Ayr Wellness reviews progress amid market challenges By Investing.com

Ayr Wellness Inc. (AYRWF), a number one hashish firm, has reported a modest improve in gross sales and gross revenue in its first quarter 2024 earnings name. CEO David Goubert emphasised the corporate’s sustainable enterprise method and its concentrate on federal reform and brand-building initiatives.

Regardless of going through retail competitors and pricing pressures, notably in New Jersey and Massachusetts, Ayr Wellness has managed to take care of market share and is seeing progress in its wholesale operations. The corporate is getting ready for potential market expansions in Ohio, Florida, and Pennsylvania, and is actively concerned in state-level reform efforts. Ayr Wellness reported Q1 gross sales of $118 million, with an adjusted EBITDA margin of 24.6%, and is aiming for constructive money movement all year long.

Key Takeaways

• Ayr Wellness reported Q1 gross sales of $118 million with a modest income progress from the earlier quarter.
• The corporate is sustaining its adjusted EBITDA margin goal of round 25%.
• Ayr Wellness generated free money movement and goals to proceed this development.
• The corporate is unifying its retail shops below the Ayr Hashish Dispensary model and enhancing its digital presence.
• Wholesale operations are increasing, with the Kynd model anticipated to make up over 50% of the full wholesale enterprise by year-end.
• Ayr is getting ready for potential adult-use conversions in Ohio, Florida, and Pennsylvania.
• The corporate is dedicated to enhancing the general well being of the enterprise and producing sustainable worthwhile progress.

Firm Outlook

• Ayr Wellness anticipates flat to low single-digit income progress in Q2, with stronger progress within the second half of the yr.
• The corporate plans to take care of a roughly 25% adjusted EBITDA margin for the total yr.
• New retailer openings and wholesale progress are anticipated to drive the second-half income improve.
• Ayr is concentrated on ramping up cultivation and manufacturing capability, particularly in adult-use markets.

Bearish Highlights

• The corporate has confronted elevated retail competitors and pricing stress in New Jersey and Massachusetts.
• In New Jersey, retail competitors has led to pricing stress, though wholesale progress has helped offset this.
• Ayr has misplaced some retail market share, though the decline was decrease than anticipated.

Bullish Highlights

• Ayr Wellness has maintained market share within the wholesale sector, holding 80% of the market.
• The corporate is snug supporting 70 shops in Florida by year-end and is seeking to broaden indoor capability.
• Ayr goals to take care of a ten% market share within the Florida market and is growing its mixture of edibles and Reside Resin merchandise to develop market share and enhance margins.

Misses

• Q1 gross sales confirmed lower than 1% progress from the earlier yr.
• The corporate skilled sluggish progress in Ohio forward of adult-use legalization.

Q&A Highlights

• Ayr Wellness is getting ready for federal and state-level modifications that would cut back its general value of capital and permit for accelerated debt reimbursement.
• The corporate has maintained market share in Nevada regardless of regulatory modifications.
• There may be optimism concerning operational enhancements and the relaunch of retail manufacturers Kynd and HAZE, together with new product introductions.

Ayr Wellness continues to navigate the dynamic hashish market with a strategic concentrate on its wholesale and retail operations. The corporate’s efforts to construct a sustainable enterprise mannequin and drive federal reform by means of business initiatives point out its long-term dedication to progress and market management. With plans to broaden cultivation capability and open new areas, Ayr Wellness is positioning itself to capitalize on potential market expansions and regulatory modifications.

InvestingPro Insights

Ayr Wellness Inc. (AYRWF) has demonstrated resilience in a aggressive hashish market, as indicated by its Q1 2024 earnings. Whereas the corporate is specializing in strategic progress and market share, it is essential to contemplate a number of monetary metrics and insights offered by InvestingPro that may supply a deeper understanding of the corporate’s monetary well being and inventory efficiency.

InvestingPro Knowledge reveals that Ayr Wellness holds a market capitalization of $280.53 million, indicating its measurement inside the sector. The corporate’s P/E ratio stands at -2.13, reflecting that it isn’t at present worthwhile. This aligns with the InvestingPro Suggestions, which notice that analysts don’t anticipate the corporate to be worthwhile this yr. Moreover, the corporate’s income for the final twelve months as of This fall 2023 was $463.63 million, with a progress of 10.01%, suggesting progress in its enterprise operations.

InvestingPro Suggestions spotlight that Ayr Wellness has skilled a major return during the last week, with a ten.46% value complete return, and an much more spectacular return during the last yr, at 177.05%. Nonetheless, it’s value noting that the corporate operates with a major debt burden and doesn’t pay a dividend to shareholders, which is perhaps a consideration for income-focused buyers.

For these interested by a extra complete evaluation, InvestingPro affords further ideas that would present additional insights into Ayr Wellness’s financials and inventory efficiency. By visiting https://www.investing.com/professional/AYRWF, readers can entry the following tips and use the coupon code PRONEWS24 to get a further 10% off a yearly or biyearly Professional and Professional+ subscription, unlocking much more worth from the InvestingPro platform. There are 7 further InvestingPro Suggestions out there that would assist buyers make extra knowledgeable selections about Ayr Wellness Inc.

