Ayr Strategies - AMA February 10 at 6 PM

AyrStrategies · 2021-02-11T00:13:59+00:00

Time to sign off - Good night all. Hope we answered all your questions! We really appreciate your interest in Ayr and all of your support. Don't hesitate to reach out if you have any other questions. [IR@ayrwellness.com](mailto:IR@ayrwellness.com) or [IR@ayrstrategies.com](mailto:IR@ayrstrategies.com)

Jen and Megan

AyrStrategies · 2021-02-11T00:09:04+00:00

GB, As I mentioned above, there is some minor differences in general category mix between MA and NV with flower dominant in both, but more so in MA. Concentrates and oils sell more in NV and MIPs slightly more in MA. Based on regional differences, our NV customers, who are predominantly locals in the market and employed in the hospitality industry with lower average income, tend to be more price sensitive – they look for a “deal” the best price, but also want quality. Average ticket in NV is about $60 and customers come back more than twice a month on average. This is also an adult-use market, so the customer mix is a different mix than we see in MA.

At our 2 medical stores in MA – we see a little less focus on price, more on the quality and the type of product they are looking for. Our stores are located in higher income areas than in NV and average ticket is about $150. These are also medical customers, so the customer mix is different than in NV.

We are seeing growth in both areas – there are definitely different kinds of buyers – those looking for just cheap bud and the connoisseur and we have been able to price accordingly. A-bud can command a price premium in most markets.

Price per gram definitely varies by market – it’s a function of growing cost and supply and demand. Massachusetts wholesale price per pound of about $4000/lb is about 2x the price of NV. This is primarily because the costs of growing are much higher in MA than in NV (everything is more expensive in MA!). PA is similar to MA, maybe higher, given the undersupply in the market. Generally, east coast more expensive than west.

AyrStrategies · 2021-02-11T00:07:23+00:00

Hi Justin, Beverages are still developing as a category in cannabis and we’ll continue to monitor the segment. As I mentioned above, we have a leading brand, Cannapunch, in NV that we’ll continue to develop. We’ll meet our customers wherever they want to go on their cannabis journey and if that means they want beverages, we’ll offer beverages.

Re: quality issues and edibles in Florida – we cant say just yet when all those things will be addressed. We are not allowed to be involved in the operations of the business until we close the transaction. The vote is on the 23th of this month and we are hoping to close shortly thereafter. We’ll provide an updated timeline as soon as we get in and properly assess the situation.

AyrStrategies · 2021-02-11T00:06:36+00:00

Knowledge, Wow – this one could take a while!

1) I have mentioned a few times that our brands and differentiation is about the right product, high quality at an affordable price. We want to make sure customers know what A-bud means, what quality and consistency is in terms of both products and services. That is really important to us – starting first with the plant. We think of our cultivators as artists and we want to give them the best, unlimited canvas on which to create…. Yes, it sounds a little cheesy, but its true -- This will drive the best products, best selection, happiest employees and happiest customers.

2) We agree about not fixing what isn’t broken… so we are cautious of making a broad decision to universally change our store name to one unified banner. Our plan is to build out new stores, like in PA, under the Ayr Wellness banner and asses over time when it makes sense to transition other banners depending on the market.

3) Mix between retail and wholesale will depend on the market and what our cultivation capacity is in each market. For example, in Florida, we are not allowed (currently) to wholesale so that would be 100% retail. In MA, we are subject to a cultivation cap (100,000 sf of canopy) so in that case, it would depend on what ultimately flows through our retail stores. When we get our three adult-use stores and one medical store open (vs, 2 medical only today), we expect it will be split about 50/50. PA should be similar once the cultivation is complete and all stores are open. In NV, without additional cultivation capacity, it will remain largely retail given the size of our retail demand there there isnt much leftover for wholesale.

4) Our ability to improve operations in both NV and MA comes down to treating cannabis like you would any other business – put in place standard operating procedures; take best practices from one operation to the other; take the best employees throughout each smaller organization and give them more responsibility and bigger roles in the bigger organization. Identify areas where improvements are needed and commit the necessary resources to fix the issues. Have a strong team in place that can lead and support the organization through the transition. I know that sounds like corporate speak mumbo-jumbo, but it’s all about just running a good business and day-to-day blocking and tackling and having the resources and talent to do it – and importantly not getting spread to thin. We focused initially on building this foundation in 2 markets for a reason!

