TDR Exclusive: Ascend CEO John Hartmann on Q1 Earnings

The TDR Three Key Takeaways on Ascend Wellness Holdings Q1 2024 Results:

  1. Ascend Wellness reports a 24.70% YoY revenue increase, reflecting strong growth.
  2. Ascend has stopped paying 280E taxes and applied for a refund for past 280E taxes paid.
  3. Ascend Wellness achieves quarterly and yearly gross margin growth.

Ascend Wellness Holdings (CSE: AAWH.U, OTCQX: AAWH), a multi-state operator in the cannabis industry, reported its Q1 2024 financials yesterday. In this article, we will examine its recent financial results, covering key metrics such as revenue, cash and debt positions, and gross margins, to highlight the company’s progress and potential areas for improvement. We will also highlight our exclusive interview with Ascend CEO John Hartmann regarding Q1 earnings.

One of the standout highlights of Ascend’s financial report is its strong revenue growth. The company’s total revenue increased from $114.20 million in March 2023 to $140.20 million in December 2023, reaching $142.41 million in March 2024. This represents a year-over-year (YoY) growth rate of 24.70%, which is impressive, especially in the context of the cannabis industry, where such high growth rates were not common in the last round of earnings reports earlier this year.. The quarter-over-quarter (QoQ) revenue growth was more modest at 1.58%, as 2023 Q4 numbers were quite strong.

CEO John Hartmann commented on the company’s performance, stating, “I think the real headline for us is that nice blended growth across both the segments of our business. Specifically to wholesale, look, it’s two things. It’s having great products at a reasonable price, a sales team working with individual dispensaries, and working with our MSO partners to ensure that our products are part of their menus.”

Regarding the revenue split between retail and wholesale segments, Hartmann revealed, “We’re going to remain approximately two-thirds retail and one-third wholesale throughout the balance of this fiscal year. It will change over time as we densify current markets.”

Ascend has maintained a stable cash position, with cash and equivalents reported at $73.30 million in March 2023, $72.50 million in December 2023, and $72.90 million in March 2024. The slight QoQ increase of 0.55% and a marginal YoY decrease of 0.55% suggest consistent cash management, with no significant changes noted in this area.

The company’s debt position is another area that requires further analysis. As of December 2023, Ascend’s total debt stood at $307.10 million, consisting of $10.70 million in the current portion of long-term debt and $296.40 million in long-term debt. In March 2023, the total debt was slightly higher at $322.80 million, with a lower current portion of $2.30 million and a higher long-term debt of $320.50 million. As of March 2024, the long-term debt decreased to $288.70 million, but the current portion of the debt was not broken out. At this time, it is challenging to see the details of whether debt is increasing or decreasing. When the data is updated on systems like Capital IQ and Bloomberg, we can do a deeper analysis and report back to readers.

The company’s gross profit and margins have shown steady improvement. In March 2023, gross profit was $37.30 million, with a gross margin of 32.66%. By December 2023, gross profit increased to $47.50 million, with the margin improving to 33.88%. In March 2024, the gross profit reached $52.38 million, with the margin climbing to 36.78%. The YoY and QoQ percentage changes in gross margin were 4.12% and 2.90%, respectively, highlighting strong growth.

Regarding future expansion and strategic decisions, Hartmann also noted, “We’re very excited about Ohio. We’re excited that the state has moved up the launch of adult use, as we’re all anticipating sometime around the beginning of July, a little sooner, maybe a little later, depending on the exact timing,” and added, “our company’s approach to entering new markets is pretty obvious.” For near-future growth plans, Hartmann revealed, “We just opened our third store in the state in a Pittsburgh suburb, and we’ve got three more coming over the next couple of quarters.”

On a question about tax strategy, John replied, “We took a bit of a proactive stance with our tax strategy last year, and we stopped paying 280E taxes. So, we are paying our federal non-280E taxes on a go-forward, quarterly estimated basis, just like any normal federally taxed corporation. And we’ve said this publicly before: we’ve applied for a refund at both the federal and state levels for the 280E taxes we’ve paid over the last several years.”

He also touched on financial forecasts: “I think we feel very comfortable with those revenue and EBITDA numbers in that range. That range does not include the adult use go live in Ohio.”

Ascend Wellness Holdings has shown strong revenue growth and improved gross margins. It has also shared a plan for additional revenue growth. However, further clarity is needed regarding its debt position. Despite this, the company’s financial performance indicates a positive outlook with potential for continued growth and profitability. To keep up with all of TDR’s research and news, subscribe to our daily Baked In newsletter.

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