Acreage Holdings Inc. (OTCQX:ACRGF) was once leading the pack of cannabis companies planting its flags in as many states as possible. That strategy has proven to be expensive and hasn’t paid off as quickly as many hoped. Now Acreage, like the others, is pulling back and taking a more targeted approach as it divests assets and takes a big charge.
Acreage said it expects to record a pre-tax, non-cash charge of $80 to $100 million in the quarter ending March 31, 2020. Its first steps to scaling back properties include selling Acreage North Dakota, where it operated one medical marijuana dispensary and selling undeveloped real estate on the island of Nantucket in Massachusetts. In 2019, Acreage reported a net loss of $195 million, so it seems 2020 may be off to a rough start as well.
“The impact of the COVID-19 pandemic on U.S. cannabis operators has been profound, at a time when the industry was already reeling from decreased access to capital, legislative uncertainty, and the illicit-market vaping crisis that struck our industry by association,” said Kevin Murphy, Chairman, and CEO of Acreage. “Led by a nimble operating team and Board of Directors that has proven its ability time and again to adapt and thrive in challenging times, we are supremely confident our plan will ensure operational profitability and excellence and position us to deliver improved shareholder returns in short order.”
The company’s focus is now on key, profitable operations. Acreage believes this will lead to immediate margin improvements and accelerate its pathway to achieve positive pro-forma adjusted EBITDA for the full year 2020.
The company said in a statement that this shift is a direct response to significant changes in capital markets and in anticipation of continued historic pressure on consumer sentiment and regional and national economic uncertainties. “In addition to the sale of some non-core and other underperforming assets, Acreage intends to operate with a more optimized overhead cost structure and corporate team to adapt to an ever-changing cannabis landscape.”
North Dakota’s Lack Of Patients
Medical marijuana has been legal in North Dakota since 2016, but activists had been moving towards a ballot measure for recreational use. The medical program took two years to implement and was fairly small in scope. The plan was a ballot initiative for 2022, but with COVID’s social distancing measures, getting signatures is proving difficult. Acreage has announced early in April it was closing the North Dakota dispensary, so the sale isn’t a surprise.
When the state opened up to medical marijuana cards last year only 122 patients signed up and the number was only expected to climb to 4,000. At the end of 2019, only 1,850 cards had been issued making this is a difficult state for a profitable venture.
Massachusetts Tourism Hit
Nantucket currently lists only one dispensary called Green Lady. COVID is sure to affect tourism to the island in the summer months as the economy struggles from unemployment and people remain cautious about traveling. The only way to reach the island is by ferry meaning tourists will have a hard time maintaining a six-foot distance from each other. Green Lady said it will be closed until May 19th after the Governor ordered all adult-use stores to close and only allowed medicinal dispensaries to remain open.