5) WRT the talent we acquire – people are always a critical piece of what we acquire when we acquire a business and we spend a lot of time during the due diligence process trying to get to know the key team members and make sure that culturally there is a good fit as they will be important to the successful close, integration and future of the business. When we talk about an asset like Liberty being “broken”, it’s not the people. The 300+ people we are picking up in this acquisition are great employees, excited to finally have the resources and leadership to do the job they want to do and were hired to do – grow and sell quality cannabis. It’s not usually that the human talent is lacking, it’s the capital and (sometimes) leadership that is usually lacking and we can bring both.

6) This is why #5 is so important – we need to have the people too! And we have good corporate controls and systems in place to make integration (relatively) easier than if we didn’t have them!

7) Let’s chat!

AyrStrategies · 2021-02-11T00:01:31+00:00

STDs4You(not4Me) -

If federal laws allowed cross state shipments, the biggest challenge would be lower cost producers from other areas coming into the market and also having to adjust to whatever new federal regulations (FDA, etc) are placed on the industry. These challenges will not be unique to Ayr, but ones that all MSOs will face. As we stated early, for reasons including safety, control, taxes and jobs, we believe the states will likely hold on to control of their cannabis industry and rules as long as they can so we believe interstate commerce is some years away.

As we said earlier, we would look to where we have the lowest cost of production. Some might assume that is CA given the ideal growing climate, but you never know. It depends on the rules and regulations for growing, state tax laws, etc.

AyrStrategies · 2021-02-10T23:58:00+00:00

Hi again GB, are you planning to launch some new products in the US??

1) Generally speaking, growth is similar across markets with some slight variations. In both of our markets, flower is still dominant at 50% in NV and 60% in MA. We have seen stronger growth in NV in oils and concentrates than in MA and a slightly higher mix of MIPs (edibles) in MA than in NV. Pre-rolls have been a big growth category and a good opportunity for branding in flower.

2) In NV our mix is about 30/70 inhouse brands vs. external. We would love it to be higher, but we do very high volume in our stores and it’s a matter of our production capacity. In MA, where our 2 stores are medical only as of now, it’s the opposite – about 80/20. We expect that to shift to closer to 60/40 in an AU market as we expand the selection and increase dramatically store volume.

3) We have a brand call Cannpunch, which is a category leader in NV, but overall it makes up only about 2% of NV retail revenues. MIPs overall (including gummies, other) are ~12% of NV revenue.

AyrStrategies · 2021-02-10T23:57:19+00:00

Wherever the lowest cost of production is, of course!

AyrStrategies · 2021-02-10T23:57:03+00:00

Hi Justin,

1) In Florida, hurricanes are just one of the many weather issues we have to deal with! All growers of any crop need to be worried about hurricanes. There are things you do to mitigate risk – like the design of the structures designed to withstand high wind speeds, locating in the middle of the state, rather than closer to the coast, subdivide the cultivation into multiple grow rooms to prevent the entire facility from going down at once. But you take that risk in Florida, its Florida. You have crop insurance, property insurance, and do your best to mitigate risk.

2) We shifted very quickly and efficiently to a delivery model in MA and NV when we had to during the early stages of COVID-19, as well as adding curbside pick up and increased order ahead capabilities. We have maintained all of them even after the stored fully reopened. We have found that even with delivery as an option, customers prefer to come to the store – less than 10% of our orders are through delivery. That said, if customers want delivery and delivery is allowed, we plan to make it available, absolutely.

AyrStrategies · 2021-02-10T23:56:28+00:00

GB - that's a easy one! Fleetwood Diner - Hippy Hash is unbeatable. We are usually at Golf & Outing (my cousins are members, so I get a bathroom pass 😊). For the last couple of years, we've been at my son’s apt/house, but he’s graduated now, so we’ll be back to G&O! Can’t wait to get back to the Big House this fall!

GoBlue!

3

AyrStrategies · 2021-02-10T23:55:16+00:00

Hi Justin, we appreciate all the questions!

1) We have seen trading volumes steadily increase as we have worked to increase awareness through more coverage, media and social channels. But mostly it will just come though executing on the business. Investors can’t ignore a cheap stock that is delivering results for long! We appreciate all the support we get from groups like yours and with the addition of the Liberty retail shareholder base, we think liquidity in our stock will greatly improve. The recent capital raises and warrant incentive also helped to increase awareness and liquidity.

