In this edition of “Rising High,” The Fly conducted an exclusive interview with Rebecca Koar, Executive Vice President of Investor Relations and Strategy at Ascend Wellness Holdings (AAWH), a vertically integrated multi-state cannabis operator focused on bettering lives through cannabis. Here are some highlights:
VERTICAL INTEGRATION: Ascend is a cannabis operator with licenses and assets in Illinois, Maryland, Massachusetts, Michigan, Ohio, New Jersey, and Pennsylvania. The company owns and operates dispensaries and cultivation facilities, producing a curated selection of products for retail and wholesale customers. Ascend also produces and distributes its in-house products under the brands Common Goods, Simply Herb, Ozone, Ozone Reserve, Tunnel Vision, and Royale. “We have 36 dispensaries in seven states, and we have seven cultivation facilities,” Koar said. “Most of the states that we are in are limited-license and we enter when they are adult-use or medical markets that are nearing the flip of adult-use.”
Ascend is not necessarily looking to build an empire coast to coast and is very deliberate about what states the company decides to enter, she said. “Once we do enter a state, it is important to us that we scale up quickly so we can realize various efficiencies,” the EVP said. “We like to look for retail locations that are extremely well trafficked, either on the corner of Main and Main or one turn off the highway. Some of those factors are what help contribute to our average revenue per dispensary being the highest of the U.S. MSOs. “
When asked about rising competition in the space, she said the level of competition varies market-by-market but Ascend stands out through its product quality and value. “We have what we consider to be the right products in the right place at the right price at the right time,” Koar said. “We can provide our customers with the value propositions that they are looking for, whether it’s a decent product that is on the less expensive side or a high-quality product on the premium side. We want to make sure that we are giving customers a really high value for what they want.”
The company offers products across the pricing spectrum through its in-house brands, she said. “If it’s a product on the no-frills side, we’ve got our Common Goods plan, which fits that need,” the EVP said. “The next step up is our Simply Herb brand, which actually is the number one brand in Massachusetts.. If you take a step up in the value proposition, we have our Ozone brand. Then at the top of the pack, we have our Royale super premium brand to cater to those cannabis connoisseurs that really like single-strain genetics and high terpene profiles. We think we are giving our customers that right product at the right price. The Ascend brand house, which represents all of our brands, is the third highest grossing brand house across the wholesale markets in which we compete.”
MARKETS: The company currently has assets and licenses in seven states and evaluates market size as well as potential for adult-use when entering a state, Koar said. “For example, when we entered Maryland we bought four dispensaries almost exactly a year ago,” she said. “This was when Maryland was on the cusp of turning to adult-use. We knew that it had potential for a near-term flip to adult-use and as a result we experienced about a 2.5x sales increase with that flip.”
Ascend also looks at medical penetration, illicit factors and various other things when evaluating a market for entry but is currently focused on fortifying the company’s existing markets, the EVP said. “We are doing that in a variety of ways,” she said. “Even though we are bumping up against the dispensary cap system of these states, we are working on creative ways to partner with social equity license holders to expand beyond our cap to an extent. While we might not necessarily fully own these dispensaries, we’re benefiting from them in some way, shape or form.”
For example, New Jersey has a rule allowing companies to invest in seven additional dispensaries outside of their three cap for a 35% equity stake, Koar said. “We signed one agreement to do that, and we are looking for more opportunities,” she said. “In addition to the equity stake, we are providing support and shared services to these companies so we can help them with their back-office finances, their marketing or various other corporate shared services. We capture an additional piece of the economics of the dispensaries through these shared services and we’re also securing long-term supply agreements. This is mutually beneficial for us and the social equity license holder. For our side, we have got a sales avenue for our wholesale product and for them, they have a long-term consistent supply of some really great product.”
Ascend also employs the strategy in Illinois and has a total of three partnerships in the state, the EVP said. “Outside of our existing markets, we are always looking at other states that have a similar framework,” she said. “Near-term recreational, highly populous and ideally contiguous. That is helpful from a corporate management perspective and we’re constantly evaluating those and trying to be very judicious with price and valuations.”
Q1 EARNINGS: In May, Ascend reported first quarter loss per share of (9c) on a net revenue of $142.4M, which compared to a loss per share of (10c) on a revenue of $114.2M for the same period last year. “Year-over-year revenue growth was primarily driven by three main factors,” Koar said. “One of them being the addition of eight retail stores since last year, the second is the acquisition of four Maryland dispensaries and the conversion of those to adult-use and the third is wholesale growth in all our wholesale markets. We were proud to announce wholesale growth for the fifth quarter in a row.”
The company also guided to 2024 revenue growth between approximately 12% and 15% and an adjusted EBITDA increase of approximately 17% to 22% compared to 2023. “Some of the forecasted growth will come from new store openings,” the EVP said. “We opened two new stores in Q1 and we have a few more stores in our pipeline. We also see continued wholesale growth across the portfolio. We’re forecasting wholesale growth in Illinois and New Jersey in particular as some of these social equity licenses come online. Currently in Illinois and New Jersey, we’re in 85% of the doors. As new doors come online we hope to continue to keep pace with those markets and expand our relationship with our existing customers there.”
