in the consolidated statements of financial position.

Included in other assets as at December 31, 2018, is a $64 (December 31, 2017 - $70) promissory note that represents the unpaid amount the Company advanced to an employee in connection with a relocation at the request of the Company.

Outstanding Share Data

The beneficial interests in the Company are currently divided into interests of three classes, described and designated as “Common Shares”, “Special Shares” and “Preferred Shares”, respectively. An unlimited number of Common Shares, Special Shares and Preferred Shares are issuable pursuant to VFF’s constating documents.

On December 21, 2017, VFF issued 2,500,000 Common Shares pursuant to a “bought deal” short form prospectus offering at an issue price of CA$5.40 per Common Share for gross proceeds of CA$13,500,000. The offering was conducted by a syndicate of underwriters led by Beacon Securities Limited.

On May 24, 2018, VFF issued 1,886,793 Common Shares pursuant to a private placement offering at an issue price of CA$5.30 per Common Share for gross proceeds of CA$10,000,000.

On October 12, 2018, VFF issued 3,097,200 Common Shares pursuant to a “bought deal” short form prospectus offering at an issue price of CA$7.13 per Common Share for gross proceeds of CA$22,083,036. The offering was conducted by a syndicate of underwriters led by Beacon Securities Limited

As of the date hereof, VFF has outstanding: (i) 47,624,338 Common Shares carrying the right to one vote at a meeting of voting shareholders of VFF; (ii) nil (0) Special Shares; and (iii) nil (0) Preferred Shares. In conjunction with the formation of Pure Sunfarms Corp., the Company issued 300,000 common share purchase warrants to an affiliate of a Canadian financial institution as partial consideration for services provided in respect thereof. Each such warrant entitles the holder to purchase one Common Share at an exercise price of CA$2.07. Each such warrant is exercisable up to June 6, 2020.

For further details on the structure of the Company or the rights attached to each of the above-mentioned securities, please refer to the Company’s current Annual Information Form which is available electronically at www.sedar.com.

Forward-Looking Statements

Certain statements contained in this MD&A constitute forward-looking information within the meaning of applicable securities laws (“forward-looking statements”). Forward-looking statements may relate to the Company’s future outlook or financial position and anticipated events or results and may include statements regarding the financial position, business strategy, budgets, litigation, projected production, projected costs, capital expenditures, financial results, taxes, plans and objectives of or involving the Company. Particularly, statements regarding future results, performance, achievements, prospects or opportunities for the Company, the greenhouse vegetable industry or the cannabis industry are forward-looking statements. In some cases, forward-looking information can be identified by such terms as “outlook”, “may”, “might”, “will”, “could”, “should”, “would”, “occur”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue”, “likely”, “schedule”, “objectives”, or the negative or grammatical variation thereof or other similar expressions concerning matters that are not historical facts. Some of the specific forward-looking statements in this MD&A include, but are not limited to, statements with respect to: product pricing; maintaining profitability; risks inherent in the agricultural business; natural catastrophes; retail consolidation; covenant risk; dependence upon credit facilities; competition; transportation disruptions; labour; governmental regulations; product liability; key executives; uninsured and underinsured losses; vulnerability to rising energy costs; risks of regulatory change; environmental, health and safety risk, foreign exchange exposure, risks associated with cross-border trade; technological advances; accounting estimates; growth; tax risks; and risks related to the Joint Venture, including the Joint Venture’s ability to obtain licenses under the ACMPR, risks relating to conversion of the Company’s greenhouses to cannabis production, and the ability to cultivate and distribute cannabis.

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Village Farms International, Inc.

The Company has based these forward-looking statements on factors and assumptions about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs, including that the Canadian economy will remain stable over the next 12 months, that inflation will remain relatively low, that interest rates will remain stable, that tax laws remain unchanged, that conditions within the greenhouse vegetable and cannabis industries generally will be consistent with the current climate, and that the Canadian capital markets will provide the Company with access to equity and/or debt at reasonable rates when required.

Although the forward-looking statements contained in this MD&A are based upon assumptions that management believes are reasonable based on information currently available to management, there can be no assurance that actual results will be consistent with these forward-looking statements. Forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond the Company’s control, that may cause the Company’s or the industry’s actual results, performance, achievements, prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the factors contained in the Company’s filings with securities regulators, including this MD&A and the Company’s annual information form.

When relying on forward-looking statements to make decisions, the Company cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties and should not be read as guarantees of future results, performance, achievements, prospects and opportunities. The forward-looking statements made in this MD&A relate only to events or information as of the date on which the statements are made in this MD&A. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

Public Securities Filings

You may access other information about the Company, including its current Annual Information Form and other disclosure documents, reports, statements or other information that it files with the Canadian securities regulatory authorities, through SEDAR at www.sedar.com.

