Good morning, ladies and gentlemen. Welcome to Village Farms International's first quarter 2020 financial results conference call. Yesterday, Village Farms issued a news release reporting its financial results for the first quarter ended March 31st, 2020. That news release, along with the company's financial statements, are available on the company's website at villagefarms.com under the Investors heading. Please note that today's call is being broadcast live over the internet and will be archived for replay both by telephone and via the internet, beginning approximately one hour following completion of the call. Details of how to access the replays are available in yesterday's news release. Before we begin, let me remind you that forward-looking statements may be made today during or after the formal part of this conference call. Certain material assumptions were applied in providing these statements, many of which are beyond our control.
These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward-looking statements. A summary of these underlying assumptions, risks, and uncertainties is contained in the company's various securities filings with the SEC and the Canadian regulators, including its Form 10-K for the year ended December 31st, 2019, and the Form 10-Q for the quarter ended March 31st, 2020, which is available on EDGAR and SEDAR. These forward-looking statements are made as of today's date and except as required by applicable securities laws, we undertake no obligation to publicly update or revise any such statements. I would now like to turn the call over to Michael DeGiglio, Chief Executive Officer of Village Farms International. Please go ahead.
Thanks, Michelle. Thank you to everyone for joining us today. With me for today's call is Village Farms Chief Financial Officer, Stephen Ruffini. In the agenda for today's call, I'll start with a review of the highlights of the quarter, most notably the fifth consecutive quarter of profitability for Pure Sunfarms, as we saw a significant quarter-to-quarter ramp-up in retail branded sales. Steve will then review our financial results, and I'll return to discuss why we remain so confident in the future of our company and then be happy to take questions. Before I start, before I review this quarter, I'd like to provide an update with respect to our operations during COVID-19 pandemic. We are grateful to report that all of our Village Farms and Pure Sunfarms facilities, whether Canada, U.S., or Mexico, remain fully open and operational as they have throughout the pandemic.
The health and well-being of our employees, customers, vendors, partners, and their families continues to be our top priority. We are continuing to adhere to additional health and safety practices as per municipal, state, provincial, and federal health authority recommendations over and above the already very high standard of hygiene practices and protocols already in place as a highly regulated food producer. We have always taken our role as one of the largest suppliers of year-round fresh quality produce in North America and the consumers we service very seriously, bringing that same dedication to Pure Sunfarms. Never have we taken our role more seriously than during the current environment. I'd like to acknowledge all of our employees company-wide who are working tirelessly to ensure health and safe produce is getting to our retail partners.
In particular, I'd like to thank all those who played a role in helping us feed over 10,000 families in Texas with donations of over 200 tons of produce throughout the state to local food banks and pantries. We are fortunate during this difficult time that we operate essential businesses that thus far have remained largely unaffected by the pandemic. Now, turning to Pure Sunfarms, of which I remind you, we now own just shy of 59% as of April 2nd. Pure Sunfarms continues to clearly set the standard in the Canadian cannabis industry for growing capabilities, best-in-class facilities and operations, cost of cultivation in a greenhouse managerial acumen, and brand performance. It continues to be one of the few profitable Canadian cannabis suppliers, not just this quarter, but now for five consecutive quarters. This performance is unmatched in Canada.
As expected during the first quarter, Pure Sunfarms saw a significant ramp-up in sales volume following its planned transition to predominantly retail branded sales from the fourth quarter. Total net sales increased 25% year-over-year to just over CAD 18 million, with CAD 8.5 million of that generated by retail branded sales to provincial distributors. That's 118% increase in CAD sales from Q4 on 179% increase in kilograms from the fourth quarter as well. I want to remind everyone that Q1 was just the second quarter of retail branded sales for Pure Sunfarms. Sequential growth was also the result of sales activity in the wholesale market. While positive, I do note that we expect wholesale sales to be lumpy for the foreseeable future. The significant increase in retail branded sales in Q1 was driven by a number of positive factors.