Full transcript – Ayr Methods Inc OTC (AYRWF) Q1 2024:

Operator: Welcome to the Ayr Wellness first quarter 2024 earnings name. Becoming a member of us at the moment are Ayr’s President and CEO, David Goubert, and the corporate CFO, Brad Asher. Earlier than we start, we wish to remind everybody that sure feedback from administration throughout this presentation could comprise forward-looking statements based mostly on administration’s expectations. These forward-looking statements are offered for illustrative functions solely, and should not meant to function, and should not be relied on by you, as a assure, assurance, prediction, or definitive assertion of reality or chance. Many of those dangers and uncertainties are mentioned in our most up-to-date public filings, together with our most lately filed annual data kind and administration’s dialogue and evaluation. Quite a few dangers and uncertainties might trigger the precise occasions and outcomes to vary materially from the estimates, beliefs, and assumptions expressed or implied in these forward-looking statements and won’t be expressed at the moment. A number of of the elements that can decide Ayr’s future outcomes are past the flexibility of Ayr to manage or predict. In gentle of the uncertainties inherent in any forward-looking statements, you might be cautioned in opposition to counting on these statements. Whereas Ayr could elect to replace these forward-looking statements sooner or later sooner or later, Ayr particularly disclaims any obligation to take action. Throughout this presentation, we could reference non-GAAP monetary measures resembling adjusted EBITDA and adjusted gross revenue. For a reconciliation of our non-GAAP measures to GAAP outcomes, please see our earnings launch posted within the Investor Relations part of our web site earlier this morning. I’ll now flip the decision over to Ayr’s President and CEO, David Goubert. You might start.

