VFF..Q1 results.. nothing to exciited about itThree reasons investors shouldn't be impressed with Village Farms Based on the reaction of Wall Street and investors, Village Farms' quarterly report must've been pretty solid, right? Well, before you go anointing Village Farms as the greatest thing since sliced bread, here are three reasons not to be so impressed. 1. Without this accounting quirk, Village Farms would have lost money Although Village Farms produced a total profit across all of its businesses of $7.65 million (not including relatively nominal foreign currency adjustments), this profit would not have been possible without Emerald Health exercising its option for the Delta 2 facility. By selling this vegetable-growing facility to the joint venture that it owns 50% of, it was able to recognize a gain of $13.57 million. Here's how Village Farms described the transaction in its SEDAR filing in Canada: On March 30, 2019, Pure Sunfarms exercised its option to utilize the Delta 2 assets and operations. The contribution of the assets has been accounted for as a disposal of the land, greenhouse facility and other assets in exchange for 25,000,000 common shares of Pure Sunfarms. This was a non-cash transaction, and it was estimated that the fair value of the land, building and other assets was CA$25 million (US$18.7 million) at the date of contribution. The Company recognized a gain of $13.6 million on the contribution of the fixed assets. Aside from the almost laughable fact that it profited from selling an asset to itself (sort of), the company wouldn't have made money if this one-time gain was removed from the equation. Even with a $4.27 million share of joint venture income from Pure Sunfarms, Village Farms would have reported a $5.92 million loss if Emerald Health didn't exercise its option on Delta 2. A shopper in a supermarket waiting in line to pay with a basket of fruits and vegetables. Image source: Getty Images. 2. The company's fallback business performed poorly In addition to producing a profit that was based solely on a one-time gain, Village Farms' soon-to-be ancillary vegetable-growing business went stale. Even though i t report ed an 8% increase in sales to $31.89 million, cost of sales rose at a much faster pace of 22% to $31.58 million. The company blamed these higher costs on higher volumes associated with its partner contracts. The end result is a gross profit of just $0.31 million from its vegetable-growing operations, which works out to a gross margin of 1%. Yuck! However, things get worse when selling, general, and administrative (SG&A) expenses are factored into the company's vegetable operations. Year-over-year SG&A expenses rose by almost $2 million (56.3%) to $5.43 million. A marked increase in share-based compensation to employees, and a more than doubling in professional service fees, led to the bulk of the increase. On a purely operating basis, Village Farms' vegetable business lost $5.22 million in the first quarter, or $5.12 million if the negative $0.1 million in fair-value adjustments to biological assets (i.e. cannabis plants) is removed. Either way, the bottom line is that Village Farms' bottom line was in the red. A person holding cannabis leaves in their cupped hands. Image source: Getty Images. 3. Pure Sunfarms' efficiency and dealmaking leaves a lot to be desired Last, but not least, something I've harped on for a while now: the production efficiency at Pure Sunfarms . On an aggregate basis, Pure Sunfarms slots in at a tie for sixth with HEXO , in terms of peak annual production. Both should be able to deliver 150,000 kilos a year when operating at full capacity. But production isn't everything when it comes to being a successful cannabis grower