Pure Sunfarms' dried cannabis product continued to be favored by consumers in each of the three provinces that we are selling. In Ontario during the first quarter, Pure Sunfarms once again sold more dried cannabis than any other brand with the Ontario Cannabis Store. That's on both a volume basis and a dollar basis. That makes the second consecutive quarter that Pure Sunfarms was the top-selling brand with the OCS, each of the two quarters since its retail launch, right out of the gate. Once again, Pure Sunfarms had the top-selling product with the OCS by both volume and dollars sold. In the first four months of the year, Pure Sunfarms captured 14.3% of the Ontario dried cannabis market, with market share jumping to more than 20% in the month of April.
Pure Sunfarms' goal is to capture at least 20% of the dried cannabis market nationally in Canada over the long term. Yes, it's too early to say, but this is just a single month of data for Ontario alone, but we think it's a strong indication that we can achieve our goal. Retail sales growth was also driven by the start of shipments for the retail market to its third province, Alberta, where Pure Sunfarms product is having great feedback from both retailers and consumers. At $60 per capita annual consumption, Alberta is by far the leader of the five largest provinces. Clear evidence of the critical role that bricks-and-mortar retail stores play in driving sales. I will note here that the robust sales growth and brand performance in Ontario is in a market that remains significantly underserved on a bricks-and-mortar store basis.
Per capita sales in Ontario is under $25. For additional context, per capita consumption in the U.S. states open for two years or more are even higher than Alberta, with Colorado leading the way at $99, followed by Oregon, $97, and Washington State at $89, as opposed to Ontario at $25. Huge difference. Recently, Pure Sunfarms took a major step towards launching its fourth province, receiving approval from the Saskatchewan Liquor and Gaming Authority to sell to private retailers in that province. It is now preparing to begin shipping. Like Alberta, Saskatchewan punches well above its weight, representing 6% of Canada's cannabis sales with just 3% of the population.
Q1 was also further confirmation of Pure Sunfarms' advantage around cultivation cost, with an all-in cultivation cost for Q1, which, as always, includes depreciation expense of $0.88 per gram, bringing the average for the past four quarters to less than $0.74. As a reminder, cultivation costs are higher during the winter quarters when yields are naturally lower and supplemental lighting is required due to the few hours of sunlight than in the summer period. We are confident that this industry-leading greenhouse cultivation cost will continue to not only support further market share growth in the legal market, but to capture meaningful share from the illicit market. Competing directly with the illicit market is what will truly drive sales. It's the key near-term strategy for Pure Sunfarms, and the tactics to achieve this are in place and working.
At the same time, product quality strains and blends and potency remain paramount. The team is continually striving to even further elevate the already high levels of its products while continually working to bring the cost of cultivation down even further. It's a continuous improvement process that never ends. We think safety, specifically around handling and pesticide use, especially now, will increasingly become more important to consumers. Tax revenue paid by the legal trade will become increasingly important to governments, which we think is good for the entire industry. Finally, on price, there is no doubt that the number of Canadian suppliers needs to contract for the health of the entire industry. We believe the current trends in the pricing environment, which we are leading, will see to this eventually.
In late March, Pure Sunfarms launched its first large format value offering, a 28-gram package with the same high quality that Pure Sunfarms has become known for. The product has the lowest price per gram of any dried cannabis product on the market in the 3 provinces in which it is currently sold. I wanted to share with you some of the social media comments from consumers themselves, which underscores the strategy to take share from the illicit trade. The first one, quote, "After my good luck with the 28-gram bag I acquired of the Pure Sunfarms Indica blend pulled me back to the legal market.
