If marijuana legalization happens on the federal level rather than on the state-by-state basis that has characterized cannabis in the U.S. so far, there's one multi-state operator (MSO) that will be particularly affected by such a powerful move -- Acreage Holdings (ACRH.F +0.00%).
That's because Acreage, which has struggled with profitability and cash flow like many of its peers, will be acquired by Canadian pot company Canopy Growth (CGC 2.08%) if full, top-down legalization occurs here.
To talk about the prospects of federal legalization and Acreage's strategy for plowing forward if it doesn't occur -- in addition to related topics -- Motley Fool contributor Eric Volkman interviewed the company's CEO Peter Caldini. Here's what he had to say.
Image source: Getty Images.
Eric Volkman: Several years ago, your company's balance of cash and equivalents was nearly four times the level it is today. What's your runway like now, and can we expect new rounds of fundraising?
Peter Caldini: Looking back at our 2021 financial highlights, Acreage made significant improvements in profitability. Our full-year consolidated revenue increased 65% year over year (YOY); we achieved our first quarter of positive earnings before interest, taxes, depreciation, and amortization (EBITDA); and we continued a trajectory of positive EBITDA each subsequent quarter.
Even in an industry-wide slow period, our fourth-quarter 2021 revenue was $58.1 million, an 84% YOY increase and 21% sequentially. We're incredibly proud of these achievements and feel positioned for our strongest year yet.
Over the last year, we have strengthened our balance sheet with the divestiture of several non-core assets, and we will continue to evaluate any opportunities to raise capital at attractive rates. We also recently entered into a $150 million long-term debt agreement, which will fund expansion initiatives, repay debt, and provide additional working capital.
As we remain open to funding opportunities, we're maintaining a healthy cash position and spending strategically.
Volkman: For many investors, Acreage is best known as a potential future acquisition of Canada-based Canopy Growth. This deal is contingent upon U.S. legalization at the federal level, though, which seems to be proceeding at a snail's pace at best. What is your company's plan B strategy in case the prospects for legalization continue to recede?
Caldini: Our focus continues to be the growth of Acreage and building a sustainable business that can thrive both in the current state-by-state and impending federally legal landscapes. While the cannabis industry's regulatory landscape continues to evolve, we are focused on strengthening our footprint in highly attractive markets like New Jersey, New York, Massachusetts, Pennsylvania, and now Ohio.
We're well positioned to take advantage of regulatory changes at both the state and federal levels, and our strategic priority is to accelerate our growth in core markets as legislation evolves. We have a solid relationship with Canopy and continue to seek opportunities to leverage our joint resources where applicable.
Volkman: Regarding legalization, how do you see that developing through 2022 -- will more states come on board, and do you feel there's some possibility for change at the federal level?
Caldini: In the near-term future, we expect legalization to continue as a state-led process under the Biden administration -- and we do expect movement. As adult-use states continue to see record-breaking revenues and increased tax income combined with a majority favorable opinion of cannabis, it's only natural that we will see states flipping.
Full federal legalization is slowly making its way, but we do hope to see federal measures such as decriminalization and banking access move forward. Cannabis is one of our country's very few bipartisan issues, as we see Democrats and Republicans racing to pass their versions of legislation hoping to get the win -- it's no longer a matter of if, but of how and how soon.
OTC: ACRH.F
Key Data Points
Volkman: You recently revamped your "House of Brands" (i.e., product portfolio), notably introducing the Superflux specialty brand and several goods carrying your dispensary's (The Botanist) brand. Why are you targeting the premium segment, and what's behind the expansion of the proprietary brand?
Caldini: Our refocused "House of Brands" not only caters to the premium segment but also appeals to a mainstream, long-term commercial audience by focusing on three foundational pillars: customer centricity, quality, and product innovation.
Under this strategy, we continue to diversify our product lines and provide modern, accessible offerings to our consumers around the country; this is key to optimizing and sustaining scalable product growth across our footprint and building a strong portfolio that meets a broad swath of consumer needs.
Volkman: Speaking of dispensaries, late last year, you struck a deal to sell your Oregon stores. Why was this done, and does this mean there will be a further retrenchment of your retail operations?
Caldini: We announced the Oregon divestment for $6.5 million during Q3 2021, and we continue to make progress and are in active discussions to sell our "held for sale" assets in Michigan and California.
In recent years, our Oregon stores were ultimately affecting our bottom line in a negative way, and the sale strategically frees up valuable management resources. By divesting states where we weren't positioned for long-term success, we're able to laser focus on highly attractive markets like New Jersey, New York, and Ohio, where we feel uniquely positioned to win.
Unloading these assets is a key step in our new operating strategy, focused on driving profitability, strengthening our balance sheet, and accelerating our growth in core limited-license markets.
