8-K/A: Vireo Growth Finalizes Dual Cannabis Acquisitions

Vireo Growth Inc. completed its acquisitions of Deep Roots Holdings and Proper Companies, releasing unaudited pro forma financial information reflecting significant strategic expansion.

Summary

• Vireo Growth Inc. completed the acquisition of Deep Roots Holdings, Inc. on June 6, 2025, for a total consideration of $100,169,437, paid through the issuance of 251,210,053 subordinate voting shares.
• Vireo also completed the acquisition of NGH Investments, Inc. and Proper Holdings Management, Inc. (Proper Companies) on June 5, 2025, for $78,777,889, paid through the issuance of 196,212,265 subordinate voting shares.
• Both acquisitions were accounted for as business combinations under U.S. GAAP, with Vireo as the accounting acquirer.
• The pro forma condensed combined financial information, assuming the Deep Roots Merger occurred on January 1, 2025, shows a net loss of $9,999,789 on revenue of $48,222,253 for the three months ended March 31, 2025.
• The pro forma condensed combined financial information, assuming the Proper Merger occurred on January 1, 2025, shows a net loss of $9,888,598 on revenue of $45,946,119 for the three months ended March 31, 2025.
• Significant goodwill and intangible assets were recognized: $21,000,000 in goodwill and $38,510,950 in intangible assets for Deep Roots, and $47,131,683 in goodwill and $12,120,328 in intangible assets for the Proper Companies.
• Both merger agreements include earn-out mechanisms based on 2026 EBITDA performance, with potential for additional Subordinate Voting Shares, and forfeiture provisions if performance thresholds are not met.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to the immediate pro forma net losses and the preliminary nature of the financial valuations, which introduce uncertainty. However, the strategic expansion through these acquisitions is a positive long-term factor.

Positives

• The acquisitions represent a significant strategic expansion for Vireo Growth Inc., integrating vertically integrated cannabis operations.
• The earn-out mechanisms provide an incentive for the acquired entities to achieve specific EBITDA and revenue performance targets, aligning interests with the acquirer.
• The transactions expand Vireo's operational footprint and market presence in the U.S. cannabis industry.

Negatives

• The unaudited pro forma financial statements indicate a net loss of approximately $10 million for the three months ended March 31, 2025, for both combined entities, suggesting an immediate negative impact on profitability.
• A substantial amount of goodwill and intangible assets were recognized, totaling $68,131,683 in goodwill and $50,631,278 in intangible assets across both acquisitions, which are subject to future impairment risk.
• The purchase price allocations are preliminary and subject to material revisions, introducing uncertainty into the combined company's future financial statements.
• The pro forma information does not include adjustments for potential synergies, dis-synergies, or integration costs, which could further impact actual results.

Risks

• The cannabis industry in the U.S. faces significant regulatory risk due to the federal illegality of cannabis under the Controlled Substances Act, which can lead to fines, operational restrictions, or loss of permits.
• Section 280E of the Internal Revenue Code disallows tax deductions for certain operating expenses for cannabis businesses, resulting in higher effective tax rates.
• The preliminary nature of the purchase price allocation means that the valuation of acquired assets and liabilities, including goodwill and contingent consideration, is subject to significant change, potentially impacting future financial results.
• The unaudited pro forma financial information may not be indicative of the combined company's future financial condition or results of operations due to various factors, including differences in accounting policies and the exclusion of integration costs and synergies.

Future Outlook

The combined company's future financial performance will be influenced by the achievement of EBITDA and e-commerce revenue targets for the earn-out periods ending December 31, 2026. The final purchase price allocation for both acquisitions is expected to be completed within twelve months of their respective closing dates, which may materially alter the reported financial position.

Management Comments

• Management believes the assumptions and estimates used in preparing the unaudited pro forma condensed combined financial information are reasonable, though they are preliminary and subject to change.

Industry Context

These acquisitions position Vireo Growth Inc. as a more significant player in the U.S. cannabis market, expanding its vertically integrated operations. The industry continues to navigate a complex regulatory landscape, particularly the conflict between state-legal cannabis operations and federal prohibition under the Controlled Substances Act, which impacts tax treatment (IRC Section 280E) and banking relationships.

Related Party Transactions

• Proper Holdings, LLC has existing related party leases with CPJP2, LLC, an entity owned by two major members of the Company.
• Deep Roots Holdings, Inc. has existing related party leases with DRN Properties LP, due to common ownership.

Stakeholder Impact

• Shareholders of Vireo Growth Inc. will experience dilution due to the issuance of a significant number of new subordinate voting shares as merger consideration.
• Former shareholders of Deep Roots and Proper Companies are eligible for potential earn-out shares based on future performance, but also face forfeiture provisions if targets are not met.
• Employees of the acquired companies will be integrated into Vireo's operations, potentially leading to organizational changes and synergies not yet reflected in pro forma financials.

Next Steps

• Finalize the purchase price allocation for both the Deep Roots and Proper acquisitions within twelve months of their respective closing dates.
• Monitor the EBITDA and e-commerce revenue performance of the acquired entities through December 31, 2026, to determine potential earn-out share issuances or forfeiture amounts.

Key Dates

Recommendation

The acquisitions represent a significant strategic move for Vireo, expanding its market presence and vertical integration in the cannabis industry. However, the immediate pro forma financial results show substantial net losses, and the preliminary nature of the purchase price allocation introduces considerable uncertainty. Investors should hold to observe the final financial integration, the realization of potential synergies, and the performance against earn-out targets, while monitoring the evolving regulatory landscape.

Keywords

Cannabis, Acquisition, M&A, Pro Forma Financials, SEC Filing, Vireo Growth, Deep Roots Holdings, Proper Companies, Marijuana, US GAAP, EBITDA, Goodwill, Intangible Assets, Earn-Out