By Steve Gelsi
Ayr Wellness is taking aim at expanding into the New York market after a successful 2021, in which the company’s footprint grew from two states to eight through a series of acquisitions.
“We’re not in New York now, but we are intending to be there,” Jon Sandelman, the company’s founder and CEO, told MarketWatch amid rising interest from the legal cannabis industry in the Empire State.
Sandelman, who launched Ayr Wellness /zigman2/quotes/201137876/delayed AYRWF -1.28% in 2017 and hopes to take it to $800 million in revenue in 2022, previously worked in senior roles at Bank of America Corp. /zigman2/quotes/200894270/composite BAC +3.39% as head of debt and equities as well as president of Bank of America Securities.
He’s particularly bullish on the company’s pending acquisition of Cultivauna LLC — the owner of Levia-branded cannabis-infused seltzers and water-soluble tinctures — for up to $60 million. Levia beverages are currently available in Massachusetts, but Ayr plans to use the brand and its formula for sales in eight states in 2022 after the deal closes as expected in February.
“In the states where we have footprint, we’re already starting to locate space and build out the assembly lines — to build the first national brand,” he said. “No [cannabis] beverage company is in eight states.”
Although beverages account for roughly 1% of the legal cannabis business, Sandelman said he sees a large opportunity in the business because alcoholic beverage consumption has been falling in states with adult use cannabis.
Meanwhile, other cannabis companies such as Tilray Inc. /zigman2/quotes/226578748/delayed CA:TLRY +5.11% and Constellations Brands /zigman2/quotes/207737284/composite STZ +0.61% -owned Canopy Growth Corp. /zigman2/quotes/200603886/composite CGC +2.79% have also been investing in alcoholic beverages as a way to enter the U.S. market by adding cannabis-infused ingredients in the future.
Ayr’s string of acquisitions in 2021 included up to $200 million for GSD NJ LLC [Garden State Dispensary] for a seed-to-sale dispensary business in New Jersey. It has also grown its presence in Florida, Pennsylvania, Arizona, Illinois and Ohio in the past year. It capped off the year by raising $150 million for its balance sheet by selling 12.5% senior secured notes to fuel acquisitions and expansion costs, the company said on Nov. 12.
In terms of cannabis flower, Ayr is positioning itself for the premium end of the legal market for cannabis-infused drinks and cannabis flower.
“Our goal is to be the largest scale producer of high quality flower in the U.S. which distinguishes us,” Sandelman said. “None of the competition is talking about what’s inside the box instead of the box. We take a different approach. For Ayr, everything starts with the plant. Like any other consumer packaged good, it’s about quality and consistency.”
Looking ahead, Ayr is targeting growth to 12 to 15 states, but will not pursue opportunities in Maine, Vermont, Washington state, Oregon or Oklahoma.
“Our work has shown us that the most efficient cannabis operating model is to be in 12 to 15 states that represents 80% of the consumer wallet,” he said. “We’re willing to leave the other 35 state and 30% of the wallet to others.”
However, New York fits the firm’s profile as a potentially lucrative market. The state is preparing to begin the process to award highly coveted cannabis business licenses in 2022.
Ayr Wellness shares are down 40% in the past year, but have risen 9.7% so far in 2022. The Cannabis ETF /zigman2/quotes/213173823/composite THCX +5.34% is down by 56.9% in the pasts 12 months and has lost 9.6% of its value in 2022.