TerrAscend Q3 Earnings (TRSSF)
TRSSF is on the Hedgeye Cannabis LONG Bias List.
TerrAscend reported revenues of C$51.0 million (US$38.9 million) versus FactSet Consensus C$52.0 million (US$39.8 million), representing an increase of 8% QoQ and 90% YoY. The top line was driven by organic expansion through increased cultivation capacity in Pennsylvania and store expansions in Pennsylvania and California. Before gain on the fair value of biological assets, gross margin increased to 59%, representing an increase of 300bps QoQ and 4114bps YoY. Adjusted EBITDA margins expanded sequentially to 35% in Q3 from 24% in Q2, driven by the growing contribution of Ilera combined with an adjusted EBITDA breakeven result for TerrAscend Canada. Net loss for Q3 was -C$17.6 million, largely impacted by a net increase in fair value of a warrant and derivative liability of C$22.2 million and a revaluation of contingent consideration of C$8.1 million.
Recent highlights for TerrAscend include a 25% cultivation expansion in Pennsylvania, opening their third Pennsylvania Apothecarium dispensary, opening their fifth California Apothecarium dispensary, receiving approval for and commencing cultivation in their 37,000 sq. ft. New Jersey greenhouse, and expanding their U.S. footprint via an acquisition of Maryland Based Grower Processor from Curaleaf.
The company increased its full-year 2020 guidance to at least C$196 million in net sales and at least C$54 million of adjusted EBITDA. The update suggests an increase of 2.1% on revenues and a 20% increase in adjusted EBITDA. TerrAscend is also providing first time guidance for 2021. The Company expects the full year 2021 net sales of C$360-C$380 million and adjusted EBITDA of C$140-C$160 million.
TerrAscend is well-positioned in the growth market of Pennsylvania and the newly unlocked recreational market of New Jersey. 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 their greenhouse and indoor cultivation facilities are expected to commence this month and ramp throughout 2021. The company will be opening their first NJ dispensary within the coming days and has plans to open two more in 1H 2021.
European court rules CBD is not a narcotic
The European Union’s Court of Justice in Luxembourg has ruled that CBD derived from the entire industrial hemp plant is legally not a narcotic. This new ruling could allow CBD producers to finally sell outside the regulated pharmaceutical channels to the general consumer market. “Since CBD does not contain a psychoactive ingredient in the current state of scientific knowledge … it would be contrary to the purpose and general spirit of the Single Convention to include it under the definition of ‘drugs’ within the meaning of that convention as a cannabis extract,” the judges wrote.
The court’s decision may have broader implications for the classification of cannabis in international law. The EU had shown past bias against declassifying CBD under international law. Still, with the upcoming United Nations vote in December, this new ruling may be enough to persuade EU nation-states to change their position in favor of CBD.
Mexican Senate approves marijuana legalization bill, but still, ways to go.
Yesterday, the Mexican Senate approved an adult-use legalization bill, passing 82 votes in favor, seven abstentions, and 18 against. The bill still needs approval from their lower legislative chamber, and President Andrés Manuel López Obrador needs to sign the bill into law. If Mexico passes adult-use legalization, it will become the third nation, following Uruguay and Canada. This is potentially a big positive for our LONG bias in Clever Leaves (SAMAU). The company has mentioned it has received several investments from future customers/operators in Latin America, including Brazil and pharmaceutical businesses in Mexico.
