A Call for Better Disclosure in the Cannabis Industry

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Earnings season for the MSOs kicked off this past week, with Curaleaf, Acreage Holdings and Ayr Wellness reporting. We had expected Curaleaf to provide annual guidance, and the company indicated on its conference call that it projects 2021 revenue will be between $1.2 and $1.3 billion, with an adjusted EBITDA margin of approximately 30%. Ayr Wellness provided guidance for 2022, suggesting it will deliver $725 million in revenue and $325 million in adjusted EBITDA. We are glad to see an increasing number of companies provide annual guidance.

While we weren’t expecting it, one thing that we hoped to see didn’t materialize: better disclosure regarding the operations. One of the biggest challenges for analysts trying to understand what’s driving revenue and margins is that MSOs don’t provide state-by-state detail typically. A rare exception has been Vireo Health, which not only breaks down their revenue by state but also then divides it by state into retail and wholesale. The company, however, doesn’t provide profitability by state. We note that Ayr Wellness provided enough information in its press release for investors to see exactly how much revenue was generated in each of their two states of operation during the quarter, and it also split it between wholesale and retail. We haven’t seen any other MSOs provide this level of detail, though we expect Jushi Holdings could do so given that the company provided guidance for 2021 that included ranges for each of their states of operation.

MSOs are essentially holding companies, with each of their subsidiaries working as separate units state-by-state due to the prohibition of interstate commerce. The dynamics in each state can differ greatly, with some markets allowing much higher profitability due to more limited licensing. We believe investors currently lack essential information when they are given just the top level revenue and profitability without the underlying detail, and we hope that companies will begin providing more granular information regarding their operations.

To be clear, there is no legal requirement for MSOs to provide this better disclosure. We applaud the effort by more companies to begin providing revenue by state, and we hope that others will do so as well and perhaps provide profitability by state too. We have spoken to some of the management teams, and they certainly understand our point. It seems that the issue is that nobody wants to go first. The cannabis investor base is rapidly evolving, and we are hopeful that the increasing number of institutional investors will help persuade the MSOs to provide better disclosure regarding the sources of revenue and profits. We believe that providing this information will help investors better understand the companies and will ultimately boost their confidence.

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Alan & Joel

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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