TerrAscend Reports First Quarter 2022 Financial Results

TORONTO, May 12, 2022  /CNW/ - TerrAscend Corp. ("TerrAscend" or the "Company") (CSE: TER) (OTCQX: TRSSF), a leading North American cannabis operator, today reported its financial results for the first quarter ending March 31, 2022. All amounts are expressed in U.S. dollars unless indicated otherwise and are prepared under U.S. Generally Accepted Accounting principles (GAAP).

First Quarter 2022 Financial Highlights

• Net Sales were $49.7 million as compared to $49.2 million in Q4 2021.
• Gross Profit Margin was 30.5% as compared to 42.3% in Q4 2021.
• Adjusted Gross Profit Margin¹ was 38.4% as compared to 49.8% in Q4 2021.
• Adjusted EBITDA¹ was $3.3 million as compared to $11.9 million in Q4 2021.
• Adjusted EBITDA Margin¹ was 6.6% as compared to 24.2% in Q4 2021.
• Cash and Cash Equivalents totaled $88.4 million as of March 31, 2022.

Jason Wild, Executive Chairman of TerrAscend, commented, "While revenue and margins during the first quarter were impacted by the industry wide vape recall in Pennsylvania and front-loaded operating costs in New Jersey ahead of adult use, we expect revenue and margin to increase materially in the second quarter and beyond. The strategic decisions and investments we have made over the last three years position us well for substantial growth in each of our four key markets – New Jersey, Pennsylvania, Michigan and Maryland."

Mr. Wild continued, "New Jersey adult use sales began on April 21^st, a significant milestone for TerrAscend and the entire industry. Demand has been strong for our brands and our elevated retail experience. We recently introduced the first concentrates in the state and expect additional 'first-in-state' product introductions in the near future. In Pennsylvania, we continue to cultivate the highest quality flower in our history and have introduced new genetics, to which patients have reacted positively. In Michigan, Gage has positioned us as a leader in one of the largest cannabis markets in the U.S. Lastly, subsequent to the quarter end, we announced the acquisition of a medical dispensary in Maryland and 5 dispensaries in Michigan. These acquisitions exemplify our strategy of 'going deep' in the markets in which we operate. While remaining focused on organic growth, the dislocation in public and private company valuations should provide attractive M&A opportunities to accelerate growth in a financially disciplined way."

Financial Summary Q1 2022 and Comparative Periods

First Quarter 2022 Business and Operational Highlights

• Closed on the acquisition of Gage Growth Corp.
• Appointed Ziad Ghanem as President and Chief Operating Officer.
• Appointed Jared Anderson, SVP Finance & Strategy, Charishma Kothari, SVP Marketing, and Charles Oster, SVP Sales.
• Appointed Kara DioGuardi to the Board of Directors.
• Became first major MSO to expand its ecommerce platform via proprietary Apothecarium mobile app, available in the Apple App store, with express pick-up and delivery where permitted.

Subsequent Events

• Held the grand opening of adult-use sales on April 21^st in Maplewood and Phillipsburg, New Jersey, two of only twelve dispensaries currently opened in the state.
• Approved for hydrocarbon extraction in New Jersery with first products recently launched.
• Signed lease on new facility in New Jersey, which will provide expanded capacity up to the 150,000 canopy square foot limit.
• Received home delivery license for medical patients in New Jersey.
• Partnered with Cookies to open its third Cookies-branded dispensary in Michigan, located in Ann Arbor.
• Announced agreement to acquire KISA Enterprises MI, LLC and KISA Holdings, LLC ("Pinnacle"), a dispensary operator in Michigan with 5 operational locations.
• Extraction lab and packaging facilities in Michigan approved to start operations.
• Announced acquisition of Allegany Medical Marijuana Dispensary ("AMMD") located in Cumberland, MD, which will enable the Company to become vertically integrated in the state.
• Announced the promotion of Jodie Lampert to SVP of Human Resources and the appointment of Lynn Gefen as Chief Legal Officer and Corporate Secretary.

First Quarter 2022 Financial Results

Net sales for the first quarter of 2022 totaled $49.7 million, up 1% sequentially and down 7% year over year, mainly related to the temporary impact of the vape recall on the Pennsylvania business, combined with the continued intentional accumulation of inventory in New Jersey, versus selling wholesale, in preparation for adult use sales. The Company's Canadian business also experienced a soft quarter both sequentially and year over year.  The declines were partially offset by three weeks of revenue from the Gage acquisition, which closed on March 10th.

Gross margin for the quarter was 30.5% as compared to 42.3% in the previous quarter. Adjusted gross margin for the quarter, excluding one-time impacts such as reserves for the Pennsylvania vape recall in the first quarter, was 38.4% as compared to 49.8% in the previous quarter.  The sequential margin compression was driven by the under-absorption impact of lower volumes related to the vape recall in Pennsylvania, front loaded costs in New Jersey ahead of adult use sales, and an unfavorable mix from the addition of Gage. 

