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