This Cannabis Company Cuts Costs To 'Build Meaningful Depth,' Analyst Tells Us What To Expect In Q4 Earnings

Ayr Wellness Inc. AYRWF AYR kicked off 2023 by canceling a deal with Gentle Ventures, LLC, which is doing business as Dispensary 33, to purchase two Chicago, Illinois-based dispensaries for $55 million.

David Goubert, Ayr's president attributed the move to the cannabis market changing "significantly in the 15 months" following the announcement to acquire Dispensary 33.

"We are focused on optimizing our business and will prioritize our efforts in markets where we can build meaningful depth and drive strong revenue and cash flow in the near term." 

Shortly after, the company decided to sell its Arizona assets and reduce its long-term debt by $22.5 million, which is in line with its plans that include "implementation of operating efficiencies, lowering costs across its business, and reorienting its investments into the markets, segments and activities that are most impactful for its growth and profitability."

With the company more focused on cutting costs and consolidating its assets, Cantor Fitzgerald's Pablo Zuanic weighed in on what to expect in the upcoming Q4 earnings season regarding the Miami-based multistate marijuana operator (MSO).

The Analyst

Zuanic retained a Neutral rating on the company's stock while lowering his 12-month price target to $1.38 from $4.25.

The Thesis

Based on guidance provided by the company's management in November 2022, sales are projected to grow by 10% sequentially in the fourth quarter.

However, Zuanic pointed out that FactSet consensus is below that.

"We project sales of $125Mn (+4% seq) vs. consensus of $129.3Mn and EBITDA of $23Mn (+6% seq) vs. consensus of $23.8Mn," the analyst said in his latest note.

Zuanic noted that Ayr's balance sheet is "one of the most levered" within the MSO space, alongside "broadly defined net debt 4.5x CY23 consensus EBITDA and 1.1x current annualized sales."

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