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This Multistate Operator Wants to Be Your Top Long-Term Cannabis Investment

By Jeff Little – Updated Aug 4, 2021 at 4:48PM

Key Points

  • The buying spree continues for Ayr Wellness.
  • A recent acquisition gives it entry into a key state.

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Consolidation is the name of the game in a highly competitive market.

Consolidation is the name of the game among multistate cannabis operators (MSOs) in the U.S. lately. As more states vote to legalize recreational cannabis, existing states in which it's already legal, such as Illinois, are holding lotteries to offer new cannabis dispensary licenses. 

Among the multistate operators that have been taking part in the recent consolidation frenzy is Ayr Wellness (AYRW.F 0.89%), a vertically integrated operator (that means it covers the full supply chain, from cultivation through retail sale) headquartered in New York.

Marijuana plant farmer surrounded neck deep in plants.

Image Source: Getty Images

Ayr's most recent two acquisitions align the company more clearly for future growth in the market, as well as giving it a presence in a highly competitive and revenue-generating state, Illinois, where it currently has none.

A Nevada expansion

On July 19, Ayr announced an acquisition focused on cultivation facilities  in Nevada , where the company already has a presence with six dispensaries, including one in Las Vegas. The newest additions will provide Ayr with two cultivation licenses, a production license, and a distribution license to add to its growing footprint in the state as the result of its acquisition of Tahoe Hydro and NV Greene, an award-winning cultivator and a top-quality producer of concentrates. 

The addition of new cultivation facilities and premium flower will increase Ayr's capability to fulfill demand within the state and to serve its retail customers with a top-notch flower product. This is an important step in allowing Ayr to remain competitive with the likes of larger MSOs with retail locations in the state, such as Green Thumb and Curaleaf.

The Nevada cannabis market provides Ayr with a great opportunity to cash in on growing sales. Per Statista, the fiscal-year growth rate from 2018 to 2019 was 20%, followed up by only 7% growth from 2019 to 2020, partially offset by pandemic-related restrictions. Through February 2021, the state was on pace to reach over $900 million in revenue for the most recent fiscal year ending this past June, which would represent a 32% jump over the $684 million brought in for fiscal 2020.

Welcome to Illinois

The day after Ayr announced the expansion in Nevada, it followed up with further news -- this time with more perceived impact on the market. The July 20 news of Ayr's entry into the Illinois market through the acquisition of Herbal Remedies Dispensaries was not just another expansion in a state where Ayr currently has no presence; it also spoke volumes about Ayr's intention to grow and compete in strong markets, including its competitors' own backyards.

Rival Green Thumb is headquartered in Illinois, where it has seven fully operating dispensaries. Ayr will also be competing for market share with Cresco Labs, the reigning largest operator in Illinois with 10 fully operating dispensaries and three cultivation facilities in the state.

While Herbal Remedies Dispensaries was a small purchase in terms of size, currently boasting just two locations, creating a footprint in Illinois provides Ayr greater opportunity to capture part of a growing $1.8 billion market in the state. Ayr intends to allow Herbal Remedies to operate as is, meaning it will remain unchanged pending the close of the deal. This will allow Ayr to benefit from the brand and reliability that Herbal Remedies has developed within the community -- the business was one of the first licensed by the state to dispense medical marijuana back in 2013.

Green means go

If first-quarter results are any indication of how much success Ayr will have going forward, driven by market growth and its ability to identify opportunistic acquisitions, the future could be very green. The company posted Q1 revenue of $58 million, a jump of 74% over the same quarter last year. It also provided guidance for the second quarter including revenue of $90 million, which represents a moonshot increase of 218% year-over-year quarterly growth. (Results are scheduled for Aug. 17.)

From a stock-price perspective, it looks like Ayr shares have found a good bottom since an early March high of $37. The stock's been hovering around $29 since the beginning of April, and analysts have an average $54 price target on it. Cannabis investments can require a great deal of patience, but if revenue numbers continue to climb and net losses per share keep shrinking -- as they did in the most recent quarter, going from $0.53 down to $0.38 -- that price target may not be far off, resulting in a potential 86% gain.

Jeff Little owns shares of Green Thumb Industries. The Motley Fool owns shares of and recommends Ayr Wellness, Cresco Labs Inc., and Green Thumb Industries. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Ayr Wellness Stock Quote
Ayr Wellness
AYRW.F
$2.83 (0.89%) $0.03
Green Thumb Industries Stock Quote
Green Thumb Industries
GTBIF
$12.80 (0.79%) $0.10
Curaleaf Holdings, Inc. Stock Quote
Curaleaf Holdings, Inc.
CURLF
$6.47 (-2.56%) $0.17
Cresco Labs Inc. Stock Quote
Cresco Labs Inc.
CRLBF
$3.25 (-0.61%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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