The fact I could purchase a 28-gram bag at a pretty reasonable cost made me switch from the black market." Another quote, "This is what the illegal market should fear." Another quote, "This is how you combat the black market." It is very quickly becoming the top-selling product in Ontario and in the first month in the market by both volume and dollars. Value is even more important during these tough economic times when consumers are much more price sensitive, and this product sets an OCS record for sales volume for a single product during a one-week period in the dried flower category. The success of Pure Sunfarms' 28-gram offering is not a surprise. We are increasingly seeing the market demanding high-quality product at a value price, and the provincial distributors seem to be taking note.
For instance, in April, the chief commercial officer for the entire Ontario Cannabis Store in an interview discussed the importance of price and quality in taking share from the legacy market and noted the OCS had brought its pricing down by 25% since the beginning of the year. Even gave out a shout to Pure Sunfarms by name. We believe there is no better partner than Pure Sunfarms to support the OCS in achieving its objective, and we very much look forward to continuing to play a leading role here. Pure Sunfarms can and will continue to be aggressive around pricing when it launches additional products, including in Cannabis 2.0 products, and again, with the key attributes of quality and safety in mind.
Preparations for the launch of oil products and 2.0 products has accelerated. I'm pleased to report that we now expect our first oil and 2.0 products to be launched this coming summer. While I know everyone is eager to know the specifics here, for competitive reasons, we are going to wait until the launch to say any more. It won't be long. Now turning to our U.S. CBD program. On our last call, I discussed our profound disappointment and really bewilderment that following the federal government's decriminalization of hemp and CBD at the end of 2018, its very own agencies have failed to provide the regulatory clarity to enable law-aiding companies to participate and help this huge opportunity realize its potential. The industry has essentially come to a standstill pending the FDA providing a clear path forward.
We are now not only seeing companies dedicated to the space struggling, but failing. It's clearly caused the large retail players to put brakes on their strategies for CBD products. The economic impact of this foot-dragging is especially egregious now, when the economy is in dire need of any and all drivers of economic activity and growth. Clear FDA leadership and guidance is required and required now. That said, we continue to be proactive in exploring additional paths forward that we can act on prudently in the nearer term. We are actively engaged in market research and looking at product development that would allow us to move forward with the current regulatory environment. Finally, in our produce business during the first quarter, we saw elevated pricing due to the high demand as consumers rushed to stock up when concerns over the pandemic took hold.
However, we were only able to take partial advantage as we had to honor our existing contracts with our major retailers at prices that were below the spot market. In addition, volumes from our Texas facility continue to be below normal production volumes. Importantly, with our newest growing partners coming online, we have now replaced all of the capacity that was displaced by cannabis in Canada and then some. The organizational breadth and strength and experience underlying our produce business remains a tremendous foundation to which to transform into new high-value, high-growth opportunities such as CBD. With our greenhouse operations among the very largest and best located in the United States, there is no one, in our opinion, better positioned for a federally legalized cannabis market, something we are more optimistic about given the expected need for stimulus and tax revenue going forward in this election year.
We have more than $300 million in replacement value in our U.S. greenhouse assets. None of our publicly traded Canadian peers can say that. I'd like to turn the call over to Steve now to walk through the financial results. Steve?
Thanks, Mike. For those new to the Village Farms story, our cannabis joint venture, Pure Sunfarms, cannot be consolidated for accounting purposes, even though we own the majority of it, as the Pure Sunfarms board is jointly controlled. That said, we continue to provide full results for Pure Sunfarms to the investment public, so you can do comparisons with the other public Canadian Licensed Producers. The Pure Sunfarms March 31st balance sheet and Q1 income statement is contained in footnote number seven in our financial statements. It is in U.S. dollars rather than Canadian dollars, as Village Farms is required to report its statutory results in U.S. dollars. In an attempt to help the readers, we included a financial summary in our press release in both Canadian dollars and U.S. dollars. Unfortunately, we did not translate two figures correctly.
