Vireo Growth Inc. ($VREO)

Good morning, and welcome to Vireo Growth, Inc.'s Q4 2025 Results Call. This company -- the company would like to remind everyone that today's conference call may contain forward-looking statements within the meaning of U.S. and Canadian securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in such forward-looking statements. For more information on forward-looking statements, please refer to forward-looking statements disclosure in the company's earnings release. This call may also contain non-GAAP financial measures. Please see our earnings release for reconciliations to GAAP measures. I'll now hand the call over to Chief Executive Officer, John Mazarakis.

Thank you. Good morning, everyone. We're pleased to report another strong quarter for Vireo, highlighted by double-digit organic growth and continued integration progress across our extended platform. We continue to operate with discipline at the local level while pursuing accretive M&A opportunities that strengthen our national presence and enhance long-term cash flow stability. In the fourth quarter, same-store sales increased 22% year-over-year and 11.3%, excluding Minnesota, reflecting healthy consumer demand and continued share gains in key markets. Wholesale revenue also rose 55% year-over-year, supported by strong output from our integrated cultivation assets. Over the past several months, we've announced a number of transformative transactions, including Schwazze's and PharmaCann's Colorado retail assets as well as a nonbinding memorandum of understanding with Scotts Miracle-Gro for the potential acquisition of Hawthorne Gardening Company. Combined, the Schwazze and PharmaCann transactions represent approximately 78 dispensaries across Colorado and New Mexico, 12 dispensaries in California and 40 dispensaries operating in Florida in exchange for an equity consideration of around $174 million in Vireo shares. Together, these deals establish one of the largest integrated retail platforms in Colorado and New Mexico, positioning us for further scalable accretive growth in those states. These deals also represent our entry into 2 important markets, California and Florida. Regarding the Hawthorne opportunity, this transaction represents the first step in building a national procurement and supply chain platform with meaningful scale and recurring revenue. We plan on using this platform to purchase the ancillary products used across our business in a cost-effective manner. We like this opportunity because the Hawthorne business has moved past their CapEx inventory focused sales model like lights and into a more OpEx-focused model of monthly recurring sales, which we believe is the first step to succeeding in this ancillary market. As part of the Hawthorne deal, it is contemplated that we would receive $35 million of cash, approximately $50 million of net working capital, $20 million of liquid inventory comprised mostly of soil supplied to us incrementally over 2 years and the ongoing business with meaningful ancillary product sales and meaningful ongoing EBITDA in exchange for 206 million shares and 80 million cash stock options struck at $0.85. All these transactions are expected to close within the next 2.5 months. Following their completion, our operating footprint is expected to expand to 10 states and more than 160 dispensaries, and our net leverage ratio is expected to be lower than our Q4 reported level. As we scale, we continue to execute post-integration initiatives. During the fourth quarter, we completed the key integration work related to the transactions that closed in 2025, including integrating our HR, ERP platforms, rationalizing insurance providers and policies and centralizing procurement across the enterprise. These efforts have already generated meaningful corporate overhead and ongoing operating synergies, which we expect will become even more evident in our 2026 results. We closed the fourth quarter with over $120 million in cash on the balance sheet, providing us with the flexibility to continue executing our growth strategy through both accretive M&A and targeted organic investments to support our local operators. That concludes my prepared remarks. I'll now hand the call over to Tyson.

Thank you, John, and thanks to everyone for joining us. I'll run through a quick summary of key income statement line items and then review our balance sheet in more detail. Fourth quarter GAAP revenue of $104.5 million increased 318% year-over-year on a reported basis and 26% on a pro forma basis, giving effect to the mergers of Deep Roots, Proper and Wholesome as if they were completed on October 1, 2024. Of the 26% year-over-year increase on a pro forma basis, 12% was driven by the optimization of the recently acquired Wholesome, Deep Roots and Proper businesses, 9% was driven by the launch of the Minnesota adult-use and the remaining 5% was driven by the continued growth of our New York business. For a complete review of our revenue performance by state and sales channel for the fourth quarter, please refer to the accompanying market sales tables in today's earnings release, which will also be filed with our 10-K later today. GAAP gross margin was impacted by the noncash inventory valuation adjustments, primarily related to the required GAAP fair value step-up associated with our closed transactions. Excluding this impact, gross margin was 56.3% and reflected an improvement of 510 basis points compared to the prior year quarter. Adjusted EBITDA was approximately $29.5 million or 28.2% of sales, reflecting an improvement of approximately $22.9 million and 180 basis points as compared to the fourth quarter of last year and an improvement of approximately $6.8 million and 80 basis points relative to the fourth quarter of last year on a pro forma basis. Moving to the balance sheet. We ended the quarter with $122.5 million of cash and an additional $1 million of marketable liquid securities. Total current assets, excluding tax receivables, assets held for sale and the Schwazze notes receivable were $204.1 million compared to current liabilities, excluding uncertain tax liabilities of $71.6 million. As of December 31, 2025, the company had approximately 1.2 billion shares outstanding on a treasury stock method basis using a share price of $0.60. We remain in a very healthy financial position and are focused on driving returns for shareholders through prudent capital deployment against our highest growth opportunities. That concludes my prepared remarks. I'll now hand the call back to John for some closing comments.

Thank you, Tyson. In summary, we believe the performance we're seeing across the portfolio, combined with the disciplined execution and accretive M&A, positions us to drive durable long-term value for our stakeholders. Thank you for joining us today. Now we would be pleased to take your questions. Operator?

