Medical cannabis firm Vireo Health appears mellow about challenges

Dr. Kyle Kingsley

The news that Minnesota's health commissioner has authorized expansion of medical marijuana to chronic pain and some eye conditions, sure can't hurt Vireo Health, the multistate cannabis grower, processor, retailer and owner of Minnesota Medical Solutions.

In late November, publicly traded Vireo said it lost $13.7 million on revenue of $19.9 million during the first nine months of 2019, as it scales up operations in 11 states.

Its stock price has fallen from a "high" of $6.85 per share last spring to $1.30 per share recently, a market value of about $110 million.

Most public marijuana companies, including Vireo, have seen their valuations cut by up to 75 percent from their 52-week highs, as investors get over their initial giddiness and operators incur high startup and expansion costs in what may prove an early sorting of survivors.

Dr. Kyle Kingsley, a former Minnesota National Guard medic and emergency room physician, walked away from a $400,000-a-year job in 2014 and took a big pay cut to research and start Vireo in 2015 as an alternative to addictive opioids, alcohol and other substances to combat pain.

"We joked that if cannabis ever replaced alcohol, emergency doctors would be out of business," recalled Kingsley last spring. "And alcohol often was involved in domestic and sexual assaults, other violence, car accidents ... cancer, cirrhosis of the liver. It's laughable that alcohol and tobacco are legal, but it was a crime to use cannabis."

Kingsley, 42, said recently that Minneapolis-based Vireo is slowing the pace of development and will finish this year with 13 dispensaries instead of 16 to 20, as originally envisioned.

"While we remain confident that our focus on the best of medicine, science and engineering to the cannabis industry will create compelling long-term value for all our stakeholders," Kingsley told investors, "we believe Vireo is in a unique position to emerge as a sector leader given the relative strength of our balance sheet. With virtually no debt, we control our destiny and our lean operations and disciplined approach to capital allocation provide us a clear path to profitability."

Meanwhile, Vireo continues to invest in key people.

In November, Vireo brought on a pioneer of the legal-cannabis industry and former leader of one of its most prominent companies as executive chairman.

Bruce Linton, 53, a former Canadian technology entrepreneur, started researching the emerging cannabis market for medicinal purposes as well as recreational and founded Canopy Growth in 2012.

Linton, a career maverick, was forced out of Canopy by alcoholic-beverage maker Constellation Brands, after it invested $4 billion for about 37% of the company earlier this year.

He will only make money through stock warrants he olds if Vireo's price goes up. And he will only realize maximum value over time if the price reaches $5.86 per share.

This week veteran Twin Cities executive Shaun Nugent joined Vireo as chief financial officer. Nugent, an accountant by background, has served as CEO or CFO of Sun Country Airlines, Life Time Fitness, AllOver Media and Champps Entertainment over the last 25 years.

"Shaun's strong track-record of increasing revenue, margin, and EBITDA in hyper-growth and capital-constrained environments is very impressive," Kingsley said in a statement. "We are…confident he will help us continue to scale our business and become an even more efficient operator."

Here's more on Vireo from earlier this year: November: http://strib.mn/2LvWig7 and August: http://strib.mn/2LrgxLN