TerrAscend Reports Third Quarter 2022 Financial Results

TORONTO, Nov. 14, 2022 /CNW/ - TerrAscend Corp. ("TerrAscend" or the "Company") (CSE: TER) (OTCQX: TRSSF), a leading North American cannabis operator, today reported its financial results for the third quarter ending September 30, 2022. All amounts are expressed in U.S. dollars unless indicated otherwise and are prepared under U.S. Generally Accepted Accounting principles (GAAP).

Third Quarter 2022 Financial Highlights

  • Net Revenue increased 3.4% sequentially and 36.4% year over year to $67 million.
  • Gross Profit Margin was 36.3%, compared to 35.5% in Q2 2022 and 43.7% in Q3 2021.
  • Adjusted Gross Profit Margin1 was 46.1%, compared to 47.1% in Q2 2022 and 46.1% in Q3 2021.
  • Adjusted EBITDA1 was $11.3 million, an increase of 96% sequentially and 22.8% year over year.
  • Adjusted EBITDA Margin1 was 16.9%, compared to 8.9% in Q2 2022 and 18.8% in Q3 of 2021.
  • GAAP Net Loss was $311 million, compared to net income of $14.2 million in Q2 2022. A $331 non-cash impairment charge was recorded against goodwill and intangibles for the Company's Michigan business.
  • Cashflow from Operations was positive $1.5 million, compared to negative $16.1 million in Q2 2022.
  • Cash and Cash Equivalents totaled $34.3 million as of September 30, 2022. Subsequent to the third quarter, the Company closed on a $45.5 million non-brokered senior secured term loan.

"We took decisive action to reduce our operating expenses in the quarter while still generating record sales. These factors combined to drive substantial improvement in adjusted EBITDA margins quarter over quarter and positive cash flow from operations." commented Jason Wild, Executive Chairman of TerrAscend, "Our strong brand presence is evidenced by our retail and wholesale results in New Jersey, where we have quickly established ourselves as a leading operator with three of the top ten flower SKUs, including #1. We look forward to deploying our branded strategy in Maryland and Pennsylvania when these states implement adult use." continued Wild.

Financial Summary Q3 2022 and Comparative Periods 

(in millions of U.S. Dollars)

Q3 2021

Q2 2022

Q3 2022

Revenue, net

49.1

64.8

67.0

Quarter-over-Quarter increase

-16.3

%

30.5

%

3.4

%

Year-over-Year increase

28.9

%

10.4

%

36.4

%

Gross profit

21.5

23.0

24.4

Gross profit margin

43.7

%

35.5

%

36.3

%

Adjusted gross profit1

22.7

30.5

30.9

Adjusted gross margin %

46.1

%

47.1

%

46.1

%

Share-based compensation expense

5.2

4.4

2.6

General & Administrative expense (excluding share based compensation)

16.1

29.5

26.7

% of revenue, net

32.8

%

45.5

%

39.8

%

Net income (loss)

55.8

14.2

(311.0)

Adjusted EBITDA1

9.2

5.8

11.3

Adjusted EBITDA % of revenue, net

18.8

%

8.9

%

16.9

%

Cash provided by (used in) operations

(17.9)

(16.1)

1.5

1. Adjusted Gross Profit and Adjusted Gross Profit Margin, and Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Please see discussion of non-GAAP measures and reconciliation to Gross Profit and Net Income (Loss), the closest comparable GAAP measures at the end of this press release.

 

Third Quarter 2022 Business and Operational Highlights  

  • Entered into an agreement to exclusively introduce the Cookies brand to Pennsylvania.
  • Appointed Karim Bouaziz as President of the Northeast Region.
  • Closed on the acquisition of Pinnacle in Michigan, which includes six dispenary licenses, five of which are currently operational.
  • Opened third New Jersey Apothecarium Dispensary in Lodi.
  • Opened "Cookies Corners" at all three Apothecarium locations in New Jersey.

