Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

May 12, 2022

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ROC

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 021-340690

 

TerrAscend Corp.

(Exact Name of Registrant as Specified in its Charter)

 

 

Ontario

N/A

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

3610 Mavis Road

Mississauga, Ontario

L5C 1W2

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (855) 837-7295

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

 

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☐

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ☐

As of May 11, 2022, the registrant had 251,991,026 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

i

 

 

 

Item 1.

Financial Statements (Unaudited)

i

 

Condensed Consolidated Balance Sheets

i

 

Condensed Consolidated Statements of Operations

ii

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

ii

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

 

 

 

PART II.

OTHER INFORMATION

28

 

 

 

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 6.

Exhibits

29

Signatures

30

 

 

 


 

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements that TerrAscend Corp. (“TerrAscend” or the “Company”) believes are, or may be considered to be, “forward-looking statements.” All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q regarding the prospects of the Company’s industry or the Company’s prospects, plans, financial position or business strategy may constitute forward-looking statements. Such statements can be identified by the use of forward-looking terminology such as “expect”, “likely”, “may”, “will”, “should”, “intend”, “anticipate”, “potential”, “proposed”, “estimate” and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussions of strategy. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance, or other statements that are not statements of fact. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements with respect to:

•

the performance of the Company’s business and operations;

 

•

the Company’s expectations regarding revenues, expenses and anticipated cash needs;

 

•

the competitive conditions of the industry;

 

•

federal, state, provincial, territorial, local and foreign government laws, rules and regulations, including federal and state laws in the US relating to cannabis operations in the US;

the legalization of the use of cannabis for medical and/or recreational use in the US and the related timing and impact thereof;

•

laws and regulations and any amendments thereto applicable to the business and the impact thereof;

 

•

the competitive advantages and business strategies of the Company;

 

•

the Company’s ability to source and operate facilities in the US;

 

•

the Company’s ability to integrate and operate the assets acquired from Arise Bioscience Inc. (“Arise”), the Apothecarium Dispensaries (“The Apothecarium”), Valhalla Confections (“Valhalla”), Ilera Healthcare (“Ilera”), State Flower or ABI SF LLC (“State Flower”), HMS Health, LLC, KCR Holdings LLC, and Gage;

•

any benefits expected from the Gage Acquisition; and

 

•

Gage’s plans to continue building a diverse portfolio of branded cannabis assets and business arrangements through investments, strategic business relationships and the pursuit of licenses in attractive retail locations in Michigan.

 

Certain of the forward-looking statements contained herein concerning the cannabis industry and the general expectations of the Company concerning the cannabis industry are based on estimates prepared by the Company using data from publicly available governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of the cannabis industry. Such data is inherently imprecise. The cannabis industry involves risks and uncertainties that are subject to change based on various factors, which factors are described further below.

 

With respect to the forward-looking statements contained in this Quarterly Report on Form 10-Q, the Company has made assumptions regarding, among other things: (i) its ability to generate cash flows from operations and obtain necessary financing on acceptable terms; (ii) general economic, financial market, regulatory and political conditions in which the Company operates; (iii) the output from the Company’s operations; (iv) consumer interest in the Company’s products; (v) competition; (vi) anticipated and unanticipated costs; (vii) government regulation of the Company’s activities and products and in the areas of taxation and environmental protection; (viii) the timely receipt of any required regulatory approvals; (ix) the Company’s ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; (x) the Company’s ability to conduct operations in a safe, efficient and effective manner; and (xi) the Company’s construction plans and timeframe for completion of such plans.

 

Readers are cautioned that the above list of cautionary statements is not exhaustive. Known and unknown risks, many of which are beyond the control of the Company, could cause actual results to differ materially from the forward-looking statements in this Quarterly Report on Form 10-Q. 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 those discussed under Item 1A – “Risk Factors” in this Quarterly Report on Form 10-Q. The purpose of forward-looking statements is to provide the reader with a description of management’s expectations, and such forward-looking statements may not be appropriate for any other purpose. You should not place undue reliance on forward-looking statements contained in this Quarterly Report on Form 10-Q. The Company can give no assurance that such expectations will prove to have been correct. Forward-looking statements contained herein are made as of the date of this Quarterly Report on Form 10-Q and are based on the beliefs, estimates, expectations and opinions of management on the date such

 


 

forward-looking statements are made. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such forward-looking statements, except as required by applicable law.

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

TerrAscend Corp.

Unaudited Interim Condensed Consolidated Balance Sheets

(Amounts expressed in thousands of United States dollars, except for per share amounts)

 

 

 

At

 

 

At

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

88,407

 

 

$

79,642

 

Accounts receivable, net

 

 

23,097

 

 

 

14,920

 

Investments

 

 

4,121

 

 

 

-

 

Inventory

 

 

64,058

 

 

 

42,323

 

Prepaid Expenses and other current assets

 

 

7,452

 

 

 

6,336

 

 

 

 

187,135

 

 

 

143,221

 

Non-Current Assets

 

 

 

 

 

 

Property and equipment, net

 

 

211,717

 

 

 

140,762

 

Deposits

 

 

7,798

 

 

 

-

 

Operating lease right of use assets

 

 

30,801

 

 

 

29,561

 

Intangible assets, net

 

 

354,452

 

 

 

168,984

 

Goodwill

 

 

235,681

 

 

 

90,326

 

Indemnification asset

 

 

3,994

 

 

 

3,969

 

Other non-current assets

 

 

4,823

 

 

 

5,111

 

 

 

 

849,266

 

 

 

438,713

 

Total Assets

 

$

1,036,401

 

 

$

581,934

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

49,214

 

 

$

30,340

 

Deferred revenue

 

 

2,029

 

 

 

1,071

 

Loans payable, current

 

 

60,108

 

 

 

8,837

 

Contingent consideration payable, current

 

 

3,114

 

 

 

9,982

 

Lease liability, current

 

 

1,688

 

 

 

1,193

 

Corporate income tax payable

 

 

28,808

 

 

 

18,939

 

Other current liabilities

 

 

3,305

 

 

 

-

 

 

 

 

148,266

 

 

 

70,362

 

Non-Current Liabilities

 

 

 

 

 

 

Loans payable, non-current

 

 

184,558

 

 

 

176,306

 

Contingent consideration payable, non-current

 

 

2,586

 

 

 

2,553

 

Lease liability, non-current

 

 

32,450

 

 

 

30,754

 

Warrant liability

 

 

55,021

 

 

 

54,986

 

Deferred income tax liability

 

 

72,740

 

 

 

14,269

 

Financing obligations

 

 

12,142

 

 

 

-

 

Other long term liabilities

 

 

3,399

 

 

 

3,750

 

 

 

 

362,896

 

 

 

282,618

 

Total Liabilities

 

 

511,162

 

 

 

352,980

 

Commitments and Contingencies

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

Share Capital

 

 

 

 

 

 

Series A, convertible preferred stock, no par value, unlimited shares authorized; 13,358 and 13,708 shares outstanding as of March 31, 2022 and December 31, 2021 respectively

 

 

 

 

 

 

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

 

 

 

 

 

 

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

 

 

 

 

 

 

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

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock, no par value, unlimited shares authorized; 251,971,226 and 190,930,800 shares outstanding as of March 31, 2022 and December 31, 2021 respectively

 

 

 

 

 

 

Additional paid in capital

 

 

850,386

 

 

 

535,418

 

Accumulated other comprehensive income (loss)

 

 

(783

)

 

 

2,823

 

Accumulated deficit

 

 

(329,855

)

 

 

(314,654

)

Non-controlling interest

 

 

5,491

 

 

 

5,367

 

Total Shareholders' Equity

 

 

525,239

 

 

 

228,954

 

Total Liabilities and Shareholders' Equity

 

$

1,036,401

 

 

$

581,934

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 


 

TerrAscend Corp.

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

 

 

March 31, 2022

 

 

March 31, 2021

 

Revenue

$

50,445

 

 

$

56,496

 

Excise and cultivation tax

 

(786

)

 

 

(3,142

)

Revenue, net

 

49,659

 

 

 

53,354

 

 

 

 

 

 

 

Cost of Sales

 

34,519

 

 

 

18,412

 

 

 

 

 

 

 

Gross profit

 

15,140

 

 

 

34,942

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

General and administrative

 

22,552

 

 

 

20,392

 

Amortization and depreciation

 

2,618

 

 

 

1,873

 

Total operating expenses

 

25,170

 

 

 

22,265

 

 

 

 

 

 

 

(Loss) income from operations

 

(10,030

)

 

 

12,677

 

Other expense (income)

 

 

 

 

 

Revaluation of contingent consideration

 

119

 

 

 

2,997

 

(Gain) loss on fair value of warrants and purchase option derivative asset

 

(5,713

)

 

 

5,410

 

Finance and other expenses

 

6,856

 

 

 

6,390

 

Transaction and restructuring costs

 

615

 

 

 

 

Unrealized and realized foreign exchange loss

 

356

 

 

 

2,783

 

Unrealized and realized loss (gain) on investments

 

-

 

 

 

(228

)

Loss before provision from income taxes

 

(12,263

)

 

 

(4,675

)

Provision for income taxes

 

3,743

 

 

 

9,436

 

Net loss

$

(16,006

)

 

$

(14,111

)

 

 

 

 

 

 

Foreign currency translation

 

3,607

 

 

 

(2,189

)

Comprehensive loss

$

(19,613

)

 

$

(11,922

)

 

 

 

 

 

 

Net loss attributable to:

 

 

 

 

 

Common and proportionate Shareholders of the Company

$

(16,357

)

 

$

(14,174

)

Non-controlling interests

 

351

 

 

$

63

 

 

 

 

 

 

 

Comprehensive loss attributable to:

 

 

 

 

 

Common and proportionate Shareholders of the Company

$

(19,964

)

 

$

(11,985

)

Non-controlling interests

 

351

 

 

$

63

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

 

 

 

 

Net income (loss) per share - basic

$

(0.08

)

 

$

(0.08

)

Weighted average number of outstanding common and proportionate voting shares

 

211,126,932

 

 

 

171,371,637

 

Net income (loss) per share - diluted

$

(0.08

)

 

$

(0.08

)

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

 

211,126,932

 

 

 

171,371,637

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 


 

TerrAscend Corp.

Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)

(Amounts expressed in thousands of United States dollars, except for per share amounts)

 

 

 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Exchangeable Shares

 

 

Series A

 

 

Series B

 

 

Series C

 

 

Series D

 

 

Common Shares Equivalent

 

 

Additional paid in capital

 

 

Accumulated other comprehensive income (loss)

 

 

Accumulated deficit

 

 

Non-controlling interest

 

 

Total

 

Balance at December 31, 2021

 

 

190,930,800

 

 

 

38,890,571

 

 

 

13,708

 

 

 

610

 

 

 

36

 

 

 

 

 

 

244,175,394

 

 

$

535,418

 

 

$

2,823

 

 

 

(314,654

)

 

 

5,367

 

 

$

228,954

 

Shares issued - stock option, warrant and RSU exercises

 

 

9,300,629

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,300,629

 

 

 

24,702

 

 

 

 

 

 

 

 

 

 

 

 

24,702

 

Shares, options and warrants issued- acquisitions

 

 

51,349,978

 

 

 

13,504,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64,854,478

 

 

 

288,044

 

 

 

 

 

 

 

 

 

 

 

 

288,044

 

Shares issued- liability settlement

 

 

4,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,000

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

22

 

Shares issued- conversion

 

 

385,819

 

 

 

 

 

 

(350

)

 

 

 

 

 

(36

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,356

 

 

 

 

 

 

 

 

 

 

 

 

3,356

 

Options expired/forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,156

)

 

 

 

 

 

1,156

 

 

 

 

 

 

 

Capital Contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(227

)

 

 

(227

)

Net income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,357

)

 

 

351

 

 

 

(16,006

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,606

)

 

 

 

 

 

 

 

 

(3,606

)

Balance at March 31, 2022

 

 

251,971,226

 

 

 

52,395,071

 

 

 

13,358

 

 

 

610

 

 

 

 

 

 

 

 

 

318,334,501

 

 

$

850,386

 

 

$

(783

)

 

$

(329,855

)

 

$

5,491

 

 

$

525,239

 

 

 

 

 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Exchangeable Shares

 

 

Proportionate Voting Shares

 

 

Series A

 

 

Series B

 

 

Series C

 

 

Series D

 

 

Common Shares Equivalent

 

 

Additional paid in capital

 

 

Accumulated other comprehensive income (loss)

 

 

Accumulated deficit

 

 

Non-controlling interest

 

 

Total

 

Balance at December 31, 2020

 

 

79,526,785

 

 

 

38,890,571

 

 

 

76,307

 

 

 

14,258

 

 

 

710

 

 

 

 

 

 

 

 

 

209,692,379

 

 

$

305,138

 

 

$

(3,662

)

 

 

(318,594

)

 

 

3,802

 

 

$

(13,316

)

Shares issued - stock option, warrant and RSU exercises

 

 

1,970,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

87

 

 

 

1,315

 

 

 

3,372,936

 

 

 

25,298

 

 

 

 

 

 

 

 

 

 

 

 

25,298

 

Private placement net of share issuance costs

 

 

18,115,656

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,115,656

 

 

 

173,477

 

 

 

 

 

 

 

 

 

 

 

 

173,477

 

Shares issued- conversion

 

 

78,058,768

 

 

 

 

 

 

(76,307

)

 

 

(250

)

 

 

(100

)

 

 

(87

)

 

 

(1,315

)

 

 

 

 

 

560

 

 

 

 

 

 

 

 

 

 

 

 

560

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,567

 

 

 

 

 

 

 

 

 

 

 

 

3,567

 

Options expired/forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(53

)

 

 

 

 

 

53

 

 

 

 

 

 

 

Conversion of convertible debt

 

 

1,284,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,284,221

 

 

 

5,656

 

 

 

 

 

 

 

 

 

 

 

 

5,656

 

Capital Contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(160

)

 

 

(160

)

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,174

)

 

 

63

 

 

 

(14,111

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,189

 

 

 

 

 

 

 

 

 

2,189

 

Balance at March 31, 2021

 

 

178,956,366

 

 

 

38,890,571

 

 

 

 

 

 

14,008

 

 

 

610

 

 

 

 

 

 

 

 

 

232,465,192

 

 

$

513,643

 

 

$

(1,473

)

 

$

(332,715

)

 

$

3,705

 

 

$

183,160

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements

 


 

TerrAscend Corp.

Unaudited Interim Condensed Consolidated Statements of Cash Flows

(Amounts expressed in thousands of United States dollars, except for per share amounts)

 

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Operating activities

 

 

 

 

 

 

Net loss

$

 

(16,006

)

$

 

(14,111

)

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

 

 

 

 

 

 

Non-cash write downs of inventory

 

 

1,073

 

 

 

584

 

Accretion expense

 

 

(1,169

)

 

 

(1,937

)

Depreciation of property and equipment and amortization of intangible assets

 

 

5,085

 

 

 

3,521

 

Amortization of operating right-of-use assets

 

 

487

 

 

 

343

 

Share-based compensation

 

 

3,356

 

 

 

3,567

 

Deferred income tax (recovery) expense

 

 

(1,134

)

 

 

224

 

(Gain) loss on fair value of warrants and purchase option derivative

 

 

(5,713

)

 

 

5,410

 

Revaluation of contingent consideration

 

 

119

 

 

 

2,997

 

Release of indemnification asset

 

 

(25

)

 

 

1,197

 

Forgiveness of loan principal and interest

 

 

-

 

 

 

(766

)

Unrealized and realized foreign exchange loss

 

 

356

 

 

 

2,783

 

Unrealized and realized loss (gain) on investments

 

 

-

 

 

 

(228

)

Changes in operating assets and liabilities

 

 

 

 

 

 

Receivables

 

 

(1,399

)

 

 

511

 

Inventory

 

 

3,706

 

 

 

(4,161

)

Prepaid expense and deposits

 

 

682

 

 

 

294

 

Deposits

 

 

(593

)

 

 

-

 

Other assets

 

 

571

 

 

 

(189

)

Accounts payable and accrued liabilities and other payables

 

 

(12,475

)

 

 

1,439

 

Operating lease liability

 

 

(271

)

 

 

(81

)

Other liability

 

 

(437

)

 

 

-

 

Contingent consideration payable

 

 

(324

)

 

 

-

 

Corporate income tax payable

 

 

4,869

 

 

 

4,713

 

Deferred revenue

 

 

395

 

 

 

102

 

Net cash (used in) provided by operating activities

 

 

(18,847

)

 

 

6,212

 

Investing activities

 

 

 

 

 

 

Investment in property and equipment

 

 

(4,193

)

 

 

(8,311

)

Investment in intangible assets

 

 

(106

)

 

 

(40

)

Principal payments received on lease receivable

 

 

156

 

 

 

193

 

Distributions of earnings from associates

 

 

-

 

 

 

99

 

Deposits for property and equipment

 

 

(6,058

)

 

 

(4,826

)

Deposits for business acquisition

 

 

(602

)

 

 

-

 

Cash received on acquisition of Gage

 

 

24,716

 

 

 

-

 

Net cash provided by (used in) investing activities

 

 

13,913

 

 

 

(12,885

)

Financing activities

 

 

 

 

 

 

Proceeds from options and warrants exercised

 

 

23,925

 

 

 

9,170

 

Proceeds from loans payable

 

 

-

 

 

 

766

 

Capital contributions paid to non-controlling interests

 

 

(227

)

 

 

(161

)

Payments of contingent consideration

 

 

(6,630

)

 

 

-

 

Proceeds from private placement, net of share issuance costs

 

 

-

 

 

 

173,477

 

Net cash provided by financing activities

 

 

17,068

 

 

 

183,252

 

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

 

 

12,134

 

 

 

176,579

 

Net effects of foreign exchange

 

 

(3,369

)

 

 

(1,568

)

Cash and cash equivalents, beginning of period

 

 

79,642

 

 

 

59,226

 

Cash and cash equivalents, end of period

$

 

88,407

 

$

 

234,237

 

 

 

 

 

 

 

 

Supplemental disclosure with respect to cash flows

 

 

 

 

 

 

Income taxes paid

$

 

8

 

$

 

4,499

 

Interest paid

$

 

8,271

 

$

 

9,140

 

Lease termination fee paid

$

 

3,300

 

 

 

-

 

Non-cash transactions

 

 

 

 

 

 

Equity and warrant liability issued as consideration for acquisition

$

 

294,800

 

 

 

-

 

Shares issued for liability settlement

$

 

22

 

 

 

-

 

Accrued capital purchases

$

 

56

 

 

 

-

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

1. Nature of operations

TerrAscend Corp. (“TerrAscend” or the “Company”) was incorporated under the Ontario Business Corporations Act on March 7, 2017. TerrAscend provides cannabis products, brands, and services in the United States ("US") and Canada cannabinoid markets and participates in the medical and legal adult use market in several US states where cannabis has been legalized for therapeutic or adult use. TerrAscend operates a number of synergistic businesses, including Gage Growth Corp. ("Gage"), a cultivator and processor in Michigan, The Apothecarium (“Apothecarium”), a cannabis dispensary with several retail locations in California, Pennsylvania and New Jersey; Ilera Healthcare (“Ilera”), Pennsylvania’s medical cannabis cultivator, processor and dispenser; HMS Health, LLC and HMS Processing, LLC (collectively “HMS”), a medical cannabis cultivator and processor based in Maryland; Valhalla Confections, a manufacturer of cannabis-infused edibles; State Flower a California-based cannabis producer operating a licensed cultivation facility in San Francisco; and Arise Bioscience Inc., a manufacturer and distributor of hemp-derived products. TerrAscend holds a permit to operate as an alternative treatment center in New Jersey, which allows for the cultivation and processing of cannabis with the ability to operate up to three alternative treatment centers.

The Company was listed on the Canadian Stock Exchange effective May 3, 2017, having the ticker symbol TER and effective October 22, 2018, the Company began trading on OTCQX under the ticker symbol TRSSF. The Company’s registered office is located at PO Box 43125, Mississauga, Ontario, L5C 1W2.

2.
Summary of significant accounting policies
(a)
Basis of presentation

These unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2022 and 2021 (the “Consolidated Financial Statements”) of the Company and its subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The accompanying condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, these unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and notes thereto of the Company and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of the Company’s financial position and operating results. The results for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the year ended December 31, 2022, or any other interim or future periods.

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company for the year ended December 31, 2021 contained in the Company's 2021 Form 10-K. There were no significant changes to the policies disclosed in Note 2 of the summary of significant accounting policies of the Company’s audited consolidated financial statements for the year ended December 31, 2021 in the Company's 2021 Form 10-K.

