After the markets closed on Wednesday, AYR Wellness Inc. (CSE: AYR.A, OTCQX: AYRWF) announced that David Goubert was stepping down as President and Chief Executive Officer. Goubert served as President from October 12, 2022 and Chief Executive Officer from February 13, 2023.

The Board told investors it has approved the appointment of Steven M. Cohen as Interim Chief Executive Officer effective immediately. Cohen previously served as an outside legal advisor to the company but otherwise has zero cannabis experience. It’s worth noting that Goubert also had no cannabis experience before becoming the company’s CEO in October 2022 when he replaced founder Jonathan Sandelman. The Board said in a statement that it will embark on a search for a permanent CEO in due course.

The move was met with surprise on social media as many comments questioned what had happened for such a sudden move. Goubert was seen as a CEO who had made positive changes to the company in a relatively short period. It’s considered highly unusual to issue a late-night press release with no succession plan causing speculation about what prompted the hasty exit.

Recent earnings

The company’s recent earnings announcement provided no clues. Ayr Wellness reported its second-quarter earnings in August with revenue dipping slightly. The company had managed to get its expenses down but net losses grew to $38 million in the quarter versus last year’s net loss of $29 million. The company blamed the increase in net losses on higher income taxes and an increase in interest expense due to the terms of the debt extension and new debts.

At the time, Goubert said the company was positioned to return to growth in the second half of 2024. The company was already benefiting from Ohio’s strong launch for adult-use sales and is poised to gain if Florida and Pennsylvania legalize adult-use cannabis.

No cannabis for Cohen

The interim CEO, Cohen has no experience in cannabis. He is the founding member of Blue Raven LLP, a legal advisory firm focused on providing strategic advice to businesses, corporate boards and executives as well as providing outside General Counsel services.  Before forming Blue Raven LLP, Cohen was General Counsel and Chief Administrative Officer for MacAndrews & Forbes Inc.

According to his online biography, he represented numerous individuals and corporations in connection with investigations and prosecutions conducted by the U.S. Department of Justice, the U.S. Securities and Exchange Commission, the New York State Attorney General, the National Association of Securities Dealers, the New York Stock Exchange, and the Manhattan District Attorney’s Office. His wide-ranging civil practice routinely included civil litigation involving claims against officers and directors of publicly traded entities.

He also spearheaded the successful effort to gain the release of two men wrongfully convicted of the 1990 Palladium nightclub murder. In 2011 Cohen served as Secretary to New York Governor Andrew M. Cuomo.

AYR Wellness Inc. (CSE: AYR.A)(OTCQX: AYRWF) delivered its unaudited financial results for the second quarter ending June 30, 2024, as revenue slipped sequentially and was only a tiny bit higher than last year.  Ayr Wellness reported revenue of $117 million in the quarter, which was a .5% improvement over last year’s revenue of $116 million for the same quarter.

Revenue fell by .6% sequentially from the first quarter revenue of $118 million. Ayr Wellness also missed the Yahoo Finance average analyst estimate for revenue of $119 million.

Ayr Wellness told investors that the decline was driven by a “decrease in retail dollars for same-store sales of $8,962 or 8.6%, while the number of transactions has been roughly flat and partially offset by an increase of $3,137 from new store openings and acquisitions.” On a positive note, Ayr noted that wholesale revenues grew by approximately 51.8%, primarily driven by a rapid increase in store openings in New Jersey, presenting increased wholesale opportunity and modest increases in Ohio, Pennsylvania, Nevada and Massachusetts.

Expenses drop, but losses rise

Total operating expenses dropped by roughly 10.4% to $54 million. The decrease in total operating expenses was primarily attributable to lower payroll expenses, professional fees, acquisition and transaction costs and stock compensation.

However, net losses grew to $38 million in the quarter versus last year’s net loss of $29 million. The company blamed the increase in net losses on higher income taxes and an increase in interest expense due to the terms of the debt extension and new debts. Earnings per share were ($0.34) which was worse than the analyst expectations of ($0.25).

CEO and President David Goubert said, “Our team remains acutely focused on laying the groundwork for AYR’s next phase of growth. This includes advancing the progress made over the last 18 months to improve operations across our markets, continuing to invest in our CPG brands and retail experience, and ensuring that AYR is best positioned to capitalize on the anticipated transition to adult use in three of our core markets: Ohio, Florida, and Pennsylvania. We continue to believe AYR has more upside from these three markets than any other company in our industry.”

Goubert added, “While we are encouraged by the progress we’ve made in our operations, the second quarter presented challenges due to both internal and external factors including wholesale pricing pressure, tightening consumer wallets from persistent inflation, and margin pressure in select markets where we have recently increased our cultivation and production, but which are not yet optimized. Despite these near-term setbacks, we are well positioned for growth and margin expansion in the second half of 2024 as our adult-use growth catalysts materialize in Ohio along with improved operations in these recently scaled markets.

Looking ahead

For the third quarter, AYR told investors it expects revenue growth to be up low to mid-single digits from the second quarter based on the timing and ramping of the Ohio Adult Use rollout. AYR also said in its statement that it expects to improve Adjusted EBITDA margins from current levels in the second half of 2024 as the company rebuilds toward its 25% Adjusted EBITDA margin target.

The company said, “AYR also continues to expect positive GAAP cash flow from operations for calendar 2024, as well as positive free cash flow for calendar 2024 assuming the elimination of 280E tax liabilities.”