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EX-99.3

Exhibit 99.3

Village Farms International Reports Fourth Quarter and Year End 2018 Financial Results – Cannabis Joint Venture, Pure Sunfarms, Generates Positive Net Income in First Full Quarter of Sales and for the Full Year

Vancouver, BC, March 13, 2019 – Village Farms International, Inc. (“Village Farms” or the “Company”) (TSX: VFF) (NASDAQ: VFF) today announced its financial results for the fourth quarter and year ended December 31, 2018.

Financial and Corporate Highlights for the Fourth Quarter Ended December 31, 2018

(All comparable figures are for the fourth quarter ended December 31, 2017)

• Net income improved to positive US$0.3 million, or US$0.01 per share, and included the contribution of positive net income from Pure Sunfarms Corp. (“Pure Sunfarms”) of US$2.8 million. This compares with a net loss of (US$0.6 million), or (US$0.02) per share;

• Sales, including the Company’s proportionate share of Pure Sunfarms’ sales, increased to US$40.6 million compared with US$36.9 million;

• EBITDA, was US$1.5 million compared with US$2.6 million. EBITDA included $0.9 million from Pure Sunfarms;

• Completed a bought deal offering of 3,097,200 common shares at a price of $7.13 per share (for aggregate gross proceeds to the Company of $22,083,036; and,

• The Company’s common shares commenced trading on the Nasdaq Capital Market under the symbol “VFF”.

Financial Highlights for the Year Ended December 31, 2018

(All comparable figures are for the year ended December 31, 2017)

• Net loss was (US$5.1 million), or (US$0.11) per share, and included the contribution of positive net income from Pure Sunfarms of US$2.4 million. This compares with prior year net income of US$3.8 million, or US$0.10 per share;

• Sales, including the Company’s proportionate share of Pure Sunfarms’ sales, were US$151.9 million compared with US$158.4 million; and,

• EBITDA, was US$2.9 million compared with US$7.4 million. EBITDA included US$0.1 million from Pure Sunfarms.

Summary of Recent Highlights for Village Farms’ Canadian Cannabis Joint Venture, Pure Sunfarms

• Generated positive net income of US$5.5 million for the fourth quarter 2018, the first full quarter of sales (Village Farms’ proportional share is US$2.8 million);

• Received multiple amendments to its cultivation license from Health Canada, resulting in the successive expansion of its licensed production area to the entire growing area of 1.03 million square feet in March 2019;

1

• Selected by, and has entered into a supply agreement with, the Ontario Cannabis Retail Corporation (“OCRC”), operating as the Ontario Cannabis Store (“OCS”), to supply the OCS with Pure Sunfarms branded cannabis products for the non-medical market in the Province of Ontario;

• Entered into a wholesale supply arrangement with one of the largest online platforms for medical cannabis users in Canada, through which a selected variety of Pure Sunfarms high-quality dried flower products will be available for purchase;

• Entered into a credit agreement with Bank of Montreal and Farm Credit Canada (“FCC”) in respect of a CAD$20 million secured non-revolving term loan, with the available funds to be used to finance the final costs of converting its 1.1 million square foot greenhouse for cannabis production, as well as general corporate purposes.

Highlights for Village Farms’ U.S. Hemp/CBD Initiative

• Upon passage by U.S. Congress of the 2018 Farm Bill, which legalized hemp cultivation and hemp-derived products, the Company announced its intention to aggressively pursue opportunities to become a vertically integrated leader in the hemp-derived cannabidiol (CBD) market;

• Formed a joint venture (65%-owned by Village Farms) with a Jennings Group company, Nature Crisp, LLC, for the outdoor cultivation of high-cannabidiol (CBD) hemp and CBD extraction in multiple states throughout the United States. Jennings Group has extensive experience in field agriculture across a diverse range of food and other crops, including hemp.

“It is a remarkable achievement for Pure Sunfarms’ to not only generate positive net income in just its first full quarter of sales but for Pure Sunfarms to be profitable for the entire year, during most of which the Pure Sunfarms greenhouse was in the process of being converted for cannabis production,” said Michael DeGiglio, Chief Executive Officer, Village Farms. “It is demonstrative of the value that Village Farms, with its 30-years of experience as a large-scale, low-cost developer and grower, brings to the Pure Sunfarms joint venture, as well as the advantage of pursuing the Canadian cannabis opportunity via an established, high-performance greenhouse operation with more than 750 years of combined grower experience, an experienced skilled labour force already in place, and the benefit of years of operating history across multiple crops in multiple regions around the world.”

