Acreage Holdings Q4 Revenue Sequentially Falls 6% and 1% From a Year Ago

Acreage Reports Fourth Quarter and Full Year 2022 Financial Results

• Record annual revenue of $237.1 million, a year-over-year increase of 26% and a 41% year-over-year increase in annual Adjusted EBITDA*
• Significant progress toward strategic goals, including divestiture of non-core assets, completion of cultivation expansions, enhancement of debt facilities, and improved financial performance
• Floating Shareholders approve U.S. strategic arrangement with Canopy and Canopy USA
• Completed additional amendments to its Credit Facility

NEW YORK, May 01, 2023 (GLOBE NEWSWIRE) — Acreage Holdings, Inc. (“Acreage” or the “Company”) (CSE: ACRG.A.U, ACRG.B.U) (OTCQX: ACRHF, ACRDF), a vertically integrated, multi-state operator of cannabis cultivation and retailing facilities in the U.S., today reported its financial results for the fourth quarter (“Q4 2022”) and full year ended December 31, 2022 (“FY 2022”).

Fourth Quarter 2022 Financial Highlights

• Consolidated revenue of $57.5 million for Q4 2022.
• Gross margin was 35%, in line with the third quarter of 2022 (“Q3 2022”). Excluding non-cash inventory adjustments, gross margin was 44% for Q4 2022 compared to 45% for Q3 2022.
• Adjusted EBITDA* was $7.0 million and Adjusted EBITDA* as a percentage of consolidated revenue was 12% for Q4 2022.

Full Year 2022 Financial Highlights

• Full year consolidated revenue of $237.1 million in 2022 compared to $188.9 million in full year 2021, an increase of 26%.
• Full year Adjusted EBITDA* was $34.8 million in 2022, marking a second consecutive year and eight consecutive quarters of positive Adjusted EBITDA* and a $10.2 million improvement compared to $24.6 million in full year 2021. Adjusted EBITDA* as a percentage of consolidated revenue was 15% for the full year 2022.

Fourth Quarter and Recent Operational Highlights

• Acreage entered into a U.S. strategic arrangement with Canopy Growth Corporation (“Canopy”) and Canopy USA, LLC (“Canopy USA”) that would allow Canopy USA to acquire 100% of Acreage by (i) waiving its existing option to acquire all of the issued and outstanding Class D subordinate voting shares of Acreage (“the Floating Shares”) and entering into a new agreement to acquire all of the issued and outstanding Class D subordinate voting shares of Acreage (the “Floating Share Arrangement”), and (ii) committing to exercise its existing option to acquire all of the issued and outstanding Class E subordinate voting shares of Acreage, all subject to the required shareholder and regulatory approvals and other closing conditions as described in the related agreements. On March 15, 2023, Acreage received the required approval of the holders of Floating Shares (the “Floating Shareholders”) in connection with the Floating Share Arrangement at its special meeting of Floating Shareholders. The Company obtained a final order from the Supreme Court of British Columbia on March 20, 2023 approving the Floating Share Arrangement under section 288 of the Business Corporations Act (British Columbia). Upon the satisfaction or waiver of all other conditions set out in the arrangement agreement dated October 24, 2022, as amended on March 17, 2023 (the “Floating Share Arrangement Agreement”), which the parties continue to work towards, the parties will complete the ‎Floating Share Arrangement.
• Progressed ongoing infrastructure improvements and operational enhancements at the Company’s Egg Harbor Township, New Jersey cultivation facility.
• Continued to gain traction with The Botanist brand refresh, which resulted in Acreage’s brand portfolio growing by approximately 22% sequentially in Q4 2022 across many of the Company’s markets, including Illinois, New Jersey, Massachusetts, and Pennsylvania, as reported by BDSA.
• Commenced adult-use retail operations in Connecticut at the Company’s The Botanist stores in Montville and Danbury, among an inaugural group of operators permitted to begin adult-use sales in the state.
• Received approval of the Company’s annual license in New Jersey, along with approval to relocate its existing medical dispensary from Atlantic City to Pennsauken, where Acreage plans to begin adult-use sales before the end of 2023.
• Launched innovative and dose-able fast-acting gummies from The Botanist brand in Illinois, Maine, Massachusetts, and Ohio.

Management Commentary

“Over the course of 2022, we completed a number of important initiatives and laid a strong foundation for sustained growth, making way for a transformative shift through our arrangement with Canopy and Canopy USA,” said Peter Caldini, CEO of Acreage. “Despite challenging macroeconomic conditions, we achieved annual growth by focusing our operations and scaling in strategic markets, diversifying our brand and product portfolio, and responsibly restructuring our balance sheet. While our fourth quarter performance was impacted by continued headwinds, we are confident that these actions will better position Acreage for the future amid current market challenges.”

