AYRWF - High Conviction Play; Likely to Break Ascending TriangleOn the chart, it appears AYRWF has just hit the bottom of the trend line and has now bounced off. This is my favorite cannabis play that i've found so far, and I have averaged in at a price of $2.6 over the past month.
AYR Wellness
Ticker: AYRWF
Price: $2.58
Outstanding Shares: 136,000,000
MarketCap: $350,880,000
Cash: $50,766,000
Current Assets: $193,220,000
Current Liabilities: $200,748,000
Total Assets: $1,459,855,000
Total Liabilities: $889,203,000 (Recently got 400m of debt maturity moved to 2026. Have another 48m mortgage due in 2033)
Net Assets: $570,652,000
Last Qtr Revenue: $114,835,000
Annual Revenue: $463,600,000
Price to book: 0.56
Net Assets/Market Cap: 1.62x
I believe this company is one of the most undervalued of all the Cannabis companies. It’s a shame there is no way to use leverage in my IRA and they don’t have options either. They are also only 2.61% of MSOS holdings, which is criminal. Their net assets (570m) are worth 1.62x more than their market cap (322m and I’m pretty sure this doesn’t includes the 50 million they're getting back from 280e taxes in their total assets or cash numbers. Their annual revenue was $463 million (114.8m 4Q23), which is also worth more than their market cap. There is major growth expected ahead as well, as they are positioned to take advantage of Ohio, Florida and Pennsylvania. From their FY 2023 report. “The conversion from medical-only to adult-use sales is one of the most significant, proven revenue drivers in any given cannabis market. Currently, only 15 of AYR’s 91 dispensaries operate in adult-use markets, and we are positioning our assets in Florida, Pennsylvania and Ohio (83.5% of their 91 total stores) to take full advantage of anticipated adult-use transitions. We will not need to materially increase our fixed cost base in these states and expect to generate meaningful operating leverage as revenue growth accelerates in these markets.”
AYR owns and operates 91 stores. They are in 8 states. They have 6 shops in Nevada, 2 in Illinois. 3 in Ohio, 64 in Florida, 9 in PA, 4 in MA, 3 in NJ. 83% of their stores are located in the 3 states of Ohio, PA, FL. I like their new CEO that moved over from President during 2023. He’s a Louis Vuitton/Neiman Marcus guy. Once he moved over, they immediately rebranded all their Florida stores ‘AYR Cannabis Dispensary’ and consolidated their product brand names (flowers, edibles, extracts, pre-rolls, beverages, etc) , which both make sense to me for greater customer brand recognition. He has said their number 1 priority for 2024 is getting to 8 stores in Ohio, which is the max currently allowed by the state. They also want to get to 70 stores in Florida by the end of the year and 100 stores, in the following years once Florida officially goes legal. They want to maintain their 10% share in Florida going forward. Another important thing he got done was moving the debt that was maturing in 2024 to 2026 to allow this potential massive runway of growth from 2024 to 2026 to occur.
In total, AYR now have 18 cultivation and production facilities spanning 1.3m square feet. In Ohio, they were one only 23 companies rewarded with a Tier 1 license that allows them up to 100,000 sq ft of cultivation facilities that can produce 80,000 pounds to meet Ohio adult use demand. Tier 2 operators are only allowed up to 12k sq ft of cultivation, so AYR will be one of the companies with an advantage and ability to supply their own stores while also doing some wholesaling to increase revenue. In Pennsylvania, they have 83,000 sq ft of cultivation and production space. They also have cultivation facilities in Florida of 745,000 sq ft, but they just added $8.4 million to their mortgage due in 2033 to upsize their current facility.
AYR also has the #2 THC beverage Levia seltzers and this area is expected to see major growth. It’s been awhile since they have discussed Levia though, so I would like to hear their CEO talk about it more. They don’t seem that focused on it currently and are more focused on their other new rebrands. I think it’s still too early for a beverage to be a needle mover, but I’m glad to se they have their eye on this market going forward. “Enter low dose hemp THC beverages. Imagine a drink that relaxes you, gives you a slight buzz, food is more pleasurable, music is more enjoyable, your sex drive increases, you sleep great at night and most importantly you wake up the next morning with no hangover. Sounds like a miracle drink.” Since it became legal for Minnesota liquor stores to sell THC beverages on June 1, sales have been raging. “We are approaching 10% of our sales being THC drinks,” says Jon Halper, owner of Top 10 Liquors, which has 13 stores in the Twin Cities with another opening in about a month. “It’s taking on a life of its own. I think cannabis is going to be more popular with the younger generation, and for the older generation, nobody wants to wake up with a hangover feeling like shit anymore. At least I don’t. This is a great category we’re all over to grow.” I’m pretty confident that cannabis consumption in its multiple forms is currently and will continue to take up alcohol market share.
Not sure how much growth is expected in the first 2 quarters of 2024, but I don’t think it matters with potential headlines of DEA reclassifying and SAFER Banking Act possibly being passed. In Q3 and Q4, Ohio sales should really ramp up with adult use going online, and AYR hopefully will have expanded to its 8 shops by then. Then in Florida passes, 2025 with be monster with adult use going online there on Cinco De Mayo 2025 and Ohio sales will be kicking into full swing. If Pennsylvania passes, then oh my god.
I think this is close to, if not a billion dollar company currently. This number should increase once they add additional stores in Ohio and once adult use goes online in June. Then, if Florida passes, it could be worth $5 billion in 2025 or 2026. That would be a 1500% gain, and depending on what happens, it’s possible we’re just getting started in this decade. A company like this should have a market cap of multiple times its revenue and net assets, especially with certain Ohio revenue increases coming, and potential massive Florida revenue increases coming. That’s not the case though and they are being priced at almost half their book value. I’ll say that again. They’re being priced at almost half their book value, with all of these upcoming tailwinds! This is insane. Back in 2021, this was a 1.89 billion dollar company and they have only entered more states, opened more stores, strengthened their balance sheets, gotten more efficient, and gotten much stronger in general since then, yet the price has decreased. These Florida “torqued” companies have been out performing the rest of the market and I expected it continue leading up to the election. I think there’s a high likelihood that it will be possible for me to hedge my position before Florida votes with a decent profit, if I were to choose to, but the real profit will come from waiting for them to legalize, whether it is this year or in a few years down the line. This is getting done sooner or later. There is obviously lots of details and stuff I’m leaving out here, some known by me, and probably a lot unknown by me. Still, I believe the margin of safety is so large, that I can be way off with this one and still be right. I’m doing as Charlie Munger recommends and “fishing where the fish are”. Again, it’s always possible I’m wrong, but I still believe the odds are stacked in my favor here.
- bettingbilions
Few Links, if anybody wants to do more research:
- d1io3yog0oux5.cloudf...ies/db/710/7976/pdf/
4Q+23+Investor+Deck+%283.12.2024%29.pdf
- d1io3yog0oux5.cloudf...d_Full_Year__223.pdf
- www.youtube.com
- www.youtube.com
- www.youtube.com
