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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, 2024

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.)

77 City Centre Drive

Suite 501 - East Tower

Mississauga, Ontario, Canada

L5B 1M5

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (717) 610-4165

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

None

 

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

As of May 8, 2024, the registrant had 291,507,430 common shares, $0.01 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

1

 

 

 

Item 1.

Financial Statements (Unaudited)

1

 

Unaudited Interim Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

1

 

Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023

2

 

Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2024 and 2023

Unaudited Interim Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

4

 

Notes to Unaudited Interim Condensed Consolidated Financial Statements

5

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

 

 

 

PART II.

OTHER INFORMATION

34

 

 

 

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

34

Item 6.

Exhibits

34

Signatures

36

 

 

 


 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains statements that TerrAscend Corp. (the "Issuer") 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 industry in which the Issuer, its subsidiaries, TerrAscend Growth Corp. ("TerrAscend") and its subsidiaries (collectively, the "Company") operate 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 projected performance of the Company’s business and operations;
the Company’s estimates and expectations regarding revenues, expenses and need for substantial additional financing, and its ability to obtain additional financing;
the Internal Revenue Service's (the "IRS") review of the Company's tax positions, including heightened risk of added scrutiny or increased frequency or depth of reviews or audits by the IRS;
the Company's joint venture interests, including, as applicable, required regulatory approvals and licensing, anticipated costs and timing, expected impact thereof, and the ability to enter into future joint ventures;
the Company's ability to complete future strategic alliances and the expected impact thereof;
the Company's ability to source investment opportunities and complete future acquisitions, including in respect of entities in the United States, the ability to finance such acquisitions or operations in the United States, and the expected impact thereof, including potential issuances of common shares in the capital of the Company ("Common Shares");
the Company's ability to market itself to the capital markets, including its ability to raise equity as a result of its corporate ownership structure;
the Company's ability to continue as a going concern;
the expected growth in the number of customers and patients using the Company's adult-use and medical cannabis, respectively;
the expected growth in cultivation and production capacities of the Company;
expectations with respect to future production costs;
the expected impact of taxation on the Company's profitability and the uncertainty around timing of any legislative changes impacting unfavorable tax treatment;
the expected methods to be used by the Company to distribute cannabis;
the expected growth in the number of the Company's dispensaries;
the competitive conditions of the industry in which the Company operates;
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;
the legalization of the regulated use of cannabis for medical and/or adult-use in the United States and the related timing and impact thereof;
laws and regulations and any amendments thereto applicable to the business and the impact thereof;
the possibility of actions by individuals, or U.S. federal government enforcement actions, against the Company and the potential impact of such actions on the Company;
the competitive advantages and business strategies of the Company;
the grant, renewal and impact of any license or supplemental license to conduct activities with or without cannabis or any amendments thereof;
the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis;

 


 

the Company's future product offerings;
TerrAscend’s ability to source and operate facilities in the United States and to operate such facilities;
the Company’s ability to integrate and operate the assets it acquires or may acquire in the future;
the Company's ability to protect its intellectual property;
the outcome of litigation to which the Company is party;
the possibility that the Company's products may be subject to product recalls and returns; and
other risks and uncertainties, including those listed under the section titled "Risk Factors" in this Quarterly Report.

 

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 jurisdictions in which the Company operates; (iii) the output from the Company’s operations; (iv) consumer interest in the Company’s products; (v) competition in the cannabis industry; (vi) anticipated and unanticipated costs; (vii) government regulation of the Company’s activities and products; (viii) government regulation of licensing, taxation and environmental protection; (ix) the timely receipt of any required regulatory approvals; (x) the Company’s ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; (xi) the Company’s ability to conduct operations in a safe, efficient and effective manner; and (xii) 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2024 and 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 share and per share amounts)

 

 

At

 

 

At

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,664

 

 

$

22,241

 

Restricted cash

 

 

3,110

 

 

 

3,106

 

Accounts receivable, net

 

 

17,013

 

 

 

19,048

 

Investments

 

 

1,965

 

 

 

1,913

 

