Exclusive Interview with Ascend Wellness Holdings Founder and CEO Abner Kurtin
Ascend Wellness has continued to ramp up its operations by taking a deep approach in a few select markets rather than spreading itself as wide as possible, as we highlighted last July. The multi-state operator has operations in the adult-use markets of Illinois, Michigan and Massachusetts, as well as the medical markets of New Jersey and Ohio. AWH Founder and CEO Abner Kurtin spoke with New Cannabis Ventures about the company’s targeted growth strategy, approach to capital allocation and the timeline for opening more assets. The audio of the entire conversation is available at the end of this written summary.
Bringing on More Cannabis Experience
AWH has added to its management team as it scales up operations. Previously, the company had focused on bringing in outside CPG talent. Now, it has turned its eye toward cannabis experience. The company has added Chief Administrative Officer Leah Heise, who comes with previous industry experience at 4Front Ventures. Additionally, Roman Nemchenko, previously with Acreage Holdings, has joined the company as Controller.
Turning on Assets
AWH is working on opening up assets across its footprint. Right now, about 25 percent of its asset portfolio is open. The rest of its fully funded and licensed assets are under construction. But, its currently operating assets are generating significant success.
The company has two adult-use stores in Illinois, located in the Springfield and St. Louis areas. Its St. Louis-area store, Illinois Supply & Provisions, is averaging more than 1,000 transactions per day. AWH’s cultivation facility in the state has a run rate of more than 2,000 pounds every five weeks.
In Michigan, the company has one store open and plans to have four stores open in the next few months. By the middle of next year, the goal is to have 10 stores open. AWH’s processing facility in Lansing, Michigan is slated to open this summer, and its cultivation facility is expected to open at the end of the year.
In Massachusetts, AWH has done a number of harvests at its grow facility, but the COVID-19 pandemic has delayed construction in the state. The company hopes to have its retail store open by the end of the year and two additional stores open next year.
Looking at Additional Growth Opportunities
AWH is also expanding its footprint in Ohio and New Jersey. The company is growing a vertical operation in Ohio and nearing a definitive agreement in New Jersey. This agreement will allow the asset transfer of one of the original six licenses in the state. With only a handful of stores open now and the potential for adult-use legislation to pass this year, New Jersey represents a significant opportunity, according to Kurtin. AWH will be focused on the northern part of the state. It has secured a location just outside of the Paramus mall, a high-density area.
Other markets like Maryland, Pennsylvania and New York are of interest to the company, but AWH is largely focusing on its current states.
In an environment defined by capital constraints, AWH is only pursuing licenses and acquisitions that will generate significant cash flow in the near-term. The company is looking at opportunities in Illinois and Michigan.
As it grows, AWH is aiming to become a top-three to top-five player in its markets, generating a minimum of $100 million and 30 to 40 percent EBITDA margins in each state. This tier of operators typically has double the margins of smaller players, according to Kurtin.
In Illinois, some of the larger players in the market, such as PharmaCann, GTI and Cresco Labs, are near or at their cap of 10 retail stores, according to Kurtin. This gives AWH the opportunity to explore opportunities in that market to build a network with independent operators.
Michigan is a fragmented market, and Kurtin expects the capital crunch to drive consolidation in that market. The company will be looking for opportunistic add-on acquisitions to expand its retail footprint in the state.
Pivoting to Face the Pandemic
The COVID-19 pandemic has led to delays in Massachusetts, where adult-use cannabis has not been deemed an essential service. AWH will continue construction on its retail store and focus on its wholesale operations when that market reopens.
Outside of Massachusetts, the company has seen volume return to almost pre-COVID levels, according to Kurtin. The move to online ordering and a contactless purchase experience has pushed the industry to improve its technology and change its customer experience. When the company first opened its Illinois stores, it had two-hour lines all day. Now, it has been able to reduce those lines to 15 minutes with social distancing while maintaining 1,000 transactions per day.
Funding and Capital Markets Outlook
AWH has about $19 million in cash on its balance sheet as of the end of March. It also had EBITDA-positive results of more than $4 million, breaking even after taxes, in the first quarter. The company will be operating cash flow positive over the next few quarters, according to Kurtin. By next year, he expects the company to be paying down its debt and potentially doing stockholder dividends.
The company takes a disciplined approach to capital allocation with project-specific funding. An initiative will only be completed if it has project-specific financing. At this point, the company’s current assets are fully financed.
While funding has become difficult to access and the cost of capital has become very high, investors are still finding opportunities in the industry. Capital is only going to the strongest players, and AWH has been able to access capital to fund smart deals, according to Kurtin.
Continuing to Grow
With $30 million in sales and $4 to $5 million in EBITDA for the first quarter, the company has had a strong start to the year. By the middle of next year, AWH is expected to have 20-plus stores, four large and cultivation sites open, which will mean a run rate of over $400 million in sales and more than $150 million in EBITDA, according to Kurtin.
Turning on assets is the company’s primary goal and one of the most important metrics for investors to track, according to Kurtin. Can operators open doors? Navigating regulatory changes and opening new stores during unexpected circumstances, like the COVID-19 pandemic, are challenges for the entire industry. Once assets are open, they can provide operators with substantial value. For example, AWH had projected just under $20 million in sales for its St. Louis-area store this year; that projection has increased to approximately $45 million.
Kurtin expects the company to have significant success once it opens its remaining doors. With all of its assets open next year, 2021 marks a strong growth year for AWH.
To learn more, visit the Ascend Wellness Holdings website. Listen to the entire interview: