TerrAscend Corp: Pot Stock Up 150% Since March

TerrAscend Stock Soars, Analysts Still Bullish

TerrAscend Corp (OTCMKTS:TRSSF, CNSX:TER) shares have been on a great run in 2020, climbing about 35% year-to-date and about 150% since the stock market sold off in March.

Despite the big gains, TerrAscend still has lots of room to run higher. In fact, despite COVID-19, 2020 has been a transformational year for the company.

TerrAscend reported strong first-quarter results, it has a strong balance sheet, it has been expanding its footprint in the U.S., and management has provided strong guidance.

TRSFF Stock Overview

TerrAscend was originally known as a medical and recreational cannabis company that focused its efforts on the Canadian market.

But thanks to a $52.5-million investment in 2017 from Canopy Growth Corp (NYSE:CGC), Canopy Rivers Inc (OTCMKTS:CNPOF, TSE:RIV), and JW Asset Management. LLC, it has emerged as a leading U.S. operator as well. (Source: “TerrAscend Closes $52,500,000 Private Placement Financing,” TerrAscend Corp, December 11, 2017.)

In fact, TerrAscend is the first North American marijuana operator with scale operations in both the U.S. and Canada. In Canada, the company operates in the medical and recreational markets. (Source: “TerrAscend Corp., “TerrAscend Reports First Quarter Net Sales of $34.8 million and Adjusted EBITDA of $4.9 million,” TerrAscend Corp., May 28, 2020.)

In the U.S. TRSFF is concentrating its efforts in markets with the highest growth potential, including California, Pennsylvania, and New Jersey.

In August 2019, TerrAscend began shipping dry cannabis flower to its German distribution partner. (Source: “TerrAscend Commences Sales to Europe With First Medical Cannabis Shipment to Germany,” Cision PR Newswire, August 14, 2019.)

That made TerrAscend the first and only cannabis company in the world to generate sales in the U.S., Canada, and Europe—the three largest cannabis markets in the world.

Chart courtesy of StockCharts.com

Q1 Revenue Up 139%, Adjusted EBITDA Moved to Profitability

On May 28, TerrAscend reported its financial results for its first quarter ending March 31.

First-quarter revenue advanced 139% year-over-year. The company’s U.S. net sales of CA$30.9 million represented 89% of the company’s total consolidated net sales. (Source: TerrAscend Corp., May 28, 2020, op. cit.)

This goes to show that the $52.5 million in equity financing, which was used to help build the company’s U.S. presence, has been working.

Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) were CA$4.9 million, compared to an adjusted EBITDA loss of CA$5.5 million in the same period last year.

Adjusted EBITDA from the company’s U.S. operations was CA$8.2 million. Meanwhile, there was an adjusted EBITDA loss of CA$3.3 million from its Canadian operations. Again, this shows that the rapid expansion in the U.S. has been paying off.

TerrAscend ended the first quarter with cash and cash equivalents, including restricted cash, of CA$31.4 million, compared to CA$8.6 million as of March 31, 2019.

Jason Ackerman, executive chairman and CEO, commented, “Getting to adjusted EBITDA profitability is a transformational milestone for our company.”

Ackerman went on to say that the company’s first-quarter results were “driven by the strong performance of our U.S. operations, which continue to perform ahead of plan.” (Source: Ibid.)

Business Outlook

For the second quarter of 2020, TerrAscend expects to report net sales of around $45.0 million, representing sequential growth of 30%. The company also anticipates ongoing growth in its adjusted EBITDA.

In terms of TerrAscend’s outlook, Ackerman said, “With our Pennsylvania expansion complete and construction of our New Jersey facilities well underway, we’re confident in the ongoing growth targets that we have set.” (Source: Ibid.)

Analyst Take

Although TerrAscend Corp was originally focused on the Canadian medical and recreational marijuana market, the company has significantly ramped up its operations in the U.S. to such an extent that it now derives most of its revenue from the U.S.

This is likely to continue. Whereas legal recreational cannabis is found almost everywhere in Canada, in the U.S., many state-level regulations mean there is limited competition. Since TerrAscend owns a number of coveted cultivation and licensing permits in the U.S., that bodes well for its business (and for TerrAscend  stock holders).