Vireo Growth Inc. (VREO) Earnings Call Transcript & Summary

Thank you. Hello, everyone. Thank you for joining us and welcome to the Vireo Growth Q2 2026 Financial Results Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to John Masourakis, CEO. John, please go ahead.

Thank you, operator, and good morning, everyone. The second quarter was another important step forward for Vireo. We delivered strong financial performance while continuing to execute against what we believe is one of the most differentiated growth strategies in the cannabis industry. Tyson will review our financial results in a moment, but first I'd like to discuss our progress, our expanding platform, and then spend a few minutes discussing the strategy that's driving these investments. We closed several important transactions over the last few months, including Ease, Hawthorne, and the Bridgewell Agribusiness. In addition, we announced several transformative transactions during the second quarter that should significantly expand our platform, including the acquisition of Fluent to expand and deepen in Florida, C21 to broaden our Nevada presence with a strong operator and Planet 13 that further solidifies both Nevada and Cementar presence in Florida with a total of over 100 dispensaries. In July, we also announced two significant strategic transactions that further strengthen our platform. First, we entered into an asset purchase agreement to acquire certain assets from the cannabis company, a transaction that is important to us on many fronts. Then, at the end of July, we announced a four-deal transaction to enter Ohio, which will add the 15th state to our growing platform. Together, these transactions meaningfully expand our scale, deepen our presence in key markets, and further position Vireo as one of the leading multi-state cannabis operators in the industry. Let me spend a few minutes here on some of the larger transactions I just covered. Bridgewell is part of our non-cannabis segment along with Hawthorne and is an important example of how we're thinking beyond the traditional cannabis operator model. It expands our ancillary agribusiness platform, strengthens our supply chain capabilities, and provides exposure to agricultural markets that expands beyond the traditional cannabis operator model. on cannabis. We believe these businesses will become increasingly valuable as we continue building a broader platform. fluent, had substantial scale and operating leverage in one of the country's most important and largest limited license states, Florida. The cannabis company solidifies our market leadership in Colorado and also provides entry into three new states, Massachusetts, New Jersey, and Illinois. We're already working to bring these assets under management services agreements as we await the necessary state regulatory approvals to complete the transaction. is also a major transaction with its iconic superstore in Las Vegas, plus a second Nevada location to add to our growing market leadership. This transaction provides an additional store in Illinois and 33 stores in Florida, which combined with Ease Green Dragon and the announced Fluent Acquisition brings us to to over 100 stores and the second largest retail footprint in the Florida market. The Ohio transaction will establish Vireo in a new state with immediate scale and a vertically integrated platform, including eight dispensaries. Last quarter, I discussed becoming the fourth largest cannabis company in the United States on a pro forma revenue basis. Since then, that position has only strengthened. Our pro forma revenue this quarter exceeded $1 billion on an annualized basis, and to be clear, that does not include future revenues associated associated with fluent the cannabis planet 13 and Ohio, which have not closed yet. Today, Vireo operates across 10 states with approximately 170 dispensaries and holds a non operational Pennsylvania dispensary license for up to six stores alongside our growing ancillary agribusiness. Upon completion of our announced and pending transactions, we expect to operate approximately 270 dispensaries across 15 states, which we believe would create one of the industry's broadest multi-state operating platforms and the largest operational retail footprint in the United States. Building a platform of this scale over a relatively short period of time naturally raises questions about execution. We believe that's where Vireo has a distinct competitive advantage. First, experience. Our executive team brings decades of experience integrating and operating complex businesses. Second, talent. We build a deep bench of operational talent to support our strategy. And third, our operating model. Our decentralized operating model supports speed, flexibility, and local market knowledge. We believe these capabilities position us to successfully integrate these businesses, optimize performance, and and create a platform that is greater than the sum of its parts. I'd now like to share a high-level view of our strategy. We're not the loudest operator out there, and that is by design. We have been quietly amassing a platform that is becoming something different than the traditional cannabis operator. So what are we building? We're building a diversified cannabis and agribusiness platform that combines discipline, consolidation, operational excellence and thoughtful capital allocation. We don't pursue acquisitions to plant a flag or simply to become larger. Every investment must strengthen an existing market, improve free cash flow, expand our supply chain capabilities, or create strategic advantages that make the broader platform more valuable. We built this business through disciplined consolidation, and we focused on acquiring strong operators and quality assets where we believe our operating platform and balance sheet can unlock additional value. While many opportunities originate from companies facing capital constraints, we're not exclusively pursuing distressed situations. C20 is a 2021 is a good example. It is a well-run business with attractive assets, strong cash flow, and an excellent team that strengthens our leadership position in Nevada. We also believe great operators should remain close to their markets. Our model combines centralized capital allocation, financial discipline, and strategic direction with a decentralized operating leadership. We believe local teams make better decisions for local consumers while benefiting from the scale of our larger organization. Looking ahead, our long-term objectives remain straightforward. Generate non-volatile free cash flow through disciplined capital allocation and continued operational improvement. Build 100 million plus revenue businesses across each of our core states. Deliver consistent same store sales growth through optimization and continue building one of the industry's broadest integrated cannabis and agribusiness platforms. As we continue through the end of the year, we will not be slowing down. However, we do expect that 2027 will bring a clearer financial picture of our strategic vision in action.