Subsequent Events

  • Introdroduced Gage and Cookies brands in Pennsylvania.
  • Closed on a non-brokered senior secured term loan in an aggregate principal amount of approximately $45.5 million.

Third Quarter 2022 Financial Results 

Net revenue for the third quarter totaled $67 million, an increase of 3.4% sequentially and 36.4% year-over-year. The sequential growth was primarily driven by strong results in New Jersey and a partial quarter benefit from the Pinnacle acquisition, partially offset by a decline in wholesale sales in Pennsylvania and challenging retail trends in Pennsylvania and Michigan. 

Gross margin for the quarter was 36.3%, impacted by a $6 million USD write-off of inventory in Canada.  Adjusted gross margin for the quarter, excluding the inventory write-off in Canada, was 46.1% compared to 47.1% in the previous quarter, a decline of 100 basis points sequentially, driven mainly by temporary operational drags from Maryland and Canada.  The Company has now fully exited its legacy facility in Maryland and has scaled down the business in Canada such that neither of these areas are expected to be a material drag on gross margin beginning in 2023. 

General and Administrative expenses (G&A) for the quarter were reduced by $2.8 million, or almost 10%, to $26.7 million, or 39.8% of revenue, compared to $29.5 million, or 45.5% of revenue, in the second quarter.  The $26.7 million in the third quarter included $3 million of one-time items mainly related to severance and legal settlements.    The cost reductions, partly driven by a 12% reduction in the Company's workforce, are expected to generate further savings into the fourth quarter as the Company realizes a full quarter of the benefit, without the one-time costs. 

Adjusted EBITDA for the quarter was $11.3 million versus $5.8 million in the previous quarter, representing a 96% increase sequentially. Adjusted EBITDA margin improved 800 basis points to 16.9% in the third quarter from 8.9% in the second quarter, driven by operating expense reductions. 

GAAP net loss for the third quarter was $311 million compared to $14.2 million of net income for the previous quarter.  The net loss for the quarter was driven by a $331 million non-cash impairment to goodwill and intangibles of its Michigan business.   

Balance Sheet and Cash Flow

Ending cash position for the third quarter was $34.3 million.  Following the quarter end, the Company closed on a $45.5 million non-brokered debt financing. 

Cash flow from operations totaled a positive $1.5 million in the third quarter, a significant improvement versus negative cash flow from operations of $16.1 million in the second quarter, which included $9 million of taxes paid.

Capital expenditures were $3.6 million in the third quarter, primarily related to the recently completed expansion at TerrAscend's Hagerstown facility. The Company also closed on the acquisition of Pinnacle, which included a $10 million cash component.

As of November 11, 2022, there were 324 million shares outstanding including 259 million common shares, 13 million preferred shares as converted, and 52 million exchangeable shares, using the treasury method.

Conference Call

TerrAscend will host a conference call today, November 14, 2022, to discuss these results. Jason Wild, Executive Chairman, Ziad Ghanem, President and Chief Operating Officer, and Keith Stauffer, Chief Financial Officer, will host the call starting at 5:00 p.m. Eastern time. A question-and-answer session will follow management's presentation.

DATE:

Monday, November 14, 2022

TIME:

5:00 p.m. Eastern Time

WEBCAST:

Click Here

DIAL-IN NUMBER:

1-888-664-6392

CONFERENCE ID:

17993713

REPLAY:

 

416-764-8677 or 1-888-390-0541
Available until 12:00 midnight Eastern Time Monday, November 28, 2022

Replay Code: 993713#

 

Financial results and analyses are available on the Company's website (www.terrascend.com) and SEDAR (www.sedar.com).

The Canadian Securities Exchange ("CSE") has neither approved nor disapproved the contents of this news release. Neither the CSE nor its Market Regulator (as that term is defined in the policies of the CSE) accepts responsibility for the adequacy or accuracy of this release.

