Vireo Growth Inc. (VREOF) Q3 2025 Earnings Call Transcript

Good morning and welcome to the Vero Growth Incorporated's third quarter 2025 results call. 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 cautionary note regarding forward-closing statements in the company's earnings release.

I'll now hand the call over to Chief Executive Officer John Maraskos. please go ahead thank you good morning everyone i'll begin with a brief summary of q3 and recent business highlights then tyson will provide some extra detail on the financials before we open the call to questions our third quarter results reflect our first full quarter of contributions from our recently closed m&a transaction in missouri nevada and utah performance remains in line with our expectations and reflected organic growth throughout the portfolio in addition to the growth realized from the acquisitions. Subsequent to quarter end, we announced the acquisition of 86% of the outstanding senior secured convertible nodes of U.S. multi-state cannabis operator SWAS. We've entered into a restructuring support agreement with SWAS, which once completed will result in Vireo owning the majority of SWAS's total assets. Today, the SWAS portfolio includes 46 dispensaries and two manufacturing facilities spread across Colorado and New Mexico, which would expand Vireo's portfolio to eight states with more than 80 operating dispensaries. As is the case with our portfolio acquisitions, the Colorado and New Mexico assets represent leading businesses within their respective markets. As we have stated in the past, we are seeking to build a portfolio of prolific brands in cannabis through organic growth and accretive M&A, and we look forward to welcoming the SWAZ team to Vario. As we look at our existing portfolio, we have largely completed our various post-merger closing integration work streams. These initiatives include the integration of our various HR and ERP platforms rationalization of insurance providers and policies and the centralization of our procurement processes across the entire enterprise we have already achieved corporate overhead synergies and expect full integration before the end of the year we close the third quarter with over 117 million in cash which we expect will enable us to continue executing our growth strategies that concludes my prepared remarks i'll 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 more detail third quarter gap revenue of 91.7 million increased 264 year-over-year on a reported basis driven by the first full quarter of contributions from the three merger transactions that we closed during the second quarter as john mentioned earlier, the prior year comparative period does not include the results of our three merger transactions. However, even with the prior year contributions reflected, we still realize double digit organic growth. For a complete review of our revenue performance by state and sales channel for the third quarter, please refer to the accompanying market sales tables in today's earnings release, which will also be filed with our 10Q later today. Gap gross margin was impacted by the non-cash inventory valuation adjustments primarily related to the required gap fair value step-up associated with our closed transactions excluding this impact gross margin was 55.4 and reflected an improvement of 500 basis points compared to the prior year quarter gap operating income was also impacted by non-cash inventory evaluation adjustments as well as transaction severance expenses but excluding these impacts and share-based compensation adjusted operating income was 21 million or 22.9 percent of sales adjusted evad was approximately 25 million for 27.3 percent of sales reflecting an improvement of approximately 200 basis points on a gap basis as compared to the third quarter of last year excluding new york assets held for sale and income taxes receivable total current assets at the end of q3 were 191.1 million and we ended the quarter with cash on hand of 117 million excluding new york liabilities held for sale in the impact of uncertain tax positions total current liabilities at the end of the quarter were 60.8 million as of september 30th 2025 the company had a total of 1 billion 62 million 254 684 shares outstanding on the treasury method basis using a share price of 64 cents 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, our financial performance continues to track in line with our expectations and we're executing well against our stated objectives. We believe the current momentum across the portfolio combined with Accretive M&A will enable us to create significant long-term value for all of our shareholders. Thank you for joining us today. Now, we will be pleased to take your questions. Operator?

To ask a question, simply press star 1 on your telephone keypad. Again, that is star 1 to ask a question. And our first question comes from the line of Michael Kim with Zach Small Cap Research. Please go ahead.

Hey, everyone. Good morning, and thanks for taking my questions. I guess first, in terms of the Schwoz transactions, could you maybe discuss the broader strategic rationale as it relates to opportunities to expand into New Mexico and Colorado? And then just from an economic perspective, any color on how we should be thinking about potential accretion just after taking into consideration, I guess, incremental interest expense and the minority ownership stakes? Thanks.

Yeah, thank you, Michael. So, in general, unfortunately, I'm going to have to be somewhat vague because the transaction is still developing. We have bought the debt. We will foreclose on all the assets. There are some minority stakes, like you mentioned. There are ongoing legal expenses that will slightly alter the final EBITDA number that we're purchasing. But for me, I always say this, I never buy a business for, you know, it's trailing EBITDA or why, you know, it existed up to this point, you know, there's always like some vision of a creative operational enhancement. And I think in this case, we're buying the largest company in Colorado. I also happen to feel that it is, you know, the best. You know, if I want to be conservative, I want to say one of the best. Colorado is primed for consolidation. And I think our focus will be on what I broadly describe as states that have over $100 million of revenue and really solid gross margins. Colorado checks that box and together with New Mexico make up a solid market.

Got it. That's helpful. And then as it relates to the integration of the prior acquisitions, just curious if you could maybe give a bit of color in terms of the level of synergies that you expect to realize and how that might potentially impact overall margins.

