Acreage has bestowed on its humble shareholders, and us analysts, their September 30, 2020 financial statements.  Once again Acreage put out the earnings release (November 11, 2020) and did the conference call before putting up their financials on Sedar (November 30, 2020 at 10 PM at night)

MDA has no QoQ data.

US GAAP filer.   

Income Statement Drivers & Breakeven: Trend

Table 1:

They are located in:

Dispensaries 18 +2 QoQ: Connecticut 3, Massachusetts 1, New York 4, Illinois 2 (+1 QoQ), Florida 1 (+1 QoQ I think.  Last Q they had revenue from FLA but no mention of FLA dispensary or cultivation in MDA.  They indicate it is for sale.)

Cultivation 5: Pennsylvania 1, Massachusetts 1, New York 1, Illinois 1, Florida 1

Overall sales increased by 17% or + $4.7 million to $31.7 million, the third QoQ increase and a record. Retail increased +20% or $4 million to $24 million, while wholesale increased +25% or $0.6 million to $8 million. Retail is 75% of revenue mix.

Retail Revenue: Peer and Trend

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

• New England flat at $12.6 million
• Mid Atlantic was the biggest increase at $3.9 million or +35% to $11.2 million
• Midwest, almost exclusively Illinois, increased $0.5 million or +12% to $4.8 million.  Look to this to increase with the incremental Illinois store next Q
• West increased $0.1 million or +5% to $2.7 million
• South increased $0.1 million or 44% to $0.4 million

Table 2: Revenue per OWNED store

The increase in sales in Illinois stand out on this. The Midwest drop is likely due to selling operations in those states.

Wholesale Revenue: Peer and Trend

Wholesale comes from the states that allow same: Mass, NY and PA. I would hazard that PA was responsible for the uptick this Q of $0.6 million.

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 improve to $0.47 from $0.40 QoQ. Acreage surpasses only MMEN and HARV in this metric.

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 43% from 41% and came in at $13.5 million versus $11.2 million last Q.  No explanations given on QoQ.  The 2% lean in sales mix to 75% on Retail might be the reason.

Table 3:

Retail had a 41% GM (+1% QoQ) and was responsible for $1.9 million of the increase and it increased its contribution to $9.8 million.  Wholesale had a 47% GM (+1% QoQ) was up 11% and accounts for $3.7 million of GM contribution.  Record $ amounts for both.

The bulk of GM$’s was generated by retail at 73% of the mix versus 70% 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 $0.17 from $0.14 QoQ.  Ahead of ONLY MedMen.

Gross Margin: USA Peer

Acreage slid to second of last from third from last in this ten US MSO GM Peer Base. They are consistent in the company they keep: MMEN.

Gross Margin: North American Peer Base

In the North American Peer Base of 15 companies Acreage is 9^th. No change QoQ in ordinal ranking.  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 assets held for resale to Other Income and expenses to maintain peer comparison.

Selling cost has decreased to 0% of sales from 2%, only $46 thousand in the Q. Not much left to cut here.

G&A is at 73% of sales a decrease from 75% QoQ.  G&A is $23 million an increase of $2.9 million QoQ.  No schedule was provided to see where reductions were.

SGA is $23 million versus GM of $13 million.  SGA increased a combined $2.3 million as Acreage finally had some cash to spend after sitting on the chequebook for a Q.

SBC was $10 million or 33% of sales, decreasing from $20 million and 75% last Q. Still obscenely high.

Depreciation rings in at $1.4 million versus $1.4 million last Q. 

Total OPEX is $35 million -$7 million ($10 million was SBC related) from last Q and 110% of sales versus 157% last Q.

NOP is negative $21 million versus negative $31 million last Q. SBC accounting for the vast majority of the improvement.

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 86% versus 148% last Q.  Progress, I guess.   

Other Expenses was -$17 million versus -$10 million last Q, of note was

• Interest expense of $6.1 million was recorded, an increase from $3.7 million last Q as their 60% interest rate loan is being serviced.
• Loss on writedown of assets held for resale of $2.9 million versus $8.1 million last Q. Assets for sale in declining value order are Florida, Maryland, and Michigan.  These assets have liabilities associated with them too.
• They have $98 million in Notes Receivable still outstanding, increase from $96 million last Q.  They had interest income of $1.6 million from the portfolio versus $18 million last Q
• They had Other Expenses of $8.8 million versus negligible last Q.  $7.7 million is related to losing a variety of lawsuits and in arbitration on CanWell.

Taxes were a $3.8 million.

Net Income was negative $42 million versus negative $44 million last Q. On a fully comprehensive basis, Net Income was -$36 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 279% to achieve +NOP. No change QoQ.

EBITDA Trend and Peer:

Hey now this is cute, AGAIN.  MDA has not one mention of EBITDA.  But presser has adj EBITDA at negative $6.9 million.  I have them at negative $9.2 million as I did not deduct Transaction costs associated with disposals and refinancing’s.  You make your bed; you lie in it.

Opex Burn was negative $25 million versus negative $13 million last Q. Increase in interest expense the largest operating item.

+EBITDA Quarterly Breakeven Sales: USA Peer

For Acreage to get +EBITDA they would need incremental sales of 68%, versus 42% last Q, assuming current GM% and OPEX$’s. Progress was from an GM$ generation offset by SGA increases.

+EBITDA Quarterly Breakeven Sales: North American Peer

Waterfall: Trend

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

Inventory was stable QoQ at $21 million of which $16 million is wholesale inventory. FG increased QoQ by $0.6 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 1.2 Q’s on hand versus 1.4 last Q.

Waterfall: Peer

Acreage has the least inventory in this 10 US MSO peer group.

Cash was increased by $32 million QoQ to $46 million as Canopy came in with financing.  They have another $22 million in restricted cash, same as last Q.

• -$5 million was used in operating activities
• -$35 million used in investing activities:  
• +72 million was raised via financing activities

• Assets held for sale are $61 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 $26 million (largely FLA $19 million and Oregon $1.6 million)

• A/P is increases $16 million to $44 million and income Tax is $14 million. Cash is only $46 million.

• Current Portion of LTD decreased by $10 million to $37 million with the refinancing.

• Long Term Debt increased by $78 million from the Canopy injection.

What I said last Q:

As they wait for their shareholders to vote on the changes to the Canopy options this company is treading water.  I doubt shareholders turn down the Canopy changes as that would likely turn them into more of a zombie than presently.

Will they show competency not exhibited to date in their new hemp venture floated by the Canopy loan? (After Canopy took a huge hit in hemp in their F20 year).

Is there more fat to cut from G&A?

Their cash position will make it difficult for them to fuel sales growth of any meaningful amount.

This is a flea infested dog.

This 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.

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.