Vireo Growth Is a Diluted Pig in Pro Forma Lipstick

The pitch and the product to people that don’t read filings

Vireo Growth $VREO (also $VREOF on the OTC) is the largest dispensary chain in America, if you count stores it hasn't bought yet. We count differently. We count shares. By that measure Vireo isn't a cannabis company. It's a share factory with a cannabis division attached.

Every acquisition, paid in paper. The CEO, paid in paper. A board-approved bonus tied to trading volume, not profit. A buyback smaller than six weeks of issuance. We've read a lot of cannabis filings over the years and this one's a genre piece.

We wouldn't go anywhere near this stock. The filings explain why better than we can, so we'll let them.

Start with the split, because a 30:1 reverse is normal right; right???

In May, shareholders signed off on a reverse split of 20 to 40 for one. Management picked 30. A stock stuck in the mid-50-cent range on the CSE woke up at $15 with nobody owning a dollar more. Fine. Reverse splits are cosmetic. The share count afterward is not.

Post-split, Vireo carried 35.2 million subordinate voting shares at year-end 2025. June 30: 45.0 million. August 13, the day it announced a buyback: 48.5 million. Thirty-eight percent more paper in seven and a half months. The Q2 weighted average count was 45.1 million against 18.6 million a year earlier. Up 142%. Anyone who bought a year ago and held owns well under half the percentage they started with.

And it's still climbing. Vireo's own treasury-method number at June 30 was 54.4 million once RSUs, convert shares, escrowed shares, earn-outs and in-the-money warrants come in. Fluent is all-stock, filed at 165 million pre-split shares, 5.5 million post. Planet 13 is all-stock. Cannabist, C21 and the four Ohio deals are unpaid. Guess the currency.

Pro forma is doing all the work

Bulls quote $1.2 billion of revenue and $255 million of EBITDA. Neither exists. Both are pro forma for deals that haven't closed, and if you're quoting them as real numbers you haven't read the cash flow statement. We have.

Actual Q2 revenue was $209.3 million, per the second-quarter filing. Actual adjusted EBITDA: $41.5 million, a $166 million run rate. The adjusted margin went from 30.8% in Q1 to 19.8% in Q2. Eleven hundred basis points, gone in one quarter, and the headline was revenue up 335%.

Now look at what "adjusted" is carrying. Q2 added back $19.7 million of transaction expenses and $7.5 million of stock comp. When you close a deal every few weeks, deal costs aren't one-time. They're the business. GAAP operating income was a $6.3 million loss. Net income came in at roughly zero, and it got there on a $21.7 million bargain purchase gain from Hawthorne. Take the gain out and the breakeven quarter is a $22 million loss.

The revenue has a quality problem too. Pro forma non-cannabis revenue was $62.7 million in Q2, roughly $250 million a year of Hawthorne and Bridgewell selling nutrients, lighting and growing media at a 17.9% gross margin and a 6.3% EBITDA margin. Garden supply. Strip it and pro forma cannabis revenue is $192 million a quarter, $770 million a year. Green Thumb $GTBIF did $306.7 million of actual cannabis revenue in Q2 at a 27.5% normalized EBITDA margin, out of a little over 120 stores. Vireo's "270 stores" assumes every announced deal closes. It runs about 170 today. Per store on cannabis revenue: $10 million for Green Thumb, $3.5 million for Vireo. More doors, less money per door, more rent. Store count is a cost line, not a moat.

Same-store sales of +7% got airtime. Pro forma retail. On the call, management conceded low single digits is what's realistic over time. Colorado, now the largest retail state in the portfolio, was down 15% pro forma.

Free cash flow is negative, and the IRS is a lender

Six months of 2026: operating cash flow $14.3 million, capital spending $119.0 million. Negative free cash flow of $105 million, plugged with $87.1 million of fresh borrowing.

