Acreage Holdings, Inc.(CSE:ACRG, ACRG.B.U)) (OTCQX:ACRHF, ACRDF)), reported its financial results late Monday for the third quarter ended September 30, 2022 (“Q3 2022”).
Third Quarter 2022 Financial Highlights
According to the company’s financial results, “consolidated revenue was $61.4 million for Q3 2022, an increase of 28% year-over-year.” Gross margin of 35% compared to 50% in the second quarter of 2022 (“Q2 2022”). Excluding non-cash inventory adjustments, the gross margin was 45% for Q3 2022.
Adjusted EBITDA was $8.8 million in Q3 2022, compared to $6.5 million in the third quarter of 2021 (Q3 2021). Adjusted EBITDA* as a percentage of consolidated revenue was 14% for Q3 2022.”
Third Quarter 2022 Operational Highlights
- Concluded operations in Oregon with the completion of the sale of four retail dispensaries in the state branded as Cannabliss & Co.
- Became one of only a small number of producers in the state of New York with the capability to supply non-remediated whole flowers to the market upon the launch of the Company’s whole flower sales under the state’s strict microbial testing regulations.
- Continued strong growth in New Jersey with adult-use sales and made continued progress on upgrades to the infrastructure and operating procedures at the Company's Egg Harbor, New Jersey cultivation facility.
- Launched The Botanist Vape Cartridges and Disposables in Illinois, as well as Superflux Cured, Concentrates to build on the reputation of the Company's national brands.
- Subsequent to the end of the quarter, the Company’s social equity joint venture in Connecticut was approved for both a Disproportionately Impacted Area Cultivation License and an Adult-Use Cannabis Retailer license reads a press release.
Total revenue for Q3 2022 was $61.4 million, an increase of $13.3 million or 28% compared to Q3 2021. The year-over-year improvement was primarily due to the addition of operations in Ohio as well as the commencement of adult-use sales in New Jersey, according to the press release.
This revenue growth was offset by declines in other select markets as category headwinds and competitive pressures negatively impacted both price and volume.
Total revenue for Q3 2022 was in-line with Q2 2022. Excluding the Company’s Oregon operations, which concluded at the very beginning of the quarter upon the completion of the sale of the four remaining dispensaries, revenue for the three months ended September 30, 2022, increased by 2% on a sequential basis.
Total gross profit for Q3 2022 was $21.2 million, compared to $23.8 million in Q3 2021. The total gross margin was 35% in Q3 2022 compared to 49% in Q3 2021. Moreover, “cost increases due to inflation and price declines due to competition negatively impacted gross margin during the quarter.”
The cost of goods sold for Q3 2022 included $6.3 million of non-cash inventory adjustments as a result of excess inventory in select markets and carrying values of inventory exceeding net realizable value. Excluding these non-cash inventory adjustments, the margin for Q3 2022 was 45%.
Total operating expenses for Q3 2022 were $37.7 million, compared to $30.3 million in Q3 2021, according to the press release.
“Included in operating expenses for Q3 2022 was a bad debt provision of $7.2 million related to certain notes receivable amounts where the collection is considered doubtful and included in operating expenses for Q3 2021 was an impairment charge of $2.3 million related to capital assets in Sewell, New Jersey that was damaged by Hurricane Ida,” per the press release.
Excluding these unusual non-cash items, “total operating expenses increased by $2.5 million, or 9%, for Q3 2022 due to increases in compensation and general and administrative expenses as a result of inflation and the Company’s expanded operations and were somewhat offset by reductions in equity-based compensation expense, and depreciation and amortization expenses.”
Adjusted EBITDA for Q3 2022 was $8.8 million compared to Adjusted EBITDA of $6.5 million in Q3 2021 and Adjusted EBITDA of $10.4 million in Q2 2022.
While the expanded operations and implementation of the Company’s strategic plan led to year-over-year growth. Adjusted EBITDA on a sequential basis was negatively impacted by decreased pricing due to competitive pressures and increased costs due to inflation. Consolidated EBITDA for Q3 2022 was a loss of $(9.1) million, compared to a consolidated EBITDA loss of $(1.3) million in the previous year's comparable period.”
Net loss attributable to Acreage for Q3 2022 was $(22.2) million, compared to $(12.3) million in Q3 2021.
Balance Sheet and Liquidity: “Acreage ended the quarter with $26.6 million in cash and cash equivalents. As of September 30, 2022, $100.0 million was drawn under the Credit Facility entered in the fourth quarter of 2021,” reads the financial report.
Peter Caldini, CEO of Acreage, said: “Despite significant industry headwinds, our results in the third quarter once again demonstrate the highly attractive positioning our operations have established in our core markets over the last year.” “Throughout the remainder of the year, we will focus our efforts on strengthening our presence in New Jersey through continued cultivation improvements and prepare for the launch of adult-use sales in key Northeastern markets,” Caldini added.
Image by Acreage Holdings, Inc.
Arrangement with Canopy and Credit Facility Amendment
Moreover, on October 25, 2022, Acreage announced that it entered into an arrangement agreement (the “Floating Share Agreement”) with Canopy Growth Corporation (NASDAQ:CGC) (TSX:WEED) and Canopy USA, LLC, GCC's newly-created U.S. domiciled holding company, pursuant to which, “subject to the approval of the holders of the Class D subordinate voting shares of Acreage (the “Floating Shares”) and the terms and conditions of the Floating Share Agreement, Canopy USA will acquire all of the issued and outstanding Floating Shares by way of a court-approved plan of arrangement (the “Floating Share Arrangement”),” according to the company’s financial report.
The Company amended its existing US$150 million credit facility (the “Amended Credit Facility”) with AFC Gamma, Inc. and Viridescent Realty Trust, Inc. “Under the terms of the Amended Credit Facility, $25 million is available for an immediate draw by Acreage with a further US$25 million available in future periods under a committed accordion option once certain predetermined milestones are achieved.”
“The Acreage of today is dramatically different than it was a few years ago, and as the next transformative step in our history, we were pleased to recently announce a new arrangement with Canopy that provides the opportunity for their newly established U.S. domiciled entity, Canopy USA, to gain full ownership of Acreage,” Caldini said. “This agreement is a culmination of the significant work and effort our teams have put in over the last several years, and we are confident that now is the time to execute this strategic opportunity.”
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