Vireo Health Announces Third Quarter 2020 Financial Results
- Total revenue of $13.4 million increased 68 percent year-over-year
- Gross margin of 42.7% reflects improving manufacturing efficiencies in core markets
- Christian Gonzalez promoted to role of COO; Patrick Peters promoted to EVP of Retail
- Revenue growth catalysts and cost discipline position Company for future margin improvement
MINNEAPOLIS, Nov. 25, 2020 /PRNewswire/ — Vireo Health International, Inc. (“Vireo” or the “Company”) (CNSX: VREO; OTCQX: VREOF), the science-focused, multi-state cannabis company with active operations in exclusively medical-only markets and licenses in six states and the Commonwealth of Puerto Rico, today reported financial results for its third quarter ended September 30, 2020. All currency figures referenced in this press release reflect U.S. dollar amounts.
Our third-quarter results demonstrate the improving nature of our business and success of recent initiatives to improve operating and financial performance.
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.
Dr. Kingsley continued, “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 remain 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.”
Third Quarter 2020 Financial Highlights
The Company 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 percent year-over-year to $13.4 million. Reported revenue, excluding discontinued operations, was $11.9 million or an increase of 67 percent as compared to Q3 2019.
Retail revenue was approximately $9.9 million in Q3 2020, an increase of 61 percent compared to $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.
Gross profit before biological asset adjustments was $5.1 million, or 43 percent of revenue, as compared to gross profit of $1.8 million or 25 percent of revenue in the same period last year. The improvement in gross profit compared to the prior year was the result of operational efficiency gains in several markets, improved operating leverage through higher sales volumes and production facility upgrades completed last year.
Total operating expenses in the third quarter were $6.9 million, an improvement of $1.3 million or 16 percent as compared to $8.2 million in the third quarter of 2019. The reduction in operating expenses was attributable to lower professional fees and selling, general and administrative expenses including start-up expenses related to buildout and pre-revenue operations in some markets. Excluding depreciation and share-based compensation, operating expenses in the third quarter of 2020 were $6.1 million, or 51 percent of sales, as compared to $7.5 million or 105 percent of sales in the third quarter of 2019.
Total other income was $10.5 million during Q3 2020, compared to an expense of $825,868 in Q3 2019. The significant variance in other income as compared to the prior year quarter was primarily attributable to a one-time gain on the divestiture of the Company’s former Pennsylvania manufacturing and processing operations (“PAMS”) of $16.4 million. This transaction closed on August 11, 2020.
EBITDA, as described in accompanying disclosures and footnotes, was $8.1 million during Q3 2020, compared to a loss of $15.9 million in Q3 2019. Adjusted EBITDA was a loss of $675,808 in Q3 2020, as compared to a loss of $5.2 million in Q3 2019. Please refer to the Supplemental Information and Reconciliation of Non-IFRS Financial Measures at the end of this press release for additional information.
Net income in Q3 2020 was $122,252, as compared to a net loss of $14.6 million in Q3 2019. 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.
Subsequent Events
On October 1, 2020, Vireo announced that it reached a definitive agreement with Ayr Strategies Inc., to sell all the assets and liabilities of its affiliate, Ohio Medical Solutions, Inc. (“OMS”), for total consideration of $4.85 million, including $1.2 million in cash. This transaction is expected to close early next year.
On November 5, 2020, the Company announced that it entered into a non-binding term sheet with Green Ivy Capital and its affiliates for a proposed senior secured, delayed draw term loan with an aggregate principal amount of up to $46,000,000. Vireo management expects definitive loan documents for the funding of the first tranche to be executed in December 2020.
On November 9, 2020, the Company announced that it secured a purchase option on an additional 96 acres of land adjacent to its existing facilities in Fulton County, NY for a total purchase price of approximately US $1.3 million. This option could enable the Company to significantly expand its cultivation and processing capacity in the state in the event of favorable regulatory changes.
On November 13, 2020, a subsidiary of Jushi Holdings, Inc. notified Vireo of its intent to exercise its purchase option on Vireo’s subsidiary, Pennsylvania Dispensary Solutions (“PDS”) for $5.0 million cash. Vireo believes the closing of this transaction will occur in December 2020.
On November 16, 2020, the Company announced that it had exercised its right to force the redemption of all subordinate voting share purchase warrants issued to participants in the Company’s private placement offering which closed on March 10, 2020. This forced redemption is expected to result in the issuance of 13,651,574 additional subordinate voting shares and cash proceeds of approximately $10.0 million.
On November 23, 2020, the Company filed a preliminary base shelf prospectus with the securities regulators in each province of Canada, except for the Province of Quebec. The preliminary base shelf prospectus has not yet become final for the purpose of the sale of securities. The intention of the base shelf prospectus is to allow the Company to more efficiently access capital when market opportunities permit. The Company wishes to correct that the base shelf prospectus is for an amount of up to C$200 million not C$260 million as disclosed in the Company’s news release dated November 23, 2020.
This news release does not constitute an offer to sell or the solicitation of an offer to buy in the United States and the securities referred to in this news release may not be offered or sold in the United States absent registration under the U.S. Securities Act of 1933 or pursuant to an applicable exemption from the registration requirements under the U.S. Securities Act of 1933 and applicable state securities laws. A copy of the preliminary base shelf prospectus can be found on SEDAR at www.sedar.com.