“Pure Sunfarms is positioned for earnings growth throughout 2019 and beyond as it ramps to full run rate annual production of 75,000 kilograms by mid-year, commences sales to the Ontario Cannabis Store upon receipt of its processing and packaging licenses, and redirects sales to the retail market following conclusion of its supply agreement with Emerald Health Therapeutics at the end of this year. To this end, Pure Sunfarms is steadily advancing its product and brand strategies to realize its vision to be a premier vertically integrated supplier to the Canadian cannabis market, with a reputation for quality, consistency, safety and reliability.”

“In the United States, with hemp cultivation and hemp products now federally legal, we are aggressively pursuing a vertically integrated hemp-derived CBD strategy to capitalize on this significant opportunity. We have already taken a major step in this regard with the formation of a joint venture for outdoor hemp cultivation and CBD extraction, Village Fields Hemp, with an experienced partner, and expect to begin generating revenue later this year. With 5.7 million square feet of existing technologically advanced greenhouse operations in Texas, we stand ready, subject to legalization in Texas, to address what we believe will be significant demand for controlled environment-grown hemp to meet the needs of specific customers. As a vertically integrated produce supplier to North America’s top grocery and “big box” retailers for decades, and with in-house expertise to navigate the evolving regulatory environment, Village Farms is very well positioned to become a leading supplier of branded and private label CBD products to these retailers.”

2

Summary Statuary Results

(in thousands of U.S. Dollars unless otherwise indicated)

	For the three months ended December 31,						For the year ended December 31,
	2018			2017			2018			2017
Sales	$	38,787		$	36,864		$	150,000		$	158,406
Cost of sales		(36,367	)		(31,908	)		(140,282	)		(144,433	)
Selling, general and administrative expenses		(3,622	)		(4,019	)		(14,108	)		(13,894	)
Stock compensation expense		(1,007	)		(959	)		(1,454	)		(1,519	)
Change in biological asset(1)		158			1,082			(843	)		265
Interest expense, net		(501	)		(679	)		2,407			2,695
Other income		(70	)		(50	)		(131	)		46
Foreign exchange (loss) gain		(960	)		(31	)		(1,047	)		26
Share of income (loss) from joint venture		2,750			(35	)		2,381			(255	)
Income (loss) on disposal of assets		—			(551	)		—			8,013
(Recovery of) provision for income taxes		(962	)		(321	)		(2,475	)		138
Net income (loss)		270			(607	)		(5,145	)		3,822
EBITDA(2)		1,484			2,591		$	2,878		$	7,363
Earnings (loss) per share – basic and diluted	$	0.01		($	0.02	)	($	0.11	)	$	0.10

Summary Results Including Pure Sunfarms on a Proportionate Basis

The following results reflect the Company’s proportionate share of the Pure Sunfarms joint venture operations, as this is the basis on which management bases its operating decisions and performance. For a reconciliation to the results in accordance with International Financial Reporting Standards (“IFRS”) refer to the “Reconciliation of IFRS to Proportionate Results” as presented below and in Management’s Discussion & Analysis (“MD&A”).

(in thousands of U.S. Dollars unless otherwise indicated)

	For the three months ended December 31,						For the year ended December 31,
	20181			20171			20181			20171
Sales	$	40,590		$	36,864		$	151,913		$	158,406
Cost of sales		(36,896	)		(31,908	)		(140,882	)		(144,433	)
Selling, general and administrative expenses		(4,113	)		(4,147	)		(15,414	)		(14,242	)
Change in biological asset (2)		3,120			1,082			2,552			265
Net income (loss)		270			(607	)		(5,145	)		3,822
EBITDA(3)	$	1,484		$	2,591		$	2,878		$	7,363
Earning (loss) per share – basic and diluted	$	0.01		($	0.02	)	($	0.11	)	$	0.10

Notes:

(1) The consolidated financial results above reflect the proportionate share of the Company’s share of revenues and expenses from its joint venture operations, as this is the basis which management bases its operating decisions and performance evaluation. IFRS does not allow for the inclusion of the joint venture on a proportionate basis. These results include additional non-IFRS measures such as EBITDA.

The results are not generally accepted measures of financial performance under IFRS. The Company’s method of calculating these financial performance measures may differ from other companies and accordingly, they may not be comparable to measures used by other companies. Refer to the MD&A for a reconciliation of these non-IFRS measures and proportionate results.