Inventory

 

 

49,199

 

 

 

51,683

 

Prepaid expenses and other current assets

 

 

3,704

 

 

 

4,898

 

 

 

 

97,655

 

 

 

102,889

 

Non-Current Assets

 

 

 

 

 

 

Property and equipment, net

 

 

194,256

 

 

 

196,215

 

Deposits

 

 

284

 

 

 

337

 

Operating lease right of use assets

 

 

41,488

 

 

 

43,440

 

Intangible assets, net

 

 

214,060

 

 

 

215,854

 

Goodwill

 

 

106,929

 

 

 

106,929

 

Other non-current assets

 

 

867

 

 

 

854

 

 

 

 

557,884

 

 

 

563,629

 

Total Assets

 

$

655,539

 

 

$

666,518

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

49,673

 

 

$

49,897

 

Deferred revenue

 

 

4,510

 

 

 

4,154

 

Loans payable, current

 

 

133,668

 

 

 

137,737

 

Contingent consideration payable, current

 

 

1,490

 

 

 

6,446

 

Operating lease liability, current

 

 

1,816

 

 

 

1,244

 

Lease obligations under finance leases, current

 

 

2,079

 

 

 

2,030

 

Corporate income tax payable

 

 

5,143

 

 

 

4,775

 

Other current liabilities

 

 

737

 

 

 

717

 

 

 

 

199,116

 

 

 

207,000

 

Non-Current Liabilities

 

 

 

 

 

 

Loans payable, non-current

 

 

58,409

 

 

 

61,633

 

Operating lease liability, non-current

 

 

43,967

 

 

 

45,384

 

Lease obligations under finance leases, non-current

 

 

383

 

 

 

407

 

Derivative liability

 

 

6,075

 

 

 

5,162

 

Convertible debt

 

 

7,682

 

 

 

7,266

 

Deferred income tax liability

 

 

16,919

 

 

 

17,175

 

Contingent consideration payable, non-current

 

 

1,424

 

 

 

 

Liability on uncertain tax position and other long term liabilities

 

 

89,455

 

 

 

81,751

 

 

 

 

224,314

 

 

 

218,778

 

Total Liabilities

 

 

423,430

 

 

 

425,778

 

Commitments and Contingencies

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

Share Capital

 

 

 

 

 

 

Series A, convertible preferred stock, no par value, unlimited shares authorized; 12,350 and 12,350 shares outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

 

 

 

 

Series B, convertible preferred stock, no par value, unlimited shares authorized; 600 and 600 shares outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

 

 

 

 

Series C, convertible preferred stock, no par value, unlimited shares authorized; nil and nil shares outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

 

 

 

 

Series D, convertible preferred stock, no par value, unlimited shares authorized; nil and nil shares outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

 

 

 

 

Proportionate voting shares, no par value, unlimited shares authorized; nil and nil shares outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

 

 

 

 

Exchangeable shares, no par value, unlimited shares authorized; 63,492,038 and 63,492,038 shares outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

 

 

 

 

Common shares, no par value, unlimited shares authorized; 291,284,814 and 288,327,497 shares outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

 

 

 

 

Additional paid in capital

 

 

945,825

 

 

 

944,859

 

Accumulated other comprehensive income

 

 

2,197

 

 

 

1,799

 

Accumulated deficit

 

 

(717,398

)

 

 

(704,162

)

Non-controlling interest

 

 

1,485

 

 

 

(1,756

)

Total Shareholders' Equity

 

 

232,109

 

 

 

240,740

 

Total Liabilities and Shareholders' Equity

 

$

655,539

 

 

$

666,518

 

 

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 Loss

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

 

 

 

For the Three Months Ended

 

 

 

March 31, 2024

 

 

March 31, 2023

 

Revenue, net

 

 

80,633

 

 

 

69,398

 

 

 

 

 

 

 

 

Cost of Sales

 

 

41,902

 

 

 

35,498

 

 

 

 

 

 

 

 

Gross profit

 

 

38,731

 

 

 

33,900

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

General and administrative

 

