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Vireo Health: The Achilles' Heel Of Multi-State Operators

Cornerstone Investments profile picture
Cornerstone Investments


  • Vireo is a small multi-state operator with primary assets in Minnesota, Maryland, Arizona, New York, and Mexico.
  • Most of Vireo's markets are secondary and the company lacks scale in each market which resulted in its weak financial performance.
  • The stock had an almost 400% rally in the last 12 months including a 110% rally in 2021 alone; the stock is overvalued in our view.

Vireo Health (VREOF) is a small multi-state cannabis operator in the U.S. that has seen its share price surging ~110% in 2021 so far. We think the company's shares look expensive and overheated at the moment. Vireo's asset portfolio remains one of the weaker ones among MSOs. Most of Vireo's assets are sub-scale and the company is still unprofitable. We see a challenging path forward for Vireo and the company's persistently lackluster financial results exposed the biggest weakness for the MSO business model: the inability to create value through a multi-state portfolio due to failure to create scale and reach profitability on an individual market basis.

(Source: Author)

Vireo's Assets

Vireo operates in five core markets in addition to four states that it deems as non-core. It is easy to see that Vireo's primary markets are less attractive at the moment due to small sizes and high competition. Minnesota, Maryland, and New Mexico are very small cannabis markets at the moment with limited potential. New York is very small at the moment but the potential for adult-use legalization could be appealing notwithstanding the current cap of only 4 stores per operator.

Arizona just began its recreational cannabis sales in 2021 after a successful ballot turnout during the November 2020 election and represents the biggest opportunity for Vireo right now. The company has also been actively divesting its non-core assets including selling its Pennsylvania retail and wholesale business to Jushi for $37M and selling its Ohio processing license to Ayr for $5M during 2020. The company is also mothballing its other non-core assets such as Massachusetts and Nevada due to capital constraints.

(Source: IR Deck)

Vireo's asset footprint is relatively weak and its presence across so many non-core markets is definitely a drag on its financial performance. We have discussed in the

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Cornerstone Investments profile picture
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Comments (13)

I trimmed my position a little at $3.5 but now below $2.5 it might be time to grab some more. Great acquisition target precisely because Vireo is in markets where other bigger MSOs are not, e.g. Vireo markets compliment Trulieve's very well - Kim are you listening!
MedTechBio profile picture
Buy with diamond hands; to the moon baby!
How does Cornerstone reconcile this story on Vireo with its Consortium is a "Gem" piece? Both MSO's have their assets spread out. And Vireo does not carry Cansortium's debt. Seems like Cornerstone's view is Tier 3 MSO's don't matter unless their focus is on FL, IL, PA or MA. Sadly, the opportunities for Vireo are expanding right in front of us.

NM will go rec legal after Mexico and AZ legalization. No competition.

MN sales for 8 dispensaries will double when the Republican Senate bill allowing flower sales passes (the compromise).

AZ wholesale sales of concentrate will be gobbled up in a rec State with huge supply constraints.

MD 100,000 sq. ft. indoor grow just went live. Another supply constrained State.
And latest article out today suggests NY rec legal seems to be back on track for April 1 budget introduction.

Wherever Vireo has chosen to refocus, their business decisions seem to be working. The fact that they have mothballed NV and MA suggests that they could be acquired at any time.
That's my bet.
I'm taking a wider view. Excellent takeover prospects. Possible crossing into profitability this year. Selling of their PA facility allowed them to stay viable and focus on scaling in some of their other markets giving them enough cash to last a while. Possible uplisting with legislation and potential cash raise and dilution, but much needed to accelerate and build upon their brand and improve their assets. They could turn into a company with a decent rec division and a strong medical division, but for now they need to get profitable and cash flow positive. I don't see how this company goes bankrupt without being bought out first limiting the downside somewhat. Very high possible reward, somewhat limited risk, really not that expensive when you look forward.
Agree. Why risk it with Vireo Health when Trulieve & Green Thumb are the clear leaders in the MSO sub sector?
catfacesupreme profile picture
@drbob512 because VREO's cap is $350M vs $6B & $8B Trulieve & Green Thumb. The risk/reward with VREO is worth it IMO
Interesting perspective, but at 7.6 EV/sales it is half of what the big boys are. Second, it is essentially the only MSO in MN and NM, both of which are eventually going to pass legislation to open their markets further. Third, they have the NY license, which is only 1 of 10 currently. Fourth, they are going to growth at a similar rate to their peers in '21 and will most likely be EBITA positive. Finally, when Safe passes and these stocks uplist, the Tier 3's will see the most juice. Buying under $3 is a gift.
They dont grow like peers, thats why their valuation is lower compared to peers.

I disagree on small caps getting the biggest bump on uplisting. Institutional investors are not going to bottom feed. Just my opinion.
Agree, @cornerstone Investments, $VREOF needs to achieve profitability, preferably in the near term. But your assessment is a bit harsh considering 100%+ revenue growth Y/Y. Did take some profits on the run-up but still holding a core position...
I like it for different reasons:
Which stock is going to go up the most when New York legalizes?
Which stock is going to go up the most when Minnesota allows flower? and eventually legalizes? (small market, but there are currently only two licensed operators for the whole state)

This stock is all about investing in the future progress of cannabis legislation, not its current operations.
@thewideopenroad And which stock goes up when NM legalizes?
You can’t argue with the numbers; however, I don’t believe that is what you are buying into when you purchase Vireo Health. They’ve been one of my favorites and I’ve been buying them over the years primarily because of the innovation of CEO Dr. Kyle Kingsley.

He’s a board certified physician that has practiced in the ER that feels cannabis is safer than opiates. My opinion that is the perfect type of captain to navigate this new type of business through these uncharted waters.

I guess the medical side of the business is primarily my reference. He has them heavily focused on the science. Eventually they will have to comply with HIPAA. And hopefully developing IP for FDA approval. Completing those goals will put them light years ahead of others in the industry. Personally I think that would put them in the same playing field as a GW Pharmaceuticals. I’m sure it could be achieved at full speed; however, much more proficient at the speed they are traveling.

He also brings something else I don’t believe I’ve seen before. Respect of the Congress, both parties. He’s been on the hill multiple times providing guidance. It seems pretty evident this is going to move through at a federal level. He’s able to bring guidance from science to MSO operations to federal banking to FDA integration.

So on paper there may be some under value there. The big picture there is so much there you can not put a value on.
They're no where near GW and if thats what they want to be, then they are doing an awful job of getting there. Theyre not even on Zynerbas playing field.

If this company was really about the science, they'd be investing there instead of holding a grab bag of random assets. They should sell the licenses that comprise their multi state footprint and focus on innovative medical uses for cannabis.

As it stands, theyre running a horribly inefficient cannabis business, burning cash, and selling off assets to plug the holes. If the CEO is as smart as you say, he should focus on his strengths. The guy clearly isnt someone who could provide guidance on "MSO operations and federal banking" as he hasnt shown a prowess in operations or capital management IMO.

P.s. everyone with half a brain is quite confident cannabis is better than opiates for a myriad of issues. That's not groundbreaking and the FDA still doesnt care. CBD has been legal for years and cant be fully utilized. Vireo ceo cant beat big pharma lobbyists.

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