Definition and Reconciliation of Non-GAAP Measures

In addition to reporting the financial results in accordance with GAAP, the Company reports certain financial results that differ from what is reported under GAAP. Non-GAAP measures used by management do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. The Company believes that certain investors and analysts use these measures to measure a company's ability to meet other payment obligations or as a common measurement to value companies in the cannabis industry, and the Company calculates Adjusted Gross Profit as Gross Profit adjusted for certain material non-cash items and Adjusted EBITDA as EBITDA adjusted for certain material non-cash items and certain other adjustments management believes are not reflective of the ongoing operations and performance. Such information is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The Company believes this definition is a useful measure to assess the performance of the Company as it provides more meaningful operating results by excluding the effects of expenses that are not reflective of the Company's underlying business performance and other one-time or non-recurring expenses.

The table below reconciles Gross Profit and Adjusted Gross Profit for the quarters ended September 30, 2022, June 30,2022, and September 30, 2021:

For the Three Months Ended

(in millions of U.S. Dollars)

September 30,
2021

June 30,
2022

September 30,
2022

Gross profit

21,497

22,993

24,363

Add (deduct) the impact of:

Relief of fair value of inventory upon acquisition

1,163

549

415

Non-cash write downs of inventory

5,894

6,037

Vape recall

1,071

Facility transition costs

107

Adjusted gross profit

22,660

30,507

30,922

 

The table below reconciles net loss to EBITDA and Adjusted EBITDA for the quarters ended September 30, 2022, June 30, 2022, and September 30, 2021:

For the Three Months Ended

September 30,
2021

June 30,
2022

September 30,
2022

Net income (loss)

$

55,835

$

14,162

$

(310,985)

Add (deduct) the impact of:

Provision for income taxes

4,999

4,688

(34,033)

Finance expenses

6,351

9,427

10,092

Amortization and depreciation

4,200

7,046

7,110

EBITDA

71,385

35,323

(327,816)

Add (deduct) the impact of:

Relief of fair value of inventory upon acquisition

1,163

549

415

Non-cash write downs of inventory

5,894

6,037

Vape recall

1,071

Share-based compensation

5,178

4,463

2,705

Impairment of goodwill and intangible assets

331,242

331,242

Loss (gain) on disposal of fixed assets

220

929

(81)

Revaluation of contingent consideration

(338)

34

36

Restructuring and executive severance

450

1,443

Legal settlements

1,170

Other one-time items

1,365

924

1,311

Gain on fair value of warrants and purchase option derivative asset

(69,016)

(47,345)

(5,497)

Indemnification asset release

95

3,998

Unrealized and realized loss (gain) on investments

234

(231)

Unrealized and realized foreign exchange loss (gain)

(1,256)

(306)

586

Adjusted EBITDA

$

9,246

$

337,010

$

11,320

 

About TerrAscend

TerrAscend is a leading North American cannabis operator with vertically integrated operations in Pennsylvania , New Jersey , Michigan and California , licensed cultivation and processing operations in Maryland and licensed production in Canada . TerrAscend operates The Apothecarium and Gage dispensary retail locations as well as scaled cultivation, processing, and manufacturing facilities in its core markets. TerrAscend's cultivation and manufacturing practices yield consistent, high-quality cannabis, providing industry-leading product selection to both the medical and legal adult-use markets. The Company owns several synergistic businesses and brands, including Gage Cannabis, The Apothecarium, Ilera Healthcare, Kind Tree, Prism, State Flower, Valhalla Confections, and Arise Bioscience Inc. For more information, visit www.terrascend.com .

Caution Regarding Cannabis Operations in the United States

Investors should note that there are significant legal restrictions and regulations that govern the cannabis industry in the United States. Cannabis remains a Schedule I drug under the US Controlled Substances Act, making it illegal under federal law in the United States to, among other things, cultivate, distribute, or possess cannabis in the United States. Financial transactions involving proceeds generated by, or intended to promote, cannabis-related business activities in the United States may form the basis for prosecution under applicable US federal money laundering legislation.

