Canada-based Village Farms International VFF has staged a strong rally this year, all thanks to a significant strategic decision aimed at reshaping its business focus.

Last month, Village Farms announced a bold pivot — it decided to divest its fresh-produce business, aiming to reestablish itself as a pure-play cannabis operator. The transaction was closed swiftly on May 30.

Let’s delve into the company’s fundamentals to gain a better understanding of how to play the stock after this divestiture decision.

VFF Goes All in on Cannabis

Village Farms officially closed the divestiture of its fresh produce business last week, transferring those assets to Vanguard Food LP — a joint venture backed by private investment firms. Per VFF, the transaction enables it to solidify its identity as a pure-play cannabis company, with about 160 acres of advanced greenhouse facilities. As part of the deal, the company received $40 million in cash and retained a 37.9% equity stake in Vanguard.

The divestiture decision comes amid strong recent performance in VFF’s cannabis segment. Though the produce business accounted for about half of Village Farms’ topline, the segment operated on thinner margins and faced persistent operational headwinds.

In the first quarter of fiscal 2025, sales of Village Farms’ fresh produce business rose 4% year over year to $37.4 million. However, dust storms in March and April led to a significant margin squeeze, resulting in a segment net loss of $7.8 million — a sharp decline from a near-breakeven result in the year-ago period. This underperformance was the main reason behind the company’s consolidated net loss.

Meanwhile, the cannabis segment told a very different story. International medical cannabis exports surged 285% year over year, driven by higher shipment volumes to key markets like Australia, Germany, and the U.K. This contributed to a 258% spike in net income for VFF’s Canadian cannabis business, which reached $3 million. The segment’s gross margin also expanded to 36%, reflecting improved pricing power and greater operating leverage.

Village Farms retained its position as one of Canada’s top three cannabis players, even while trimming lower-margin products from its retail portfolio. The company also began commercial shipments to the Netherlands in early 2025, adding $0.5 million in incremental revenues.

Looking ahead, management expects international medical cannabis sales to triple in fiscal 2025, providing further support to the company’s transformation story. The global medical cannabis market is projected to surpass the $130 billion mark by the end of 2032, primarily driven by the increasing acceptance of cannabis for therapeutic purposes.