Acreage Reports Third Quarter 2022 Financial Results
- Delivered robust revenue of $61.4 million for Q3 2022, a 28% increase year-over-year
- Continued strong profitability with Adjusted EBITDA* of $8.8M, a 36% increase vs. Q3 2021
- Subsequent to quarter-end, entered a new U.S. strategic arrangement with Canopy and amended credit facility to gain immediate access to additional funding
NEW YORK, Nov. 07, 2022 (GLOBE NEWSWIRE) — Acreage Holdings, Inc. (“Acreage” or the “Company”) (CSE: ACRG.A.U, ACRG.B.U) (OTCQX: ACRHF, ACRDF), a vertically integrated, multi-state operator of cannabis cultivation and retailing facilities in the U.S., today reported its financial results for the third quarter ended September 30, 2022 (“Q3 2022”).
Third Quarter 2022 Financial Highlights
- Consolidated revenue was $61.4 million for Q3 2022, an increase of 28% year-over-year.
- Gross margin of 35% compared to 50% in the second quarter of 2022 (“Q2 2022”). Excluding non-cash inventory adjustments, gross margin was 45% for Q3 2022.
- Adjusted EBITDA* was $8.8 million in Q3 2022, compared to $6.5 million in the third quarter of 2021 (“Q3 2021”). Adjusted EBITDA* as a percentage of consolidated revenue was 14% for Q3 2022.
Third Quarter 2022 Operational Highlights
- Concluded operations in Oregon with the completion of the sale of four retail dispensaries in the state branded as Cannabliss & Co.
- Became one of only a small number of producers in the state of New York with the capability to supply non-remediated whole flower to the market upon the launch of the Company’s whole flower sales under the state’s strict microbial testing regulations.
- Continued strong growth in New Jersey with adult-use sales and made continued progress on upgrades to the infrastructure and operating procedures at the Company’s Egg Harbor, New Jersey cultivation facility.
- Launched The Botanist Vape Cartridges and Disposables in Illinois, as well as Superflux Cured Concentrates to build on the reputation of the Company’s national brands. Further, the Superflux Margalope Live Resin Vape Cartridge took first place in the Vape Pens category of the High Times Cannabis Cup Illinois.
- Subsequent to the end of the quarter, the Company’s social equity joint venture in Connecticut was approved for both a Disproportionately Impacted Area Cultivation License and an Adult-Use Cannabis Retailer license.
U.S. Strategic Arrangement with Canopy and Credit Facility Amendment
On October 25, 2022, Acreage announced that it entered into an arrangement agreement (the “Floating Share Agreement”) with Canopy Growth Corporation (“Canopy” or “CGC”) and Canopy USA, LLC (“Canopy USA”), CGC’s newly-created U.S. domiciled holding company, pursuant to which, subject to approval of the holders of the Class D subordinate voting shares of Acreage (the “Floating Shares”) and the terms and conditions of the Floating Share Agreement, Canopy USA will acquire all of the issued and outstanding Floating Shares by way of court-approved plan of arrangement (the “Floating Share Arrangement”).
Concurrent with the entering into of the Floating Share Agreement, Canopy irrevocably waived its option to acquire the Floating Shares pursuant to the plan of arrangement implemented on September 23, 2020 (the “Existing Arrangement”) pursuant to the arrangement agreement between Canopy and Acreage dated April 18, 2019, as amended (the “Existing Arrangement Agreement”). Additionally, subject to the provisions of the Floating Share Agreement, Canopy has agreed to exercise its option pursuant to the Existing Arrangement Agreement (the “Fixed Option”) to acquire Acreage’s outstanding Class E subordinate voting shares (the “Fixed Shares”), representing approximately 70% of the total shares of Acreage. Upon exercise of the Fixed Option and completion of the Floating Share Arrangement, Canopy USA will own 100% of all outstanding Fixed Shares and Floating Shares. The Company intends to hold a special meeting of its shareholders in January 2023.
Additionally, the Company amended its existing US$150 million credit facility (the “Amended Credit Facility”) with AFC Gamma, Inc. and Viridescent Realty Trust, Inc. Under the terms of the Amended Credit Facility, $25 million is available for immediate draw by Acreage with a further US$25 million available in future periods under a committed accordion option once certain predetermined milestones are achieved.
Details regarding the Floating Share Agreement, including the strategic benefits and rationale, Fixed Option, and Amended Credit Facility can be found in the Company’s press release dated October 25, 2022.
Management Commentary
Despite significant industry headwinds, our results in the third quarter once again demonstrate the highly attractive positioning our operations have established in our core markets over the last year. We believe very strongly that our disciplined strategy will continue to foster long-term growth and enhanced value for our business as the markets continue to evolve and our opportunity to drive further profitability increases,” said Peter Caldini, CEO of Acreage.
Throughout the remainder of the year we will focus our efforts on strengthening our presence in New Jersey through continued cultivation improvements and prepare for the launch of adult-use sales in key Northeastern markets.
Peter Caldini, CEO of Acreage
The Acreage of today is dramatically different than it was a few years ago, and as the next transformative step in our history, we were pleased to recently announce a new arrangement with Canopy that provides the opportunity for their newly established U.S. domiciled entity, Canopy USA, to gain full ownership of Acreage.
This agreement is a culmination of the significant work and effort our teams have put in over the last several years, and we are confident that now is the time to execute on this strategic opportunity.”
