Acreage has bestowed on its humble shareholders, and us analysts, their December 31, 2020 financial statements.  Once again Acreage put out the earnings release (March 9, 2021) and did the conference call before putting up their financials on their website (March 26, 2021) but not yet on Sedar.

I really recommend the reader look at the presser and see the quality (or lack thereof) the company gave analysts to have a conference call.  No income statement nor balance sheet.  Pathetic. Well. I guess you do not have to adjust the financials if the presser has little detail.

Here is their forecast moving forward:

We will keep this up top for F2021 and see how they do.

MDA has no QoQ data.

US GAAP filer.   

Income Statement Drivers & Breakeven: Trend

Table 1:

They are located in:

Dispensaries 19 +1 QoQ: Connecticut 3, Massachusetts 2 (+1), New York 4, Illinois 2, Florida 1 (FLA was sold post Q)

Cultivation 5: Pennsylvania 1, Massachusetts 1, New York 1, Illinois 1, Florida 1 (adding Michigan and Ohio)

Target to be in nine states.

Overall sales decreased by -1% or + $0.2 million to $31.5 million putting an end to 3 QoQ increases. Retail increased +5% or $1.1 million to $25 million, while wholesale decreased -17% or $1.3million to $6.5 million. Retail is 79% of revenue mix versus 75% last Q.

Retail Revenue: Peer and Trend

Retail has increased in every Q under review.  Regional review in descending order of sales:

• New England -6% at $11.8 million
• Mid Atlantic was the biggest increase at $3.9 million +35% in Q3 but only +4% to $11.7 million this Q despite adding a MA dispo
• Midwest, almost exclusively Illinois, increased $0.5 million or +10% to $5.3 million. 
• West decreased $0.6 million or -21% to $2.1 million
• South increased $0.2 million or 59% to $0.7 million.  They are selling the lone FLA dispo post Q.

Table 2: Revenue per OWNED store

The additional store was in MASS or New England.  We will see if it bounces back with a full Q next Q. Illinois and Midwest continue to increase.

Wholesale Revenue: Peer and Trend

Wholesale comes from the states that allow same: Mass, NY and PA.  This Q a 17% decrease, and in a Holiday Q no less.

Annualized Sales per Property, Plant and Equipment and Goodwill + Intangibles

This is our attempt to try and compare the organic growth companies (eg. TRUL and LHS) with the companies that are going organic plus “roll up” route.  The idea is that when a company purchases another company and instead of getting lots of PPE they are instead paying G/I to get a head start in the market.  That head start should manifest itself in Sales and GM, not necessarily immediately (retail stores yes, a cultivator may take time to launch) but eventually. 

Acreage improves to $0.48 from $0.47 QoQ. Acreage surpasses AYR, LHS, MMEN and HARV in this metric.

Income Statement Drivers & Breakeven: Peer

Acreage revenue is in USD and is only above LHS and CWEB in this peer set.

Gross Margin: USA Peer & Trend

Acreage GM % increased to 46% from 43% and came in at $14.5 million versus $13.5 million last Q.  No explanations given on QoQ.  The +4% lean in sales mix to 79% on Retail might be the reason.

Table 3:

Yup… Retail had a 44% GM (+3% QoQ) and was responsible for $1.2 million of the increase and it increased its contribution to $11 million.  Wholesale had a 54% GM (+7% QoQ) but was down -5% and accounts for $3.4 million of GM contribution.  Record $ amounts for Retail.

The bulk of GM$’s was generated by retail at 76% of the GM mix versus 73% of the mix last Q.

Gross Margin Annualized per PPE and Goodwill and Intangibles

As per the Annualized Sales version of this graph we are seeing how effective at GM generation the peer set has been. 

ACRG improved to $0.22 from $0.17 QoQ.  Ahead of ONLY HARV.

Gross Margin: USA Peer

Acreage is second from last in this eleven US MSO GM Peer Base. Only CWEB, with inventory impairment, is lower.

Gross Margin: North American Peer Base

In the North American Peer Base of 18 companies Acreage is 10^th. Both Tilray and Aphria, who rank below Acreage, have non cannabis operations at less GM% contribution.

SGA & SBC as a % of Sales: Trend

Note: I have moved the loss on impairment, loss on assets held for resale, loss on legal settlement, loss on notes receivable, …  to Other Income and expenses to maintain peer comparison.

Selling cost has increased to 1% of sales from 0%, only $0.3 million in the Q. Not much left to cut here.

G&A is at 68% of sales a decrease from 73% QoQ.  G&A is $21 million a decrease of $1.9 million QoQ, second lowest for F2020.  No schedule was provided to see where reductions were. 

SGA is $22 million versus GM of $15 million.  SGA decreased a combined $1.7 million QoQ.

SBC was $27 million or 85% of sales, increasing from $10 million and 33% last Q. With a higher stock price comes higher SBC.  Still obscenely high at $92 million for the year versus sales of $115 million.

Depreciation rings in at $1.3 million versus $1.4 million last Q.  No depreciation is ascribed to production assets.  Could all be Right of Use leases.

