Acreage has bestowed on its humble shareholders, and us analysts, their June 30, 2021 earnings release.  Acreage actually uploaded their documents to SEDAR the day they had their earnings release.  Better operating results seems to expedite the upload… interesting.

Here is their forecast moving forward: We will keep this up top for F2021 and see how they do.

H1 sales are annualizing to $164 million and Q1 + Q2x3 are annualized to $170 million or 64% and 67%, respectively, to forecast.  Their EBITDA annualizing at H1 to $22 million and Q1 + Q2x3 are annualized to $31 million or 60% and 83%, respectively, to forecast.  They have work to do to hit forecasts.

MDA has no QoQ data, but they offer segmentation data on Retail and Wholesale not just for Sales but for Gross Margin, and they offer geographic hub sales break downs.

I would suggest MSO investors pay attention to companies that disclose GM segmentation by Retail and Wholesale, even if they are not invested in them.  The disclosure will give you clues to what the non-disclosers with similar footprints might be generating.  We have been using a 50% GM for modelling Retail and Acreage has a 51% retail gross margin and the two Cresco Lab Non-Controlling Interest stores are 49% and 52%.  Investors can use these data points as a proxy to disassemble non disclosers results.

Dare I say …. Acreage is slowly righting itself.  It is by no means out of the woods yet, but operationally they are making progress.

US GAAP filer.   

Income Statement Drivers & Breakeven: Trend

Table 1:

They are located in:

Dispensaries 22 +1 QoQ: Connecticut 3, Massachusetts 2, Maine 3 (+2 QoQ), New York 4, New Jersey 3, Illinois 2, Florida 0

Cultivation 6 +1 QoQ: Pennsylvania 1, Massachusetts 1, New York 1, New Jersey 1 (+1 QoQ), Illinois 1, California 1 (+1 QoQ), Florida 0 (-1 FLA was sold Q)

Target to be in nine states: adding Michigan and Ohio.

Overall sales increased by +15% or + $5.8 million to $44.2 million.  Sales velocity slowed from +$6.9 million and +22% growth last Q.  Retail increased +10% or $2.5 million to $28 million while adding 1 net new store, while wholesale increased +35% or $5.5 million to $15.5 million a new record. Other revenue dropped to $0.3 million from $2.5 million and I can not track why.  Could be the Maine stores flipping from managed to owned.

Retail dropped from 67% of sales mix last Q to 64%.

No mention why wholesale revenue increased QoQ in MDA. Presser indicates, “The year-over-year growth in wholesale revenue was primarily driven by the consolidation of our California operations in May 2021, coupled with increased capacity and maturing operations in the Company’s Pennsylvania, Massachusetts, and Illinois cultivation facilities. This resulted in increased supply and improved product mix in each of the respective markets.” Maturing operations in demand starved Illinois and Pennsylvania are likely the stronger contributors.

Retail Revenue: Peer and Trend

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

• New England flat after last Q’s +53% to $18 million. This is their biggest market, and they are flat despite the two new Maine stores.  Watch this one next Q to see if it resumes growth.
• Mid Atlantic was the driver this Q with $4.5 million of the overall $5.8 million increase coming from here. New jersey cultivation and increased wholesale in PA would be my guess.
• Midwest, almost exclusively Illinois, increased $0.5 million or +10% to $6.4 million. 
• West was the second biggest increase this Q at $1.0 million or +5.3% to $2.9 million. Cali cultivation is the likely source.
• South: FLA was sold during Q and resulted in a $0.3 million decrease to $0.15 million.  This should disappear next Q.

Table 2: Revenue per OWNED store (includes wholesale in the region)

Two additional stores were added in Maine or New England. 

At an all in $1.3 million in revenue per retail door, Acreage is well below CL, CURA, TRUL and GTII whom are all in the +$2.4 million and higher range.  The increased revenue at others would not necessarily affect Retail GM% but more revenue per door offers considerable Opex economies of scale.