David Goubert: Good morning, everybody, and thanks for becoming a member of our first quarter 2024 convention name. We’re within the midst of an thrilling and transformational time within the hashish business, as evidenced by the reported historic determination by the Division of Justice to suggest reclassifying hashish from Schedule I to Schedule III. Whereas the timeline for completion is unsure, we’re optimistic that the change to Schedule III will likely be carried out in 2024. This shift in federal coverage represents a validation of the efforts Ayr has made in constructing a long-term sustainable enterprise inside the hashish house, and offers additional motivation to proceed to enhance and refine our operations, so we’re able to proceed our success within the subsequent section of the business. Ayr stays dedicated to doing our half to drive federal reform, as evidenced by our management roles within the US Hashish Council, Committee for Hashish Scheduling Reform, and different initiatives pushing for federal and State-level reform. Pivoting now to our Q1, I wish to cease by thanking your complete Ayr group for his or her contributions this quarter as we proceed to construct upon the transformation efforts that we put in place final yr. In keeping with expectations, in Q1, we exhibited income progress and preserve our adjusted EBITDA margin goal of roughly 25%. Importantly, we additionally generated free money movement within the first quarter, which we anticipate to proceed on a full-year foundation given our beforehand mentioned change in tax place round 280e and continued effort to additional optimize our enterprise. 2024 continues to be all about execution for Ayr, additional constructing on the progress we have made in 2023 in enhancing our operations in present markets and in search of to make sure that we’re able to rise to the event when key State-level catalysts come into play. Diving into our operations, I’ll now contact upon key initiatives and progress throughout retail, CPG, wholesale, cultivation, and manufacturing. On the retail entrance, we proceed to make progress in defining and rolling out the Ayr Hashish Dispensary model. In June, we have fun the one-year anniversary of our Florida shops rebranding to Ayr Hashish Dispensary, and we’ll be internet hosting a month-long marketing campaign throughout our Florida footprint to acknowledge this milestone. Moreover, we plan to rebrand our two present Illinois shops to Ayr later this month, and open two extra shops in Illinois in Q3 instantly below the Ayr Hashish Dispensary model, adopted by the conversion of our legacy Sira shops in higher Boston to the Ayr model. By finish of yr, we anticipate all of our open shops to be below the Ayr model identify, apart from our areas in Nevada, which maintains sturdy model recognition and loyalty below dispensary model identify. As we unify our shops below the Ayr Hashish Dispensary model, we search to place our areas because the go-to native dispensary at scale throughout our markets with shops which have frequent branding and customary worth proposition, however are deeply embedded inside and reflective of their respective communities. To that finish, we’ve got targeted closely on floor sport and neighborhood engagement actions to drive model consciousness and foot site visitors to our shops. We mix this with a robust digital focus constructing round digital penetration and buyer reachability. We discover our greatest retail clients are sometimes those that work together essentially the most with our digital platforms. The site visitors on our e-commerce web sites stays sturdy and we concentrate on enhancing the standard of the attain to our clients and the conversion on our websites. This implies higher leveraging issues like our buyer electronic mail and push notification, getting clients to the product pages sooner and with much less friction. In retailer, we have made enhancements in basket measurement, barely growing the typical basket every of the final two quarters after almost two years of quarterly declines. This enchancment has been supported by incentive packages carried out throughout all retail staff, and we really feel common basket measurement represented a major missed of alternative for Ayr all through 2023, however we’re comfortable to say that we consider we’ve got course-corrected and are seeing constructive outcomes. Throughout our CPG portfolio, we’ve got now concluded the section of defining the DNA, identification, and structure of our two core manufacturers, Kynd and HAZE, and we proceed to make sturdy progress on the relaunch of those manufacturers in our personal retail shops and throughout wholesale. We’re constructing these manufacturers to shift from single classes to full-some manufacturers that cross kind elements and current an actual persona and worth proposition to our clients. We consider this method to brand-building will drive additional buyer recognition and adoption. In Q1, we launched the primary ever edibles below the Kynd model with the launch of Kynd gummies in Florida and Nevada. These gummies style nice, with effect-based formulation leveraging THC, minor cannabinoids, and tropis. We’re thrilled with the response we’re receiving and look ahead to rolling these out throughout further markets all year long. As 2024 progresses, we plan to roll out further Kynd SKUs with the enlargement of vapes, tincture and bonds, and the introduction of Kynd pre-rolls and pre-roll packs, offering Kynd clients with trusted high quality throughout all classes. With HAZE, which we’re positioning as a premium line for a extra skilled hashish client, we launched Reside Rosin infused pre-rolls throughout New Jersey, Massachusetts, and Nevada, previous to 420, and have further SKUs deliberate, together with the introduction of Reside Resin and Reside Rosin gummies, in addition to disposable Reside Resin and Reside Rosin vapes. The first focus because the yr continues will likely be driving sell-through of each Kynd and HAZE by way of additional deployment of in-store shows, facilitating onsite popups and merchandising alternatives with wholesale companions, participation in local people and business occasions, and celebrating 10 pole moments just like the 10-year anniversary of Kynd later this yr. Personally, I am actually trying ahead to seeing an abundance of the Kynd mango shade in our shops and associate shops when that milestone rolls round. With our model rationalization full and the year-long relaunches properly below method, we proceed to spend money on our wholesale presence throughout our core markets. In keeping with our acknowledged concentrate on 2024 wholesale phase enlargement, wholesale continues to develop by way of complete {dollars} and as a proportion of our enterprise quarter to quarter, and is rapidly turning right into a energy for our group. We’re thrilled with the progress we have made in wholesale outcomes and the method that obtained us there. As a reminder, we put in place final yr a system the place our market GMs work hand in hand with a centralized wholesale group and operation group. That system is now clicking and is a major driver behind our success. We consider the relaunch of our model, partially Kynd, will assist drive additional wholesale success within the second half of the yr and past, with vital sell-through assist from our advertising and marketing group. By the tip of the yr, we goal to have Kynd make up greater than 50% of Ayr’s complete wholesale enterprise On our operations entrance, we proceed to make progress in our standardization efforts, new product launches, and new product innovation pipeline. Particularly, I might like to acknowledge the agility that we have demonstrated in bringing new merchandise to market, supporting the enlargement of our Kynd and HAZE manufacturers, enabled by expanded kitchen and extraction labs throughout our footprint. That is anticipated to progress even additional because the yr goes on, which ought to enable us to interrupt additional into higher-margin product classes. From a list standpoint, we have not but made the progress that we’re hoping for, however we really feel we’ve got the appropriate method in place now to scale back stock over the second half of 2024, particularly because it pertains to streamlining operations to enhance the velocity at which stock flows by means of our provide chain and into our shops. We consider that the operational enhancements we have mentioned will place us properly to completely seize the chance offered by upcoming State-level catalysts. We proceed to put the groundwork for accelerated progress and additional money era from the conversion of key markets from medical to grownup use, with the subsequent occurring in Ohio over the summer season, in addition to potential grownup use conversions in Florida and Pennsylvania over the subsequent yr. We anticipate a mid-summer launch for Ohio grownup use, however should not considering Ohio as a part of our Q2 projections. With that timeline in thoughts, we’re persevering with to ramp capability in our PAMMA cultivation facility to produce the grownup use market, whereas getting ready the three Ayr Hashish Dispensary shops to transform to grownup use promptly. This conversion can be a right away tailwind for the prevailing shops in addition to our wholesale enterprise, given our massive and state-of-the-art PAMMA cultivation facility, which has already developed a fame amongst medical sufferers and wholesale clients for producing prime quality flower. And we’re actively engaged on extending the variety of areas to the utmost allowed inside the first few months of grownup use operations in Ohio. Throughout Florida and Pennsylvania, Ayr has taken a extra energetic function in State-level reform efforts, making a major contribution to the Good and Protected Florida marketing campaign, and taking up a management function within the business push for grownup use legalization in Pennsylvania. In Pennsylvania, Ayr maintains a sturdy footprint all through operations in shops that’s prime to transform to grownup use if and when the second comes, with out the necessity for CapEx or materials improve to our value base. In Florida, we’re actively working to enhance our cultivation and manufacturing capability and are pursuing a path to indoor cultivation enlargement. From a retailer perspective, our group is laying the groundwork to take care of our retailer market share in an grownup use regime, and we anticipate accelerating the opening of recent areas following the November grownup use referendum. We encourage everyone to assist the marketing campaign and vote sure on three. As I discussed on our final name, solely 15 of Ayr’s 91 shops at present function in grownup use markets. We’re in certainly one of, if not the most effective positioned MSOs to capitalize on impending medical to grownup use transitions, given our outsize progress potential relative to our present footprint. As we glance to the remainder of 2024, we stay laser-focused on staying true to our enterprise mannequin of being a retailer of alternative and a home of wanted hashish CPG manufacturers. All the actions that we have described to date in at the moment’s name, ladder as much as that final aim. I will now flip it over to Brad to stroll by means of monetary outcomes, earlier than returning for closing remarks. Brad.