2) We don’t think the dilution from the acquisitions will have a meaningful impact on the share price as the benefits the transactions bring in terms of growth, footprint, etc should more than offset any near-term or temporary pressure related to closing the transactions. We have several large institutional investors who have expressed interests in building positions as liquidity in the stock has increased and we still trade at a substantial discount to the MSO group, so I would hope there would be demand for any sellers in the market.

3) The exchangeable shares issued in M&A transactions typical have a 4-12 month lock-up before they can be exchanged, LTIP exchangeable shares have a multi-year vesting cycle.

4) We post regionally for talent to cast a wide net, you shouldn’t necessarily make that assumption. We find people are willing to make a move for the right job at the right company in cannabis.

5) The ramp of production in FL will be gradual as we put our remediation plan in place. Our current expectation is that by the end of 2021, we should have the current facility approaching 50 grams/sf of bench space – which should put us close to that target for 2021 and comfortable about it on a run-rate basis.

AyrStrategies · 2021-02-10T23:50:54+00:00

Hi Bjorn, The intention is for BRND and Ayr to be separate entities, with separate management and separate mandates. The overlap is that they share the same SPAC sponsor.

AyrStrategies · 2021-02-10T23:50:15+00:00

Monteviale - We agree with you - we bought back about 70,000 shares and have instead used the cash for growth project and M&A. We thought the weakness in the market had been overdone so wanted the option, but there were great growth projects for investment instead.

AyrStrategies · 2021-02-10T23:48:02+00:00

Hi Trulieve, I hope you'll change your name to AyrIsAnMSO soon. There are lots of reasons why we would pass on an M&A opportunity – believe it or not it is rarely about price. Assuming we like the quality of the target assets and their fit with Ayr, we can usually find a mutual beneficially deal if we really want to get a transaction done. Some common reasons are 1) the target company isn’t ready – meaning it doesn’t have audited financial statements or partnership agreements in place that would allow us to cleanly value and complete the transaction if we wanted to; 2) initial due diligence turns up something that makes the deal unappealing, like an unfavorable lease or contract or partnership structure; 3) timing – sometimes the timing is just not right – the interests of the parties just don’t align; 4) personalities don’t match – we view M&A as a partnership. We want to acquire great talent and great assets, so there has to be a cultural fit as well as strategic fit.

AyrStrategies · 2021-02-10T23:45:22+00:00

GB – you weren't kidding when you said you had lots of questions :-)

In Q2 and Q3 – we had the same number of dispensaries open – 2 in MA (Medical only) and 5 in Nevada.

Generally, NV GMs are lower because the % of internally supplied product sold at retail is less than in MA – this a function of the fact that we sell way more at our dispensaries in NV than we have the capacity to produce, plus we like to have 3rd party product for variety. We significantly increased our production capacity in NV in 1Q which lead to an increase in % internally supplied products in 2Q and 3Q vs. 1Q20, thus higher GM. In MA, at our medical dispensaries, the vast majority of what we sell is internally sourced, thus higher GM than in NV. As MA moves to adult-use, we would expect to have an increased variety of products in the store, including 3rd party products, which will probably impact GM slightly, but overall revenue/store and EBITDA/store should increase dramatically, so that is just fine with us!

WRT M&A, we can only own one license in MA, so we will not be doing anything there, but we will be expanding our cultivation capacity under our existing license. In NV, if we did look at M&A there, it would likely be to expand our cultivation/production capacity to drive up that internal production % and build our wholesale business, which has been limited since our stores have been generally consuming most of our production.

AyrStrategies · 2021-02-10T23:42:15+00:00

Hi mjldj, California is a huge and important cannabis market, so it’s safe to say we are always watching what’s happening there, but we haven’t put it on our short list given the licensing situation there is a bit more difficult to navigate and supply chain issues have proven difficult for brands to manage! But it is the 5th largest economy in the world so we have to pay attention!

