A US multi-state operator (MSO) is looking to increase its sales volume after receiving C$10.5 million during a volatile time for the cannabis market.

Medical marijuana company Vireo Health International (CSE:VREO,OTCQX:VREOF) announced on Tuesday (March 10) that it has closed the first tranche of a non-brokered private placement offering of over 13 million units priced at C$0.77 apiece.


In an interview with the Investing News Network (INN), Bruce Linton, executive chairman at Vireo and former co-CEO of Canopy Growth (NYSE:CGC,TSX:WEED), said that while the funding is good news for Vireo, it also serves as a marker of potential for the cannabis industry overall.

“This just brings a lot of new capital to this particular entity and lets them accelerate while everybody else is kind of being slowed down or pulled down,” Linton told INN.

Vireo’s CEO, Kyle Kingsley, agreed with the sentiment, saying in a press release that with the funding, the company will be able to improve its retail sell through and balance its near- and long-term objectives.

“Our recent focus on building production capacity to meet increasing demand positions us to drive stronger sell through of higher margin retail sales, which will remain a key area of focus for our team in 2020 in addition to advancing scientific innovation,” Kingsley said.

Vireo plans to put the money toward growth initiatives and corporate processes.

In terms of increasing sales volume, Linton explained that the company has thus far used its funding to build out production facilities, but is currently also relying in part on selling products through the retail channels of other firms.

Moving forward, the goal is for Vireo to expand its own retail footprint in the US to prepare as more recreational markets come online and to increase product margins.

“Suppose you had the right to build stores in a really good location in the medical-only markets, and then six months later the government says, ‘We’re going to have recreational as well.’ Who already has the stores in the right locations and the brands?” he said.

“This is a preparatory exercise to when that second thing happens, but it’s a short-term exercise to quit handing our product to others and receiving a fraction of the total sale value,” Linton added.

Linton himself has indirectly subscribed for over 1.7 million units as a part of the offering.

The former Canopy CEO joined Vireo as executive chairman back in November and became part of its board of directors to help with the firm’s decision making and market activity.

He said that Vireo’s science-based approach to cannabis, including employing a tracking system for its vape products, was an attractive feature, positioning it well in the larger cannabis space.

Vireo informed investors it is working on strategic moves within the company to optimize its cost structure and operating model to build value within constantly shifting market conditions.

Since the end of 2019, the company said it has reduced its corporate overhead and SG&A expenses by about 25 percent on an annualized basis.

Careful investments define cannabis sector

When it comes to the capital markets for cannabis, Linton said they’re largely closed off, a view that is shared by other experts in the space. He noted that they’ve been shut for the past eight months as the sector dealt with a vape health crisis and investors fled the industry.

Now, while investors are more discerning about where they put their money, Linton said that firms that can prove they have strong capital structures will have an easier time locking down new funding.

“Investors are going to put more capital to work with selected targets, because they actually see that they’re building reliable, responsible companies,” Linton told INN.

“(The way) I describe the sector right now is the companies are three to five times better and about a third of the price.”

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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