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Pure Sunfarm, $VFF & $EMH: Right on Cue

Originally posted October 15th, 2019

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Well, that didn’t take long. A scant few quarters in – there’s a dustup in the joint venture owned equally by VillageFarms & Emerald Health.

We’ve surmised in the past that deals that come with asymmetrical benefits will have inherent tension. And this one has $7MM worth of tension apparently – over a pricing mechanism no less.

If you’ve read our musings on the Pure Sun Farms JV, this dispute isn’t surprising. What will be surprising to me is if this thing can survive the next dozen dispute mechanisms that are probably going to be triggered, as VFF piles on the corporate allocations, and EMH stops choking on what they’re given. Now that phase 2 expansion has been launched (and with $25MM ponied up by EMH), we can probably expect a rough ride until it’s completion.

“The leverage and raises ‘s done has baked in capital cost structures that – in the absence of PSF on their balance sheet – would induce insolvency almost immediately.

Why this matters is that $VFF has changed its’ capital structure broadly enough to support cannabis operations – enough in fact, that if the dope side wobbles – their veggie business won’t be able to support it. That means a point of no return in my eyes, and $VFF’s now a company with everything to lose. And I tend to think they’d figuratively burn it down before they give it up.

This is just the beginning. And a hell of a start it is.