While the Pure Sunfarms net sales figure for Q1 is correct in U.S. dollars at $13.1 million, the breakout between retail and wholesale was not. The retail or branded sales figure should be in U.S. dollars, $6.2 million, and the wholesale in U.S. dollars should be $6.9 million. The Canadian figures, as shown in the press release, are correct. As stated in our April earnings call, Pure Sunfarms experienced significant quarter-on-quarter growth in terms of sales and volume to provincial governments, with provincial sales of $8.5 million in the quarter against Q4 2019 sales of approximately $3.9 million, or a 118% increase. That was primarily driven by the increase in volume of 179%, going from roughly 1,100 kilograms in Q4 of 2019 to over 3,000 kilograms in the first quarter of 2020. This revenue represents sell-in Q1 2020 versus sell-in in Q4 of 2019.
As Mike said, Q1 of 2020 benefited from the initial sell-in to Alberta and the sell-in of a large format to Ontario Cannabis Store. When we're stating our market share figures that Mike provided, those represent sell-through. Those figures are provided by the OCS, our retail channel, and provided POS, point of sale data to the Pure Sunfarms brand team. The sell-through or POS data has been very strong for the large format product, particularly in April, as it's hit store shelves. You will note that this does come at a lower price per gram, obviously, with a lower gross margin to Pure Sunfarms than the retail sales of our pouch SKUs.
The Q1 2020 wholesale business, which was nonexistent in Q4 of 2019, as Mike said, was lumpy, was primarily driven by transactions with two Canadian extraction LPs who were seeking dried cannabis flower in exchange for various forms of distillate. Pure Sunfarms entered into these transactions due to both the availability of high-grade extraction flower and trim, as well as the delay in its extraction license from Health Canada. In order for Pure Sunfarms to enter the Cannabis 2.0 market in the summer of 2020, it was in need of distillate. As Mike mentioned, we'll be launching its Cannabis 2.0 SKUs this summer. As reported last May of 2019, Pure Sunfarms was anticipated to experience a very strong improvement year-on-year in our cost per gram.
As the Delta-3 facility, while it was fully licensed in the Q1 of 2019, it was not fully operational as it wasn't fully planted. Now the market can see the benefit of economies of scale, with a full winter of full-scale production, as well as an additional year of experience. We brought down our cost per gram by 36% on a year-on-year basis from $1.38 a year ago to $0.88 this quarter, for a $0.50 per gram difference. I also want to quickly review the Q1 financial impact of the March settlement agreement between Pure Sunfarms, Village Farms, and Emerald. Both Village Farms and Pure Sunfarms recognized income in Q1 as a result of the transactions contained in the settlement.
Pure Sunfarms recognized $4.3 million of income in exchange for the cancellation of the outstanding liabilities that remained under the 2019 supply agreement, as well as the future supply agreement that Emerald wanted to get out of for 2020, 2021, and 2022. The amount, the $4.3 million in US dollars, represents the remaining shareholder loan that was outstanding between Emerald and Pure Sunfarms at CAD 5.9 million. One can look at this figure essentially as either debt forgiveness income or can look at it as essentially product revenues, but could not be recognized as product revenue since no product was delivered. In any event, it represents, from an accounting perspective, an income recognition of $4.3 million, and is a one-time benefit, so has not been included in the EBITDA of either Pure Sunfarms or Village Farms as represented in our financials.
Additionally, as part of the settlement, Emerald transferred 2.5% equity stake of Pure Sunfarms to Village Farms, which resulted in Village Farms recognizing other income of $4.7 million or CAD 6.25 million as the value of the Pure Sunfarms stock received. To avoid any guesswork on the various stock logs, if you do the math, that's an agreed value between the parties of Pure Sunfarms of $250 million. Our produce business, like cannabis, is an essential business, and as Mike said, has not experienced any production issues related to C-19, for which we are very fortunate. That said, retail demand has been volatile. We saw very strong pricing, as Mike mentioned, in March, during what I call the hoarding period. In early April, we saw a fall off in demand. Even the retailers couldn't really explain that, because people were buying other things other than fresh produce.
