United States securities and exchange commission logo
December 2, 2020
Kyle Kingsley
Chief Executive Officer
Vireo Health International, Inc.
207 South 9th Street
Minneapolis, MN 55402
Re: Vireo Health
International, Inc.
Registration
Statement on Form 10-12G
Filed November 5,
2020
File No. 000-56225
Dear Dr. Kingsley:
We have reviewed your filing and have the following comments. In
some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your response and any amendment you may file in
response to these
comments, we may have additional comments.
Registration Statement on Form 10-12G filed November 5, 2020
Implications of Being an Emerging Growth Company, page 1, page 1
1. We note that the cover
page indicates that you have elected to use the extended transition
period for complying
with any new or revised financial accounting standards. Please
provide disclosure here
to state your election under Section 107(b) of the JOBS Act.
Provide a risk factor
explaining that this election allows you to delay the adoption of new
or revised accounting
standards that have different effective dates for public and private
companies until those
standards apply to private companies. Also state that as a result of
this election, your
financial statements may not be comparable to companies that comply
with public company
effective dates.
Kyle Kingsley
FirstName LastNameKyle
Vireo Health International,Kingsley
Inc.
Comapany2,
December NameVireo
2020 Health International, Inc.
December
Page 2 2, 2020 Page 2
FirstName LastName
Item 1. Business
Background, page 6
2. We note that certain of the subsidiaries and affiliates in your
organizational chart have
asterisks. Please revise to clearly explain the meaning of the
asterisks. We further note
that some of the entities that appear in the organizational chart
appear to be in the process
of being sold. Please update your organizational chart to clearly
reflect which entities are
in the process of being sold. To the extent that any of the
subsidiaries in the organizational
chart are not wholly-owned by you, please also update your disclosure
to state this clearly
and disclose the other owners. If you are only affiliated with an
entity through a
management agreement or similar arrangement (such as a non-profit
dispensary), or
through related parties (such as Ohio Medical Solutions, which you
indicate is owned by
your executives), but you do not have a current ownership relationship
with such entity,
please remove them from the organizational chart, and add disclosure
to clearly explain
these other arrangements.
General Development of the Business, page 8
3. Please provide us with the basis for your claim that you are one of
the United States'
"leading" multi-state cannabis companies.
4. We refer to your statement here that you are also "focused on
transformative intellectual
property ranging from novel product formulations, to agricultural
scale cannabinoid
production processes and equipment." You also state on pages 10 and 62
that you are
focused on securing "meaningful" intellectual property, and that you
have formed a
subsidiary with the intent of commercializing your intellectual
property portfolio.
However, your disclosures do not appear to support these statements as
you have only
briefly disclosed the ownership of two patent numbers. Please either
revise to demonstrate
that your business is focused on intellectual property, or
alternatively, if your portfolio is
not currently a material focus of your business, revise accordingly.
If your business is
reliant on any material patents, revise to identify the specific
product(s) to which
such patents relate, the scope of patent protection, and the
expiration date. Indicate
whether the patents are owned or licensed from third parties.
The Transaction and Related Financing Activities, page 8
5. Please include in this section a brief discussion of the differences
between Super Voting
Shares, Multiple Voting Shares and Subordinate Voting Shares.
Financing Activities, page 9
6. Please update this section to discuss the August 10, 2020 financing of
$16,755,923
disclosed elsewhere in the registration statement.
Other Recent Developments, page 9
Kyle Kingsley
FirstName LastNameKyle
Vireo Health International,Kingsley
Inc.
Comapany2,
December NameVireo
2020 Health International, Inc.
December
Page 3 2, 2020 Page 3
FirstName LastName
7. We note your disclosure that you have entered into an agreement to
sell Ohio Medical
Solutions ("OMS") to a third party for $1.15 million, but also that
this entity is owned by
your executives and not by you. Please revise to clearly explain the
significance to you of
this sale, including how your Ohio operations were conducted through
this entity and
whether you will continue to have any operations in Ohio after this
transaction is
consummated.
8. We note your disclosure concerning the sale of Pennsylvania Medical
Solutions, LLC and
the purchaser's option to acquire Pennsylvania Dispensary Solutions,
LLC. We also note
your disclosures elsewhere, such as your statement on page 64, that
your retail business
"is continuing to experience growth in this medical market" in
reference to Pennsylvania.
Please update your disclosure here to state what operations the
Company continues to
have in Pennsylvania following the consummation of this transaction,
including whether
(i) the Company still expects to receive wholesale revenue in
Pennsylvania following the
transaction and (ii) whether the Company will have any remaining
dispensaries in
Pennsylvania if the purchaser exercises the option to acquire
Pennsylvania Dispensary
Solutions, LLC. Please also update your disclosure in this section to
discuss the total
consideration you received for the sale.