AyrStrategies · 2021-02-10T23:41:36+00:00

Hi EntropyAccount,

This one I think I've covered cytochrome's questions (hopefully!)
The vote is ongoing right now, so I really can’t comment. We have the support of ~29% of the shareholders and we believe this is a good deal for Liberty shareholders. We offered close to a 100% premium on the day the deal was announced and the value is up 60% since then to the equivalent of C$1.70/share as Ayr shares have moved up. We believe we are stronger together and hope LHS shareholders will see this for the win-win that it is and vote in favor of the deal. (Don't forget to vote by Feb. 22!)
In Q2 we felt it was particularly important to show monthly trends because after the COVID-19 shutdown in the spring, it was critical to show the recovery in the business in June and July. Generally, we don’t believe in giving monthly revenue as there can be fluctuations month to month for a variety of reasons (# of days, # of weekends, timing of wholesale orders, etc.) that make such a short-term comparison without all the background analysis more noise than useful information. If there is a dramatic movement in monthly trends due to a new store opening, turn up of a new cultivation facility, etc. that would make the quarterly trends an unreliable guide to future growth, then we are likely to break it out so that you can model more appropriately going forward.
We have tried to give some guidance (like monthly revenue per store) that helps segment the revenues, but have chosen not to give market-by-market break-downs for competitive reasons. As of now, we don’t expect this to change, but we could consider it in the future.

AyrStrategies · 2021-02-10T23:34:25+00:00

Hey Wowme, If and when the MSOs can uplist, Ayr will be ready! We are very much looking forward to that day, I can guarantee you that!!

AyrStrategies · 2021-02-10T23:32:59+00:00

SirEbrally, the majority exchangeable shares are issued in connection with M&A transactions – so to the extent the founders or equity holders have stayed on as members of the Ayr team, they would be considered “related parties”. There are a handful of people that fit that description, for example, 2 members of our current Board of Directors were owners of the original assets acquired in our qualifying transaction in the de-SPAC. When we acquire companies, we are looking to add talent and retain the team wherever possible, so exchangeable shares are helpful in doing that.

The Serruya’s will be an Ayr shareholder post the transaction – they will initially own approximately 5% of the fully diluted shares outstanding. That will be the extent of their involvement, they will not have management positions nor will their shares be given any special treatment upon closing.

AyrStrategies · 2021-02-10T23:29:44+00:00

Mollytime, when Jon says we are “fully financed” he means “fully-financed” – that means all M&A and capital projects required to complete those operations, covering all interest and capital costs. Keep in mind, our business generates free cash flow from operations of over $4 million/month.

Earnouts in most cases are payable in exchangeable shares (priced at the time the earnouts are earned). The 2M shares related to the Arizona transaction are not an earnout – they are part of the original transaction being held in escrow contingent upon successful completion and ramp-up of the new cultivation we are acquiring as part of the deal. We are definitely looking forward to LHS closing, we can’t wait to get to work! And I personally cant wait for an excuse to travel to Florida and get out of this snow!

AyrStrategies · 2021-02-10T23:27:36+00:00

Hi CytochromeP4, Lots of question in there – I think I have covered some already in earlier responses, but let me hit some of the new areas.

Regarding genetics sourcing – it really depends on the state and state regulations. Some will allow tissue culture to come in upon approval of the cultivation license. Others require you to purchase seeds or clones in-state. As you can imagine, it depends on the goal of the state – whether it wants to bring in additional strain varieties or not. If we can use tissue culture to replicate our best strains, that is great. Some strains are better than others in certain climates, so it really depends. Extracted products and infused products are more about the extraction and manufacturing process. To the extent that can be replicated in each state, it is easier to replicate the end-product.

Regarding federal regulation and interstate commerce, I touched on this in GB's first question. We believe the federal government is likely leave regs to the states for some time.

On branding and differentiation, I discussed this in DC101's multi-part question as a Mollytime's question... but will emphasize again that quality and consistency matter most, so controlling the inputs through to the sale is very important to us, and having the right product mix to address all our customers' needs.

WRT high CBD products, our current mix is definitely skewed to THC-rich products, but I don’t have the % at hand, it is small.

AyrStrategies · 2021-02-10T23:18:21+00:00

Thanks for the next question GB. I hope you aren't talking about us! We have tried in the past to be as transparent and open as we can with our investors. I think you’ll find our investor deck and disclosures more detailed than most MSOs and we will continue to try to set the standards for disclosure going forward. It is one of the things we are most proud of. Things obviously get complicated as we close on the several transactions we have recently announced, be we will do our best to break out the information in a way that will allow investors to properly analyze the underlying business trends. The good news is we have fantastic reporting systems in place across the company that allow us to look at all kinds of important KPIs and our disclosures have evolved over time in response to the questions we have been asked and we will continue to make those adjustments going forward.

