Extreme summer heat in Florida left Ayr Wellness Inc. (OTCQX: AYRWF) scrambling to address power problems at one of its cultivation facilities.
“We had an issue with power and an issue with the backup of the power,” CEO David Gobert said in a call to discuss the company’s latest quarterly results. “That created extreme heat, I would say, in the garden for a few hours.”
That led to an inventory shortfall for the state at the end of the quarter. Ayr expects to see the impact of that blunder in its fourth-quarter performance.
“Yes, so we’re guiding to being flat on Q4 and that $4 million to $6 million impact on Florida,” Goubert said.
That multimillion-dollar crop loss was certainly a hit for the multistate operator, but the CEO said the company responded quickly and took steps to “ensure that it’s not happening again until next summer.”
Despite the setback in Florida, Ayr expects steady performance in the fourth quarter, hoping to offset the Florida losses with growth in other regions, such as Massachusetts, New Jersey, and Ohio.
“For Massachusetts, it’s right now not a matter of demand, it’s a matter of having the supply for the demand that we have for our products,” Goubert said. “So, that, for us, is a growth vector for the fourth quarter.”
In New Jersey, price compression has created some challenges, as well, but Ayr is focused on grabbing more share, partly through the expansion of their Eatontown store. The company also benefitted from new legislation that allows operators to take minority stakes in additional retail locations.
“At this point, we have one partnership with The Library, which is a minority-owned licensee dispensary that should open pretty soon,” Goubert said, adding that management is “looking at other options” as well.
In addition, the company is setting its sights on new adult-use markets and markets that are expected to embrace adult-use in the near future, such as Florida, Ohio, and Pennsylvania. Out of the company’s 88 operational dispensaries, only 15 are currently designated for adult-use, which reinforces the growth potential in those markets.
The recent vote in Ohio to legalize adult-use cannabis particularly stands out as a key opportunity, with Ayr already operating three stores and a Tier 1 cultivation facility in the state.
However, the full upside of Ohio isn’t expected until late 2024 and the recreational question is still playing out in Florida. Plus Pennsylvania’s path is still unfolding. So Ayr said it is concentrating on maintaining strict cost control and optimizing cash flow to set itself up for long-term success in the meantime.
The approach is especially important given the firm’s highly leveraged balance sheet.
“I think you’re going to see more gradual improvement in terms of savings, but then also more leverage kick in as we see sales growth in 2024 and improvement as SG&A as a percentage of sales,” Goubert said.
He added, “We’ve been able to become leaner and become more efficient as an operator.”