The U.S. cannabis industry is experiencing torrid growth. Stigmas are fading, and a critical mass of states have adopted legal marijuana, either for medical or recreational use. Yet federal regulations are still holding the industry back, as U.S. cannabis companies are still burdened with onerous borrowing and tax costs.
That could — with an emphasis on “could” — change this year. Senate Majority Leader Chuck Schumer has said he will be putting forth a comprehensive cannabis legalization bill sometime “soon.” It’s an open question whether it will pass, but passage would be a big catalyst for U.S.-based multistate operators.
Although there are many attractive companies in the space, today Ayr Wellness (OTC:AYRW.F), Cresco Labs (OTC:CRLBF), and Jushi Holdings (OTC:JUSHF) look like especially solid choices at this stage of the industry.
Ayr Wellness: A 2020 caterpillar that will turn into a butterfly in 2021
Ayr Wellness has closed four major acquisitions in new states since December, and it’s set to close the acquisition of New Jersey cannabis operator GSD New Jersey in July. Once completed, Ayr will have gone from a two-state to a seven-state operator, in some of the most attractively regulated states in the United States.
Of particular note is the company’s acquisition of Liberty Health in Florida, which Ayr purchased for only $290 million and closed at the end of February. In fact, on a recent conference call with analysts, Chairman John Sandelman said, “It’s always been my belief that the Liberty asset by itself will be worth more in the future than the current value of our stock today.” On a fully converted share basis, Ayr has about a $1.9 billion market capitalization.
Why so much optimism for the Florida asset? It’s because Ayr bought Liberty as it was having cultivation problems in Florida’s humid climate, with 25% yield losses. As a result, Liberty was only able to supply its stores for two days a week. Ayr’s management has already improved yields to levels equal to the rest of the industry and has also increased grams per square foot by 60%. Liberty now has product on the shelves four to five days a week, on the way to a full seven days this year.
Not only that, but Ayr still trades at a discount to other major U.S. MSOs, based on 2022 estimates of EBITDA. That’s likely due to the market’s failure to understand the step-change in revenue and profits the company should see this year. But with… Continue reading at Fool.com
