TerrAscend Reports 2020 Financial Results and Raises Full Year 2021 Guidance
- Full Year 2020 Net Sales increased 134% year-over-year to $198 million
- Q4 Net Sales increased 152% year-over-year and 28% quarter-over-quarter to $65 million
- Q4 Adjusted EBITDA1 increased 46% quarter-over-quarter to $26 million and Adjusted EBITDA margin increased to 40% from 35% in Q3
- Ended 2020 with $75 million of cash, mainly driven by positive cash from operations, and subsequently raised $224 million in an oversubscribed non-brokered private placement
- Converts guidance to US dollars and raises full year 2021 guidance for Net Sales to exceed USD $290 million and Adjusted EBITDA to exceed USD $122 million, both exceeding the high end of previously announced guidance ranges1,4
NEW YORK and TORONTO, March 23, 2021 /CNW/ – TerrAscend Corp. (“TerrAscend” or the “Company”) (CSE: TER) (OTCQX: TRSSF), a leading North American cannabis operator, today reported financial results for its fourth quarter and year ending December 31, 2020.
Fourth Quarter 2020 Financial Highlights
(Unless otherwise stated, results are in Canadian dollars)
- Net Sales of $65 million compared to $51 million in Q3 2020, an increase of 28%.
- Adjusted Gross Margin2 increased to 60% compared to 59% in Q3 2020.
- Adjusted EBITDA1 increased to $26 million compared to $18 million in Q3 2020.
- Adjusted EBITDA1 Margin increased to 40% compared to 35% in Q3 2020.
- Cash Flow From Operations of $24 million compared to $0 in Q3 2020.
Full Year 2020 Financial Highlights
(Unless otherwise stated, results are in Canadian dollars)
- Net Sales increased 134% to $198 million compared to $85 million in 2019.
- Adjusted Gross Margin2 increased to 56% from 4% in 2019.
- Adjusted EBITDA1 of $60 million compared to a loss of $27 million in 2019.
- Adjusted EBITDA1 Margin of 30% compared to negative 31% in 2019.
- Cash Flow From Operations of $33 million compared to a loss of $48 million in 2019.
In Q4, we drove strong revenue growth, margin expansion and cash generation by focusing on operational excellence, disciplined cost control and effective allocation of capital. I’m pleased to see how our team has executed in the quarter.
Jason Wild, Executive Chairman of TerrAscend
Looking at our growth plans for 2021, we are well positioned to continue our momentum. The business is firing on all cylinders and we are only now just beginning to realize the benefits of our recently completed investments. Sales from facility expansions in Pennsylvania, New Jersey, and California are just starting to come to market, our acquisition in Maryland is expected to close imminently, and two additional retail stores are set to open in New Jersey.
Fourth Quarter 2020 Operational Highlights
- Commenced sales from newly expanded State Flower cultivation facility in California
- Realized first sales from 25% capacity expansion in Pennsylvania (in addition to the 3x expansion in Q1 2020)
- Closed on US$120 million term loan secured by Ilera business in Pennsylvania
- Closed on US$20 million loan from Canopy Growth to the Company’s Arise Bioscience division
- Appointed Ed Schutter to its Board of Directors
- Announced expansion of U.S. footprint via acquisition of Maryland Based Grower Processor
- Opened fifth California Apothecarium dispensary in Capitola
- Received Permit to dispense medical cannabis at first New Jersey dispensary in Phillipsburg
- Completed second phase of New Jersey 140,000 sq ft cultivation and manufacturing facility
- Received permit in New Jersey allowing for processing, extraction and manufacturing of cannabis products
- Raised $224 million in an oversubscribed non-brokered private placement in January 2021
- Agreed to settlement and termination of offtake agreement with Pharmhouse for an immaterial amount
Financial Summary of Q4 2020 and Comparative Periods
Net Sales increased 152% to $65 million in the fourth quarter of 2020, as compared to $26 million in the fourth quarter of 2019. Net Sales increased 28% sequentially. The Company continued to expand organically through an increase in cultivation capacity in Pennsylvania and California, the first sales into the New Jersey market, the continued growth and ramp-up at its three retail stores in Pennsylvania as well as two new store locations in California.
