AYR IS AN MSO TO RIVAL THE GLOBAL ONES AND IS UNDERVALUED/SASEEKING ALPHA VERY POSITVE ARTICLE !
Ayr Wellness: New Name, Same Game Mar. 16, 2021 11:26 AM ET AYR WELLNESS INC. (AYRWF)ACB, APHA, CGC...
Summary - Ayr Wellness is poised for substantial growth through 2022.
- The small MSO will quickly rival the size of global cannabis stocks with market valuations in excess of $10 billion.
- The stock trades at only 7.6x EV/2022 EBITDA target of $325 million.
- This idea was discussed in more depth with members of my private investing community, Out Fox The Street. Learn More »
In a matter of months, Ayr Strategies (OTCQX:AYRWF) made a transformative deal in Florida and changed their name to Ayr Wellness. The U.S. multi-state operator ("MSO") now forecasts massive revenue and adjusted EBITDA targets in 2022 making the company a major player in the cannabis world. My investment thesis remains very bullish on the stock even after a 60% gain since the last article less than three months ago.
Image Source: Ayr Wellness website
Big Years Ahead
A few days after reporting Q4 results, Ayr Wellness posted a strong outlook for 2022. Due to pending acquisitions and timing of recreational sales, the MSO decided to oddly not post guidance for 2021.
The company ended 2020 at an annualized revenue run rate of $243 million and is now guiding for 2022 revenues of $725 million. The target might seem massive, but Ayr has several acquisitions not in the 2020 numbers and the cannabis market is booming with new recreational sales in key states.
With the Canadian cannabis LPs surging today as New York Governor Cuomo talks up recreational cannabis approval in the state, one needs to keep in mind the business comparisons with the new Ayr. Aurora Cannabis (ACB), Aphria (APHA) and Canopy Growth (CGC) all have smaller revenue targets for FY22 than Ayr while their market caps are either significantly larger or equivalent to the MSO.
Data by YCharts
Most importantly, investors need to understand what Ayr has added in the last few months topped off by closing the Liberty Health Sciences deal in February. The Florida cannabis operator of 31 dispensaries last reported FQ3 revenues for the period ending November generated $10.5 million in sales.
Liberty Health saw sales dip 19% from last year, but the company suggests sales in December and January were vastly improved due to better supplies. Liberty Health, probably in conjunction with Ayr, hired new management to work on the cultivation and processing issues that constantly caused the company to underperform the efficiency of other Florida-licensed operators.
Ayr Wellness has additional pending deals in Arizona, New Jersey and two deals in Ohio. Naturally with Arizona and New Jersey approving recreational cannabis back in November, these two states offer the biggest upside following Liberty Health in Florida.
Source: Ayr Wellness March 2021 presentation
The pending deal for Garden State Dispensary adds three open dispensaries and 30,000 sq. ft. of cultivation and production. At a $101 million cost, the acquisition generates $25 million in adjusted EBITDA. The pending deal in Arizona adds a projected $28 million in EBITDA and adds six licensed dispensaries, and up to 90,000 sq. ft. of licenses cultivation and processing space. Of course, both of these deals rely somewhat on recreational cannabis sales to reach these targets.
The company quickly gets to pro-forma sales topping $300 million entering 2021 assuming all these deals close. Besides these acquisitions and the smaller ones in Ohio, Ayr Wellness is opening new stores in Boston, finally adding recreational cannabis sales from Massachusetts to the business.
Deep Discount Still In Place
The amazing part of the Ayr Wellness story is that the recent surge in the stock hasn't altered the valuation equation. The MSO made all of these acquisitions at less than 4x adjusted EBITDA targets, bringing the overall multiple of the stock.
Ayr Strategies: This Upstart Consolidator Will Keep Growing
AYR Strategies' Edge (Podcast Transcript)
AYR Strategies' Edge (Podcast)
The company is now forecasting 2022 adjusted EBITDA at $325 million. The stock trades at ~7x these EBITDA targets with a fully diluted market valuation of $2.3 billion. The other large MSOs trade at double this multiple with both Curaleaf (OTCPK:CURLF) and Green Thumb Industries (OTCQX:GTBIF) trading at an EV/2022 EBTIDA multiple above 18x.
Source: Ayr Wellness March 2021 presentation
Considering 2021 is already headed towards the end of Q1, the market will increasingly look at 2022 estimates to value stocks. All of these MSOs are trading at substantial discounts to normal multiples for the growth in the sector. Ayr Wellness expects sales to triple in these two years with at least 100% organic growth during the period which normally justifies a multiple far above even these averages.
Takeaway
The key investor takeaway is that Ayr Wellness remains a cheap stock despite major stock gains in the last year. The company has made some very attractive deals and is building a large MSO to rival the size of global cannabis companies with market valuation multiples the valuation of Ayr. Investors should continue to own the stock for far more upside.
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The service offers model portfolios, daily updates, trade alerts and real-time chat. Sign up now for a risk-free, 2-week trial to start finding the next stock with the potential to double and triple in the next few years without taking on the risk of over priced momentum stocks. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.