General & Administrative expenses, excluding stock-based compensation, were up $2.2 million, including Gage, versus the previous quarter. As a percentage of revenue, G&A increased to 38.7% in the first quarter of 2022 from 34.5% in fourth quarter of 2021. The increase as a percentage of revenue was impacted by flat revenue combined with front-loaded spending in New Jersey ahead of adult use and the addition of Gage for part of the quarter.

Adjusted EBITDA for the quarter was $3.3 million versus $11.9 million in the previous quarter. This reduction was mainly driven by gross margin compression in Pennsylvania related to lower volumes and front-loaded costs in New Jersey ahead of adult use sales, as well as intentional accumulation of inventory in the state in preparation for adult use sales.

Operating loss for the quarter was $10.0 million, driven by the mix of revenue resulting in compressed gross margin.

Net loss for the quarter was $16.0 million, mainly driven by the operating loss, accrued income taxes of $3.7 million, and finance and other expenses of $6.9 million, partially offset by a net gain on fair value of warrant liability of $5.7 million. 

Balance Sheet and Cash Flow

Cash and cash equivalents were $88.4 million as of March 31, 2022, compared to $79.6 million as of December 31, 2021, providing ample capacity to fund planned organic and inorganic growth initiatives.

Cash used from operations was $18.8 million for the three months ended March 31, 2022, mainly driven by working capital as the Company continued to prepare for adult use sales in New Jersey, as well as $8 million of interest payments.  The Company received $23.9 million in proceeds from warrants and options during the quarter while paying $3.3 million to terminate the lease in Frederick, Maryland in preparation for the transition to the new facility in Hagerstown.  A payment of $7.0 million was also made for the final earnout related to the acquisition of the State Flower business.  

Capital expenditures were $4.2 million in the quarter, primarily related to the on-going expansion work at the Hagerstown, Maryland facility.

As of May 11^th, 2022 there were 318.4 million basic shares outstanding including 252 million common shares, 14 million preferred shares as converted, and 52.4 million exchangeable shares.

Conference Call

TerrAscend will host a conference call today, May 12, 2022, to discuss these results. Jason Wild, Executive Chairman; Ziad Ghanem, President and Chief Operating Officer and Keith Stauffer, Chief Financial Officer will host the call starting at 6:00 p.m. Eastern time. A question-and-answer session will follow management's presentation.

Financial results and analyses are available on the Company's website (www.terrascend.com) and SEDAR (www.sedar.com).

The Canadian Securities Exchange ("CSE") has neither approved nor disapproved the contents of this news release. Neither the CSE nor its Market Regulator (as that term is defined in the policies of the CSE) accepts responsibility for the adequacy or accuracy of this release.

Definition and Reconciliation of Non-GAAP Measures

In addition to reporting the financial results in accordance with GAAP, the Company reports certain financial results that differ from what is reported under GAAP. Non-GAAP measures used by management do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. The Company believes that certain investors and analysts use these measures to measure a company's ability to meet other payment obligations or as a common measurement to value companies in the cannabis industry, and the Company calculates Adjusted Gross Profit as Gross Profit adjusted for certain material non-cash items and Adjusted EBITDA as EBITDA adjusted for certain material non-cash items and certain other adjustments management believes are not reflective of the ongoing operations and performance. Such information is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The Company believes this definition is a useful measure to assess the performance of the Company as it provides more meaningful operating results by excluding the effects of expenses that are not reflective of the Company's underlying business performance and other one-time or non-recurring expenses.

The table below reconciles Gross Profit and Adjusted Gross Profit for the quarters ended March 31, 2022, December 31, 2021, and March 31, 2021

The table below reconciles net loss to EBITDA and Adjusted EBITDA for the quarters ended March 31, 2022, December 31, 2021, and March 31, 2021

	For the Three Months Ended
		March 31, 2021				December 31, 2021				March 31, 2022
Net loss		$	(14,111)			$	(5,927)			$	(16,006)
Add (deduct) the impact of:
Provision for income taxes			9,436				6,942				3,743
Finance expenses			5,359				6,528				6,699
Amortization and depreciation			3,521				4,140				5,084
EBITDA			4,205				11,683				(480)
Add (deduct) the impact of:
Non-cash write-down of inventory			—				1,968				—
Relief of fair value of inventory upon acquisition			—				1,735				1,806
Vape recall			—								1,894
Share-based compensation			3,567				1,548				3,356
Impairment of property and equipment			—				470				—
Loss on lease termination			—				3,278				—
Revaluation of contingent consideration			2,997				932				119
Restructuring and executive severance			—				14				—
Legal settlements			1,381				—				—
Other one-time items			262				3,583				1,974
(Gain) loss on fair value of warrants and purchase option derivative asset			5,410				(14,189)				(5,713)
Indemnification asset release			1,197				613				(25)
Unrealized and realized (gain) loss on investments and notes receivable			(228)				—				—
Unrealized and realized foreign exchange loss			2,783				228				356
Adjusted EBITDA		$	21,574			$	11,863	By: PR Newswire Association LLC. - 12 May 2022 Back to overview Enhance your business development with Biotechgate Try for free »