DEFM14C: Vireo Growth Inc. Announces Shareholder Approval of Key Mergers and RSU Grants

Vireo Growth Inc. secures shareholder approval via written consent for mergers with Deep Roots, Proper Companies, and WholesomeCo, along with RSU grants to key executives.

Summary

• Vireo Growth Inc. has filed an information statement regarding shareholder actions taken by written consent.
• Shareholders approved the mergers with Deep Roots Holdings, Proper Companies, and WholesomeCo, Inc.
• The mergers involve the issuance of Subordinate Voting Shares to the equity holders of the acquired companies.
• The deemed price per share for the Share Issuance is $0.52.
• Shareholders also approved the grant of restricted stock units (RSUs) to John Mazarakis, CEO, and Tyson Macdonald, CFO.
• The corporate actions will be effective no earlier than April 10, 2025.
• The mergers are subject to regulatory approvals and other customary closing conditions.
• The Deep Roots Closing Merger Consideration was estimated to be $127,524,800.
• The Proper Closing Merger Consideration was estimated to be $92,620,242.
• The Wholesome Closing Merger Consideration was estimated to be $67,884,330.

Sentiment

Score: 6

Explanation: While the document announces positive steps towards growth through mergers, it also highlights significant risks and potential dilution, resulting in a neutral to slightly positive sentiment.

Positives

• Shareholder approval has been obtained, clearing a significant hurdle for the mergers.
• The mergers aim to expand Vireo Growth's operations and market presence.
• RSU grants incentivize key executives and align their interests with shareholder value.
• The mergers are expected to bring together a unique portfolio of state-level operations with a desirable mix of cash flow and high-growth markets.
• The Company is expected to benefit from enhanced operational excellence by leveraging substantial knowledge of local markets.

Negatives

• The Share Issuance will dilute existing shareholders' ownership.
• The mergers are subject to regulatory approvals, which may not be obtained or may involve additional conditions.
• The Company will incur significant transaction expenses regardless of whether the mergers are completed.
• The Company and the Merger targets may not integrate successfully.
• It may be challenging for the resulting Company after completion of the Mergers to service the additional indebtedness incurred.

Risks

• There is no assurance that all conditions precedent to closing of each, or any of, the Mergers will be satisfied.
• The required regulatory approvals may not be obtained or, if obtained, may not be obtained on a favorable basis.
• Each of the Company and each applicable target has the right, in certain circumstances, to terminate the applicable Merger Agreement.
• The uncertainty surrounding the Mergers could negatively impact the Companys current and future operations, financial condition and prospects.
• The Company and the Merger targets may not integrate successfully.
• The Companys shareholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, a combined company following the completion of the Mergers as compared to their current ownership and voting interests.
• We intend to issue Subordinate Voting Shares as consideration in the Mergers, which may dilute your interest in our shares and affect the trading price of our Subordinate Voting Shares.
• Our shareholders may not realize a benefit from the Mergers commensurate with the ownership dilution they will experience in connection with the Mergers.
• The Mergers will cause dilution to the combined company, which may negatively affect the market price of subordinate voting shares of the combined company.
• The Deep Roots stockholders, the Wholesome stockholders, and Proper and the Proper equityholders and other subsequent recipients of Subordinate Voting Shares from Proper pursuant to the Proper Merger Agreement, have agreed or will agree to indemnify the Company for certain damages arising from certain of the representations, warranties, covenants, and agreements of Deep Roots, Wholesome, and Proper, respectively, in each case as set forth in the Merger Agreements. However, there can be no assurance that these indemnities will be sufficient to make the Company whole for the full amount of such damages, or that such indemnifying parties ability to satisfy their respective indemnification obligation will not be impaired in the future.
• If the Mergers do not close, the Company will not benefit from the expenses incurred in their pursuit.
• The pro forma financial statements are presented for illustrative purposes only and may not be an indication of the resulting Companys financial condition or results of operations following each Merger.
• The Companys ability to use net operating loss carryforwards and other tax attributes may be limited as a result of the Mergers, if approved and effected.
• The fairness opinion obtained by the Board from Moelis will not reflect changes, circumstances, developments or events that have occurred or may occur after the date of the opinion, including the fact that certain of the Transactions may not be consummated.
• The financial projections included under Unaudited Prospective Financial Information in this Information Statement reflect numerous variables, estimates and assumptions and are inherently uncertain. If any of these variables, estimates and assumptions prove to be wrong, the actual results for the combined companys business may be materially different from the results reflected in the financial projections.
• Risk Factors Related to the Operations of Vireo Whether or not any or all of the Mergers are completed, the Company will continue to face many of the risks that it currently faces with respect to its business and affairs.

Future Outlook

The company anticipates a strong cash position and long-dated debt maturities providing a dynamic capital structure to pursue organic and inorganic growth initiatives.

Management Comments

• The Board believes that, at this stage of development and expansion of the U.S. cannabis market, companies with financial strength, an enhanced geographical footprint and scale, diverse product range, premium brands and operational expertise are most likely to succeed in the long-term.

Industry Context

The announcement reflects a trend of consolidation within the cannabis industry, as companies seek to expand their market presence and achieve economies of scale.

Comparison to Industry Standards

• The document mentions Moelis & Company LLC (Moelis) fairness opinion, which assessed the fairness, from a financial point of view, of the consideration to be paid in all of the Transactions, including the Bills Nursery Acquisition (each as defined in the section entitled Background of the Mergers), as a whole, to the Company.
• The document mentions several comparible companies including Ascend Wellness Holdings, Inc., Ayr Wellness, Inc., The Cannabist Company Holdings Inc., Cresco Labs Inc., Jushi Holdings Inc., MariMed Inc., TerrAscend Corp.

Legal Proceedings

• As of the date of this Information Statement, there are no pending lawsuits challenging the Deep Roots Merger.
• As of the date of this Information Statement, there are no pending lawsuits challenging the Wholesome Merger.
• As of the date of this Information Statement, there are no pending lawsuits challenging the Proper Mergers.

Stakeholder Impact

• Existing shareholders will experience dilution of their ownership and voting rights.
• Employees of the acquired companies may face uncertainty during the integration process.
• Customers may benefit from an expanded product portfolio and service offerings.
• Suppliers may see changes in their relationships with the combined company.
• Creditors may be affected by the assumption of debt from the acquired companies.

Next Steps

• Obtaining regulatory approvals for the mergers.
• Finalizing the purchase price allocation and accounting treatment for the mergers.
• Integrating the operations of the acquired companies.
• Issuing Subordinate Voting Shares to the equity holders of the acquired companies.
• Granting RSUs to John Mazarakis and Tyson Macdonald.

Key Dates

Keywords

merger, acquisition, cannabis, Vireo Growth Inc, Deep Roots, Proper Companies, WholesomeCo, RSU Grants, Share Issuance, regulatory approvals, shareholder approval, dilution