Recently, we've seen very strong pricing in early May compared to historical levels for early May. Fortunately for us, we dropped one of our large retail contracts effective March 31st, so we are benefiting from that improved pricing in our own results in Q2. Just one thing to note, while not much happened with our U.S. hemp business in Q1, we are having continued interest with respect to our existing biomass. I do want to note we did receive in March our license to grow hemp in Texas. At this stage, we are not embarking on that until these regulatory hurdles are out of our way. With that, I'll turn it over to Mike.
Thank you, Steve. In conclusion, here we are a little over a year and a half into the legalized market for recreational cannabis in Canada. Amidst a market that has been slower to develop than expected and smaller currently than originally expected, with just as much long-term potential, the industry is now clearly segmenting into leaders, survivors, and everyone else. From day one, we conceived of and built Pure Sunfarms to not just be a leader in the cannabis industry, to be the leader. We focused first on getting the cultivation underpinnings right, providing the lowest cost of cultivation in the industry. We then installed what we believe is the best management team in the business, that team launched what immediately became and has consistently been the top-selling dry cannabis brand in Canada's largest market.
I'm going to come back to something you've heard me say before. It's Ferrari's famous motto that, "We are the competition." Yes, it's a bold statement, but one that I'm proud to similarly make about Pure Sunfarms, not with arrogance, but with confidence. It's the confidence I've had since day one, about 30 years ago, in our large-scale, low-cost cultivation, knowledge, experience, and DNA, operational know-how, and best-in-class facilities and operation. It's the confidence I have today based on consistently being the top-selling dry cannabis brand in Ontario, having the lowest cost of greenhouse cultivation in the country, and quarter after quarter, generating profitability. No one knows exactly what the next 6-12 months look like. The unprecedented withdrawals of financial guidance by public companies, even the largest and most mature, is evidence of that.
That said, I am comfortable with where our businesses are today, and I remain very confident what lies ahead. While the Canadian cannabis industry will likely see some choppiness in the near term due to the effects of the pandemic, Pure Sunfarms has a number of catalysts that directly leverage its leading brand performance. The build-out of retail store network in Ontario, further expansion across Canada, and the introduction of new products, including Cannabis 2.0, that make for a very exciting 2020 and beyond. Thank you for listening, and we'd be happy to take some questions if anyone has any. Operator?
At this time, if anybody would like to ask a question, please press star one on your telephone keypad. Again, that would be star one on your telephone keypad. The first question comes from Aaron Grey from Alliance Global Partners. Your line is open.
Hi, guys. Thanks for the questions and congrats on the quarter and the strong market share momentum heading into April.
You're welcome.
Just first one from me, just in terms of the commentary on the price per gram for adult use, and just as we look to have these large formats kind of become a higher portion of the mix going forward, how should we think about that $2.08 per gram kind of trending, and how much does that kind of come down as we look to model it out going forward? Thank you.
I think probably not going to answer that directly, but I think in general, that our philosophy is, as I've clearly said, it's we have to be competitive with the legacy business. The pricing will just come down as we see that penetration to the point where we believe the penetration rate will increase. We're going to remain with that strategy as we launch these other products this summer. I think it'll be much clearer maybe when we report the third quarter, how that's going to look.
All right, great. Thanks for that. The second question is just on 2.0 and the plans for launch this summer. While I can certainly appreciate for competitive reasons why you don't want to disclose too much, could you maybe instead just talk about what you're seeing right now in the marketplace and maybe the opportunities you see, specifically in oils or vapes or edibles, for Pure Sunfarms, specifically given how well you executed on the second-mover advantage in Cannabis 1.0. Any commentary on your view of the competitive landscape and 2.0 products would be helpful. Thanks.
