AYR 4Q22 COMMENTARY.
AYR reported 4Q22 earnings last Thursday, and revenues came in at $126.6M, while the street had them at 128.7M, which is a slight miss. They grew revenue 12% YoY, which was primarily driven by the launch of three dispensaries in New Jersey in 4Q22. The company reported a fourth-quarter net loss of US$166.4 million which was why the stock was down 15% on the print. The Company anticipates its financial results in 1Q23 to be consistent with industry trends, expecting revenue and adjusted EBITDA in Q1 2023 to align with Q4 2022. Based on what we are currently seeing two-thirds of the way through 1Q23, industry trends look light compared to 4Q22.
They are going to continue to cut costs, and their CEO had this to say “I'd like to thank our team for pulling together to deliver a strong fourth quarter, growing our adjusted EBITDA by 20% sequentially, and a second straight quarter of generating positive cash flow from operations. In the past few months, our team has begun the process of evaluating every aspect of our business with fresh eyes, conducting a thorough review of our markets, our people, and our processes, all in service seeking to maximize the financial health of our Company and better position Ayr as a retailer of choice and house of brands."
“Throughout that process, we have implemented cost-saving measures, stepped back from certain markets that didn’t align with our core business goals, and invested further into markets and activities that did meet those goals. By better prioritizing our time, our attention, and our capital, we find ourselves better positioned to capture growth opportunities in our existing and future footprint, which we anticipate will help us grow our cash flow profile, our revenue, and adjusted EBITDA margins consistently throughout 2023.”
IS THE UN COMING AFTER WEED?
The United Nations (U.N.) International Narcotic Control Board (INCB) has recently criticized countries that have legalized cannabis within their borders because it breaks the treaty under the 1961 Single Convention which forces countries to maintain cannabis prohibition. The INCB recent report says, “In States with a federal structure, a special issue may arise with respect to whether the federal government may be held accountable if a federated entity implements legalization, which violates the conventions, while the federal Government does not have the power to compel the federated entity to fulfill the treaty obligations”. INCB said the 1961 treaty mandates that member nations must “give effect to and carry out the provisions of this Convention within their own territories,” regardless of whether or not they have a constitutionally federalist system. This report will not cause any change to the legal market in the U.S. and the U.N. will most likely do nothing about it since they haven't done anything to nations like Uruguay and Canada who are also part of the treaty but have fully legalized cannabis federally. This does however show how complex cannabis is, in terms of policy and law, and why it will be so hard to legalize cannabis at the federal level.
Curalead Lawsuit.
A former employee at Curaleaf is suing the company with the allegation he was wrongfully terminated. The complaint alleges the company wrongfully terminated the man in November for answering truthfully during a human resources investigation into alleged drinking by employees at a Bellmawr dispensary on the day prior to the launch of the sale of recreational marijuana. The former employee had been a manager at the cannabis operator’s Bellmawr dispensary when he observed alcohol being consumed on the premises by members of the company’s corporate team on April 20, 2022, the day before adult recreational cannabis sales launched in New Jersey, the lawsuit alleges. The lawsuit is seeking damages of ~$150k plus attorney fees. Curaleaf denies it wrongfully terminated said employee.
