8-K: Vireo Acquires Schwazze Debt, Plans Asset Takeover

Vireo Growth Inc. has acquired a majority of Schwazze's defaulted senior secured notes and entered a restructuring agreement to acquire most of Schwazze's assets, aiming for strategic expansion.

Summary

• Vireo Growth Inc. (Vireo) acquired approximately 86% of Medicine Man Technologies, Inc. d/b/a Schwazze's (Schwazze) 13% Senior Secured Convertible Notes due December 7, 2026.
• The notes, valued at approximately $91,000,000 (principal and accrued interest), were acquired for $62,000,000, representing a $29,000,000 discount.
• Vireo entered into a Restructuring Support Agreement (RSA) with Schwazze to restructure its operations and capital structure.
• The plan involves an Asset Sale where a newly-formed entity (NewCo), majority-owned by Vireo, will purchase a majority of Schwazze's assets.
• Schwazze's remaining assets will be liquidated, and operations wound down.
• NewCo will receive up to $62,000,000 in financing, used to refinance Star Bud Notes, cover transaction expenses, and provide working capital.
• Schwazze is currently in default on its payment obligations under the Senior Secured Notes.
• The transaction aims to extinguish all obligations related to the Senior Secured Notes and Star Bud Notes, making NewCo an indirect majority-owned subsidiary of Vireo.

Sentiment

Score: 7

Explanation: The filing details Vireo's strategic acquisition of defaulted debt at a significant discount and its plan to take majority control of Schwazze's operating assets. This represents a strong expansion opportunity for Vireo, leveraging Schwazze's financial distress to its advantage. While Schwazze's situation is negative, the overall transaction is presented as a positive, value-accretive move for Vireo.

Positives

• Vireo acquired $91,000,000 in defaulted senior secured notes for $62,000,000, a significant discount of $29,000,000.
• The restructuring plan allows Vireo to gain majority control of a new entity (NewCo) that will acquire a majority of Schwazze's operating assets, including 63 dispensaries and 10 manufacturing facilities in Colorado and New Mexico.
• Vireo's CEO, John Mazarakis, highlighted the 'tremendous outcomes for all parties involved' and looks forward to 'welcoming the Schwazze team and their impressive collection of retail dispensaries to Vireo.'
• The transaction provides a clear path to resolve Schwazze's defaulted debt obligations and stabilize its operations under new ownership.
• The structure aims to optimize tax efficiency and preserve favorable tax attributes for the post-restructuring entities.

Negatives

• Schwazze is currently in default on its payment obligations under the Senior Secured Notes, indicating financial distress.
• The Asset Sale is subject to competing bids, which may be higher than Vireo's credit bid, potentially preventing Vireo from acquiring the assets as planned.
• The transaction requires various regulatory approvals, which could delay or prevent consummation.
• The liquidation of Schwazze's remaining assets and winding down of operations could be complex and may not yield significant proceeds for junior creditors or equity holders.
• The 'Outside Sale Transaction Effective Date' can be extended by 30 days if necessary for regulatory approvals, indicating potential for delays.

Risks

• Adverse impact of the transactions contemplated by the RSA on Vireo's business, financial condition, and results of operations.
• Vireo's ability to successfully consummate the transactions contemplated by the RSA.
• Vireo's ability to maintain relationships with suppliers, customers, employees, and other third parties as a result of the transactions.
• The effects of the transactions on Vireo and the interests of various constituents.
• Risks and uncertainties associated with the transactions, some of which are beyond Vireo's control.
• The nature, cost, impact, and outcome of pending and future litigation, other legal or regulatory proceedings, or governmental investigations and actions.
• Risks related to the timing and content of adult-use legislation in markets where Vireo currently operates.
• Current and future market conditions, including the market price of Vireo's subordinate voting shares.
• Risks related to epidemics and pandemics.
• Federal, state, local, and foreign government laws, rules, and regulations, including those relating to cannabis operations in the United States and any changes thereto.
• Operational, regulatory, and other risks, including execution of business strategy, management of growth, and difficulties in forecasting future events.
• Conflicts of interest.
• Risks inherent in an agricultural business and a manufacturing business.
• Liquidity and Vireo's ability to raise additional financing to continue as a going concern.
• Vireo's ability to meet the demand for flower in its various markets.
• Risk of failure in the lawsuit with Verano and the cost of that litigation.
• Ability to dispose of assets held for sale at an acceptable price or at all.

Future Outlook

Vireo anticipates significant benefits from the restructuring, including the successful acquisition of Schwazze's assets and the integration of its retail dispensaries and manufacturing facilities. The company expects to execute its restructuring plan, which involves the formation of NewCo, the Asset Sale, and the liquidation of remaining Schwazze assets. NewCo is projected to receive up to $62,000,000 in financing for refinancing, transaction expenses, and working capital. The restructuring is also designed to optimize tax efficiency and preserve favorable tax attributes for the post-restructuring entities.

Management Comments

• "We are proud to announce the signing of the restructuring agreement and acquisition of the senior secured notes. This transaction represents tremendous outcomes for all parties involved, and we look forward to welcoming the Schwazze team and their impressive collection of retail dispensaries to Vireo as we execute our restructuring plan." John Mazarakis, CEO of Vireo.
• "This transaction, combined with our future collaboration with Vireo, reflects the beginning of an exciting new chapter for Schwazze. We are proud to bring our capabilities into Vireo’s growing house of brands, and proud to continue serving our loyal customers in Colorado and New Mexico with the branded products they know and love." Forrest Hoffmaster, CEO of Schwazze.

