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Ayr Strategies Reports Financial Results & Reaches Agreements to Enter New Markets

Ayr Strategies Inc.
·21 min read
  • Q2 Results In-Line with Earnings Pre-Announcement Issued on July 6, 2020

  • Ayr has Delivered Dramatic Improvements Across Key Financial Metrics Each Month Through July 2020

  • As of July 2020, Operating at an Annual Revenue & Adjusted EBITDA Run-Rate of $181 Million and $77 Million, Respectively

  • Generated $8.7 Million in Cash from Operations in Q2; Cash Balance Remains Strong with $17 Million at July 31, 2020

  • Expanding Footprint to Three New States; Today Announcing a Binding Agreement Signed for Cultivation, Production and Dispensary Assets in Pennsylvania, and an Additional Two New Markets Anticipated to be Announced in Q3

  • Announces the Appointment of New Executives and Board Member

TORONTO, Aug. 26, 2020 (GLOBE NEWSWIRE) -- Ayr Strategies Inc. (CSE: AYR.A, OTCQX: AYRSF) (“Ayr” or the “Company”), a vertically-integrated cannabis multi-state operator (MSO), is reporting financial results for the three months ended June 30, 2020, as well as preliminary results for July 2020. The Company is also announcing that it has entered into an agreement to expand its footprint to include cultivation, production and dispensary assets in Pennsylvania. Unless otherwise noted, all results are presented in U.S. dollars.

“Our business has performed extremely well across market environments, and we enter the next phase of our corporate development in a position of even greater operational strength,” said Ayr CEO Jon Sandelman. “Over the past four months, we have driven consistent, material month-over-month improvements in our operations. We achieved monthly records for revenue, adjusted EBITDA and operating income in July, and we are currently operating at an exceptional $181 million and $77 million annual run rate for revenue and adjusted EBITDA, respectively. I am incredibly proud of our team’s hard work and the momentum we have generated; but I want to stress that we are just getting started.”

Financial Highlights ($ in millions, excl. margin items)

Jan
2020

Feb
2020

Mar
2020

Apr
2020

May
2020

Jun
2020

Jul
2020

Revenue

$

11.7

$

11.7

$

10.2

$

5.8

$

9.8

$

12.7

$

15.1

Gross Margin before Fair Value Adj.

48.2%

48.7%

52.3%

58.2%

61.9%

60.2%

60.8%

Adj. EBITDA

$

2.9

$

3.0

$

2.5

$

0.8

$

3.3

$

5.0

$

6.4

The preliminary July 2020 results are subject to change following completion of the company’s quarterly financial reporting process.

Q1 2020

Q2 2020

% Change

Revenue

$

33.6

$

28.3

(16)%

Gross Profit

$

20.3

$

23.5

16%

Gross Profit before Fair Value Adj.

$

16.6

$

17.1

3%

Operating Income/(Loss)

$

(4.9)

$

1.0

N/A

Net Income/(Loss)

$

1.6

$

(7.5)

N/A

Adj. EBITDA

$

8.4

$

9.1

8%

Sandelman continued: “Our monthly revenue improvements have been driven by exceptional retail growth in Nevada, where dispensary sales have grown by nearly 20% month-over-month in July. Gross margins have also benefitted from our expanded cultivation capacity in the state, which has driven higher levels of vertical integration in our dispensaries. The additional dispensary licenses we were recently granted in Clark County and Henderson will allow us to deepen our presence and reach an even greater number of patients and customers, and we are targeting opening our new Clark County dispensary before year end. In Massachusetts, our wholesale business has continued to ramp up due to our expanded cultivation capacity and strong demand resulting from new recreational dispensaries coming online every month. Our two medical dispensaries have also nearly doubled in revenue from pre-COVID levels. Our success in the Massachusetts and Nevada markets, especially amid a challenging operating environment, demonstrates the power and discipline of our strategy as we take our approach into new markets.”

