F-10/A: Ayr Wellness Files Amendment No. 1 to Form F-10 Registration Statement, Eyes $250 Million Capital Raise

Ayr Wellness Inc. files an amendment to its Form F-10 registration statement, signaling its intent to offer up to US$250 million in various securities over the next 25 months.

Summary

• Ayr Wellness Inc. has filed Amendment No. 1 to its Form F-10 registration statement with the SEC.
• The company intends to offer and sell up to US$250 million of securities, including subordinate voting shares, restricted voting shares, limited voting shares, warrants, subscription receipts, debt securities, convertible securities, and units.
• The securities may be offered separately or in combination, and may be sold through underwriters, dealers, directly, or through agents.
• The company may also offer securities in consideration for acquisitions of other businesses, assets, or securities.
• The prospectus includes information about the company's business, risk factors, and the terms of the securities being offered.
• The company is a foreign private issuer and prepares the prospectus in accordance with Canadian disclosure requirements.
• The company's involvement in the U.S. cannabis market subjects it to heightened scrutiny by regulators.
• The company operates in states where cannabis is legal at the state level but illegal under U.S. federal law, posing significant risks.
• The company has retired or extended the maturity of nearly $400 million in debt through recent transactions.
• Jared Cohen was appointed to the Board effective March 15, 2024.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the company is seeking to raise capital and has made progress in restructuring its debt, it still faces significant risks due to the regulatory environment and its financial performance.

Positives

• The company has retired or extended the maturity of nearly $400 million in debt, improving its financial stability.
• The appointment of Jared Cohen to the Board brings significant public and private investing experience.
• The company has a diverse portfolio of cannabis assets in multiple states.
• The company has a vertically integrated business model, controlling cultivation, production, distribution, and dispensing.
• The company has a strong portfolio of consumer-packaged goods brands.

Negatives

• The company operates in an industry that is illegal under U.S. federal law, creating significant risks.
• The company faces potential enforcement of federal laws against its operations.
• The company may have restricted access to banking services in the United States and Canada.
• The company is subject to Section 280E of the U.S. Internal Revenue Code, limiting its ability to deduct expenses.
• The company had consolidated negative working capital of $6,058,000 as of December 31, 2023.
• The company has incurred net losses from continuing operations for years ended December 31, 2023 and December 31, 2022.

Risks

• The company faces significant risks due to operating in the cannabis industry, which is illegal under U.S. federal law.
• Changes in U.S. federal or state laws and regulations could materially adversely affect the company's business.
• The company may be subject to heightened scrutiny by regulators, stock exchanges, and other authorities.
• The company may have restricted access to banking services.
• The company is subject to Section 280E of the U.S. Internal Revenue Code, limiting its ability to deduct expenses.
• The company faces risks related to maintaining cash deposits in excess of federally insured limits.
• The company faces risks related to breaches of and unauthorized access to the company's systems and related cybersecurity risks.
• The company faces risks related to product liability claims.
• The company faces risks related to significant pricing pressures.
• The company faces risks related to the concentrated voting control of the company.
• The company faces risks related to market volatility and the risks associated with selling of a substantial amount of Restricted Shares.
• The company faces risks related to natural hazards related to severe and extreme weather and climate events.

Future Outlook

Ayr Wellness intends to use the net proceeds from any offering of Securities for general corporate purposes, capital projects, potential future acquisitions, and internal expansion. The company may also issue securities in consideration for the acquisition of other businesses, assets or securities.

Industry Context

The announcement reflects the ongoing capital-raising activities within the cannabis industry, where companies are seeking funds to expand operations, make acquisitions, and navigate the complex regulatory landscape. The industry faces unique challenges due to the conflict between state and federal laws in the U.S., which impacts access to traditional banking and financing options.

Comparison to Industry Standards

• Comparable companies in the cannabis industry, such as Curaleaf, Green Thumb Industries, and Trulieve, have also utilized shelf prospectuses to raise capital.
• The size of the offering (up to $250 million) is within the range of typical capital raises for multi-state operators in the cannabis sector.
• The terms of the debt securities, including interest rates and maturity dates, are generally consistent with industry standards, reflecting the higher risk profile of cannabis companies.
• The use of various types of securities (shares, warrants, subscription receipts, etc.) is a common practice to attract a wider range of investors.

Management Changes

Legal Proceedings

• FTI Capital Advisors Canada ULC has commenced a claim against the Company in the Ontario Superior Court of Justice seeking fees in respect of a number of financing transactions in respect of which FTI had no involvement.
• The Company is strenuously defending the proceedings vigorously and has denied liability to FTI.
• In late February 2024, a Notice of Violation (the Notice) was issued to the Company by the Florida Department of Health pertaining to the Companys Florida operations.
• The Notice alleges that the Company dispensed approximately 24,000 units of whole flower products containing cannabis seeds, which the Department alleges is not permitted under Florida regulations.
• The Department proposed a fine of approximately $2.4 million, or $100.00 per unit allegedly dispensed, and ordered the Company to submit a written corrective action plan.
• The Company timely submitted a written corrective action plan.
• Additionally, the Company has filed a request for a formal administrative hearing with respect to the Notice, disputing the Departments allegations.
• Separately, the Company has self-reported to the Florida Department of Health an incident involving the inadvertent consumption of THC-infused gelatins by certain staff members.
• It is possible that the Department may seek to assess fines or other penalties based on this incident.
• During the year ended December 31, 2021, AYRs Massachusetts-based subsidiary, Sira Naturals, entered into a settlement with the Massachusetts Cannabis Control Commission relating to allegedly transporting cannabis under a Medical versus Adult-Use license number during Q3 2020.
• Sira neither admitted nor denied the alleged activities and settled the matter without a finding of liability by paying a fine of $295,000 to the regulator.

Stakeholder Impact

• Shareholders may experience dilution from the issuance of new securities.
• Employees may be affected by changes in the company's operations and financial performance.
• Customers may benefit from the company's continued investment in product quality and customer experience.
• Suppliers and creditors may be impacted by the company's financial performance and ability to meet its obligations.

Next Steps

• The company will file a prospectus supplement with the specific terms of any offering of securities.
• The company will seek to obtain the necessary regulatory approvals for the offering.
• The company will determine the timing and method of distribution for the securities.

Key Dates

Keywords

Ayr Wellness, securities, cannabis, registration statement, offering, debt, shares, warrants, subscription receipts, convertible securities, units, regulation, licenses, U.S. federal law, risk factors