3.
Accounts receivable, net

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Trade receivables

 

$

22,924

 

 

$

14,684

 

Sales tax receivable

 

 

834

 

 

 

358

 

Other receivables

 

 

602

 

 

 

370

 

Provision for sales returns

 

 

(69

)

 

 

(157

)

Expected credit losses

 

 

(1,194

)

 

 

(335

)

Total receivables, net

 

$

23,097

 

 

$

14,920

 

 

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

Sales tax receivable represents input tax credits arising from sales tax levied on the supply of goods purchased or services received in Canada. Other receivables at March 31, 2022 and December 31, 2021 mainly include amounts due from the sellers of the Apothecarium.

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Trade receivables

 

$

22,924

 

 

$

14,684

 

Less: provision for sales returns and expected credit losses

 

 

(1,263

)

 

 

(492

)

Total trade receivables, net

 

$

21,661

 

 

$

14,192

 

 

 

 

 

 

 

 

Of which

 

 

 

 

 

 

Current

 

 

15,192

 

 

 

13,282

 

31-90 days

 

 

1,111

 

 

 

569

 

Over 90 days

 

 

6,621

 

 

 

833

 

Less: provision for sales returns and expected credit losses

 

 

(1,263

)

 

 

(492

)

Total trade receivables, net

 

$

21,661

 

 

 

14,192

 

 

The following is a roll-forward of the provision for sales returns and allowances related to trade accounts receivable:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Beginning of period

 

$

492

 

 

 

1,782

 

Provision for sales returns

 

 

 

 

 

1,125

 

Expected credit losses

 

 

859

 

 

 

357

 

Write-offs charged against provision

 

 

(88

)

 

 

(2,772

)

Total provision for sales returns and allowances

 

$

1,263

 

 

 

492

 

 

4.
Acquisitions

 

Gage

On March 10, 2022, in order to expand its footprint in key markets, the Company acquired all of the issued and outstanding subordinate voting shares (or equivalent) of Gage, a cultivator and processor with operations in the Michigan market. Pursuant to the terms of the arrangement agreement, for each Gage subordinate voting share and other equity instruments, including outstanding stock options and warrants, each holder received a 0.3001 equivalent replacement award of the Company's respective security at the time of closing based on the closing price of the Common Shares on the Canadian Stock Exchange ("CSE") on March 10, 2022. On the acquisition date there was consideration in the form of 51,349,978 Common Shares valued at $207,871, 13,504,500 exchangeable units valued at $66,591, 5,221,542 replacement stock options with a fair value of $13,147, and 282,023 replacement warrants with a fair value of $435. Each of the directors, officers and 10% shareholders of Gage entered into voting support and lock-up agreements in which the shares issued to these individuals are subject to various vesting periods. As such, a restriction discount of $45,336 has been placed over the shares subject to lock-up. The fair value of the replacement options and warrants was calculated using the Black Scholes Option Pricing Model combined with the percentage of the vesting period that was completed prior to the acquisition. Additionally, total consideration included warrant liabilities convertible into equity with a fair value of $6,756.

 

The following table presents the fair value of assets acquired and liabilities assumed as of March 10, 2022 acquisition date and allocation of the consideration to net assets acquired:

 

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

 

 

$

 

Cash and cash equivalents

 

 

24,716

 

Accounts receivable

 

 

6,620

 

Inventory

 

 

26,475

 

Prepaid expenses and other current assets

 

 

1,855

 

Property and equipment

 

 

69,465

 

Operating right of use asset

 

 

1,709

 

Deposits

 

 

1,147

 

Intangible assets

 

 

187,953

 

Goodwill

 

 

145,355

 

Investments

 

 

4,121

 

Accounts payable and accrued liabilities

 

 

(28,619

)

Corporate income taxes payable

 

 

(5,000

)

Lease liability

 

 

(1,960

)

Deferred revenue

 

 

(562

)

Loans payable

 

 

(60,105

)

Deferred tax liability

 

 

(59,612

)

Financing obligations

 

 

(12,184

)

Other liabilities

 

 

(6,574

)

Net assets acquired

 

 

294,800

 

 

 

 

 

Common shares of TerrAscend

 

 

274,462

 

Fair value of other equity instruments

 

 

13,582

 

Fair value of warrants classified as liabilities

 

 

6,756

 

Total consideration

 

 

294,800

 

 

The acquired intangible assets include cultivation and processing licenses, as well as retail licenses, which are treated as definite-lived intangible assets which are amortized over a 15 year period. The fair value of the cultivation and processing and the retail licenses are $77,198 and $53,321, respectively. In addition, the intangible assets include brand intangibles which are treated as indefinite lived intangible assets. The fair value of the brand intangibles is $57,435.

The consideration paid reflected the synergies, economies of scale, and workforce. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill recognized is expected to be deductible for income tax purposes.

The accounting for this acquisition has been provisionally determined at March 31, 2022. The fair value of net assets acquired, specifically with respect to inventory, intangible assets, deferred revenue, property and equipment, operating right of use assets, lease liabilities, investments, corporate income taxes payable, deferred tax liability, and goodwill have been determined provisionally and are subject to adjustment. Upon completion of a comprehensive valuation and finalization of the purchase price allocation, the amounts above may be adjusted retrospectively to the acquisition date in future reporting periods.

Costs related to this transaction were $3,353, including legal, accounting, due diligence, and other transaction-related expenses. Of the total amount of transaction costs, $713 was recorded during the three months ended March 31, 2022, and was included in transaction and restructuring costs in the consolidated statement of operations and comprehensive income.

On a standalone basis, had the Company acquired the business on January 1, 2022, sales estimates would have been $23,950 for the three months ended March 31, 2022 and net loss estimates would have been $17,116. Actual sales and net loss for the three months ended March 31, 2022 since the date of acquisition are $11,434 and $7,905, respectively.

Contingent consideration

Contingent consideration recorded relates to the Company’s business acquisitions. Contingent consideration is based upon the potential earnout of the underlying business unit and is measured at fair value using a projection model for the business and the formulaic structure for determining the consideration under the terms of the agreement.

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

The balance of contingent consideration is as follows:

 

 

 

State Flower

 

 

Apothecarium

 

 

KCR

 

 

Total

 

Carrying amount, December 31, 2021

 

$

8,360

 

 

$

3,028

 

 

$

1,147

 

 

$

12,535

 

Payments of contingent consideration

 

 

(6,954

)

 

 

 

 

 

 

 

 

(6,954

)

Revaluation of contingent consideration

 

 

86

 

 

 

 

 

 

33

 

 

 

119

 

Carrying amount, March 31, 2022

 

$

1,492

 

 

$

3,028

 

 

$

1,180

 

 

$

5,700

 

Less: current portion

 

 

(86

)

 

 

(3,028

)

 

 

 

 

 

(3,114

)

Non-current contingent consideration

 

$

1,406

 

 

$

-

 

 

$

1,180

 

 

$

2,586

 

On January 27, 2022, the Company made a payment of $6,954 to the sellers of its previously acquired State Flower business. The remaining amount will be paid to the sellers of State Flower upon the Company's acquisition of the remaining 50.1% of State Flower, which is subject to regulatory approval.

Refer to Note 20 for discussion of valuation methods used when determining the fair value of the contingent consideration liability at March 31, 2022, and the changes in fair value during the three months ended March 31, 2022.

5.
Inventory

The Company’s inventory of dry cannabis and oil includes both purchased and internally produced inventory. The Company’s inventory is comprised of the following items:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Raw materials

 

$

4,340

 

 

$

3,185

 

Finished goods

 

 

17,720

 

 

 

8,721

 

Work in process

 

 

38,725

 

 

 

26,852

 

Accessories, supplies and consumables

 

 

3,273

 

 

 

3,565

 

 

 

$

64,058

 

 

$

42,323

 

 

On February 4, 2022, more than 500 vape products were recalled by the Pennsylvania's Department of Health, including several of the Company's SKUs. As a result of the recall, the Company wrote off $854 of inventory.

 

In addition, management wrote down its inventory by $219 and $584 for the three months ended March 31, 2022 and 2021, respectively, related to inventory that it deemed unsaleable.

6.
Property and equipment

Property and equipment consisted of:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Land

 

$

4,135

 

 

$

4,183

 

Assets in process

 

 

29,463

 

 

 

6,858

 

Buildings & improvements

 

 

158,251

 

 

 

118,014

 

Machinery & equipment

 

 

29,025

 

 

 

23,424

 

Office furniture & equipment

 

 

8,179

 

 

 

3,232

 

Assets under finance leases

 

 

418

 

 

 

239

 

Total cost

 

 

229,471

 

 

 

155,950

 

Less: accumulated depreciation

 

 

(17,754

)

 

 

(15,188

)

Property and equipment, net

 

$

211,717

 

 

$

140,762

 

 

Assets in process represent construction in progress related to both cultivation and dispensary facilities not yet completed, or otherwise not placed in service.

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

 

During the three months ended March 31, 2022 and the twelve months ended December 31, 2021, borrowing costs were not capitalized because the assets in process did not meet the criteria of a qualifying asset.

 

Depreciation expense was $2,486 for the three months ended March 31, 2022 ($1,736 included in cost of sales) and $1,966 for the three months ended March 31, 2021 ($1,098 included in cost of sales).

