When it comes to serving budget-conscious pot stock investors, few companies have done a better job than Vireo Health International Inc (CNSX:VREO, OTCMKTS:VREOF) recently.
Consider this: when I told readers of Profit Confidential why VREOF stock “could be an opportunity for pot stock investors” in November 2020, it was trading around $1.20 per share. As of this writing, Vireo Health stock is at $3.40 apiece, translating to a return of more than 180% in less than three months.
Obviously, after such a massive rally, VREOF stock is more expensive than before. But with a sub-$5.00 price tag, it remains one of the lower-priced names in the industry. Besides, the growth theme of the company remains intact.
Allow me to explain.
The story of Vireo Health International Inc began in 2014, when the company won one of the two vertically integrated marijuana licenses in Minnesota.
After several years of rapid expansion, Vireo is now licensed to grow and/or process cannabis in seven markets and is operational in five of those markets: Arizona, Maryland, Minnesota, New Mexico, and New York. (Source: “ICR Conference Presentation,” Vireo Health International Inc, January 12, 2021.)
One of Vireo’s strategies is to build meaningful brands backed by proprietary products and formulations.
The company manufactures its cannabis products at state-of-the-art greenhouses and facilities, then distributes those products through its own “Green Goods” retail locations, as well as third-party dispensaries. Vireo currently has 16 operating dispensaries and 29 retail dispensary licenses.
That is, despite being a low-priced pot stock, Vireo Health International Inc has actually built a solid presence in the U.S. cannabis industry.
One of the reasons why investors tend to have second thoughts about putting their money in penny stocks is that, in general, these companies don’t have the best financials. But in the case of Vireo Health stock, the financials are actually the highlight of the company.
Just take a look at its latest earnings report and you’ll see what I mean.
In the third quarter of 2020, Vireo Health generated $13.4 million of total revenue, representing a 68% increase year-over-year. Reported revenue, which excluded contributions from discontinued operations, also rose by an impressive 67% from a year earlier to $11.9 million. (Source: “Vireo Health Announces Third Quarter 2020 Financial Results,” Vireo Health International Inc, November 25, 2020.)
We know that the retail industry is yet to make a full recovery due to the ongoing pandemic. But when it comes to cannabis retail, things have been booming.
In particular, Vireo Health International Inc earned a whopping $9.9 million in retail revenue in the third quarter of 2020, which represented a 61% increase year-over-year. The company said its revenue growth was mainly driven by higher patient enrollment and average revenue per patient in Minnesota and New Mexico, as well as by contributions from its dispensaries in Pennsylvania.
The company’s wholesale business brought in approximately $2.0 million in revenue for the quarter. While the number was much smaller than the one from the retail business, it still more than doubled from the $980,921 of wholesale revenue earned in the year-ago period.
For the third quarter, Vireo Health reported an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $675,808. Although the number was negative, it marked a substantial improvement from the year-ago quarter, during which the company incurred an adjusted EBITDA loss of $5.3 million.
At the bottom line, the company earned net income of $122,252 in the third quarter of 2020, compared to a net loss of $14.6 million a year earlier. The main driver behind this change was a one-time gain of $16.5 million on the divestitures of Vireo’s former subsidiary Pennsylvania Medical Solutions, LLC, also known as PAMS.
Still, real profitability could be on the horizon, given what the company has been working on. In a note to investors last November, Vireo’s chairman and chief executive officer, Kyle Kingsley, said,
Each of our current development projects remain on time and budget, and with seven new dispensaries expected to open before the end of Q1 2021 and the potential for a majority of our state-based markets to pass adult-use legislation within the next year, we believe Vireo is poised for strong improvements in revenue growth and profitability.
Vireo Health International Inc (OTCMKTS:VREOF) Stock Chart
Chart courtesy of StockCharts.com
At the end of the day, keep in mind that, when a stock makes a massive move to the upside, chances are there will be some retracement. Moreover, pot stocks are known to be volatile, so even for the most established players, big swings in share price can happen in either direction.
That said, Vireo Health International Inc has a solid business, so its strong potential should make VREOF stock worth considering for pot stock investors.