Mr. Caldini concluded, “Our industry is in its exciting early days with constant developments taking place, and this new arrangement provides the unique ability for shareholders to participate right at the onset of the creation of Canopy USA. Acreage is a valuable addition to what Canopy is building, and we believe the time is right to build an even stronger position ahead of federal permissibility as part of a leading North American brand powerhouse.”
Total revenue for Q3 2022 was $61.4 million, an increase of $13.3 million or 28% compared to Q3 2021. The year-over-year improvement was primarily due to the addition of operations in Ohio as well as the commencement of adult-use sales in New Jersey. This revenue growth was somewhat offset by declines in other select markets as category headwinds and competitive pressures negatively impacted both price and volume. Additionally, total revenue for Q3 2022 was in-line with Q2 2022. Excluding the Company’s Oregon operations, which concluded at the very beginning of the quarter upon the completion of the sale of the four remaining dispensaries, revenue for the three months ended September 30, 2022, increased by 2% on a sequential basis.
Total gross profit for Q3 2022 was $21.2 million, compared to $23.8 million in Q3 2021. Total gross margin was 35% in Q3 2022 compared to 49% in Q3 2021. Cost increases due to inflation and price declines due to competition negatively impacted gross margin during the quarter. Additionally, cost of goods sold for Q3 2022 included $6.3 million of non-cash inventory adjustments as a result of excess inventory in select markets and carrying values of inventory exceeding net realizable value. Excluding these non-cash inventory adjustments, margin for Q3 2022 was 45%.
Total operating expenses for Q3 2022 were $37.7 million, compared to $30.3 million in Q3 2021. Included in operating expenses for Q3 2022 was a bad debt provision of $7.2 million related to certain notes receivable amounts where collection is considered doubtful and included in operating expenses for Q3 2021 was an impairment charge of $2.3 million related to capital assets in Sewell, New Jersey that were damaged by Hurricane Ida. Excluding these unusual non-cash items, total operating expenses increased by $2.5 million, or 9%, for Q3 2022 due to increases in compensation and general and administrative expenses as a result of inflation and the Company’s expanded operations and were somewhat offset by reductions in equity-based compensation expense, and depreciation and amortization expenses.
Adjusted EBITDA* for Q3 2022 was $8.8 million compared to Adjusted EBITDA* of $6.5 million in Q3 2021 and Adjusted EBITDA* of $10.4 million in Q2 2022. While the expanded operations and implementation of the Company’s strategic plan led to year-over-year growth in Adjusted EBITDA*, Adjusted EBITDA* on a sequential basis was negatively impacted by decreased pricing due to competitive pressures and increased costs due to inflation. Consolidated EBITDA* for Q3 2022 was a loss of $(9.1) million, compared to a consolidated EBITDA* loss of $(1.3) million in the previous year’s comparable period.
Net loss attributable to Acreage for Q3 2022 was $(22.2) million, compared to $(12.3) million in Q3 2021.
Balance Sheet and Liquidity
Acreage ended the quarter with $26.6 million in cash and cash equivalents. As of September 30, 2022, $100.0 million was drawn under the Credit Facility entered in the fourth quarter of 2021. In conjunction with the recently announced Amended Credit Facility, an additional $25 million is available for immediate draw, with a further $25.0 million available in future periods under a committed accordion option once certain, predetermined milestones are achieved. Acreage intends to use the proceeds of the Amended Credit Facility to fund expansion initiatives and provide additional working capital.
The webcast will be archived and can be accessed via Acreage’s website at investors.acreageholdings.com.
About Acreage Holdings, Inc.
Acreage is a multi-state operator of cannabis cultivation and retailing facilities in the U.S., including the Company’s national retail store brand, The Botanist. With its principal address in New York City, Acreage’s wide range of national and regionally available cannabis products include the award-winning The Botanist brand, craft brand Superflux, the Tweed brand, the Prime medical brand in Pennsylvania, the Innocent brand in Illinois and others. Acreage also owns Universal Hemp, LLC, a hemp subsidiary dedicated to the distribution, marketing and sale of CBD products throughout the U.S. Since its founding in 2011, Acreage has focused on building and scaling operations to create a seamless, consumer-focused, branded experience. Learn more at www.acreageholdings.com and follow us on Twitter, LinkedIn, Instagram, and Facebook.
*NON-GAAP MEASURES, RECONCILIATION AND DISCUSSION (UNAUDITED)
This release includes Adjusted EBITDA, which is a non-GAAP performance measure that we use to supplement our results presented in accordance with U.S. GAAP. The Company uses Adjusted EBITDA to evaluate its actual operating performance and for planning and forecasting future periods. The Company believes that the adjusted results presented provide relevant and useful information for investors because they clarify the Company’s actual operating performance, make it easier to compare our results with those of other companies and allow investors to review performance in the same way as our management. Since these measures are not calculated in accordance with U.S. GAAP, they should not be considered in isolation of, or as a substitute for, net loss or our other reported results of operations as reported under U.S. GAAP as indicators of our performance, and they may not be comparable to similarly named measures from other companies.
The Company defines Adjusted EBITDA as net income before interest, income taxes and, depreciation and amortization and excluding the following: (i) income from investments, net (the majority of the Company’s investment income relates to remeasurement to net asset value of previously-held interests in connection with our roll-up of affiliates, and the Company expects income from investments to be a non-recurring item as its legacy investment holdings diminish), (ii) equity-based compensation expense, (iii) non-cash impairment losses, (iv) transaction costs, (v) non-cash inventory adjustments and (v) other non-recurring expenses (other expenses and income not expected to recur).
