“we are building the cannabis company of the future by ... · “we are building the cannabis...

“We are building the cannabis company of the future by bringing the best of science, medicine and engineering to the cannabis industry.”

- Kyle Kingsley, M.D.Founder & CEO

CNSX: VREO OTCQX: VREOF

Q3 2019 Earnings Conference Call

November 27, 2019

Q3 2019 Results Conference Call || 2

Disclaimer

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION: This document includes information, statements, beliefs and opinions which are forward-looking, and which reflect current estimates, expectations and projections about future events, referred to herein and which constitute “forward-looking statements” or “forward-looking information” within the meaning of Canadian and U.S. securities laws. Statements containing the words “believe”, “expect”, “intend”, “should”, “seek”, “anticipate”, “will”, “positioned”, “project”, “risk”, “plan”, “may”, “estimate” or, in each case, their negative and words of similar meaning are intended to identify forward-looking statements. By their nature, forward-looking statements involve a number of known and unknown risks, uncertainties and assumptions concerning, among other things, the Company’s anticipated business strategies, anticipated trends in the Company’s business and anticipated market share, that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These risks, uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described herein. In addition, even if the outcome and financial effects of the plans and events described herein are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. Although the Company has attempted to identify important risks and factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors and risks that cause actions, events or results not to be as anticipated, estimated or intended. Forward-looking information contained in this presentation is based on the Company’s current estimates, expectations and projections, which the Company believes are reasonable as of the current date. The Company can give no assurance that these estimates, expectations and projections will prove to have been correct. You should not place undue reliance on forward-looking statements, which are based on the information available as of the date of this document. Forward-looking statements contained in this document are made of the date of this presentation and, except as required by applicable law, the Company assumes no obligation to update or revise them to reflect new events or circumstances.

Historical statements contained in this document regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. In this regard, certain financial information contained herein has been extracted from, or based upon, information available in the public domain and/or provided by the Company. In particular historical results should not be taken as a representation that such trends will be replicated in the future. No statement in this document is intended to be nor may be construed as a profit forecast.

CAUTIONARY NOTE REGARDING FUTURE-ORIENTED FINANCIAL INFORMATION: To the extent any forward-looking information in this presentation constitutes “future-oriented financial information” or “financial outlooks” within the meaning of applicable Canadian securities laws, such information is being provided to demonstrate the anticipated market penetration and the reader is cautioned that this information may not be appropriate for any other purpose and the reader should not place undue reliance on such future-oriented financial information and financial outlooks. Future-oriented financial information and financial outlooks, as with forward-looking information generally, are, without limitation, based on the assumptions and subject to the risks set out above under the heading “Cautionary Note Regarding Forward-Looking Information”. Vireo’s actual financial position and results of operations may differ materially from management’s current expectations and, as a result, Vireo’s revenue and expenses may differ materially from the revenue and expenses profiles provided in this presentation. Such information is presented for illustrative purposes only and may not be an indication of Vireo’s actual financial position or results of operations.

Today’s Presenters

Kyle Kingsley, M.D.

Founder & Chief Executive Officer

Amber Shimpa

Chief Financial Officer

Sam Gibbons

Vice President, Investor Relations

Dial-in & Webcast Details:Dial-ins: 866-211-3165 (Toll-Free)

B647-689-6580 (International).BID 5293509

Webcast Link:

https://event.on24.com/wcc/r/2083534/A194133AD818005924500C659E39240F


https://event.on24.com/wcc/r/2083534/A194133AD818005924500C659E39240F

Vireo Welcomes Bruce Linton || 4

Vireo Welcomes Bruce Linton

Business Highlights

• Vireo generated revenue in seven states in the third quarter 2019: Minnesota, New York, Pennsylvania, Maryland, Arizona, New Mexico, and Ohio.

• Third quarter revenue increased 62 percent year-over-year to $8.0 million, driven by increasing demand and patient counts across most markets, continued wholesale growth, and contributions from acquired entities in Arizona and New Mexico.

• Adjusted EBITDA decreased year-over-year from $0.2 million in 2018 to $(5.9) million in 2019, primarily due to gross margin compression and increased SG&A expenses.

• Vireo’s affiliate Ohio Medical Solutions was granted a Certificate of Operation by the Ohio Department of Commerce and became one of only five licensed processors operational in the State at that time.

• As of September 30, 2019, total current assets were $57.6 million, including cash on hand of $16.4 million.


