MINNEAPOLIS — Vireo Growth Inc. has signed three definitive documents and one binding Memorandum of Understanding (“MOU”) to acquire four single-state operators for total consideration of approximately $397 million in a series of all-stock transactions.
The Merger Transactions, which will require certain shareholder and regulatory approvals, would expand Vireo’s operating footprint to the states of Florida, Missouri, Nevada and Utah, with the combined total footprint spanning seven states, approximately 1,043,500 square feet of cultivation and manufacturing space across nine facilities, and 48 retail dispensaries.
Vireo has signed definitive agreements to acquire Proper Brands in Missouri, Deep Roots Harvest in Nevada, and WholesomeCo Cannabis in Utah, while also signing a binding MOU to acquire The Flowery in Florida. In addition to expanding the Company’s operating footprint with established, profitable operators in these four new state markets, the Merger Transactions also include the proprietary cannabis delivery and analytics platform “Arches” which would be licensed exclusively to Vireo’s portfolio of operating companies over time as regulations allow.
Vireo estimates proforma revenue and EBITDA of the combined company of approximately $394 million and $94 million, respectively, for calendar year 2024. Upon closing of the Merger Transactions, Vireo estimates the combined company will be well-positioned for further growth with a favorable balance sheet consisting of approximately $99 million of cash and $78 million of net debt with an EBITDA leverage ratio of approximately 0.8x, which Vireo believes is one of the best net leverage ratios among its peer group.
The Company also announced that John Mazarakis, co-founder at Chicago Atlantic, has been appointed to the role of CEO and Co-Executive Chairman, effective immediately. Tyson Macdonald, former partner at TrueRise Capital, has been appointed to the role of CFO, effective immediately. Amber Shimpa will continue to serve as President of the Company and as CEO of Minnesota, Maryland, and New York.
Management Commentary
Co-Executive Chairman Kyle Kingsley, MD commented, “When fully completed, these transactions will transform our balance sheet with an equity raise completed at a substantial premium to market, position us to capitalize on new competitive strengths, and enable us to deliver more compelling long-term value for all stakeholders. I am also pleased to welcome John Mazarakis and Tyson Macdonald to our executive team, and am confident that the independent teams at Vireo, The Flowery, Proper, Wholesome, Deep Roots and Arches will build a stronger future together under their combined leadership.”
Chief Executive Officer and Co-Executive Chairman John Mazarakis said, “I am thrilled to become Vireo’s Chief Executive Officer and to unveil a new strategy in the management and development of leading U.S. cannabis assets upon completion of the merger. We are proud to introduce a new platform for operators to continue growing their businesses independently, embracing a decentralized approach that empowers local knowledge and expertise to flourish. We also look forward to supporting this network of partners with complementary shared corporate services and the proprietary Arches technology platform which will enable their companies to adapt quickly to consumer behavior and capture incremental market share.”
Mr. Mazarakis continued, “At Chicago Atlantic, I admired each of these portfolio companies and their management teams and was pleased to assist their efforts to build sustainable, profitable businesses while navigating complex regulatory challenges and capital constraints. Together, we believe we’ve established a powerful platform that is poised for success in today’s operating environment, with an industry leading balance sheet, profitability and growth profile. We feel we are in a great position to leverage our unique collection of assets to continue driving profitable organic growth, and establish Vireo as an acquirer of choice for select M&A activity in the future with other like-minded local operators.”
Transaction Highlights
Each of the acquisition target management teams will continue to operate their businesses independently with the support of the parent entity, and Vireo expects several of these business leaders to assume additional responsibilities as either named officers or directors of Vireo at a later date.
Proper Brands (Missouri)
Proper Brands was founded in 2020 and is currently one of the largest independent operators in Missouri’s adult-use cannabis market. Led by Chief Executive Officer John Pennington, the company has a total retail footprint of eleven stores, five original and six acquired stores which have been rebranded under the Proper name (two stores are branded N’Bliss), and one undeveloped license. All stores are in the St. Louis area except for one in Kansas City. The Company is nearing completion of a 13,000 square foot expansion of flowering canopy within its existing facility, which will enable it to increase penetration of the wholesale market. Proper is also in the process of implementing the Arches technology platform through its delivery business with an expected launch during Q1 of 2025.
