As we await Curaleaf and Harvest Health to publish their financials and MDA we will take a look at ACRG.

Acreage has bestowed on its humble shareholders, and us analysts, their March 31, 2021 financial statements.  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.

Q1 sales are annualizing to $103 million.  They will need to pick up the pace.  EBITDA annualizing to $6 million will also need some giddy up. 

Sales and EBITDA both got a boost from what might be either a one time catch up or smaller repeating revenue (with no attached COGS) from managed operations that provided a boost of $2.5 million. From Note 6 to fins:

• “(4) PATC is a non-profit license holder in New Hampshire to which the Company’s consolidated subsidiary PATCC provides management or other consulting services. In March 2021, PATC entered into a revised consulting services and line of credit agreement with PATCC, whereby previously unrecognized management fees were settled for $2,500, which was recognized in Other revenue, net during the three months ended March 31, 2021. Pursuant to the revised line of credit agreement, the line of credit is non-interest bearing and will be repaid on a payment schedule with seven payments in the aggregate amount of $7,150 through June 30, 2023.”

MDA has no QoQ data.

US GAAP filer.   

Income Statement Drivers & Breakeven: Trend

Table 1:

They are located in:

Dispensaries 21 +2 QoQ: Connecticut 3, Massachusetts 2, Maine 1 (+1 QoQ), New York 4, New Jersey 3 (+1 QoQ), Illinois 2, Florida 1 (FLA was sold post Q)

Cultivation 5: Pennsylvania 1, Massachusetts 1, New York 1, Illinois 1, Florida 1 (FLA was sold post Q)

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

Overall sales increased by +22% or + $6.9 million to $38.4 million reversing a slight slide in the previous Q. Retail increased +3% or $0.8 million to $26 million while adding 2 stores, while wholesale increased -+55% or $3.6 million to $10 million a new record. Retail dropped from 79% of sales mix last Q to 67%.

No mention why wholesale revenue increased in MDA. Presser indicates, “The year over year growth in wholesale revenue was primarily driven by increased capacity, coupled with maturing operations in the Company’s Pennsylvania, Massachusetts, and Illinois cultivation facilities. This resulted in higher yields and improved product mix in each of the respective markets.” As they have no dispensaries in PA my guess is that would be the source.

As mentioned above Other revenue jumped $2.5 million on PATC renegotiation.   Without the boost in Other revenue overall revenue growth would have been 14% or $4.4 million.

Retail Revenue: Peer and Trend

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

• New England +53% at $18 million was the biggest increase at +$6.2 million
• Mid Atlantic, the previous Q’s  biggest increase at $3.9 million, increased only 4% this Q  despite adding a dispo in NJ.
• Midwest, almost exclusively Illinois, increased $0.6 million or +11% to $5.8 million. 
• West decreased $0.3 million or -13% to $1.9 million
• South decreased $0.2 million or 29% to $0.5 million.  They are selling the lone FLA dispo post Q.

Table 2: Revenue per OWNED store

The additional store was in Maine or New England and in NJ or Mid-Atlantic. 

The Mass store added in the previous Q was up and running for the entire Q which likely explains the jump in New England. Illinois continues strong growth +11%.  Mid Atlantic should get a boost next Q from a 3^rd store open for the entire Q.

Wholesale Revenue: Peer and Trend

Wholesale comes from the states that allow same: Mass, NY, IL and PA.  This Q a 26% increase after retrenching 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 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 $0.59 from $0.48 QoQ. Acreage surpasses AYR, LHS, MMEN and HARV in this metric.  Again they had a $2.5 million boost in the Q from Other Revenue.

Income Statement Drivers & Breakeven: Peer

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

Gross Margin: USA Peer & Trend

Acreage GM % increased to 54% from 46% and came in at $20.6 million versus $14.5 million last Q, $2.5 million is the Other revenue.  Without Other revenue boost GM would have been 50%.  No explanations given on QoQ.   