Even the $14.3 million is a mirage. $29.8 million of it came from growing the uncertain tax position liability, meaning 280E taxes accrued and not paid. Treat the taxman like a real creditor and operating cash flow is negative too. The liability sits at $172.8 million, up from $120.0 million at year end. Cash was $122.7 million. The unpaid tax tab is bigger than the cash pile, and the cash pile is borrowed.

Long-term debt went from $127.6 million to $257.2 million in six months. Current liabilities of $390.7 million against $394.5 million of current assets. Net interest expense $9.5 million in the quarter. Management calls this flexibility. Lenders call it collateral.

Hawthorne: Scotts paid to leave

In April, Vireo "acquired" Hawthorne from Scotts Miracle-Gro $SMG for 213 million pre-split shares and 80 million warrants struck at $0.85. Post-split: 7.1 million shares plus 2.7 million warrants at $25.50. In return Vireo got $35 million of cash, $58 million of working capital and $20 million of growing media over two years.

Scotts booked a $101.8 million loss on the sale. Vireo booked a $21.7 million bargain purchase gain. Same transaction, two sets of books, one conclusion: the seller ate a nine-figure hit to get rid of a business the buyer's own accountants say was worth more than the paper they paid. Scotts wanted out so badly it took stock. Then it didn't even keep the stock. The 14% stake went to an entity called Good Dog Holdings in exchange for a promissory note.

Vireo calls this "strengthening the balance sheet." It sold 14% of the company for cash and hydroponic inventory and booked the discount as profit. We've seen creative. This is creative.

The CEO's paycheck gives us Medmen vibes

John Mazarakis took the CEO job in December 2024 at a salary of $1 a year. Great headline. Total 2025 compensation: $20,031,587. $17.7 million of it stock, $2.3 million cash bonus. The bonus formula pays him 0.8% of any debt refinanced above $60 million at under 9.75%. He earned it in July 2025 when Vireo borrowed from East West Bank and from Chicago Atlantic. Mazarakis co-founded Chicago Atlantic. He was paid a fee for arranging his company's loan from his own firm, and the board signed off on it. The CFO got 0.4% on the same loans and $10.3 million for the year. Two executives, $30 million, in a year of net losses.

The original package: 19 million time-vested RSUs and 19 million performance RSUs, pre-split. Roughly 633,000 of each today. The time-vested ones are 30% vested already, with the rest unlocking at a $25.50 and a $31.50 post-split VWAP. The performance ones vest on six-month trailing annualized adjusted EBITDA of $150 million, $165 million and $205 million, net leverage under 2.2x. No per-share test anywhere in it. You clear an EBITDA hurdle by buying EBITDA with stock, which is the entire Vireo playbook. First-half 2026 adjusted EBITDA annualizes to $148 million. The first tranche is one closing away, and shareholders pay for it twice: once in the acquisition, once in the grant.

Then the Second Amendment to his employment agreement, effective April 1, 2026, approved by shareholders in May. The $1 salary becomes $2.25 million on January 1, 2027 regardless of anything, or sooner if the 90-day VWAP market cap tops $1 billion. He keeps his 3.2 million pre-split shares a year, fully vested on issue. Starting in 2027 and running five years, he gets 10 million more pre-split shares a year, also fully vested on issue. About 333,000 post-split. $5 million a year at $15. $25 million over the term.

Liquidity Bonus is the Canary MSOS is the Coal mine

The condition on those shares isn't revenue, EBITDA or free cash flow. It's VOLUME. The 20-day average daily trading volume has to reach 900,000 pre-split shares. The amendment scales share-denominated thresholds for the split, which puts it near 30,000 shares a day post-split, or $450,000 of daily dollar volume at $15. A liquidity test, set low enough that the only way to miss it is to stop issuing press releases. He's paid for churn. Every pro forma headline, every all-stock deal, every retail-facing narrative feeds the one metric his biggest annual grant hangs on.

