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Vireo Health Announces First Quarter 2020 Financial Results

- First-quarter revenue of $12.1 million increased 34% sequentially and 110% year-over-year -

- Minimal capex requirements position Company for stronger second half compared to 2019 -

- Recent cost reduction initiatives to begin materializing in results during the second quarter -

Vireo Logo (PRNewsfoto/Vireo Health, Inc.)
NEWS PROVIDED BY

Vireo Health International, Inc.
Jun 16, 2020, 06:30 ET

https://www.prnewswire.com/news-releases/vireo-health-announces-first-quarter-2020-financial-results-301077269.html

MINNEAPOLIS, June 16, 2020 /PRNewswire/ -- Vireo Health International, Inc. ("Vireo" or the "Company") (CNSX: VREO; OTCQX: VREOF), the science-focused, multi-state cannabis company with active operations in exclusively medical-only markets and licenses in nine states and the Commonwealth of Puerto Rico, today reported financial results for its first quarter ended March 31, 2020. All currency figures referenced in this release reflect U.S. dollar amounts.

"Our first-quarter results demonstrate the improving trajectory of our business, with sequential revenue growth of 34 percent representing the strongest quarter of growth in Vireo's history," said Founder & Chief Executive Officer, Kyle Kingsley, M.D. "As we continue to focus on optimizing our core medical markets, we believe there is significant untapped potential for Vireo to improve revenue growth and profitability as we increase scale in these attractive, limited-license jurisdictions."

Dr. Kingsley continued, "We have many opportunities to continue growing our business organically through new product introductions, by expanding our footprint of operational dispensaries, and by continuing to improve our overall product and sales channel mix as compared to prior quarters. We're also cautiously optimistic that recent enhancements to point-of-sale protocols in response to COVID-19 like telemedicine consultations and curbside pick-up may become permanent in several of our markets, and we continue to believe that each of our core medical markets has the potential to enact adult-use legislation over the near- to medium-term future."

First Quarter 2020 Financial Summary

The Company generated operating revenue in seven states during the first quarter: Arizona, Maryland, Minnesota, New Mexico, New York, Ohio, and Pennsylvania. Total revenue increased 34 percent sequentially and 110 percent year-over-year to $12.1 million versus $5.8 million in the first quarter of 2019.

Retail revenue was approximately $8.2 million in Q1 2020, an increase of 58 percent compared to $5.2 million in Q1 2019. Wholesale revenue of $3.9 million increased by $3.3 million as compared to $610,881 in Q1 2019, with the increase principally due to the acquisitions of wholesale businesses in Arizona in the prior-year quarter and the growth of wholesale operations in Pennsylvania and Maryland.

Gross profit before fair value adjustments was $3.4 million, or 28 percent of revenue, as compared to gross profit of $2.1 million or 37 percent, in the same period last year. The variance in gross profit as compared to the prior year was driven primarily by a temporary increase in the mix of sales in wholesale versus retail markets, a product sales mix shift to address demand for concentrated distillate products, and greater competition across several markets as they mature.

Total operating expenses in the first quarter were $9.7 million, as compared to $3.7 million in the first quarter of 2019, with the increase primarily attributable to increased salaries and wages, professional fees, and general and administrative expenses necessary to support the Company's growth.

Total other expense was $995,008 during Q1 2020, compared to $4.6 million in Q1 2019. The favorable reduction in other expense was primarily attributable to the non-recurrence of $3.5 million in listing expenses related to the Company's go-public transaction in the prior-year quarter, and a gain on derivative liability of $1.3 million.

Net loss in Q1 2020 was $2.0 million, as compared to net loss of $3.4 million in Q1 2019. Adjusted net loss for Q1 2020 was $8.1 million, as compared to a loss of $4.8 million in the prior year quarter. Adjusted EBITDA, as described in accompanying disclosures and footnotes, was a loss of $3.3 million in Q1 2020, as compared to a loss of $1.2 million in Q1 2019. Please refer to the Supplemental Information and Reconciliation of Non-IFRS Financial Measures at the end of this press release for additional information.

Other Developments

There was a global outbreak of a new strain of coronavirus, COVID-19, during the first quarter. Vireo's medical cannabis businesses were deemed "essential" in each of its operational markets, and to date there has been no material adverse impact on the Company's financial performance because of the virus.

