TerrAscend Corp., a North American cannabis operator, today reported financial results for its third quarter ending September 30, 2020.
Third Quarter 2020 Financial Highlights
(Unless otherwise stated, results are in Canadian dollars)
- Net sales of $51 million in Q3 2020 compared to $47 million in Q2 2020 and $35 million in Q1 2020.
- Gross margin increased to 59% in Q3 2020 compared to 56% in Q2 2020 and 45% in Q1 2020 (before gain on fair value of biological assets).
- Adjusted EBITDA1 increased to $17.8 million in Q3 2020 compared to $11.4 million in Q2 2020 and $4.9 million in Q1 2020.
- Adjusted EBITDA margin increased to 35% in Q3 2020 compared to 24% in Q2 2020 and 14% in Q1 2020.
“We’re driving strong revenue growth and continued margin expansion by focusing on operational excellence, controlled SG&A spending, and strategically allocating our capital.” said Jason Ackerman, CEO and Executive Chairman of TerrAscend. “Leveraging the skills of our of best-in-class operating team, we are focused on rapidly building scale in growing limited license markets.”
Mr. Ackerman added, “We continued to build out our footprint in the northeast, including completion of an additional 25% cultivation expansion at our Pennsylvania facility in Q3, which began selling into the market in November. In New Jersey, where I believe we will be a major player, sales from our newly operational cultivation facility and our first retail location in Phillipsburg are expected to begin in the coming days. I look forward to realizing the full benefit of our substantially larger cultivation and manufacturing capacities across our system, including our recently announced Maryland acquisition, to further accelerate our revenue and adjusted EBITDA growth in Q4 and beyond.”
Third Quarter 2020 Operational Highlights
- Completed additional 25% cultivation expansion in Pennsylvania
- TerrAscend Canada achieved breakeven adjusted EBITDA
- Opened third Pennsylvania Apothecarium dispensary in Thorndale
- Opened fourth California Apothecarium dispensary in Berkeley
- Received approval for and commenced cultivation in its 37,000 square foot New Jersey greenhouse, the first approved for medical cannabis cultivation in the state
- Named Jason Marks as new Chief Legal Officer
Subsequent Events
- Commenced sales from newly expanded State Flower cultivation facility in California
- Appointed Ed Schutter to its Board of Directors
- Expanded U.S. footprint via acquisition of Maryland Based Grower Processor
- Opened fifth California Apothecarium dispensary in Capitola
Financial Summary of Q3 2020 and Comparative Periods
|
(In 000’s of Canadian Dollars) |
Q3 2020 |
Q2 2020 |
Q3 2019 |
|
Net Sales |
$50,968 |
$47,230 |
$26,831 |
|
QoQ increase |
8% |
36% |
|
|
YoY increase |
90% |
169% |
|
|
Gross profit before gain on fair value of biological assets |
30,088 |
26,464 |
4,800 |
|
% of Net Sales |
59% |
56% |
18% |
|
General & Administrative Expense |
13,736 |
15,706 |
12,187 |
|
% of Net Sales |
27% |
33% |
45% |
|
EBITDA1 |
(12,187) |
3,777 |
(15,009) |
|
Total adjusted EBITDA1 |
17,786 |
11,431 |
(6,628) |
|
Adjusted EBITDA % of Net Sales |
35% |
24% |
-25% |
|
Net income / (loss) |
(17,550) |
(13,625) |
(17,321) |
|
Adjusted Net Income2 |
12,718 |
(7,433) |
(17,321) |
|
1. |
EBITDA and Adjusted EBITDA are Non-IFRS measures. Please see discussion and reconciliation of Non-IFRS measures below. |
|
2. |
Adjusted Net income is a Non-IFRS measure. Please see discussion of Non-IFRS measures below. Q3 2020 Adjusted net income is equal to Net income / (loss), excluding two non-cash and non-recurring items which include the impact of net increase in fair value of warrant and derivative liability of $22.2 million and the revaluation of contingent consideration of $8.1 million, predominantly attributable to Ilera acquisition. Q2 2020 Adjusted net income is equal to Net income / (loss), excluding a non-cash revaluation of contingent consideration of $6.2 million. |
Net sales increased 90% to $51 million in the third quarter of 2020, as compared to $26.8 million in the third quarter of 2019. Net sales increased 8% sequentially. The Company continued to expand organically through an increase in cultivation capacity in Pennsylvania and store expansions in Pennsylvania and California.
Gross margin, before gain on fair value of biological assets, was 59% in Q3 2020, compared to 18% in Q3 2019 and 56% in Q2 2020. The sequential increase in gross margin is the result of higher mix as well as improved yields and lower cost per pound from the Pennsylvania operations. Additionally, the turnaround of the Canadian operations has contributed to this sequential improvement.
Q3 2020 G&A expense was $13.7 million, representing 27% of Net Sales, a reduction from 33% of Net Sales in Q2 2020 and 45% of Net Sales in Q3 2019. This strong leverage is a result of tight control of costs combined with continued robust revenue growth.
Adjusted EBITDA1 was $17.8 million in Q3 2020, compared to $11.4 million in Q2 2020 and a loss of $(6.6) million in Q3 2019. Adjusted EBITDA margins expanded sequentially to 35% in Q3 2020 from 24% in Q2 2020, driven by the growing contribution of Ilera combined with an adjusted EBITDA breakeven result for TerrAscend Canada.
Net loss for Q3 2020 was $17.6 million, largely impacted by a net increase in fair value of warrant and derivative liability of $22.2 million and a revaluation of contingent consideration of $8.1 million.
Adjusted net income2 for Q3 2020 was $12.7 million, a positive result for the first time in company history.
Cash and cash equivalents, including restricted cash, were $45 million as of September 30, 2020, compared to $6.9 million as of September 30, 2019, and $75 million as of June 30, 2020.
As of September 30, 2020, there were 291 million shares outstanding on a fully diluted basis. Fully diluted shares outstanding include 77 million common shares, 76 million common share equivalent proportionate voting shares, 15 million preferred shares, 39 million exchangeable non-voting shares, and 84 million warrants and options. The warrants and options having a weighted average strike price of $4.48.
2020 and 2021 Outlook
TerrAscend is increasing full year 2020 guidance to at least $196 million in net sales and at least $54 million of adjusted EBITDA. TerrAscend is also providing first time guidance for 2021. The Company expects full year 2021 net sales of $360-380 million and adjusted EBITDA of $140-160 million.
TerrAscend’s outlook is driven by the Company’s emphasis on organic growth through expansion in high-quality, limited license markets while continuing to maintain tight control on costs. TerrAscend’s sales and profits in Pennsylvania are expected to continue to scale following its recently completed 25% cultivation expansion. In New Jersey, sales from the Company’s greenhouse and indoor cultivation facilities are expected to commence this month and ramp throughout 2021. TerrAscend’s Phillipsburg, New Jersey dispensary is expected to open in the coming days, with plans to open two additional dispensaries in the state in the first half of 2021.
In California, the Company recently completed an expansion of its State Flower cultivation facility which enables a 500% increase in annual production capacity of super-premium craft flower. The Company’s California retail footprint continued to expand with the opening of two new Apothecarium locations in Berkeley and Capitola.
In Canada, with a newly streamlined and targeted product portfolio and an optimized cost structure, TerrAscend expects to see positive contributions to sales and profit growth in 2021.
Lastly, upon completion of TerrAscend’s previously announced grower/processor acquisition in Maryland, the Company expects to scale its operations in the state, leveraging both its strong portfolio of brands and existing talent to gain market share.