- Total Facility Size: 90,000 square feet
- Active Retail Dispensaries: 11
- Delivery Service: Launching the Arches platform Q1 2025
Deep Roots Harvest (Nevada)
Deep Roots Harvest was founded in 2014 and is a consistently solid operator in Nevada’s mature cannabis market. The company has been able to maintain strong relative performance due to favorable contributions from a mix of stores that are strategically situated in Southern Nevada on the Utah border. It recently acquired The Source, which added an additional cultivation facility and four retail stores which have enhanced the company’s leverage with third party brands. The company also holds equity and debt investments in a retail chain in California, and a vertical operator in Ohio and Massachusetts.
- Total Facility Size: 54,000 square feet
- Active Retail Dispensaries: 9 (with intentions to increase to 10 by Q1 2025)
- Additional Retail Dispensary Licenses: 2
WholesomeCo Cannabis (Utah)
WholesomeCo Cannabis was founded in 2020 and is a dominant player in Utah’s medical market, fueled by a large delivery operation with just one single retail dispensary. Led by Co-Founder and Chief Executive Officer Chris Jeffery who previously founded and sold an on-demand delivery platform to Groupon, the company initially developed the Arches proprietary technology stack in-house, which has bolstered sophisticated digital marketing and consumer loyalty capabilities.
- Total Facility Size: 22,500 square feet plus outdoor capacity
- Active Retail Dispensaries: 1
- Delivery Service: Powered by Arches platform with 99% coverage of Utah’s medical patient population
The Flowery (Florida)
The Flowery was founded in 2019 and is Florida’s only family-owned and operated cannabis company. Led by CEO Elad Kohen, the company is a quality-first cannabis cultivator with licensing deals with several leading west coast brands, and aims to position its stores as a retail destination for premium product. Its existing retail footprint is complemented by a focus on excellence through delivery, which currently comprises approximately 25 percent of its total revenues.
- Total Facility Size: 120,000 square feet (including cultivation expected to come online in Q1 2025
- Active Retail Dispensaries: 10 (with intentions to increase to 14 by Q1 2025)
- Delivery Service: Operational
Arches Omni-Channel Ecommerce and Delivery Platform
The Arches omni-channel e-commerce and delivery platform built and spun out of WholesomeCo in 2023 and led by Co-Founders Chris Jeffery, Alan Clark (Chief Product Officer), Jason Kwicien (Chief Operating Officer), and Phillip (Flip) Sasser (Chief Technology Officer). It currently operates in the State of Utah powering demand operations and growth for WholesomeCo, unlocking disproportionate share of market and near-term growth opportunities. It is planning to launch in the State of Missouri through a licensing agreement with Proper Brands in Q1 2025.
Arches is not only an end-to-end demand operations solution, it provides outsized capabilities to launch across various markets, enabling operators to compete locally across the entire State or market. Furthermore, the Arches platform is paving the way for personalized digital experiences, leading to improved unit economics across all channels. By merging Arches into a portfolio of state operations that are already successful on a stand-alone basis, Vireo has an opportunity to become the first truly digital-first and customer-focused national cannabis platform in the industry and own the most end-to-end customer relationships in the industry.
Terms of the Merger Transactions
The Merger Transactions are expected to be effected by way of a series of all-stock transactions to acquire all of the assets, operations, intellectual property, partner relationships and/or licenses of each of the acquisition targets. Shares for each operator are expected to be fixed with multiples at closing adjusted based on Vireo share price changes, if any. Purchase prices will also be adjusted for net debt, cash reserves, net taxes and other liabilities.
Each portfolio asset was carefully selected and presents attractive opportunities on a stand-alone basis and supported by growth and sustainable cash flow theses. Vireo expects that each transaction will be accretive to the broader portfolio. Each operator is incentivized to maximize profit and cash flow based on the deal structure that rewards performance on a stand-alone as well as on a consolidated basis, with earnout measurement dates as of December 31, 2026.
The Proper Brands, Deep Roots Harvest and WholesomeCo Cannabis are expected to be acquired at a multiple of 4.175x 2024 “Reference EBITDA” pro-forma for pending acquisitions as well as planned new retail openings and expansion projects. Each transaction has been based on a $0.52 Vireo share reference price. These acquisition targets may qualify for earnout payments on December 31, 2026, based on 4x EBITDA growth compared to Reference EBITDA, adjusted for incremental debt, and paid out using a share price at the higher of $1.05 or 20-day VWAP as of December 31, 2026. Reference EBITDA for Proper Brands, Deep Roots Harvest and WholesomeCo Cannabis are $31.0 million, $31.0 million, and $16.0 million, respectively.