7.
Intangible assets and goodwill

 

Intangible assets consisted of the following:

 

At March 31, 2022

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

Finite lived intangible assets

 

 

 

 

 

 

 

 

 

 Software

 

$

2,758

 

 

$

(1,624

)

 

$

1,134

 

 Licenses

 

 

283,819

 

 

 

(13,735

)

 

 

270,084

 

 Brand intangibles

 

 

1,144

 

 

 

(350

)

 

 

794

 

 Non-compete agreements

 

 

280

 

 

 

(48

)

 

 

232

 

Total finite lived intangible assets

 

 

288,001

 

 

 

(15,757

)

 

 

272,244

 

Indefinite lived intangible assets

 

 

 

 

 

 

 

 

 

 Brand intangibles

 

 

82,208

 

 

 

-

 

 

 

82,208

 

Total indefinite lived intangible assets

 

 

82,208

 

 

 

-

 

 

 

82,208

 

Intangible assets, net

 

$

370,209

 

 

$

(15,757

)

 

$

354,452

 

 

At December 31, 2021

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

Finite lived intangible assets

 

 

 

 

 

 

 

 

 

 Software

 

$

2,626

 

 

$

(1,353

)

 

$

1,273

 

 Licenses

 

 

153,300

 

 

 

(11,311

)

 

 

141,989

 

 Brand intangibles

 

 

1,144

 

 

 

(254

)

 

 

890

 

 Non-compete agreements

 

 

280

 

 

 

(221

)

 

 

59

 

Total finite lived intangible assets

 

 

157,350

 

 

 

(13,139

)

 

 

144,211

 

Indefinite lived intangible assets

 

 

 

 

 

 

 

 

 

 Brand intangibles

 

 

24,773

 

 

 

-

 

 

 

24,773

 

Total indefinite lived intangible assets

 

 

24,773

 

 

 

-

 

 

 

24,773

 

Intangible assets, net

 

$

182,123

 

 

$

(13,139

)

 

$

168,984

 

 

Amortization expense was $2,599 for the three months ended March 31, 2022 ($731 included in cost of sales) and $1,492 for the three months ended March 31, 2021 ($487 included in cost of sales).

 

Estimated future amortization expense for finite lived intangible assets for the next five years is as follows:

 

2022

 

$

13,972

 

2023

 

$

15,586

 

2024

 

$

15,149

 

2025

 

$

14,718

 

2026

 

$

14,684

 

 

The following table summarizes the activity in the Company’s goodwill balance:

 

Balance at December 31, 2021

 

$

90,326

 

Acquisitions (see Note 4)

 

 

145,355

 

Balance at March 31, 2022

 

$

235,681

 

 

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

 

8.
Loans payable

 

 

 

Canopy Growth (formerly RIV Capital) Loan

 

 

Canopy Growth- Canada Inc Loan

 

 

Other Loans

 

 

Canopy Growth- Arise Loan

 

 

Ilera Term Loan

 

 

KCR Loan

 

 

Gage loans

 

 

Total

 

Balance at December 31, 2021

 

$

8,680

 

 

$

42,165

 

 

$

7,915

 

 

$

8,900

 

 

$

115,233

 

 

$

2,250

 

 

$

-

 

 

$

185,143

 

Addition on acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60,105

 

 

 

60,105

 

Interest accretion

 

 

328

 

 

 

1,362

 

 

 

235

 

 

 

343

 

 

 

4,210

 

 

 

56

 

 

 

568

 

 

 

7,102

 

Principal and interest paid

 

 

(624

)

 

 

(3,837

)

 

 

 

 

 

 

 

 

(3,810

)

 

 

 

 

 

 

 

 

(8,271

)

Effects of movements in foreign exchange

 

 

119

 

 

 

540

 

 

 

(72

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

587

 

Ending carrying amount at March 31, 2022

 

$

8,503

 

 

$

40,230

 

 

$

8,078

 

 

$

9,243

 

 

$

115,633

 

 

$

2,306

 

 

$

60,673

 

 

$

244,666

 

Less: current portion

 

 

(160

)

 

 

(227

)

 

 

(2,847

)

 

 

-

 

 

 

(42

)

 

 

(2,306

)

 

 

(54,526

)

 

 

(60,108

)

Non-current loans payable

 

$

8,343

 

 

$

40,003

 

 

$

5,231

 

 

$

9,243

 

 

$

115,591

 

 

$

-

 

 

$

6,147

 

 

$

184,558

 

 

Total interest paid on all loan payables was $8,271 and $9,140 for the three months ended March 31, 2022 and 2021, respectively.

 

Gage loan

The Gage Acquisition (refer to Note 4) included a senior secured term loan with an acquisition date fair value of $53.4 million. The Credit Agreement bears interest at a rate equal to the greater of the Prime Rate plus 7% or 10.25%. The term loan is payable monthly and matures on November 30, 2022. The term loan is secured by a first lien on all Gage assets.

 

Additionally, the Gage Acquisition included a loan payable to a former owner of a licensed entity with an acquisition date fair value of $2.7 million, and a Promissory Note with an acquisition date fair value of $4.0 million. The loan payable to the former owner bears interest at a rate of 0.2%. The Promissory Note bears interest at a fixed rate of 6%.

 

Maturities of loans payable

 

Stated maturities of loans payable over the next five years are as follows:

 

 

 

March 31, 2022

 

2022

 

$

59,490

 

2023

 

 

5,802

 

2024

 

 

130,598

 

2025

 

 

 

2026

 

 

 

Thereafter

 

 

84,442

 

Total principal payments

 

$

280,332

 

 

9.
Leases

The majority of the Company’s leases are operating leases used primarily for corporate offices, retail, cultivation and manufacturing. The operating lease periods generally range from 1 to 28 years. The Company had two finance leases at March 31, 2022 and December 31, 2021, respectively.

Amounts recognized in the consolidated balance sheet were as follows:

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

 

 

March 31, 2022

 

 

December 31, 2021

 

Operating leases:

 

 

 

 

 

 

Operating lease right-of-use assets

 

$

30,801

 

 

$

29,561

 

 

 

 

 

 

 

 

Operating lease liability classified as current

 

 

1,657

 

 

 

1,171

 

Operating lease liability classified as non-current

 

 

32,117

 

 

 

30,573

 

Total operating lease liabilities

 

$

33,774

 

 

$

31,744

 

 

 

 

 

 

 

 

Finance leases:

 

 

 

 

 

 

Property and equipment, net

 

$

418

 

 

$

168

 

 

 

 

 

 

 

 

Lease obligations under finance leases classified as current

 

 

31

 

 

 

22

 

Lease obligations under finance leases classified as non-current

 

 

333

 

 

 

181

 

Total finance lease obligations

 

$

364

 

 

$

203

 

 

The Company recognized operating lease expense of $1,182 and $878 for the three months ended March 31, 2022 and 2021.

 

During the three months ended March 31, 2022, the Company recognized operating right-of-use assets and operating lease liabilities of $1,689 and $1,819 as a result of its acquisitions (refer to Note 4).

 

On January 27, 2022, the Company made a payment of $3,300 related to the Lease Termination at its Hagerstown location which enables the Company to terminate its building lease at a later date. The lease termination fee was expensed during the year ended December 31, 2021.

 

Other information related to operating leases at March 31, 2022 and December 31, 2021 consisted of the following:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Weighted-average remaining lease term (years)

 

 

 

 

 

 

Operating leases

 

 

13.4

 

 

 

14.2

 

Finance leases

 

 

5.3

 

 

 

5.5

 

 

 

 

 

 

 

 

Weighted-average discount rate

 

 

 

 

 

 

Operating leases

 

 

10.71

%

 

 

10.72

%

 

Supplemental cash flow information related to leases were as follows:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Cash paid for amounts included in measurement of operating lease liabilities

 

$

1,182

 

 

$

3,987

 

Right-of-use assets obtained in exchange for lease obligations

 

$

2,190

 

 

$

9,773

 

Cash paid for amounts included in measurement of finance lease liabilities

 

$

17

 

 

$

40

 

 

Undiscounted lease obligations are as follows:

 

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

 

 

Operating

 

 

Finance

 

 

Total

 

2022

 

$

3,691

 

 

$

126

 

 

$

3,817

 

2023

 

 

4,973

 

 

 

127

 

 

 

5,100

 

2024

 

 

4,965

 

 

 

44

 

 

 

5,009

 

2025

 

 

4,952

 

 

 

45

 

 

 

4,997

 

2026

 

 

4,673

 

 

 

46

 

 

 

4,719

 

Thereafter

 

 

44,092

 

 

 

53

 

 

 

44,145

 

Total lease payments

 

 

67,346

 

 

 

441

 

 

 

67,787

 

Less: interest

 

 

(33,572

)

 

 

(77

)

 

 

(33,649

)

Total lease liabilities

 

$

33,774

 

 

$

364

 

 

$

34,138

 

 

Under the terms of these operating sublease agreements, future rental income from such third-party leases is expected to be as follows:

 

 

 

 

 

2022

 

$

410

 

2023

 

 

555

 

2024

 

 

563

 

2025

 

 

581

 

2026

 

 

399

 

Thereafter

 

 

297

 

Total rental payments

 

$

2,805

 

 

A sale-leaseback transaction occurs when an entity sells an asset it owns and then immediately leases the asset back from the buyer. The seller then becomes the lessee and the buyer becomes the lessor. Under ASC 842, both parties must assess whether the buyer-lessor has obtained control of the asset and a sale has occurred. The Company's subsidiary Gage entered into leaseback transactions on five properties of owned real estate. The Company has determined that these transactions do not qualify as a sale because control was not transferred to the buyer-lessor. Therefore, the Company has classified the lease portion of the transaction as a finance lease and continues to depreciate the asset. The Gage acquisition (refer to Note 4) included financing obligations in which the fair value of $12,184. Of this amount, $580 is included in other current liabilities and $11,604 is included in financing obligations in the consolidated balance sheets.

 

 

10.
Shareholders’ equity

 

Warrants

The following is a summary of the outstanding warrants for Common Shares:

 

 

Number of Common Share Warrants Outstanding

 

 

Number of Common Share Warrants Exercisable

 

 

Weighted Average Exercise Price $

 

 

Weighted Average Remaining Life (years)

 

Outstanding, December 31, 2021

 

 

30,995,473

 

 

 

8,855,066

 

 

$

4.20

 

 

 

5.66

 

Exercised

 

 

(7,989,436

)

 

 

 

 

 

 

 

 

 

Replacement warrants granted on acquisition of Gage

 

 

282,023

 

 

 

 

 

 

 

 

 

 

Outstanding, March 31, 2022

 

 

23,288,060

 

 

 

1,110,168

 

 

$

4.75

 

 

 

7.31

 

 

Pursuant to the terms of the Gage Acquisition, each holder of a Gage warrant received a 0.3001 equivalent replacement warrant. Each warrant is exercisable into common share purchase warrants. The warrants range in exercise price from $3.83 to $7.00 and expire at various dates from October 6, 2022 to July 2, 2025. Refer to Note 4 for the determination of fair value of warrants acquired.

 

The following is a summary of the outstanding warrants for Proportionate Voting Shares at March 31, 2022. These warrants are exercisable for 0.001 of a Proportionate Voting Share. The Proportionate Voting Shares are exchangeable into Common Shares on a basis of 1,000 Common Shares per Proportionate Voting Share.