Total OPEX is $49 million +$14 million from last Q and 157% of sales versus 110% last Q.

NOP is negative $35 million versus negative $22 million last Q. That $1 million in extra GM and the improvement in SGA got eaten up by SBC increases.

SGA & SBC as a % of Sales: Peer

Easy to spot Acreage in the SBC peer. They are also third from the top in aggregate SGA trailing MMEN and CWEB.

+Net Operating Profit Quarterly Breakeven Sales: USA Peer

To achieve +NOP Acreage would need incremental sales of 142% versus 86% last Q.   

Other Expenses was -$6 million versus -$22 million in the previous Q, of note was

• Interest expense of $4.7 million was recorded, a decrease from $6.1 million last Q as their 60% interest rate loan was being serviced.
• Last Q they slid in a restatement to financials and posted a $14 million loss on legal settlement, it was only $0.4 million this Q.
• Loss on writedown of assets held for resale of $2.9 million last Q and nil this Q.  
• They had Other Expenses of $2.6 million versus $0.7 million last Q.

Taxes were a $4.4 million versus $3.8 million last Q.

Net Income was negative $45 million versus negative $48 million last Q. On a fully comprehensive basis, Net Income was -$37 million versus -$41 million last Q. 

+Net Operating Profit Quarterly Breakeven Sales: North American Peer

At current GM% and OPEX$’s Acreage would need incremental sales of 241% to achieve +NOP. CGC is right behind them but at 567% incremental sales required.

EBITDA Trend and Peer:

 I did not get to their Adj EBITDA figure of -$3.6 million as I have -$6.8 million.  Difference appears to be in interest expense for the Q and $1.3 million in Other Expenses.  Probably restructuring or transactional that they did not identify. Lack of a Q4 stand alone is not helpful here.

Opex Burn was negative $17 million versus negative $25 million last Q.  

+EBITDA Quarterly Breakeven Sales: USA Peer

For Acreage to get +EBITDA they would need incremental sales of 47%, versus 68% last Q, assuming current GM% and OPEX$’s. Progress was from an GM% generation and improvements in SGA increases.

+EBITDA Quarterly Breakeven Sales: North American Peer

Net Operating Profit + Non-Cash Expense – Interest – Taxes: $ Thousands of Dollars

Here is our new metric.  It is meant to show how much cash went into the bank account from operations after Interest and Taxes are serviced.  Essentially EBITDA without the I + T added back. 

Acreage evidences an improvement of $3 million QoQ to -$16 million, one of three basement dwellers in this metric.

Net Operating Profit + Non-Cash Expense – Interest – Taxes: % of Sales

ACRG did improve in this metric cutting it 50% of sales.  Long way to go a sthey are the worst in the peer group.

Waterfall: Trend

Inventory has been converted to US GAAP for all periods above. 

Inventory was stable QoQ at $31 million of which $18 million is wholesale inventory. FG increased QoQ by $1.8 million and looks sufficient for their purposes at a corporate level.  Although state by state inventory, which cannot be transported, would be a different matter.

Acreage does not provide WIP and FG breakouts, but I classified wholesale and retail inventory as FG.

On a CoGS basis, inventory of 1.4 Q’s on hand versus 1.2 last Q.

Waterfall: Peer

Acreage has the least inventory in this 11 US MSO peer group.

Cash decreased by $14 million QoQ to $32 million.  They have another $22 million in restricted cash, same as last Q.

• -$23 million was used in operating activities
• -$6 million used in investing activities:  
• +15 million was raised via financing activities

• Assets held for sale are $62 million (FLA $42 million, Oregon at $7 million, and Maryland at $3.0 million are the big ones) which are offset by their liabilities of $18 million (largely FLA which is being sold post Q and Oregon $1.6 million).  They are selling FLA for $60 million of which $25 million is cash, $7 million in buyer stock, and the $28 million balance they are carrying in a promissory note.

• A/P decreases by $25 million to $19 million and income Tax is $15 million. Cash is only $32 million.

• Current Portion of LTD decreased by $10 million to $27 million with the refinancing.

• Long Term Debt increased by $31 million to $153 million from the Canopy injection.

What I said last Q:

A small “p” progress Q.  Improvements in Sales and minor GM, but EBITDA is not budging materially.  SGA started to creep back up now that the foot is off the check book.

We will see where interest on the next Q lands to see how much extra EBITDA they need to generate.

Their runway of cash looks to be 6-9 months long if they keep juggling payables and taxes.

This Q:

Acreage backslid on sales during a holiday season.  GM% did improve but only nudged $1 million upward, SGA decreased $1.7 million.  SGA is $22 million versus GM of $15 million.  They have a gap to close still.

Cash still remains in that 9-month range and they have limitations on raises due to Canopy deal.

Canopy could not have picked much wore for their US dance partner.

The preceding is the opinion of the author and is in no way intended to be a recommendation to buy or sell any security or derivative. The author does not have a position in Acreage and will not start one in the next five days.