Well, I think the management team at Pure Sunfarms sat back and watched, as they've done before, what was working from others and what was not working. That's proven to be a positive for them and in terms of not just the performance of the product, but where the pricing needs to be. I think as they launch their first product, and I'm not going to say what it is, I think you'll see the same aggressive pricing strategy that they launched when they started retail sales in fourth quarter. Again, that will show clearer when we report the second quarter. Thank you.
All right, great. Thanks for that and best of luck.
Thank you.
Your next question comes from Andrew Partheniou from Stifel. Your line is open.
Hey, thanks. Congrats on a good quarter. I'd like to talk a little bit about the supply chain dynamics. At the beginning of this year and the launch of 2.0 products, we were hearing that overall provincial distributors were changing their ordering dynamics and ordering more frequently, but less volume in order to be closer to a just-in-time type of ordering dynamic. Just wondering now with COVID, have you seen any changes in that sense, perhaps volumes increasing or higher frequency in ordering?
No. I think there's so many moving parts, it's really hard to get a handle on it. I would probably say that like many other consumer products, there was a higher purchase towards the end of the first quarter, but I think that's going to thin out. My view is that's going to probably contract somewhat in the second quarter. Then probably get back on track in the third and fourth quarter. I think if you look at Ontario, sales aren't quite even back to the level they were in January. I think it still needs to get through the second quarter because it's got to give the provincial governments time to move through the inventory assessment they have before they start replenishing.
Okay, thanks. Maybe if I can dive a little deeper towards your comment in Ontario. Are you able to maybe give a little bit more color in how click and collect and delivery is doing? I know you just said that they're not back towards the level in January, but could you give a little bit of color in terms of types of magnitude, or potentially, are they suffering from lack of inventory, or is it just not being able to fulfill demand as quickly as before?
Andrew, this is Steve. We're a bit removed from those level of details. From a delivery perspective, I was quite excited about it. One of the advantage the legacy business has, the dealer's no longer arrested if he delivers it to the house, which is what was happening. The developments of them closing, freaking us all out, closing the stores, and then changing their minds and having store pickup and home delivery. Hopefully, home delivery continues once things go back to whatever the new normal is. We don't have specifics for that, but I think it's also benefited a large format as well, as people want to make less trips to go out. Hopefully it turns out to be a long-term benefit for the legal industry.
Great, thanks for taking my questions again.
Sure.
Sure.
Your next question comes from Doug Cooper from Beacon Securities. Your line is open.
Hi, good morning, guys. Congratulations on a great quarter. Just want to follow up your comments of 20% market share of the OCS in April. Can you talk a little bit about the breadth of your distribution beyond the OCS in Ontario?
Doug, Steve. Unfortunately, the other provincial governments don't provide that to Pure Sunfarms. It's pure conjecture. I know other people say they're X% of the total market, but we've asked Pure Sunfarms what the market share is in these other provincial sales, and they said they don't have the information. We're not going to report what we can't support.
Right. What about just how many actual retail stores is your product available in Ontario of the actual retail stores? What percentage?
I don't know. I haven't asked the Pure Sunfarms team. They might know that. I can get back to you maybe, but I don't know.
Okay. Just in terms of the large format, can you just remind us what the THC level is in that? Is it sort of 18%-22%? Is that the sort of range it's selling in?
Yeah, look, it varies somewhat, but that 28 packs in indica, the sweet spot there is probably in the 15, 16 range. We're always striving to get that balance better and improve on that. For the most part, that's the current range that it's in and being well accepted there.
Sure. Can you talk about, there's some other kind of value packs being offered in the marketplace. What is the price advantage that you have over those other value packs in terms of, well, I guess, in terms of where the retail is pricing them?
Well, I think what we've heard from Ontario is that we have the lowest price. They're selling at the lowest price they have. They've come off 25%, as I said, and our product is being sold at the lowest price. I think the key differential to anyone else is we're profitable doing it.
Right. Is that retail, and just remind us, is it around $99 before HST?
Yeah
is that where we're at?
Yes.