 

28,008

 

 

 

27,730

 

Amortization and depreciation

 

 

2,215

 

 

 

2,029

 

Impairment of property and equipment and right of use assets

 

 

2,438

 

 

 

335

 

Total operating expenses

 

 

32,661

 

 

 

30,094

 

 

 

 

 

 

 

 

Income from operations

 

 

6,070

 

 

 

3,806

 

 

 

 

 

 

 

 

Other (income) expense

 

 

 

 

 

Loss from revaluation of contingent consideration

 

 

1,393

 

 

 

 

Loss (gain) on fair value of warrants and purchase option derivative assets

 

 

983

 

 

 

(438

)

Finance and other expenses

 

 

8,589

 

 

 

10,087

 

Transaction and restructuring costs

 

 

 

 

 

3

 

Unrealized and realized foreign exchange loss (gain)

 

 

285

 

 

 

(31

)

Unrealized and realized loss on investments

 

 

 

 

 

699

 

Loss from continuing operations before provision for income taxes

 

 

(5,180

)

 

 

(6,514

)

Provision for income taxes

 

 

9,671

 

 

 

12,664

 

Net loss from continuing operations

 

$

(14,851

)

 

$

(19,178

)

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

   Loss from discontinued operations, net of tax

 

$

 

 

$

(3,591

)

Net loss

 

$

(14,851

)

 

$

(22,769

)

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(398

)

 

 

347

 

Comprehensive loss

 

$

(14,453

)

 

$

(23,116

)

 

 

 

 

 

 

 

Net loss from continuing operations attributable to:

 

 

 

 

 

 

Common and proportionate Shareholders of the Company

 

$

(17,055

)

 

$

(21,364

)

Non-controlling interests

 

$

2,204

 

 

$

2,186

 

 

 

 

 

 

 

 

Comprehensive loss attributable to:

 

 

 

 

 

 

Common and proportionate Shareholders of the Company

 

$

(16,657

)

 

$

(25,302

)

Non-controlling interests

 

$

2,204

 

 

$

2,186

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

Net loss per share - basic:

 

 

 

 

 

 

Continuing operations

 

$

(0.06

)

 

$

(0.08

)

Discontinued operations

 

$

 

 

$

(0.01

)

Net loss per share - basic

 

$

(0.06

)

 

$

(0.09

)

Weighted average number of outstanding common shares

 

 

290,618,567

 

 

 

267,211,093

 

 

 

 

 

 

 

 

Net loss per share - diluted:

 

 

 

 

 

 

Continuing operations

 

$

(0.06

)

 

$

(0.08

)

Discontinued operations

 

$

 

 

$

(0.01

)

Net loss per share - diluted

 

$

(0.06

)

 

$

(0.09

)

Weighted average number of outstanding common shares, assuming dilution

 

 

290,618,567

 

 

 

267,211,093

 

 

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

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

 

 

 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

Exchangeable Shares

 

Series A

 

Series B

 

Common Shares Equivalent

 

 

Additional paid in capital

 

 

Accumulated other comprehensive income

 

 

Accumulated deficit

 

 

Non-controlling interest

 

 

Total

 

Balance at December 31, 2023

 

 

288,327,497

 

 

63,492,038

 

 

12,350

 

 

600

 

 

364,769,739

 

 

$

944,859

 

 

$

1,799

 

 

$

(704,162

)

 

$

(1,756

)

 

$

240,740

 

Shares issued - stock options, warrant and RSU exercises

 

 

69,229

 

 

 

 

 

 

 

 

69,229

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

1,485

 

 

 

 

 

 

 

 

 

 

 

 

1,485

 

Options and warrants expired/forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,819

)

 

 

 

 

 

3,819

 

 

 

 

 

 

 

Capital distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(337

)

 

 

(337

)

Acquisition of non-controlling interest

 

 

2,888,088

 

 

 

 

 

 

 

 

2,888,088

 

 

 

3,300

 

 

 

 

 

 

 

 

 

1,374

 

 

 

4,674

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,055

)