Brad Asher: Thanks, David, and good morning, everybody. Q1 gross sales of $118 million represents a rise of $3.2 million or 2.8% from prior quarter, and a modest improve of lower than 1% from prior yr. The rise in gross sales is according to our steering for the quarter, which referred to as for income to vary from flat to modest progress in comparison with This fall 2023. We additionally outperformed cyclical business developments within the quarter, leading to a slight uptick in general retail market share. The sequential improve is a results of gradual enchancment constructing again the gross sales base in Florida, modest progress in Ohio retail as our three recently-opened medical shops proceed to ramp forward of grownup use, in addition to additional progress within the wholesale channel, with 5% sequential progress constructing on a 42% sequential progress within the prior quarter. These positive aspects have been partly offset by compression in New Jersey retail, pushed by the speedy improve in statewide retailer rely. Nevertheless, it is value noting that general income for the State of New Jersey elevated sequentially, with wholesale progress greater than offsetting the retail compression within the State. From a year-over-year perspective, the slight improve in gross sales was pushed by wholesale progress, partially offset by retail compression from same-store gross sales. At retail, transactions elevated 1% sequentially and 5% year-over-year, and basket measurement elevated 2% sequentially, with 8% compression year-over-year, marking the second consecutive quarterly enlargement of basket measurement after almost two years of quarterly declines. Q1 gross revenue of $50.7 million, represents a rise of $1.3 million or 2.6% in comparison with prior quarter, and $2.4 million or 5% in comparison with prior yr. Q1 adjusted gross revenue, a non-GAAP measure, was $62.6 million, representing a modest improve of 1% from prior quarter, and a lower of $2.7 million or 4% in comparison with prior yr. Q1 adjusted gross margin of 53% was in line with the previous two quarters, and represents a slight lower of roughly 100 foundation factors in comparison with the prior quarter because of modest value compression, which has largely stabilized however persists in choose markets resembling New Jersey retail. Internally-branded gross sales at retail have been constant sequentially, with a slight lower to 62% of complete retail gross sales and 40% when excluding Florida. In keeping with the prior quarter, inner product was diverted to satisfy elevated demand within the wholesale channel. We anticipate this to return to 65% vary over the course of the yr as we strategically ramp cultivation capability, and anticipate to see additional general enchancment in yields throughout our services because of course of enhancements in pre and post-harvest. The good thing about economies of scale is just not but mirrored in our value of products offered for the Ohio and Massachusetts services, that are nonetheless ramping. The cultivation utilization fee in Ohio and Massachusetts on the finish of prior yr was simply 15% and 44%, respectively. By the tip of Q1, those self same charges elevated to 27% and 58%, respectively, which we anticipate can have a future profit to margins. By Q3 of this yr, we anticipate these utilization charges in Ohio and Massachusetts to additional improve to roughly 50% and 75% respectively, with the flexibility to flex into further cover, based mostly on market demand. These improved utilization charges are anticipated to not solely drive gross sales progress, however additional profit our value construction as we search to drive leverage throughout our fastened value base. Loss from operations was $1.9 million, which represents an enchancment of $7.6 million and $19.8 million in comparison with the prior quarter and the prior yr, respectively. Whole SG&A price represents a lower of slightly below $1 million and $12.8 million in comparison with the prior quarter and the prior, yr respectively. SG&A as a proportion of gross sales was 33% through the quarter, down from 35% and 44% within the prior quarter and the prior yr, respectively. Roughly 300 foundation factors of the year-over-year enchancment is as a result of reclassification of bills from SG&A to COGS in Q3 2023, with the stability pushed by cost-saving initiatives and additional steps to streamline operations. Q1 adjusted EBITDA of $29.1 million represents a slight lower of lower than $1 million quarter-over-quarter and a rise of $8 million year-over-year. Adjusted EBITDA as a proportion of gross sales through the quarter was 24.6%, which was according to the steering of roughly 25% margins, which was just under the prior quarter of 26% and 220 foundation factors above the prior yr of twenty-two.4%. Along with sustaining our adjusted EBITDA margin within the 25% vary, there have been noticeable enhancements in add-back prices, that are excluded from this measure, together with startup prices, acquisition and transaction prices, in addition to different bills. The sum of those prices, as reconciled within the adjusted EBITDA assertion, decreased 32% from the prior quarter and 45% from the quarterly common in 2023, which represents a discount of $3.8 million, and we anticipate this development will proceed, leading to a significant enchancment year-over-year. Transferring to the stability sheet, we ended the quarter with a money stability of $71.2 million, representing a $20.4 million improve from prior quarter, primarily pushed by $40 million of incremental gross proceeds from the closing of our debt extension on February seventh. The senior notes are offered on the stability sheet internet of debt issuance prices, which incorporates the honest worth of the anti-dilutive warrants issued to shareholders and is printed in footnote 10 of our financials, which additionally covers the P&L influence within the quarter related to the debt extension, with the loss on debt extinguishment being inclusive of the honest worth of shares issued to senior noteholders, in addition to any non-cash honest worth changes realized upon recognizing the brand new senior notes on our books. The money movement from financing actions additionally included $8.4 million from the closing of our Gainesville mortgage upsizing on March 26. The entire influx from financing actions was offset by a $19 million discount to present liabilities from scheduled funds of financing outflows, in addition to $9 million of debt issuance prices paid out upon closing of the February seventh debt extension. $8.7 million was generated within the quarter from working money movement, which was partially offset by $6.8 million of CapEx funds, leading to constructive free money movement through the quarter. As David talked about, we proceed to anticipate roughly $20 million of complete CapEx for the yr, and we anticipate producing constructive working money movement for the total yr on each the 280E and non-280e tax foundation, and constructive free money movement, given our beforehand mentioned stance on 280e. We notice that any contributions from the next three buckets should not included in our money assumptions, and can be thought of incremental. One, the conversion of our excellent warrants issued in February totaling as much as $50 million of internet proceeds. Two, the receipt of an anticipated ERC tax credit score totaling $12 million of gross proceeds. And three, the receipt of a possible tax refund from our beforehand amended returns totaling roughly $50 million of gross proceeds. As referenced within the annual earnings name in Q1, we up to date our tax place to mirror the non-applicability of 280e. On the finish of March, we filed amended tax returns for the years 2020 by means of 2022, leading to a refund declare of roughly $50 million, which is at present excellent. As beforehand talked about, as a result of unsure nature of the tax place, this isn’t mirrored as a receivable on the stability sheet. Nevertheless, that is the primary quarter the place the influence of our tax place is mirrored within the legal responsibility part of our monetary statements, however the majority of the tax legal responsibility shifting to an unsure tax place inside non-current liabilities, and simply $13.4 million remaining inside present tax liabilities, which displays our tax legal responsibility absent the appliance of 280e. Because of this, our working capital place is now a constructive $99 million. It is also value noting that previous to the shift of taxes to non-current liabilities, working capital would nonetheless be a constructive at $11 million, which might characterize an enchancment of $18 million from the prior quarter. In closing, we’re happy with our Q1 outcomes, which was according to our steering. And with our stability sheet actions behind us, we’re poised for the immense alternatives forward, beginning with the near-term catalyst of the Ohio grownup use. With that, I will flip the decision again to David.

