Acreage Earnings Provide a Glimpse into Canopy USA

The TDR Three Key Takeaways regarding Acreage Earnings and Canopy USA:

1. Acreage’s strategic initiatives strengthen its position for Canopy USA acquisition.
2. Acreage’s product expansions enhance a foundation for Canopy USA future growth. 
3. Acreage cuts operational costs, aligning with Canopy USA’s efficiency goals.

Acreage Holdings Inc (CSE: ACRG.A.U, ACRG.B.U, OTC: ACRHF, ACRDF)  reported its full-year 2023 financial results and provides a glimpse into one of the foundational pieces of the new Canopy USA. Last week, we provided updates on the key shareholder Constellation Brands share conversion and shareholder approval for Canopy USA. This additional insight from Acreage gives us a first look at the strategies outlined by Canopy Growth’s CEO David Klein on last week’s TDR Trade to Black podcast.

Dennis Curran, CEO of Acreage, spoke about the company’s recent strategies, saying, “Throughout 2023, we completed various strategic initiatives that have positioned us strongly for our upcoming acquisition by Canopy USA.” His statement acknowledges the past year’s achievements and outlines Acreage’s strategy for a more integrated and efficient future under Canopy USA.

In the fourth quarter of 2023, Acreage reported a consolidated revenue of $52.8 million, with a gross margin of 32%. When excluding the impact of non-cash inventory adjustments, the adjusted gross margin slightly improved to 33%. The net loss for the quarter was at $35.7 million. Despite this, Acreage achieved an adjusted EBITDA of $4.3 million, which represented 8% of the consolidated revenue. Looking at the full year, Acreage’s consolidated revenue totalled $223.4 million, a decrease from the previous year’s $237.1 million. The full-year adjusted EBITDA was $28.3 million, down from $34.8 million in 2022, with the adjusted EBITDA as a percentage of consolidated revenue standing at 13% for 2023.

Acreage has effectively reduced its operating costs, demonstrating a clear focus on financial efficiency. The company has cut its General and Administrative expenses by nearly 50%, showing successful cost-management strategies. This action aligns with Canopy USA’s goals of maintaining streamlined operations during the final acquisition stages. 2023 marked Acreage’s 12th consecutive quarter of positive adjusted EBITDA.

In the fourth quarter, Acreage introduced Superflux in New Jersey, making it the fourth state where the craft cannabis brand is now available, following Ohio, Massachusetts, and Illinois. Initially, Acreage launched a limited selection of small-batch flowers, but now the full Superflux product line, including award-winning concentrates, is accessible to consumers in New Jersey. Acreage also completed a significant expansion of its Egg Harbor facility in New Jersey. This expansion included enlarging the cultivation area, adding an edibles kitchen, and upgrading extraction technologies. These improvements are designed to support the increasing demand for both wholesale and retail products and will help in the expansion of Acreage’s flagship brands throughout the state. In the first month following the expansion, productivity per plant doubled. Additionally, Acreage debuted The Botanist line of THC-infused gummies in the New York market, broadening the brand’s product range to include flowers, pre-rolls, vapes, tinctures, and extracts. Earlier in the year, they expanded The Botanist’s offerings with the introduction of fast-acting and extra-high potency gummies in various flavors and ratios. Furthermore, Acreage upgraded its cultivation facility in Freeport, Illinois, positioning itself as one of the few operators in the state capable of producing high-quality, non-remediated whole flower.

Acreage also entered the New York adult-use wholesale market, making The Botanist’s full product menu available to eligible adult-use dispensaries across the state. In the near future, Acreage plans to further expand its wholesale offerings with the introduction of new products. Additionally, the availability of The Botanist product portfolio has expanded to nearly all states within the company’s footprint as of January 2024. This expansion includes Illinois, Maine, Massachusetts, New Jersey, New York, Ohio, and Pennsylvania. In Connecticut, Acreage broadened its footprint by relocating its third dispensary to the town of Vernon, marking it as the first cannabis storefront in the borough. The Botanist Vernon transitioned to a hybrid dispensary in the first quarter of 2024, now serving both medical patients and adult-use consumers.

As we look to the future, Acreage’s journey through 2023 offers valuable insights into the strategic planning and financial management that will define the next phase of growth for Canopy USA. With a clear focus on efficiency and strategic expansion, Acreage is well-equipped to play a foundational role in Canopy USA future.