 

 

2,204

 

 

 

(14,851

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

398

 

 

 

 

 

 

 

 

 

398

 

Balance at March 31, 2024

 

 

291,284,814

 

 

63,492,038

 

 

12,350

 

 

600

 

 

367,727,056

 

 

$

945,825

 

 

$

2,197

 

 

$

(717,398

)

 

$

1,485

 

 

$

232,109

 

 

 

 

 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

Exchangeable Shares

 

 

Series A

 

 

Series B

 

 

Common Shares Equivalent

 

 

Additional paid in capital

 

 

Accumulated other comprehensive income (loss)

 

 

Accumulated deficit

 

 

Non-controlling interest

 

 

Total

 

Balance at December 31, 2022

 

 

259,624,531

 

 

 

76,996,538

 

 

 

12,608

 

 

 

600

 

 

 

349,829,273

 

 

$

934,972

 

 

$

2,085

 

 

 

(618,260

)

 

 

2,374

 

 

$

321,171

 

Shares issued - stock options, warrant and RSU exercises

 

 

392,846

 

 

 

 

 

 

 

 

 

 

 

 

392,846

 

 

 

81

 

 

 

 

 

 

 

 

 

 

 

 

81

 

Shares, options and warrants issued - acquisitions

 

 

471,681

 

 

 

 

 

 

 

 

 

 

 

 

471,681

 

 

 

743

 

 

 

 

 

 

 

 

 

 

 

 

743

 

Shares, options and warrants issued - legal settlement

 

 

402,185

 

 

 

 

 

 

 

 

 

 

 

 

402,185

 

 

 

593

 

 

 

 

 

 

 

 

 

 

 

 

593

 

Shares issued- conversion

 

 

13,762,500

 

 

 

(13,504,500

)

 

 

(258

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,713

 

 

 

 

 

 

 

 

 

 

 

 

1,713

 

Options and warrants expired/forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,698

)

 

 

 

 

 

1,698

 

 

 

 

 

 

 

Capital contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,884

)

 

 

(1,884

)

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,955

)

 

 

2,186

 

 

 

(22,769

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(347

)

 

 

 

 

 

 

 

 

(347

)

Balance at March 31, 2023

 

 

274,653,743

 

 

 

63,492,038

 

 

 

12,350

 

 

 

600

 

 

 

351,095,985

 

 

$

936,404

 

 

$

1,738

 

 

$

(641,517

)

 

$

2,676

 

 

$

299,301

 

 

 

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

 

3


 

TerrAscend Corp.

Unaudited Interim Condensed Consolidated Statements of Cash Flows

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

 

 

For the Three Months Ended

 

 

March 31, 2024

 

 

March 31, 2023

 

Operating activities

 

 

 

 

 

Net loss from continuing operations

$

(14,851

)

 

$

(19,178

)

Adjustments to reconcile net loss to net cash provided by operating activities

 

 

 

 

 

Non-cash adjustments of inventory

 

 

 

 

797

 

Accretion expense

 

5,875

 

 

 

4,763

 

Depreciation of property and equipment and amortization of intangible assets

 

5,000

 

 

 

4,771

 

Amortization of operating right-of-use assets

 

716

 

 

 

454

 

Share-based compensation

 

1,485

 

 

 

1,713

 

Deferred income tax expense

 

(256

)

 

 

1,446

 

Loss (gain) on fair value of warrants and purchase option derivative

 

983

 

 

 

(438

)

Gain on disposal of fixed assets

 

 

 

 

307

 

Loss from revaluation of contingent consideration

 

1,393

 

 

 

 

Impairment of property and equipment and right of use assets

 

2,438

 

 

 

 

Loss on derecognition of right of use assets and lease termination

 

 

 

 

205

 

Bad debt expense

 

67

 

 

 

 

Unrealized and realized foreign exchange loss (gain)

 

285

 

 

 

(31

)

Unrealized and realized loss on investments

 

 

 

 

699

 

Changes in operating assets and liabilities

 

 

 

 

 

Receivables

 

