March 2, 2020

Ayr Strategies (CNSX:AYR.A) Cash Flow Positive with Fully Funded Growth Strategy

Midas Letter
Midas Letter
Ayr Strategies (CNSX:AYR.A) Cash Flow Positive with Fully Funded Growth Strategy

Ayr Strategies (CNSX:AYR.A) CEO John Sandelman joined Midas Letter to discuss the company’s robust Q4 financial results and the reason the results set them apart from other multi-state operator’s (MSO’s). Ayr Strategies are cash flow positive reporting a record quarterly revenue of $32.3 million. In December of 2017, the company was the first Special-purpose acquisition company (SPAC) in the cannabis industry. SPAC’s allow public stock market investors to invest in private equity, which allowed Ayr to raise money to acquire companies. The goal using this strategy is to acquire best-in-class assets in the various markets they operate within, currently Massachusetts and Nevada. Watch the full interview to learn more about Ayr’s positive EBITDA & cash flow strategy.

Midas Letter
Midas Letter
Ayr Strategies (CNSX:AYR.A) Cash Flow Positive with Fully Funded Growth Strategy

[stock_chart symbol=AYR.A:CNX]


James West: I’m joined now by Jonathan Sandelman, CEO of Ayr Strategies, trading on the CSE under the symbol AYR.A. Jonathan, welcome.

Jonathan Sandelman: Thank you for having me.

James West: Sure. Jonathan, you published some very robust financials. Can you give us an overview of your financial statement?

Jonathan Sandelman: So we met our targets that we put out to the investor community in October, and we’re very proud of the numbers that we were able to achieve. And, you know, our goal is from Day One, is to be both EBITDA and cash flow positive. We increased our EBITDA, and we’re 3.9 million cash flow in the quarter. And so that really sets us apart from the other MSOs in the industry.

James West: Sure, it sure does. Now you guys recently started trading. You sort of came to the whole parade late in the game as a publicly traded cannabis company. What was the philosophy, what was the sort of origin of the company?

Jonathan Sandelman: So we were the first public marijuana company before the RTO was filed and were issued. We issued a cannabis SPAC, so also the first SPAC in the cannabis industry, in December of 2017. So we actually started trading first; we converted from a SPAC to a regular public company on May 24th of 2019.

James West: Okay. Was this a SPAC sponsored by Canaccord?

Jonathan Sandelman: It was sponsored by me; it was called Cannabis Strategy Acquisition Corp.

James West: I see.

Jonathan Sandelman: They were private.

James West: Oh, interesting. Okay, well, that’s great: a success story in the cannabis space and in the SPAC space! Those are both miracles. Okay, so now…

Jonathan Sandelman: First time in Canada, actually!

James West: Sure. A critical individual, a more pessimistic individual, would point to the $84 million in goodwill on your balance sheet and say that’s sort of generous. So how do you defend the $84 million goodwill?

Jonathan Sandelman: I think it’s a technical issue that it would be a bit time-consuming now to get into, but I can go through it in detail at another time.

James West: Okay, so just in a summary.

Jonathan Sandelman: We don’t think it’s generous; we think it’s accurate and disciplined, and it’s very easy to explain and defend.

James West: Okay. Great. So then, how is it that you believe that you became so profitable out of the chute? It sounds to me like you’ve been operating very much under the radar in that I’d had no idea of what you were up to. So I guess you guys kind of operated in stealth mode, acquiring assets before you actually merged with the SPAC?

Jonathan Sandelman: So let’s go over what the SPAC structure is. So, what’s a SPAC? It is essentially an acquisition company, and so it raises money to acquire companies. What we did, we did several unique things. One is, we told the investors in December of 2017 our goal is to acquire the best in class assets in the various markets where we would invest. Number two is, we’d be EBITDA and cash flow positive Day One.

And I’m not sure you know much about my background, but for 30 years, I’ve been in the finance business, both as a financier and an operator, and I understood, as the investment community broadened, and people other than just Canadian investors, traditional investors, would start to look at this exciting industry, they would eventually apply very disciplined investment models and measures.

And in any other industry, EBITDA and cash flow are extremely important. So we understood that, and as an investor myself, I understood that value. What I never wanted to be is subject to the cyclicality of the capital markets, and so by having EBITDA and cash flow, and being able to self-fund my business – because all of our CapEx has been funded out of our cash flow – it would put us in a very strong position vis-à-vis our competition.

James West: You bet. Okay, then, give us just an overview of your history as an investor so that my audience understands that you’re not coming to this as a sort of idea guy as much as you are an execution guy.

Jonathan Sandelman: So I would start out by saying this: when I decided to invest, because again, I was the sponsor of the SPAC – when I decide to invest either my money or my personal capital in a business, I have to first assess whether I have an edge in that market. And so when I looked at the competitors in that market, I was going, if I invested, to be the only 30-year financial or finance individual, in the marketplace, and that would be an edge.

So what is my background? I worked at Salomon Brothers, I was a managing director there. I ran several businesses, and ultimately I ran all global equity proprietary trading. I left there to go to Bank America, and started a financial products business, ultimately becoming president of the securities company. And then after seven years, I opened up Sandelman Partners, which was a $5 billion multi-strategy hedge fund. And then in 2010, I closed that to open up my family office.

James West: Wow, that’s quite a background. Okay, so Ayr is focused currently mostly on Massachusetts and Nevada; what is the competitive environment like in those states in terms of acquisition of profitable businesses that you can fold into your portfolio, and then what is your strategy for other states going forward?

Jonathan Sandelman: So our strategy for acquisitions, which we’ve articulated in the market, is to continue down the very disciplined path that we’ve been living over the last two and a half years. So again, we’re in the market, actively acquiring or attempting to acquire companies that are best in class in assets again, that are both EBITDA and cash flow positive. I think at this point we have the assets we want, both in Massachusetts and Nevada, and we are looking to other states that have other excellent operators, to continue to grow our footprint.

But the one thing I have to tell you is, we’re not a company in a rush. We’re a company that is super disciplined; we take our time, we value other companies, and when they’re right and consistent with our messaging, we will acquire them.

James West: That sounds like a great strategy, and it’s obviously, at this point retrospect, been a benefit to be able to sort of be patient and not have to demonstrate performance. One of the biggest mistakes we see in the Canadian large cap space is that these companies rushed to demonstrate revenue, and then the revenue was hopelessly disappointing, and now they’ve overbuilt capacity and they don’t have the market to take up the inventory they’re capable of generating.

So from your perspective, and from obviously coming at it with a very mature sort of strategic vision, do you see Canada as a place where you might be interested in acquiring distressed assets in the near future?

Jonathan Sandelman: So in my 30 years, I think focus is paramount to successful investing. And so our focus from Day One has been solely on the US, and that’s because it’s a much bigger market. I would say some of the experience that Canadian LPs have had, we have also seen some of the larger MSOs in the US have a very similar experience. We have told the market on our earnings calls for the last year that we had seen a lack of discipline in the marketplace, financial discipline, and we thought this day would come that assets would get less expensive.

And so at this point, that’s why we’re getting more aggressive on M&A, because the market has corrected. We do have the cash flow, we do have the EBITDA, we’re an attractive merger partners because we’re in very rarified air in this space, the cannabis space. And at this point, my lawyers have advised me that I’m no longer allowed to talk about our plans for M&A. And we mentioned that on our call yesterday.

James West: Mmm. Okay, Jonathan, that’s a great overview of the financial condition of the company and a great introduction to the company. I wish we had more time. Sounds like I could learn a lot from you, but we have to leave it there. Thank you very much for your time today.

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