David Goubert: Thanks, Brad. Earlier than concluding the decision, I wish to present a number of notable State-level updates. In Florida, we proceed to place ourselves for fulfillment forward of the potential conversion to grownup use. We have elevated our mixture of edibles and Reside Resin merchandise to develop market share, drive margin enchancment, and offset latest pricing stress within the State. We’re already seeing slowly traction from the Q1 launch of Kynd and HAZE, and can proceed to driving edible gross sales all through 2024, as we proceed to broaden our manufacturing capability. We’re experiencing sturdy market demand in these classes, and are actually targeted on maximizing our unit output to repeatedly meet that demand. We’ve seen enhancements in THC TAC proportion, and general high quality in our Gainesville cultivation, and now have our focus absolutely on maximizing yields out of our cultivation campus. Later this quarter, we’ll expertise the primary harvest from our new crop plan designed to maximise yields, THC proportion, and selection. On the similar time, we’re actively enhancing our present retail footprints and plan to finish the yr with 70 shops in Florida in comparison with 64 on the finish of 2023. In Massachusetts, as talked about on our final name, we’re ramping cultivation to satisfy the rising wholesale demand stemming from the speedy progress in retailer counts in latest months. As we produce further biomass, we will each transfer extra merchandise by means of our personal retail shops and promote extra into the wholesale market whereas lowering our value per pound produced because of a greater utilization of our capability. New Jersey continues to boast the three strongest retail property in our portfolio exterior of Nevada. Nevertheless, as talked about final quarter, and much like Massachusetts, elevated retail competitors is resulting in pricing stress. We proceed to be pleasantly shocked by the market share that we have retained to date, regardless of elevated competitors. On the similar time, the extra shops current a compelling wholesale alternative, resulting in wholesale progress in Q1 that greater than offset any income stress in retail. In Illinois, we anticipate opening two shops by the tip of Q2, early Q3 timeframe, one in Bloomington-Regular, and the opposite one in Hometown, a suburb of Chicago, along with the rebranding of our two present Illinois shops in Quincy. Moreover, we’re on monitor to our first Connecticut location in Manchester this July. Wanting forward, we stay dedicated to enhancing the general well being of the enterprise and positioning Ayr for sustainable worthwhile monetary progress throughout our footprint. We anticipate income to be flat to low single-digit progress within the second quarter in comparison with the primary quarter, earlier than producing stronger income progress within the again half of the yr, pushed by Ohio grownup use, the brand new retailer openings in Florida, Illinois, and Connecticut, and additional wholesale progress. We additionally anticipate to take care of a roughly 25% adjusted EBITDA margin for the yr, with gentle quarterly fluctuations, and to generate constructive money movement from operations and free money movement for calendar yr 2024, supported by provide chain enhancements, extra environment friendly use of cultivation and manufacturing house, and sustaining strict value self-discipline. Thanks to our total group at Ayr who proceed to drive ahead all of the progress we mentioned at the moment. Operator, we’ll now open the decision for questions.

Operator: Thanks. [Operator Instructions]. The primary query comes from Russell Stanley of Beacon Securities. Please go forward.

Russell Stanley: Good morning, and thanks for taking my query. Congrats on the quarter, and particularly New Jersey, congrats on persevering with to run the retail stress there. I am questioning if you happen to can speak about your wholesale penetration now and going ahead, the place the most effective alternative for progress is there? Is it about including extra doorways or share of shelf? I think about it is each, however I am questioning the place your bias is. Thanks.

