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Acreage Holdings Posts Disappointing Results in Q1 2020

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Acreage Holdings (OTCMKTS:ACRGF) released its results for the first quarter of 2020 on June 25. On the same day, Canopy Growth and Acreage announced their amended deal. The results were disappointing with another quarter of EBITDA loss. However, the company showed revenue growth due to rising cannabis sales in the US amid the pandemic. Acreage Holdings’ shares fell 10% and closed at $2.59 on the OTC markets on June 26.

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Revenue grew but another quarter of losses

Acreage Holdings’ first-quarter pro forma revenue grew 65% YoY (year-over-year) to $37.6 million. The revenue beat analysts’ estimates of $34.9 million. The revenue also increased by 15% compared to the fourth quarter of 2019. During the earnings call, management said that new dispensary growth, same-store sales growth in existing dispensaries, and a surge in the wholesale business contributed to the revenue increase.

However, the company reported another quarter of EBITDA loss. The pro forma adjusted EBITDA loss came in at $11.1 million, which improved slightly compared to the same period last year. The losses in the first quarter were also about a 40% improvement compared to the fourth-quarter losses. Acreage Holdings reported a pre-tax and non-cash charge of $196 million associated with its strategy to shutdown unprofitable businesses and focus on profitable ones. Management said that some write-down and impairment charges caused a higher loss compared to the initial expectations of $80 million–$100 million.

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Looking at the balance sheet, Acreage Holdings also ended the quarter with around $14 million with cash on hand. The company provided a sneak peek into the second quarter. The company expects its revenues to be flat compared to the first quarter. Divesting some unprofitable operations could impact sales. Over the long term, the companies expect these strategies to help improve the margins and achieve positive EBITDA.

Stock performance

Canopy Growth (NYSE:CGC)(TSE:WEED) and Acreage Holdings amended their previously announced acquisition deal. Along with the announcement, Acreage Holdings’ CEO resigned, which shocked investors. To learn more, read Canopy Growth Revised Its Agreement with Acreage Holdings.

Both of the companies think that the amended agreement will be beneficial. Canopy Growth has strengthened its footing in the US market before it legalizes marijuana federally. Canopy Growth CEO David Klein thinks that federal legalization could happen by 2022. More states have been stepping up to legalize marijuana. South Dakota’s legalization fate depends on its voters. Meanwhile, the Federal Reserve Banks have been supporting national-level legalization. Many other states like New Mexico and Texas as well as the U.S. Virgin Islands think that marijuana legalization could help their economies recover from the pandemic.

So far in June, Acreage Holdings’ shares have fallen 16.7%, while Canopy Growth’s shares have declined 3.2%. Acreage Holdings has fallen 56.2% YTD, while Canopy Growth has declined by 24.3%, respectively. Cresco Labs (OTCMKTS:CRLBF), and Curaleaf Holdings (OTCMKTS:CURLF) have declined by 41.1% and 6.8% YTD. Meanwhile, Green Thumb Industries shares have gained 2.8% YTD.

Acreage Holdings has one “strong-buy” rating, one “buy” rating, and one “hold” rating from the three analysts that cover the stock. The average target price on the stock is $6.3, which depicts an upside potential of 143% from its last closing price on June 26. The company closed at $2.59 at the OTC markets on the same day.

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