Leadership Update
Today the Company also announced the promotions of Christian Gonzalez to the role of Chief Operating Officer and Patrick Peters to the role of Executive Vice President of Retail.
As Chief Operating Officer, Mr. Gonzalez will lead the Company’s nationwide manufacturing, retail, and product development teams. Christian joined Vireo in 2018 as General Manager in Pennsylvania and since then has overseen major capacity expansion projects and helped optimized manufacturing efficiencies at Vireo’s cultivation and processing facilities in Minnesota, New York, Maryland, Arizona, and New Mexico. He is an engineer and entrepreneur with over 15 years of manufacturing experience in the medical device, pharmaceutical and aerospace/defense industries.
As Executive Vice President of Retail, Mr. Peters’ responsibilities include the complete oversight of Vireo’s retail, ecommerce, and wholesale sales channels. Mr. Peters joined Vireo in 2019 to lead the Company’s retail growth initiatives which focused on the expansion of Green Goods™ retail store openings and re-brandings nationwide. He has over 20 years of retail marketing experience as an executive leader at brands such as Calvin Klein, Kate Spade, and Juicy Couture.
Planned Transition from IFRS to U.S. GAAP Reporting
The Company is currently in the process of transitioning to becoming a U.S. domestic registrant, and plans to begin presenting its financial statements in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), rather than International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Beginning in 2021, the Company expects to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K with the U.S. Securities and Exchange Commission. The Company anticipates incurring one-time expenses and professional fees related to this transition of approximately $0.5 million during the fourth quarter.
Balance Sheet and Liquidity
As of September 30, 2020, the Company had 37,337,138 equity shares issued and outstanding, and 155,376,287 shares outstanding on an as-converted, fully-diluted basis.
As of September 30, 2020, total current assets were $81.3 million, including cash on hand of $16.3 million, which does not include approximately $16.0 million in expected cash proceeds resulting from the redemption of warrants and divestitures of PDS and OMS. Total current liabilities were $20.7 million, with zero debt currently due within 12 months.
Outlook Commentary
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.”
Conference Call and Webcast Information
Vireo Health management will host a conference call with research analysts on Wednesday, November 25, 2020 at 8:30 a.m. ET (7:30 a.m. CT) to discuss its financial results for its third quarter ended September 30, 2020. Interested parties may register to attend the conference call via the following link: http://www.directeventreg.com/registration/event/8084816. Upon registration, each participant will be provided with call details and a registrant ID for Vireo’s conference ID number 8084816.
A live audio webcast of this event will also be available in the Events & Presentations section of the Company’s Investor Relations website at https://investors.vireohealth.com/events-and-presentations/default.aspx and will be archived for one year.
About Vireo Health International, Inc.
Vireo Health International, Inc. (“Vireo” or the “Company”) is a physician-led cannabis company focused on bringing the best of technology, science, and engineering to the cannabis industry. Vireo manufactures proprietary, branded cannabis products in environmentally-friendly, state-of-the-art greenhouses and other facilities and distributes its products through its growing network of Green GoodsTM retail dispensaries and through hundreds of third-party dispensaries in seven states. Vireo’s team of more than 425 employees, led by scientists, engineers, and cultivation experts, is focused on efficiency and the creation of best-in-class products, while driving scientific innovation within the cannabis industry and developing meaningful intellectual property. Today, Vireo is licensed to grow and/or process cannabis in seven markets. The Company is operational in six of those markets – including the core markets of Arizona, Maryland, Minnesota, New Mexico, and New York. The Company holds 29 total retail dispensary licenses, of which 11 are currently open for business. For more information about Vireo, please visit www.vireohealth.com.
Additional Information
Additional information relating to the Company’s third quarter 2020 results is available on SEDAR at www.sedar.com. Vireo refers to certain non-IFRS financial measures such as adjusted net income, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and adjusted EBITDA (defined as earnings before interest, taxes, depreciation, amortization, less certain non-cash equity compensation expense, one-time transaction fees, and other non-cash items. These measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other issuers. Please see the Supplemental Information and Reconciliation of Non-IFRS Financial Measures at the end of this news release for more detailed information regarding non-IFRS financial measures.
Supplemental Information
The financial information reported in this press release is based on audited financial statements for the fiscal year ended December 31, 2019 and unaudited condensed interim consolidated financial statements for the third quarter ended September 30, 2020. All financial information contained in this press release is qualified in its entirety with reference to such financial statements. To the extent that the financial information contained in this press release is inconsistent with the information contained in the Company’s audited financial statements, the financial information contained in this press release shall be deemed to be modified or superseded by the Company’s audited financial statements. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation for purposes of applicable securities laws.
Reconciliation of Non-IFRS Financial Measures
EBITDA, Adjusted EBITDA, and Adjusted Operating Expenses are non-IFRS measures and do not have standardized definitions under IFRS. The following information provides reconciliations of the supplemental non-IFRS financial measures, presented herein to the most directly comparable financial measures calculated and presented in accordance with IFRS. The Company has provided the non-IFRS financial measures, which are not calculated or presented in accordance with IFRS, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with IFRS. These supplemental non-IFRS financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-IFRS financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. These supplemental non-IFRS financial measures should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the IFRS financial measures presented.
Reconciliation of Net Loss to Adjusted EBITDA
Reconciliation of Total Operating Expenses to Adjusted Operating Expenses