SCHEDULING: The U.S. Justice Department recently formalized its process to reclassify cannabis as lower-risk and reschedule the drug from Schedule I to Schedule III. The Drug Enforcement Administration submitted a notice of proposed rulemaking on Thursday, May 16, triggering a 60-day comment period that will allow members of the public to submit remarks regarding the rescheduling proposal. “It’s tremendous and everyone has said it, but it is really truly historic,” Koar said. “It’s the most progressive move in cannabis reform that we have seen in decades since medical markets first started to be allowed. We are really very pleased and excited for this rescheduling to be formalized, hopefully ahead of the election in November.”
She added the news has solidified Ascend’s tax strategy as rescheduling most directly impacts the 280E IRS tax code obligation. “We were actually front-runners of the peer group in our tax strategy and stopped paying our 280E-related tax obligations in 2023,” the EVP said. “This ruling really solidifies and helps us to validate our approach that we took, so we’re really excited to see this be finalized in the rule-making process.”
She noted that there are some unknowns that will come with rescheduling, but it is all speculative at this point. “The unknown is always scary and ominous but regardless, this industry has been through a lot,” Koar said. “It has been able to come out on top for the most part in very dynamic and challenging regulatory environments. I’m sure we’ll figure it out, get through it together and overall it’ll be a net positive.”
SAFER BANKING: In September, a U.S. Senate committee voted to advance The Secure and Fair Enforcement Regulation Banking Act bill, which seeks to ensure that all businesses, including cannabis businesses, have access to deposit accounts, insurance and other financial services. “That will probably have even more broad reaching implications further than the research and tax benefits that we’ll see from rescheduling,” the EVP said. “It is hard to say how that will play out and the political machinations of what bill that could be attached to or if it would be standalone. It is helpful to see directive from the executive branch with the President really being supportive, so hopefully that moves the needle.”
PRODUCT CATEGORIES: According to research firms within the space, flower still holds the biggest share of sales of any cannabis product category, followed by vape. “We definitely see some other fast-growing categories as well, edibles is a huge one,” Koar said. “And within flower, the pre-roll category has grown, especially the infused pre-roll category. For those super consumers, those super connoisseurs, flower is always a mainstay staple for them. That is one of the main reasons that it has held its prominence, but we are definitely seeing growth out of other categories. There is a lot more to see but I don’t expect flower to go anywhere any time soon.”
CHALLENGES: When asked about the largest hurdles facing the cannabis space, the EVP pointed to the tax burden as well as the rapidly-moving, emerging nature of the sector. “It’s such a fast, emerging and growing industry,” she said. “Getting used to the new paces, the new market dynamics and the supply and demand balances in new states as they begin their medical journey or as they convert to adult-use can present a challenge for some operators. Customers know what they want and they take their wallets and themselves to where they want to spend their money. You have to be fast in how you respond and be very aware of the trends in the markets as well as all the regulatory dynamics at play.”
OPPORTUNITIES: As the cannabis sector develops, Koar said Ascend is currently excited about the Ohio market. “It was recently finalized that Ohio will convert to adult-use sales in mid-to-late June and we’ve got five dispensaries and a small cultivation facility there,” she said. “One of our flagship dispensaries is in Cincinnati, Ohio. It’s right on the parking lot of a Hard Rock Casino and near the Kentucky border, which we don’t anticipate will have recreational sales for years to come. Right now, we’re laser-focused on converting the five stores we have to adult-use and looking to build our footprint in the state. With the new regulations, we believe we will be allowed to own up to three additional stores there for a total of eight.”
The EVP added Ascend has also started to get its footing as a company and is optimistic for the future. “We recently had our first full year of positive cash from operations to positive free cashflow,” she said. “And for this most recent quarter, we announced our fifth consecutive quarter of positive cash from operations. We are really excited for what’s ahead.”
CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Acreage (ACRHF), Atai Life Sciences (ATAI), Aurora Cannabis (ACB), Ayr Wellness (AYRWF), Avant Brands (AVTBF), BZAM (BZAMF), Cannabist Company (CBSTF), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clearmind (CMND), Clever Leaves (CLVR), Compass Pathways (CMPS), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), Curaleaf (CURLF), CURE Pharmaceutical (CURR), CV Sciences (CVSI), Cybin (CYBN), Delta 9 (DLTNF), Entourage Health (ETRGF), Enveric (ENVB), Fire & Flower (FFLWF), Flora Growth (FLGC), Trees Corporation (CANN), Goodness Growth (GDNSF), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Hemp (HEMP), Heritage Cannabis (HERTF), High Tide (HITI), IM Cannabis (IMCC), India Globalization Capital (IGC), Indiva (NDVAF), Innovative Industrial Properties (IIPR), InterCure (INCR), Lotus Ventures (LTTSF), Lowell Farms (LOWLF), Lucy Scientific Discovery (LSDI), MediPharm (MEDIF), MedMen (MMNFF), MindMed (MNMD), NewLake Capital (NLCP), Numinus (NUMIF), Organigram (OGI), Optimi Health (OPTHF), Planet 13 (PLNHF), Red White & Bloom (RWBYF), Relmada Therapeutics (RLMD), Reunion Neuroscience (REUN), Revitalist (RVLWF), RIV Capital (CNPOF), RYAH Group (RYAHF), Safe Harbor Financial (SHFS), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Tryp Therapeutics (TRYPF), Verano (VRNOF), Village Farms (VFF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).