Recent Acquisitions, page 9
9. Please update your disclosure in this section to discuss (a) your
acquisition of substantially
all of the assets of Silver Fox Management Services, LLC and (b) your
proposed
acquisition of MJ Distributing P132, LLC and MJ Distributing C201,
LLC. Please also
file each of the acquisition agreements with Elephant Head Farm LLC
and Retail
Management Associates, LLC; MJ Distributing P132, LLC, and MJ
Distributing C201,
LLC as exhibits to your registration statement or explain to us why
they are not required
to be filed. Finally, please revise your disclosure in this section to
describe the material
terms of each agreement referenced above, and your agreement with
Mayflower
Botanicals Inc., including whether all of the cash and equity
consideration in these
acquisitions was paid at closing or whether there is any contingent
consideration
outstanding.
Description of the Business, page 10
10. Revise your disclosures as appropriate to clarify which of your
principal products are
permitted to be, and are sold, in your various markets. With respect
to states where your
cultivation capacity is insufficient, please discuss your sources and
availability of raw
materials and the names of any principal suppliers.
11. Please expand your disclosures of competitive conditions on pages 16 -
17 to specifically
discuss the "changing market conditions" you reference on page 73 and
your "planned
overcapacity" and "increased competitive environment" that you
reference elsewhere,
including on page 66.
Regulation of the Cannabis Market at State and Local Levels, page 20
Kyle Kingsley
FirstName LastNameKyle
Vireo Health International,Kingsley
Inc.
Comapany2,
December NameVireo
2020 Health International, Inc.
December
Page 4 2, 2020 Page 4
FirstName LastName
12. Please explain the differences between the phase 1 retail license in
Maryland and the
phase 2 license for which you have applied in your discussion on page
22.
Vireo's Licenses in Maryland, page 22
13. We note your statement that you own one retail dispensary license,
which is not currently
operational, and that you are operating in Maryland a cultivation and
production facility.
Please update your disclosure to confirm whether the Company also has
licenses in
Maryland for cultivation and and processing.
Item 1A. Risk Factors, page 29
14. Please revise the heading for your last risk factor on page 33 to
highlight the significance
of such heightened scrutiny, such as as the potential effect that the
market for the
Subordinate Voting Shares could become highly illiquid.
15. Please add a risk factor discussing your redemption rights with
respect to Unsuitable
Persons.
Management s Discussion and Analysis of Financial Condition and Results of
Operations, page
62
16. For your results of operations analysis for each period presented,
please quantify the
impact of the material factors disclosed as materially impacting the
line items analyzed,
which should include the impact of recent acquisitions during each
period presented.
Refer to Items 303(a)(3)(i) and 303(a)(3)(iii) of Regulation S-X and
Section 501.12.b.3 of
the Financial Reporting Codification for guidance.
17. Please ensure that you address the specific underlying causes for the
material factors
impacting the line items analyzed. For example, please provide an
explanation for the
increase in salaries and wages and also the increase in share based
compensation
impacting total expenses. Refer to Item 303(a)(3) of Regulation S-K
and Sections
501.06.a and 501.12.b. of the Financial Reporting Codification for
guidance.
Item 2. Financial Information
Regulatory Jurisdictions, page 64
18. We note your statement that investors should refer to the Company's
previous regulatory
filings for more information regarding the RTO transaction. Referring
investors to sources
outside your registration statement for material information is not
sufficient to meet your
disclosure obligation. Accordingly, to the extent that there is
material information
regarding the RTO transaction that is not discussed in your
registration statement, please
amend your disclosure to include this information.
Non-GAAP Measures, page 70
Kyle Kingsley
FirstName LastNameKyle
Vireo Health International,Kingsley
Inc.
Comapany2,
December NameVireo
2020 Health International, Inc.
December
Page 5 2, 2020 Page 5
FirstName LastName
19. Please remove references to non-IFRS, as you prepare your consolidated
financial
statements under US GAAP.
Gross Profit, page 72
20. We note your statement here that Pennsylvania is a core market and
your reference on
page 78 to a renewed focus on "6 core markets." However, elsewhere in
your document,
you indicate that New York, Minnesota, Arizona, New Mexico and
Maryland are your
five core markets. Please update your disclosure to clarify which
markets are your core
markets and for which periods.
Liquidity, Financing Activities During the Period, and Capital Resources, page
74
21. Please update your disclosure in this section to discuss the
outstanding convertible notes
described on pages F-27 to F-29 of your financial statements.
Summary of Significant Accounting Policies, page 79
22. Please revise these disclosures to comply with the guidance in Section
501.14 of the
Financial Reporting Codification, which differs from the financial
statement requirement
to disclose significant accounting policies. In this regard, these
disclosures should only
include the areas that require critical estimates in preparing your
consolidated financial
statements, such as estimating inventory valuation adjustments;
estimating the fair value
of stock-based compensation, including the underlying equity
instrument; testing goodwill
for impairment; assessing recoverability of your finite-lived
intangible assets; and
assessing the realizability of your deferred tax assets. These
disclosures should clearly
explain what the critical estimate is; the uncertainties associated
with the critical estimate;
the methods and assumptions used to make the critical estimate,
including an explanation
as to how you arrived at the assumptions used; the events or
transactions that could
materially impact the assumptions made; and how reasonably likely
changes to those
assumptions could impact your consolidated financial statements.