 

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

 

 

Number of Proportionate Share Warrants Outstanding

 

 

Number of Proportionate Share Warrants Exercisable

 

 

Weighted Average Exercise Price $

 

 

Weighted Average Remaining Life (years)

 

Outstanding, December 31, 2021

 

 

8,590,908

 

 

 

8,590,908

 

 

$

5.69

 

 

 

0.64

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, March 31, 2022

 

 

8,590,908

 

 

 

8,590,908

 

 

$

5.77

 

 

 

0.40

 

 

 

 

 

The following is a summary of the outstanding Preferred Share warrants at March 31, 2022. Each warrant is exercisable into one preferred share:

 

 

 

Number of Preferred Share Warrants Outstanding

 

 

Number of Preferred Share Warrants Exercisable

 

 

Weighted Average Exercise Price $

 

 

Weighted Average Remaining Life (years)

 

Outstanding, December 31, 2021

 

 

16,056

 

 

 

16,056

 

 

$

3,000

 

 

 

1.39

 

Exercised

 

 

(250

)

 

 

 

 

 

 

 

 

 

Outstanding, March 31, 2022

 

 

15,806

 

 

 

15,806

 

 

$

3,000

 

 

 

1.15

 

 

11.
Share-based compensation plans

Share-based payments expense

 

Total share-based payments expense was as follows:

 

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Stock options

 

$

2,590

 

 

$

3,450

 

Restricted share units

 

 

766

 

 

 

117

 

Total share-based payments

 

$

3,356

 

 

$

3,567

 

The Board of Director's fees are expected to be settled in restricted share units during the year ended December 31, 2022.

Stock Options

 

The following table summarizes the stock option activity for the three months ended March 31, 2022:

 

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

 

 

Number of Stock Options

 

 

Weighted average remaining contractual life (in years)

 

 

Weighted Average Exercise Price (per share) $

 

 

Aggregate intrinsic value

 

 

Weighted average fair value of nonvested options (per share) $

 

Outstanding, December 31, 2021

 

 

12,854,519

 

 

 

4.84

 

 

$

4.85

 

 

$

27,557

 

 

$

4.22

 

Granted

 

 

470,021

 

 

 

 

 

 

5.55

 

 

 

 

 

 

 

Replacement options granted on acquisition of Gage

 

 

4,940,364

 

 

 

 

 

 

2.99

 

 

 

 

 

 

 

Exercised

 

 

(68,215

)

 

 

 

 

 

4.68

 

 

 

 

 

 

 

Forfeited (1)

 

 

(206,218

)

 

 

 

 

 

7.11

 

 

 

 

 

 

 

Expired

 

 

(141,733

)

 

 

 

 

 

8.70

 

 

 

 

 

 

 

Outstanding, March 31, 2022

 

 

17,848,738

 

 

 

4.16

 

 

$

4.37

 

 

 

36,952

 

 

 

4.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, March 31, 2022

 

 

11,928,817

 

 

 

3.21

 

 

$

3.22

 

 

 

32,642

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested, March 31, 2022

 

 

5,919,921

 

 

 

6.09

 

 

$

6.68

 

 

 

4,309

 

 

N/A

 

 

(1)
For stock options forfeited, represents one share for each stock option forfeited.

 

The Gage acquisition included consideration in the form of 4,940,364 replacement options that had been issued before the acquisition date to employees of Gage. The post-combination options vest over a 1-3 year period. The fair value of the replacement options were estimated using the Black-Scholes option pricing model with the following assumptions:

 

 

 

March 10, 2022

 

Volatility

 

55.0%-80.0%

 

Risk-free interest rate

 

1.22%-1.94%

 

Expected life (years)

 

2.00-5.00

 

Dividend yield

 

 

0

%

 

The fair value of the various stock options granted were estimated using the Black-Scholes option pricing model with the following assumptions:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Volatility

 

 

77.92

%

 

79.05% - 81.51%

 

Risk-free interest rate

 

 

2.30

%

 

0.90% - 1.72%

 

Expected life (years)

 

9.62-9.96

 

 

4.57 - 10.05

 

Dividend yield

 

 

0

%

 

 

0

%

Forfeiture rate

 

 

23.73

%

 

23.21% - 27.73%

 

 

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Company’s closing stock price on March 31, 2022 and December 31, 2021, respectively, and the exercise price, multiplied by the number of the in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options on March 31, 2022 and December 31, 2021, respectively.

 

The total pre-tax intrinsic value (the difference between the market price of the Company’s Common Stock on the exercise date and the price paid by the option holder to the exercise the option) related to stock options exercised during the three months ended March 31, 2022 and 2021, was $61 and $3,077 respectively. The total estimated fair value of stock options that vested during the three months ended March 31, 2022 and 2021 was $2,511 and $2,994, respectively.

 

Volatility was estimated by using the historical volatility of the Company's stock price. The expected life in years represents the period of time that the options issued are expected to be outstanding. The risk-free rate is based on US treasury bond issues with a remaining

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

term approximately equal to the expected life of the options. Dividend yield is zero since the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future.

 

As of March 31, 2022, there was $21,796 of total unrecognized compensation cost related to unvested options.

Restricted Share Units

 

The following table summarizes the activities for the unvested RSUs for the three months ended March 31, 2022:

 

 

 

Number of RSUs

 

 

Number of RSUs vested

 

 

Weighted average remaining contractual life (in years)

Outstanding, December 31, 2021

 

 

192,171

 

 

 

13,294

 

 

N/A

Vested

 

 

(42,526

)

 

 

 

 

 

Outstanding, March 31, 2022

 

 

149,645

 

 

 

13,050

 

 

N/A

 

As of March 31, 2022, there was $1,462 of total unrecognized compensation cost related to unvested RSUs.

12.
Non-controlling interest

Non-controlling interest consists mainly of the Company’s ownership minority interest in its New Jersey operations and IHC Real Estate operations and consists of the following amounts:

 

 

March 31, 2022

 

 

December 31, 2021

 

Opening carrying amount

 

$

5,367

 

 

$

3,802

 

Capital distributions

 

 

(227

)

 

 

(53

)

Investment in NJ partnership

 

 

 

 

 

(1,406

)

Net income attributable to non-controlling interest

 

 

351

 

 

 

3,024

 

Ending carrying amount

 

$

5,491

 

 

$

5,367

 

 

13.
Related parties

Parties are related if one party has the ability to control or exercise significant influence over the other party in making financing and operating decisions. At March 31, 2022 amounts due to/from related parties consisted of:

Loans payable: During the year ended December 31, 2020, a small number of related persons, which consisted of key management of the Company, participated in the Ilera term loan (Note 8), which makes up $3,550 of the total loan principal balance at March 31, 2022 and December 31, 2021, respectively.
Shareholders’ Equity: During the three months ended March 31, 2022, the Company had the following transactions related to shareholders’ equity:
Pursuant to the Gage Acquisition, Jason Wild and his respective affiliates received 10,467,229 of the Company's Common Shares in exchange for their Gage subordinate voting shares that were owned, held, controlled or directed, directly or indirectly, by Mr. Wild and his respective affiliates and 7,129,517 of the Company's warrants in exchange for their Gage warrants that were owned, held, controlled or directed, directly or indirectly, by Mr. Wild and his respective affiliates. The value of the interests of funds controlled directly or indirectly by Mr. Wild in the transaction in respect of the common shares was $52,335, in addition to the Company warrants issued in replacement of Gage warrants, at the implied consideration of $1.50 per Gage warrant. Richard Mavrinac, a director of the Company, received 40,213 Common Shares in exchange for his Gage subordinate voting shares that were owned, held, controlled or directed, directly or indirectly, by Mr. Mavrinac and also received 6,683 Common Shares in exchange for his Gage restricted stock units that were owned, held, controlled or directed, directly or indirectly by Mr. Mavrinac. The value of Mr. Mavrinac's interest in the transaction was $234.

 

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

14.
Income taxes

The effective tax rate was -31% and -202% for the three months ended March 31, 2022 and 2021, respectively.

15.
General and administrative expenses

The Company’s general and administrative expenses were as follows:

 

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Office and general

 

$

3,566

 

 

$

3,855

 

Professional fees

 

 

2,928

 

 

 

2,679

 

Lease expense

 

 

1,250

 

 

 

1,000

 

Facility and maintenance

 

 

637

 

 

 

718

 

Salaries and wages

 

 

9,288

 

 

 

7,651

 

Share-based compensation

 

 

3,356

 

 

 

3,567

 

Sales and marketing

 

 

1,527

 

 

 

922

 

Total

 

$

22,552

 

 

$

20,392

 

 

16.
Revenue, net

The Company’s disaggregated net revenue by source, primarily due to the Company’s contracts with its external customers were as follows:

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Wholesale

 

$

23,941

 

 

$

38,384

 

Retail

 

 

25,718

 

 

 

14,970

 

Total

 

$

49,659

 

 

$

53,354

 


For the three months ended March 31, 2022 and 2021
, the Company did not have any single customer that accounted for 10% or more of the Company’s revenue.

 

As a result of the vape recall in Pennsylvania (refer to note 5), the Company recorded sales returns of $1,040 during the three months ended March 31, 2022.

 

17.
Finance and other expenses

The Company’s finance and other expenses included the following:

 

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Interest accretion

 

$

7,102

 

 

$

6,282

 

Forgiveness of principal and interest on loans

 

 

 

 

 

(766

)

Other (expense) income

 

 

(246

)

 

 

874

 

Total

 

$

6,856

 

 

$

6,390

 

 

18.
Segment information

Operating Segment

The Company determines its operating segments according to how the business activities are managed and evaluated by the Company’s chief operating decision maker. The Company operates under one operating segment, being the cultivation, production and sale of cannabis products.

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

Geography

The Company operates with subsidiaries located in Canada and the US.

The Company had the following net revenue by geography of:

 

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

United States

 

$

48,593

 

 

$

49,684

 

Canada

 

 

1,066

 

 

 

3,670

 

Total

 

$

49,659

 

 

$

53,354

 

 

The Company had non-current assets by geography of:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

United States

 

$

819,696

 

 

$

409,150

 

Canada

 

 

29,570

 

 

 

29,563

 

Total

 

$

849,266

 

 

$

438,713

 

 

 

19.
Capital management

The Company’s objective in managing capital is to ensure a sufficient liquidity position to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. In order to achieve this objective, the Company prepares a capital budget to manage its capital structure. The Company defines capital as borrowings, equity comprised of issued share capital, share-based payments, accumulated deficit, as well as funds borrowed from related parties.

