TerrAscend Corp Acquires Gage Growth Corp, Giving It Leading Position in Michigan

TerrAscend Acquires Rival in Blockbuster Deal

TerrAscend Corp (CNSX:TER, OTCMKTS:TRSSF) is a leading North American cannabis company with operations in both the U.S. and Canada.

But there’s always room for growth. On September 1, the company announced that it was acquiring rival Gage Growth Corp (CNSX:GAGE, OTCMKTS:GAEGF) in an all-stock transaction worth $545.0 million. (Source: “TerrAscend to Acquire Gage Cannabis,” TerrAscend Corp, September 1, 2021.)

The deal is significant because it gives TerrAscend a leading position in Michigan, which, according to the company, is the third-largest U.S. cannabis market in the U.S.

In July, Michigan’s cannabis sales increased by a whopping 56% from a year earlier and 15% from June to a record $171.0 million. (Source: “Monthly Report, July 1, 2021 – July 31, 2021,” Michigan Marijuana Regulatory Agency, last accessed September 9, 2021.)

Year-to-date sales of marijuana in the state are up by 107% year-over-year at $982.0 million. In 2020, Michigan generated $985.0 million in cannabis sales.

Cannabis flower accounted for the majority of the medical and recreational marijuana sales in Michigan, accounting for $84.6 million. Vape cartridges were the second most popular cannabis product in the state, with sales of $37.1 million. Edibles were third, generating $23.0 million in combined sales.

Gage Growth Corp, which only went public back in April, currently operates 10 dispensaries in Michigan. Over the coming months, the company is expected to open an additional 10 dispensaries across the state.

TerrAscend has 13 stores in Michigan and is expected to open its 14th dispensary in the state in the fourth quarter—in Lodi, a town just outside of New York City.

Key Benefits of Acquisition

Before the acquisition, TerrAscend Corp had operations in high-growth markets like California, New Jersey, Pennsylvania, and Maryland. In Canada, it operates in the medical and recreational marijuana markets from coast to coast.

Should the acquisition of Gage Growth Corp go ahead as planned, TerrAscend Corp will have:

• A leading position in a top-three market: Gage Growth Corp is focused on the Michigan market, where it has city and state approvals for 19 “Class C” cultivation licenses, three processing licenses, and 15 provisioning centers
• Premium brands: The acquisition gives TerrAscend Corp access to Gage Growth Corp’s award-winning brands and proprietary library of genetics, as well as exclusive licensing partnerships in Michigan with several brands
• Larger infrastructure: The combined company will operate seven cultivation facilities, including three in Michigan, in addition to Gage Growth Corp’s nine contract grow agreements
• Many more retail locations: The combined company’s retail footprint will reach 34 stores over the coming months, including 23 dispensaries that are currently open in five states
• A stronger balance sheet: Gage Growth Corp has a cash position of $32.8 million and minimal debt

Just because the acquisition is a blockbuster deal doesn’t mean it has been juicing TRSSF stock’s price. U.S. cannabis stock investors are betting the farm on the Democrats’ promise to reform marijuana laws, legalizing the drug at the federal level.

Despite much ballyhoo from Senate majority leader Chuck Schumer, who has said he wants to get federal legalization done with or without President Joe Biden’s blessing, little progress has been made. As such, pot stock investors have taken a leap of faith off a cliff.

As you can see in the following chart, both Gage Growth stock and TerrAscend stock have underperformed lately. So too has the ETFMG Alternative Harvest ETF (NYSEARCA:MJ), the world’s largest cannabis exchange-traded fund.

Chart courtesy of StockCharts.com

It’s not all bad news, though: TRSSF stock might be down by 32% year-to-date, but it’s still up by 43% year-over-year.

An astute investor might see the recent drop in TerrAscend stock’s price as putting it in a more compelling trading range.

TerrAscend Corp Increases Ownership of New Jersey License

Gage Growth Corp isn’t the only big news to hit TerrAscend lately.

On August 20, the company announced that it had increased its ownership of TerrAscend NJ, LLC by an additional 12.5% of the issued and outstanding equity—for an initial cash payment of $25.0 million. (Source: “TerrAscend Increases Ownership of New Jersey License Ahead of Adult-Use Rollout,” TerrAscend Corp, August 20, 2021.)

A further $25.0-million payment, comprising both cash and common shares of TRSSF stock, will be paid on or before December 31.

As a result, the company now owns 87.5% of the issued and outstanding equity of TerrAscend NJ.

TerrAscend Corp will have the option to purchase an additional 6.25% of TerrAscend NJ, LLC at a pre-determined valuation during the period of April 1, 2023 through June 15, 2023.

TerrAscend NJ currently operates a 140,000-square-foot cultivation and processing facility in Boonton and two dispensaries—in Maplewood and Philipsburg. As previously noted, the company is expected to open a third dispensary in Lodi before the end of the year.

New Jersey may be small geographically, but the passing of a marijuana legalization bill positions the Garden State as a destination for recreational cannabis users from neighboring New York (where legal pot sales haven’t started yet), as well as Pennsylvania and Delaware (which have yet to legalize recreational cannabis).

With a population of about 8.8 million, New Jersey is poised to become the largest recreational marijuana market on the East Coast. It’s projected that recreational and medical marijuana sales could bring in up to $740.0 million during the first full year of legal sales in the state. (Source: “Projections for New Jersey’s Adult-Use Cannabis Market,” Headset, last accessed September 9, 2021.)

That could be a boon for TerrAscend stock investors.

Analyst Take

TerrAscend Corp’s acquisition of Gage Growth Corp will both expand the company and give it a significant presence in Michigan, the third-largest cannabis market in the U.S.

The acquisition immediately creates one of the largest companies in the legal marijuana industry.

Moreover, TerrAscend’s increased stake in New Jersey gives it a foothold in a state that’s set to become the largest legal recreational marijuana market on the East Coast.