Employment Agreements, page 100
23. Please update your disclosure here to include a discussion of the
employment agreement
or offer letter with Dr. Kyle E. Kingsley and file the agreement or
offer letter as an exhibit
to your registration statement. Please also revise the first paragraph
on page 101 to explain
whether the provision has been triggered or if it's no longer
applicable.
Outstanding Equity Awards Table for 2019, page 102
24. Please provide footnote disclosure regarding the vesting dates of Dr.
Kingsley's unvested
options.
Item 11. Description of the Registrant's Securities to be Registered
Super Voting Shares, page 112
Kyle Kingsley
FirstName LastNameKyle
Vireo Health International,Kingsley
Inc.
Comapany2,
December NameVireo
2020 Health International, Inc.
December
Page 6 2, 2020 Page 6
FirstName LastName
25. Please complete the text following romanette (ii) in the first
paragraph of the "Automatic
Conversion" subsection.
Consolidated Statements of Net Loss and Comprehensive Loss, page F-3
26. We note your disclosure on page F-15 that cost of sales includes
depreciation of
manufacturing equipment and production facilities. However, the amount
of depreciation
expense reported within operating expenses agrees to the amount
reflected on the
consolidated statements of cash flows. Please address this
inconsistency. To the extent
that you are not including depreciation expense in cost of sales,
please address the
requirements in SAB Topic 11:B. Address this comment for your interim
financial
statements.
2. Summary of Significant Accounting Policies
Net loss per share, page F-10
27. Please provide the disclosures required by ASC 260-10-50 for the
calculations of net loss
per share. The disclosures are to include the number of shares, by
type of potentially
dilutive security, that could potentially dilute earnings per share in
the future but that were
not included in the computation of diluted loss per share because to
do so would have
been anti-dilutive for the periods presented. Address this comment for
your interim
financial statements.
3. Business Combinations, page F-17
28. We note that you acquired the AZ entities and Red Barn Growers during
March 2019 and
entered into a definitive agreement to acquire MJ Distributing on
April 2019. Please tell
us your consideration of the guidance in Articles 8-04 and 8-05 of
Regulation S-X in
assessing whether audited financial statements of these acquired
businesses and the related
pro forma financial information reflecting these acquisitions should
be included. Please
provide your supporting computations per Article 8-04(b) of Regulation
S-X.
Alternatively, revise the filing to include the required information.
6. Inventory, page F-22
29. Please provide the disclosures required by ASC 330-10-50-6 and ASC
275-10-50 for the
significant estimates for your inventory. In this regard, we note you
have recognized
inventory valuation adjustments. Refer to ASC 330-10-55-8 through
55-13 for guidance.
Also address the inconsistency between the components of inventory on
page F-22 and on
page F-59.
11. Goodwill, page F-25
30. We note your disclosure that you recognized $8,538,414 in impairments
for goodwill.
Please address the following:
As January 1 is your annual testing date and the goodwill was
recognized in March
Kyle Kingsley
FirstName LastNameKyle
Vireo Health International,Kingsley
Inc.
Comapany2,
December NameVireo
2020 Health International, Inc.
December
Page 7 2, 2020 Page 7
FirstName LastName
2019, please disclose the facts and circumstances that led to
management performing
an interim goodwill impairment test, including when that test was
performed.
For the Elephant Head Farms reporting unit, please disclose the
specific facts and
circumstances that could reasonably occur and result in a change
in the assumptions
used to estimate the fair value of the reporting unit and result
in the recognition of an
additional material impairment charge. Refer to Sections 216,
501.02, 501.12.b.3 and
501.14 of the Financial Reporting Codification for guidance.
For the allocation of the impairment charge, we note that you
allocated $4,844,270 to
the Red Barn reporting unit. However, only $3,878,300 of goodwill
has been
allocated to the Red Barn reporting unit. Please address this
inconsistency.
Exhibits
31. We note your references to lease agreements and other real estate
arrangements, as well as
management services arrangements when you need to work with a
non-profit licensee, and
also note that none of these agreements have been filed as material
agreements. To the
extent material, please file these agreements as material agreement
exhibits, or advise. In
addition, revise your disclosures as appropriate to ensure that you
disclose all material
terms of these agreements.
General
32. Pursuant to Section 12(g)(1) of the Exchange Act, the Form 10 becomes
effective
automatically 60 days after the initial filing date. At that time, you
will be subject to the
reporting requirements of the Exchange Act. In addition, we will
continue to review your
filing until all of our comments have been addressed. If the review
process has not been
completed before the effectiveness date you should consider
withdrawing the Form 10
registration statement to prevent it from becoming effective and, as
applicable, file a new
Form 10 registration at such time as you are able to respond to any
remaining issues or
comments.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Tracey Houser at 202-551-3736 or Daniel Gordon at
202-551-3486 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Alan Campbell at 202-551-4224 or Dorrie Yale at 202-551-8776 with any
other
questions.
Sincerely,
Division of
Corporation Finance
Kyle Kingsley
Vireo Health International, Inc.
December 2, 2020
FirstName
Page 8 LastNameKyle Kingsley
Comapany NameVireo Health International, Inc.
Office of Life Sciences
December 2, 2020 Page 8
cc: Thomas M. Rose
FirstName LastName