US cannabis MSOs (Multi-State Operators) remain under pressure due to short-term regulatory issues delaying fiscal boosts. not wellness (OTCQX: AYRWF) is a prime example of an MSO waiting for the next stage up where regulators falter. Mine investment thesis Still very bullish on this low EBITDA multiple stock.
not wellness Reported Q4’21 . revenue increased by 16 percent compared to the previous quarter, to reach $111.8 million. While this revenue increase was positive, adjusted EBITDA totals were flat sequentially at $26.1 million due to regulatory delays requiring a higher level of spending without corresponding revenue in the short term .
The main issue is that some regulatory developments are driving the forecast for the entire first half of 2017. Ayr Wellness was guided by 2022 revenue of $800 million with adjusted EBITDA of at least $250 million and operating income of $100 million. The new directive is for MSO to end the year with a canceled run rate that matches those numbers. In essence, the fourth-quarter results of ’22 would equate to revenue of $200 million and EBITDA of $62.5 million. EBITDA guidance is 140% growth on top of already large numbers through the end of 2021.
The main organizational issues are as follows:
- Massachusetts – Boylston Street and Watertown adult dispensaries have been completed with approval now expected in Q2.
- Massachusetts – Farming expansion now expects sales to begin in the fourth quarter.
- NJ – Three clinics await approval for adult-use sales with an expected start in the second quarter.
- New Jersey – 75,000-square-foot planting expansion completed.
Ayr Wellness presented the following table highlighting 70% of this year’s EBITDA gains come from the expansion of agriculture in the aforementioned states and the revitalization of adult use in the same states with a primary focus on New Jersey.
The Florida market continues to provide additional upside with a 15% increase in revenue from an operating rate of $448 million in Q421 indicating that the state market will generate another $67 million in sales this year and a 10% increase in gross profit before Interest, taxes, depreciation and amortization. True Cannabis (OTCQX: TCNNF) dominates the Florida market, but Ayr Wellness has recently partnered with the second largest stocking base in terms of recently opened centers Shop 45.
The latest estimates are that the recreational cannabis market will open in New Jersey at the end of April. The EBITDA increase mentioned above does not take into account the full benefits from new stores and farm assets in Massachusetts and New Jersey this year, with the first benefit being only half a year of sales.
Combined with capacity completed in Arizona during Q421, and more capacity in Florida, Ayr Wellness expects to increase capacity from just 94,000 pounds of cannabis biomass to 275,000 by the end of 2022. The MSO will achieve growth in The amplitude is about 200% lower which is another indication of the reason. Projected growth is just steps away.
The path to much higher revenue starts in mid-2023 and extends into 2023. The market is disappointed with the downgrade guidance for 2022, but Ayr Wellness has the assets to reach a target of at least $250 million in EBITDA annual. For these reasons, analysts expect 2023 revenue to exceed $900 million.
The stock has a market capitalization of $850 million with a net debt of over $200 million. Of course, a cannabis company whose sales are expected to reach current market value leaves inventory exceptionally cheap.
Based on an EV of $1,050 million, the stock is trading at just 4 times the highest EBITDA operating rate at the end of the year. Investors will be hard-pressed to find a stock in another industry with an expected EBITDA growth of nearly 150% while the stock trades at just 4 times these targets. Most industries are trading near growth rates.
The main conclusion of the investor is that Ayr Wellness is a very cheap trade at only $12. While regulatory delays are common in the cannabis industry and do not necessarily guarantee that MSO will receive the expected approvals, the risk that the company will not achieve these goals remains relatively low.
Investors should use the weakness in the sector as an opportunity to play a long-term tailwind to launch the market for additional adult use and federal approval while MSO stock is cheap.
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