10-Q

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 September 30, 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

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 November 11, 2022, the registrant had 258,580,542 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	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40

PART II.	OTHER INFORMATION	41

Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6.	Exhibits	41
Signatures		43

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” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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 "can", “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 U.S. relating to cannabis operations in the U.S.;


•	the legalization of the use of cannabis for medical and/or recreational use in the U.S. 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 U.S.;


•	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, Gage Growth Corp. ("Gage"), and KISA Enterprises MI, LLC and KISA Holdings, LLC (collectively, "Pinnacle");
•	any benefits expected from the acquisition of Gage ("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 our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 17, 2022 and as amended on March 24, 2022 ("2021 Form 10-K"). 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 share and per share amounts)


	At			At
	September 30, 2022			December 31, 2021
Assets
Current Assets
Cash and cash equivalents	$	34,288		$	79,642
Restricted cash		1,031			—
Accounts receivable, net		17,937			14,920
Investments		3,556			—
Inventory		49,391			42,323
Prepaid Expenses and other current assets		7,194			6,336
		113,397			143,221
Non-Current Assets
Property and equipment, net		244,125			140,762
Deposits		1,455			1,977
Operating lease right of use assets		30,044			29,561
Intangible assets, net		240,503			168,984
Goodwill		90,326			90,326
Indemnification asset		—			3,969
Other non-current assets		5,638			3,134
		612,091			438,713
Total Assets	$	725,488		$	581,934

Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities	$	61,680		$	30,340
Deferred revenue		2,309			1,071
Loans payable, current		75,305			8,837
Contingent consideration payable, current		4,434			9,982
Operating lease liability, current		1,582			1,171
Lease obligations under finance leases, current		369			22
Corporate income tax payable		23,088			9,621
Other current liabilities		3,575			-
		172,342			61,044
Non-Current Liabilities
Loans payable, non-current		172,322			176,306
Contingent consideration payable, non-current		1,250			2,553
Operating lease liability, non-current		31,058			30,573
Lease obligations under finance leases, non-current		4,698			181
Warrant liability		679			54,986
Deferred income tax liability		40,414			14,269
Financing obligations		11,408			—
Other long term liabilities		12,495			13,068
		274,324			291,936
Total Liabilities		446,666			352,980
Commitments and Contingencies
Shareholders' Equity
Share Capital
Series A, convertible preferred stock, no par value, unlimited shares authorized; 12,658 and 13,708 shares outstanding as of September 30, 2022 and December 31, 2021, respectively		—			—
Series B, convertible preferred stock, no par value, unlimited shares authorized; 610 and 610 shares outstanding as of September 30, 2022 and December 31, 2021, respectively		—			—
Series C, convertible preferred stock, no par value, unlimited shares authorized; nil and 36 shares outstanding as of September 30, 2022 and December 31, 2021, respectively		—			—
Series D, convertible preferred stock, no par value, unlimited shares authorized; nil and nil shares outstanding as of September 30, 2022 and December 31, 2021, respectively		—			—
Proportionate voting shares, no par value, unlimited shares authorized; nil and nil shares outstanding as of September 30, 2022 and December 31, 2021, respectively		—			—
Exchangeable shares, no par value, unlimited shares authorized; 52,395,071 and 38,890,571 shares outstanding as of September 30, 2022 and December 31, 2021, respectively		—			—
Common stock, no par value, unlimited shares authorized; 257,860,852 and 190,930,800 shares outstanding as of September 30, 2022 and December 31, 2021, respectively		—			—
Additional paid in capital		877,298			535,418
Accumulated other comprehensive income (loss)		1,694			2,823
Accumulated deficit		(605,336	)		(314,654	)
Non-controlling interest		5,166			5,367
Total Shareholders' Equity		278,822			228,954
Total Liabilities and Shareholders' Equity	$	725,488		$	581,934

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 Income (Loss)

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


	For the Three Months Ended						For the Nine Months Ended
	September 30, 2022			September 30, 2021				September 30, 2022			September 30, 2021
Revenue	$	67,726		$	50,537			$	183,538		$	169,010
Excise and cultivation tax		(701	)		(1,398	)			(2,050	)		(7,794	)
Revenue, net		67,025			49,139				181,488			161,216

Cost of Sales		42,662			27,642				118,992			69,942

Gross profit		24,363			21,497				62,496			91,274

Operating expenses:
General and administrative		29,385			21,320				85,918			62,462
Amortization and depreciation		3,032			1,947				8,666			5,664
Impairment of intangible assets		152,928			—				152,928			3,633
Impairment of goodwill		178,314			—				178,314			5,007
Total operating expenses		363,659			23,267				425,826			76,766

(Loss) income from operations		(339,296	)		(1,770	)			(363,330	)		14,508
Other expense (income)
Revaluation of contingent consideration		36			(338	)			189			2,652
Gain on fair value of warrants and purchase option derivative asset		(5,497	)		(69,016	)			(58,555	)		(43,715	)
Finance and other expenses		9,469			6,972				30,227			22,281
Transaction and restructuring costs		1,359			1,034				2,601			1,466
Unrealized and realized foreign exchange loss (gain)		586			(1,256	)			636			4,582
Unrealized and realized (gain) loss on investments		(231	)		—				3			(6,192	)
(Loss) income before provision from income taxes		(345,018	)		60,834				(338,431	)		33,434
Provision for income taxes		(34,033	)		4,999				(25,602	)		21,372
Net (loss) income	$	(310,985	)	$	55,835			$	(312,829	)	$	12,062

Foreign currency translation		(2,758	)		1,745				1,129			(3,469	)
Comprehensive (loss) income	$	(308,227	)	$	54,090			$	(313,958	)	$	15,531

Net (loss) income attributable to:
Common and proportionate Shareholders of the Company	$	(313,212	)	$	54,428			$	(316,352	)	$	9,594
Non-controlling interests		2,227			1,407				3,523			2,468

Comprehensive (loss) income attributable to:
Common and proportionate Shareholders of the Company	$	(310,454	)	$	52,683			$	(317,481	)	$	13,063
Non-controlling interests		2,227			1,407				3,523			2,468

Net (loss) income per share, basic and diluted
Net (loss) income per share - basic	$	(1.23	)	$	0.30			$	(1.32	)	$	0.05
Weighted average number of outstanding common and proportionate voting shares		254,355,792			184,438,592				239,567,866			179,441,224
Net (loss) income per share - diluted	$	(1.23	)	$	0.25			$	(1.32	)	$	0.04
Weighted average number of outstanding common and proportionate voting shares, assuming dilution		254,355,792			214,134,641				239,567,866			214,756,569

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)

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 June 30, 2022		252,707,325		52,395,071		12,658		610		—		—		318,370,600	$	889,961	$	(1,063	)		(315,132	)		6,215	$	579,981
Shares issued - stock option, warrant and RSU exercises		253,140		—		—		—		—		—		253,140		36		—			—			—		36
Shares issued- acquisitions		4,803,184		—		—		—		—		—		4,803,184		7,926		—			—			—		7,926
Shares issued- liability settlement		97,203		—		—		—		—		—		97,203		242		—