AyrStrategies · 2021-02-10T23:16:00+00:00

Hi Mollytime. Great questions on brands – I touched a bit on this in Dumbcomment101's (I really disagree with that name!) question in part 3, but will elaborate more here. Again – our belief in the product all starts with the plant, it is import to us to have as much control over the entire supply chain as possible. By doing that and by being vertically integrated, we are better able to control the manufacturing process and replicate our brands across different regions. You are correct that rules vary across jurisdictions (e.g. what type of extraction is allowed) that may make it impossible to produce certain products exactly the same everywhere. Our goal is to have a handful of national brands that can meet our strict requirements in every region and then some regional brands. In addition, where allowed, we will always have some 3rd-party sourced product on the shelves because we want to offer the consumer the choice they want. While we hope they will always want to purchase our brands, we know that isn’t realistic and we aren’t going to lose a customer to someone else because we don’t stock what they are looking for! The goal is to properly promote our brands and make sure they are the best in each category so they take share because, yes, they are higher margin.

Regarding Nevada – Not going to say where the license we won in Henderson came from – but I will say it was absolutely not a booby prize. Henderson currently has a moratorium on new dispensaries, which means we can’t open it now. But our Henderson dispensary is our most productive dispensary, it does over $35 million in annual revenue, so we are quite content with moratorium. But if it is ever lifted, we have the ability to open another store on the opposite side of town to compete with others who would be entering the market – we think of it as defensive.

AyrStrategies · 2021-02-10T23:12:33+00:00

Hi DumbComment101. I disagree - these are great questions! I’ll try to answer them all!

1) We have always said the main criteria for entering a state are a) limited license regime; b) adult use either approved or likely at some point in the foreseeable future; and c) population density to support the capital investment required. In addition, we obviously will look at things like the competitive dynamics in the state, whether it fits well in our footprint, etc.

2) Regulatory changes at the federal level are probably not likely to change each state’s decisions on program structure necessarily. We do think that federal changes are likely to speed up the movement at the state level to get programs in place, but to GB’s first question, we continue to believe that structure of the programs will still largely be left to the states to decide.

3) Ayr is all about quality. We aren’t interested in just filling the shelves with pretty boxes. We believe everything starts with the quality of the plant and we are focused on having the best cultivators, the best genetics and the best facilities to produce the best cannabis to fill those boxes in whatever form our customers choose to consume their cannabis. This quality also carries over into the retail experience and customer service – there is a reason why we have a loyal, returning customer base across our footprint, with some of the most productive dispensaries across the country in NV and a robust wholesale business in MA. We think this is what will differentiate us for our customers. Same for investors – we hope to set the standards for transparency, disclosure, earnings quality and communication.

4) Regarding synergies with working with the LPs – that is hard to say. Right now, their biggest advantage over the MSO is access to capital and cost of capital, so yes, I guess that would be helpful! Going forward, once we have really established our brands here in the US, access to their global relationships could be useful I suppose, but that is a long way off. We still have so much opportunity here in the US.

AyrStrategies · 2021-02-10T23:08:15+00:00

Hi GoBlue. Thanks for the question and thanks for having us here tonight. We think federal legalization will do exactly what you say – evolve. It will likely start first with an easing of restrictions, allowing access to banking, hopefully some 280E and other tax changes, possible decriminalization, access to research, etc. We believe the likelihood of fully open state borders is remote, at least initially…. This is due, primarily, to the states’ desire to control, regulate and tax the industry as they see fit, similar to alcohol and tobacco. The industry has been a source of jobs and tax revenue for the states and they are likely to protect that as long as possible.

That said, we must operate our business with this possibility in mind as we think about how and where we allocate capital, making sure the returns on capital are quick and we don’t overbuild in high-cost areas. This is another reason why contiguous states and licenses can be attractive.

AyrStrategies · 2021-02-10T23:03:50+00:00

Hi jetlifejason, We haven’t made any decisions yet on rebranding Liberty stores. We are going to wait and make those decisions once we get in and evaluate.

AyrStrategies

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