While the approach to enforcement of such laws by the federal government in the United States has trended toward non-enforcement against individuals and businesses that comply with medical or adult-use cannabis programs in states where such programs are legal, strict compliance with state laws with respect to cannabis will neither absolve TerrAscend of liability under U.S. federal law, nor will it provide a defense to any federal proceeding which may be brought against TerrAscend. The enforcement of federal laws in the United States is a significant risk to the business of TerrAscend and any proceedings brought against TerrAscend thereunder may adversely affect TerrAscend's operations and financial performance.

Forward Looking Information

This news release contains "forward-looking information" within the meaning of applicable securities laws. Forward-looking information contained in this press release may be identified by the use of words such as, "may", "would", "could", "will", "likely", "expect", "anticipate", "believe, "intend", "plan", "forecast", "project", "estimate", "outlook" and other similar expressions, and include statements with respect to future revenue and profits. Forward-looking information is not a guarantee of future performance and is based upon a number of estimates and assumptions of management in light of management's experience and perception of trends, current conditions and expected developments, as well as other factors relevant in the circumstances, including assumptions in respect of current and future market conditions, the current and future regulatory environment, and the availability of licenses, approvals and permits.

Although the Company believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because the Company can give no assurance that they will prove to be correct. Actual results and developments may differ materially from those contemplated by these statements. Forward-looking information is subject to a variety of risks and uncertainties that could cause actual events or results to differ materially from those projected in the forward-looking information. Such risks and uncertainties include, but are not limited to, current and future market conditions; risks related to federal, state, provincial, territorial, local and foreign government laws, rules and regulations, including federal and state laws in the United States relating to cannabis operations in the United States; and the risk factors set out in the Company's most recently filed MD&A, filed with the Canadian securities regulators and available under the Company's profile on SEDAR at www.sedar.com and in the section titled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on March 17, 2022 and as amended on March 24, 2022.

The statements in this press release are made as of the date of this release. The Company disclaims any intent or obligation to update any forward-looking information, whether, as a result of new information, future events, or results or otherwise, other than as required by applicable securities laws.

Unaudited Interim Condensed Consolidated Balance Sheets 
(Amounts expressed in thousands of United States dollars, except for per share amounts)

At

At

September 30, 2022

December 31, 2021

Assets

Current Assets

Cash and cash equivalents

$

34,288

$

79,642

Restricted cash

1,031

Accounts receivable, net

17,937

14,920

Investments

3,556

Inventory

49,391

42,323

Prepaid Expenses and other current assets

7,194

6,336

113,397

143,221

Non-Current Assets

Property and equipment, net

244,125

140,762

Deposits

1,455

1,977

Operating lease right of use assets

30,044

29,561

Intangible assets, net

240,503

168,984

Goodwill

90,326

90,326

Indemnification asset

3,969

Other non-current assets

5,638

3,134

612,091

438,713

Total Assets

$

725,488

$

581,934

Liabilities and Shareholders' Equity

Current Liabilities

Accounts payable and accrued liabilities

$

61,680

$

30,340

Deferred revenue

2,309

1,071

Loans payable, current

75,305

8,837

Contingent consideration payable, current

4,434

9,982

Operating lease liability, current

1,582

1,171

Lease obligations under finance leases, current

369

22

Corporate income tax payable

23,088

9,621

Other current liabilities

3,575

-

172,342

61,044

Non-Current Liabilities

Loans payable, non-current

172,322

176,306

Contingent consideration payable, non-current

1,250

2,553

Operating lease liability, non-current

31,058

30,573

Lease obligations under finance leases, non-current

4,698

181

Warrant liability

679

54,986

Deferred income tax liability

40,414

14,269

Financing obligations

11,408

Other long term liabilities

12,495

13,068

274,324

291,936

Total Liabilities

446,666

352,980

Commitments and Contingencies

Shareholders' Equity

Share Capital

Series A, convertible preferred stock, no par value, unlimited shares authorized; 12,658 and 13,708 shares outstanding as of
September 30, 2022 and December 31, 2021, respectively

