Village Farms International has executed a definitive agreement with DutchCanGrow ("DCG"), a Netherlands-based cannabis enterprise, to become one of six equal shareholders in DCG owning just under 16% each, with a seventh shareholder owning 5%. "DCG is pursuing the opportunity to become one of a limited number of licensed cannabis growers (up to a maximum of 10) when the Dutch government permits the first legal recreational cannabis market in Europe under its 10-city Experiment to Investigate Closed Cannabis Supply Chains (the "WECG")," the team with the company explains.
If successful in receiving a license from the Dutch government when awarded later this year, DCG plans to construct and operate a specialized cannabis greenhouse facility in the Netherlands and develop, produce and market a variety of safe, high-quality cannabis products to supply this new legalized market. "We are planning to build a greenhouse when we get a license," Thomas Rau with DutchCanGrow explains. "We want to grow in a greenhouse because we are all greenhouse experts here in the Netherlands, and Village Farms is a greenhouse expert too. On top of that, on the long term, pricewise will be way better. It is more difficult in a greenhouse than indoors as you need more expertise and experience. But fortunately, we can rely on that."
Since 1976 in the Netherlands, a cannabis policy has been in effect regarding cannabis, under which the sale of cannabis at "coffee shops" is tolerated but the cultivation of cannabis is illegal. In 2019, in response to concerns around product safety (ingredients, additives, contaminants) and increasing criminal involvement related to cannabis cultivation, the Netherlands' House of Representatives approved the WECG as an intermediary step to address the lack of quality standards and societal impact of crime related to cannabis.
Under the WECG, which will be in effect for a minimum of four years following a one-year preparation period, all coffee shops in the 10 selected cities (currently 78 coffee shops in total) will be legally required to purchase all of their cannabis exclusively from the approved, federally licensed producers ("LPs"). The supply requirement for the current scope of the WECG is estimated to be approximately 65,000 kilograms of dried cannabis annually. The WECG will be formally evaluated by the Dutch government during the third year of the program, with the potential to expand it from the initial 10 cities to a national program, encompassing all coffee shops in the Netherlands (currently totalling 580).
"Our investment in DutchCanGrow is a momentous first step in leveraging all that Village Farms has accomplished in Canada to become a leader in the burgeoning international cannabis industry," said Michael DeGiglio, CEO, Village Farms International. "DCG is an outstanding opportunity for Village Farms, not only providing potential access to the very first legal recreational cannabis market in Europe with the possibility of significant expansion within the Netherlands itself, but also to springboard to future legal cannabis opportunities in other markets in Europe, and around the world."
Mr. DeGiglio added, "We are very proud to have been selected by DCG from amongst a number of well-known Canadian LPs that were vying for this unique and exciting opportunity. Village Farms' very own roots as one of North America's largest and most successful greenhouse produce growers go back to Holland. A number of our most experienced people are multi-generational Dutch growers who brought with them to Village Farms the deep cultural know-how of The Netherlands. To this day, we have strong, enduring relationships with the Dutch growing community, and we are proud to now share the specific expertise we have gained through building Pure Sunfarms into Canada's premiere cannabis supplier. We look forward to working with this incredible group of partners at DCG, which brings together formidable expertise across a range of disciplines critical to the success of this venture."
"DutchCanGrow has a vision to become the premier cultivator, developer and producer of premium-quality, legally-grown cannabis in the Netherlands," said Peter Tas, Director, DutchCanGrow. "It was our goal in approaching this opportunity to partner with an outstanding company with specific experience and success in the Canadian legal recreational cannabis market. We have spoken to a number of potential partners, including several large Canadian LPs, regarding this opportunity. Village Farms emerged as the clear choice, having already built Pure Sunfarms into what, in our opinion, is one of the best all-around cannabis growers and suppliers in Canada. Village Farms' expertise in facilities planning and development, low-cost greenhouse cannabis cultivation and operational efficiency will be invaluable to our pursuit of this significant opportunity."
In return for its ownership position in DCG, Village Farms will contribute its proven experience and capabilities related to, among other things, business model development, general project operations, cultivation, post-harvest operations, government relations and regulatory and finance, as well as a de minimis cash investment.