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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 June 30, 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

N/A

 

N/A

 

N/A

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 August 9, 2022, the registrant had 252,907,618 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

1

 

 

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

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

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

35

 

 

 

PART II.

OTHER INFORMATION

35

 

 

 

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 6.

Exhibits

36

Signatures

39

 

 

 


 

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

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

48,426

 

 

$

79,642

 

Restricted cash

 

 

605

 

 

 

 

Accounts receivable, net

 

 

22,189

 

 

 

14,920

 

Investments

 

 

4,072

 

 

 

 

Inventory

 

 

54,371

 

 

 

42,323

 

Prepaid Expenses and other current assets

 

 

7,655

 

 

 

6,336

 

 

 

 

137,318

 

 

 

143,221

 

Non-Current Assets

 

 

 

 

 

 

Property and equipment, net

 

 

238,797

 

 

 

140,762

 

Deposits

 

 

4,698

 

 

 

 

Operating lease right of use assets

 

 

30,570

 

 

 

29,561

 

Intangible assets, net

 

 

351,638

 

 

 

168,984

 

Goodwill

 

 

240,598

 

 

 

90,326

 

Indemnification asset

 

 

-

 

 

 

3,969

 

Other non-current assets

 

 

4,998

 

 

 

5,111

 

 

 

 

871,299

 

 

 

438,713

 

Total Assets

 

$

1,008,617

 

 

$

581,934

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

57,535

 

 

$

30,340

 

Deferred revenue

 

 

2,404

 

 

 

1,071

 

Loans payable, current

 

 

58,856

 

 

 

8,837

 

Contingent consideration payable, current

 

 

3,028

 

 

 

9,982

 

Operating lease liability, current

 

 

1,394

 

 

 

1,171

 

Lease obligations under finance leases, current

 

 

384

 

 

 

22

 

Corporate income tax payable

 

 

13,189

 

 

 

9,621

 

Other current liabilities

 

 

3,613

 

 

 

-

 

 

 

 

140,403

 

 

 

61,044

 

Non-Current Liabilities

 

 

 

 

 

 

Loans payable, non-current

 

 

180,781

 

 

 

176,306

 

Contingent consideration payable, non-current

 

 

2,620

 

 

 

2,553

 

Operating lease liability, non-current

 

 

31,680

 

 

 

30,573

 

Lease obligations under finance leases, non-current

 

 

4,794

 

 

 

181

 

Warrant liability

 

 

6,176

 

 

 

54,986

 

Deferred income tax liability

 

 

73,087

 

 

 

14,269

 

Financing obligations

 

 

11,606

 

 

 

 

Other long term liabilities

 

 

12,502

 

 

 

13,068

 

 

 

 

323,246

 

 

 

291,936

 

Total Liabilities

 

 

463,649

 

 

 

352,980

 

Commitments and Contingencies

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

Share Capital

 

 

 

 

 

 

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

 

 

 

 

 

 

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

 

 

 

 

 

 

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

 

 

 

 

 

 

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

 

 

 

 

 

 

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

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock, no par value, unlimited shares authorized; 252,707,325 and 190,930,800 shares outstanding as of June 30, 2022 and December 31, 2021 respectively

 

 

 

 

 

 

Additional paid in capital

 

 

854,948

 

 

 

535,418

 

Accumulated other comprehensive income (loss)

 

 

(1,063

)

 

 

2,823

 

Accumulated deficit

 

 

(315,132

)

 

 

(314,654

)

Non-controlling interest

 

 

6,215

 

 

 

5,367

 

Total Shareholders' Equity

 

 

544,968

 

 

 

228,954

 

Total Liabilities and Shareholders' Equity

 

$

1,008,617

 

 

$

581,934

 

 

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

1


 

TerrAscend Corp.

Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

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

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Revenue

 

$

65,367

 

 

$

61,977

 

 

 

$

115,812

 

 

$

118,473

 

Excise and cultivation tax

 

 

(563

)

 

 

(3,254

)

 

 

 

(1,349

)

 

 

(6,396

)

Revenue, net

 

 

64,804

 

 

 

58,723

 

 

 

 

114,463

 

 

 

112,077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Sales

 

 

41,811

 

 

 

23,888

 

 

 

 

76,330

 

 

 

42,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

22,993

 

 

 

34,835

 

 

 

 

38,133

 

 

 

69,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

33,981

 

 

 

20,750

 

 

 

 

56,533

 

 

 

41,142

 

Amortization and depreciation

 

 

3,016

 

 

 

1,844

 

 

 

 

5,634

 

 

 

3,717

 

Total operating expenses

 

 

36,997

 

 

 

22,594

 

 

 

 

62,167

 

 

 

44,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from operations

 

 

(14,004

)

 

 

12,241

 

 

 

 

(24,034

)

 

 

24,918

 

Other expense (income)

 

 

 

 

 

 

 

 

 

 

 

 

 

Revaluation of contingent consideration

 

 

34

 

 

 

(7

)

 

 

 

153

 

 

 

2,990

 

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

 

 

(47,345

)

 

 

19,891

 

 

 

 

(53,058

)

 

 

25,301

 

Finance and other expenses

 

 

13,902

 

 

 

8,919

 

 

 

 

20,758

 

 

 

15,309

 

Transaction and restructuring costs

 

 

627

 

 

 

432

 

 

 

 

1,242

 

 

 

432

 

Impairment of goodwill

 

 

 

 

 

5,007

 

 

 

 

 

 

 

5,007

 

Impairment of intangible assets

 

 

 

 

 

3,633

 

 

 

 

 

 

 

3,633

 

Unrealized and realized foreign exchange loss

 

 

(306

)

 

 

3,055

 

 

 

 

50

 

 

 

5,838

 

Unrealized and realized loss (gain) on investments

 

 

234

 

 

 

(5,964

)

 

 

 

234

 

 

 

(6,192

)

Income (loss) before provision from income taxes

 

 

18,850

 

 

 

(22,725

)

 

 

 

6,587

 

 

 

(27,400

)

Provision for income taxes

 

 

4,688

 

 

 

6,937

 

 

 

 

8,431

 

 

 

16,373

 

Net income (loss)

 

$

14,162

 

 

$

(29,662

)

 

 

$

(1,844

)

 

$

(43,773

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

280

 

 

 

(3,025

)

 

 

 

3,887

 

 

 

(5,214

)

Comprehensive income (loss)

 

$

13,882

 

 

$

(26,637

)

 

 

$

(5,731

)

 

$

(38,559

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common and proportionate Shareholders of the Company

 

$

13,217

 

 

$

(30,660

)

 

 

$

(3,140

)

 

$

(44,834

)

Non-controlling interests

 

 

945

 

 

 

998

 

 

 

 

1,296

 

 

 

1,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common and proportionate Shareholders of the Company

 

$

12,937

 

 

$

(27,635

)

 

 

$

(7,027

)

 

$

(39,620

)

Non-controlling interests

 

 

945

 

 

 

998

 

 

 

 

1,296

 

 

 

1,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share, basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share - basic

 

$

0.05

 

 

$

(0.17

)

 

 

$

(0.01

)

 

$

(0.25

)

Weighted average number of outstanding common and proportionate voting shares

 

 

252,305,425

 

 

 

182,369,839

 

 

 

 

231,829,926

 

 

 

176,901,119

 

Net income (loss) per share - diluted

 

$

0.05

 

 

$

(0.17

)

 

 

$

(0.01

)

 

$

(0.25

)

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

 

 

257,883,711

 

 

 

182,369,839

 

 

 

 

231,829,926

 

 

 

176,901,119

 

 

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

2


 

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)

 

Three months ended

 

 

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 March 31, 2022

 

 

251,971,226

 

 

 

52,395,071

 

 

 

13,358

 

 

 

610

 

 

 

 

 

 

 

 

 

318,334,501

 

 

$

850,386

 

 

$

(783

)

 

 

(329,855

)

 

 

5,491

 

 

$

525,239

 

Shares issued - stock option, warrant and RSU exercises

 

 

36,099

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36,099

 

 

 

1,041

 

 

 

 

 

 

 

 

 

 

 

 

1,041

 

Shares issued- conversion

 

 

700,000

 

 

 

 

 

 

(700

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,463

 

 

 

 

 

 

 

 

 

 

 

 

4,463

 

Options expired/forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,506

)

 

 

 

 

 

1,506

 

 

 

 

 

 

 

Capital Contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

564

 

 

 

 

 

 

 

 

 

(221

)

 

 

343

 

Net income for the period