David Goubert: Hey, good morning, Russ, and thanks for the query. Sure, we’re fairly pleased with the way in which that we’re growing our wholesale in New Jersey. First, on the retail facet, I believe that sure, we’re seeing some stress with the opening of the dispensaries, however fairly pleased with the market share that we preserve. After which on the wholesale facet, again to your query, I believe it is a bit of each, that means that we’re in about 80% of the doorways now open in New Jersey from a wholesale standpoint, so feeling good concerning the penetration. After which one of many huge focuses is definitely extra on how a lot shelf house will we take and class of merchandise that we will suggest. I believe there’s been quite a lot of efforts accomplished and work accomplished on growing on the manufactured product, I might say, and so forth the extraction and so forth. So, very pleased with the place we’re. Extra work to do clearly, however wholesale is greater than compensated for the slight lower we have seen on retail based mostly on the variety of shops open. So, general, a superb story, I might say, on New Jersey.

Russell Stanley: Thanks for that, and possibly my follow-up is round Ohio, as you famous, more and more seemingly, I assume, that the market could open as early as subsequent month. I assume, are you able to speak about your preparedness for that and the extent to which you assume your friends are prepared, given September, I believe, was the timeframe individuals have been, have been sort of – had sort of soft-circled. So, I am questioning do you, do you envision shortages? What sort of market do you assume will open into in Ohio? Thanks.

David Goubert: Sure. So, the place we’re at the moment, so we opened our three first – the primary three dispensaries below Ayr in This fall. They’re doing okay, that means it is a medical market that is ready to develop into grownup use. So, I am not going to say that these are superb outcomes on these three shops, however they’re doing okay, as we anticipated. Large factor for us is the capability that we’ve got at PAMMA and the place we proceed to extend the variety of rooms. I believe Brad acknowledged that by Q3, we’ll be at 50% capability in PAMMA in our facility. So, what we see available in the market at the moment – and possibly earlier than speaking extra concerning the market, what we see from a regulatory standpoint is that we must always be capable to current for grownup use on the prevailing shops by June 7. So, we anticipate the prevailing shops to have the ability to promote grownup use, as an instance early Q3. After which our focus could be very a lot on maxing the variety of shops as quickly as we will within the States over the next quarters. What we see to date is – once more, on the retail facet, do not see enhancements but. I believe that is going to come back clearly as you flip adults and would possibly take slightly little bit of time. However what’s essential for us is ramping up the wholesale and seeing that as a option to develop in Q3, This fall. We anticipate value to go up in addition to grownup use begin. So, we anticipate to see that first approaching the wholesale entrance. However that is, I might say how we’re getting ready, that means actually we’re ramping up capability and having our three shops prepared already for grownup, after which maxing the variety of shops as quickly as we will.

Operator: The following query comes from Andrew Semple of Echelon Capital Markets. Please go forward.

Andrew Semple: Good morning. So, two questions on the cultivation facet right here. First, I need to go to Florida. On the This fall name, you indicated that Florida cultivation would stay a problem, or a difficulty for the primary half of Q1 outcomes. Are you able to simply sort of verify your precise expertise in that market with the Q1 outcomes, after which whether or not you are anticipating any lingering influence into Q2, or whether or not that is absolutely behind us now?

David Goubert: Sure, morning, Andrew, and thanks for the query. Actually need to separate, I might say two issues right here. The problem that we had in the summertime in Florida, and impacted with a warmth wave on the backyard, that impacted our, I might say leads to late Q3 and This fall, that is behind us, and absolutely, I might say behind us and brought care of. What we’re seeing proper now in Q1, and I might say starting of Q2, is that we have made quite a lot of modifications, and particularly since George, our new CEO arrived, we made quite a lot of modifications, whether or not it is from a crop plant standpoint or growing our skill to – our capability, I might say within the kitchen, on gummies, on cookies, in addition to packaging merchandise and extraction. And that takes a little bit of time to take off. So, that I might say someway you might say impacted a bit negatively Q1, and that is why I say in Florida, we have not seen the total influence that we anticipate on progress again from that Q3 low degree. And albeit, that is perhaps lingering a bit into Q2 as properly. All that’s to arrange us for having additional capability and the flexibility to get to the place we need to be within the second half of this yr. I will take one instance. We have talked about edibles the place we mentioned that that was like 3%, 4% of our combine final yr. I believe at the moment we’re about 6% of the combo, and our result’s edibles, and we have mentioned we’ll get to double-digit. Nicely, we’d like that kitchen and that work to do this, and that is in progress. So, summer season subject of final yr is behind us over fully. Not but full capability, I’d say that we need to be in Florida, and that is as a result of modifications which are occurring as we converse, however assured that that is a matter of weeks, I might say, for us to get to the appropriate place.

Andrew Semple: Nice. That is useful. Additionally appreciated the colour within the ready remarks on the utilization charges in Ohio, Massachusetts. Because it pertains to Massachusetts, what’s behind the continued enhancements in utilization charges that you just’re anticipating later this yr? Is {that a} perform of the timing of when new develop rooms are coming on-line, or is that extra of a perform of the gross sales group catching as much as new capability that is already been introduced on-line? I assume mentioned otherwise, is that enchancment being pushed by the availability facet or the timing of demand, or possibly a little bit of each?

