Acreage Holdings Reports Rising Revenue, High Losses

Acreage Holdings, Inc.  (ACRG-U.CN) (ACRGF) reported financial results for the quarter ending March 31st, 2019 with revenue rising 487% to $12.9 million, but the company also delivered a whopping net loss of $31.2 million.  Looking at pro forma results, the revenue would have been $33.1 million and the adjusted net loss would have been $15.5 million.

“I am pleased with the progress we made toward increasing our national footprint and particularly our expansion in the western United States.  Our revenues grew by 487% compared to the first quarter of 2018, despite delayed dispensary openings caused by local regulators in both Massachusetts and Ohio,” said Kevin Murphy, Founder, Chairman and Chief Executive Officer of Acreage.  “We do not expect these delays to impact our long-term ability to generate industry-leading returns.  Additionally, we expect our arrangement agreement with Canopy Growth will provide us the ability to rapidly accelerate our growth plan as the transaction makes us the most attractive partner in U.S. cannabis.”

On the company’s conference call, Murphy said he wanted the company to become the “Proctor & Gamble of cannabis.” He highlighted the Form Factor acquisition saying it was a prudent use of shareholder money. Suggesting that other companies were paying high prices for fewer returns on their acquisitions.

Canopy Growth Acquisition

The company announced that it was being acquired by Canopy Growth Corporation at a time in the future when the laws of the United States change such that Canopy Growth is permitted to acquire Acreage. It is projected to have a window of 7.5 years for this to occur.

“The immediate benefit our investors get is cash up front,” said Murphy. “Then Acreage will take full advantage of Canopy’s amazing brand portfolio, IP, and technology for zero payments. We’ll also have an additional 63.2 million shares of stock to use for investments. Our phones are ringing from cannabis operators across the country stating their desire to be a part of the operation.”

Murphy also noted that the agreement is not capped at a specific dollar amount. “It’s already 50% higher than the original valuation,” said Murphy. “It would really be $5.3 billion on a fully diluted basis. More than a 100% increase from when we accessed public markets six months ago. Your shares worth $31.64 this would imply an upside of 67% to the closing from this past Friday.”

The company stated that announced shareholders in aggregate holding approximately 91% (exceeding the 66 2/3% required threshold) of all votes eligible to be cast at the special meeting of Acreage shareholders to be held on June 19, 2019 have indicated support “FOR” the Canopy Growth agreement.  This includes approximately 38% of votes eligible to be counted for purposes of the disinterested shareholder approval, which requires a majority of votes cast at the Special Meeting.

Looking Ahead

Following the end of the quarter, Acreage expanded its geographic footprint from 19 to 20 states with its acquisition of Deep Roots Medical in Nevada. The company said it has approximately $140M in liquid capital; $64M in cash and cash equivalents and $75M of highly liquid short-term investments on hand as of Q1’19.

Murphy also spoke of the Deep Roots acquisition. Noting it distributes products to 80% of Nevada’s dispensaries. “We have very high expectations of our Nevada business,” said Murphy on the earnings call.

The company has an agreement to acquire the Kanna dispensary in Oakland and expects to open as The Botanist this summer. The company also plans to launch three brands this summer: The Live Resin Project, The Botanist Herbalist Series, Natural Wonder.


Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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