Vireo Health Archives - Green Market Report

Vireo Health International, Inc. (OTCQX: VREOF) reported that its revenue rose 67% to $11.9 million for its third quarter ended September 30, 2020 versus $7.1 million for the same time period in 2019. Net income in the third quarter was $122,252 versus a net loss of $14.6 million in the 2019 third quarter.  Vireo said the favorable improvement in net income was primarily driven by the one-time gain of $16.4 million on the divestiture of the company’s former PAMS subsidiary.

Vireo reported that it generated revenue in seven states during the third quarter: Arizona, Maryland, Minnesota, New Mexico, New York, Ohio, and Pennsylvania. Total revenue, including contributions from discontinued operations, increased 68% year-over-year to $13.4 million.  Retail revenue was approximately $9.9 million in the quarter, an increase of 61% versus $6.2 million in Q3 2019. The increase in retail revenue was principally due to greater patient enrollment and average revenue per patient in Minnesota and New Mexico, as well as contributions from retail dispensaries in Pennsylvania. Wholesale revenue of $2.0 million increased by $1.1 million as compared to $980,921 in Q3 2019, with the increase primarily driven by the growth of wholesale operations in Maryland.

“Our third-quarter results demonstrate the improving nature of our business and success of recent initiatives to improve operating and financial performance,” said Chairman and Chief Executive Officer, Kyle Kingsley, M.D. “For the past several quarters we’ve been focused on positioning our vertically-integrated portfolio of assets to produce sustained and profitable growth, and we believe today’s results are an encouraging indicator that we’re nearing a critical inflection point in cash flow generation from operations.”

EBITDA was $8.1 million during the quarter, compared to a loss of $15.9 million in 2019 for the same time period. Adjusted EBITDA was a loss of $675,808 in Q3 2020, as compared to a loss of $5.2 million in Q3 2019.

Dr. Kingsley added, “Thanks to the hard work of our teams improving costs and manufacturing efficiencies, Vireo is positioned to improve margins as we continue growing our Green Goods retail dispensary footprint and benefit from likely tailwinds of regulatory changes. Each of our current development projects remains on time and budget, and with seven new dispensaries expected to open before the end of Q1 2021 and the potential for a majority of our state-based markets to pass adult-use legislation within the next year, we believe Vireo is poised for strong improvements in revenue growth and profitability.”

Outlook

Dr. Kingsley concluded, “As we exit fiscal year 2020, we’re focused on successfully completing our capacity expansion projects in Arizona, Maryland, and New Mexico, as well as our planned dispensary openings in Maryland, Minnesota, and New Mexico. However, cash inflows from the forced redemption of warrants and exercise of the PDS purchase option materialized sooner than we anticipated, and our improving liquidity position has enabled us to begin evaluating additional investment opportunities. We expect to provide the investment community with an update on development initiatives and their potential impacts to our long-term operating and financial outlook in the spring of next year.”

Vireo Health International, Inc. (OTCQX: VREOF) reported that it generated revenue including contributions from discontinued operations, of $12.2 million. This was an increase of 70% over $7.2 million in the second quarter of 2019. Vireo reported revenue, excluding discontinued operations, increased 59% to $10.8 million, over $6.7 million in the 2019 second-quarter. The second-quarter net loss grew to $8.9 million, versus a net loss of $1.8 million in the 2019 second-quarter.

“Our second-quarter results were in-line with our expectations both in terms of revenue growth and operating expenses,” said Founder & Chief Executive Officer, Kyle Kingsley, M.D. “Furthermore, with the recent closing of the sale of our Pennsylvania manufacturing and processing subsidiary, we are well-positioned with a strong balance sheet to execute a strategy that should begin to generate positive cash flow next year as we continue increasing scale in our core markets of Arizona, Maryland, Minnesota, New Mexico, and New York.”

Vireo said that retail revenue was approximately $9.2 million in the quarter, an increase of 46% compared to $6.3 million in 2019. The increase in retail revenue was attributed to greater patient enrollment and average revenue per patient in Minnesota and New Mexico, as well as contributions from new retail dispensaries in Pennsylvania. Wholesale revenue of $1.6 million increased by $1.1 million or 256%, as compared to $444,023 in 2019. The increase in wholesale revenue was primarily due to the growth of wholesale operations in Maryland, New York, and Ohio.

