q1 2019 earnings conference call may 31, 2019 · q1 2019 results conference call || 10 three months...

Q1 2019 Earnings Conference Call

May 31, 2019

Q1 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 8184214

Webcast Link:

https://event.on24.com/wcc/r/2003988/DA81271BEE763276DDB66A3649F2BD1B

https://event.on24.com/wcc/r/2003988/DA81271BEE763276DDB66A3649F2BD1B


Our Mission

“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

First Quarter 2019 Business Highlights

• Vireo generated revenue in six states in Q1 2019: Arizona, Maryland, Minnesota, New Mexico, New York, and Pennsylvania.

• Proforma revenue in Q1 2019, including total first quarter contributions from recently completed acquisitions in Arizona and New Mexico, was approximately $7.0 million.

• On March 20, 2019, Vireo commenced trading on the Canadian Securities Exchange under ticker symbol “VREO” following the successful completion of an RTO transaction which simultaneously raised approximately $51.4 million in proceeds through a brokered and non-brokered private placement.

• Year-to-date in 2019, we’ve made acquisitions in Arizona, Massachusetts, Nevada, New Mexico, and Rhode Island, expanding Vireo’s footprint to 10 states nationwide.


Minnesota Regulatory Update


• On May 30 , 2019, Minnesota’s state legislature approved changes to the state’s medical cannabis program that will double the number of licensed dispensaries, as well as to allow the write off some business expenses and the purchase of hemp from local farmers.

• As one of only two vertically-integrated licensed operators in the state, these changes will allow Vireo to increase its number of dispensaries from four to eight and increases the total number of Vireo’s dispensary licenses to 32 as of the date of this announcement.

Vireo’s HomegrownOpportunity

1 Hemp License

5.6MAddressableMarket Population

8LicensedDispensaries

FY18 Results Conference Call || 7

Best-in-Class Customer Experience:Retail Dispensaries

Green Goods™ Concept Launching in 2Q19

Slide content reflects layout of Bethlehem, PA location


Green Goods™ Dispensary Roll-out

1937 Brand Rollout

• We are planning to introduce our 1937 brand to the Pennsylvania market later this summer, pending regulatory approval. This brand is also expected to be used for the sale of flower.

• We expect to introduce the 1937 brand, pending regulatory approval, in the state of Maryland later in the year, with additional states to follow.


Intellectual Property Portfolio

Cannabis Moist Snuff Composition

Multi-Channel Vaporizer

Non-Cannabinoid Negative Control Formulations (Placebo)

Proprietary Inflorescence Packaging

Novel Extractor Technology

Scaled Cannabis Processing Equipment

Proprietary Concentrate Delivery Method

Front-to-Back Home Delivery System

Harm Reduction Additive for Tobacco Products

Method for Treating Antidepressant Withdrawal Syndrome

Captisol-Enabled Intravenous Cannabinoid Formulations

Custom Extract Dispenser

Agriculture-Scale Equipment

Short Term Monetization Long-Term Applications


Key First Quarter 2019 Financial Metrics


Three Months Ended

March 31,

$ in millions, except per share data 2019 2018 Variance

Revenue $5.8 $3.7 $2.1

Gross Profit (After Fair Value Adjustments) $7.2 $2.3 $4.8

Gross Profit Margin 123.8% 63.6% 6,012 bps

SG&A Expenses $1.4 $0.7 $0.7

SG&A (% of sales) 25.0% 20.0% 502 bps

Net Income (Loss) ($3.4) ($2.0) ($1.4)

Adjusted Net Income (Loss) $0.2 ($0.9) $1.1

Adjusted EBITDA (non-IFRS) $3.8 $0.3 $3.6

Adjusted EBITDA Margin (non-IFRS) 66.4% 7.4% 8,929 bps

First Quarter 2019 Performance

• Q1 2019 revenue increased 57 percent year-over-year to $5.8 million, with growth driven by increased patient counts in Minnesota and New York, as well as wholesale revenue generation in Maryland and Pennsylvania.

• Proforma revenue in Q1 2019, including total first quarter contributions from recently completed acquisitions in Arizona and New Mexico, was approximately $7.0 million.

• Net loss for the first quarter was $3.4 million. Adjusted net income for the first quarter was approximately $219,041.

• Adjusted EBITDA increased to $3.8 during Q1 2019, as compared to $273,521 in Q1 2018, with growth driven by increased sales and a favorable manufacturing variance, offset partially by higher SG&A expenses.


Fiscal Year 2019 Development Plans


During fiscal year 2019, Vireo expects to:

• Launch Green Goods™ dispensaries in Pennsylvania and expand its retail footprint in New Mexico

• Increase cultivation and processing capacity in Arizona, Minnesota, New Mexico and New York

• Begin building new facilities in Massachusetts, Nevada, Puerto Rico, and Rhode Island

• Roll out new cannabis brands and innovative products in multiple state-based markets

• Begin wholesaling Vireo branded products to third-party dispensaries in Ohio

• Plant industrial hemp crops for IP development in Minnesota and New York

• The Company currently expects to exit fiscal year 2019 with at least 20 operational dispensaries across its nationwide footprint.

