June 25, 2022

Ayr Strategies: Cheap MSO With A Plan (OTCMKTS:AYRSF)

The U.S. cannabis multi-state operator (MSO) space has been one of the best areas of the cannabis space to invest in the last year. Most investors know about a few of the large MSOs, but one of the best values now is the under the radar Ayr Strategies (OTCQX:AYRSF). The company is now aggressively moving into new states to provide for additional growth while acquisition prices are more reasonable.

Image Source: Ayr Strategies website

Cannabis 2.0

While Ayr Strategies is a relatively unknown MSO, the best part of the company is the focus on industry best practices and investing now that the market is no longer priced at premium valuations. The CEO calls this “Cannabis 2.0” which is not to be mistaken with Cannabis 2.0 in Canada where new form factors besides flower and oil were finally legal to sell.

The sector is no longer focused on a license land grab and building footprint with no regards for cash flows. Stocks such as Trulieve Cannabis (OTCQX:TCNNF) with market-leading EBITDA profits have outperformed this year. The stock is already up 124% in the last year due to taking a conservative approach to focusing on building a profitable single-state platform before expanding outside of Florida.

Ayr Strategies is following a similar strategy by only being active in 2 states, Massachusetts and Nevada. The company announced a binding agreement with a licensed operator in Pennsylvania that has licenses to build six dispensaries and cultivation space of up to 143,000 sq. ft.

The stock story will advance as the company enters a 3rd state and suggests offers are on the table for licensed operators in 2 more states. In addition, Ayr Strategies will advance the story with more deals at a forward adjusted EBITDA target of 2.5x. The company is paying up to $57 million for the Pennsylvania operator suggesting a 2021 EBITDA target of $23 million for a business with 3 stores opening in January and a 45,000 sq. ft cultivation canopy nearing completion.

The company just reported July EBITDA margins of 42%. Even a more reasonable EBITDA target of only 25% would yield a revenue target approaching $100 million in the next year.

Source: Ayr Strategies Sept. 2020 presentation

The ability of Ayr to report July results by the end of August is a promising sign the company is achieving their goals of creating a dashboard capable of providing the financial numbers to operate in the cannabis industry. The industry consistently reports financial results months after reporting periods end leaving vast holes in financial metrics utilized to value the related stocks in a fast-paced industry.

Deep Value

While most of the MSO stocks offer value since a stock such as Curaleaf Holdings (OTCPK:CURLF) has pulled back 30% from the recent highs, Ayr Strategies offers both a cheap stock and solid profits. As mentioned above, the MSO reported strong EBITDA margins in July, but also maintained positive EBITDA when their stores were mostly closed during April in both Massachusetts and Nevada.

The company along with Trulieve are the only MSOs with strong EBITDA margins and FCF. As a whole, the U.S. cannabis sector is headed towards strong profits as the land grab of the last few years turns into consolidation for most in the space.

Source: Ayr Strategies Sept. 2020 presentation

For this reason, Ayr Strategies is a deep bargain in the space. The market has become comfortable with the large margins of Trulieve, but Ayr isn’t as well known.

The stock has rallied this year, but the company being located in the few states that partially shutdown cannabis stores due to COVID-19 didn’t help. Ayr Strategies trades at a favorable multiple of 1.4x ’21 sales estimates of $250+ million. The below chart isn’t completely accurate since the stock has a ~$350 million market cap before the Pennsylvania deal, but Ayr still offers an extreme value compared to Curaleaf and Trulieve which both trade around 3.0x forward sales.

ChartData by YCharts

These valuations don’t even factor in the Pennsylvania deal where Ayr will add up to $100 million in sales for only $15 million in stock dilution. The stock could actually trade down to 1x sales, if this deal occurs at the proposed valuation and the target reaches revenue targets next year.

More deals to enter additional states as proposed by CEO Jon Sandelman could provide strong value for shareholders. The CEO suggests via this podcast interview the ability to snap up accretive deals now due to the lack of competition to purchase cannabis assets due to a lack of capital or desire as the major MSOs have already completed land grabs.


The key investor takeaway is that Ayr Strategies is a relatively unknown MSO in a space where other stocks now trade for billions. The company is already very profitable and additional growth via acquisitions should help the stock close the gap with the P/S multiples of other MSOs.

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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in AYRSF, CURLF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

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