Even the most surface-level research into the cannabis market quickly reveals three major trends. First, the market is growing rapidly. Second, the companies that are more sizable in terms of facilities and revenue are continuing to eat up the smaller players. And third, revenue is hitting record amounts, to the tune of $17.5 billion in legal cannabis sales in the U.S. in 2020, a 46% increase over 2019.

Ayr Wellness (AYRW.F 7.32%) is feeding off all three of these factors as it looks to become a leader among the elite vertically integrated multi-state operators selling medical and recreational marijuana.

Group of five friends having drinks and smiling outside.

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An expensive purchase could give Ayr a leg up

One of the fastest-growing sectors within the larger cannabis market is CBD-infused beverages. A market research report from Facts & Factors states that the value of this market was $3.4 billion in 2020, and it's expected to grow at a compound annual rate of 27.5%, to reach $14.6 billion by 2026. 

On Aug. 16, Ayr announced that it was entering this flourishing market through the acquisition of cannabis product manufacturer Cultivauna, which owns the Levia brand of THC-infused cannabis seltzer beverages. At a cost of $20 million, Ayr will have ownership of a leading brand currently producing three flavors (all of which can boast zero calories and no hangover) sold in over 100 licensed dispensaries across Massachusetts. 

According to Jonathan Sandelman, CEO of Ayr: "Infused beverages, done right, will be game-changing to the mainstreaming of cannabis in the U.S. The acquisition of Levia brings Ayr into this rapidly growing segment with delicious, market-leading infused seltzer." The acquisition is expected to close by the end of the year.

As of June, Levia was the leading THC-infused beverage brand in Massachusetts by revenue, totaling monthly sales just a few ounces short of $1 million. June was its fifth consecutive month of market-leading sales in the state. Though sales come from only the dispensaries in Massachusetts, they're enough to make Levia the second-best-selling cannabis beverage in the U.S., behind only Cann, which is headquartered in the largest of the legal cannabis markets in the country, California.

A buyback suggests company optimism

Following the acquisition of Levia, Ayr provided more exciting news for investors. The company announced a 5% share repurchase plan on Aug. 25. This type of announcement is usually good news for shareholders, as it shows that the company believes in its growth trajectory and signifies that the stock price could be trading at a discount to its future value. 

To further underscore this notion, Sandelman used the announcement to reemphasize the company's plans to meet its 2022 goal of $800 million in annual revenue. Unfortunately, the market did not show a positive response for long. The stock spiked up for a day before continuing its downward trend that started Aug. 10. At that time, the share price was sitting at $30, but has since dropped to $20.

Is it a buy?

The news coming out of Ayr has gained the confidence of analysts, who have an average 12-month price target of $50. This represents a potential 85% gain within 12 months for investors who get in now at the current stock price of $22. The 50% decline in Ayr since early August, its new acquisition, and the buyback suggest that this is a classic buy-on-the-dip opportunity.

One obstacle which might cause investors to hesitate is that the overall cannabis market is experiencing a downward trend in stock prices for leading companies including Ayr, Green Thumb Industries, and Canopy Growth. Until that trend stabilizes, more cautious investors might decide to sit tight to make sure the market isn't facing an across-the-board cannabis market correction. Either way, a long-term investment in Ayr looks promising.