Acquisition Overview

Speaking on Ayr’s proposed acquisition, Sandelman commented: “Our entry into new markets will build on the successful operational foundation we have established over the last 12 months, where we drove exceptional organic growth across our business. Moreover, we did so while simultaneously building the strong 600+ person team, culture, and financial and operational control framework we have today.

“The transaction we are announcing today and the additional transactions we will announce through the rest of this quarter are just the first step to expanding our footprint and firmly establishing Ayr as a top MSO – not only in terms of revenue, adjusted EBITDA, operating income and cash flow generation, but also in terms of presence across the industry’s most relevant markets. We believe today’s announced acquisition in Pennsylvania, along with the two expected additional markets to be announced later this quarter, will integrate efficiently into our established platform as a result of the strong foundation and scalable systems we have built. As we expand our footprint, we intend to repeat the playbook of excellent operations and successful greenfield project development that we have established and proven over the last 12 months.

“Similar to our prior acquisitions, we are bringing on exceptional teams to add to our deep talent pool, and we are purchasing these assets at very attractive levels of forward adjusted EBITDA for a combination of $27 million cash, $15 million stock and $15 million vendor notes. We have also been working diligently with strong institutional financing partners to seek to ensure that our future expansion plans are fully financed. We are extremely pleased that the debt markets have been highly receptive to Ayr’s strong credit profile. We are proud of the platform we have built and believe this is the beginning of an even stronger growth cycle for Ayr.

“Finally, I am thrilled to welcome a few new members to the Ayr team. Glenn Isaacson, who currently serves as Vice Chairman at Cushman & Wakefield, is joining our Board of Directors. He is also on the board of the American Foundation for AIDS Research. Glenn’s experience will prove invaluable and we look forward to leveraging his expertise as we continue to expand our footprint. Further, Megan Kulick has joined as our new Head of Investor Relations; she is a Wall Street veteran who also brings great cannabis experience. Karen Rinaldi has been promoted to our Head of Human Resources, a role that has become incredibly important as we have grown to over 600 employees and counting. We are excited to have these key new members of the team on board.”

Market Highlights

Pennsylvania

Population (m)

12.8

Legal Status

Medical

License Issuance

Limited

Penetration Rate (%)1

2.9%

# of Active Dispensaries

89

# of Cultivators & Processors

32

1 Penetration rate is calculated as current number of patients in a respective state divided by total state population.

Pennsylvania

Ayr has reached an agreement to acquire and develop six retail dispensaries and a significant cultivation and production footprint in a limited license state for total consideration of $57 million. The PA market is undersupplied with high barriers to entry and potential for substantial growth, as it has only 32 grower processor licenses and 198 dispensary permits to serve a rapidly growing medical patient base.

Ayr plans to acquire the membership interests in a licensed operator which includes a 143,000 ft² cultivation and processing facility with the initial construction phases comprising 45,000 ft² nearly complete. The 13-acre site provides ample room for further expansion even beyond the existing 143,000 ft² facility. The licensed operator also has the right to operate six dispensaries poised to open in excellent retail locations, most of which are clustered in the Pittsburgh and Philadelphia region. Three of these dispensaries are expected to open by January 2021. The licensed operator also has a strong research program in collaboration with a local medical school. The agreement, which is reflected in a binding term sheet, is subject to, among other things, the satisfactory completion of due diligence, the receipt of required regulatory approvals and the absence of a material adverse change.

Operational Highlights

As a reminder, Nevada regulators limited all cannabis sales to delivery-only beginning March 21, 2020, with curbside pick-up approved on May 1st and in-store sales on May 9th. In Massachusetts, regulators restricted adult use cannabis sales beginning March 24, 2020, with adult use sales commencing on May 25th.

