May 12, 2022 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

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


☐	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		—		—					—			—

Form: 10-Q

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