TerrAscend Corp: Pot Stock Up 150% Year-Over-Year; More to Come?

TerrAscend Stock Up 542% Since March

TerrAscend Corp (CNSX:TER, OTCMKTS:TRSSF) has been one of the best-performing cannabis stocks in 2020, rising approximately 150% year-over-year, 242% since January, and 542% since bottoming in March.

TRSSF stock may be trading at a 52-week high, but by all accounts, this North American cannabis operator is just getting started.

For starters, the company reported strong second-quarter and preliminary third-quarter results. TerrAscend also announced that it had expanded its U.S. business footprint through the acquisition of a Maryland based grower/processor.

The results of the recent U.S. election are also a boon to TerrAscend (and any pot company with operations in the U.S.). All five states that had cannabis legalization on the ballot saw the initiatives pass. Arizona, Montana, New Jersey, and South Dakota voted to legalize recreational marijuana.

Moreover, South Dakota voters approved a medical cannabis legalization initiative and Mississippi voters overwhelmingly approved two medical cannabis legalization initiatives.

As it stands, 15 U.S. states (plus D.C., Guam, and the Northern Mariana Islands) have approved recreational marijuana while 35 states (plus D.C., Guam, Puerto Rico, and the U.S. Virgin Islands) have approved medical marijuana.

It appears that momentum is building for the legalization of recreational marijuana in New York State, too. Governor Andrew Cuomo recently said that he believes cannabis will become legal in the cash-strapped state in 2021.

Lest we forget, Vice-President-Elect Kamala Harris wants to end the federal prohibition of cannabis. She was the lead Senate sponsor of the Marijuana Opportunity, Reinvestment, and Expungement Act (MORE Act).

Chart courtesy of StockCharts.com

TRSSF Stock Overview

TerrAscend stock is one of the most overlooked U.S. pot stocks because the company is headquartered in Canada and it started out focusing on that country’s  market. But that’s all in the past. Over the last two years, the Ontario-based company has emerged as a leading U.S. cannabis operator.

TerrAscend Corp is the first North American legal marijuana operator with operations in both the U.S. and Canada. It’s also the only legal cannabis company with sales in the U.S., Canada, and Europe—the three largest cannabis markets in the world.

How did that happen? Lots of green (as in money).

In 2017, Canopy Growth Corp (NYSE:CGC), Canopy Rivers Inc (TSE:RIV, OTCMKTS:CNPOF), and JW Asset Management, LLC together invested $52.5 million in TerrAscend. They now collectively own a 60% stake in the company. (Source: “Investor Presentation, September 30 2020,” TerrAscend Corp, September 30, 2020.)

The goal was to help TerrAscend expand its U.S. operations, which it has. Today, more than 90% of the company’s revenue comes from the U.S.

TerrAscend Expands U.S. Footprint into Maryland

In early November, TerrAscend Corp announced that it had signed a definitive agreement to acquire HMS Health, LLC and HMS Processing, LLC from Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF).

TerrAscend has agreed to acquire 100% of the equity of HMS from Curaleaf for $27.5 million. Of that, $25.0 million will be in cash and $2.5 million will be in the form of a note that bears five percent annual interest, due in April 2022.

The acquisition is expected to be immediately accretive to TerrAscend on an earnings before interest, taxes, depreciation, and amortization (EBITDA) basis.

HMS operates a 22,000-square-foot cultivation and processing facility in Frederick, MD. HMS currently produces dried marijuana flower and oil products for the medical cannabis market, and it has the capability to produce edibles upon regulatory approval.

TerrAscend Corp plans to significantly expand its production capacity in the coming year.

Strong Q2 2020 Revenue & Adjusted EBITDA

In August, TerrAscend announced its financial results for the second quarter ended June 30.

The company’s revenue for the second quarter advanced 169% year-over-year and 36% sequentially to CAD$47.2 million. Net sales in the U.S. were CAD$42.2 million, or 90% of total consolidated sales.  (Source: “TerrAscend Reports Strong Second Quarter 2020 Net Sales of $47.2 Million and Adjusted EBITDA of $11.4 Million,” TerrAscend Corp, August 20, 2020.)

The company’s net loss improved to CAD$13.6 million from last year’s net loss of CAD$19.1 million. Its adjusted EBITDA was CAD$11.4 million, compared to CAD$4.9 million in the first quarter of 2020 and an adjusted EBITDA loss of CAD$8.6 million in the second quarter last year.

Strong Preliminary Q3 Results

In early November, TerrAscend Corp announced strong preliminary results for the third quarter ended September 30. TRSSF expects to report:

• Net Sales of CAD$51.0 million, representing 90% year-over-year and eight-percent sequential growth
• Adjusted EBITDA of CAD$17.8 million, up 56% sequentially
• Adjusted EBITDA margin expansion of 35%, compared to 24% in Q2 and 14% in Q1

Jason Ackerman, CEO and executive chairman, commented, “We’re driving strong revenue growth and margin expansion by focusing on operational excellence, controlled SG&A spending, and strategically allocating our capital to generate the greatest returns and industry leading EBITDA margins.” (Source: “TerrAscend Preannounces Strong Third Quarter 2020 Results – Net Sales of $51.0 Million and Adjusted EBITDA of $17.8 Million,” Cision, November 2, 2020.)

TerrAscend will announce its financial results for the third quarter, as well as its increased 2020 and preliminary 2021 guidance, on November 19.

Analyst Take

TerrAscend stock is an excellent marijuana stock that just keeps getting better. The company is based in Canada, but it gets the vast majority of its revenue from the U.S.

TerrAscend Corp is expanding its U.S. footprint and continues to report strong financial results. TRSSF stock may be overlooked for now, but that will change over the coming quarters.