Nevada Results

  • July average daily revenues were over $300k; daily transaction volumes over 4,360, with an average ticket of $71 per transaction

  • Recently awarded two additional dispensary licenses in the greater Las Vegas market—one in Clark County and one in Henderson—and aim to open the additional Clark County dispensary this year

Massachusetts Results

  • July average daily retail revenues are currently over $56k; daily transaction volumes over 350, with an average ticket of $162 per transaction

  • Selling to 48 of the state’s 67 dispensaries, with valuable inventory to sell into the state’s growing recreational market

  • Wholesale revenues have ramped to over $3.4 Million in July, reflecting growth of over 30% from levels at the start of 2020

Cultivation Expansions

  • In Massachusetts, Ayr has completed several months of harvests from its cultivation expansion, resulting in strong inventories available to address pent-up demand for adult use sales

  • The new Massachusetts cultivation facility is producing excellent results, with THC levels up to 30%, and improved gross margins in the state of approximately 70% in Q2 from the low 60% range in Q1

  • In Nevada, product from Ayr’s cultivation expansion arrived in stores in June, allowing for internally sourced product to increase from 25% in Q1 to over 40% in Q2

  • Nevada gross margin increased as a result, to approximately 60% in Q2 from 44% in Q1

Conference Call

Ayr CEO Jonathan Sandelman, COO Jennifer Drake and CFO Brad Asher will host the conference call, followed by a question and answer period.

Conference Call Date: Thursday, August 27, 2020
Time: 8:30 a.m. Eastern time
Toll-free dial-in number: (877) 282-0546
International dial-in number: (270) 215-9898
Conference ID: 5578887

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at (949) 574-3860.

The conference call will be broadcast live and available for replay here.

A telephonic replay of the conference call will also be available after 11:30 a.m. Eastern time on the same day through September 3, 2020.

Toll-free replay number: (855) 859-2056
International replay number: (404) 537-3406
Replay ID: 5578887

Financial Statements

Certain financial information reported in this news release is extracted from Ayr’s financial statements as at and for the three and six month periods ended June 30, 2020. These results presented herein are preliminary and subject to change. Ayr will file its interim financial statements on SEDAR shortly. All such financial information contained in this news release is qualified in its entirety by reference to such financial statements.

Definition and Reconciliation of Non-IFRS Measures

The Company reports certain non-IFRS measures that are used to evaluate the performance of its businesses and the performance of their respective segments, as well as to manage their capital structures. As non-IFRS measures generally do not have a standardized meaning, they may not be comparable to similar measures presented by other issuers. Securities regulators require such measures to be clearly defined and reconciled with their most comparable IFRS measure.

The Company references non-IFRS measures and cannabis industry metrics in this document and elsewhere. Non-IFRS measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these are provided as additional information to complement those IFRS measures by providing further understanding of the results of the operations of the Company from management’s perspective. Accordingly, these measures should not be considered in isolation, nor as a substitute for analysis of the Company’s financial information reported under IFRS. Non-IFRS measures used to analyze the performance of the Company’s businesses include “adjusted EBITDA.”

The Company believes that these non-IFRS financial measures provide meaningful supplemental information regarding the Company’s performances and may be useful to investors because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. These financial measures are intended to provide investors with supplemental measures of the Company’s operating performances and thus highlight trends in the Company’s core businesses that may not otherwise be apparent when solely relying on the IFRS measures.

Adjusted EBITDA

“Adjusted EBITDA” represents income (loss) from operations, as reported, before interest and tax, adjusted to exclude extraordinary items, non-recurring items, other non-cash items, including stock-based compensation expense, depreciation and amortization, the adjustments for the accounting of the fair value of biological assets and the incremental costs to acquire cannabis inventory in a business combination, and further adjusted to remove acquisition related costs.

A reconciliation of how Ayr calculates adjusted EBITDA is provided below. Additional reconciliations of adjusted EBITDA and other disclosures concerning non-IFRS measures will be provided in our MD&A for the 3 months ended June 30, 2020. As well, the Company reminds you that adjusted EBITDA is a non-IFRS measure.