Rising Expenses

The company reported that its total operating expenses in the second quarter rose to $15.4 million, versus $5.4 million in the second quarter of 2019, with the increase primarily attributable to increased salaries and wages, as well as an adjustment to share-based compensation related to the vesting of out-of-the-money warrants issued to a former executive upon termination from the company. Excluding depreciation and share-based compensation, operating expenses in the second quarter of 2020 were $6.0 million, or 55 percent of sales, as compared to $5.0 million or 74 percent of sales in the second quarter of 2019, and $6.2 million or 59 percent of sales in the first quarter of 2020.

Total other expenses were $3.4 million during Q2 2020, compared to $1.8 million in Q2 2019. The increase in other expense was primarily attributable to the issuance of warrants in conjunction with the private placement completed in March of 2020, as well as increased interest expense.

On June 22, 2020, the company announced the planned divestiture of its Pennsylvania manufacturing and processing operations to a subsidiary of Jushi Holdings, Inc. for a total consideration of $37 million, including $13.8 million in cash upon closing. The transaction closed on August 11, 2020, and as a result, the company had total cash on hand of approximately $21.1 million.

Dr. Kingsley continued, “We believe there is significant potential for Vireo to improve revenue growth and profitability in our core markets, and we’ll be investing in each of these markets through the balance of fiscal year 2020 to increase production capacity and retail store count. We expect the benefits of these investments to begin materializing late this year, and continue to believe that each of these markets has the potential to enact adult-use legislation over the short- to medium-term future, which would present additional opportunity for revenue growth, margin expansion, and value creation for shareholders.”

Looking Ahead

Dr. Kingsley concluded, “As we enter the second half of fiscal year 2020, we plan to leverage the strength of our balance sheet to make several strategic growth investments in our markets in Arizona, Maryland, Minnesota, and New Mexico. We expect to invest approximately $8.0 to $9.0 million in these projects and that they will be completed by the end of the first quarter of fiscal year 2021. Once complete, these investments should help drive stronger revenue growth and profitability, which gives confidence in our ability to begin producing positive cash flow around the mid-point of fiscal year 2021.”

Vireo Health International, Inc. (OTCQX: VREOF) reported total revenue for the quarter ending in March of $12.1 million increased 34% sequentially and 110% year-over-year versus $5.8 million in the first quarter of 2019. The first-quarter net loss was $2.0 million versus the net loss of $3.4 million in the same time period in 2019. Adjusted net loss for Q1 2020 was $8.1 million, as compared to a loss of $4.8 million in the prior-year quarter.

“Our first-quarter results demonstrate the improving trajectory of our business, with sequential revenue growth of 34 percent representing the strongest quarter of growth in Vireo’s history,” said Founder & Chief Executive Officer, Kyle Kingsley, M.D. “As we continue to focus on optimizing our core medical markets, we believe there is significant untapped potential for Vireo to improve revenue growth and profitability as we increase scale in these attractive, limited-license jurisdictions.”

Expenses rose in the first quarter to $9.7 million versus $3.7 million in the first quarter of 2019, with the increase primarily attributable to increased salaries and wages, professional fees, and general and administrative expenses necessary to support the company’s growth. While the company was raising salaries for some, it also laid off 9% of its workforce. During the first quarter, the company closed its New York corporate office and the related termination of an office lease.

The company has cash on hand of $11.7 million. Total current liabilities were $7.0 million, with zero debt currently due within 12 months. The company recently completed a C$10 million private placement.

Dr. Kingsley concluded, “With most of the major development projects in our core markets effectively complete, we expect minimal capital expenditures during the remainder of the fiscal year 2020, and we should also begin to see the benefits of recent cost reduction initiatives materialize more substantially in our second-quarter results. The optionality of our valuable collection of state-based cannabis licenses and intellectual property continues to provide substantial opportunities to improve our cash position and future financial performance, and we believe our six core market strategy will enable us to begin generating positive cash flow in the first half of next year.”

The company made no mention of its recent decision to part ways with Bruce Linton. Many within the industry grumbled that the company brought in Linton in order to get the C$10 million private placement it received in March. That once it received the money, it had no need for the industry icon. Linton has his fans and detractors, but any company that aligns with him is sure to get a great deal of attention and there is no argument on that.