8-K: Vireo Growth Completes Acquisition of Missouri-Based Proper Brands for $102 Million in Shares

Vireo Growth Inc. has successfully closed its previously announced acquisition of Proper Brands, a leading independent cannabis operator in Missouri, for $102 million paid in subordinate voting shares.

Summary

• Vireo Growth Inc. (Vireo) completed its acquisition of NGH Investments, Inc. and Proper Holdings Management, Inc. (Proper Brands), subsidiaries of Proper Holdings, LLC, on June 5, 2025.
• The total consideration for the acquisition was $102.0 million, paid through the issuance of 196,212,265 of Vireo's subordinate voting shares at a reference price of $0.52 per share.
• The purchase price represents a multiple of 4.175x Proper Brands' 2024 Closing EBITDA of $31 million.
• 176,591,038 Parent Shares were issued directly to Proper Holdings, LLC, with an additional 19,621,227 Parent Shares (10%) placed in escrow.
• The acquisition includes an 'Arches Value Amount' of $2,139,200, representing Proper Brands' 15.28% equity interest in Arches IP, Inc.
• Proper Holdings, LLC is eligible for earn-out payments in additional Parent Shares based on the performance of Arches and the Acquired Companies' Adjusted EBITDA growth by December 31, 2026, with specific share price thresholds ($1.05 or 20-day VWAP).
• A clawback provision allows Vireo to reclaim up to 50% of the issued Parent Shares if Proper Brands' 2026 Adjusted EBITDA falls below 96.5% of the Closing EBITDA.
• Shares issued to Proper Holdings, LLC are subject to a lock-up agreement, with releases staggered over a 33-month period, and earn-out shares subject to a 15-month post-issuance lock-up.
• The Second Amendment to the Merger Agreement, effective June 5, 2025, adjusted calculation dates for 'Closing Indebtedness', 'Closing Working Capital', and 'Post-Closing Debt' to December 31, 2024, set '280E Tax Reserve Shortfall' to $0.00, and provided a $1,000,000 credit to Proper Holdings, LLC for the 'Company Earn-Out Amount' calculation.
• Proper Holdings, LLC is also required to transfer non-regulated assets of Occidental Group, Inc. to Vireo or its affiliates for no additional consideration if acquired by New Growth Horizon, LLC after the closing date.
• Additional indemnification obligations were added for Proper Holdings, LLC and Parent Share Recipients related to the Option Agreement and certain equity incentive agreements.

Sentiment

Score: 7

Explanation: The completion of a strategic acquisition is generally positive for growth. However, the complex earn-out/clawback provisions and the disclosed related-party debt introduce elements of risk and complexity that temper the overall positive sentiment.

Positives

• Completion of a strategic acquisition expands Vireo's footprint in the growing Missouri adult-use cannabis market.
• Proper Brands is a significant independent operator with 11 retail dispensaries and a large cultivation/manufacturing facility, adding substantial assets to Vireo.
• The acquisition includes the implementation of the Arches technology platform across Proper Brands' home delivery business, potentially enhancing operational efficiency and customer experience.
• Earn-out provisions incentivize Proper Brands' continued performance and align interests, with potential for additional share issuance based on future growth.
• The $1,000,000 credit to Proper Holdings, LLC in the earn-out calculation could simplify future earn-out achievements for the acquired entity.

Negatives

• The acquisition involves complex earn-out and clawback provisions, which could lead to future adjustments in share consideration and potential disputes.
• A significant portion of the consideration (196.2 million shares) was issued, which could lead to dilution for existing shareholders, although the shares are subject to lock-up.
• The clawback provision, if triggered by underperformance (2026 Adjusted EBITDA below 96.5% of Closing EBITDA), could result in a substantial return of shares, indicating a performance risk.
• Vireo's CEO, John Mazarakis, has an approximate 29% interest in the Acquired Companies' $27.4 million outstanding net debt with Chicago Atlantic Group, LP, raising potential related-party conflict of interest concerns, although Holdings was released from its obligations.
• The requirement for Proper Holdings, LLC to transfer non-regulated assets of Occidental Group, Inc. for no additional consideration adds a future obligation for the acquired entity without direct financial benefit to them at the time of transfer.