Okay. I don't think you guys mentioned, unless I missed it in the call, the strategy for opening up D2 given this environment?
We're going to wait and see what transpires here. Look, we don't know. There's so many moving parts where the pandemic changes or what happens in the fall. We want to be very cautious because till there's a resurgence of the bricks and mortar stores, we don't want to have an overcapacity. It's a prudent thing to do. We actually will monitor even Delta 3. We're very focused on having our capacity meet our demand. We can even cut that back. Remember, Delta 3 has 16 grow rooms. If we wanted to cut that back to 14 or 13, we could. Half of Delta 2 is ready to go. We can move that going forward towards year end or the beginning of the year as we see where the market goes.
The good news is long term, we can double our capacity with the same cost structure, which I think is now starting to prove how it differentiates us from the competitors. Get to a double capacity going forward. At the same time, if we have to curtail with 16 grow rooms in Delta-3, we can adjust that pretty quickly. As you know, it's an eight-week cycle for us inside the flower room. We just got to monitor it because it's really hard to see what the demand is going to be in the current situation.
Your next question will come from Rahul Sarugaser from Raymond James. Your line is open.
Morning, Mike and Steve. Thanks so much for taking my questions, and let me reiterate, congrats on a strong quarter and also really six straight quarters of positive EBITDA. That's really unprecedented in the industry, so huge congratulations to you and the team. There's been a lot of questions on the retail, and of course, that's really important. I wanted to sort of focus on your product split. We saw that there's been a real reemergence of wholesale almost at sort of about a 50/50 split between your adult use and your wholesale. Where do you see that wholesale going? Do you see that being durable? Do you see that being potentially a larger proportion of your revenue, particularly as the market continues to sort of be slow? Then as a follow-up to that, Mike, who do you see as the primary buyers? Are they extractors?
Are they other LPs? Because that really kind of speaks to the competitive advantage that you guys are building.
Yeah. Our strategy is to be a fully vertically integrated company. That ultimately means that we want to control our whole production and everything we do into Cannabis 2.0 ourselves. Yeah, I think the retail, at the end of the day, we're shooting to be a very high percentage of retail at the 60%-70% level, let's say. To the extent that wholesale is there, and you're always going to have to have another outlet because of quality, consistency. That's just the way it is. It's still a farmed product, right? I don't know what the future's going to hold on wholesale. I think it would probably be working more with extractors for the foreseeable future. Believe it or not, there are other LPs that are asking us for product, and I'm a little bewildered by it, but maybe it has to do with cost structure.
I think as this contraction takes place in the industry, at some point, that's going to really change what the dynamics between wholesale and retail for us are. Everybody's still in the game right now, even with tremendous losses on a quarterly basis that we're seeing, because they think as long as they're able to get financing. There's like 50-plus suppliers in the industry. It's just way too many. I think that's going to have a varying impact on the wholesale dynamics. I would think, to answer your question more or less, we're shooting at retail as the largest percentage of our overall revenues.
Great. That's really helpful. Then sort of moving forward now to Cannabis 2.0. You guys, as you said, Mike, as a second mover, you were able to use your cost advantage to drive, grabbing market share in the whole flower segment and what we're also seeing is likely in the wholesale segment over time. Again, like you said, you were able to actually do that profitably. When it comes to Cannabis 2.0, the cost of goods of the flower is less of a key component, whereas formulation and intellectual property tends to be a driver of cost of goods. How are you managing your strategy in Cannabis 2.0 when your cost advantage in cultivation is not as strong as it is in Cannabis 1.0?
Well, I think to a degree, it's an ingredient, but what we've done is like we've done in the past, what Pure Sunfarms has done, and I think they've been brilliant about it, is they've watched everybody else position. Pick a product, I don't know, chocolate, vapes, whatever, and see how they position the pricing, and then they've come back in and analyzed where they can be overall. I think more importantly, at the end of the day, I know they can be much more aggressive. That's why they wait to see where the market is in the pricing structure. That evaluation, and I've seen that, has shown that they can be very aggressive over the competition. Even though it may be an ingredient, it still adds up to having an advantage.
