10-Q: Vireo Growth Reports Soaring Revenue Amidst Strategic Acquisitions

Vireo Growth Inc. announced a significant revenue surge driven by recent acquisitions, despite reporting increased net losses for the quarter and nine months ended September 30, 2025.

Summary

• Revenue for the three months ended September 30, 2025, increased by 264% to $91,655,155, up from $25,165,343 in the prior year.
• Nine-month revenue grew by 121% to $164,258,806, compared to $74,360,905 for the same period in 2024.
• The company completed the acquisitions of Deep Roots Holdings, Inc., Proper Holdings, LLC, and WholesomeCo, Inc. during the nine months ended September 30, 2025, which significantly contributed to revenue growth.
• Net loss for the three months ended September 30, 2025, widened to $(26,298,861) from $(4,926,358) in 2024.
• Nine-month net loss increased to $(47,741,680) from $(12,306,228) in 2024.
• Gross margin decreased to 41% for the three months and 43% for the nine months, primarily due to non-cash inventory fair value step-up amortization of $12,397,641 and $16,549,749, respectively.
• Operating expenses rose significantly due to transaction-related expenses from mergers, increased stock-based compensation, and the addition of acquired operations.
• A loss on extinguishment of existing debt totaling $8,627,647 was recorded in connection with new term loans.
• The company settled litigation with Verano on October 29, 2025, for approximately $10,000,000, consisting of real property acquisition and $1,000,000 in cash.
• Vireo Growth entered into a restructuring support agreement with Schwazze on October 10, 2025, to acquire a majority of Schwazze's assets through a credit bid and asset sale, with potential financing of up to $62,000,000 for a new majority-owned entity.

Sentiment

Score: 4

Explanation: While revenue growth is strong due to acquisitions and a major legal dispute was settled, the significant increase in net loss, decreased gross margins, and substantial debt extinguishment loss indicate operational challenges and financial strain. The aggressive expansion strategy introduces considerable integration and regulatory risks, leading to a cautious outlook despite growth.

Positives

• Achieved substantial revenue growth of 264% for the three months and 121% for the nine months ended September 30, 2025, primarily driven by strategic acquisitions.
• Successfully integrated three key acquisitions (Deep Roots, Proper, WholesomeCo), expanding operations into Utah, Nevada, and Missouri.
• Settled significant litigation with Verano for $10,000,000, including real estate assets and cash, resolving a long-standing dispute.
• Secured new First Lien Term Loan of $120,000,000 and Chicago Atlantic Term Loan of $33,000,000, which were used to retire existing debt obligations, streamlining the debt structure.
• Increased total assets to $678,918,509 as of September 30, 2025, from $278,862,918 at December 31, 2024, reflecting significant growth through acquisitions.
• Shifted from net cash used in investing activities to net cash provided by investing activities, largely due to cash acquired in mergers.

Negatives

• Reported a significantly increased net loss of $(26,298,861) for the three months and $(47,741,680) for the nine months ended September 30, 2025.
• Gross margin decreased to 41% (three months) and 43% (nine months), primarily due to non-cash inventory fair value step-up amortization from acquisitions.
• Operating income before other income (expense) and income taxes decreased substantially to $808,956 (three months) and $765,955 (nine months) from $3,851,447 and $14,404,914, respectively.
• Incurred a significant loss on extinguishment of debt of $8,627,647 related to the refinancing of existing debt.
• Net cash used in operating activities increased to $(14,944,252) for the nine months, driven by increased assets held for sale, accrued expenses from mergers, and debt extinguishment costs.
• Uncertain tax liability increased to $84,818,307 as of September 30, 2025, from $33,324,000 at December 31, 2024.

Risks

• No assurance that the company's credit bid for Schwazze assets will be the winning bid in the Asset Sale, potentially frustrating the aims of the restructuring support agreement.
• Completion of the Schwazze Asset Sale is subject to various conditions precedent, including regulatory approvals, which may not be satisfied or obtained on favorable terms.
• The restructuring support agreement with Schwazze may be terminated by either party under certain circumstances, leading to a failure to realize expected benefits.
• Uncertainty surrounding the Schwazze Asset Sale could negatively impact current and future operations, financial condition, and prospects.
• Substantial expenses incurred in pursuing the Schwazze Asset Sale may not yield ultimate benefit if the acquisition is unsuccessful.
• The cannabis industry remains illegal under U.S. federal law, posing ongoing legal and regulatory risks despite state-level legalization.
• The company operates with variable interest-bearing debt, exposing it to interest rate risk, where a 100 basis point change could impact the statement of loss by $361,250.

Future Outlook

Management forecasts support the view that operational needs can be adequately managed. The company anticipates positive regulatory developments in its core markets, which are expected to decrease selling and general and administrative expenses as a percentage of sales. The company plans to continue allocating capital and talent to areas expected to generate long-term value, including through strategic initiatives like the potential acquisition of Schwazze assets.

Management Comments

• Our mission is to provide safe access, quality products, and value to our customers.
• We allocate capital and talent to areas expected to generate long-term value and operate with a commitment to accountability, efficiency, and our stakeholders.
• Current management forecasts and related assumptions support the view that we can adequately manage the operational needs of the business.