Since inception, the Company has primarily financed its liquidity needs through the issuance of share capital through borrowings. The equity issuances are outlined in Note 11 and debt issuances are outlined in Note 8.

The Company is subject to financial covenants as a result of its loans payable with various lenders. The Company is in compliance with its debt covenants as of March 31, 2022. Other than these items related to loans payable as of March 31, 2022 and December 31, 2021, the Company is not subject to externally imposed capital requirements.

Effective March 31, 2022, the Ilera term loan (refer to Note 8) was amended to provide the Company with greater flexibility, and the optional prepayment date was amended to 30 months (from 18 months) from the closing date, subject to a premium payment due.

20.
Financial instruments and risk management

Assets and liabilities measured at fair value

Cash and cash equivalents, net accounts receivable, accounts payable and accrued liabilities, loans payable, convertible debentures, and other current receivables and payables represent financial instruments for which the carrying amount approximates fair value due to their short-term maturities.

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

The following table represents the fair value amounts of financial assets and financial liabilities measured at estimated fair value on a recurring basis:

 

 

At March 31, 2022

 

At December 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

 

Level 3

 

 

Level 1

 

 

Level 2

 

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

88,407

 

 

$

-

 

 

 

$

-

 

 

$

79,642

 

 

$

-

 

 

 

$

-

 

Purchase option derivative asset

 

 

 

 

 

 

 

 

 

550

 

 

 

 

 

 

 

 

 

 

868

 

Total Assets

 

$

88,407

 

 

$

-

 

 

 

$

550

 

 

$

79,642

 

 

$

-

 

 

 

$

868

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration payable

 

 

 

 

$

-

 

 

 

$

5,700

 

 

$

-

 

 

$

-

 

 

 

$

12,535

 

Warrant liability

 

 

 

 

 

55,021

 

 

 

 

 

 

 

 

 

 

54,986

 

 

 

 

 

Total Liabilities

 

$

-

 

 

$

55,021

 

 

 

$

5,700

 

 

$

-

 

 

$

54,986

 

 

 

$

12,535

 

 

There were no transfers between the levels of fair value hierarchy during the three months ended March 31, 2022.

The valuation approaches and key inputs for each category of assets or liabilities that are classified within levels of the fair value hierarchy are presented below:

Level 1

Cash and cash equivalents, net accounts receivable, accounts payable and accrued liabilities, loans payable, convertible debentures, and other current receivables and payables represent financial instruments for which the carrying amount approximates fair value due to their short-term maturities.

Level 2

Warrant liability

The following table summarizes the changes in the warrant liability for the three months ended March 31, 2022:

 

Balance at December 31, 2021

 

$

54,986

 

Addition on acquisition

 

 

6,756

 

Included in gain on fair value of warrants

 

 

(6,031

)

Exercises

 

 

(690

)

Balance at March 31, 2022

 

$

55,021

 

 

The warrant liability has been measured at fair value at March 31, 2022. Key inputs and assumptions used in the Black Scholes valuation were as follows:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Common Stock Price of TerrAscend Corp.

 

$

5.70

 

 

$

6.11

 

Warrant exercise price

 

$

3,000

 

 

$

3,000

 

Warrant conversion ratio

 

$

1,000

 

 

$

1,000

 

Annual volatility

 

 

60.9

%

 

 

65.5

%

Annual risk-free rate

 

 

2.2

%

 

 

0.6

%

Expected term (in years)

 

 

1.2

 

 

1.4

 

 

Level 3

 

Purchase option derivative asset

 

The following table summarizes the changes in the purchase option derivative asset:

 

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

Balance at December 31, 2021

 

$

868

 

Revaluation of purchase option derivative asset

 

 

(318

)

Balance at March 31, 2022

 

$

550

 

 

The purchase option derivative asset has been measured at fair value at the transaction date using the Monte Carlo simulation model that relies on assumptions around the Company's EBITDA volatility and risk adjusted discount, among others. Key inputs and assumptions used in the Monte Carlo simulation model are summarized below:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Term (in years)

 

 

1.2

 

 

 

1.3

 

Risk-free rate

 

 

1.4

%

 

 

0.4

%

EBITDA discount rate

 

 

15.0

%

 

 

15.0

%

EBITDA volatility

 

 

43.0

%

 

 

44.0

%

 

Contingent Consideration Payable

The fair value of contingent consideration at March 31, 2022 and December 31, 2021 was determined using a probability weighted model based on the likelihood of achieving certain revenue and EBITDA scenario outcomes. A discount rate of 12.2% (March 31, 202112.8%) was utilized to determine the present value of the liabilities, resulting in a loss on revaluation of contingent consideration of $119 for the three months ended March 31, 2022 (March 31, 2021 - $2,997).

The illustrative variance of the total contingent consideration at March 31, 2022 based on reasonably possible changes to one of the significant unobservable inputs, holding other inputs constant, would have the following effects:

 

Discount rate sensitivity

 

KCR

 

Increase 100 basis points

 

$

1,139

 

Increase 50 basis points

 

$

1,160

 

Decrease 50 basis points

 

$

1,203

 

Decrease 100 basis points

 

$

1,225

 

 

21.
Commitments and contingencies

 

In the ordinary course of business, the Company is involved in a number of lawsuits incidental to its business, including litigation related to intellectual property, product liability, employment, and commercial matters. Although it is difficult to predict the ultimate outcome of these cases, management believes that any ultimate liability would not have a material adverse effect on the Company's consolidated balance sheets or results of operations. However, an unforeseen unfavorable development. At March 31, 2022, there were no pending lawsuits other than those disclosed that could reasonably be expected to have a material effect on the results of the Company’s consolidated financial statements.

 


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

22.
Subsequent events

 

i)
On April 8, 2022, the Company entered into a definitive agreement to acquire Allegany Medical Marijuana Dispensary ("AMMD"), a medical dispensary in Maryland from Moose Curve Holdings, LLC. Under the terms of the agreement, the Company will acquire 100% equity interest in AMMD for total consideration of $10,000 in cash, in addition to acquiring the real estate for $1,700. The transaction is subject to customary closing conditions and regulatory approvals. The Company intends to rebrand the 8,000 square foot dispensary as The Apothecarium.
ii)
On April 8, 2022, the Company opened a Cookies dispensary in Ann Arbor, Michigan. The cannabis provisioning center will be operated by Gage in exclusive partnership with Cookies.
iii)
On April 14, 2022, the Company entered into a definitive agreement to acquire KISA Enterprises MI, LLC and KISA Holdings, LLC ("Pinnacle"), a dispensary operator in Michigan, and related real estate, for total consideration of $28,500. The transaction includes six retail dispensary licenses, five of which are currently operational and located in the cities of Addison, Buchanan, Camden, Edmore, and Morenci. The Company intends to rebrand each of the dispensaries under either the Gage or Cookies retail brand.
iv)
On April 20, 2022, the Company announced that it received an amended cannabis business cultivation and manufacturing license from the New Jersey Cannabis Regulatory Commission ("NJCR"). The Company is now permitted to grow, produce, and sell adult-use cannabis products in New Jersey and commenced sales on April 21, 2022 at the Company's Apothecarium Maplewood and Apothecarium Phillipsburg locations.
v)
On May 1, 2022, the Company received a full and final release from the 261 Claim.
vi)
Effective May 11, 2022, the Company appointed Lynn Gefen as Chief Legal Officer and Corporate Secretary.

 


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission, or SEC, on March 17, 2022. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth under "Risk Factors" in our Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the "Cautionary Note Regarding Forward-Looking Statements" contained in our Quarterly Report on Form 10-Q and in the following discussion and analysis.

This Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations of TerrAscend is for the three months ended March 31, 2022 and 2021 and the accompanying notes for each respective period.

 

Business Overview

 

TerrAscend is a leading North American cannabis operator with vertically integrated operations in Pennsylvania, New Jersey, and California, licensed cultivation and processing operations in Michigan and Maryland, and licensed processing operations in Canada. TerrAscend operates a chain of Apothecarium dispensary retail locations, as well as scaled cultivation, processing, and manufacturing facilities on both the east and west coasts of the United States. TerrAscend’s cultivation and manufacturing practices yield consistent, high-quality cannabis, providing industry-leading product selection to both the medical and legal adult-use market. Notwithstanding various states in the US which have implemented medical marijuana laws, or which have otherwise legalized the use of cannabis, the use of cannabis remains illegal under US federal law for any purpose, by way of the CSA

TerrAscend operates under one operating segment being the cultivation, production and sale of cannabis products.

TerrAscend’s portfolio of operating businesses and brands include:

Gage Growth Corp. ("Gage"), a cultivator and processor in Michigan
Ilera Healthcare, a vertically integrated cannabis cultivator, processor and dispensary operator in Pennsylvania;
TerrAscend NJ LLC, a majority owned subsidiary that holds a permit to operate up to three alternative treatment centers in New Jersey with the ability to cultivate and process;
The Apothecarium, consisting of retail dispensaries in California, Pennsylvania and New Jersey;
Valhalla Confections, a provider of premium edible products;
State Flower, a California-based cannabis producer operating a licensed cultivation facility in San Francisco, California;
HMS Health, LLC and HMS Processing, LLC, a producer and seller of dried flower and oil products for the wholesale medical cannabis market in Maryland;
TerrAscend Canada Inc., a Licensed Producer (as such term is defined in the Cannabis Act) of cannabis, with its current principal business activities including processing and sale of cannabis flower and oil products in Canada;
Cookies Canada, the operator of a minority owned retail cannabis dispensary in Toronto, Canada; and
Arise Bioscience, a manufacturer and distributor of hemp-derived products, located in Boca Raton, Florida.

 

Results from Operations- Three months ended March 31, 2022 and March 31, 2021

 

The following tables represent the Company’s results from operations for the three months ended March 31, 2022 and 2021.

