Air rises on New Jersey news, still cheap (AYRWF)

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Ayr remains the cheapest MSO on an enterprise value/sales and enterprise value/adjusted EBITDA basis. This, coupled with the strong potential for the second half of the year, makes for an attractive opportunity.

On May 18th, I was worried. Published an article about Ayr Wellness (OTCQX: AYRWF). Writing has become difficult during this protracted recession, so I say worryingly, and I’m not very good at short-term predictions.

Sharing opinions with thousands of people makes me nervous, but the bullish idea at the 16-month drawdown seemed silly. Blessed, the transaction went well.

I won’t go too deep into the original paper. Simply put, Air Wellness was a top 10 MSO, cut off from its peers and underperforming significantly. Much of the downside was due to being the only business not allowed to open adult sales in New Jersey at the April 11 New Jersey CRC meeting.

As a result, Ayr appeared to be undervalued and oversold, and soon came a catalyst that could change sentiment (next New Jersey CRC meeting on May 24).

New Jersey Approval

I spent three days building positions before publishing a bullish article. My average cost is $4.96, which is about the price of Ayr stock when I hit public. News is often leaked and the biggest moves happen before the announcement, so we knew it would be important to get a few days ahead of any potential catalyst.

In the first two days, Ayr outperformed its peers with above-average volume. There was a big move on Friday, May 20th. The MSOS ETF showed a significant gain at the end of his day, with Ayr rising over 17% on the day. Next Monday was the CRC vote in New Jersey, so either the news spread or people were making bullish bets.

On Monday, May 24th, I was glued to Zoom at the CRC meeting in New Jersey. First, Ayre received approval to expand his growing area from 24,000 square feet to 100,000 square feet. This helps them feed their stores and also enables significant wholesale opportunities.

Minutes later, they received approval to transition all three stores from medical to adult. This would take him to three of his five stores in Central New Jersey, which has a population of 3.2 million. This was the best case scenario and the stock price soared.

Financial results announcement

On Thursday, May 26th, Ayr announced its first quarter earnings. We didn’t expect great results, especially given what we’ve learned from industry peers and state-level data. But given the New Jersey approval and the operation of new properties in Boston, including the Back Bay flagship store adjacent to the Apple store, I thought the outlook for the second half could be positive.

Fourth quarter results were lackluster, with flat revenue and lower adjusted EBITDA. GAAP EPS of -$0.11 outperformed guidance by $0.17 and earnings of $111.2 million missed him by $1.53 million.

But the bigger story is what comes next. Ayr expects fourth-quarter earnings to hit his $200 million mark with new retail outlets and growing expansion. This is an annual run rate of $800 million for a stock with a market cap of $500 million and an enterprise value of $800 million (market cap + debt). That was a decent earnings call, with the stock gaining another 2.7% even though MSOS fell -0.43% on the day.

From the publication of my article on May 18th to the close on May 27th, the AYR is +24.54%, while the MSOS ETF is -0.51%. Below is a graph of performance over the period.

AYRWF and MSOS Performance May 18 - May 27

AYRWF and MSOS Performance May 18 – May 27 (author)

what’s next?

Due to the speculative nature of this idea, I started a smaller than average position in Air. Strong ratings have made him the second largest position in the Green Giants portfolio.

Over the next few weeks I will probably adjust that and try to be more average weighted. Additionally, Air’s high volatility makes it more impactful on a risk-weighted basis.

Ayr remains the cheapest MSO on an enterprise value/sales and enterprise value/adjusted EBIDTA basis. This, coupled with the strong potential for the second half of the year, makes for an attractive opportunity.

I’m keeping an eye on their debt, which is the highest among the top 10 MSOs, and will monitor their execution as they expand into new markets. It will be corrected and the stock price may be adjusted.


Ayr Wellness, an undervalued stock for months, saw a significant price drop after it was not approved by other MSOs at the April 11 New Jersey CRC meeting. We needed a catalyst to unlock the value, and we got this from approval at the May 24th meeting and confirmation of acceptable earnings on May 26th.

In this case, being a few days ahead of the catalyst was important, as most moves were made one day before the announcement. Remember to set this a few days before the expected event, or even longer.

I don’t expect to make many deals like this but if I find another underrated situation with a definite catalyst on the horizon maybe next time I’ll be so nervous to share it I don’t think so.

Disclosure: As of May 31, 2022, Air Wellness is a member of the Green Giants portfolio. I have not received any compensation for writing this report.

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Editor’s Note: The summary bullet points for this article were chosen by the editors of Seeking Alpha.

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