Acreage Holdings Is An Arbitrage Play, This Analyst Explains Why

Acreage Holdings, Inc ACRDF recently posted its financial results for the first quarter ended March 31, 2022.

CEO Peter Caldini said the company “achieved our fifth consecutive quarter of positive Adjusted EBITDA and sequentially improved our gross margin while continuing to grow revenue despite industry headwinds and pandemic related challenges in Q1.”

Acreage saw a 2% quarter-over-quarter decline in sales to $56.9 million in the first quarter. Year-over-year revenue increased 48%.

Cantor Fitzgerald’s Pablo Zuanic said in his recent note that the company will benefit from the launch of adult-use cannabis sales in New Jersey, as well as other states where the company operates and that are legalizing recreational weed this year or in 2023.

“We believe the top-line should ramp in the year ahead on the back of NJ going rec,” the analyst said.

The Analyst

Zuanic retained a Neutral rating on the company’s stock while lowering the price target to $1.60 from $1.92 on sectoral de-rating.

The Thesis

The analyst said that “efficiencies, scale, and greater verticality” should increase margins. In the quarter, gross margins of 52% were in-line with industry peers in the MSO group, but EBITDA margins at 15% are “well below.”

As a stock investment, Zuanic said Acreage is “an arbitrage play” given that Canopy Growth’s acquisition is “contingent on U.S. federal cannabis permissibility.” Canopy Growth Corp. CGC revealed its interest in Acreage in 2019.

In addition, Acreage is currently present in 10 states and is working toward being vertical in most of its key markets.

Price Action

Acreage’s shares traded 1.92% lower at $1.275 per share on Thursday morning.

Photo: Courtesy of Maxim Hopman on Unsplash