TerrAscend Reports Strong Second Quarter 2020 Net Sales of $47.2 Million and Adjusted EBITDA of $11.4 Million

TerrAscend Corp. (CSE: TER) (OTCQX: TRSSF) is a leading North American cannabis operator. The company reported financial results for its second quarter ending June 30, 2020.  

TerrAscend provides quality products, brands, and services to the global cannabinoid market. As the first North American Operator (NAO), with scale operations in both Canada and the US, TerrAscend participates in the medical and legal adult use markets across these jurisdictions.  TerrAscend operates a number of synergistic businesses, including Ilera Healthcare, Pennsylvania’s premier medical marijuana cultivator, processor and dispenser;  The Apothecarium, an award-winning cannabis dispensary with several retail locations in California; Valhalla Confections, a manufacturer of premium cannabis-infused edibles; and Arise Bioscience Inc., a manufacturer and distributor of hemp-derived products. TerrAscend holds a cultivation permit in the State of New Jersey and is pending approval for a vertically integrated medical cannabis operation with the ability to operate up to 3 Alternative Treatment Centers. Additionally, TerrAscend holds a Medical Cannabis Processor License in the State of Utah.

Second Quarter 2020 Financial Highlights

• Net sales increased 169% to $47.2 million from $17.6 million.
• Gross margin increased to 56%, compared to 9% (before gain on fair value of biological assets).
• Adjusted EBITDA1 was $11.4 million, or 24% of net sales.
• Positive Cashflow from operations of $10.4 million.
• Cash & equivalents (including restricted cash) of $75 million, compared to $17 million.

Management Commentary

“We are producing strong revenue growth while maintaining our focus on delivering industry leading margins and profitability,” said Jason Ackerman, CEO and Executive Chairman of TerrAscend. “I am incredibly proud of the performance we have achieved to date and want to thank our entire team for the great execution. After achieving our first quarter of positive EBITDA in Q1, we have now achieved another significant milestone of positive cashflow from operations in Q2.  Moving into the second half of 2020, we look forward to continued strong revenue and profitable growth as we bring our high-quality products to New Jersey patients through our first Apothecarium dispensary in the state, further expand our cultivation capacity in Pennsylvania, and add to our retail footprint in California.  We are also very excited to complete the buildout of our cultivation facility in New Jersey which will begin to generate material sales in early 2021”.

Second Quarter 2020 Operational Highlights

• Appointed Jason Ackerman as permanent Chief Executive Officer.
• Named Keith Stauffer as Chief Financial Officer.
• Closed on an oversubscribed non-brokered private placement, resulting in gross proceeds of US$37 million
• Opened second Pennsylvania Apothecarium dispensary in Lancaster

Subsequent Events

• Opened third Pennsylvania Apothecarium dispensary in Thorndale
• Opened fourth California Apothecarium dispensary in Berkeley
• Received approval to commence 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

2020 OUTLOOK AND GROWTH PLANS

Based on the ongoing strength of the Company’s operations, TerrAscend anticipates full year net sales of at least $192 million driven by second half 2020 net sales growth of at least 34% versus the first half of 2020 and 109% year over year.  Adjusted EBITDA for the year is expected to be at least $45 million.  The outlook is driven by the company’s continued emphasis on further expansion of its most profitable business in Pennsylvania and ramp up and further expansion of its retail footprint in Pennsylvania, New Jersey, and California while maintaining a tight overall focus on costs.   

Q2 2020 Financial Summary

Net sales increased 169% to $47.2 million in the second quarter of 2020 (“Q2 2020”), as compared to $17.6 million in the second quarter of 2019 (“Q2 2019”). Net sales in the U.S were $42.2 million in Q2 2020, contributing 90% of total consolidated net sales, reflecting TerrAscend’s continued focus on this important market. This increase was driven by the operational scale-up of TerrAscend’s U.S footprint, which the Company has strategically expanded through investments in production capacity as well as its wholesale and retail sales presence. The Company continued to expand organically through an increase in production and wholesale capacity in Pennsylvania and store expansions in Pennsylvania and California.

Gross margin, before gain on fair value of biological assets, was 56% in Q2 2020, compared to 45% in Q1 2020 and 9% in Q2 2019. The increase in gross margin is the result of the Company’s shift to higher margin opportunities in the U.S., as well as ongoing initiatives to optimize its Canadian operations to focus on a more profitable and sustainable business.

Q2 2020 G&A expense was $15.7 million, representing 33% of Net Sales, a reduction from 42% of Net Sales in Q1 2020 and 65% of Net Sales in Q2 2019. TerrAscend expects to continue to strategically invest in acquiring the talent and developing the appropriate infrastructure to ensure continued success in the high-growth U.S market while driving operating leverage as the Company’s operations continue to scale.

Adjusted EBITDA was $11.4 million in Q2 2020, compared to $4.9 million in Q1 2020 and an Adjusted EBITDA Loss of $(8.6) million in Q2 2019.  Adjusted EBITDA margins expanded sequentially to 24% in Q2 2020 from 14% in Q1 2020.

Cashflow from Operations was $10.4 million, representing the first quarter of positive cashflow from operations for the Company.

Cash and cash equivalents, including restricted cash, were $75 million as of June 30, 2020, compared to $17 million as of June 30, 2019, and $31 million as of March 31, 2020. The sequential increase in cash and equivalents was driven by the previously announced $37 million non-brokered private placement and positive cashflow from operations.