New Products & Marketing Update || 6

Pharmaceutical-grade Products Geared Toward Patients

Premium-grade cannabis handpicked, hand-packaged, and cured for extended time periods

to create a smoother taste, enhanced terpene profile, and

deeper aromatics.

Innovative soft gels that delivers consistent and precise doses for

the desired effect.

A microdose of cannabis in a traditional pre-roll, offering the

right feeling time and time again. Just Lite. Just Rite.

New Product Development & Marketing Update

FY18 Results Conference Call || 7

Best-in-Class Customer Experience:Retail Dispensaries

Green Goods™ Retail Concept Caters to Complete Cannabis Consumer Spectrum

(images reflect the build-out of our Bethlehem, PA location)

Green Goods™ Retail Dispensaries Now Open


Key Third Quarter 2019 Financial Metrics


Three Months Ended Nine Months Ended

September 30, September 30,

$ in millions, except per share data 2019 2018 Variance 2019 2018 Variance

Revenue $8.0 $4.9 $3.1 $21.0 $12.8 $8.1

Gross Profit (Before Fair Value Adjustments) $1.3 $2.9 ($1.6) $6.5 $7.2 ($0.6)

Gross Profit Margin 16.3% 59.7% -4,341 bps 31.2% 56.0% -2,475 bps

Gross Profit (After Fair Value Adjustments) ($8.4) $5.1 ($13.4) $5.8 $11.4 ($5.6)

Gross Profit Margin -104.7% 102.7% -20,740 bps 27.9% 89.0% -6,113 bps

SG&A Expenses $4.2 $0.8 $3.4 $8.1 $2.2 $5.9

SG&A (% of sales) 52.7% 16.2% 3,658 bps 38.9% 17.3% 2,155 bps

Net Income (Loss) ($14.6) $0.0 ($14.6) ($19.9) ($1.9) ($18.0)

Adjusted Net Income (Loss) ($4.9) ($2.0) ($2.9) ($13.7) ($4.6) ($9.1)

Adjusted EBITDA (non-IFRS) ($5.9) $0.2 ($6.0) ($8.4) $0.5 ($8.8)

Adjusted EBITDA Margin (non-IFRS) -73.4% 3.7% -7,706 bps -39.9% 3.8% -4,367 bps

Third Quarter 2019 Performance

• Total revenue for the third quarter of 2019 increased 62 percent year-over-year to $8.0 million.

• Revenue growth was driven by increasing demand and patient counts across most markets, continued wholesale market growth, and contributions from acquired entities in Arizona and New Mexico.

• Net loss for the third quarter was $14.6 million. Adjusted net loss for the third quarter was $4.9 million.

• Third quarter EBITDA was $(15.5) million, as compared to $2.2 million in the prior year quarter. Adjusted EBITDA of $(5.9) million decreased from $0.2 million in the prior year quarter, driven by gross margin compression and increased operating costs.


Manufacturing Update


Expected Operating Footprint Entering Fiscal Year 2020*

Minnesota New York Pennsylvania Maryland Arizona New Mexico

Operational Cultivation 80,000 sq. ft.

greenhouse / warehouse

53,000 sq. ft. greenhouse/warehouse

60,000 sq. ft. warehouse

10,000 sq. ft. warehouse

90,000 sq. ft. greenhouse

9,000 sq. ft. warehouse/hoop house

Turns / Year 3 4 4.5 4 4 4

OperationalDispensaries

-

Other

Hemp licensewholesale +

delivery + hemp license

wholesale wholesale wholesale wholesale

* Does not include 11,000 sq. ft. processing facility in Ohio

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

|| 12

Vireo Health, Inc.

Consolidated Statements of Loss and Comprehensive Loss

For the Three Months Ended September 30, 2019 and 2018

(Expressed in United States Dollars)

Three Month Three Month

Period Ended Period Ended


2019 2018

REVENUE 7,992,159$ 4,924,238$

Production Costs (6,692,030) (1,985,709)

Gross Profit Before Fair Value Adjustments 1,300,129$ 2,938,529$

Realized Fair Value Amounts Included in Inventory Sold (624,284) (3,278,037)

Unrealized Fair Value Gain on Growth of Biological Assets (9,041,325) 5,398,128

Gross Profit (8,365,480)$ 5,058,620$

EXPENSES

Depreciation 516,473$ 123,874$

Professional fees 1,451,219 682,628

Salaries and wages 2,196,158 1,276,951

Selling, general and administrative expenses 4,214,383 795,500

Share Based Compensation 229,916 87,996

8,608,149$ 2,966,949$

OTHER INCOME (EXPENSE)