Revenue, net

 


 

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Revenue

 

$

50,445

 

 

$

56,496

 

Excise and cultivation taxes

 

 

(786

)

 

 

(3,142

)

Revenue, net

 

$

49,659

 

 

$

53,354

 

$ change

 

$

(3,695

)

 

 

 

% change

 

 

-7

%

 

 

 

The decrease in net revenue at March 31, 2022 as compared to March 31, 2021 was due to a decrease in wholesale revenue of $14,443 from $38,384 for the three months ended March 31, 2021 to $23,941 for the three months ended March 31, 2022. This reduction in wholesale revenue was mainly related to a reset of the Company's cultivation facility in Pennsylvania and a recall by the Pennsylvania Department of Health of certain vape products produced by the Company. On February 4, 2022, more than 500 vape products were recalled by the Pennsylvania's Department of Health, including several of the Company's SKUs. As a result of the recall, the Company recorded sales returns of $1,040 during the three months ended March 31, 2022. In addition, the Company continued its intentional accumulation of inventory in New Jersey, versus selling wholesale, in preparation for adult use sales.

This decrease is partially offset by an increase of $10,748 in retail sales from $14,970 for the three months ended March 31, 2021 to $25,718 for the three months ended March 31, 2022 which is primarily a result of the increase in retail dispensaries across Pennsylvania, California, and New Jersey, as well as the acquisition of Gage (the "Gage Acquisition") in Michigan in March 2022. Retail dispensaries increased from nine in the first quarter of 2021 to twenty-five during the first quarter of 2022.

Cost of Sales

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Cost of sales

 

$

33,446

 

 

$

17,828

 

Impairment and write downs of inventory

 

 

1,073

 

 

 

584

 

Total cost of sales

 

$

34,519

 

 

$

18,412

 

$ change

 

$

16,107

 

 

 

 

% change

 

 

87

%

 

 

 

Cost of sales as a % of revenue

 

 

70

%

 

 

35

%

 

The increase in cost of sales, as well as cost of sales as a percentage of revenue, for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 was driven mainly by lower volumes in Pennsylvania leading to under-absorption, primarily related to lower wholesale flower sales, as well as the aforementioned vape recall.

 

As a result of the recall, the Company wrote off $854 of inventory. In addition, management wrote down its inventory by $219 and $584 for the three months ended March 31, 2022 and 2021, respectively, related to inventory that it deemed unsaleable.

General and Administrative Expense (G&A)

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

General and administrative expense

 

$

22,552

 

 

$

20,392

 

$ change

 

$

2,160

 

 

 

 

% change

 

 

11

%

 

 

 

G&A excluding share-based compensation

 

$

19,196

 

 

$

16,825

 

G&A excluding share-based compensation as a % of revenue

 

 

39

%

 

 

32

%

 

The increase in G&A expenses was primarily a result of increased salaries and wages of $1,637 and sales and marketing expense of $605, which is primarily a result of the Gage Acquisition in March 2022.

Amortization and Depreciation Expense

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Amortization and depreciation

 

$

2,618

 

 

$

1,873

 

$ change

 

$

745

 

 

 

 

% change

 

 

40

%

 

 

 

 

 


 

The increase in amortization and depreciation expense for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 is primarily due to the Gage Acquisition during March 2022 as the Company recorded additional definite lived intangible assets of $130,519.

Revaluation of contingent consideration

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Revaluation of contingent consideration

 

$

119

 

 

$

2,997

 

$ change

 

$

(2,878

)

 

 

 

% change

 

 

-96

%

 

 

 

The decrease in the revaluation of contingent consideration for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 is a result of a reduction in the liability as compared to March 31, 2021 due to payments for the earnout of Ilera of $29,668, and State Flower of $6,954 made subsequent to March 31, 2021, reducing the amount outstanding. This decrease is partially offset by the accretion of the contingent consideration payable for KCR, which are recorded at the present value of future payments upon initial recognition.

(Gain) loss on fair value of warrants and purchase option derivative asset

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

(Gain) loss on fair value of warrants and purchase option derivative asset

 

$

(5,713

)

 

$

5,410

 

$ change

 

$

(11,123

)

 

 

 

% change

 

 

-206

%

 

 

 

The Preferred Share warrant liability has been remeasured to fair value at March 31, 2022 using the Black Scholes model. The Company recognized a gain during the three months ended March 31, 2022 as a result of the reduction of the Company's share price from December 31, 2021 as compared to March 31, 2022, as well as from warrants exercised during the three months ended March 31, 2022. The combined impact resulted in a gain on fair value of warrants of $7,208. Additionally, the Company remeasured the warrant liability acquired through the Gage Acquisition at March 31, 2022 using the Black Scholes model. The Company recognized a loss of $3,864 during the three months ended March 31, 2022 as a result of the increase in the Company's stock price at the acquisition date of March 10, 2022, as compared to March 31, 2022.

During the three months ended March 31, 2021, the Company recognized a loss on fair value of warrants of $5,410 as a result of the increase in the Company's share price from December 31, 2020 to March 31, 2021.

For the three months ended March 31, 2022, the purchase option derivative asset related to the option to purchase an additional 6.25% ownership of the Company's New Jersey partnership, was remeasured using the Monte Carlo simulation model and resulted in a loss of $318.

Finance and other expenses

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Finance and other expenses

 

$

6,856

 

 

$

6,390

 

$ change

 

$

466

 

 

 

 

% change

 

 

7

%

 

 

 

The increase in finance expense in the current period is primarily due to interest expense recognized on the loans acquired as part of the Gage Acquisition during March 2022.

Transaction and restructuring costs

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Transaction and restructuring costs

 

$

615

 

 

$

-

 

$ change

 

$

615

 

 

 

 

% change

 

 

100

%

 

 

 

The increase in transaction and restructuring costs for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 was primarily due to the Gage Acquisition.

 


 

Unrealized and realized foreign exchange loss

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Unrealized and realized foreign exchange loss

 

$

356

 

 

$

2,783

 

$ change

 

$

(2,427

)

 

 

 

% change

 

 

-87

%

 

 

 

The decrease in unrealized foreign exchange loss is a result of the remeasurement of USD denominated cash and other assets recorded in C$ functional currency at the Company’s Canadian operations.

Provision for income taxes

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Provision for income taxes

 

$

3,743

 

 

$

9,436

 

$ change

 

$

(5,693

)

 

 

 

% change

 

 

-60

%

 

 

 

 

The decrease in provision for income taxes was due to the decline in revenue and associated decline in gross profit, mainly related to the reset of the Pennsylvania facility and the vape recall by the Pennsylvania Department of Health.

 

Liquidity and Capital Resources

 

 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

$

 

 

$

 

Cash and cash equivalents

 

 

88,407

 

 

 

79,642

 

Current assets

 

 

187,135

 

 

 

143,221

 

Non-current assets

 

 

849,266

 

 

 

438,713

 

Current liabilities

 

 

148,266

 

 

 

70,362

 

Non-current liabilities

 

 

362,896

 

 

 

282,618

 

Working capital

 

 

38,869

 

 

 

72,859

 

Total shareholders' equity

 

 

525,239

 

 

 

228,954

 

The calculation of working capital provides additional information and is not defined under GAAP. The Company defines working capital as current assets less current liabilities. This measure should not be considered in isolation or as a substitute for any standardized measure under GAAP.

At March 31, 2022, TerrAscend had cash and cash equivalents of $88,407, which is sufficient to fund the Company’s ongoing operations. Any additional future requirements will be funded through the following sources of capital:

Cash from ongoing operations

 

Market offerings

 

Debt - the Company may seek to obtain additional debt from additional creditors.

 

Sale leaseback - the Company may seek to sell and lease back its capital properties.

 

Exercise of options and warrants - the Company would receive funds from exercise of options and warrants from the holders of such securities in the event they are exercised.

 

For additional information regarding regulatory and legal risks, please see Item 1A – “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, which was filed on March 17, 2022.

The Company’s objective with respect to its capital management is to ensure it has sufficient cash resources to maintain its ongoing operations and finance its research and development activities, corporate and administration expenses, working capital and overall capital expenditures. Since inception, the Company has primarily financed its liquidity needs through the issuance of shares and utilization of borrowings.

 


 

The Company has $280,332 in principal amounts of loans payable at March 31, 2022. Of this amount, $59,490 are due within the next twelve months. The Company has entered into operating leases for certain premises and offices for which it owes monthly lease payments.

In addition, the Company's undiscounted contingent consideration payable is $10,820 at March 31, 2022. The contingent consideration payable relates to the Company's business acquisitions of The Apothecarium, State Flower, and KCR. Contingent consideration is based upon the potential earnout of the underlying business unit and is measured at fair value using a projection model for the business and the formulaic structure for determining the consideration under the agreement. The contingent consideration is revalued at the end of each reporting period.

The Company expects that its cash on hand and cash flows from operations, along with financing transactions, will be adequate to meet its capital requirements and operational needs for at least the next 12 months.

Cash Flows

Cash flows from operating activities

 

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Net cash (used in) provided by operating activities

 

$

(18,847

)

 

$

6,212

 

The increase in cash used in operating activities for the three months ended March 31, 2022 is primarily due to an increase in loss from operations to $10,030 from a profit of $12,677 in the prior year period, as well as a $5,276 increase in changes in working capital items.

Cash flows from investing activities

 

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Net cash provided by (used in) investing activities

 

$

13,913

 

 

$

(12,885

)

The net cash provided by investing activities for the three months ended March 31, 2022 primarily relates to the cash acquired through the Gage Acquisition of $24,716. The cash provided by investing activities is offset by investments in property and equipment of $4,193 primarily related to the buildout of a cultivation site in Maryland, continuing renovations at the Company's Pennsylvania cultivation site, as well as the continued buildout of the Company's Lodi alternative treatment center in New Jersey.

In comparison, the cash outflow from investing activities during the three months ended March 31, 2021 was primarily related to investments in property and equipment of $8,311 related to the buildout of the New Jersey operations and expansions in Pennsylvania cultivation and deposits of $4,826 paid for expansion of the cultivation premises in Pennsylvania.

Cash flows from financing activities

 

 

For the Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Net cash provided by financing activities

 

$

17,068

 

 

$

183,252

 

During the three months ended March 31, 2022, 7,989,436 Common Share warrants were exercised for total proceeds of $23,330 and 68,215 stock options were exercised at $1.93-$5.21 (C$2.42-$6.53) per unit for total gross proceeds of $192. The cash provided by financing activities was offset by payments of contingent consideration related to the acquisition of State Flower of $6,630.

Net cash provided by financing activities for the three months ended March 31, 2021, was mainly the result of the private placement on January 28, 2021, in which the Company issued 18,115,656 Common Shares at a price of $9.64 (C$12.35) per Common Share for total proceeds of $173,477, net of share issuance costs of $1,643. Additionally, during the three months ended March 31, 2021, 1,486,075 Common Share warrants were exercised for total proceeds of $3,854 and 381,820 stock options were exercised at $0.67-$6.34 (C$0.85-$8.09) per unit for total gross proceeds of $1,499. In addition, 1,570 preferred share warrants were exercised at $3,000 per unit for total gross proceeds of $3,735.