(2) Biological assets consist of the Company’s produce on the vines and Pure Sunfarms’ bud and trim on the plant at the period end. Details of the changes are described in note 6 of the Company’s annual consolidated financial statements year ended December 31, 2018.

(3) EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented by other issuers. See “Non-IFRS Measures”. Management believes that EBITDA is a useful supplemental measure in evaluating the performance of the Company. Consolidated EBITDA includes the Company’s 50% share of its joint venture Pure Sunfarms.

3

Financial Highlights

(All amounts in U.S. Dollars unless otherwise indicated.)

Cannabis

Pure Sunfarms commenced sales in late September 2018; for the year ended December 31, 2018 the Company’s 50% share of sales is $1,897.

The Company’s share of net income for the three months and year ended December 31, 2018 was $2,750 and $2,381, respectively, Pure Sunfarms was able to achieve net income in its first full quarter of sales.

The Company’s share of EBITDA for the three months and year ended December 31, 2018 was $861 and $111, respectively, Pure Sunfarms was able to achieve a positive EBITDA in its first full quarter of sales.

Vegetable

Sales for the year ended December 31, 2018 decreased (5%) from the year ended December 31, 2017, the decrease is due to the loss of tomato production from the Delta 3 facility, which was contributed to Pure Sunfarms in 2017 and the Company’s lower production at its Texas facilities. Net price for tomato pounds increased 4% for the year ended December 31, 2018 versus the year ended December 31, 2017 due to a higher percent of higher priced tomato production in 2018 as compared to 2017. Pepper prices decreased (2%) over the comparable period in 2017, and cucumber prices decreased (1%) for the years ended December 31, 2018 over the comparable period in 2017.

Cost of sales for the year ended December 31, 2018 decreased (3%) from the year ended December 31, 2017, primarily due to the loss of the Delta 3 facility and a decrease in costs at the Texas facilities due to a decrease in pounds produced partially offset by an increase of 6% in contract sales cost.

EBITDA for the year period ended December 31, 2018 decreased (62%) from the year period ended December 31, 2017, primarily as a result of a decrease in income from operations that was caused by the removal of the Delta 3 facility as well as a decrease in production for the Texas facilities. The production shortfall at the Texas facilities resulted in decreased sales and an increase in cost per pound for product produced as the fixed costs were spread over less pounds.

Reconciliation of IFRS to Proportionate Results

The following tables are a reconciliation of the IFRS results to the proportionate results (which include the Company’s proportionate share of the Pure Sunfarms operations). Refer to the MD&A for further discussion and analysis of these results:

	For the three months ended December 31, 2018									For the three months ended December 31, 2017
	Produce			Cannabis4			Total			Produce			Cannabis4			Total
Sales	$	38,787		$	1,803		$	40,590		$	36,864		$	—		$	36,864
Cost of sales		(36,367	)		(529	)		(36,896	)		(31,908	)		—			(31,908	)
Selling, general and administrative expenses		(3,622	)		(491	)		(4,113	)		(4,019	)		(128	)		(4,147	)
Change in biological asset(5)		158			2,962			3,120			1,082			—			1,082
(Gain) loss on sale of assets		—			—			—			(511	)		—			(511	)
(Recovery of) provision for income taxes		(962	)		887			(75	)		321			(93	)		228
Net (loss) income		(2,480	)		2,750			270			(572	)		(35	)		(607	)
EBITDA(6)	$	623		$	861		$	1,484			2,720			(129	)		2,591
(Loss) earnings per share – basic and diluted	($	0.05	)	$	0.06		$	0.01		($	0.02	)	$	0.00		($	0.02	)

4

	For the year ended December 31 , 2018									For the year ended December 31, 2017
	Produce			Cannabis4			Total			Produce			Cannabis4			Total
Sales	$	150,000		$	1,897		$	151,913		$	158,406		$	—		$	158,406
Cost of sales		(140,282	)		(595	)		(140,882	)		(144,433	)		—			(144,433	)
Selling, general and administrative expenses		(14,108	)		(1,306	)		(15,414	)		(13,894	)		(348	)		(14,242	)
Change in biological asset(5)		(834	)		3,386			2,552			265			—			265
(Gain) loss on sale of assets		—			—			—			(8,013	)		—			(8,013	)
(Recovery of) provision for income taxes		(2,475	)		887			(1,588	)		138			94			232
Net (loss) income		(7,526	)		2,381			(5,145	)		4,077			(255	)		3,822
EBITDA(6)	$	2,767		$	111			2,878		$	7,456		($	93	)	$	7,363
(Loss) earnings per share – basic and diluted	($	0.16	)	$	0.05		($	0.11	)	$	0.10		$	0.00		$	0.10

Notes:

(4) The consolidated financial results above reflect the proportionate share of the Company’s share of revenues and expenses from its joint venture operations, as this is the basis which management bases its operating decisions and performance evaluation. IFRS does not allow for the inclusion of the joint venture on a proportionate basis. These results include additional non-IFRS measures such as EBITDA.

