Village Farms (TSX: VFF) (NASDAQ: VFF) announced this evening that it is looking to tighten its grasp on control of its Pure Sunfarms joint venture with Emerald Health Therapeutics (TSXV: EMH). Village Farms is looking to do so by capitalizing on a default notice for payment that Emerald Health failed to fulfill.
Under the agreement signed by both Village Farms and Emerald Health related to the Delta 2 facility for Pure Sunfarms, Emerald Health was obligated to advance $5.94 million on November 1. When they failed to make this payment, Pure Sunfarms issued a default notice, which expired this morning. Following the expiration of the default notice, Village Farms advanced the $5.94 million to claim this portion of equity ownership within the joint venture. This action was permitted under the Pure Sunfarms shareholder agreement.
While the additional equity contribution has to be approved by Pure Sunfarms, the assumption is that the entity will in fact approve of the increase in equity. The amount of the increase in equity ownership of Pure Sunfarms is currently undefined for Village Farms. This increase is predicated on a fair market valuation of Pure Sunfarms through an appraisal process. Following approval, Village Farms stake in Pure Sunfarms is expected to increase as of November 19, 2019.
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In addition to Village Farms additional equity contribution to the joint venture, the issuer has applied for certain escrowed shares held by Emerald Health related to the joint venture to be cancelled. In total, 5,940,000 shares have been requested to be cancelled by Village Farms, however Emerald Health has disputed the cancellation. The cancellation of these shares would further increase Village Farms stake in Pure Sunfarms.
While hard figures in terms of ownership increase were not provided by Village Farms, the issuer identified that the increase in control is not expected to have an impact on voting control of Pure Sunfarms. This implies that Village Farms’ potential ownership is limited at 65% of the total entity as it currently stands.
Lastly, Village Farms also provided an update on the ongoing dispute between Pure Sunfarms and Emerald Health related to $7.2 million in purchase obligations. Emerald is believed to still be investigating its position on the matter, and has yet to make any payments related to the obligation. Pure Sunfarms has reserved such actions as considered necessary to recover the losses under the purchase obligation agreement.
Village Farms last traded at $8.27 on the Toronto Stock Exchange.
Information for this briefing was found via Sedar, Emerald Health Therapeutics, and Village Farms International. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