1,954

 

 

 

773

 

Inventory

 

2,476

 

 

 

(4,969

)

Prepaid expense and other current assets

 

1,189

 

 

 

1,203

 

Deposits

 

 

 

 

97

 

Other assets

 

(12

)

 

 

(131

)

Accounts payable and accrued liabilities and other payables

 

(3,511

)

 

 

6,882

 

Operating lease liability

 

(670

)

 

 

(473

)

Other liability

 

(537

)

 

 

(14

)

Uncertain tax position liabilities

 

8,503

 

 

 

 

Corporate income tax payable

 

368

 

 

 

11,773

 

Deferred revenue

 

356

 

 

 

(195

)

Net cash provided by operating activities- continuing operations

 

13,251

 

 

 

10,454

 

Net cash used in operating activities - discontinued operations

 

 

 

 

(2,020

)

Net cash provided by operating activities

 

13,251

 

 

 

8,434

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Investment in property and equipment

 

(2,796

)

 

 

(2,497

)

Investment in intangible assets

 

(127

)

 

 

(14

)

Principal payments received on lease receivable

 

 

 

 

111

 

Success fees related to ATC and other investment

 

 

 

 

738

 

Payment for land contracts

 

(250

)

 

 

(308

)

Cash portion of consideration paid in acquisitions, net of cash of acquired

 

(250

)

 

 

(9,611

)

Net cash used in investing activities - continuing operations

 

(3,423

)

 

 

(11,581

)

Net cash provided investing activities - discontinued operations

 

 

 

 

 

Net cash used in investing activities

 

(3,423

)

 

 

(11,581

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Transfer of Employee Retention Credit

 

 

 

 

12,677

 

Proceeds from loan payable, net of transaction costs

 

3,137

 

 

 

 

Proceeds from options and warrants exercised

 

 

 

 

81

 

Loan principal paid

 

(12,215

)

 

 

(1,204

)

Capital distributions paid to non-controlling interests

 

(337

)

 

 

(1,884

)

Payments made for financing obligations and finance lease

 

(184

)

 

 

(157

)

Net cash (used in) provided by financing activities- continuing operations

 

(9,599

)

 

 

9,513

 

Net cash used in financing activities- discontinued operations

 

 

 

 

(115

)

Net cash (used in) provided by financing activities

 

(9,599

)

 

 

9,398

 

 

 

 

 

 

 

Net increase in cash and cash equivalents and restricted cash during the period

 

229

 

 

 

6,251

 

Net effects of foreign exchange

 

198

 

 

 

523

 

Cash and cash equivalents and restricted cash, beginning of the period

 

25,347

 

 

 

26,763

 

Cash and cash equivalents and restricted cash, end of the period

$

25,774

 

 

$

33,537

 

 

 

 

 

 

 

Supplemental disclosure with respect to cash flows

 

 

 

 

 

Income taxes paid (refund received)

$

1,013

 

 

$

(551

)

Interest paid

$

6,264

 

 

$

2,456

 

Lease termination fee paid

$

163

 

 

$

 

Non-cash transactions

 

 

 

 

 

Equity and warrant liability issued for acquisitions and non-controlling interest

$

4,674

 

 

$

750

 

Shares issued for Canopy USA arrangement

$

 

 

$

593

 

Accrued capital purchases

$

1,253

 

 

$

555

 

 

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

4


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

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

1. Nature of operations

 

TerrAscend Corp. (the "Issuer") was incorporated under the Business Corporations Act (Ontario) on March 7, 2017. The Issuer, through its subsidiaries, TerrAscend Growth Corp. (“TerrAscend”) and its subsidiaries (collectively, the Company”), is a leading North American cannabis company. TerrAscend has vertically integrated licensed operations in Pennsylvania, New Jersey, Michigan, Maryland and California. In addition, the Company has retail operations in Ontario, Canada with a majority-owned dispensary in Toronto, Ontario, Canada. In the United States, TerrAscend’s cultivation and manufacturing provide product selection to both the medical and legal adult-use markets. Notwithstanding the fact that various states in the United States have implemented medical marijuana laws or have otherwise legalized the use of cannabis, the use of cannabis remains illegal under U.S. federal law for any purpose, by way of the Controlled Substances Act of 1970.