Forward-Looking Statements

Certain information contained in this news release may be forward-looking statements within the meaning of applicable securities laws. Forward-looking statements are often, but not always, identified by the use of words such as “target”, “expect”, “anticipate”, “believe”, “foresee”, “could”, “would”, “estimate”, “goal”, “outlook”, “intend”, “plan”, “seek”, “will”, “may”, “tracking”, “pacing” and “should” and similar expressions or words suggesting future outcomes. This news release includes forward-looking information and statements pertaining to, among other things, Ayr’s future growth plans. Numerous risks and uncertainties could cause the actual events and results to differ materially from the estimates, beliefs and assumptions expressed or implied in the forward-looking statements, including, but not limited to: anticipated strategic, operational and competitive benefits may not be realized; events or series of events, including in connection with COVID-19, may cause business interruptions; required regulatory approvals may not be obtained; acquisitions may not be able to be completed on satisfactory terms or at all; and Ayr may not be able to raise additional debt or equity capital. Among other things, Ayr has assumed that its businesses will operate as anticipated, that it will be able to complete acquisitions on reasonable terms, and that all required regulatory approvals will be obtained on satisfactory terms and within expected time frames. In particular, there can be no assurance that we will complete the acquisition in Pennsylvania or enter into agreements with respect to other acquisitions.

2020 estimates and assumptions involve known and unknown risks and uncertainties that may cause actual results to differ materially. While Ayr believes there is a reasonable basis for these assumptions, such estimates may not be met. These estimates represent forward-looking information. Actual results may vary and differ materially from the estimates.

Assumptions

Forward-looking information in this subject to the assumptions and risks as described in our MD&A for June 30, 2020. For more information about the Company’s 2020 operations and outlook, please view Ayr’s corporate presentation posted in the Investors section of the Company’s website at www.ayrstrategies.com. As well, we remind you that adjusted EBITDA is a non-IFRS measure. Additional reconciliations and other disclosures concerning non-IFRS measures will be provided in our MD&A for the 3 and 6 months ended June 30, 2020.

About Ayr Strategies Inc.

Ayr Strategies (“Ayr”) is an expanding vertically integrated, U.S. multi-state cannabis operator, focusing on high-growth markets. With anchor operations in Massachusetts and Nevada, the company cultivates and manufactures branded cannabis products for distribution through its network of retail outlets and through third-party stores. Ayr strives to enrich and enliven consumers’ experience every day – helping them to live their best lives, elevated.

Ayr’s leadership team brings proven expertise in growing successful businesses through disciplined operational and financial management, and is committed to driving positive impact for customers, employees and the communities they touch. For more information, please visit www.ayrstrategies.com.

Company Contact:

Jennifer Drake, COO
T: (212) 299-7606

Investor Relations Contact:

Sean Mansouri, CFA or Cody Slach
Gateway Investor Relations
T: (949) 574-3860
Email: ayr@gatewayir.com



Ayr Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

Unaudited Condensed Interim Consolidated Statements of Financial Position

(Expressed in United States Dollars)

