June 20, 2019
Vireo Health marked its official entry into Puerto Rico’s medical cannabis market with a $1.8 million deal that gets it one step closer to its ultimate goal: establishing a U.S. and global hub for cannabis oil production smack dab in the middle of coffee country.
“Puerto Rico is a growing market itself, but it's very compelling for large-scale production long-term. Once state-by-state barriers fall, Puerto Rico could eventually be a major production hub for the United States when it comes to really cost-effectively produced cannabis,” Vireo Health CEO and founder Kyle Kingsley told Cheddar in an exclusive interview.
Through the acquisition of XAAS Sellers, Vireo, a rising, U.S.-focused multistate cannabis operator that began trading on the Canadian Securities Exchange in March, plans to open six dispensaries on the island, gains more than 40 acres of agricultural land in “prime coffee territory,” and has access to a 40,000-square-foot production facility once owned by Pfizer. Furthermore, it cements its footprint in 11 states and territories, making it a top contender among U.S.-focused multistate operators.
Kingsley said Vireo will open its Puerto Rican dispensaries under the branding Green Goods, a new concept he described an accessible blend of medical-meets-legacy cannabis, which will be welcoming to the full spectrum of consumers, from medical patients to recreational customers, alike, as regulations change.
“It’s going to fuse what we do, which is medicine, science, pharmacy, with the best of legacy cannabis knowledge and culture,” Kingsley said.
Vireo Health CEO and founder Kyle Kingsley. / Vireo Health
Beginning with a dispensary in Pennsylvania, which is set to open within two weeks, eventually all Vireo-owned dispensaries will operate under the Green Goods brand.
Founded by Kingsley, an emergency room doctor for over a decade, Vireo Health was made with a mind for medical. The physician-led company is focused on intellectual property at the intersection of cannabis, pharmaceuticals, and consumer packaged goods. As a result, Vireo tends to focus on products like tinctures, oils, and softgels.
That approach makes Puerto Rico a perfect fit. For decades, Puerto Rico has served as a haven for pharmaceutical companies, which flocked there due to federal tax exemptions, and stayed for the talent base. Vireo Health intends to make use of that same talent and infrastructure.
Take the Pfizer facility: it’s certified by the Food and Drug Administration, with one level full of state-of-the-art labs and an upper floor of offices. It sits in an industrial park, abandoned by pharmaceutical giant Pfizer in a consolidation maneuver.
“There's space to expand. There's other buildings in the industrial park. I don't want to stretch out too much, but this might end up being the Vireo Health industrial park at some point. We are taking it step-by-step for now,” said Christian Gonzalez, a Puerto Rican native who is currently handling operations for the company in Pennsylvania, but will oversee Vireo’s Puerto Rico operations.
Although Puerto Rico has until now only legalized medical cannabis, the market is promising. The population of registered medical cannabis patients is very high, especially when compared with the island’s entire population of roughly 3.5 million. With more than 20 conditions that qualify for medical cannabis treatment, there were more than 77,000 registered patients on the island as of May ー one of whom is Gonzalez’s mother.
“My mother is a patient in Puerto Rico.... Cannabis is one of the only things that actually works for her,” said Gonzalez, whose background is in pharmaceutical and aerospace device manufacturing. “I personally have never been a cannabis connoisseur, but couldn't help but recognize the value, especially with my mother, and also with other people that I know.”
That ratio of patients means the market is still fairly underserved, Gonzalez says, which is another area Vireo hopes to address.
Outside of the potential of Puerto Rico’s own medical cannabis market, there’s also its climate. The location makes it ideal for growing coffee ー and cannabis. Growing outdoors may not be great for the type of carefully curated craft cannabis flower found in a dispensaries, but it’s ideal for the type of large-scale, outdoor cultivation needed for industrial scale cannabis oil production ー which is exactly what Vireo is going for.
Once regulations ease up enough in the U.S. to permit interstate commerce, Kingsley envisions most if not all of Vireo’s cannabis oil cultivation and production to come from Puerto Rico. And down the line, it could prove ideal launch point for a global distribution, too.
“Based on our analysis, we think that large scale outdoor production for bulk oils makes sense. And absent some sort of mega-facility, it's hard to envision it making sense economically in northern latitudes when [cannabis] can be grown outdoor at scale in a much more affordable way,” Kingsley said.
But if Puerto Rico is so ideal, why haven’t all the major multistate operators flocked to the island territory? Gonzalez said the regulations can be onerous, so it helps to have an insider navigate ー not that other MSOs haven’t caught on. Harvest Health & Recreation, for example, may be Puerto Rico-bound following its $850 million acquisition of Verano Holdings, International Business Times reported.
But beyond what Puerto Rico can do for Vireo, it’s also about what Vireo can do for Puerto Rico. The company expects to create dozens of skilled, well-paid jobs in the next year and a half and hundreds down the line on an island that just two years ago was devastated by one of the deadliest natural disasters in U.S. history.
Hurricane Maria struck Puerto Rico in September 2017, killing about 3,000 and laying waste to the island’s economy. More than 250,000 people left the territory in storm’s wake in search of jobs and some semblance of normalcy. Gonzalez said he hopes to contribute to rebuilding the economy of his home.
“If I can feel like we came here and we significantly added meaningful employment, and as a result of that we were able to keep a few hundred families together or a few hundred people from leaving that didn't want to leave but they had to ー because things got so hard that they had to. if we can do those things, I would say that that’s where my drive is at right now,” Gonzalez said.