During the first quarter, the Company implemented several strategic initiatives to optimize its cost structure and operating model. These initiatives included shuttering the Company's New York corporate office, the related termination of an office lease, the reduction of its workforce by approximately nine percent, and the elimination of certain other costs.

On March 10, 2020, the Company announced that it had closed a non-brokered private placement of CAD $10.0 million of 13,651,574 units of the Company. Each Unit is comprised of one subordinate voting share in the capital of Vireo (a "Share") and one subordinate voting share purchase warrant of Vireo (a "Warrant"). Each Warrant entitles the holder to purchase one Share (a "Warrant Share") for a period of three years from the date of issuance at an exercise price of CAD $0.96 per Warrant Share, subject to adjustment in certain events. The Company intends to use the proceeds from the Offering to fund various growth initiatives and for working capital and general corporate purposes.

On April 30, 2020, the Company announced the formation of a wholly-owned subsidiary called Resurgent Biosciences, Inc. Resurgent Biosciences is a Delaware corporation which has been created with the intent to commercialize Vireo's portfolio of intellectual property and related initiatives in a non-plant-touching entity which may broaden potential partnership opportunities or other strategic outcomes as Vireo seeks to monetize scientific advancements within the cannabis industry and beyond. Vireo currently has several patent applications pending approval by the United States Patent and Trademark Office. Its patent for harm reduction in tobacco products was allowed earlier this year.

Balance Sheet and Liquidity

As of March 31, 2020, total current assets were $62.2 million, including cash on hand of $11.7 million. Total current liabilities were $7.0 million, with zero debt currently due within 12 months.

As of March 31, 2020, the Company had 37,952,477 equity shares issued and outstanding, and 153,463,362 shares outstanding on an as-converted, fully-diluted basis.

Outlook Commentary

Dr. Kingsley concluded, "With most of the major development projects in our core markets effectively complete, we expect minimal capital expenditures during the remainder of fiscal year 2020, and we should also begin to see the benefits of recent cost reduction initiatives materialize more substantially in our second quarter results. The optionality of our valuable collection of state-based cannabis licenses and intellectual property continues to provide substantial opportunities to improve our cash position and future financial performance, and we believe our six core market strategy will enable us to begin generating positive cash flow in the first half of next year."

Conference Call and Webcast Information

Vireo Health management will host a conference call with research analysts on Tuesday, June 16, 2020 at 8:00 a.m. ET to discuss its financial results for its first quarter ended March 31, 2020. The conference call may be accessed by dialing 833-714-0863 (Toll-Free) or 778-560-2618 (International) and entering conference ID 7783416.

A live audio webcast of this event will also be available in the Events & Presentations section of the Company's Investor Relations website at https://investors.vireohealth.com/events-and-presentations/default.aspx and will be archived for one year.

Additional Information

Additional information relating to the Company's first quarter 2020 results is available on SEDAR at www.sedar.com. Vireo Health refers to certain non-IFRS financial measures such as adjusted net income, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and adjusted EBITDA (defined as earnings before interest, taxes, depreciation, amortization, less certain non-cash equity compensation expense, one-time transaction fees, and other non-cash items. These measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other issuers. Please see the Supplemental Information and Reconciliation of Non-IFRS Financial Measures at the end of this news release for more detailed information regarding non-IFRS financial measures.

About Vireo Health International, Inc.

Vireo Health International, Inc. is a physician-led cannabis company focused on building long-term, sustainable value by bringing the best of medicine, science, and engineering to the cannabis industry. With operations strategically located in early-stage, limited-license medical markets, Vireo manufactures pharmaceutical-grade cannabis products in environmentally-friendly greenhouses and distributes its products through its growing network of Green Goods™ retail dispensaries and hundreds of third-party locations. Its current core medical markets of New York, Minnesota, Pennsylvania, Arizona, New Mexico, and Maryland all have the potential to enact adult-use legalization in the next three to 24 months, and two additional markets in Puerto Rico and Massachusetts also have potential for commercialization. Combined with its teams' focus on driving scientific innovation within the industry and securing meaningful intellectual property, Vireo believes it is well positioned to become a global market leader in the cannabis industry. Today, eight of its 10 markets are operational with 13 of its 32 total retail dispensary licenses open for business. For more information about the company, please visit www.vireohealth.com.