Now I’m not saying something nefarious is going on but it’s awfully suspicious or stupid when $MSOS etf is buying $VREOF while selling $GTBIF. The fund's daily holdings show it adding $VREO while trimming $GTBIF, the one large MSO that pays its taxes, buys back its own stock and reports numbers you can read without an asterisk. When the sector's biggest passive bid rotates out of the cash generator and into the share factory, that isn't conviction. It's liquidity, which happens to be the exact thing Vireo's CEO gets paid for. That math don’t math, that’s like selling Amazon to buy Temu.

It keeps going. The amendment adds "Growth Equity Awards": 1.5% of fully diluted equity at a $1 billion market cap, 2.5% more at $1.25 billion, 2.5% more at $1.75 billion and 2.5% more at $2 billion. Nine percent of the company if all four land. Every phase carries the same 900,000-share ADTV test. Phase 1 requires no material equity issuance in the prior 12 months, except for mergers and acquisitions. The one kind of dilution Vireo actually does is exempt. A change of control at $2.5 billion enterprise value vests everything at once. The clawback, if EBITDA collapses within a year of vesting, caps at 50%. Heads he wins, tails he keeps half.

Shareholders noticed. At the May meeting Mazarakis drew 8.3 million withheld votes. Ross Hussey, who chairs the compensation committee, drew 16.3 million. Every other director drew about 150,000. It passed anyway, because it always passes anyway.

We wrote earlier this month about the volume-gated grants and what they say about cannabis investor relations. A pay plan that rewards trading volume rewards attention. Attention for shareholders is IR's job. At Vireo it's the CEO's bonus line, and the shareholders fund it with their own float.

The Chicago Atlantic web is “chefs kiss”

Mazarakis co-founded Chicago Atlantic, is a partner there and chairs its listed REIT. Chicago Atlantic lends to Vireo. Vireo's general counsel is senior corporate counsel at Chicago Atlantic. The newest independent director, Michael Steiner, sits on the Chicago Atlantic REIT board. The proxy discloses a late Form 4 for Chicago Atlantic Credit Opportunities covering three late transactions and a late Form 4 for Mazarakis covering three more.

Fluent is the same web from a different angle. Mazarakis sat on the board of Cansortium, which became Fluent, until December 2024, the month he took the Vireo job. Cansortium refinanced with a $96.5 million Chicago Atlantic-arranged facility in November 2024. Now Vireo is buying Fluent with stock, and Fluent's senior secured lenders agreed to swap $30 million of debt into equity as part of the deal. Chris Hagedorn of Scotts sits on Fluent's board and on Vireo's. We don't have to connect the dots. The proxy did it for us.

About that buyback that the kids would call “suss”

On August 13, Vireo announced a normal course issuer bid for up to 2,426,872 shares. Between June 30 and that day the share count rose by about 3.5 million. Six weeks of issuance outran a full year of buyback before the buyback started. A press release with a broker attached, nothing more.

Green Thumb, for comparison, completed a repurchase of 14.9 million shares for $87.7 million and generated $29.0 million of operating cash flow in Q2 after paying its taxes. One of these companies returns capital. The other one manufactures it.

What it'd take to make us wrong besides a full frontal lobotomy

Two closed quarters with no new share issuance. Free cash flow that's positive after real tax payments, not accrued ones. A CEO grant tied to free cash flow per share. A buyback that retires more shares than management gets paid in. We're not holding our breath, and neither is the CEO, whose share grants run through 2031 either way.

Until then the headline answers itself. Vireo isn't a cannabis business that issues stock. It's a stock-issuance business that sells cannabis on the side. The share count is the product. Everyone in the building gets paid in it. The only people paying cash are the shareholders, and we wouldn't go anywhere near this stock. I’ve been covering the capital markets of cannabis longer than anyone in this sector and realize people hate the truth whilst loving confirmation bias. I have yet to be wrong on these types of companies and Vireo investors will hate me for it, but It won’t be too long until we point at the scoreboard. Good luck out there.