Series B, convertible preferred stock, no par value, unlimited shares authorized; 610 and 610 shares outstanding as of
September 30, 2022 and December 31, 2021, respectively

Series C, convertible preferred stock, no par value, unlimited shares authorized; nil and 36 shares outstanding as of
September 30, 2022 and December 31, 2021, respectively

Series D, convertible preferred stock, no par value, unlimited shares authorized; nil and nil shares outstanding as of
September 30, 2022 and December 31, 2021, respectively

Proportionate voting shares, no par value, unlimited shares authorized; nil and nil shares outstanding as of September 30, 2022
and December 31, 2021, respectively

Exchangeable shares, no par value, unlimited shares authorized; 52,395,071 and 38,890,571 shares outstanding as of
September 30, 2022 and December 31, 2021, respectively

Common stock, no par value, unlimited shares authorized; 257,860,852 and 190,930,800 shares outstanding as of
September 30, 2022 and December 31, 2021, respectively

Additional paid in capital

877,298

535,418

Accumulated other comprehensive income (loss)

1,694

2,823

Accumulated deficit

(605,336)

(314,654)

Non-controlling interest

5,166

5,367

Total Shareholders' Equity

278,822

228,954

Total Liabilities and Shareholders' Equity

$

725,488

$

581,934

 

Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss
(Amounts expressed in thousands of United States dollars, except for per share amounts)

For the Three Months Ended

For the Nine Months Ended

September 30,
2022

September 30,
2021

September 30,
2022

September 30,
2021

Revenue

$

67,726

$

50,537

$

183,538

$

169,010

Excise and cultivation tax

(701)

(1,398)

(2,050)

(7,794)

Revenue, net

67,025

49,139

181,488

161,216

Cost of Sales

42,662

27,642

118,992

69,942

Gross profit

24,363

21,497

62,496

91,274

Operating expenses:

General and administrative

29,385

21,320

85,918

62,462

Amortization and depreciation

3,032

1,947

8,666

5,664

Impairment of intangible assets

152,928

152,928

3,633

Impairment of goodwill

178,314

178,314

5,007

Total operating expenses

363,659

23,267

425,826

76,766

(Loss) income from operations

(339,296)

(1,770)

(363,330)

14,508

Other expense (income)

Revaluation of contingent consideration

36

(338)

189

2,652

Gain on fair value of warrants and purchase option derivative asset

(5,497)

(69,016)

(58,555)

(43,715)

Finance and other expenses

9,469

6,972

30,227

22,281

Transaction and restructuring costs

1,359

1,034

2,601

1,466

Unrealized and realized foreign exchange loss (gain)

586

(1,256)

636

4,582

Unrealized and realized (gain) loss on investments

(231)

3

(6,192)

(Loss) income before provision from income taxes

(345,018)

60,834

(338,431)

33,434

Provision for income taxes

(34,033)

4,999

(25,602)

21,372

Net (loss) income

$

(310,985)

$

55,835

$

(312,829)

$

12,062

Foreign currency translation

(2,758)

1,745

1,129

(3,469)

Comprehensive (loss) income

$

(308,227)

$

54,090

$

(313,958)

$

15,531

Net (loss) income attributable to:

Common and proportionate Shareholders of the Company

$

(313,212)

$

54,428

$

(316,352)

$

9,594

Non-controlling interests

2,227

1,407

3,523

2,468

Comprehensive (loss) income attributable to:

Common and proportionate Shareholders of the Company

$

(310,454)

$

52,683

$

(317,481)

$

13,063

Non-controlling interests

2,227

1,407

3,523

2,468

Net (loss) income per share, basic and diluted

Net (loss) income per share - basic

$

(1.23)

$

0.30

$

(1.32)