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

Period Ended Period Ended

March 31, March 31,

2019 2018

REVENUE 5,777,792$ 3,678,475$

Production Costs (3,665,869) (1,828,431)

Gross Profit Before Fair Value Adjustments 2,111,923$ 1,850,044$

Realized Fair Value Amounts Included in Inventory Sold (3,026,731) (3,844,189)

Unrealized Fair Value Gain on Growth of Biological Assets 8,065,726 4,335,384

Gross Profit 7,150,918$ 2,341,239$

EXPENSES

Depreciation 373,779$ 56,326$

Professional fees 574,260 308,892

Salaries and wages 1,152,940 1,022,240

Selling, general and administrative expenses 1,444,749 735,032

Share Based Compensation 201,187 1,130,324

3,746,915$ 3,252,814$

OTHER INCOME (EXPENSE)

Loss on Sale of Property and Equipment (484)$ (597)$

Interest Expense (1,023,891) (393,573)

Interest Income 76 -

Accretion expense (9,671) -

Listing Expense (3,464,613) -

Other Expense (140,179) (957)

Total Other Income (Expense) (4,638,762)$ (395,127)$

INCOME/(LOSS) BEFORE INCOME TAXES (1,234,759)$ (1,306,702)$

Current income taxes (745,000)$ (690,000)$

Deferred income taxes (1,467,000) (33,000)

PROVISION FOR INCOME TAXES (2,212,000)$ (723,000)$

NET LOSS AND COMPREHENSIVE LOSS (3,446,759)$ (2,029,702)$

Weighted Average Shares Outstanding - basic and diluted 59,757,979 52,275,362

Net Loss Per Share - basic and diluted (0.06)$ (0.04)$

Vireo Health, Inc.Consolidated Statements of Loss and Comprehensive LossFor the Three Months Ended March 31, 2019 and 2018(Expressed in United States Dollars)

Consolidated Statements of Financial PositionVireo Health, Inc.Consolidated Statements of Financial PositionMarch 31, 2019 and December 31, 2018(Expressed in United States Dollars)

March 31, December 31,

2019 2018

ASSETS

Current Assets

Cash 40,400,908$ 9,624,110$

Receivables 277,254 1,671,257

Inventories 24,841,673 21,379,722

Biological Assets 12,705,374 5,967,150

Prepaid Expenses 1,457,752 962,297

Deferred acquisition costs 838,726 1,885,653

Deferred financing costs - 448,480

80,521,687$ 41,938,669$

Non-Current Assets

Property and Equipment 28,513,129$ 22,847,283$

Deposits 2,238,512 2,259,735

Deferred Loss on Sale Leaseback 26,112 26,596

Goodwill 3,983,559 -

Intangible Asset 31,075,168 2,184,565

Due from Related Party 36,778 -

65,873,258$ 27,318,179$

Total Assets 146,394,945$ 69,256,848$

LIABILITIES AND MEMBERS' EQUITY

Current Liabilities

Accounts Payable and Accrued Liabilities 2,919,742$ 2,512,389$

Deferred Lease Inducement - Current Portion 449,590 341,555

Income tax payable 670,000 -

Share issuance obligation 2,857,275 -

Current portion lease obligations 846,703 338,638

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

8,753,310$ 4,202,582$

Long-Term Liabilities

Deferred Rent -$ 271,091$

Deferred Income Taxes 7,975,000 6,508,000

Deferred Lease Inducement 4,945,489 4,781,770

Lease Obligations 15,024,238 11,839,152

Convertible debt 420,663 -

37,118,700$ 27,602,595$

Shareholders' Equity

Share Capital 110,815,149$ 41,965,556$

Reserves 4,985,208 2,766,050

Retained Earnings (6,524,112) (3,077,353)

109,276,245$ 41,654,253$

Total Liabilities and Equity 146,394,945$ 69,256,848$

Reconciliation of IFRS to Non-IFRS Financial Measures

Three Months Ended

March 31,

2019 2018

Net income (loss) (3,446,759)$ (2,029,702)$

Listing expense 3,464,613 -

Share-based compensation 201,187 1,130,324

Adjusted net income (loss) (non-IFRS) 219,041$ (899,378)$

Net income (loss) (3,446,759)$ (2,029,702)$

Interest income (76) -

Interest expense 1,023,891 393,573

Accretion expense 9,671 -

Income taxes 2,212,000 723,000

Depreciation 373,779 56,326

EBITDA (non-IFRS) 172,506$ (856,803)$

Listing expense 3,464,613 -

Share-based compensation 201,187 1,130,324

Adjusted EBITDA (non-IFRS) 3,838,306$ 273,521$

Reconciliation of IFRS to Non-IFRS Financial Measures (cont.)

REVENUE BRIDGEFor the quarter ended March 31, 2019

Pro Forma Bridge

US$ 1Q'19

Reported Revenue 5,777,792$

Pro Forma Adjustments

Arizona 975,179

New Mexico 262,286

Pro Forma Revenue 7,015,257$

Reported revenue of $5.8 million in Q1 2019 includes nine days of results from the recently closed acquisition in Arizona and six days results from the recently closed acquisition in New Mexico. Pro forma revenue adjustments include the balance of total first quarter revenue generation in Arizona and New Mexico.

q1 2019 earnings conference call may 31, 2019 · q1 2019 results conference call || 10 three months...

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