 

The Company operates under one operating segment, which is the cultivation, production and sale of cannabis products.

 

The Company owns a portfolio of operating businesses, including:

 

TerrAscend New Jersey (“TerrAscend NJ”), a majority owned operation with three dispensaries, and a cultivation/processing facility;
TerrAscend Maryland (“TerrAscend MD”), a wholly-owned operation with four dispensaries, and a cultivation/processing facility;
TerrAscend Pennsylvania (“TerrAscend PA”), a wholly-owned operation with six dispensaries, and a cultivation/processing facility;
TerrAscend Michigan (“TerrAscend MI”), a wholly-owned operation with nineteen dispensaries, and three cultivation and processing facilities;
TerrAscend California (“TerrAscend CA”), a wholly-owned operation with five dispensaries, and a cultivation facility; and;
TerrAscend Canada Inc. (“TerrAscend Canada”) is a cannabis retailer in Ontario, Canada with a majority-owned dispensary in Toronto, Ontario, Canada ("Cookies Canada").

 

The common shares in the capital of the Company ("Common Shares") commenced trading on the Canadian Securities Exchange ("CSE") on May 3, 2017 under the ticker symbol "TER" and continued trading on the CSE until the listing of the Common Shares on the Toronto Stock Exchange (the "TSX"). Effective July 4, 2023, the Common Shares commenced trading on the TSX under the ticker symbol "TSND". The Common Shares commenced trading on OTCQX on October 22, 2018 under the ticker symbol "TRSSF", which was subsequently changed to "TSNDF", effective July 6, 2023. The Company’s registered office is located at 77 City Centre Drive, Suite 501, Mississauga, Ontario, L5B 1M5, Canada.

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

These unaudited interim condensed consolidated financial statements included herein (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 Consolidated Financial Statements contained in this report are unaudited. In the opinion of management, these 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, 2024 are not necessarily indicative of the operating results for the year ended December 31, 2024, or any other interim or future periods.

The accompanying Consolidated Financial Statements have been prepared on the going concern basis, under the historical cost convention, except for certain financial instruments that are measured at fair value as described herein. At March 31, 2024, the Company had an accumulated deficit of $717,398. During the three months ended March 31, 2024, the Company incurred a net loss from continuing operations of $14,851. Additionally, as of March 31, 2024 the Company’s current liabilities exceeded its current assets due

5


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

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

to loans maturing within the current year. Therefore, the Company expects that it may need to refinance this debt or access additional capital to continue to fund its operations.

The aforementioned indicators raise substantial doubt about the Company's ability to continue as a going concern for at least one year from the issuance of these Consolidated Financial Statements. The Company believes this concern is mitigated by steps it has taken, or intends to take to improve its operations and cash position, including: (i) identifying access to future capital required to pay down or refinance the Company’s maturing debt, (ii) improved cashflow growth from the Company's consolidated operations, particularly TerrAscend's operations in New Jersey and most recently Maryland with conversion to adult-use sales, and (iii) various cost and efficiency improvements. The Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amounts of and classification of liabilities that may result should the Company be unable to continue as a going concern.

The accompanying 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, 2023 contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission (the "SEC") on March 14, 2024 (the "Annual Report). 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, 2023 in the Company's Annual Report.

3.
Consolidation

The Company consolidates entities in which it has a controlling financial interest by evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”).

In connection with the listing of the Common Shares on the TSX, the Company reorganized its ownership structure to segregate the Company’s Canadian retail operations from TerrAscend's cultivation and manufacturing operations in the United States (the "Reorganization"). Following the completion of the Reorganization, the Company owns 95% of its Canadian retail business. The Company continues to consolidate both its Canadian and U.S. cannabis operations under two different consolidation models.

Subsequent to the Reorganization, all operations in the United States have a functional currency of the U.S. dollar ("USD"). Canadian operations continue to have a functional currency of the Canadian dollar ("CAD").