Table 3:

Retail had a 49% GM (+5% QoQ) and was responsible for $1.8 million of the increase and it increased its contribution to $13 million.  Wholesale had a 53% GM (-1% QoQ) and accounts for $5.3 million of GM contribution.  Record $ amounts for Retail and Wholesale.  Other Revenue has no CoGS associated with it.

The bulk of GM$’s was generated by retail at 62% of the GM mix versus 76% 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 $0.31 from $0.22 QoQ.  Ahead of CURA, HARV, AYR, MMEN and CWEB.

Gross Margin: USA Peer

Acreage is seventh in this eleven US MSO GM Peer Base.  They moved up from second of last.

Gross Margin: North American Peer Base

In the North American Peer Base of 19 companies Acreage is 7.

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 decreased to 0% of sales from 1%, only $12k in the Q. Not much left to cut here.

G&A is at 51% of sales a decrease from 68% QoQ.  G&A is $20 million a decrease from $22 million QoQ. This is the lowest G&A has been since March 2019.

SGA is $20 million versus GM of $21 million.     

SBC was $6 million or 16% of sales, decreasing substantially from $27 million and 84% last Q. With a higher stock price comes higher SBC. 

Depreciation rings in at $1.0 million versus $1.3 million last Q.  No depreciation is ascribed to production assets.  Could all be Right of Use leases.

Total OPEX is $27 million -$22 million from last Q and 69% of sales versus 157% last Q.  While G&A did decrease and sales increased the drop in SBC is the major reason.

NOP is negative $6 million versus negative $35 million last Q. That $6million in extra GM and the improvement in SGA and SBC are the drivers.

SGA & SBC as a % of Sales: Peer

IN SGA they are third worst and in Aggregate they are third worst.

+Net Operating Profit Quarterly Breakeven Sales: USA Peer

To achieve +NOP Acreage would need incremental sales of 6% versus 142% last Q.   

Other Income (Expenses) was +$3 million versus -$6 million in the previous Q, of note was

• Interest expense of $4.9 million was recorded, an increase from $4.7 million last
• Gain/reversal on writedown of assets held for resale of $8.6 million this Q and nil last Q.  
• They had Other Expenses of $1.6 million versus $2.6 million last Q.

Taxes were a $5.3 million versus $4.4 million last Q.

Net Income was negative $8.6 million versus negative $45 million last Q. On a fully comprehensive basis, Net Income was -$7.8 million versus -$37 million last Q. 

+Net Operating Profit Quarterly Breakeven Sales: North American Peer

At current GM% and OPEX$’s Acreage would need incremental sales of 29% to achieve +NOP.

EBITDA Trend and Peer:

Our EBITDA figures are similar. Adj EBITDA is +$1.6 million. First positive, but was helped by Other Revenue boost.

Opex Burn was negative $9.6 million versus negative $17 million last Q.  Difference from EBITDA largely interest and taxes.

+EBITDA Quarterly Breakeven Sales: USA Peer

Positive EBITDA would be generated at 92% 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 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 $7.4 million QoQ to -$8.6 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 22% of sales.  Long way to go as they 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 $25 million of which $18 million is wholesale inventory. FG increased QoQ by $0.5 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 1.4 last Q.

Waterfall: Peer

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

Cash decreased by $10 million QoQ to $23 million.  They have another $22 million in restricted cash, same as last Q.

• -$1.6 million was used in operating activities
• -$6.5 million used in investing activities:  
• -$0.6 million was raised via financing activities

• Assets held for sale are $73 million (FLA $50 million, Oregon at $7 million, and Maryland at $3.0 million are the big ones) which are offset by their liabilities of $19 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.

• Current Portion of LTD increased by $20 million to $47 million with the increase a result of debt becoming due in next 12 months.

• Long Term Debt increased by $20 million to $133 million as debt moved to current.

What I said last 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.

This 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.

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.