As at

June 30, 2020

December 31, 2019

$

$

ASSETS

Current

Cash and cash equivalents

15,986,515

8,403,196

Accounts receivable

1,935,036

2,621,239

Due from related parties

85,000

85,000

Inventory

20,419,223

13,718,840

Biological assets

9,239,566

2,935,144

Prepaid expenses and other current assets

3,168,822

2,163,329

50,834,162

29,926,748

Non-current

Property, plant and equipment

39,487,778

37,152,861

Intangible assets

183,044,803

189,802,136

Right-of-use assets

11,399,736

12,315,417

Goodwill

84,837,304

84,837,304

Equity investments

477,961

427,399

Other assets

753,394

638,394

Total assets

370,835,138

355,100,259

LIABILITIES

Current

Trade payables

7,907,441

6,806,053

Accrued liabilities

5,829,850

5,123,865

Lease obligations - current portion

939,602

1,087,835

Purchase consideration payable

6,290,897

9,831,700

Income tax payable

13,470,358

5,202,943

Debts payable - current portion

8,247,133

6,628,843

42,685,281

34,681,239

Non-current

Deferred tax liabilities

42,429,247

41,077,761

Warrant liability

26,088,841

36,874,124

Lease obligations - non-current portion

12,607,312

13,033,310

Contingent consideration

23,376,154

22,656,980

Debts payable - non-current portion

33,839,333

37,366,818

Accrued interest payable

1,513,866

815,662

Total liabilities

182,540,034

186,505,894

SHAREHOLDERS' EQUITY (DEFICIENCY)

Share capital

385,975,933

382,210,006

Treasury stock

(552,911

)

(245,469

)

Contributed surplus

50,127,987

28,879,225

Accumulated other comprehensive income

4,217,744

3,265,610

Deficit

(251,473,649

)

(245,515,007

)

Total shareholders' equity

188,295,104

168,594,365

Total liabilities and shareholders' equity

370,835,138

355,100,259



Ayr Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

Unaudited Condensed Interim Consolidated Statements of Loss and Comprehensive Loss

(Expressed in United States Dollars)

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

$

$

$

$

Revenues, net of discounts

28,310,633

10,823,206

61,863,313

10,823,206

Cost of goods sold before biological asset adjustments

11,219,545

4,923,766

28,130,267

4,923,766

Gross profit before fair value adjustments

17,091,088

5,899,440

33,733,046

5,899,440

Fair value adjustment on sale of inventory

(9,328,081

)

(4,696,472

)

(16,331,570

)

(4,696,472

)

Unrealized gain on biological asset transformation

15,706,510

2,479,803

26,332,388

2,479,803

Gross profit

23,469,517

3,682,771

43,733,864

3,682,771

Expenses

General and administrative

8,958,708

3,084,872

17,764,940

3,084,872

Sales and marketing

409,245

236,711

943,844

236,711

Depreciation

601,351

138,649

1,125,982

138,649

Amortization

2,998,667

1,387,977

5,997,333

1,387,977

Stock-based compensation

9,103,459

4,520,138

21,248,762

4,520,138

Acquisition expense

368,930

2,591,312

497,309

4,132,400

Total expenses

22,440,360

11,959,659

47,578,170

13,500,747

Income (Loss) from operations

1,029,157

(8,276,888

)

(3,844,306

)

(9,817,976

)

Other (expense) income

Share of loss (income) on equity investments

(8,013

)

106,911

(23,138

)

106,911

Foreign exchange

191

(35,083

)

(2,619

)

(18,368

)

Unrealized (loss) gain - changes to fair value of financial liabilities

(2,861,022

)

(26,621,554

)

8,888,849

(162,434,128

)

Interest expense

(752,614

)

(586,389

)

(1,519,577

)

(586,389

)

Interest income

26

137,302

-

364,518

Other

44,785

(12,212

)

161,050

(12,212

)

Total other (expense) income

(3,576,647

)

(27,011,025

)

7,504,565

(162,579,668

)

(Loss) Income before income tax

(2,547,490

)

(35,287,913

)

3,660,259

(172,397,644

)

Current tax

(4,223,419

)

(1,430,813

)

(8,267,415

)

(1,430,813

)

Deferred tax

(742,799

)

932,901

(1,351,486

)

932,901

Net loss

(7,513,708

)

(35,785,825

)

(5,958,642

)

(172,895,556

)

Foreign currency translation adjustment

(823,634

)

(1,677,876

)

952,134

(880,469

)

Net loss and comprehensive loss

(8,337,342

)

(37,463,701

)

(5,006,508

)

(173,776,025

)

Basic and diluted loss per share

(0.28

)

(2.18

)

(0.22

)

(20.94

)

Weighted average number of shares outstanding (basic and diluted)

