Ascend Wellness is a Buy in US cannabis, says Haywood

Haywood Capital Markets analyst Neal Gilmer likes the latest expansion move by US cannabis name Ascend Wellness (Ascend Wellness Stock Quote, Charts, News, Analysts, Financials CSE:AAWH.U), saying in a Thursday update that Ascend’s acquisition in the state of Maryland will help build out is portfolio in a rapidly growing market.

Ascend Wellness, which has cannabis operations in Illinois, Michigan, Ohio, Massachusetts, New Jersey, and Pennsylvania and a stable of cannabis brands, announced on Wednesday a definitive agreement to acquire the Maryland assets of Devi Holdings, which has four dispensaries in Maryland under the names Nature’s Medicines and True Wellness. 

The deal, which will put Ascend into its seventh state in the Union, is for a total consideration of $19 million, consisting of $12 million in cash and $7 million in stock (5.19 million shares at C$1.35 per share). Ascend said the four assets are currently operating at an annual sales run-rate of $17 million, while the real estate is valued at $3 million. (All figures in US dollars except where noted otherwise.)

“Maryland is an ideal state to expand our footprint – home to more than six million people, a mature medical cannabis program, and voter-approved support to create an adult-use cannabis market,” said Abner Kurtin, Executive Chairman and Founder of Ascend Wellness, in a press release.

”This Agreement reflects our strategy of entering limited-license, late-stage medical markets with an anticipated adult-use cannabis market launch. This approach has made AWH a leader in New Jersey and Illinois, and we are following the same playbook in Ohio, Pennsylvania, and now, Maryland,” he said.

Gilmer said he views the transaction positively, as it helps to build out Ascend’s portfolio in a state whose adult-use market (approved in this past November’s elections) should ramp up over the next few years. Gilmer said Ascend is now likely to look at acquiring cultivation and manufacturing operations in Maryland in order to become vertically integrated in the state.

On the Maryland market, Gilmer said its medical program currently has almost 162,000 registered patients and 102 dispensaries, or one dispensary for every 1,600 patients, with medical sales ranging between $500 and $600 million over the past two years and projections that it could reach up to $725 million in the near future.

On the adult-use market, Gilmer quoted a cannabis policy consulting firm which forecasted $1 billion in sales within 20 months of opening, saying that 300 dispensaries are likely necessary to meet demand and help convert consumers from the illicit market.

With the update, Gilmer maintained a “Buy” rating on Ascend Wellness and target price of C$4.25 per share, which at press time represented a projected one-year return of 254 per cent.

“Ascend remains well-positioned in key markets, most notably New Jersey, which recently commenced adult-use sales, and this transaction adds another near-term growth state,” Gilmer wrote. 

“The transaction is accretive on existing run-rate sales which will only increase once adult-use sales commence,” he said.