Vireo Growth Inc

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 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to John Mazarakis, 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 Eves, 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 cements our presence in Florida with a total of over 100 dispensaries. In July, we also announced two significant strategic transactions that further strengthen our platform. Thank you for joining us. 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 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 to 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. Planet 13 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 E's Green Dragon and the announced fluent acquisition brings us 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, and discuss 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 with Fluent, The Cannabis, Planet 13 and Ohio, which have not closed yet. Today, Verity 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 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 a traditional cannabis operator. So what are we building? We're building a diversified cannabis and agribusiness platform that combines disciplined 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 build this business through disciplined consolidation and we focus 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. C21 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 organizations. 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 efforts 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. And 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 Bridgewell acquisitions that closed during the quarter contributed $33.5 million. Giving us back to the acquisitions of Vireo Health of Rocky Mountain, Eaze, Hawthorne, Bridgewell, and Pharmacan, as if they were completed on April 1, 2026, The 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, the cannabis 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 company market sales tables in today's arranged 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 segments. 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 significant financial flexibility. Combined with improving industry fundamentals in our disciplined 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 and Bank of Montreal, providing a $65 million initial commitment, expandable to $85 million, and further to 105 million for a 20 million accordion feature. This ADL 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 diversifying our sources of capital. Total current assets excluding income tax receivables were $374 million compared to our 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-converted 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 and more diversified business with a strong foundation of financial discipline and corporate governance. 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 model take place. Each transaction that we've announced is intentional, selective 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 1 to raise your hand. To withdraw your question, press star 1 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 Zuanek from Zoanic 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, very helpful. And not to make you repeat what you already said, but we've seen, you know, companies like 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 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.

Thank you very much. Very useful. Thank you. And then just on the same topic, when 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 to get, you know, 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, you know, are rightly priced. So, you know, we continue to evaluate every company that is out there. We're open to doing deals that make sense for the shareholders. Whether those deals are in existing states or new states, I explained how we think about existing states and new states. We think that a state can bring in $100 million in revenue, even if it's not immediate. We will be pursuing that state at the right price.

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&A queue. You were yesterday at NYSE, right, 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.

Yeah, great experience. You know, at Vireo, we just, you know, we tried, we love everyone. So, 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 yeah, 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. You know, very clear everything you explained in terms of how you're thinking about this strategy and expanding, but you have these other companies like, you know, Glasshouse talking about the anti-dormant commerce laws, right? You have some more Canadian companies publicly saying that they expect interstate trade sooner or later in the U.S. Do you agree with that view that interstate trade is imminent after the scheduling? And if you agree with that view, how does that color or impact the way that you're building the company right now? Thank you. That's all for me.

Thank you, Pablo. It's not a matter of agreeing or disagreeing. What we do as managers is mitigate risk. And risk is embedded in change. So what we do daily is evaluate how that change may impact our billion dollar platform and of course we have plan A, plan B and plan C I will refrain from kind of using a crystal ball because I don't think it benefits anyone but just being a student of other regulated industries and cannabis is very very regulated both at the federal level and at the state level I think change is fair to say that change will come slowly. And regardless, we are prepared to mitigate the risk that comes with that change. Whether that's interstate commerce, obviously, you know, we have a plan if and if or when this happens. But I don't think it will be anytime soon.

Right. Thank you very much.

Thank you.

Good morning, guys. Just a couple of clarifications. I think I heard you said 7% same-store sales. Is that organic growth on the legacy assets, or what is that 7%? Can you clarify that a little bit?

It's organic growth on the legacy assets. We've been announcing same-store sales for the last few quarters, and that is organic growth, same-store sales.

And is that And is that a goal or expectation or based on these recent acquisitions or future ones, is that a good target or goal that you have in that range?

So, I'm not sure that, you know, it's realistic for a platform with 270 dispensaries to have 7% same store sales per year over year but we would definitely target you know low single digits above of course above the inflation rate so that that is my perspective being in retail my whole life seven percent in perpetuity is not it's not realistic yep

Yeah, that makes sense. Just wanted to clarify that. And one more clarification. I had a bad connection on the adjusted EBITDA margin decline. I kind of missed the reasons. Can you give more color on that and expectations of that going forward?

The reasons are primarily, you know, Colorado. Obviously, this is a different market. We happen to think that Colorado is a mature market, and we understand the free cash flow coming from Colorado. is being non-volatile. Therefore, we see the Colorado margin, you know, around 20% being a long-term equilibrium for the industry. What has really impacted our overall margin is our agribusiness, which that is low, I mean, high single digits going to low double digits. and that's also, but our main assets have the same margins that they had. So limited license states have maintained very similar margins to the previous quarters. And going back to your other question about same store sales, we do expect, if you're asking if this was an anomaly, actually We are expecting same-store sales for the foreseeable future to hover around that level. It wasn't an anomaly.

Okay, but it's not a long-term target. It's just what's happening in the industry, in other words, or in your business.

I mean, if you take the best retailer... On the planet, I don't think, long term for me is 10 years. So if you're asking me if we're going to have 7% same store sales increase year over year for the next 10 years, that's just not realistic. But if you're asking me if for the next 24 months, which for me is, you know, the short term, we're going to have growth in same store sales, I'd be inclined to agree with that statement.

Got it. That clarifies it for me. Okay, I'll jump back in the line. Thank you.

Thank you, Tom.

There are no further questions at this time. I will now turn the call back to John Mazarakis for closing remarks.

I just wanted to thank all the stakeholders for the support and have a wonderful morning.

Thank you. This concludes today's call. Thank you for attending. You may now disconnect