There are three primary takeaways from research into the cannabis market: First, the market continues to grow rapidly. Second, the larger companies, by number of facilities and revenue, continue to eat up the smaller players. And third, revenue is hitting record amounts.
Ayr Wellness (AYRW.F 5.26%) is feeding off all three of these factors as it strengthens its position to be a leader among the elite vertically integrated multi-state operators selling medical and recreational marijuana.
Image Source: Getty Images
A buy-in
One of the fastest growing sectors within the larger cannabis market is CBD-infused beverages. A market research report from Facts & Factors states that the value of this market was $3.4 billion in 2020, and is expected to grow at a compound annual rate of 27.5%, to $14.6 billion by 2026.
On Aug. 16, Ayr announced that it was entering this flourishing market through the acquisition of cannabis product manufacturer Cultivauna, which owns the Levia brand of THC-infused cannabis seltzer beverages. At a cost of $20 million, Ayr will have ownership of a leading brand currently producing three flavors (touting zero calories and no hangover) sold in over 100 licensed dispensaries across Massachusetts.
As of June, Levia was the leading THC-infused beverage brand in Massachusetts by revenue, totaling monthly sales just a few ounces short of $1 million. June was its fifth consecutive month of market-leading sales in the state. Though sales comes from only the dispensaries in Massachusetts, it is enough to make Levia the second-best-selling cannabis beverage in the U.S., behind only Cann, which is headquartered in the largest of the legal cannabis markets in the country, California.
According to Jonathan Sandelman, CEO of Ayr: "Infused beverages, done right, will be game changing to the mainstreaming of cannabis in the U.S. The acquisition of Levia brings Ayr into this rapidly growing segment with delicious, market-leading infused seltzer." The acquisition is expected to close by the end of the year.
A buyback
Following the acquisition Levia, Ayr provided more exciting news for investors. The company announced a 5% share repurchase plan on Aug. 25. This type of announcement is usually good news for investors, as it shows that the company believes in its projected growth trajectory, and signifies that the stock price could be at a discount to its future value.
To further underscore this notion, Sandelman used the announcement to also reemphasize the company's plans to meet its 2022 goals of hitting $800 million in annual revenue. Unfortunately, the market did not show a positive response for long. The stock spiked up for a day before continuing its downward trend that started Aug. 10. At that time, the share price was sitting at $30, but has since dropped to $20.
A buy (long term)
The news coming out of Ayr is positive for investors, and has gained the confidence of analysts, who have an average 12-month price target of $50. This represents a potential 85% gain within 12 months for investors who get in now at the current stock price of $27. The 50% decline in Ayr since early August is a screaming buy-on-the-dip opportunity.
But the overall cannabis market is experiencing a downward trend in stock prices for leading companies such as Ayr, Green Thumb Industries, and Canopy Growth. Until that trend stabilizes, it might be best to sit tight and look for more-positive news coming out of Ayr during its third-quarter earnings call, expected around Nov. 24. In the meantime, investment banking firm Needham is holding its virtual cannabis conference on Sept. 14, which might result in a glimpse of expectations via potential analyst upgrades or downgrades.