On that note, I now hand over the call 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. Second quarter gap revenue of 209.3 million increased 335% year over year on a reported basis. On a segment basis, cannabis revenue was 175.8 million, up 265% year over year. In our non-cannabis segment, a new contributor following the Hawthorne and Briggsville acquisitions that closed during the quarter contributed 33.5 million. giving effect to the acquisitions of Vireo Health of Rocky Mountain, Ease, Hawthorne, Bridgewell, and Pharmacan as if they were completed on April 1st, 2026. Second quarter pro forma revenue was 254.9 million, eclipsing a billion dollar run rate. And I will note, this run rate does not include Fluent, C21, assets, Planet 13, or the Ohio transactions. For our cannabis segment specifically, we show pro forma year-over-year retail revenue growth of 7%. If we use this as a proxy for the same store sales metric, we can see our optimization at work with particularly strong performance in markets where integration of recent acquisitions is substantially complete. For a complete review of our revenue performance by state and sales channel for the second quarter, please refer to the accompanying market sales tables in today's earnings release. Excluding the impact of non-cash inventory valuation adjustments primarily related to the required gap fair value step up associated with our closed transactions, gross margin was 47%, a decline of 430 basis points compared to the prior year quarter. The primary driver here is the addition of our non-cannabis segment, which carries a structurally lower margin profile. than our core cannabis business. On a segment basis, cannabis adjusted gross margin was 53%, up 120 basis points year over year, while our non-cannabis segment adjusted gross margin was 18%, reflecting the lower margin, higher value nature of that business. Second quarter net loss was 0.1 million compared to a net loss of 14.9 million in the year ago period. Adjusted EBITDA was approximately 41.5 million, or 19.8% of sales, reflecting an improvement of approximately 28.2 million year over year. As a percentage of sales, adjusted EBITDA margin declined 790 basis points compared to 27.7% in the second quarter of last year. This decline was driven by the addition of our non-cannabis business segment, as well as recently acquired cannabis operations that carry historically lower EBITDA margins. ON A SEGMENT BASIS, CANNABIS ADJUSTED EBITDA MARGIN WAS 22.4% FOR THE QUARTER COMPARED TO 27.7% IN THE YEAR AGO PERIOD AND OUR NON-CANNABIS ADJUSTED EBITDA MARGIN WAS 6.3%. Moving on to the balance sheet, we ended the quarter with cash and cash equivalents of 122.7 million, and an additional 1 million of marketable liquid securities, providing very with significant financial flexibility. Combined with improving industry fundamentals and our discipline capital allocation strategy, we believe we're positioned to continue executing on both organic growth initiatives and accretive acquisitions. I'll also mention here, in support of executing these growth initiatives and acquisitions, Vireo, through our non-cannabis segment, recently entered into a new asset-based lending credit facility with certain financial institutions in Bank of Montreal, providing a $65 million initial commitment, expandable to $85 million, and further to $105 million through a $20 million accordion feature. This ABL priced at an industry-leading rate of term SOFR plus 1.75% to 2%, currently 5.37% to 5.62%, will provide us with the additional liquidity and financial flexibility through a revolving credit facility to support working capital, capital expenditures, strategic M&A, and other general corporate purposes while providing us with the additional liquidity diversifying our sources of capital. Total current assets excluding income tax receivables for 374 million compared to current liabilities excluding uncertain tax liabilities and contingent consideration of 181.4 million. During the second quarter, after our annual meeting, the company consolidated its subordinated voting shares. As of June 30th, Iberia had a total of 54.4 million subordinate voting shares outstanding on a treasury method basis using a share price of $15. This was comprised of 45.8 million subordinate voting shares outstanding on an as-to-date basis Converter basis, 2.1 million RSUs, 1.2 million shares issuable upon conversion of convertible debt, 3.5 million shares held in escrow, 1.2 million shares expected to be issued in connection with the satisfaction of earn out liabilities, and 0.6 million in the money warrants and options adjusted for the treasury method. Finally, at the end of June, we appointed VDO as our independent registered public accounting firm. We view this as another important step in the continued evolution of Vireo as we build a larger, more diversified business with a strong foundation of financial discipline in corporate governments. That concludes my prepared remarks. I'll now hand the call back to John for closing comments.

