Sector Price Compression And Automation Will Shape A Cautious Yet Balanced Long-Term Outlook

Catalysts

About Ascend Wellness Holdings

Ascend Wellness Holdings operates a vertically integrated, multi-state cannabis platform focused on branded products and premium retail experiences.

What are the underlying business or industry changes driving this perspective?

• Although consumer adoption of cannabis as a preferred alternative to alcohol is steadily increasing, ongoing sector-wide price compression and aggressive discounting by competitors could cap revenue growth and pressure net margins as Ascend resists uneconomic pricing.
• While the company is advancing a densification strategy with a pipeline toward 60 locations, persistent regulatory delays in key states like New Jersey and typical municipal holdups may slow new store openings and limit near-term top line expansion and operating leverage benefits.
• Although automation and technology investments across cultivation, manufacturing and packaging are beginning to lower unit costs, sustained wage inflation and rising input costs could offset efficiency gains and constrain long-term gross margin improvement.
• Despite the rapid expansion and innovation of its multi-brand portfolio across vapes, edibles, pre-rolls and infused products, an accelerating pace of SKU proliferation industrywide raises execution risk around inventory management and could lead to write-downs that weigh on earnings.
• While digital adoption through the new e-commerce platform, Ascend Pay and the tiered loyalty program is deepening engagement, if customer acquisition costs rise faster than wallet share gains in a crowded, promotion-heavy retail environment, profitability and free cash flow generation could be adversely impacted.

Assumptions

This narrative explores a more pessimistic perspective on Ascend Wellness Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Ascend Wellness Holdings's revenue will grow by 6.4% annually over the next 3 years.
• The bearish analysts are not forecasting that Ascend Wellness Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Ascend Wellness Holdings's profit margin will increase from -16.7% to the average CA Personal Products industry of 13.0% in 3 years.
• If Ascend Wellness Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $81.1 million (and earnings per share of $0.41) by about December 2028, up from $-86.3 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 3.4x on those 2028 earnings, up from -2.5x today. This future PE is lower than the current PE for the CA Personal Products industry at 15.3x.
• The bearish analysts expect the number of shares outstanding to decline by 1.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.99%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The secular shift of U.S. consumers away from alcohol and toward cannabis, especially among younger adults, could translate into sustained demand growth that eventually overpowers current price compression and competition, driving stronger than expected revenue expansion and higher long-term earnings.
• Ascend’s densification strategy, which includes a clear pipeline toward 60 locations and regulatory breakthroughs such as the New Jersey social equity partnerships, may unlock meaningful operating leverage over time, improving vertical mix and boosting net margins and earnings beyond what a flat share price would imply.
• Network-wide automation and technology investments across packing, vape filling, edibles and pre-roll production are already lifting efficiency and could materially reduce cost of goods sold over the long term, structurally enhancing gross margins and free cash flow generation.
• The rapid scaling and market share gains of Ascend’s multi-brand portfolio, including leadership positions for Ozone, Simply Herb and High Wired and the launch of higher value premium offerings like Honor Roll, indicate a growing brand moat that may support pricing power and mix-driven margin expansion, lifting earnings over time.
• The integrated e-commerce ecosystem, Ascend Pay cashless payments and the tiered Ascenders Club loyalty program are deepening customer engagement and data-driven personalization, which could accelerate same-store sales growth and improve customer lifetime value, leading to stronger revenue and more resilient net margins in the long run.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Ascend Wellness Holdings is $1.0, which represents up to two standard deviations below the consensus price target of $2.3. This valuation is based on what can be assumed as the expectations of Ascend Wellness Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $4.0, and the most bearish reporting a price target of just $1.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $621.2 million, earnings will come to $81.1 million, and it would be trading on a PE ratio of 3.4x, assuming you use a discount rate of 12.0%.
  
• Given the current share price of $1.08, the analyst price target of $1.0 is 8.0% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.