Based on the terms of the binding MOU, The Flowery is expected to be acquired at a multiple of roughly 5.4x Reference EBITDA of $28.3 million based on a $0.52 Vireo share reference price. The Flowery may qualify for earnout payments on December 31, 2026, based on 5x EBITDA growth above $20.0 million (if the company performs above Reference EBITDA, based on the higher of trailing-twelve-month or nine-month annualized EBITDA on December 31, 2026) and adjusted for incremental debt, and paid out using a share price at the higher of $1.05 or 20-day VWAP as of December 31, 2026.
All transactions are subject to a clawback provision if they perform below the respective Reference EBITDA measured as the higher of trailing twelve-months or nine-months annualized EBITDA as of December 31, 2026, adjusted for any intercompany funding.
Total payment for Arches includes $14 million in upfront consideration to WholesomeCo and Proper Brands with a potential for earnout payments based on performance through December 31, 2026, based on the greater of $37.5 million or 5x revenue measured at the higher of trailing-twelve-month or nine-month annualized net revenues, paid out using a share price at the higher of $1.05 or 20-day VWAP as of December 31, 2026.
The sellers of the acquisition targets have all agreed to voluntary share lock-ups for a period of 33 months after each of the respective Merger Transactions has been consummated. The shares are subject to lock-up release schedule of 7.5 percent of shares 12-months post-closing, 10 percent of shares 18-months and 21-months post-closing, 17.5 percent of shares 24-months post-closing, 15 percent of shares 27-months post-closing and 20 percent of shares 30-months and 33-months post-closing.
Vireo also expects to enter into Master Service Agreements (“MSAs”) with some of the acquisition targets which would provide compensation for management and advisory services until the transactions have been consummated.
After giving effect to the Merger Transactions and the equity securities offering, Vireo shareholders are expected to hold in aggregate approximately 21 percent of the issued and outstanding proforma Vireo shares, and the Merger Sellers are expected to hold in aggregate approximately 68 percent of the issued and outstanding proforma Vireo shares and investors in the equity securities offering are expected to hold in aggregate approximately 11 percent of the issued and outstanding proforma Vireo shares (on a fully-diluted basis).
Approvals and Regulatory Matters
The Merger Transactions have been unanimously approved by the Boards of Directors of Vireo and each of the target acquisition companies. The Vireo Board obtained a fairness opinion from Moelis & Company LLC.
Implementation of the Merger Transactions are subject to the approval of holders of a majority of Vireo’s voting shares, which Vireo intends to obtain by way of written consent in accordance with applicable CSE policies. Vireo anticipates that it will file an information statement regarding the Merger Transactions with the Securities and Exchange Commission. Vireo anticipates that closing of all of the Merger Transactions to take at least six months pending shareholder and regulatory approvals.
The Vireo Subordinate Voting Shares issued in the financing are being issued in reliance upon exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”), and applicable U.S. state securities laws. The Vireo Shares to be issued pursuant to the Merger Transactions have not been registered under the U.S. Securities Act or any U.S. state securities laws, and will be issued in reliance upon available exemptions from such registration requirements. Vireo has agreed to file certain resale registration statements for such Vireo Subordinate Voting Shares, upon expiration of the applicable lock-up periods.
Chicago Atlantic, through an affiliate, is subscribing for certain shares under the equity securities offering, and the issuances of shares to such entity will be considered a “related party transaction” for the purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61- 101”), as Chicago Atlantic is a “related party” to Vireo as defined in MI 61-101. A material change report respecting the issuance of shares will be filed less than 21 days before the expected closing date of the equity securities offering as Vireo determined to complete the placement on an expedited basis. The issuance of shares to an affiliate of Chicago Atlantic will be exempt from the formal valuation and minority shareholder approval requirements available under MI 61-101 on the basis that neither the fair market value of the securities to be issued, nor the fair market value of the consideration for the securities to be issued, insofar as it involves related parties, exceeds 25% of the market capitalization of the Company.
Advisors
Moelis & Company LLC acted as exclusive financial advisor and Dorsey & Whitney LLP acted as counsel to Vireo in connection with the Merger Transactions. Lineage Merchant Partners, LLC acted as placement agent for the financing. Securities via Lineage offered through GT Securities, Inc. (member FINRA, SIPC). Lineage acted as financial advisor to Proper.
About Vireo
Vireo was founded as a pioneer in medical cannabis in 2014 and sustained with an entrepreneurial drive that fuels our ongoing commitment to serve and delight our key stakeholders, most notably our customers, our employees, our shareholders, our industry collaborators, and the communities in which we live and operate. We work every day to get better and our team prioritizes 1) empowering and supporting strong local market leaders and 2) strategic, prudent capital and human resource allocation.
