Amidst all the noise in the cannabis industries, Acreage Holdings, Inc. (ACRGF) is slowly and methodically building an All-American cannabis company. Most of the focus in the cannabis market has been on the Canadians, so American cannabis companies have had to fight for attention.
Since Canada adopted full legalization ahead of the U.S., Canadian cannabis companies have essentially gotten a head start. They've been able to work with major banks in Canada, access large capital markets, and establish track records. In turn, equity analysts began covering Canadian cannabis companies earlier, lifting their visibility.
The Canadians and their overflowing purses have gone on spending sprees to buy size and growth. The latest purchase last week was Tilray, Inc.'s (TLRY) $318 million acquisition of the world's largest hemp food company, Manitoba Harvest. This company, though, has little in common with adult use or medical cannabis. It's a food company that was already selling hemp-based products and has no relationship to medical or adult-use cannabis. Has the race to build an empire caused growth at an unreasonable cost?
If the focus isn't shining on the Canadians and their acquisition race, then it seems to turn to the various dramas playing out with the American cannabis companies. The cannabis industry is known for its quick marriages and shotgun divorces. Lately, it's been difficult to avoid reading about these breakups. The salacious details are a guilty corporate snack. Whether it's a CEO and founder getting terminated, or an ex-employee dishing all the dirty details from behind the scenes, it feels as if there isn't enough oxygen left to cover one of the largest cannabis companies in the country.
Acreage Holdings does have its toes in Canada, having become a public company by way of a reverse takeover of a Canadian company, Applied Inventions. Yet, it is the largest American cannabis company, with its feet in 19 states - the most of any multi-state operator. It is headquartered in New York City.
A True Multi-State Operator
Acreage Holdings has licenses in 17 states, of which 12 are operational, while the company has licenses to process in 12 states, seven of which are now in operation. The company has licenses to operate 68 retail dispensaries in 12 states, of which 21 are currently operational in 10 states. The Botanist is its retail concept designed to appeal to both adult use and medicinal consumers.
Acreage is licensed to open four stores in its home state of New York under the company name NYCANNA. The company is also planting its flag in Queens, with its latest Botanist opening this past week on February 20. It is Acreage's first dispensary in the New York City area.
Acreage's operation in Florida is the result of its purchase of Nature's Way Nursery of Miami, which it acquired for $67 million in January 2019. Acreage plans to open 18 retailers in 2019 in the state. Its Michigan properties were the result of an agreement with Blue Tire Holdings reached in August 2018.
Other states where Acreage now has a presence include: Ohio, North Dakota, New Jersey, Massachusetts, California, Connecticut, Iowa, Maine, Maryland, New Hampshire, Pennsylvania, Oregon and Oklahoma. There are pending acquisitions in Rhode Island, and the Form Factory in Oregon has operations in Washington and California.
Acreage is also scheduled to open North Dakota's first Botanist dispensary in Fargo in the near future. Acreage won one of only two dispensary licenses in that state.
Veterans
Acreage Holdings has made veterans a focus of its medical marijuana program. The company's CEO Kevin Murphy has written about his support for helping veterans get access to medical cannabis to treat post-traumatic stress disorder (PTSD) and chronic pain. The company had hoped to run a public service announcement about medical cannabis during the recent Super Bowl, but CBS rejected the ad. The ad featured three people telling their stories about medical cannabis and how it helps them. One of those people was an army veteran.
Other companies have championed vague wellness issues, but Acreage has been unapologetically fighting for access to medical cannabis for veterans since the company's inception. This has helped define the company's All-American brand.
Top Pick
Acreage was named a top pick by Seaport Global, a trading company that just launched coverage of the cannabis industry. Analyst Brett Hundley initiated coverage of the company with a "Buy" rating and a $42 target price. The company was lately trading $20.97.
Hundley wrote: "We like this company for a number of reasons, including its market positioning as a US MSO, its dual strategy of wholesale and retail production, its influential board of directors, and the strategic nature of its Form Factory acquisition."
The analyst went on to write: "We estimate that it will generate $29.3MM in annual pro forma revenue during 2018, along with an adjusted EBITDA loss of $17.6MM. We anticipate sizable growth in the years ahead, with pro forma revenues expected to reach $222.8MM in 2019 and $479.3MM in 2020. We expect positive EBITDA of $25.2MM in 2019 and $167.6MM in 2020."
Even though the analyst was very positive about Acreage, he did note that cash flow and balance sheet information isn't available for the first quarter of 2017 or for the first quarter of 2018. He also noted that there was some confusion and complexity regarding how the company reports financials, including revenue generation.
Looking Ahead
Acreage's acquisition of Form Factory will help the company build up its brands. Form Factory co-packs products for 15-20 brands, with more in the negotiation phase. It will easily allow for Acreage to create its own brands and create an even bigger name for itself. Acreage's size and commitment to compliance with all the rules and regulations in the cannabis industry make this one of the top U.S.-based cannabis companies.
