8-K: Vireo Growth Acquires Schwazze Convertible Notes at Discount

Vireo Growth Inc. has entered into agreements to acquire approximately 86% of Schwazze's outstanding senior secured convertible notes for $62 million, paid in Vireo shares, as Schwazze is currently in default.

Summary

• Vireo Growth Inc. (Vireo) entered into Convertible Note Secondary Sale and Purchase Agreements on October 2, 2025, to acquire 13% Senior Secured Convertible Notes due December 7, 2026, from Medicine Man Technologies, Inc. d/b/a Schwazze (Schwazze).
• The Notes have a total value of approximately $91,000,000, including principal and accrued interest.
• Vireo is acquiring these Notes for a total consideration of approximately $62,000,000.
• The acquired Notes represent approximately 86% of Schwazze's total outstanding Notes.
• The consideration will be paid in Vireo's subordinate voting shares at a deemed price of $0.54 per share.
• The purchases are expected to close by October 31, 2025, subject to approval by the Canadian Stock Exchange.
• Schwazze is currently in default on its payment obligations under these Notes.
• Vireo's CEO, John Mazarakis, is a partner of Chicago Atlantic Group, LP, an affiliate of Chicago Atlantic Admin, LLC, which serves as the collateral agent for the Notes.

Sentiment

Score: 7

Explanation: The acquisition of a significant portion of distressed debt at a substantial discount presents a strategic opportunity for Vireo, aligning with its M&A strategy. However, the inherent risks associated with Schwazze's default and the volatile cannabis regulatory environment temper the overall positive sentiment. The payment in shares also introduces potential dilution for existing shareholders.

Positives

• Vireo is acquiring approximately $91 million in Notes for a discounted price of $62 million, representing a significant discount to par value.
• The acquisition of 86% of the outstanding Notes provides Vireo with substantial influence over Schwazze's debt structure and potential future strategic direction.
• The transaction aligns with Vireo's stated M&A strategy.

Negatives

• Schwazze, the issuer of the Notes, is currently in default on its payment obligations, indicating financial distress.
• The consideration for the acquisition is paid in Vireo's subordinate voting shares, which could lead to dilution for existing shareholders.
• The Notes are secured by a junior security interest in some assets and a first-priority interest in assets acquired on or after December 7, 2021, which may not fully cover the principal in a liquidation scenario given Schwazze's default.

Risks

• Schwazze's current default on its payment obligations under the Notes.
• Risks related to the timing and content of adult-use cannabis legislation in markets where Vireo operates.
• Current and future market conditions, including the market price of Vireo's subordinate voting shares.
• Risks related to epidemics and pandemics.
• Uncertainties regarding federal, state, local, and foreign government laws, rules, and regulations, particularly those related to U.S. cannabis operations.
• Operational, regulatory, and other risks inherent in Vireo's business.
• Challenges in the execution of business strategy and management of growth.
• Difficulties inherent in forecasting future events.
• Potential conflicts of interest, specifically involving Vireo's CEO, John Mazarakis, and his affiliation with the Notes' collateral agent.
• Risks inherent in agricultural and manufacturing businesses.
• Liquidity concerns 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 associated litigation costs.
• Uncertainty regarding the ability to dispose of assets held for sale at an acceptable price or at all.
• The closing of the acquisition is subject to approval by the Canadian Stock Exchange, which may not be obtained.

Future Outlook

Vireo Growth Inc. expects the acquisition of Schwazze's convertible notes to close by October 31, 2025, subject to Canadian Stock Exchange approval, as part of its ongoing M&A strategy. The company aims to leverage this transaction to drive value, though it acknowledges various market, regulatory, and operational risks, including the timing of adult-use cannabis legislation and its ability to raise additional financing.

Management Comments

• "Transaction reflects continuation of Vireo's M&A strategy and is expected to close later this month."

Industry Context

The acquisition of distressed debt in the U.S. cannabis sector highlights the ongoing consolidation and financial challenges faced by multi-state operators (MSOs) amidst a complex and evolving regulatory landscape. Schwazze's default underscores the capital intensity and operational hurdles in the industry, while Vireo's move to acquire a significant portion of its debt at a discount suggests a strategic play to gain leverage or control over a competitor's assets, potentially positioning itself for future market shifts or restructuring opportunities.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• Risk of failure in the lawsuit with Verano and the associated cost of that litigation.

Related Party Transactions

• Vireo's CEO, John Mazarakis, is a partner of Chicago Atlantic Group, LP, an affiliate of Chicago Atlantic Admin, LLC, which acts as the collateral agent for the Notes being acquired.

Stakeholder Impact

• Shareholders (Vireo): Potential dilution due to payment in subordinate voting shares; potential long-term value creation if the acquisition of distressed debt proves successful; exposure to risks associated with Schwazze's financial distress and the cannabis industry.
• Noteholders (Schwazze): Receiving Vireo shares in exchange for their defaulted notes, potentially recovering some value from a distressed asset.
• Schwazze: The acquisition of a majority of its outstanding convertible notes by Vireo could significantly impact its future debt restructuring and strategic direction.

Next Steps

• Closing of the acquisition by October 31, 2025.
• Obtaining approval from the Canadian Stock Exchange for the purchases.
• Filing a Registration Statement on Form S-3 (or other appropriate form) for the resale of the issued subordinate voting shares by the noteholders.
• Vireo will use commercially reasonable efforts to keep the Registration Statement effective for a specified period (Effectiveness Period).
• Vireo will comply with reporting requirements under Rule 144 to facilitate future sales by holders.

Key Dates

Recommendation

The acquisition of Schwazze's convertible notes at a significant discount is a strategic move that could offer long-term value if Vireo successfully navigates the complexities of Schwazze's default and the broader cannabis market. However, the inherent risks of investing in a company whose debt is in default, coupled with the dilution from Vireo's share issuance and the volatile regulatory environment for cannabis, warrant a cautious 'hold' recommendation. Investors should await further clarity on Vireo's integration plans for Schwazze and the resolution of its financial distress before making more aggressive investment decisions.

Keywords

Cannabis, Convertible Notes, Debt Acquisition, Schwazze, Vireo Growth, SEC Filing, Financial Distress, Equity Issuance, M&A, Secured Debt, Corporate Governance, Risk Management