Hey guys, first wanted to thank everyone for the community here. I appreciate your contributions. This is my first post and I'd love any feedback!
I've been doing a lot of work in the US cannabis space and 2021 is shaping up to be a big year for the cannabis industry and for Ayr Strategies (AYRWF), a US multi-state operator.
TL;dr: The stock could be a 3-6x over the next two years and 10x+ longer-term. The US MSOs will be the most direct beneficiaries of growing cannabis consumption, and AYRWF has a strong management team, the highest growth over the next two years, best-in-class margin profile, and lowest valuation.
Note: the company is listed in Canada under AYR.A and is available over-the-counter under AYRWF (OTC ticker recently changed from AYRSF to AYRWF).
Thesis
- Cannabis is a $80-100Bn consumer staple category but only $20Bn are legal sales. The rest of the market is illicit. In addition to seeing the overall industry grow, the US operators should see a strong tailwind from illicit sales converting to legal sales
- AYRWF is expanding its footprint in seven high-growth states including MA, PA, NJ, AZ, OH, FL, and NV (see table below)
- Limited license dynamics gives AYRWF a buffer against new competition
- Recent acquisitions in Florida and New Jersey give the company a strong position in two large, growing markets. Deals slated to close in 1Q21/2Q21
- Strong financial profile
- AYRWF projected to grow ~140% in 2021 (75% organic) and 65% in 2022 (40% organic)
- The Company has 40%+ EBITDA margins currently
- Company has a strong, sophisticated management team with a background in finance, mergers & acquisitions, and operations. They run a tight ship as evidenced by their high EBITDA margins and ability to execute through COVID-related disruptions throughout 2020
- Several industry catalysts including:
- Adult use legalization in PA, FL, OH
- Banking bill would allow cannabis businesses to access the banking system, reduce their cost of capital, improve their margin profiles, make customer transactions more seamless, and allow AYRWF to list on a major exchange
- Stock is significantly undervalued
- AYRWF trading at 9.5x and 5.0x 2021 and 2022 EBITDA, respectively vs peer average of 21x 2021 and 13.5x 2022
- For context, GRWG trading at 40x+ 2022 EBITDA
What is the stock worth?
- If AYRWF simply traded at the group average of 13x 2022 EBITDA, the stock would be worth $75, or a 3x from here...
- ...but what would you pay for a high-growth consumer staple business growing 40%+ organically with 40%+ EBITDA margins? 25x EBITDA ($145 target price - 6x upside)? 30x ($170)? 40x ($230 - 9x upside)? I believe the stock will get a higher valuation as we get positive news throughout 2021 and cannabis increasingly becomes a part of the mainstream
- How does the valuation gap close? Deal closures, execution, and discovery. Until recently AYRWF has been a strong but smaller player that not many people had heard of. Through a series of acquisitions (some of which have yet to close) the company will have a diversified footprint indexed to some of the best markets in the US. The company is well positioned to become a top 5 MSO by the end of 2021
Risks
- Recently announced deals to acquire assets in FL and NJ don't close
- Delays in implementation of adult use sales in AZ and NJ
- Execution missteps
Overview of AYRWF's state footprint
- PA: market estimated to grow ~60%/year from 2020-2025 (assumes adult use legalization by 2023)
- AYRWF expanding from 1 dispensary to 6 in 2021
- MA: market estimated to grow 10.5%/year from 2020-2025.
- MA is already an adult use state but the story here is around Boston where AYRWF recently received a license to operate a dispensary in downtown Boston. Sales to begin in 2021
- NV: market estimated to grow 12%/year from 2020-2025. NV performance through COVID shows strength of this market
- AYR has 6 dispensaries
- NJ: market estimated to grow 80%/year from 2020-2025. Adult use sales likely to begin in 3Q21
- AYRWF recently acquired a vertically-integrated license in NJ including 3 dispensaries
- AZ: market estimated to grow 15%/year from 2020-2025, with growth front-loaded in the next couple of years as adult use sales begin in 2Q21
- AYRWF has 3 dispensaries currently
- FL: market estimated to grow 25-30%/year from 2020-2025 (assumes adult use legalization by 2023)
- OH: market estimated to grow 50%/year from 2020-2025 (assumes adult use legalization by 2024). Relatively nascent medical market that has surprised many jumping out to a $250MM run-rate in a little over a year
- AYRWF bought cultivation and production assets in OH
Submitted January 05, 2021 at 03:19PM by afrostud01 https://ift.tt/3okiSJV