The results are not generally accepted measures of financial performance under IFRS. The Company’s method of calculating these financial performance measures may differ from other companies and accordingly, they may not be comparable to measures used by other companies. Refer to the MD&A for a reconciliation of these non-IFRS measures and proportionate results.

(5) Biological assets consist of the Company’s produce on the vines and Pure Sunfarms’ crop at the period end. Details of the changes are described in note 6 of the Company’s annual consolidated financial statements year ended December 31, 2018.

(6) EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented by other issuers. See “Non-IFRS Measures”. Management believes that EBITDA is a useful supplemental measure in evaluating the performance of the Company. Consolidated EBITDA includes the Company’s 50% share of its joint venture Pure Sunfarms.

Conference Call

Village Farms’ management team will host a conference call tomorrow, Thursday, March 14, 2019 at 11:00 a.m. ET (8:00 a.m. PT) to discuss its year end 2018 financial results and provide an update on Pure Sunfarms. Participants can access the conference call by telephone by dialing (647) 427-7450 or (888) 231-8191, or via the Internet at: https://bit.ly/2GRVAcz.

For those unable to participate in the conference call at the scheduled time, it will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. To access the archived conference call by telephone, dial (416) 849-0833 or (855) 859-2056 and enter the passcode 8558907 followed by the pound key. The telephone replay will be available until, March 21, 2019 at midnight (ET). The conference call will also be archived on Village Farms’ website at http://villagefarms.com/investor-relations/investor-calls.

About Village Farms International, Inc.

Village Farms is one of the largest and longest-operating vertically integrated greenhouse growers in North America and the only publicly traded greenhouse produce company in Canada. Village Farms produces and distributes fresh, premium-quality produce with consistency 365 days a year to national grocers in the U.S. and Canada from more than nine million square feet of Controlled Environment Agriculture (CEA) greenhouses in British Columbia and Texas, as well as from its partner greenhouses in British Columbia, Ontario and Mexico. The Company is now leveraging its 30 years of experience as a vertically integrated grower for the rapidly emerging global cannabis opportunity through its 50% ownership of British Columbia-based Pure Sunfarms Corp., one of the single largest cannabis growing operations in the world. The Company also intends to pursue opportunities to become a vertically integrated leader in the U.S. hemp-derived CBD market, subject to compliance with all applicable U.S. federal and state laws, and has established a joint venture, Village Fields Hemp, for multi-state outdoor hemp cultivation and CBD extraction.

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Cautionary Language

Certain statements contained in this press release constitute forward-looking information within the meaning of applicable securities laws (“forward-looking statements”). Forward-looking statements may relate to the Company’s future outlook or financial position and anticipated events or results and may include statements regarding the financial position, business strategy, budgets, litigation, projected production, projected costs, capital expenditures, financial results, taxes, plans and objectives of or involving the Company. Particularly, statements regarding future results, performance, achievements, prospects or opportunities for the Company, Pure Sunfarms, the greenhouse vegetable industry or the cannabis and hemp industries are forward-looking statements. In some cases, forward-looking information can be identified by such terms as “outlook”, “may”, “might”, “will”, “could”, “should”, “would”, “occur”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue”, “likely”, “schedule”, “objectives”, or the negative or grammatical variation thereof or other similar expressions concerning matters that are not historical facts.

Although the forward-looking statements contained in this press release are based upon assumptions that management believes are reasonable based on information currently available to management, there can be no assurance that actual results will be consistent with these forward-looking statements. Forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond the Company’s control, that may cause the Company’s or the industry’s actual results, performance, achievements, prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the factors contained in the Company’s filings with U.S. and Canadian securities regulators, including as detailed in the Company’s annual information form and management’s discussion and analysis for the year-ended December 31, 2018.

When relying on forward-looking statements to make decisions, the Company cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties and should not be read as guarantees of future results, performance, achievements, prospects and opportunities. The forward-looking statements made in this press release only relate to events or information as of the date on which the statements are made in this press release. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Contact Information

Lawrence Chamberlain

Investor Relations

(416) 519-4196

lawrence.chamberlain@loderockadvisors.com

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