The Deal Details
Under the option agreement, the Vancouver-based cannabis company received the irrevocable right to acquire an ownership interest in Leli upon payment of €50,000 ($58,526).
Village Farms agreed to pay a total of €3.95 million for the stake in Leli, including €950,000, which is due and payable to Leli’s shareholders upon the exercise of the option. The remainder is due and payable in three installments subject to the achievement of certain project development milestones.
Leli is one of the ten applicants selected by lottery to receive a license to legally cultivate and distribute cannabis to retailers – also known as “coffee shops” – when the Dutch government implements its Experiment to Investigate Closed Cannabis Supply Chains.
The Supply Chain Experiment is scheduled to operate for at least four years with the potential for national expansions. In addition, it is expected to be the first legal recreational cannabis market in Europe. The program aims 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.
The total supply requirement for the ten approved producers participating in the program is roughly a minimum of 65,000 kilograms of dried flower annually.
Why It Matters?
Leli and Village Farms intend to build out two indoor Controlled Environment Agriculture (CEA) production facilities.
Village Farms will oversee the development of the project and product commercialization throughout the fully vertically integrated business model.
“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,” Michael DeGiglio, CEO of Village Farms said Tuesday.
If and when the Dutch Supply Chain Experiment expands nationally (from the initial approximately 80 coffee shops to the nearly 600 coffee shops) following formal evaluation by the Dutch government during the third year of the program, estimations are that the Netherlands would need a minimum of 485,000 kilograms of dried flower per year.
“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,” DeGiglio concluded.
Village Farms’ shares traded 1.57% lower at $8.39 per share at the time of writing Tuesday morning.