Industry Context

This transaction reflects a trend of consolidation and strategic asset acquisition within the U.S. cannabis industry, particularly among multi-state operators (MSOs). With Schwazze in default, Vireo is leveraging its position as a major debt holder to acquire valuable operating assets (63 dispensaries, 10 manufacturing facilities in Colorado and New Mexico) at a discount. This move allows Vireo to expand its footprint and market share in key states, potentially strengthening its competitive position in a rapidly evolving and often challenging regulatory environment. The restructuring also highlights the financial pressures faced by some cannabis companies, leading to opportunities for stronger players to acquire distressed assets.

Management Changes

Corporate Governance

Legal Proceedings

• Schwazze admits to Specified Defaults and acceleration of Senior Notes Obligations, acknowledging indebtedness of at least $108,404,323.98 plus accrued interest and fees.
• The restructuring involves a public disposition of collateral pursuant to UCC Sections 9-610 and 9-611, which is a legal process for secured creditors to realize on collateral.

Related Party Transactions

• John Mazarakis, Vireo's Chief Executive Officer, is a partner of Chicago Atlantic Group, LP, an affiliate of Chicago Atlantic Admin, LLC. Chicago Atlantic Admin, LLC serves as the collateral agent under the indenture governing Schwazze's Senior Secured Notes and will conduct the public disposition of collateral, indicating a potential conflict of interest or related party involvement in the asset sale process.

Stakeholder Impact

• Shareholders (Vireo): Potential for significant growth and market expansion through the acquisition of Schwazze's assets at a discount, potentially increasing shareholder value.
• Shareholders (Schwazze): Existing equity interests are expected to be discharged or canceled, with no distributions expected unless there are excess proceeds from liquidation after all senior claims are satisfied, indicating a significant loss for current shareholders.
• Employees (Schwazze/NewCo): An Employee Retention Plan and Executive Employment Agreements are planned for key employees of NewCo, suggesting efforts to retain critical talent.
• Customers (Schwazze/NewCo): Schwazze's CEO expressed pride in continuing to serve loyal customers in Colorado and New Mexico with branded products, implying continuity of operations under NewCo.
• Creditors (Schwazze Senior Secured Noteholders): Vireo, as the majority holder, is driving the restructuring, which aims to extinguish the Senior Secured Notes. Other Senior Noteholders will receive New Equity Interests in NewCo.
• Creditors (Schwazze Star Bud Holders): Their claims will be refinanced in full and final satisfaction through the New Tranche A First Lien Debt.
• Creditors (Schwazze Other Claims): Other claims will be subject to distribution from liquidation proceeds of Excluded Assets, in accordance with priority, and may be discharged or canceled.

Next Steps

• Agree in writing on the substantially final form of the definitive Asset Purchase Agreement (APA) by October 13, 2025.
• Send notification of the Asset Sale to creditors, publish advertisements, and send marketing materials by October 13, 2025.
• Deadline for submission of bids for the Asset Sale by November 11, 2025.
• Conduct the public disposition auction by November 14, 2025.
• Execute the APA by November 18, 2025 (APA Effective Date).
• Achieve the effective date for the Asset Sale within 90 days following the APA Effective Date (extendable by 30 days for regulatory approvals).
• Commence Liquidation Proceedings within ten business days after the Sale Transaction Effective Date.
• Complete all Liquidation Transactions and Liquidation Proceedings by April 23, 2026.
• NewCo's new board of directors or managers will be selected by the Ad Hoc Committee and appointed on the APA Effective Date.
• NewCo will adopt an equity incentive plan (Management Incentive Plan) and an Employee Retention Plan following the Sale Transaction Effective Date.
• NewCo will enter into new employment agreements with certain specified employees (Executive Employment Agreements) following the Sale Transaction Effective Date.
• Parties to the RSA will execute a mutual release agreement on the Sale Transaction Effective Date.
• Vireo will continue to complete and submit regulatory applications for the Sale Transaction and NewCo's operations.

Key Dates

Recommendation

For Vireo, this filing represents a highly strategic and financially advantageous move. Vireo is acquiring a significant portion of a distressed competitor's debt at a substantial discount ($29,000,000 on $91,000,000 face value). This positions Vireo to take majority control of Schwazze's valuable operating assets, including 63 dispensaries and 10 manufacturing facilities in key cannabis markets (Colorado and New Mexico). The restructuring plan, while complex, provides a clear path for Vireo to expand its footprint, integrate new operations, and potentially realize significant value from these assets. The backstop commitment and new financing structure further solidify Vireo's control and financial backing for the new entity. This is a strong inorganic growth opportunity for Vireo, transforming a competitor's distress into a strategic advantage.

Keywords

Cannabis, Restructuring, Acquisition, SEC Filing, Senior Secured Notes, Schwazze, Vireo Growth Inc., Multi-state operator, Financial distress, Asset sale, Liquidation, Corporate governance, Regulatory approval, Debt default