Risks

• The clawback provision poses a financial risk to Proper Holdings, LLC if 2026 Adjusted EBITDA falls below 96.5% of the Closing EBITDA, potentially leading to a significant reduction in shares retained.
• The forward-looking statements are subject to known and unknown risks, uncertainties, and other factors, including those related to regulatory approvals and general market conditions, which could cause actual results to differ materially.
• The complexity of earn-out calculations, based on future EBITDA and revenue performance, introduces uncertainty regarding the final consideration and potential for disputes.
• The lock-up agreements, while preventing immediate sell-offs, will eventually lead to a significant number of shares becoming available for sale over a 33-month period, potentially impacting share price.
• The related-party debt involving Vireo's CEO, while Holdings was released from obligations, could still be perceived as a governance risk or potential conflict of interest.

Future Outlook

The document outlines potential future earn-out payments to Proper Holdings, LLC based on the performance of Arches IP, Inc. and the Acquired Companies' Adjusted EBITDA growth through December 31, 2026. These payments would be made in additional Parent Shares, subject to specific share price thresholds. There is also a clawback provision tied to 2026 Adjusted EBITDA performance. The company will file additional financial statements for Proper Holdings, LLC and pro forma financial information within 71 calendar days.

Management Comments

• Vireo was founded as a pioneer in medical cannabis in 2014 and we are fueled by an entrepreneurial drive that sustains our ongoing commitment to serve and delight our key stakeholders, most notably our customers, our employees, our shareholders, our industry collaborators, and the communities in which we live and operate.
• We work every day to get better and our team prioritizes 1) empowering and supporting strong local market leaders and 2) strategic, prudent capital and human resource allocation.

Industry Context

This acquisition significantly expands Vireo Growth Inc.'s presence in the rapidly growing Missouri adult-use cannabis market. Proper Brands, with its 11 retail dispensaries and over 100,000 square feet cultivation/manufacturing facility, is described as one of the largest independent operators in the state. This move aligns with a broader industry trend of consolidation and expansion into key recreational markets as cannabis legalization progresses across the U.S. The integration of the Arches technology platform suggests a focus on enhancing operational efficiency and consumer experience in the competitive cannabis retail and delivery space.

Comparison to Industry Standards

• NA

Corporate Governance

Related Party Transactions

• Vireo's Chief Executive Officer, John Mazarakis, serves as a partner of Chicago Atlantic Group, LP, an affiliate of Chicago Atlantic Admin, LLC (the Agent), which is the senior secured lender for Proper Holdings, LLC and its affiliates (including the Acquired Companies).
• Mr. Mazarakis has an approximate 29% interest in the Acquired Companies' debt transactions with the Agent.
• The Acquired Companies have aggregate outstanding net debt with the Agent and/or its affiliates of approximately $27,400,000, which continued to be held by the Acquired Companies after the Closing.
• Proper Holdings, LLC was released from its obligations with respect to this debt at the Closing.

Stakeholder Impact

• **Shareholders (Vireo)**: Potential dilution from the issuance of 196.2 million shares, though mitigated by lock-up provisions. Future share price could be influenced by earn-out achievements, clawback provisions, and the eventual release of locked-up shares. The acquisition aims to drive growth and value.
• **Shareholders (Proper Holdings, LLC / Parent Share Recipients)**: Received significant equity consideration in Vireo, subject to complex earn-out and clawback provisions, and lock-up schedules. Their future value is tied to Vireo's stock performance and Proper Brands' operational success.
• **Employees (Proper Brands)**: The acquisition by Vireo, a pioneer in medical cannabis, could offer new opportunities and stability, especially with the focus on empowering local market leaders.
• **Customers (Proper Brands)**: Potential for enhanced product offerings and service quality through Vireo's resources and the implementation of the Arches technology platform for home delivery.
• **Creditors (Chicago Atlantic Group, LP)**: Their existing debt with Proper Brands continues post-acquisition, with Proper Holdings, LLC released from its obligations, potentially shifting the primary obligor to the acquired entities under Vireo's ownership.

Next Steps

• Vireo Growth Inc. will file an amendment to this Current Report on Form 8-K no later than 71 calendar days after the filing date to include the consolidated financial statements for Proper Holdings, LLC for the quarterly period ended March 31, 2025.
• Vireo Growth Inc. will file an amendment to this Current Report on Form 8-K no later than 71 calendar days after the filing date to include pro forma financial information related to the acquisition.

Key Dates

Recommendation

Keywords

Vireo Growth Inc., Proper Brands, Acquisition, Merger Agreement, Cannabis Industry, Missouri, SEC Filing, 8-K, Subordinate Voting Shares, EBITDA, Earn-out, Clawback, Lock-up, Related Party Transaction, Arches IP, Cultivation, Dispensaries, Adult-use cannabis