Loss on Sale of Property and Equipment (4,639)$ (1,650)$

Interest expense (1,226,378) (525,732)

Interest income 83 319

Accretion expense (72,976) -

Inventory adjustment 230,470 -

Other expense (24,437) 282

Total Other Income (Expense) (1,097,877)$ (526,781)$

INCOME BEFORE INCOME TAXES (18,071,506)$ 1,564,890$

Current income taxes 346,000$ (2,670,000)$

Deferred income taxes 3,160,000 1,120,000

PROVISION FOR INCOME TAXES 3,506,000$ (1,550,000)$

INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (14,565,506)$ 14,890$

Weighted Average Shares Outstanding - basic and diluted 24,299,953 1,412,369

Net Earnings Per Share - basic and diluted (0.60)$ 0.01$

Consolidated Statements of Financial Position

|| 13

Vireo Health, Inc.

Consolidated Statements of Financial Position

September 30, 2019 and December 31, 2018

(Expressed in United States Dollars)

September 30, December 31,

2019 2018

ASSETS

Current Assets

Cash 16,362,708$ 9,624,110$

Receivables 1,865,301 1,671,257

Inventories 27,789,323 21,379,722

Biological Assets 8,046,096 5,967,150

Prepaid Expenses 3,261,149 962,297

Deferred acquisition costs 226,292 1,885,653

Deferred financing costs - 448,480

57,550,869$ 41,938,669$

Non-Current Assets

Property and Equipment 40,978,107$ 22,847,283$

Deposits 2,774,096 2,259,735

Deferred Loss on Sale Leaseback 31,826 26,596

Goodwill 4,484,490 -

Intangible Asset 38,949,913 2,184,565

87,218,432$ 27,318,179$

Total Assets 144,769,301$ 69,256,848$

LIABILITIES AND MEMBERS' EQUITY

Current Liabilities

Accounts Payable and Accrued Liabilities 4,029,228$ 2,512,389$

Deferred Lease Inducement - Current Portion 899,139 341,555

Share issuance obligation - -

Current portion lease obligations 268,928 338,638

Current portion of Long-Term Debt 1,010,000 1,010,000

6,207,295$ 4,202,582$

Long-Term Liabilities

Deferred Rent -$ 271,091$

Deferred Income Taxes 5,000,000 6,508,000

Deferred Lease Inducement 11,213,566 4,781,770

Lease Obligations 18,694,977 11,839,152

Convertible debt 3,073,778 -

44,189,616$ 27,602,595$

Shareholders' Equity

Share Capital 117,398,864$ 41,965,556$

Reserves 6,142,894 2,766,050

Retained Earnings (22,962,073) (3,077,353)

100,579,685$ 41,654,253$

Total Liabilities and Equity 144,769,301$ 69,256,848$

Reconciliation of IFRS to Non-IFRS Financial Measures


Three Months Ended Nine Months Ended


2019 2018 2019 2018

Net income (loss) (14,565,506)$ 14,890$ (19,884,720)$ (1,894,732)$

Net fair value adjustments 9,665,610 (2,120,091) 704,467 (4,236,040)

Listing expense - - 3,496,843 -

Acquisition related costs - - 739,880 -

Inventory adjustment (230,470) - 522,226 -

Share-based compensation 229,916 87,996 686,868 1,499,837

Adjusted net income (loss) (non-IFRS) (4,900,450)$ (2,017,205)$ (13,734,436)$ (4,630,935)$

Net income (loss) (14,565,506)$ 14,890$ (19,884,720)$ (1,894,732)$

Interest income (83) (319) (240) (319)

Interest expense 1,226,378 525,732 3,327,451 1,267,749

Accretion expense 72,976 - 123,238 -

Income taxes (3,506,000) 1,550,000 (649,000) 3,470,000

Depreciation 516,473 123,874 1,060,527 380,076

Amortization 727,731 - 1,512,775 -

EBITDA (non-IFRS) (15,528,031)$ 2,214,177$ (14,509,969)$ 3,222,774$

Net fair value adjustments 9,665,610 (2,120,091) 704,467 (4,236,040)

Listing expense - - 3,496,843 -

Acquisition related costs - - 739,880 -

Inventory adjustment (230,470) - 522,226 -

Share-based compensation 229,916 87,996 686,868 1,499,837

Adjusted EBITDA (non-IFRS) (5,862,975)$ 182,082$ (8,359,685)$ 486,571$

“we are building the cannabis company of the future by ... · “we are building the cannabis...

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