Debra Borchardt
Ayr Strategies Inc. (OTCQX: AYRSF) reported that its revenue increased 4% sequentially in the first-quarter ending in March to $33.6 million. The company did note that sales began to decline in March due to the COVID-19 related closures. The company also reported a net income of $3.3 million after a foreign currency translation. The earnings per share were $0.06 basic and $0.05 diluted.
Ayr also made improvements on its loss from operations as it trimmed that number from a loss of $16.9 million in the fourth quarter to a loss of $4.9 million in the first quarter. The adjusted EBITDA was $8.4 million, which dropped from the fourth quarter’s $9.2 million due to the COVID closures.
Jonathan Sandelman, CEO of Ayr Strategies said, “Although cannabis has been deemed an ‘essential business’, the regulators in Massachusetts and Nevada, where we currently operate, were among the few nationwide to place material restrictions on cannabis sales. So unlike many cannabis companies in the U.S., our business faced headwinds.”
Ayr said in a statement that prior to the closures, sales through early March in Massachusetts and Nevada had been higher. In Massachusetts, the company redirected wholesale capacity into its retail stores, increased available inventory and average spend, promoted incentive programs to increase penetration of medical cards, and increased medical patient count. Nevada was subject to the disappearing tourist crowd. Ayr said it retooled its technology, rapidly implemented new software and an e-commerce oriented website, and launched digital marketing campaigns to support online sales in the state.
“Despite these limitations, in the first quarter we produced sequentially higher revenue and substantial adjusted EBITDA, and added material cash from operations to our balance sheet,” continued Sandelman. “Since then, we have successfully accelerated our digital transformation initiatives, and we expect to exit the challenges presented by COVID a materially stronger business, as evidenced by the rebound in ticket size, transaction volume, and retail margins we are seeing thus far in May.”
At the end of the quarter, the company had cash and cash equivalents of $9.9 million, an 18% increase compared to $8.4 million of cash and cash equivalents on December 31, 2019. However, the company does have total liabilities of $177 million and current liabilities of $40 million.
Looking Ahead
Massachusetts has said that recreational dispensaries can begin to resume sales on May 25. Ayr has said that its dispensary revenues are already tracking to over $1.8 million, 90% above January and February 2020 levels. The average daily revenues are currently over $59,000 and daily transaction volumes are over 300 with an average ticket size of $186 per transaction.
In Nevada, the average daily revenues are currently over $200k; daily transaction volumes over 2,400, with an average ticket of $84 per transaction; estimated gross margin levels just under 60%. May adjusted EBITDA in the state is tracking 3% above the record months of January and February 2020 despite lower revenues.
Guidance Removed
Sandelman did say that the company’s previous EBITDA guidance was no longer applicable due to the closures. The company had planned to begin recreational sales at its current medical dispensaries in Massachusetts, but the government closures meant they couldn’t get the approvals needed.
Sandelamn added, “While we are disappointed at the COVID-related delays in converting to adult-use sales in our dispensaries, we are confident that our high density, high traffic greater Boston locations will result in persistently strong retail sales opportunities when our stores convert to adult use.”
Canaccord Genuity analyst Bobby Burelson wrote recently, Given the company’s cash position and positive cash flows forecasted for this year despite headwinds, we continue to believe AYR is one of the best-positioned companies in the space to weather prolonged market headwinds. Additionally, as other operators in the space face capital challenges, we believe AYR will be positioned to complete strategic acquisitions at attractive multiples.” Burleson also pointed out that the company has completed three harvests from its expanded cultivation facility in Massachusetts and that the expansion should all for a fast ramp of additional wholesale activity once recreational sales come back on board.