The New England took a big step backwards regional revenue (includes wholesale) per store with a -25% revenue.  No surprise that Mid-West (Illinois) is up +10% and is running at $3.2 million similar to CL $3.7 million/store on their fleet whose main footprint is in Illinois. But it was Mid Atlantic showing the most impressive growth at +37%, reaching $2.4 million regional revenue per store, over double Acreage’s average, the wholesale opportunities in PA and NJ likely the drivers.

I have to say… I really like this disclosure.  It allows investors insight into what markets are driving growth. Now, if they then split the above into retail and wholesale I would be even happier.

Wholesale Revenue: Peer and Trend

Wholesale comes from the states that allow same: Mass, NY, IL, PA, NJ and CA.  This Q a +35% or $5.5 million increase after a 53% or $3.5 million increase last Q.

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 + ROU they are instead paying G/I to get a head start in the market.  That head start should manifest itself in Sales, GM and EBITDA, not necessarily immediately (retail stores yes, a cultivator may take time to launch) but eventually. 

Acreage improves to $0.61 from $0.55 QoQ. Revenue increase was spread over a net $10.6 million increase in denominator.  Acreage surpasses CURA, VRNO, CWEB, AYR, MMEN and HARV in this metric.   

Income Statement Drivers & Breakeven: Peer

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

Gross Margin: USA Peer & Trend

Acreage is one of the only MSOs providing GM by segment.  It is extremely refreshing.

Acreage GM % was stable at 54% QoQ and came in at $23.9 million versus $20.6 million last Q, -$2.3 million is the Other revenue.  No explanations given on QoQ… BUT as we have disclosure, we can piece it together.

Table 3:

Retail margin inched up to 51% from a 49% GM (+2% QoQ) and was responsible for $1.6 million of the $3.2 million increase.  Wholesale had a 60% GM (+6%… rounding… QoQ) and accounts for $3.9 million of GM contribution. Other Revenue, which we believe is old management fees now flipped into ownership in Maine, disappeared and eliminated -$2.3 million in Q.  If we deduct this off of retail GM, Retail GM Q increase turns to a decrease QoQ of -$0.7 million.

Overall GM increased as the mix moved favorably into wholesale (+9% sales mix to 35% QoQ) which has a better GM%.

Record $ amounts for Retail and Wholesale.  Other Revenue has no CoGS associated with it.

The bulk of GM$’s was generated by retail at 60% of the GM mix versus 62% 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 $0.30 from $0.33 QoQ.  Ahead of CURA, HARV, AYR, MMEN, VRNO and CWEB.

Gross Margin: USA Peer

Acreage is fifth in this eleven US MSO GM Peer Base.   

Gross Margin: North American Peer Base

In the North American Peer Base of 18 companies Acreage is 5.

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 $0.4 million in the Q. They are standing on the chequebook still.  I am not opposed.

G&A is at 37% of sales a decrease from 51% QoQ and a nice trend line developing.  G&A is $16.6 million a decrease from $19.6 million QoQ. This is the lowest G&A has been since March 2019.

SGA is $17 million versus GM of $24 million.  GM is finally greater than SGA.     

SBC was $7 million or 16% of sales, steady from $6 million and 16% last Q.  

Depreciation rings in at $4.7 million versus $1.0 million last Q.  This is quite the increase QoQ despite PPE and G/I increasing only $10 million in the Q.

Total OPEX is $29 million +$2 million from last Q and 65% of sales versus 69% last Q.  While G&A did decrease, the increase in SBC and depreciation QoQ wiped out the improvement.

NOP is negative $4.7 million versus negative $6.0 million last Q. That $3.2 million in extra GM was not fully offset by OPEX increases.

SGA & SBC as a % of Sales: Peer

IN SGA they are third worst and in Aggregate they are third worst. No change QoQ in ordinal ranking.

+Net Operating Profit Quarterly Breakeven Sales: USA Peer

To achieve +NOP Acreage would need incremental sales of 20% versus 29% last Q.   

Other Income (Expenses) was +$2.1 million versus +$2.7 million in the previous Q, of note was

• Interest expense of $5.6 million was recorded, an increase from $4.9 million last
• They had Other Income of $9.3 million versus expenses of $1.6 million last Q. Gain on sale of FLA operations of $12 million the reason for this swing to Q Income.

