TerrAscend Revenue Drops In Third Quarter, But Delivers Earnings Beat

TerrAscend Corp.  (CSE: TER) (OTCQX: TRSSF) reported its financial results for the third quarter ending September 30, 2021, with revenues dropping by 16% sequentially to $49.1 million from the second quarter’s $58.7 million. However, it was better than 2020’s third-quarter revenue of $38.1 million. TerrAscend blamed the drop in revenue on temporary yield declines in Pennsylvania related to ongoing construction and expansion efforts. On a positive note, the net income for the third quarter was $62 million versus the second quarter’s net loss of $23 million. This was largely impacted by a non-cash gain on the fair value of warrants of $69 million.

The earnings per share on a diluted basis were $0.28 and on a basic basis were $0.33, easily beating the Yahoo Finance average analyst estimate for ($0.01).

“I am pleased with the improvements made in Pennsylvania since we withdrew full year 2021 guidance in August,” said Jason Wild, Executive Chairman of TerrAscend. “The ratio of quality flower to trim from recent harvests has increased dramatically. Additionally, THC and Terpene potency has been testing at all-time highs. In New Jersey, we are well prepared for adult use once the state gives us the go-ahead. Our New Jersey Apothecarium dispensaries will have some of the best selection and depth of product available in the state at launch. We are building this business for success over the long term and will continue to make decisions with that mindset. For the 4th quarter, we expect to show sequential revenue and adjusted EBITDA growth with these positive trends accelerating into 2022.”

The company noted that the adjusted gross margin, before gain on fair value of biological assets, was 46% in the third quarter of 2021 versus 59% in the third quarter of 2020 and 61% in the second quarter of 2021. The compression year over year and quarter over quarter in adjusted gross margin was due to yield declines in Pennsylvania leading to under absorption of fixed costs and a higher mix of retail versus wholesale sales.

Gage Update

The company had made a big splash when it announced it was buying Michigan’s Gage Cannabis. That acquisition is expected to close in early 2022, ahead of expectations. Shareholders officially approved of the deal in November at the company’s meeting.

New Acquisition

TerrAscend also announced its plan to buy a commercial property located in Hagerstown, for approximately $2.8 million plus certain costs and expenses, from GB&J’s LLC. TerrAscend currently produces and sells dried flower and oil products for the  wholesale medical cannabis market from its existing 22,000 square foot cultivation and processing facility in Frederick, . The company said it has already received regulatory approval for the planned relocation of its cultivation operations to the 156,000 square foot Hagerstown Facility, and expects to relocate and commence operations in Q1 2022.

“With adult-use legislation currently under review by the State, scaling our Maryland cultivation and processing capabilities will allow us to support this important and underserved market, said Jason Wild, Executive Chairman of TerrAscend. “Our investment will improve patient and future consumer access to quality cannabis products, including our Kind Tree, Ilera, and Prism brands, while we continue to pursue potential vertical integration opportunities in the State.”

Cash Flow

TerrAscend said that its cash and cash equivalents were $103 million as of September 30, 2021, versus $154 million in June, providing ample capacity to fund planned organic and inorganic growth initiatives. Cash used in operations was $17 million, including a $21 million tax payment in the quarter. During the quarter a payment of $25 million was also made that was related to the partial buyout of its New Jersey partnership, taking total ownership up to 87.5%, from 75%. Capex spending was $16 million focused primarily on the continued expansion work at the Pennsylvania cultivation facility and the construction of the third New Jersey dispensary in Lodi expected to open in the fourth quarter.

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