Exclusive Interview with TerrAscend CEO and Executive Chairman Jason Ackerman
TerrAscend (CSE: TER) (OTCQX: TRSSF) is maintaining its consistent strategy of pursuing a top position in its chosen markets. CEO and Executive Chairman Jason Ackerman checked in with New Cannabis Ventures to discuss key U.S. markets, progress in the Canadian market and the company’s 2021 guidance. The audio of the entire conversation is available at the end of this written summary.
When Ackerman last spoke with New Cannabis Ventures, in April 2020, he was the company’s Executive Chairman and Interim CEO. He has now stepped into the permanent CEO role, more a formality than a change in his day-to-day responsibilities. At the head of the company, Ackerman wants to ensure that TerrAscend’s team is ahead of the growth instead of the other way around. As such, he has assessed the company’s talent and looked for gaps that need to be filled. TerrAscend has built a strong culture and adding new talent is a continuous evolution, according to Ackerman.
Late last year, TerrAscend opened a dispensary in New Jersey, and at the beginning of this year, it completed the second phase of its cultivation and manufacturing operations in the state. The market is in its infancy, but TerrAscend is positioning itself to take advantage of its opportunities.
As an early player in the state, TerrAscend will be able to open three stores, the current limit per operator, ahead of adult-use. The company intends to be one of the top players in terms of branded and wholesale manufacturing and retail.
TerrAscend was also an early entrant into the Pennsylvania market. It has a sizeable cultivation and manufacturing footprint. The company represents approximately 20 percent of the wholesale supply in this market, and it has products in 100 percent of the state’s dispensaries, according to Ackerman.
The company is entering Maryland via an acquisition expected to close in the first quarter, giving it a footprint across three contiguous East Coast states. TerrAscend is planning to use a common go-to-market strategy across those markets, developing its Apothecarium retail brand and its branded products. The company expects to be a sizeable competitor in Maryland.
On the West Coast, TerrAscend continues to make moves in the California market. The company is focused on the northern part of the state, and it now has five stores. It is also expanding the San Francisco indoor grow for its specialized State Flower brand.
Growth in the U.S.
As it looks to grow in the U.S., TerrAscend will leverage a combination of strategic M&A and organic growth. It is evaluating M&A opportunities, with an eye on markets where it can scale with limited license protection. The company has a good pipeline, according to Ackerman. TerrAscend will also continue to apply for licenses like it has in markets like California.
The last time Ackerman spoke with New Cannabis Ventures, he acknowledged challenges in the Canadian market. Since then, TerrAscend has right-sized its business there, positioning it to win. It now has a strong commercial focus in Canada, and it has pared down its SKU line to really focus on the products that are selling. A few of its SKUs have become top sellers in Ontario and other provinces, according to Ackerman.
TerrAscend also plays in the CBD space. Without specialized stores and the limited license structure, CBD requires a different strategy than THC. With the opportunity for broad distribution and direct-to-consumer focus, CBD is a good market, but overall, the THC market is meaningfully larger, according to Ackerman.
Approach to Funding and Capital Allocation
All of TerrAscend’s expansion plans are funded, and it has somewhere between $100 and $200 million in excess cash available for M&A and other opportunities.
The company was able to raise more than C$200 million in just a few days. It also completed a significant debt deal. The ability to raise more than $300 million in capital over the span of roughly four weeks signals that the markets are opening up for companies that can demonstrate strong financial performance, according to Ackerman.
When the team is determining how to best put capital to work, it looks for the highest rates of return. Ackerman wants to see 30 to 40 percent of the company’s asset base generating high levels of cash flow and another chunk of the asset base just beginning to generate cash, leaving a third of the asset base room for a longer gestation cycle.
TerrAscend released 2021 guidance of $360 to $380 million in net sales and $140 to $160 million in adjusted EBITDA. This represents a doubling of the company’s top line and 3x EBITDA growth, according to Ackerman. Markets like New Jersey, Pennsylvania and Maryland will help to drive that growth. Continued traction in the Canadian market will also play a role.
Ackerman and his team track performance metrics on a weekly and monthly basis. On the cultivation front, the company is focusing heavily on productivity with metrics like grams per square foot. The company can improve its margins by getting more yields out of its cultivation operations. TerrAscend manages its margin structure by looking for ways to decrease SG&A. Ackerman isn’t a big believer in big overhead. With EBITDA margins just above 35 percent, he considers TerrAscend a top-three or top-four player in the industry.
Coming from the online grocery space, Ackerman is accustomed to working in a competitive industry. He is positioning TerrAscend for success now and in the long-term, as challenges like regulatory uncertainty continue to shape the cannabis business.
New Cannabis Ventures provides an Investor Dashboard for TerrAscend, which is a client of New Cannabis Ventures. Listen to the entire interview: