Vireo Growth (VREOF 3.02%), a cannabis grower and retailer with 166 dispensaries across 10 states, made a big change on Jan. 28 when it agreed to purchase the Hawthorne Gardening subsidiary from Scotts Miracle-Gro (SMG 4.99%) for an undisclosed amount of shares of Vireo. The deal is expected to close in the first or second quarter of 2026. Hawthorne sells nutrients, lighting, and other materials for indoor and hydroponic gardening in North America, much of which is designed for cannabis growing.
OTC: VREOF
Key Data Points
Thing 1: Vireo Growth has big plans and the Hawthorne segment is part of that
Vireo is one of the fastest-expanding cannabis companies. In late December, the Minnesota company purchased the Eaze brand for $47 million, giving it a footprint in key markets, including Florida and California, as well as additional operations in Colorado, all part of Vireo's aggressive expansion efforts. Just weeks before the Eaze acquisition, it spent $49 million to buy the Colorado assets of PharmaCann, giving Vireo an additional 17 dispensaries in the state, bringing its total to 41. In October, it bought out the outstanding senior notes of Medicine Man Technologies, doing business as Schwazze, for $62 million in Vireo stock. This means Vireo is the majority owner of the restructured company and allows it to sell, keep, or retain some or all of Schwazze's 46 dispensaries and two manufacturing plants in Colorado and New Mexico.
Vireo also absorbed Nevada cannabis company Deep Roots Harvest and Missouri company Proper Brands in 2024, along with WholesomeCo Cannabis in Utah.
The Hawthorne purchase makes Vireo more vertically integrated and should, ultimately, provide cost savings. By owning its own supplier, Vireo can protect itself from delivery delays and shortages. It allows it to manage the quality of its products every step of the way -- from the very beginning to the final purchase. This setup also helps it save money, giving Vireo a major edge over its competitors.
Thing 2: Vireo Growth is dealing from a position of strength
Through the first nine months of the year, Vireo reported revenue of $164 million, up 121%, year over year, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $45 million, up 145%, compared to the same period a year ago. The company had $117 million in cash at the end of the quarter and hinted it plans to use it to take advantage of what it calls a distressed market for cannabis companies.
Thing 3: The bold move is still risky
Vireo has gone from having only 16 dispensaries across six states to as many as 166 across 10 states . With that kind of growth, there are plenty of concerns. Investors seem a little worried as the stock has fallen more than 6% so far this year.
There are complexities and costs involved with absorbing so many new companies. Another concern is Vireo's growing debt, which was $60.8 million at the end of the third quarter, before its Eaze, PharmaCann, and Hawthorne purchases. Along with that debt, its new investors will have expectations about revenue, market share, and business size that could lead Vireo to scale operations before it has strong quality control and reliable workflows. There are plenty of examples of cannabis companies that grew too fast and suffered the consequences, including Gold Flora and MedMen, which are no longer around, as well as larger companies that needed to restructure after moving too quickly.
Cannabis stocks in general are volatile and Vireo is no exception. First, it trades at around 55 cents a share, which is a flashing danger sign to begin with and adds to its unpredictability. The company's acquisitions could set it up for a strong future, but unless you don't mind a high level of risk in the short term, the stock is best left alone for now.