27,241,386

16,440,042

27,065,654

8,256,123



Ayr Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

Unaudited Condensed Interim Consolidated Statements of Cash Flows

(Expressed in United States Dollars)

Six Months Ended

June 30, 2020

June 30, 2019

$

$

Operating activities

Net loss

(5,958,642

)

(172,895,556

)

Adjustments for:

Acquisition costs associated with financing activities

-

129,236

Net unrealized (gain) loss on changes in the fair value of financial liabilities

(8,888,849

)

162,434,128

Stock-based compensation

21,248,762

4,520,138

Depreciation

2,017,982

257,245

Amortization on intangible assets

6,757,333

1,387,977

Share of loss on equity investments

23,138

(106,911

)

Fair value adjustment on sale of inventory

16,331,570

4,696,472

Unrealized gain on biological asset transformation

(26,332,388

)

(2,479,803

)

Deferred tax expense (benefit)

1,351,486

(932,901

)

Interest accrued

698,204

264,770

Interest income

-

(364,518

)

Changes in non-cash operations, net of business acquisition:

Accounts receivable

686,203

568,471

Inventory and biological assets

(3,003,987

)

797,064

Prepaid expenses and other assets

(1,120,493

)

(2,255,026

)

Trade payables

3,265,691

2,455,857

Accrued liabilities

705,985

772,978

Income tax payable

8,267,415

1,430,813

Cash provided by operating activities

16,049,410

680,434

Investing activities

Transfer of restricted cash and short term investments held in escrow and interest income

-

100,048,761

Purchase of property, plant and equipment

(5,601,523

)

(160,254

)

Deferred underwriters commission paid

-

(3,457,154

)

Cash paid for business combinations, net of cash acquired

-

(74,714,171

)

Payments for interests in equity accounted investments

(73,700

)

-

Advances from related corporation

-

(1,520,909

)

Cash (used in) provided by investing activities

(5,675,223

)

20,196,273

Financing activities

Redemption of Class A shares

-

(7,519

)

Repayments of debts payable

(1,909,195

)

(539,579

)

Repayments of lease obligations (principal portion)

(574,231

)

(43,878

)

Repurchase of Subordinate Voting Shares

(307,442

)

-

Cash used in financing activities

(2,790,868

)

(590,976

)

Net increase in cash

7,583,319

20,285,731

Effect of foreign currency translation

-

(2,466,655

)

Cash and cash equivalents, beginning of the period

8,403,196

109,952

Cash and cash equivalents, end of the period

15,986,515

17,929,028

Supplemental disclosure of cash flow information:

Interest paid during the period

1,287,017

321,619

Taxes paid during the period

-

111,607



Ayr Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

Unaudited Condensed Interim Consolidated Adjusted EBITDA Reconciliation

(Expressed in United States Dollars)

Three Months ended June 30,

Six Months ended June 30,

2020

2019

2020

2019

Income (Loss) from operations

1,029,157

(8,276,888

)

(3,844,306

)

(9,817,976

)

Non-cash items accounting for biological assets and inventory

Fair value adjustment on sale of inventory

9,328,081

4,696,472

16,331,570

4,696,472

Unrealized gain on biological asset transformation

(15,706,510

)

(2,479,803

)

(26,332,388

)

(2,479,803

)

(6,378,429

)

2,216,669

(10,000,818

)

2,216,669

Interest

253,770

-

466,191

-

Depreciation and amortization (from statement of cash flows)

4,507,139

1,645,222

8,775,315

1,645,222

Acquisition costs

368,930

2,591,312

497,309

4,132,400

Stock-based compensation, non-cash

9,103,459

4,520,138

21,248,762

4,520,138

Other1

239,352

312,801

420,464

312,801

14,472,650

9,069,473

31,408,041

10,610,561

Adjusted EBITDA (non-IFRS)

9,123,378

3,009,254

17,562,917

3,009,254

1 Other adjustments made to exclude the impact of non-recurring items.