$

0.05

Weighted average number of outstanding common and proportionate voting shares

254,355,792

184,438,592

239,567,866

179,441,224

Net (loss) income per share - diluted

$

(1.23)

$

0.25

$

(1.32)

$

0.04

Weighted average number of outstanding common and proportionate voting shares, assuming dilution

254,355,792

214,134,641

239,567,866

214,756,569

 

Unaudited Interim Condensed Consolidated Statements of Cash Flows
(Amounts expressed in thousands of United States dollars, except for per share amounts)

For the Nine Months Ended

September 30, 2022

September 30, 2021

Operating activities

Net (loss) income

$

(312,829)

$

12,062

Adjustments to reconcile net income to net cash provided by (used in) operating activities

Non-cash write downs of inventory

14,873

961

Accretion expense

5,793

1,981

Depreciation of property and equipment and amortization of intangible assets

19,241

11,250

Amortization of operating right-of-use assets

1,513

1,289

Share-based compensation

10,524

13,393

Deferred income tax recovery

(44,266)

(682)

Loss on fair value of warrants and purchase option derivative

(58,555)

(43,715)

Revaluation of contingent consideration

189

2,652

Impairment of intangible assets

152,928

3,633

Impairment of goodwill

178,314

5,007

Loss on disposal of fixed assets

848

Release of indemnification asset

3,973

3,891

Forgiveness of loan principal and interest

(766)

Unrealized and realized foreign exchange loss

636

4,582

Unrealized and realized loss (gain) on investments

3

(6,192)

Changes in operating assets and liabilities

Receivables

4,317

1,144

Inventory

(1,894)

(10,450)

Prepaid expense and deposits

721

(523)

Deposits

2,340

(408)

Other assets

(1,522)

(4,214)

Accounts payable and accrued liabilities and other payables

(9,530)

(590)

Operating lease liability

(889)

3,750

Other liability

(9,627)

(11,394)

Contingent consideration payable

(410)

(14,978)

Corporate income tax payable

9,451

305

Deferred revenue

427

Net cash used in operating activities

(33,431)

(28,012)

Investing activities

Investment in property and equipment

(24,678)

(26,706)

Investment in intangible assets

(1,330)

(342)

Principal payments received on lease receivable

394

559

Distributions of earnings from associates

469

Deposits for property and equipment

(1,455)

(1,739)

Deposits for business acquisition

(852)

(25,000)

Payments made for land contracts

(888)

Net cash received on acquisition, net of cash paid

16,227

(42,736)

Net cash used in investing activities

(12,582)

(95,495)

Financing activities

Proceeds from options and warrants exercised

24,158

14,042

Loan principal paid

(6,088)

(2,250)

Loan amendment fee paid

(2,309)

Proceeds from loans payable

766

Cash distributions to NJ partners

(1,436)

Capital contributions (paid) received (to) from non-controlling interests

(1,237)

174

Payments of contingent consideration

(6,630)

(18,274)

Payments made for financing obligations

(921)

Proceeds from private placement, net of share issuance costs

173,477

Net cash provided by financing activities

5,537

167,935

Net (decrease) increase in cash and cash equivalents and restricted cash during the period

(40,476)

44,428

Net effects of foreign exchange

(3,847)

(1,016)

Cash and cash equivalents and restricted cash, beginning of period

79,642

59,226

Cash and cash equivalents and restricted cash, end of period

$

35,319

$

102,638

Supplemental disclosure with respect to cash flows

Income taxes paid

$

9,213

$

37,032

Interest paid

$

20,643

$

17,408

Lease termination fee paid

$

3,300

-

Non-cash transactions

Equity and warrant liability issued as consideration for acquisition

$

337,739

$

34,427

Promissory note issued as consideration for acquisitions

$

10,000

$

6,750

Investment in NJ Partnership

$

-

$

25,000

Shares issued for liability settlement

$

264

$

-

Accrued capital purchases

$

12,118

$

4,655

 

SOURCE TerrAscend