I think the next, this quarter, fourth quarter of 2025 will shed plenty of light in this question. So I think I prefer to let numbers speak for themselves instead of me sort of projecting a number. I think Q4 will answer your question. And, you know, our goal is to continue to realize synergies and to improve both the gross margin and, you know, the EBITDA margin of each of the businesses that we're consolidating.

Fair enough. Okay. And then just finally, maybe coming back to the SWAS transaction, any insights into the financing and then stepping back, any near-term implications for capital allocation priorities going forward?

I mean, The SWAS will fall in line with our, you know, debt to EBITDA metrics that we've been, you know, very laser focused on. We will never opt to be over levered. That holds true for any state and for the mothership. And we plan on running SWAS without adding any layers at the corporate level. So I expect corporate expenses to stay pretty much fixed as we're expanding our top line and growing our EBITDA.

Okay. Appreciate it. Thanks for taking my question.

Thank you.

Our next question comes from the line of Pablo Zwanek with Zwanek & Associates. Please go ahead.

Thank you, and good morning, everyone. Can we start with the Verano settlement? settlement. I think you're receiving a million dollars plus the Pennsylvania property. Can you give more color on that property, you know, the size, the location, the state of that property? Let's start with that. Thank you.

It's a real estate property that has an appraised value of 10 million. We think it's probably worth a little more than that in the open market. and the settlement with Verano is is signed I guess to the market and to our investors or a signal to the market and to our investors that we are laser focused on producing the best product and providing the best service and those are the two missions that we're looking to execute on. Everything else seems to be a distraction.

But is this a cannabis property? I mean, is this a cultivation facility that you could operate and does it carry a license or is totally non-cannabis?

It's a cultivation facility, but we're not looking to cultivate. We'll probably sell it or, you know, hold it for now and, you know, decide what we're going to do with it in the future.

Thank you. Just moving on to Minnesota. I mean, sales started, I know it's early days, but sales started middle of September. And I guess before I ask the question, I have to say thank you to you all for disclosing revenue by state. I mean, I think you're the only MSO doing that. So that's much appreciated. So in the case of Minnesota, there was pretty much no lift in terms of revenues at retail level, although REC began in the middle of September. So I guess the question is, you know, why didn't we see much of a lift? And what's the outlook in terms of a lift with REC sales for the market? And how do you think about the competitive environment in terms of the speed of new retail stores opening?

And, of course, opportunity on the wholesale side with a cap, of course, on your cultivation. yeah so i think in minnesota we're going to do well um i think there is lift um maybe it's hard to parse through that lift um given the the nature of when rec sales commence um i would be a little more patient and wait for q4 numbers um in terms of how quickly stores will open and you know right now there's no product in minnesota uh we're trying to uh tread carefully so that you know we don't run out. I think we're going to have, you know, a substantial supply of product once our Elk River production facility is completed. I think that's going to happen sometime in Q1 of next year. So, you know, I think with a little bit of patience, Minnesota is going to meet our expectations.

That's good. Thank you. Look, the only question I have in the case of I think from a prior presentation, or maybe it was your own presentation, I think they have about 8% retail market share in states that are very fragmented at the retail level. Is the plan to start consolidating and acquiring more retail stores in those two states, or will you stay where they were?

I think the Colorado market in general, and I'm not speaking about our strategy here is primed for consolidation. It is a very fragmented space. As you know, wholesale prices have plummeted in the last four years. So I think there's an opportunity for the right team to unite some of the top operators in the state and deliver a company that has a meaningful top-line revenue and the meaningful EBITDA margin and EBITDA number. So, you know, that's kind of how I see it. We'll see in the next, you know, few months how things stand out in Colorado.

Okay, thank you. That's my last two questions. One, if you can just have an update on the New York assets. That's taken quite a while. I understand the regulatory side of things is low, But, you know, just an update on that. I'm surprised it's taken so long. And then regarding Florida, it seems that the deal with the flower is totally off. But I understand that there are other assets for sale there. You know, how should we think about Vireo looking at Florida? That's all.

New York, again, and thank you for bringing it up, it's a regulatory hurdle. and I assure you we're not the bottleneck and that's all you know I can say on that front the transaction will close and I just you know I don't have a crystal ball I'm not a betting man and I don't have control over how the state of New York makes decisions but they've been good partners and I think we're going to get there with a strong degree of certainty so So in terms of Florida, Florida is a market that has a lot of uncertainty, and you need a ton of capital to navigate the Florida market. And as you know, we like to acquire cash flow, and we want to be very low-levered. So from that perspective, Florida presents its own obstacles. And, you know, we want to be very careful with markets that we think are mature. You know, Florida can only go down until there is some change in the local regulatory environment. And we just don't feel like it's necessary to take that pain right now. The way we would like to go into Florida is to partner with the right team and have them join our house of local operators. That's our vision. And there needs to be scale. We can buy someone who's over levered. We can partner with someone who's over levered. We can partner with someone who has negative cash flow. All those things are simple, but, you know, one needs to stay disciplined and not overestimate, you know, our ability to turn around a negative cash flow smaller company in that state. So, in order for us to be in Florida, we need to have a clear vision on scale. We need to be low levered. And right now, I don't see any opportunities in the state that check those boxes.

Got it. Thank you. That's great, Connor. Thank you.

With no further questions in queue, we want to thank you for joining us today. You may—this does conclude today's conference call. You may now disconnect.