Ayr doubles down on Florida cannabis despite failed legalization

Ayr Wellness Inc. (CSE: AYR.A) (OTCQX: AYRWF) is forging ahead with an ambitious Florida beefing-of-sorts despite last week’s failed adult-use legalization vote. The company is still betting that premium indoor-grown cannabis flower will help it capture market share in what remains one of the world’s largest medical markets.

“Indoor flower is needed regardless of adult use,” interim CEO Steven Cohen told investors during Wednesday’s third-quarter earnings call, pointing to a stark disparity in the company’s market share. “We have a clear need when you look at our market share for flower at around 6.5% in Q3 compared to oil at 12% and change. There’s a clear opportunity for us to bridge this gap.”

The multistate operator plans to gradually bring its 100,000-square-foot indoor cultivation facility online in Ocala next year, though Cohen is signaling a more measured approach.

“We’re going to manage the … process very closely next year, but we’re going to light up flower rooms gradually,” he said. “We don’t expect pricing to recover in Florida, so we’re going to need more inventory, and Ocala allows us to compete.”

Amid concerns about inventory buildup among Florida operators and potential pricing pressure, Cohen acknowledged the competitive scene but expressed confidence in Ayr’s position.

“We’ve been competing with one arm tied behind our back without indoor flowers,” he said. “We have a low cost basis in Florida, which allows us again to be competitive on the price front.”

Cohen, who stepped in following David Goubert’s September departure, also recognized the company’s recent turbulence.

“This business has gone through a series of leadership changes that overall I think have been productive but have led to a kind of – and I’ll acknowledge what it is – a sense of instability that is coming to an end now,” he told investors.

“This company cannot be flat footed,” Cohen added. “What this company needs and what this company is going to embrace is mature leadership and thoughtful growth.”

The Ocala facility, which was fully financed through a sale-leaseback arrangement with Innovative Industrial Properties, positions Ayr to expand its presence in Florida’s medical market, which BDSA projects will hit $2.7 billion in sales this year, management said. The expansion comes a week after Florida voters rejected Amendment 3, which would have legalized adult-use cannabis.

“As you approach the vote, there was a slowdown, a natural slowdown in the number of medical card sign-ups and renewals,” Cohen noted. “Now that we know that adult-use market is not going to be realized at least for now in Florida, there is an expectation that those potential customers will begin to go back to the medical use process.”

Management expects continued “consumer wallet pressure driving value-based decision making and competitive pressures” through the fourth quarter, with both revenue and adjusted EBITDA projected to remain in line with third-quarter results. Despite so, year-to-date operational cash flow stands at $19 million, keeping the company on track with its full-year targets.

On a brighter note, Ayr received word Tuesday of a registered organization license award in New York’s medical market.

“That’s good news for Ayr, for the future of our business that should develop in New York as the marketplace begins to expand and grow,” Cohen said.