Voting Interest Entities

 

A VOE is an entity in which (1) the total equity investment at risk is deemed sufficient to absorb the expected losses of the entity, (2) the at-risk equity holders, as a group, have all of the characteristics of a controlling financial interest and (3) the entity is structured with substantive voting rights. The Company consolidates the Canadian operations under a VOE model based on the controlling financial interest obtained through Common Shares with substantive voting rights.

Variable Interest Entities

 

A VIE is an entity that lacks one or more characteristics of a controlling financial interest defined under the voting interest model. The Company consolidates VIE when it has a variable interest that provide it with (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits).

 

In connection with the Reorganization, TerrAscend issued and sold, on a private placement basis, Class A shares in the capital of TerrAscend ("Class A Shares") for aggregate gross proceeds of $1,000 to an investor ("Investment"). See Note 10 for accounting treatment of the Class A Shares. Following the closing of the Investment, the Class B shares ("Class B Shares") in the capital of TerrAscend held by the Company, representing all of the issued and outstanding Class B shares, were automatically exchanged for non-voting, non-participating exchangeable shares in the capital of TerrAscend ("Non-Voting Shares"), representing approximately 99.8% of the issued and outstanding shares of TerrAscend on an as-converted basis. As a result of the limited rights associated with Non-Voting Shares that the Company holds following the closing of the Investment, the Company and TerrAscend entered into a protection agreement dated April 18, 2023 ("Protection Agreement"). The Protection Agreement provides for certain negative covenants in order to preserve the value of the Non-Voting Shares until such time as the Non-Voting Shares are converted into Class A Shares.

 

The Issuer determined that TerrAscend is a VIE, as all of the Company’s U.S. activities continue to be conducted on behalf of the Company which has disproportionately few voting rights. After conducting an analysis of the following VIE factors; purpose and design

6


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

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

of the VIE, the Protection Agreement in place, the structure of the Company's board of directors (the "Board"), and substantive kick-out rights of the holders of the Class A Shares, it was determined that the Company has the power to direct the activities of TerrAscend. In addition, given the structure of the Class A Shares where all of the losses and substantially all of the benefits of TerrAscend are absorbed by the Company, the Company consolidates as the primary beneficiary in accordance with Accounting Standards Codification ("ASC") 810, Consolidation.

 

The Company's U.S. operations are consolidated through the VIE model. Therefore, substantially all of the Company's current assets, non-current assets, current liabilities and non-current liabilities are consolidated through the VIE model. The Company's assets and liabilities that are not consolidated through the VIE model include convertible debt, and derivative liability. The Company also consolidates a minimal amount of assets and liabilities within Canada. See Note 21 for more information.

4.
Accounts receivable, net

The Company's accounts receivable, net consisted of the following:

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Trade receivables

 

$

26,535

 

 

$

28,403

 

Sales tax receivable

 

 

515

 

 

 

408

 

Other receivables

 

 

887

 

 

 

1,154

 

Provision for current expected credit losses

 

 

(10,924

)

 

 

(10,917

)

Total receivables, net

 

$

17,013

 

 

$

19,048

 

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Trade receivables

 

$

26,535

 

 

$

28,403

 

Less: provision for current expected credit losses

 

 

(10,924

)

 

 

(10,917

)

Total trade receivables, net

 

$

15,611

 

 

$

17,486

 

 

 

 

 

 

 

 

Of which

 

 

 

 

 

 

Current

 

 

12,110

 

 

 

13,799

 

31-90 days

 

 

2,545

 

 

 

2,837

 

Over 90 days

 

 

11,880

 

 

 

11,767

 

Less: current expected credit losses

 

 

(10,924

)

 

 

(10,917

)

Total trade receivables, net

 

$

15,611

 

 

$

17,486

 

 

The over 90 days aged balance relates mainly to one customer which was deemed uncollectible.

 

5.
Acquisitions

Contingent consideration

The balances of the Company's contingent considerations are as follows: