Village Farms International Inc (TSX:VFF) (NASDAQ:VFF) Bounces Back And Here’s The Story

After seeking to an 8-month low of $6.60 in the past week (week ending October 18), Village Farms International Inc (TSX:VFF) (NASDAQ:VFF) is bouncing back. At $8.57, VFF looks poised to surge even higher. The surprise rebound this week has no doubt caught many short-sellers unaware, and they must now scramble to cover their positions before it is too late. The scramble to cover short positions should provide more upward lift to VFF. But below we look at even more catalysts that could take VFF back up to its one-year peak at $18.

About VFF

VFF is a cannabis grower with operations in both the US and Canada. It operates greenhouse facilities in Texas and British Columbia for year-round production. VFF owns 50% stake in Pure Sunfarms Corp., a British Columbia-based leading cannabis grower operation.

What is the story behind VFF rebound?

The spike we are seeing in VFF can be attributed to two important developments in both the US and Canada. Let’s look at them starting with Canada.

Canadians re-elected pro-cannabis government

Canada held national elections this week (October 21) that saw Justin Trudeau secure a second term as the country’s prime minister. Trudeau came to power in 2015 and his administration has been supportive to the development of cannabis industry in Canada. Last year, Canada became the first developed country to fully legalize cannabis. It is now legal to sell and buy cannabis products for both medical and recreational use. And this month, Trudeau moved to expand Canada’s cannabis market even further. From mid-December, Canadians will be able to buy more cannabis-derived products. And for cannabis companies like VFF, that means a wider market to address.

Cannabis stocks like VFF came under pressure as the Canadian election neared and Trudeau appeared looked in a tight race his Conservative rival Andrew Scheer.

Of course, Trudeau administration has already mostly opened the Canada’s cannabis industry. However, his re-election should restore investor confidence that there will be no major regulatory headwinds for cannabis companies in Canada for at least the next four years.

Bernie Sanders makes cannabis legalization a top priority

Bernie Sanders this week (October 24) released his pot legalization plan. If he becomes president, Sanders intends to legalize marijuana within his first 100 days in office. He intends to do that through executive order. What is notable in Sanders’ plan is that he views marijuana as a product that can generate tidy sums of money to develop communities.

Sanders’ pro-cannabis ideas are no doubt a major positive to VFF and other pot companies. Although pot is currently legal in more than 30 states, it remains a highly prohibited substance under federal laws. Now that is what Sanders wants to change. He wants to make cannabis legal at federal level.

The fact that marijuana is currently a prohibited substance at federal level has limited market and funding opportunities for pot companies. On the part of funding, pot companies currently have limited credit opportunities because the big banks that are federally regulated fear doing business with them lest they run afoul of federal bank regulators. However, there are currently efforts in Congress to free banks to do business with marijuana companies.

Why is Sanders’ marijuana legalization moving pot stocks? Sanders is one of the leading candidates in the race to take Democratic party presidential nomination according to the latest poll. If Sanders’ marijuana plan came out the same day polls showed him bouncing back in the presidential nomination race.

Recent development at VFF

1. VFF hasn’t made major announcements that could move the stock lately. However, in May and June, the company provided updates that should be a positive to its long-term fundamentals, In May, for instance, the company announced that a joint venture that it said will allow it to expand its outdoor hemp production to Colorado. VFF is the majority partner in that joint venture with 60% stake.
2. In June, VFF announced that it was repurposing one of its greenhouse facilities in Texas to take advantage of the state’s move to legalize hemp.

Bottom line

We think with the air clearing after Canada’s national election, a major headwind is out of the way for VFF and cannabis companies in general. VFF has bounced back and has the potential to surge much higher. We could back at the highs before we know it.

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Disclosure: We have no position in VFF and have not been compensated for this article.