Village Farms International, Inc. (NASDAQ:VFF) (TSX:VFF) has entered into an option agreement to buy an 80% ownership interest in Netherlands-based Leli Holland B.V. for EUR50,000. Leli is one of the ten applicants selected by lottery to receive a license to legally cultivate and distribute cannabis to retailers (known as “coffee shops”) when the Dutch government implements its Experiment to Investigate Closed Cannabis Supply Chains, also known by the Dutch acronym “WECG”). The Dutch Supply Chain Experiment, which is scheduled to operate for a minimum of four years with the potential for national expansions, is expected to be the first legal recreational cannabis market in Europe.
“We view the Dutch Supply Chain Experiment as a critical step toward the broad legalization of recreational cannabis in Europe, and our majority ownership of Leli as both an opportunity to participate in the first recreational market in Europe and a springboard to becoming a major participant in a broader recreational market in Europe,” said Michael DeGiglio, CEO Village Farms. “The founders at Leli share our passion for the cannabis plant, our belief in the role of cannabis in health and wellness, our commitment to sustainable growing practices and the advantage of true vertically integrated operations.”
Village Farms noted that under current Netherlands law, the sale and use of cannabis for recreational purposes are tolerated, however, production and distribution are strictly prohibited, a policy that is believed to negatively impact public order, safety, and public health. The company said in a statement that the Dutch Supply Chain Experiment is intended to determine whether and how controlled cannabis can be legally supplied to coffee shops to address the lack of quality standards and societal impact of cannabis-related crime. It is scheduled to be in effect for at least four years. All coffee shops in the 10 selected cities (currently approximately 80 coffee shops in total) will be legally required to purchase all of their cannabis exclusively from the approved, federally licensed producers.
Leli and Village Farms plan to construct two indoor Controlled Environment Agriculture (CEA) production facilities, leveraging Leli’s track record managing complex regulatory and approval procedures in the Netherlands at both the federal and local levels, as well as specific cultivation experience, and Village Farms’ three-plus decades as a vertically integrated CEA grower, as well as its extensive experience in cultivation, product development and commercialization in the Canadian legal recreational cannabis market. Village Farms said it will be responsible for the development of the project and product commercialization throughout the fully vertically integrated business model, including design and construction of the facilities, operation of the facilities (providing cultivation and harvesting expertise and drying technology), product development and strategy, branding and marketing, leveraging the experience gained in each of these areas through the success of its wholly-owned subsidiary, Pure Sunfarms, in Canada.
Mr. DeGiglio concluded, “Building on the successes of Pure Sunfarms in Canada, we look forward to leading the market in another legal, regulated recreational cannabis market, with an existing, large consumer base, in what we hope becomes a national and permanent policy. Europe, more broadly, represents a significant long-term opportunity in cannabis. We will prudently pursue selected markets, led by our recently appointed Vice President, European Business Development and Operations, Orville Bovenschen, who, himself, was born and raised in the Netherlands.”
The option agreement provides for Village Farms to acquire 80% of Leli’s shares for a total of EUR3,950,000 million, of which EUR950,000 is due and payable to Leli’s shareholders upon the exercise of the Option and the remainder due and payable in three installments subject to achievement of certain project development milestones. The option is exercisable at the sole discretion of Village Farms.