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 EBITDA as EBITDA adjusted for 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 non-recurring expenses.

 

The table below reconciles net loss to EBITDA and Adjusted EBITDA for the three months ended March 31, 2022 and 2021.

 

 

For the Three Months Ended

 

 

Notes

 

March 31, 2022

 

 

March 31, 2021

 

Net loss

 

 

$

(16,006

)

 

$

(14,111

)

Add (deduct) the impact of:

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

3,743

 

 

 

9,436

 

Finance expenses

 

 

 

6,698

 

 

 

5,359

 

Amortization and depreciation

 

 

 

5,085

 

 

 

3,521

 

EBITDA

(a)

 

 

(480

)

 

 

4,205

 

Add (deduct) the impact of:

 

 

 

 

 

 

 

Relief of fair value upon acquisition

(b)

 

 

1,806

 

 

 

 

Vape recall

(c)

 

 

1,894

 

 

 

 

Share-based compensation

(d)

 

 

3,356

 

 

 

3,567

 

Revaluation of contingent consideration

(e)

 

 

119

 

 

 

2,997

 

Legal settlements

(f)

 

 

 

 

 

1,381

 

Other one-time items

(g)

 

 

1,974

 

 

 

262

 

(Gain) loss on fair value of warrants and purchase option derivative asset

(h)

 

 

(5,713

)

 

 

5,410

 

Indemnification asset release

(i)

 

 

(25

)

 

 

1,197

 

Unrealized and realized loss (gain) on investments

(j)

 

 

-

 

 

 

(228

)

Unrealized and realized foreign exchange loss

(k)

 

 

356

 

 

 

2,783

 

Adjusted EBITDA

 

 

$

3,287

 

 

$

21,574

 

 

(a)
EBITDA is a non-GAAP measure and is calculated as earnings before interest, tax, depreciation and amortization.
(b)
In connection with the Company's acquisitions, inventory was acquired at fair value, which included a markup or markdown for profit. Recording inventory at fair value in purchase accounting has the effect of increasing or decreasing inventory and thereby increasing or decreasing cost of sales as compared to the amounts the Company would have recognized if the inventory was sold through at cost. The write-up or down of acquired inventory represents the incremental cost of sales that were recorded during purchase accounting.
(c)
On February 4, 2022, more than 500 vape products were recalled by the Pennsylvania's Department of Health, including several of the Company's SKUs. As a result of the recall the Company recorded sales returns of $1,040 and wrote off $854 of inventory.
(d)
Represents non-cash share-based compensation expense.
(e)
Represents the revaluation of the Company’s contingent consideration liabilities.
(f)
Represents one-time legal settlement charges.
(g)
Includes one-time fees incurred in connection with the Company’s acquisitions, such as expenses related to professional fees, consulting, legal and accounting, that would otherwise not have been incurred. In addition, includes one-time charges for work completed in preparation of becoming a US filer. These fees are not indicative of the Company’s ongoing costs.
(h)
Represents the (gain) loss on fair value of warrants, including effects of the foreign exchange of the US denominated preferred share warrants, as well as the revaluation of the fair value of the purchase option derivative asset.
(i)
Represents the reduction to the indemnification asset related to the Apothecarium tax audit settlement and statute expirations for tax years ended September 30, 2014 and September 30, 2015.
(j)
Represents unrealized and realized loss (gain) on fair value changes on strategic investments.
(k)
Represents the remeasurement of USD denominated cash and other assets recorded in C$ functional currency.

The decrease in Adjusted EBITDA for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to lower volume and resulting gross margin compression in Pennsylvania related to the reset of the facility and associated reduction in the wholesale business.

Pending and Subsequent Transactions

 

On April 8, 2022, the Company entered into a definitive agreement to acquire Allegany Medical Marijuana Dispensary ("AMMD"), a medical dispensary in Maryland from Moose Curve Holdings, LLC. Under the terms of the agreement, the Company will acquire 100% equity interest in AMMD for total consideration of $10,000 in cash, in addition to acquiring the real estate for $1,700. The transaction is subject to customary closing conditions and regulatory approvals. The Company intends to rebrand the 8,000 square foot dispensary as The Apothecarium.

 

 


 

On April 14, 2022, the Company entered into a definitive agreement to acquire KISA Enterprises MI, LLC and KISA Holdings, LLC ("Pinnacle"), a dispensary operator in Michigan, and related real estate, for total consideration of $28,500. The transaction includes six retail dispensary licenses, five of which are currently operational and located in the cities of Addison, Buchanan, Camden, Edmore, and Morenci. The Company intends to rebrand each of the dispensaries under either the Gage or Cookies retail brand.

Changes in or Adoption of Accounting Principles

Information regarding the Company's adoption of new accounting and reporting standards is discussed in Note 2 to the accompanying condensed consolidated financial statements.

Descriptions of the recently issued and adopted accounting principles are included in Item 1. "Financial Statements" in Note 1, Summary of Significant Accounting Policies, to the Condensed Consolidated Financial Statements.

 

Critical Accounting Policies and Estimates

The condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. The Company bases its estimates on historical experience and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and actual results, the Company's future financial statements will be affected. There have been no significant changes to the critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation," included in the Annual Report on Form 10-K for the year ended December 31, 2021, which was filed on March 17, 2022.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, the condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

 

The Company will remain an emerging growth company until the earlier to occur of: (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of the IPO, (b) in which we have total annual gross revenue of $1.07 billion or more, or (c) in which the Company is deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th; and (ii) the date on which the Company has issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in the Company's primary risk exposures or management of market risks from those disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

 

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Executive Chairman and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Executive Chairman and Chief Financial Officer concluded that, as of March 31, 2022 our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Executive Chairman and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

 


 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is from time to time involved in various legal proceedings. Other than as noted below, TerrAscend believes that none of the litigation in which it is currently involved, or has been involved, in individually or in the aggregate, is material to the Company’s consolidated financial condition or results of operations.

PharmHouse and 261 Matter

On October 15, 2018, the Company’s wholly owned subsidiary TerrAscend Canada entered into a multi-year cultivation agreement (the “PharmHouse Agreement”) with PharmHouse Inc. (“PharmHouse”), a joint venture between RIV Capital and 2615975 Ontario Inc., the operators of a leading North American greenhouse produce company (“261”). Under the terms of the PharmHouse Agreement, it was expected that PharmHouse would grow and supply cannabis to TerrAscend Canada from its existing 1.3 million square foot greenhouse located in Leamington, Ontario. Once fully licensed, the production of flower, trim and clones from up to 20% of the dedicated flowering space planted at the greenhouse was expected to be made available to TerrAscend Canada. To date, PharmHouse has not yet delivered product in accordance with the terms of the PharmHouse Agreement.

 

On September 11, 2020, the Company and TerrAscend Canada were informed that a statement of claim was issued on August 31, 2020 in the Ontario Superior Court of Justice by 261 against RIV Capital, Canopy Growth, the Company and TerrAscend Canada (the “261 Claim”). In the 261 Claim, 261 alleged the Company worked with the other defendants to bankrupt PharmHouse in order to avoid having to purchase certain products to be provided by PharmHouse under the PharmHouse Agreement. 261 sought damages from the defendants in the amount of C$500 million and alleged certain causes of action, including bad faith, fraud, civil conspiracy, breach of the duty of honesty and good faith in contractual relations and breach of fiduciary duty.

 

On September 16, 2020, PharmHouse obtained an order from the Ontario Superior Court of Justice granting PharmHouse creditor protection under the Companies’ Creditors Arrangement Act (“CCAA”). Pursuant to the CCAA order, the 261 Claim has been stayed. During a CCAA hearing in November, 261 objected to the stay of the 261 Claim. The judge presiding over the CCAA process agreed to allow 261 to discontinue the 261 Claim against the defendants “without prejudice” to its right to recommence the 261 Claim against all parties except PharmHouse Inc., provided that such recommenced claim can only be brought after January 1, 2021. This does not affect any of the defendants’ ability to move for a stay of the recommenced 261 Claim. On February 10, 2021, 261 served the Company and TerrAscend Canada with the recommenced 261 Claim. The recommenced 261 Claim contains the same factual allegations as the 261 Claim, the same legal claims and the same relief sought.

 

On May 1, 2022, the Company received a full and final release from the 261 Claim. As a result, the Company will not accrue any contingencies with respect to the 261 Claim.

Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. For a detailed discussion of the risks that affect our business, please refer to the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 17, 2022. There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 


 

The following information describes securities sold by the Company during the fiscal quarter ending March 31, 2022, which were not registered under the Securities Act. Included are securities issued in exchange other securities. The Company sold all of the securities listed below pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act, or Regulation D or Regulation S promulgated thereunder.

Recent Sales of Unregistered Securities

During the year ended December 31, 2021, the Company did not issue or sell any unregistered securities as previously disclosed in its Current Report on Form 8-K, as originally filed with the SEC on March 14, 2022.

 

 

Item 6. Exhibits.

 

Exhibit

 

 

 

Description of Exhibit Incorporated Herein by Reference

Filed

Number

 

Description

 

Form

File No.

Exhibit

Filing Date

Herewith

 

 

 

 

 

 

 

 

 

10.1

 

Second Amendment to Membership Interest Purchase Agreement, dated March 8, 2022, by and between WDB Holdings MI, Inc. and 3 State Park, LLC, AEY Holdings, LLC, AEY Capital, LLC, AEY Thrive, LLC, Seller* and Gage Growth Corp.

 

 8-K

000-56363

10.1

 3/14/2022

 

 

 

 

 

 

 

 

 

 

10.2

 

Second Amendment to Arrangement Agreement, dated March 8, 2022, by and between TerrAscend Corp. and Gage Growth Corp.

 

 8-K

 000-56363

 10.2

  3/14/2022

 

 

 

 

 

 

 

 

 

 

31.1*

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

X

31.2*

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

X

32.1*

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

X

32.2*

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

 

 

 

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

 

 

 

* Certain confidential information has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Company Name

 

 

 

 

Date: May 12, 2022

 

By:

/s/ Ziad Ghanem

 

 

 

Ziad Ghanem

 

 

 

President and Chief Operating Officer