Keep in mind that the margins of 70% or 80% are just not realistic. At the end of the day, it's a CPG product, and as it matures out, I think it's going to have typical average CPG margins in the 30%-40% range. I think we're going to compete very well there. Again, I think it's a great question that can be better answered on the third quarter conference call.
Right. Terrific. Okay. Thanks again, and congratulations again.
Thank you.
Your next question will come from Scott Fortune from Roth Capital Partners. Your line is open.
Good morning. Thank you, and congrats on the quarter. A lot of the questions have been answered, but I don't know if you break it down, percentage coming from Ontario and the different provinces, but can you provide just a little bit of color from Alberta and BC as far as the ramp or reorders are going there compared to what you experience in Ontario at all, just the throughput and reorders velocity from that standpoint.
Yeah. The reorders are coming in. That's something actually, Scott, that we're looking at. What's unique about it, at least from my experience, unlike dealing with the large retailers here in Canada, U.S., where we're rolling out our forecasts and what we're going to be doing a year ahead of time, it's really not that way currently in the cannabis sector in Canada. It's hard to get more of a handle on these projections going forward. We are sitting in a good position in British Columbia, and we just started with Alberta recently, so I think it's too early to say. That was something that finally we got going actually in the first quarter. I'd probably just feel better answering that question when we get some traction towards reporting the second quarter.
Okay. I know you guys are continuing to explore the other provinces. Congrats on Saskatchewan. Quebec and Manitoba are kind of two other large provinces that you guys looking at.
Well, obviously, the apple of their eye is Quebec, but hopefully, that will happen sometime soon. I don't know. Mike and I are not involved in the day-to-day, but I know there's ongoing discussions there.
I've asked about the Yukon too, so I'm waiting to see about that one.
Okay. That's it for me. Thanks.
Thanks, Scott.
Our final question for today will come from Eric Des Lauriers from Craig-Hallum Capital. Your line is open.
All right, thanks for taking my questions, guys. First one for me, a bit of a follow-up on the previous question. I'm just wondering if you guys have noticed any change in regulators' appetite to either sign additional supply agreements or to license additional retail stores in light of COVID? Just any kind of impact that COVID may have on regulators signing the supply agreements or opening retail stores from your guys' point of view.
No, not tied to regulation that we're aware of. It just kind of compressed and slowed things down. We haven't seen anything unusual, just a slowdown because of the essential business issues in general. We haven't. I will want to say, with the U.S., I know that's not part of your question, but we're starting to see some political flavor towards looking at decriminalization of cannabis, I think, due to the pandemic. It's probably not the way we wanted to get there, but again, that's a big possibility for Village Farms in the future, should that happen in the next year or so. That's a regulatory issue that we're looking very clearly at in the U.S. that would be beneficial to us going forward.
Okay. Yeah, that makes sense. Last one for me, great to see the kind of impact that your low-cost bulk product has had in the market right now. Great demand, obviously seeing increased market share. You guys mentioned that you have new bulk products coming out, the sativa blend as well as some 14-gram products. Anything you can share on sort of when you expect that to maybe hit your guys' retail sales?
It's launched. We haven't seen POS data, but I think the initial shipments have shipped in to whichever provincial governments are taking it. So we'll have more to report on that, but hopefully, that does garner Pure Sunfarms additional market share in the markets those SKUs are in.
All right, great. That's helpful. Well, thanks again and congrats, guys, and best of luck.
Thanks, Eric.
Thanks. Thank you, Michelle.
You're very welcome.
Thank you, everyone. That will conclude the call. Thank you for participating today. It is much appreciated. Wishing everybody be safe. Thank you.
Thank you, everyone. This will conclude today's conference call. You may now disconnect.