Gross margin, before gain on fair value of biological assets, was 55% in the fourth quarter of 2020. Adjusted gross margin, excluding inventory impairment in Canada, a one-time non-cash item, was 60% in the fourth quarter of 2020 compared to 59% in the third quarter of 2020. The sequential improvement in adjusted gross margin is the result of higher mix as well as improved yields and lower cost per pound from the Pennsylvania operations.
G&A expense was $15 million, representing 23% of Net Sales in the fourth quarter of 2020, a reduction from 27% of Net Sales in the third quarter of 2020. This strong leverage is a result of tight control of costs combined with continued robust revenue growth.
Adjusted EBITDA1 was $26 million in the fourth quarter of 2020, compared to $18 million in the third quarter of 2020. Adjusted EBITDA margins expanded sequentially to 40% in the fourth quarter of 2020 from 35% in the third quarter of 2020 driven by improvements in both gross margin and G&A leverage.
Net loss for the fourth quarter of 2020 was $109 million, largely impacted by a net increase in fair value of warrant and derivative liability of $124 million and a revaluation of contingent consideration of $5 million.
Adjusted net income2 for the fourth quarter of 2020 was $20 million, a positive result for the second time in company history following the $13 million result in the third quarter of 2020.
Cash flow from operations was a positive $24 million in the fourth quarter of 2020 driven by continued ramp in U.S. operations partially offset by income taxes. Resulting cash and cash equivalents were CAD $75 million as of December 31, 2020, compared to CAD $12 million as of December 31, 2019, and CAD $45 million as of September 30, 2020. Also during the quarter, the Company closed on a US $120 million term loan secured by the Ilera Healthcare division and used part of the net proceeds to pay US $106 million towards the final earnout payment for the acquisition of Ilera. The remaining earnout payment of US $30 million was deferred to June 30, 2021 per a separate agreement with the sellers. Subsequent to quarter end, the Company completed an equity offering raising gross proceeds of CAD $224 million, further strengthening an already strong balance sheet.
As of March 23, 2021, total basic shares outstanding on an as converted basis were approximately 232 million. Fully diluted shares outstanding were 313 million, including approximately 178 million common shares, 15 million common share equivalent preferred shares, 39 million exchangeable non-voting shares, and 81 million warrants and options. The warrants and options had a weighted average strike price of $4.84.
TerrAscend is raising full year 2021 guidance to exceed the high end of previously communicated ranges. Additionally, the Company is converting guidance into US dollars due to the anticipated change to USD reporting currency from CAD in the first quarter 2021. The Company expects full year 2021 Net Sales to exceed USD $290 million and Adjusted EBITDA to exceed USD $122 million.4
TerrAscend’s 2021 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.
In Pennsylvania, sales and profits are expected to benefit from the annualization of multiple increases in cultivation capacity completed in 2020.
In New Jersey, sales from the Company’s 40,000 square foot greenhouse and 80,000 square foot indoor cultivation facilities are expected to ramp throughout 2021. TerrAscend’s Phillipsburg, New Jersey dispensary will achieve its first full quarter of sales in the first quarter of 2021 and the Company plans to open two additional dispensaries in the state in the second quarter and third quarter of 2021.
In California, the Company completed an expansion of its State Flower cultivation facility in late 2020 which is expected to increase annual production capacity of super-premium craft flower by 500%. The Company’s California retail footprint continued to expand with the opening of two new Apothecarium locations in Berkeley and Capitola in the second half of 2020. Both locations continue to scale, and the overall business continues to recover from the easing of COVID restrictions in the state.
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, the Company anticipates becoming a U.S. filer with the United States Securities and Exchange Commission by the end of 2021. Furthermore, the Company is preparing to meet the requirements necessary for its securities to be traded on a national U.S. exchange should such an event become permissible by U.S. law.
TerrAscend will host a conference call today, March 23, 2021, to discuss these results. Jason Wild, Executive Chairman, Keith Stauffer, Chief Financial Officer and Greg Rochlin, Chief Executive Officer of Northeast operations will host the call starting at 8:30 a.m. Eastern time. A question and answer session will follow management’s presentation.
