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Loads of upside to cannabis play Ayr Wellness, says PI Financial

Look for cannabis play Ayr Wellness (Ayr Wellness Stock Quote, Chart, News, Analysts CSE:AYR.A) to deliver a strong second half to 2022, says PI Financial analyst Jason Zandberg, who maintained a “Buy” rating on the stock in an update to clients on Thursday.

Ayr Wellness is a vertically integrated cannabis company with operations in Nevada, Massachusetts, Pennsylvania, Arizona, Ohio, Florida and most recently Illinois, with a pending acquisition in New Jersey. Zandberg’s updated analysis comes after Ayr Wellness reported its first quarter financial results for the 2022 fiscal year, which Zandberg noted to be mostly positive save for a pair of slight misses.

“Despite this small miss, management stated they are holding or increasing market share in all of their key markets,” Zandberg said. “Management is anticipating a strong H2/22 due to the large capex spent to date.”

Ayr Wellness’s quarter was headlined by revenue of $111.2 million for a 90 per cent year-over-year increase, though it did represent a one per cent sequential decrease, as well as a slight miss in relation to the PI Financial forecast of $115 million in revenue. (All figures in US dollars except where noted otherwise.)

Meanwhile, the company reported EBITDA of $19.5 million for an implied margin of 17.5 per cent. That was a slight miss when compared to the PI Financial EBITDA estimate of $21 million, though the report was a six per cent year-over-year increase and 25 per cent sequential decrease.

“These figures were below both PI estimates and industry consensus, largely down to pricing pressures that persist in key states, but growing market share in each key states provides an optimistic outlook for the rest of the year,” Zandberg said.

All told, the company has $78.7 million in cash available compared to $517.9 million in debt.

Looking ahead to the rest of the year, the company maintained its overall 2022 financial guidance of $800 million in revenue, $250 million in EBITDA (implied margin of 31.3 per cent), and $100 million in operating income, along with being on-track to execute on a $37 million capital expansion plan during the second half of 2022.

“We have made excellent progress this year to complete major capex projects and receive regulatory approvals across our footprint. We will now unlock the revenue streams from these various assets going forward – including the start of adult use sales in New Jersey and Boston next month,” said Jonathan Sandelman, Founder, Chairman and CEO of Ayr Wellness in a May 26 press release. “It has been well-telegraphed by our peers that Q1 was a challenging period for the industry. However, we have maintained or even increased retail market share across most of our footprint despite this challenging backdrop, while also increasing wholesale revenue.”

Ayr Wellness continued its expansion through bringing in more assets, including one store in Pennsylvania, three adult-use stores in New Jersey, two adult-use stores in Massachusetts, 10 new stores in Florida, and four new stores in Illinois, as well as cultivation facilities in Arizona, New Jersey, Massachusetts and Florida.

New Jersey, in particular, represents a new market for Ayr Wellness as the company was just approved by the New Jersey Cannabis Regulatory Commission for adult-use sales last week.

“We are thrilled to be approved for adult-use sales in New Jersey and to have all three dispensaries cleared simultaneously to open for adult-use,” Sandelman said on May 24. “To date, Central Jersey has the lowest number of dispensaries per capita, leaving its population under-served compared with the rest of the state. New Jersey is expected to become a highly influential state for the U.S. cannabis industry, and we are honored to help shape the market landscape from its early stages.”

Ayr closed its acquisition of Cultivauna, the owner of Levia-branded cannabis infused seltzers and water-soluble tinctures. Most recently, Ayr completed the acquisition of Herbal Remedies Dispensaries, an operator of two licensed dispensaries in Illinois that was among the first cannabis dispensaries licensed in the State of Illinois when the State approved the Compassionate Use of Medical Cannabis Program in 2013, with both medical and recreational use being permitted in Illinois.

“The team at Herbal Remedies has created a highly valuable position as one of the first licensed cannabis dispensaries within the state, establishing excellent relationship services that we feel will be a natural fit in support of our common mission to provide people with remarkable cannabis experiences,” Sandelman said on May 25. “We look forward to strengthening this position as the Illinois market continues to develop within the broader U.S. cannabis landscape.”

Ayr Wellness has seen its share price fall by 59 per cent since the start of 2022, unable to maintain momentum after hitting an early peak of $21.78/share on February 9 and dropping as low as $6.23/share on May 12. With his retained “Buy” rating, Zandberg reasserted a C$50/share target price for a potential return at the time of publication of 515 per cent.

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About The Author /

Geordie Carragher is a staff writer for Cantech Letter
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