Vireo Health Q2 Revenue Increases 59% to $10.8 Million

Vireo Health Announces Second Quarter 2020 Financial Results
  • Total revenue of $12.2 million increased 70 percent year-over-year
  • Operating cost structure continues to improve in-line with management’s expectations
  • Development project pipeline positions Company for strong performance improvements in FY21

MINNEAPOLIS, Aug. 26, 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 nine states and the Commonwealth of Puerto Rico, today reported financial results for its second quarter ended June 30, 2020. All currency figures referenced in this release reflect U.S. dollar amounts.

Our second-quarter results were in-line with our expectations both in terms of revenue growth and operating expenses. 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.

Founder & Chief Executive Officer, Kyle Kingsley, M.D.

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.”

Second Quarter 2020 Financial Summary

Reported results for the three- and six-month periods ended June 30, 2020 and June 30, 2019 reflect “pro-forma” results, which exclude contributions from the Company’s former Pennsylvania Medical Solutions (“PAMS”) subsidiary, as Vireo announced a planned transaction to divest PAMS on June 22, 2020 and closed the transaction on August 11, 2020. As a result, financial performance of PAMS’ wholesale business and manufacturing operations have been categorized under discontinued operations within the periods referenced in the financial statements accompanying this news release. Vireo continues to own and operate two retail dispensaries in Pennsylvania.

The Company generated revenue in seven states during the second quarter: Arizona, Maryland, Minnesota, New Mexico, New York, Ohio, and Pennsylvania. Total revenue, including contributions from discontinued operations, increased 70 percent year-over-year to $12.2 million versus $7.2 million in the second quarter of 2019. Reported revenue, excluding discontinued operations, was $10.8 million, an increase of 59 percent as compared to $6.7 million in Q2 2019.

Retail revenue was approximately $9.2 million in Q2 2020, an increase of 46 percent compared to $6.3 million in Q2 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 new retail dispensaries in Pennsylvania. Wholesale revenue of $1.6 million increased by $1.1 million or 256 percent, as compared to $444,023 in Q2 2019. The increase in wholesale revenue was primarily due to the growth of wholesale operations in Maryland, New York, and Ohio.

Gross profit before fair value adjustments was $3.5 million, or 32 percent of revenue, as compared to gross profit of $3.0 million or 45 percent, in the same period last year. The variance in gross profit as compared to the prior year was driven primarily by temporary impacts of planned manufacturing downtime and the build-up of inventory in New York, as well as an increase in the mix of sales in wholesale versus retail markets, with a substantial increase in wholesale revenue as compared to last year.

Total operating expenses in the second quarter were $15.4 million, as compared to $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 expense was $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.

Net loss from continuing operations in Q2 2020 was $7.7 million, as compared to a net loss from continuing operations of $593,041 in Q2 2019. Adjusted net loss from continuing operations for Q2 2020, as described in accompanying disclosures and footnotes, was $7.4 million, as compared to a loss of $4.1 million in the prior year quarter. Adjusted EBITDA, as described in accompanying disclosures and footnotes, was a loss of $1.8 million in Q2 2020, as compared to a loss of $1.9 million in Q2 2019. Please refer to the Supplemental Information and Reconciliation of Non-IFRS Financial Measures at the end of this press release for additional information.

Other Developments

Amidst the ongoing coronavirus pandemic, Vireo’s medical cannabis businesses have maintained “essential service” designation in each of their respective states. As a result, to date there has been no material adverse impact on the Company’s financial performance because of the pandemic.

On April 30, 2020, the Company announced the formation of a wholly-owned subsidiary called Resurgent Biosciences, Inc. Resurgent Biosciences is a Delaware corporation that was formed with the intent to commercialize Vireo’s portfolio of intellectual property and related initiatives in a non-plant-touching entity, which may broaden potential partnership opportunities or other strategic outcomes as Vireo seeks to monetize scientific advancements within the cannabis industry and beyond. Vireo currently has several patent applications pending approval by the United States Patent and Trademark Office. Its patent for harm reduction in tobacco products was allowed earlier this year.

On June 19, 2020, the Company announced its planned purchase of 110,000 square foot greenhouse facility in Massey, Maryland for total consideration of $1.3 million. The Company intends to transfer its cultivation license in the state to this newly acquired greenhouse and maintain processing and manufacturing operations at its existing 22,000 square foot facility in Hurlock, Maryland. This transfer is expected to increase Vireo’s biomass cultivation capacity in the state by nearly 12 times once completed.

On June 22, 2020, the Company announced its planned divestiture of its Pennsylvania manufacturing and processing operations (“PAMS”) to a subsidiary of Jushi Holdings, Inc. for total consideration of $37 million, including $13.8 million in cash upon closing. The transaction closed on August 11, 2020.

On July 9, 2020, Vireo announced the formation of an exclusive licensing agreement with eBottles420 to manufacture and distribute Vireo’s patent-pending, terpene-preserving packaging system. This proprietary packaging system preserves cannabis flower by inhibiting the gradual loss of terpenes and other desirable compounds that naturally occur after harvest.

Balance Sheet and Liquidity

As of June 30, 2020, the Company had 37,952,477 equity shares issued and outstanding, and 153,203,217 shares outstanding on an as-converted, fully-diluted basis.

As of June 30, 2020, total current assets were $81.0 million, including cash on hand of $5.7 million. Total current liabilities were $23.2 million, with zero debt currently due within 12 months.

Following the closing of the PAMS transaction on August 11, 2020, the Company had total cash on hand of approximately $21.1 million.

Outlook Commentary

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.”

Conference Call and Webcast Information

Vireo Health management will host a conference call with research analysts on Wednesday, August 26, 2020 at 8:30 a.m. ET to discuss its financial results for its second quarter ended June 30, 2020. Interested parties may register to attend the conference call via the following link: http://www.directeventreg.com/registration/event/7027889. Upon registration, each participant will be provided with call details and a registrant ID for Vireo’s conference ID number 7027889.

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.

Additional Information

Additional information relating to the Company’s first quarter 2020 results is available on SEDAR at www.sedar.com. Vireo Health 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.

About Vireo Health International, Inc.

Vireo Health International, Inc. is a physician-led cannabis company focused on building long-term, sustainable value by bringing the best of medicine, science, and engineering to the cannabis industry. With operations strategically located in early-stage, limited-license medical markets, Vireo manufactures pharmaceutical-grade cannabis products in environmentally-friendly greenhouses and distributes its products through its growing network of Green Goods™ retail dispensaries and hundreds of third-party locations. Its current core medical markets of New York, Minnesota, Pennsylvania, Arizona, New Mexico, and Maryland all have the potential to enact adult-use legalization in the next three to 24 months, and two additional markets in Puerto Rico and Massachusetts also have potential for commercialization. Combined with its teams’ focus on driving scientific innovation within the industry and securing meaningful intellectual property, Vireo believes it is well positioned to become a global market leader in the cannabis industry. Today, eight of its 10 markets are operational with 13 of its 32 total retail dispensary licenses open for business. For more information about the company, please visit www.vireohealth.com.

Supplemental Information

The financial information reported in this news release is based on audited financial statements for the fiscal year ended December 31, 2019 and unaudited condensed interim consolidated financial statements for the fiscal quarter ended March 31, 2020. All financial information contained in this news release is qualified in its entirety with reference to such financial statements. To the extent that the financial information contained in this news release is inconsistent with the information contained in the Company’s audited financial statements, the financial information contained in this news 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

Adjusted Net loss, 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 Net Loss and Adjusted EBITDA

Reconciliation of Total Operating Expenses to Adjusted Operating Expenses

Original Press Release

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