Taxes were a $0.7 million versus $5.3 million last Q.

Net Income was negative $2.5 million versus negative $8.6 million last Q. On a fully comprehensive basis, Net Income was -$2.6 million versus -$7.8 million last Q. 

+Net Operating Profit Quarterly Breakeven Sales: North American Peer

At current GM% and OPEX$’s Acreage would need incremental sales of 20% to achieve +NOP.

EBITDA Trend and Peer:

Our EBITDA figures are similar, but I can only find $8.8 million of their $9.3 million Other Income add back. Adj EBITDA is +$7.6 million improving from +$1.6 million last Q.

They even have enough EBITDA to pay their quarterly interest bill.

Opex Burn was negative $4.2 million versus negative $9.6 million last Q.  Difference from EBITDA largely interest and taxes.

Annualized Adjusted EBITDA to (PPE + ROU + Goodwill and Intangibles)

We have added this new metric to now look at who is being the most efficient with PPE + ROU + G/I based on Annualized EBITDA. This metric, like Annualized Sales and Annualized GM, are precursor metrics.  Sales should show up first, then GM and then EBITDA.  They are susceptible to changes based on acquisitions, and investors should keep this in mind.

A nice increase as EBITDA flowed at a good rate over the increase in the denominator.  Acreage improved from $0.02 to $0.11 QoQ.  They lead the two negative EBITDA MSOs (MMEN and CWEB) and also lead AYR and VRNO.  VRNO added a bunch of G/I in the Q without benefit of a full Q of Revenue, GM and EBITDA.

+EBITDA Quarterly Breakeven Sales: USA Peer

Positive EBITDA would be generated at 66% of existing sales, using existing GM% and cash Opex$’s.

+EBITDA Quarterly Breakeven Sales: North American Peer

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

Here is our metric introduced last Q.  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 moves into positive territory for the first time.

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

ACRG flipped positive this Q to 4% the second lowest of the positives, surpassing HARV.

Balance Sheet Items of Note:

Cash increased by $14 million QoQ to $37 million.  They have another $1 million in restricted cash, a reduction from $23 million as last Q.

• -$19 million was used in operating activities
• +$51 million was a Source in investing activities: (asset sale)  
• -$41 million was raised via financing activities

Waterfall: Trend

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

Inventory increase by $4.3 million QoQ to $29.7 million of which $20 million is wholesale inventory. FG increased QoQ by $2.3 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 1.5 Q’s on hand versus 1.4 last Q.

Waterfall: Peer

Acreage has the second least inventory in this 11 US MSO peer group, surpassing MMEN.

• Assets held for sale decreased $55 million with sale of FLA and are $18 million (Oregon at $7 million, and Maryland at $3.0 million are the big ones) which are offset by their liabilities of $3.2 million (Oregon $1.6 million).   

• Current Portion of LTD decreased by $40 million to $7 million with the decrease a result of debt repayment tied to FLA.

What I said last Q:

A progress quarter.  Nice increase in sales in wholesale and the boost on Other revenue.  GM was assisted by both an improvement in retail, the increased wholesale and Other revenue. SGA decreased.

They still have a ways to go to be able to generate positive cash after interest and taxes but they are making progress. 

Cash looks tight at $23 million unrestricted when compared to taxes of $19 million and CP of Long-Term Debt at $48 million.   They will need to raise funds which is always interesting given the CGC option and resultant restrictions.

This Q:

Another Progress quarters. Capital “P” this Q.   Nice increase in sales in retail and wholesale.  GM$’s was assisted by both an improvement in Retail GM +1% and Wholesale +6% but offset my management fee revenue turning into retail revenue.

They made progress on interest coverage and tax coverage, and on EBITDA.  They even increased FG inventory despite the sales increase.

Cash looks tight at $37 million unrestricted when compared to taxes of $22 million and CP of Long-Term Debt at $7 million.   They will need to raise funds if they going to expand, which is always interesting given the CGC option and resultant restrictions.

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.