David Goubert: Sure, thanks. So, we’ve got a big facility in Milford, in Massachusetts. I believe it’s 100,000 sq. toes of cover there. And we need to be cautious on how briskly we get again to most capability. If we return to what occurred over 2023 and the start of 2024, we have been in a spot the place we needed to actually decelerate manufacturing within the first half of 2023 after which began to ramp up. I might say we’re nonetheless in that section of ramping up and attending to a extremely good place from a ramp up standpoint. Proper now, what we see is that we’re not restricted by the demand from a wholesale standpoint. We’re nonetheless restricted by the capability that we’ve got. So, we proceed to deliver rooms on-line, and we’re virtually, I might say at full capability now, which explains how our value goes down and we’re planning to go down additional, and on the similar time growing wholesale considerably in variety of doorways, in addition to variety of classes that we’re providing for our wholesale buyer. So, general, getting there from a capability standpoint. Not seeing a difficulty from a requirement standpoint. We’re nonetheless someway constrained. And so, I might say cautiously optimistic that we’ll proceed to see a rise within the State outcomes and particularly wholesale leads to the second half of the yr.

Operator: The following query comes from Scott Fortune of ROTH MKM. Please go forward.

Scott Fortune: Good morning, and thanks for the questions. Let’s concentrate on the New Jersey market and also you’re seeing your retail shops there sustaining share, which is nice in that market as you ramp up the wholesale alternative. However simply need to get a way for the enlargement there from the capability on the wholesale facet, after which an replace on penetrating sort of the market with social fairness licenses. I consider you might have one, however simply sort of the outlook on that potential for the partnerships with these fairness licenses can be nice.

David Goubert: Thanks, Scott. So, on the wholesale entrance and retail entrance, so retail entrance, I am saying that we’re not precisely sustaining full market share as we had it, as an instance six months in the past, however we’re sustaining a lot better than we anticipated. And the drop from a retail standpoint could be very low. We’re speaking mid-single digits on that quarter-over-quarter. So, it is rather low on that entrance and greater than compensated by what we see from a wholesale standpoint. And once more, we see there, we’re at 80% of the doorways there, and we expect that as extra doorways open, we’ll proceed to make the most of that. In your particular query on our say take a look at including extra doorways, I believe that as the opposite operators, we’re trying actively at it as we converse. And so, nothing that we will share right here, however that is one thing that we’re taking a look at and taking a look at how we will assist that in New Jersey.

Scott Fortune: Received it. After which simply to observe up for me on Florida, forward of grownup use, clearly 60%, an enormous hurdle to beat on the poll facet, however simply sort of put in perspective your capability. I do know you are making full enhancements there in yield and stuff, however your full capability right here with including the six shops, what number of shops are you able to assist along with your capability at present in Florida with out including manufacturing sort of shifting ahead right here, simply sort of distance for that forward of AU approaching board doubtlessly subsequent yr?

David Goubert: Sure. So, I might say from our Gainesville facility and what we will assist, we’re very snug that we will assist the 70 shops that we must be by the tip of the yr and getting clearly extra product out there in these shops. So, and on the similar time, we’re actively in search of indoor capability and making nice progress on that entrance, which I believe it doesn’t matter what, we’d like in Florida. And so, for us, it is actually two key focus. One is growing the output and the capability from Gainesville. We’re already seeing progress from a top quality standpoint. We have to see progress from a amount standpoint. So, I might say that is the 1st step. Step two is de facto stepping into indoor capability over the subsequent few months. After which step three is ensuring that we preserve market share from the variety of shops standpoint within the State. So, we’ll be at 70 by the tip of the yr, and planning on increasing, relying on the variety of shops that present up in that State, however planning on increasing in order that we preserve general I might say 10% of doorways within the Florida market.

Operator: The following query comes from Matt Bottomley from Canaccord Genuity. Please go forward.

Matt Bottomley: Sure, good morning, everybody. Simply needed to pivot over to the stability sheet. You guys did quite a lot of work on that within the final yr and shored up some respiration room and clearly the main focus, refocus on operations and among the efficiencies has proven properly within the final couple of quarters, so congrats on that. I am simply questioning on type of administration’s philosophy, on condition that we doubtlessly have these constructive tailwinds, whether or not it is DEA catalysts or issues which are going by means of Congress that would doubtlessly within the six to 12 months plus, cut back the over general value of capital. Simply questioning your viewpoint on doubtlessly additional reductions in debt coming as much as the punted out maturity date, and if that is one thing that you just assume will likely be your sources of money as your cashflow era will likely be used in opposition to your general leverage.

Brad Asher: Sure, thanks for the query. That is Brad. So, I believe, sure, you talked about the federal catalyst. For positive, that will likely be upside for us. By way of de-leveraging, I believe additionally the State-level catalyst as properly will present a chance for us to pay down debt. I believe it’s value mentioning that the scheduled funds for principal debt amortization and maturity is round $25 million every year. So, debt is being paid down sort of as scheduled over the subsequent two years. However as these catalysts kick in, federal and State, it should be a chance to pay down on a extra accelerated foundation. And general, I believe from a capital allocation standpoint, we take a look at M&A, CapEx, and we benchmark that in opposition to de-leveraging and paying down debt. So, that is all the time sort of the take a look at that we’re taking a look at and we’ll proceed to evaluate going ahead.