[Operator Instructions] Your first question comes from the line of Pablo Zuanic from Zuanic Associates.

Congratulations on all the progress you are making. Can I ask on the wholesale front in terms of your plans to expand capacity or how to model wholesale revenues for New York and Minnesota in particular, over the next 12 months? Can you talk about that?

Pablo, I would look at the fourth quarter wholesale number, and I will try to extrapolate forward-looking statements from the fourth quarter. As you know, we don't rely on our estimates on the public domain. So that would be the best gauge of forward progress with respect to wholesale revenue.

Right. But I guess the question is more in terms of where you are today, where you were in terms of the fourth quarter, are you expanding capacity in Minnesota or New York and New York or not?

Well, Minnesota has not been completed yet. So yes, Minnesota capacity should double. But as you know, Minnesota wholesale based on the earnings release is minimal.

Right. Yes. Okay. And then moving on to Minnesota retail, of course, congratulations on the sequential growth there. Can you talk about the competitive landscape at retail? Should we assume that there will be some share erosion as more stores open? How are you thinking about that? Or supplies are still tight, so you should be able to hold on to your retail share in Minnesota?

I think supply is very tight, and we expect to sell out of our product that will be generated in Elk River, our new Minnesota facility.

Right. Yes. Right. Okay. And supply side in general for the market, right, not just for yourselves, but in general, that's my perception.

That's right. There's really no product. And I don't foresee that changing in the next 24 to 36 months.

I think Minnesota is going to be a really good state for us.

Of course, yes. Moving on to Florida. I guess it's a 2-part question. Can you confirm, first, on the Hawthorne side, can you confirm that they own 25% stake in FLUENT? And the second part, talk about the performance of the East Florida stores, right? How are they performing? Based on the OMO data, I think they lag a little bit, but just talk about the opportunity there to improve performance of the Eaze owned stores in Florida.

So we don't own Eaze yet technically. So I will let the first quarter numbers, maybe the second quarter numbers speak to that. I don't like to speculate. We're still in the process of closing that transaction, even though we've signed it. We're probably -- like we stated in the earnings script, we're somewhere between, I don't know, 2 weeks and 3 months, that will be the outside date of closing Eaze. It could be as early as 2 weeks. It could be as late as 3 months. It's just purely dependent on regulatory. Eaze was a great acquisition. And I think Q2 and Q3 will speak to that, Pablo. In terms of Hawthorne owning -- directly owning a stake in FLUENT, I believe that to be inaccurate. I think at the -- I think there is some relation, but that's not the relationship that at least I'm aware of.

Okay. And then I guess one last one. The 11% same-store sales growth ex Minnesota for the full network, it's a very good number, right, in an industry that's relatively flat in general at the national level and down if we factor deflation. Can you talk about what drove that? What -- I guess, the implementation of new best practices. But just talk about that 11% same-store sales growth ex Minnesota. That's all.

That's right. That's mostly driven by Nevada, Missouri and Utah. Obviously -- well, it's 22% if you add Minnesota, but I'm excluding Minnesota because for obvious reasons, we [ can't ] take credit for the Minnesota increase, not yet. So the states that we can take credit for what we've done and the credit goes to the local operators that we've partnered with. We implemented our own analytics. We have a deep understanding of consumer behavior, and we're just trying to optimize at all levels. That is clearly resonating with the consumer. And I would say the most impressive number of the ones that I've mentioned is probably in Nevada, where the Nevada state is declining by double digits, and we are growing by double digits. So we wanted to announce all these numbers so that the market is aware of what we're doing at the local level.

Yes. Of course, Congratulations. I guess I'll add one last one. In Colorado, do you still see room to buy more stores or pretty much you're done with the Schwazze and the PharmaCann transactions?

We will never be done in Colorado.

Your next question comes from the line of Tom Kerr from Zacks SCR.

Just on the recent acquisitions, could you provide any color or perspective on the level of synergies you tend to realize or how it might impact margins? Just sort of the big picture question on that.

Yes, I have a million thoughts on this topic, but I would like the numbers to speak for themselves, especially in Colorado, where the synergies are meaningful. If we're patient, this is a short quarter, as you all know, we will announce earnings again in May and then again in August. So by August, I think we'll be clear to the market what we've invested in and how the synergies should be sort of expected or -- you should definitely anticipate meaningful synergies as you're getting over $200 million in revenue in a single market. Clearly, the synergies are enormous. If we completely got it wrong, I think there are still meaningful synergies. That's the footprint that we're building in Colorado. In terms of other markets, we're working on synergies. But as you know, the synergies at the corporate level are limited. So we're just focused on local level synergies and local scale. And as I said in my first earnings call, our objective is for every market to be of meaningful size so we can take advantage of those synergies.

Got it. One more. Any updated comments or thoughts on the potential rescheduling, how it affects the environment, valuations, perhaps senior exchange listings. Any updated thoughts on the potential rescheduling when or if it occurs?

I don't have any updates. And clearly, we're building a company that could benefit whether there is rescheduling or no rescheduling. I tend to focus on things we can control. I think this is an event that will affect everyone positively. We look forward to that point in time. I think we're going to be probably one of the first companies to take advantage of whatever comes out of it. We're trying to build scale right now, and I think this is the time to do it.

There are no further questions. I'll now turn it back over to the Vireo team for closing remarks.

I just wanted to thank everyone. I understand we're adding a lot to the platform. And I'm just asking that you're patient and the numbers will speak for themselves. Thank you so much.

That concludes today's meeting. You may now disconnect.