By Michael Kim
OTCQX:VREOF
READ THE FULL VREOF RESEARCH REPORT
We are initiating coverage of Vireo Growth Inc. (OTCQX:VREOF) with a 12-month price target of $1.50, translating into sizeable upside from the stock’s current price. Vireo Growth is a vertically-integrated cannabis Multiple State Operator (MSO) involved in the cultivation, production, and distribution of a diversified suite of medical and recreational products across proprietary retail outlets and third-party dispensaries in wholesale markets.
Our investment thesis revolves around:
1. Transformational acquisitions: Following the recently closed acquisitions of Wholesome (Utah), Proper Brands (Missouri), and Deep Roots Harvest (Nevada), the company’s diversified operating footprint spans six states (including legacy markets in Maryland, Minnesota, and New York), eight cultivation facilities, and 38 dispensaries. From a financial perspective, VREOF ranks as the eighth largest publicly-traded cannabis company based on our 2026 revenue forecast, and the sixth largest by adjusted EBITDA, with scale increasingly important for growth, as consolidation ramps up across the industry.
The addition of Proper, Deep Roots, and Wholesome further strengthens Vireo’s existing portfolio of high-quality products across distribution channels. Moreover, we expect Arches’ proprietary technology platform to significantly enhance delivery capabilities and related analytics across states over time, in turn driving higher market shares and margins.
Stepping back, management remains focused on building a diversified network of local operators across financially attractive and complementary markets. While independent management teams retain control of day-to-day operations, affiliated companies can leverage shared corporate services to facilitate operating efficiencies and enhance growth.
2. Multi-layered growth story: Despite ongoing regulatory uncertainty, we see a number of broader industry and company-specific catalysts that position VREOF for accelerating growth going forward. First, U.S. cannabis industry revenues reached ~$32 billion last year, with ongoing growth projected driven by further legalization at the state level, rising consumer demand, and a step up in the number of users reflecting growing adoption of cannabis to treat a wider array of medical conditions, as well as building acceptance/support for legalization efforts.
Concentrating on Vireo, we suspect much of the standalone business’s growth will come from Minnesota and New York, where management remains focused on building out cultivation/production capacity to meet building adult-use demand. Stepping back, following the previously announced transformational acquisitions, we believe Vireo has reached critical mass, with market shares continuing to roll up to scale-enabled MSOs – as reinforced by premium valuations for related stocks. Looking ahead, we expect senior officials to remain active on the M&A front once the recent acquisitions are fully integrated. Management’s M&A approach centers on opportunistically acquiring distressed assets in mature-market states, with minimal geographic overlap to Vireo operators.
3. Profitability inflection: Our model calls for EPS of $0.01 for 2025 representing a material improvement from a net loss of ($0.16) per share in 2024. Looking ahead, we project EPS to hit $0.05 in 2026 reflecting full-year accretion from recent acquisitions, with further growth expected in 2027 and beyond as the business continues to scale.
Focusing on the top line, we look for a sharp step up in revenues starting in the second half of this year following the closing of the Wholesome, Proper, and Deep Roots acquisitions in 2Q25, with strong growth in 2026 and beyond. Furthermore, we anticipate the commencement of adult-use sales in Minnesota in the near term. While past is not necessarily prologue, we note retailers in medical-use states that subsequently legalized recreational use reported sales bumps in the 2x to 3x range. Finally, we forecast a step up in New York revenue starting in earnest in the second half of this year reflecting the recent initiation of adult-use sales from the company’s indoor facility.
Turning to margins, key expansion drivers likely include meaningful transaction-related accretion, as senior officials rationalize redundant corporate services across accounting/finance, legal, human resources, and other departments, a constructive mix shift in favor of more profitable sales of recreational-use products in the retail channel, and an ongoing focus on expense management.
4. Balance sheet remains a key differentiating factor: Vireo’s strong balance sheet remains a key competitive advantage relative to most other U.S.-based cannabis operators that typically struggle to source capital to fund growth due to regulatory restrictions, with highly-dilutive financings often the only course of action. Put another way, Vireo maintains ample liquidity to weather the storm and capitalize on accelerating consolidation trends across the industry should the regulatory backdrop remain challenging.
In conjunction with the announced acquisitions, Vireo raised $81 million of gross proceeds via the private placement of 129.5 million Subordinate Voting Shares at $0.625 per share. Net proceeds remain primarily earmarked for working capital needs, general corporate purposes, and to fund organic growth initiatives. Moreover, the capital injection better positions the company to increasingly capitalize on incremental M&A deals at attractive valuation levels.
Importantly, Vireo’s debt profile remains generally favorable, with long-dated maturities (early 2027), not to mention sizeable credit facilities. Adding income taxes payable and uncertain tax position liabilities, we put pro forma net leverage + taxes at $61 million, or 0.9x our 2025E Adjusted EBITDA forecast, or well below ratios across most peers.
5. Absolute/relation valuation remains attractive: Our DCF-derived price target of $1.50 represents meaningful upside potential from the stock’s current levels. Our view is that once uncertainty related to the closing/integration of pending acquisitions fades, VREOF’s improving fundamental story will increasingly resonate with investors, thereby driving a material upward revaluation for the stock, particularly as shares have remained under pressure thus far in 2025. Moreover, a more favorable regulatory backdrop (particularly as it relates to federal rescheduling or incremental state legalizations) and/or further acquisitions of strategically complementary assets at attractive valuations likely represent powerful catalysts for VREOF.
As a crosscheck, we looked at peer valuation multiples to corroborate our DCF-based price target. Comparable cannabis stocks are currently trading at an average Enterprise Value (EV)-to-EBITDA multiple of ~6x based on 2025 estimates. At present, we calculate VREOF’s Enterprise Value approximates $480 million on a pro forma basis inclusive of $54 million of combined income taxes payable and uncertain tax position liabilities. In turn, VREOF’s EV equates to 3.5x our Adjusted EBITDA forecast in 2026 (fully reflective of recent acquisitions) suggesting meaningful upside for the stock should the shares trade at a peer-like (let alone a premium) multiple.
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