Thank you, Tyson. Before we open the call for Q&A, I'd like to leave you with one final thought. Over the past 18 months, we've demonstrated that we can successfully identify, acquire, integrate, and optimize businesses while maintaining financial discipline, and we're starting to see the financial financial model take place. Each transaction that we've announced is intentional, selected to strengthen our platform. We believe the combination of leading market positions, disciplined capital allocation, and a differentiated cannabis and agribusiness strategy positions Vireo to create meaningful long term shareholder value. We're excited about the opportunities ahead and appreciate your continued support. Thank you for joining us today.

Operator? We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Pablo Zuannick From Zuanik and Associates. Your line is now open. Please go ahead.

Thank you. Good morning, everyone. John, thank you very much for those prepared remarks. I think you gave a great color that explains the strategy, so that was very helpful. And not to make you repeat what you already said, but we've seen companies cannabis and others that were very aggressive in terms of expanding in this industry. taking on a lot of leverage, probably overpaying. And we all know what happened with them eventually. Right. And I think you made it very clear why your strategy is different. But you might want to expand a little bit on that in terms of, you know, why is this different? Thank you.

Well, Pablo, first of all, we're not levered. We're one of the most under-levered companies in cannabis. And second of all, I think we're buying at the right multiples and we're running a very decentralized model. which enables us to move fast, integrate quickly, and maintain local control. Our objective is to get every market to what we think is a sustainable long-term market share. with meaningful tailwinds. And that is 100 million, at least 100 million. So that's the litmus test. And that 100 million is not just a random number. It allows us to have the right leadership, the proper comp so that we can run this decentralized model. And I'm just not sure that anyone else has done it in this way.

So I don't see how we compare to others of the past. Yes. For all the- And that's really colored, one. Yes. Thank you very much for that. Very useful. Thank you. And then just on the same topic, AND YOU TALK ABOUT YOU'RE NOT DONE YET. DOES THAT MEAN THAT YOU MAY GO INTO OTHER STATES ALSO OR JUST KEEP THE 15 THAT YOU HAVE RIGHT NOW AND JUST GAIN DEPTH? IF YOU CAN EXPAND ON THAT, THAT WOULD HELP. AND RELATED TO THAT, YOU SAID THAT BY 2027, IT WOULD BE EASIER FOR PEOPLE TO, get financials, does that mean that you won't be doing many deals in 2027? Maybe you want to explain that also. Thank you.

We will never say no to deals that are rightly priced. So we continue to evaluate every company that is out there. We're open to, to doing deals that make sense for the shareholders. Whether those deals are in existing states or new states, I explain how we think about existing states and new states. We think that a state can bring bring in a hundred million dollars in revenue, even if it's not immediate, will be pursuing that state at the right price. No, thank you.

And then just, you know, if I may, an apology, see there's more people on the line here waiting on the Q and A queue. You were yesterday at the NYSE with the MSOS, ETF people and other CEOs from several MSOs. You might want to share your impressions from that experience and what that means for the industry. Let's start with that first.

Yes, great experience. You know, at Vireo, we just, you know, we tried, we love everyone. It was great seeing all the CEOs kind of come together. MSOS is really the only institutional pathway to meaningful liquidity. So obviously it's a meaningful platform for all of us. We need to support MSOS. And I have a lot of respect for those guys. So yes, it was a great experience. We had great conversations and we got to meet some people that we just didn't know prior to the event.

Thank you. And one very last one. very clear everything you explained in terms of how you're thinking about the strategy and expanding, but you have these other companies like, you know, Glass House talking all the anti the dormant commerce laws, right? You have some more Canadian companies, saying that they expect interstate trades sooner or later in the U.S. Do you agree with that view that interstate trade is imminent after rescheduling? And if you agree with that view, how does that color or impact the ways that you're building the company right now? Thank you. That's all for me.