As we make our way through the first half of 2023, we are focused on improving our financial results and strengthening our cash position. Additionally, we look to increase our presence across our Northeastern footprint through the optimization of our wholesale capabilities and the development of our brands with continued innovation and product launches to support our thriving retail network.

Peter Caldini, CEO of Acreage

In the first quarter, we were thrilled to launch adult-use sales in Connecticut and look forward to driving growth in additional developing adult-use markets such as New Jersey. Finally, we continue to ready our business for the expected unification of the unmatched U.S. cannabis ecosystem that will form Canopy USA.

Q4 2022 Financial Summary
(in thousands)

Total revenue for Q4 2022 was $57.5 million compared to $58.1 million in the fourth quarter of 2021 (“Q4 2021”) and $61.4 million in Q3 2022. The year-over-year and sequential decreases were primarily due to continued industry headwinds, decreased pricing as a result of competitive pressures across various markets and the sale of non-core assets in Oregon earlier in 2022. Additionally, during Q4 2022, the Company proactively managed its accounts receivable exposure by limiting sales to select wholesale customers deemed to be at a higher risk of default, which negatively impacted wholesale revenue during the quarter.

Total gross profit for Q4 2022 was $20.4 million, compared to $27.6 million in Q4 2021. Total gross margin was 35% in Q4 2022 compared to 47% in Q4 2021. Cost increases due to inflation and price declines due to competition and retail price discounting to drive volume negatively impacted gross margin during the quarter. Additionally, cost of goods sold for Q4 2022 included $4.9 million of non-cash inventory adjustments as a result of excess inventory in select markets and carrying values of inventory exceeding net realizable value. Excluding these non-cash inventory adjustments, gross margin for Q4 2022 was 44%.

Total operating expenses for Q4 2022 were $147.6 million, compared to $63.2 million in Q4 2021. Included in operating expenses for Q4 2022 and Q4 2021 were impairment charges of $118.7 million and $29.7 million, respectively, and Q4 2021 included a bad debt provision of $6.1 million related to certain notes receivable amounts where collection was considered doubtful. Excluding these unusual non-cash items, total operating expenses increased by $1.5 million, or 6%, for Q4 2022 compared to Q4 2021 due to inflation driven cost increases and costs associated with (i) the new strategic arrangement with Canopy and Canopy USA, and (ii) the amendment of the Company’s credit facilities, which both occurred in Q4 2022.

Adjusted EBITDA* for Q4 2022 was $7.0 million compared to Adjusted EBITDA* of $8.5 million in Q4 2021 and Adjusted EBITDA* of $8.8 million in Q3 2022. Adjusted EBITDA* was negatively impacted both year-over-year and sequentially by decreased pricing due to competitive pressures and increased costs due to inflation. Consolidated EBITDA* for Q4 2022 was a loss of $(120.7) million, compared to a consolidated EBITDA* loss of $(32.9) million in the previous year’s comparable period.

Net loss attributable to Acreage for Q4 2022 was $(95.0) million, compared to $(40.4) million in Q4 2021.

Amendment to Credit Facility

On October 25, 2022, the Company increased its financial flexibility with the amendment of its existing credit facility (the “Credit Facility), providing (i) immediate access to US$25 million, (ii) access to a further funding after January 1, 2023, and (iii) adjustments to the financial covenants to provide greater near-term flexibility and to better reflect future financial results.

Subsequent to year end, on April 28, 2023, Acreage further amended its Credit Facility such that $15.0 million was available for immediate draw, but such funds would be maintained in a segregated account until dispersed and be restricted for use to only eligible capital expenditures. Additionally, the Company has agreed to limit the total amounts outstanding under the Credit Facility to $140.0 million and to, at all times subsequent to April 28, 2023, maintain collateral (as defined in the Credit Facility) equal to or greater than the outstanding amount under the Credit Facility.

Balance Sheet and Liquidity

Acreage ended FY 2022 with $24.1 million in cash and cash equivalents. As of December 31, 2022, $125.0 million was drawn under the Amended Credit Facility, with a further $15.0 million of long-term debt available from its committed debt facilities, but such funds are restricted for use to only eligible capital expenditures. Additionally, in April 2023, the Company sold, with recourse, the rights to receive certain Employee Retention Tax Credits with an aggregate receivable value of $14.3 million for total proceeds of $12.1 million.

About Acreage Holdings, Inc.

Acreage is a multi-state operator of cannabis ‎cultivation and retailing facilities in the U.S., including the Company’s national retail store ‎brand, The Botanist. With its principal address in New York City, Acreage’s wide range of national and regionally available cannabis products include the award-winning brands The Botanist and Superflux, the Tweed brand, the Prime medical brand in Pennsylvania, the Innocent brand in Illinois and others. Since its founding in 2011, Acreage has focused on building and scaling operations to create a seamless, consumer-focused, branded experience. Learn more at www.acreageholdings.com and follow us on Twitter, LinkedIn, Instagram, and Facebook.

Original press release

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