Matt Bottomley: Received it. Thanks for that. After which the opposite query for me is simply extra operationally. In Nevada, apologies if a few of this was in your ready remarks, however simply it is one thing that your retail market share has been fairly wholesome there, going again to once you guys first got here public, that State noticed fair proportion of headwinds, and it simply looks like in among the macro knowledge, retail gross sales knowledge all of us subscribe to, it looks like there is perhaps some positives coming in that State by way of phrases of a rebound or at the least a normalization. Are you able to converse to what your expertise has been in Nevada the final one, two quarters?

David Goubert: Sure. frankly, it’s been fairly stable, that means that it is just about a flat market, I might say, for us. There’s all the time, from a market share standpoint, that means the BDS knowledge and the info that we’ve got a few months later sort of deferred, however what we see is that we’re sustaining market share. I might say what we have seen for the reason that modifications that occurred on January 1st by way of the allotment for the purchasers, for the sufferers and clients, is that we have seen a rise truly within the common basket over the primary quarter in Nevada, that is been someway offset by a slight lower in variety of transactions and general sustaining a reasonably flat I’d say efficiency from the retail and positively sustaining stable and sustaining our market share. So, I might say it is a fairly good story proper now within the State and feeling good about the place we’re.

Operator: The following query comes from Frederico Gomes of ATB Capital Markets. Please go forward.

Brenna Cunnington: Hello, that is Brenna on for Federico. Congrats on the quarter and the money movement enhancements. I am simply curious what shifts, if any, you are seeing within the client conduct – client buying conduct in Ohio forward of the anticipated flip to grownup use and the influence that is flowing by means of to margins, after which equally, the buying conduct in New Jersey because the market is turning into extra mature and lapping the two-year mark of being rec gross sales.

David Goubert: Hey, good morning, and thanks for the questions. Truthfully, Ohio, we’re fairly new in that market, proper? We opened our areas or the areas below Ayr in This fall. So, to date, what we see is that it is rising for us slowly. It’s just about as we anticipated, however I might say it is a fairly delicate market forward of grownup use. So, not seeing but modifications from I might say a client habits or value level occurring forward of AU but in Ohio. So, exhausting to reply extra exactly on that as a result of once more, we’re fairly new in that market. What we see in New Jersey is a little bit of a value compression from a client standpoint, which is predicted with the rise of variety of doorways which are current within the States. So, we’re – by the way in which, common basket progress is, from a retail standpoint, our primary KPI for the yr, and actually the main focus that we’re giving to our retail. So, in New Jersey, like somewhere else, that is very a lot what the group is concentrated on. That is the place we have put incentives on. That is the place we put coaching on and different actions. So, we do see some value stress I’d say, occurring in retail in New Jersey, however attempting to compensate that as a lot as attainable with the work that we’re doing with the group on actually that concentrate on common basket.

Brad Asher: Simply to piggyback there, I do know that – I believe the query was directed to retail in Ohio, however simply chatting with wholesale for a second, we’re not seeing, I might say, large stockpiling but, however we’re beginning to see some tightening and sharpening of pricing in Ohio. And for us a internet vendor in that market, that is a constructive for us.

Brenna Cunnington: Nice. Recognize that shade. I will hop again within the queue.

Operator: This concludes the question-and-answer session. I wish to flip the convention again over to David Goubert for any closing remarks.

David Goubert: Thanks, and thanks all for being right here and for the questions. I believe as we have mentioned earlier than, we really feel that we’re extraordinarily properly positioned for the tailwinds which are coming, whether or not from a federal standpoint and State-level. And I will simply converse to that quantity that we have been saying a number of instances, however solely 15 of our 91 dispensers at the moment are in grownup use markets. So, that basically positions us in a fantastic place. That mentioned, what you in all probability have heard from us this morning could be very a lot that concentrate on operations, and that concentrate on constructing that tradition of steady enchancment. And we’re only a bit greater than a yr in our turnaround at Ayr, and there is nonetheless quite a lot of work to do forward of us. However the way in which I need to conclude is say that I do know we have been speaking about our enterprise mannequin being on the similar time a retailer of alternative and a home of wanted CPG manufacturers, supported by nice high quality, selection, and consistency of merchandise. And I might say for the primary time and doubtless round 420, coming – going to the shops, was the primary time that I felt that every one this was really coming collectively, that means that the positioning of our retail manufacturers because the neighborhood shops at scale, the relaunch of Kynd and HAZE in our shops, and the pop of shade and particularly of that mango shade in our shops, the (selection) of recent merchandise and new merchandise that we have been in a position to launch for 420 and extra to come back for 7/10. And I might say additionally the digital enhancements the place we’re actually solely at the start of that, however all these items are coming collectively and that makes us really feel, I might say, in an excellent place with quite a lot of work to do forward of us, an excellent place for the federal modifications and State modifications which are forward of us. I am a fan of a few film administrators, Tarantino, and Man Richie. And what I like about these films is that you’ve a number of plots that find yourself coming collectively on the finish as one. And that is sort of how I really feel concerning the work that the group has accomplished in 2023 and the start of 2024, the place individuals are engaged on the manufacturers, individuals are engaged on retail, individuals are engaged on digital. And now I believe that what we’ll see within the second half of the yr is all this coming collectively and actually telling the story of Ayr being that retailer of alternative and home of CPG wanted manufacturers. So, very pleased with that and actually need to thank the group for all of the work accomplished in these various things to deliver every part collectively. Thanks.

Operator: This brings to an finish, at the moment’s Ayr wellness convention name. You might disconnect your traces. Thanks for collaborating and have a nice day.

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