CONFERENCE CALL DETAILS
DATE: Tuesday, March 23rd, 2021
TIME: 8:30 a.m. Eastern Time
WEBCAST: Click to Access
DIAL-IN NUMBER: 1-888-664-6392
CONFERENCE ID: 53793717
REPLAY: (416) 764-8677 or (888) 390-0541
Available until 12:00 midnight Eastern Time Tuesday, April 6th, 2021
Replay Code: 793717
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.
TerrAscend is a leading North American cannabis operator with vertically integrated operations in Pennsylvania, New Jersey, and California in addition to operating as a licensed producer in Canada. TerrAscend operates an award-winning chain of Apothecarium dispensary retail locations as well as scaled cultivation, processing and manufacturing facilities on both the East and West coasts. TerrAscend’s best-in-class cultivation and manufacturing practices yield consistent, high-quality cannabis, providing industry-leading product selection to both the medical and legal adult-use market. The Company owns several synergistic businesses and brands, including The Apothecarium, Ilera Healthcare, Kind Tree, Prism, State Flower, Valhalla Confections, and Arise Bioscience Inc. For more information, visit www.terrascend.com.
Non-IFRS Measures, Reconciliation and Discussion
Certain financial measures in this news release are non-IFRS measures, including, Adjusted Gross Profit, Adjusted EBITDA, and Adjusted Net Income. These terms are not defined by IFRS and, therefore, may not be comparable to similar measures provided by other companies. These metrics have no direct comparable IFRS financial measure. 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 IFRS. For more information, please see “Non-IFRS Financial Measures” in the Company’s Interim MD&A available on www.sedar.com.
Adjusted Gross Profit is a non-IFRS measure which management uses to evaluate the performance of the Company’s business as it reflects its ongoing profitability. The Company believes that certain investors and analysts use this measure to evaluate a company’s ability to service debt and to meet other payment obligations or as a common measurement to value companies in certain industries. The Company measures Adjusted Gross Profit as Gross Profit / (loss) less the cost of a one-time inventory impairment at its Canadian operation.
Adjusted EBITDA is a non-IFRS measure which management uses to evaluate the performance of the Company’s business as it reflects its ongoing profitability. The Company believes that certain investors and analysts use this measure to evaluate a company’s ability to service debt and to meet other payment obligations or as a common measurement to value companies in certain industries. The Company measures Adjusted EBITDA as EBITDA less unrealized gain on changes in fair value of biological assets and other income plus fair value changes in biological assets included in inventory sold, impairments, restructuring costs, purchase accounting adjustments, transaction costs, share based compensation, revaluation of warrants and derivatives liabilities, and unrealized loss on investments.
Adjusted net income is a non-IFRS measure which management uses to evaluate the performance of the Company’s business as it reflects its ongoing profitability. The Company believes that certain investors and analysts use this measure to evaluate a company’s ability to service debt and to meet other payment obligations or as a common measurement to value companies in certain industries. The Company measures Adjusted net income as Net Income / (loss) plus revaluation of contingent consideration plus net increase in fair value of warrant and derivative liabilities. The company considers these two specific items to be non-cash and non-recurring in nature.
Caution Regarding Cannabis Operations in the United States
Investors should note that there are significant legal restrictions and regulations that govern the cannabis industry in the United States. Cannabis remains a Schedule I drug under the US Controlled Substances Act, making it illegal under federal law in the United States to, among other things, cultivate, distribute or possess cannabis in the United States. Financial transactions involving proceeds generated by, or intended to promote, cannabis-related business activities in the United States may form the basis for prosecution under applicable US federal money laundering legislation.
While the approach to enforcement of such laws by the federal government in the United States has trended toward non-enforcement against individuals and businesses that comply with medical or adult-use cannabis programs in states where such programs are legal, strict compliance with state laws with respect to cannabis will neither absolve TerrAscend of liability under US federal law, nor will it provide a defense to any federal proceeding which may be brought against TerrAscend. The enforcement of federal laws in the United States is a significant risk to the business of TerrAscend and any proceedings brought against TerrAscend thereunder may adversely affect TerrAscend’s operations and financial performance.