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Wellness Co.'s Q1/23 Results Better Than Expected
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Results for the first quarter of this year for Ayr Wellness Inc. were better than expected, reported an Echelon Capital Markets research note.

Ayr Wellness Inc. (AYR.A:CSE; AYRWF:OTCQX) recently reported solid results for the first quarter of this year (Q123), noted Andrew Semple in a May 17 Echelon Capital Markets research note.

Results were better than expected, according to Semple, after adjusting for "the accounting of Arizona as discontinued operations." The company's organic sales growth and adj represented strong progress, as well as the reduction of its expenses. This expense reduction is of premier importance to Ayr's management team, and the company projects to reach a 30% adj. 

Semple stated he saw promise in the company's outlook through the guidance management demonstrated during the second quarter of 2023. He noted, "Management guided to Q223 demonstrating the same pace of sequential sales and EBITDA growth, which we believe implies Q223 sales of roughly US$121 million and adj. EBITDA of approximately US$28.7 million." 

Ayr expects growth to ramp up in H223 due to new stores being opened. There will be 17 new locations in Florida and two in Ohio. 

"With ~18 months until maturity, we believe Ayr has a sufficient window to demonstrate improved financial performance, supporting our ongoing bullish view, but we acknowledge that macro conditions outside of the Company’s control have increased the risk profile of the business and narrowed its margin of safety," Semple stated.

Semple also reiterated that the new management team has already begun to take on previous concerns. This included a restructuring of a few contingent consideration payments and seller notes, leading to a large reduction in potential shareholder dilution.

Key Highlights

Semple thought it pertinent to point out some key reasons for his evaluation of the company.

  1. Results for Q123 were better than expected after adjusting for the divestiture of Arizona.
  2. Forward profitability estimates were upheld by guidance from management.
  3. Two new medical dispensaries were reopened in Flordia, leading to a current total of 59 in the U.S.
  4. The formal closure of its portion of the Tahoe Hydro acquisition, previously pending regulatory approval.
  5. The formidable restructuring of contingent consideration, increasing cash consideration, and materially reducing dilution. 
  6. The prior COO, Jen Dranke, agreed to step down in April. 
  7. With EBITDA estimates being held solid, Q123 print and management's outlook gave Semple confidence in the company's ability to reach forecasts for the rest of 2023.

2024 Estimates

With all of the above, Semple also introduced estimates for 2024. These are listed as follows.

  • Revenue: US$568 million
  • Adjusted Gross Margin: 51.9%
  • Adjusted EBITDA: US$149.7 million

With these, Semple commented, "We note that our 2024 estimates show a solid double-digit pace of growth expected in 2024, though not as steep as the nearly 30% y/y increase expected by the consensus estimate, which we view as too aggressive . . .  We believe Ayr sustainably hits breakeven levered FCF by 2024 (prev. Q423)."

Structure and Predictions 

In his report, Andrew Semple raised his target price from CA$5.50 to CA$6.00.

Semple's research also shared current market data on the company.

  • Price: CA$1.34, with a 52-week range between CA$0.78 and CA$8.63.
  • Price Target: CA$6.00
  • Market Cap: CA$76.3 million

Semple noted a projected return of 348% and gave Ayr Wellness a speculative Buy rating.

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  1. Katherine DeGilio wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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Disclosures for Echelon Capital Markets, Ayr Wellness Inc., May 17, 2023

Echelon Wealth Partners Inc. is a member of IIROC and CIPF. The documents on this website have been prepared for the viewer only as an example of strategy consistent with our recommendations; it is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investing strategy. Any opinions or recommendations expressed herein do not necessarily reflect those of Echelon Wealth Partners Inc. Echelon Wealth Partners Inc. cannot accept any trading instructions via e-mail as the timely receipt of e-mail messages, or their integrity over the Internet, cannot be guaranteed. Dividend yields change as stock prices change, and companies may change or cancel dividend payments in the future. All securities involve varying amounts of risk, and their values will fluctuate, and the fluctuation of foreign currency exchange rates will also impact your investment returns if measured in Canadian Dollars. Past performance does not guarantee future returns, investments may increase or decrease in value and you may lose money. Data from various sources were used in the preparation of these documents; the information is believed but in no way warranted to be reliable, accurate and appropriate. Echelon Wealth Partners Inc. employees may buy and sell shares of the companies that are recommended for their own accounts and for the accounts of other clients. Echelon Wealth Partners compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded by the business activities of Echelon Wealth Partners including, Institutional Equity Sales and Trading, Retail Sales and Corporate and Investment Banking.

Research Dissemination Policy: All final research reports are disseminated to existing and potential clients of Echelon Wealth Partners Inc. simultaneously in electronic form. Hard copies will be disseminated to any client that has requested to be on the distribution list of Echelon Wealth Partners Inc. Clients may also receive Echelon Wealth Partners Inc. research via third party vendors. To receive Echelon Wealth Partners Inc. research reports, please contact your Registered Representative. Reproduction of any research report in whole or in part without permission is prohibited.

Canadian Disclosures: To make further inquiry related to this report, Canadian residents should contact their Echelon Wealth Partners professional representative. To effect any transaction, Canadian residents should contact their Echelon Wealth Partners Investment advisor.

U.S. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Echelon Wealth Partners Inc. is not registered as a broker-dealer in the United States and is not be subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. Any resulting transactions should be effected through a U.S. broker-dealer.

Company: Ayr WellnessInc. | CNSX:AYR.A

I, Andrew Semple, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.

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