This $113M Cannabis Deal Gave Vireo Growth a Blueprint for Cost Efficiency — Here’s How

Vireo Growth Inc. (CSE: VREO) (OTCQX: VREOF) said on Wednesday that it has completed the acquisition of a cannabis-focused subsidiary of gardening giant The Scotts Miracle-Gro Company (NYSE: SMG).

What Happened

Under the deal, Vireo received $35 million in cash, roughly $58 million in net working capital, and $20 million in inventory, mainly growing media, to be supplied over the next two years.

In exchange, Vireo issued 213 million shares and warrants to purchase 80 million additional shares to Good Dog Holdings LLC at an exercise price of $0.85 per share. The warrants are exercisable for five years from the date of issuance. The 213 million shares represent about 14% of Vireo, with the potential to rise to approximately 19% if all warrants are exercised.

Simultaneously, Vireo has nominated Chris Hagedorn, executive vice president of Scotts Miracle-Gro and executive lead of the Hawthorne business, for election to its board of directors. The company’s annual general and special meeting of shareholders is scheduled for May 29.

Why It Matters

In addition to strengthening Vireo’s balance sheet, the deal strategically positions Vireo as a vertically integrated player in the indoor and hydroponic gardening supply chain. The move allows Vireo to reduce reliance on third-party vendors in terms of inputs like nutrients, lighting, and growing media, potentially resulting in margin improvement and operational efficiency.

“The acquisition of Hawthorne further strengthens the Vireo balance sheet and creates a procurement platform to optimize supply chain management and drive cost efficiency across our portfolio,” John Mazarakis, Vireo Growth’s CEO, said.

Moreover, Chris Hagedorn’s involvement adds credibility and operational expertise. “Vireo has demonstrated a clear ability to integrate and operate complex businesses effectively,” Hagedorn said.

That said, the 80 million warrants at $0.85 provide the company with a potential capital boost in the future. Meaning, the deal offers upside potential for both the company and its shareholders if the stock rises.

The Background

As of late 2024, the Minneapolis-based Vireo is on an aggressive growth trajectory, aiming for acquisitions across key state markets. As part of the strategy, the company previously raised roughly $75 million in equity, followed by the acquisition of several cannabis operators, including assets in Nevada (Deep Roots Harvest), Florida (The Flowery), Missouri (Proper Brands), and Utah (WholesomeCo Cannabis).

Vireo’s recent moves include the announced $49 million acquisition of and the $47 million all-stock acquisition of former “Uber of Weed” retail and delivery platform Eaze.

The company has a $441M market cap, with revenue up 170% year-over-year, though shares are down 32.5% year-to-date.

Vireo’s shares traded 3.05% higher at $0.405 per share after the market close on Thursday afternoon.