Industry Context

Vireo Growth operates in the U.S. cannabis industry, which is characterized by rapid state-level legalization and growth, but remains federally illegal. The company's aggressive acquisition strategy (Deep Roots, Proper, WholesomeCo) and pursuit of Schwazze assets indicate a strong focus on expanding its multi-state operator (MSO) footprint and market share. This expansion aligns with broader industry trends of consolidation and scaling to achieve economies of scale, especially in a fragmented and highly regulated market. The decrease in gross margin, even with increased revenue, highlights the cost pressures and accounting complexities (like inventory step-up amortization) inherent in the cannabis sector.

Legal Proceedings

• Settled litigation with Verano on October 29, 2025, dismissing all outstanding matters before the Supreme Court of British Columbia. The settlement value to Vireo is approximately $10,000,000, consisting of real property acquisition and $1,000,000 in cash.
• Involved in various regulatory issues, claims, and lawsuits arising in the ordinary course of business, none of which are expected to have a material adverse effect on results or financial condition.

Related Party Transactions

• Assumed a lease of property in Missouri owned by employees of Proper (now company employees), with lease payments of $45,501 for three months and $60,668 for nine months ended September 30, 2025.
• Assumed a lease of property in Grantsville, Utah owned by Wholesome employees (now company employees), with lease payments of $214,191 for three months and $356,985 for nine months ended September 30, 2025.
• Assumed an investment of $1,000,000 in Bluebird Uplifted Development, LLC from the Deep Roots Merger, whose executive management team are now company employees.
• Acquired $1,000,000 of promissory notes from the Wholesome Merger that bore a 13% interest rate due to current employees, which were repaid in full on July 7, 2025.
• John Mazarakis, Vireo Growth's Chief Executive Officer, is a partner of Chicago Atlantic Group, LP, an affiliate of Chicago Atlantic Admin, LLC (a lender to the company).

Stakeholder Impact

• Shareholders: Experience significant dilution from share issuances for acquisitions, but also potential long-term value from expanded market presence and strategic growth. Increased net losses and debt could negatively impact share price and investor confidence.
• Employees: Integration of acquired workforces and potential for new employment opportunities through expansion (e.g., Schwazze acquisition). Management changes are not explicitly noted as new, but the acquisitions bring in new personnel.
• Customers: Expanded product offerings and dispensary footprint across new states (Utah, Nevada, Missouri) provide broader access and choice.
• Suppliers: Increased scale and operational footprint may lead to larger procurement needs and new supplier relationships.
• Creditors: New debt facilities and refinancing efforts provide a clearer debt structure, but increased overall debt and ongoing losses present repayment risks. The subordination agreements with different lenders define payment priorities.

Next Steps

• Continue to examine purchase price allocations for acquisitions during the measurement period and make adjustments based on facts and circumstances at the acquisition date.
• Proceed with the restructuring support agreement with Schwazze, including the asset sale and liquidation, subject to regulatory approvals and other closing conditions.
• NewCo (majority-owned by Vireo Growth) will become an indirect majority-owned subsidiary of the company following the Schwazze asset sale and liquidation.
• Vireo Health of Minnesota, LLC or another Loan Party shall consummate the acquisition of the Elk River Premises on or before 90 days prior to the Elk River Option Termination Date.
• The Loan Parties will grant a Lien on the Elk River Premises to the Collateral Agent within 60 days following the closing of its acquisition.
• The company will continue to make quarterly amortization payments for the First Lien Term Loan starting December 31, 2025, and monthly amortization payments for the Chicago Atlantic Term Loan starting November 30, 2025.
• Parent will use commercially reasonable efforts to prepare and file a registration statement with the SEC for resales of Subordinate Voting Shares issued or reserved for issuance in connection with Convertible Loans within 45 days of the Effective Date.

Key Dates

Recommendation

Vireo Growth Inc. is undergoing a transformative period marked by aggressive expansion through acquisitions, leading to substantial revenue growth. The settlement of the Verano litigation is a positive step, removing a significant overhang. However, this growth comes at a cost, as evidenced by the increased net losses and decreased gross margins, even when adjusting for non-cash items. The company has also taken on significant new debt to finance its operations and acquisitions, and the cannabis industry still faces considerable federal regulatory uncertainty in the U.S. The proposed acquisition of Schwazze assets represents another major strategic move with inherent risks related to execution and regulatory approvals. For a seasoned investor, the company presents a high-growth, high-risk profile. While the strategic vision is clear, the financial performance indicates challenges in achieving profitability amidst rapid expansion. A 'Hold' recommendation is appropriate, suggesting investors monitor the successful integration of recent acquisitions, the execution of the Schwazze deal, and progress towards sustainable profitability, rather than initiating new positions or divesting existing ones at this juncture.

Keywords

Cannabis, Marijuana, SEC Filing, 10-Q, Quarterly Report, Vireo Growth, Deep Roots, Proper Holdings, WholesomeCo, Acquisitions, Financial Results, Revenue Growth, Net Loss, Debt Restructuring, Schwazze, Asset Sale, Legal Settlement, Cannabis Industry, Multi-state operator