First quarter 2023 record Net Revenue of $69.4 million, an increase of 42.8% year-over-year
6th consecutive quarter of sequential revenue growth and 3rd consecutive quarter of positive and increasing cash flow from operations
Generated positive free cash flow for the first time since the first quarter of 2021
Gross profit margin improved 420 basis points sequentially to 48.8%
Progress continues towards TSX listing upon shareholder vote on June 22nd
TORONTO, May 11, 2023 /CNW/ – TerrAscend Corp. (“TerrAscend” or the “Company”) (CSE: TER) (OTCQX: TRSSF), a leading North American cannabis operator, today reported its financial results for the first quarter ended March 31, 2023. All amounts are expressed in U.S. dollars and are prepared under U.S. Generally Accepted Accounting Principles (GAAP), unless indicated otherwise.
The following financial measures are reported as results from continuing operations due to the shutdown of the licensed producer business in Canada, which is reported as discontinued operations for all of 2022. All historical periods have been restated accordingly.
First Quarter 2023 Financial Highlights
- Net Revenue was $69.4 million, an increase of 0.6% sequentially and 42.8% year-over-year.
- Gross Profit Margin was 48.8%, compared to 44.6% in Q4 2022 and 32.1% in Q1 2022.
- Adjusted Gross Profit Margin1 was 49.0%, compared to 45.3% in Q4 2022 and 40.3% in Q1 2022.
- GAAP Net loss from continuing operations was $19.2 million, compared to $2.0 million in Q4 2022 and $13.8 million in Q1 2022.
- EBITDA from continuing operations1 was $6.1 million, compared to $30.0 million in Q4 2022 and $1.1 million in Q1 2022.
- Adjusted EBITDA from continuing operations1 was $12.2 million, compared to $12.2 millionin Q4 2022 and $4.9 million in Q1 2022.
- Adjusted EBITDA Margin from continuing operations1 was 17.6%, compared to 17.7% in Q4 2022 and 10.1% in Q1 2022.
- Cashflow provided by (used in) continuing operations was $8.4 million compared to $7.3 million in Q4 2022 and ($18.8) million in Q1 2022.
- Free cash flow was a positive $5.9 million compared to ($6.9) million in Q4 2022 and ($23.0) million in Q1 2022.
- Cash and Cash Equivalents totaled $32.9 million as of March 31, 2023 as compared to $26.2 million as of December 31, 2022.
“Despite a challenging environment, revenue in the first quarter increased 42.8% year-over-year, gross margins significantly improved by 420 basis points sequentially to 48.8% and, importantly, we generated positive free cash flow of $5.9 million. This was our sixth consecutive quarter of sequential revenue growth and our third consecutive quarter with positive and increasing cash flow from operations,” commented Jason Wild, Executive Chairman of TerrAscend. “2023 will show substantial revenue growth. We operate in a number of attractive states that are converting to adult-use, with Maryland starting on July 1st. While we would like to see the industry on stronger footing overall, we do believe that the distressed environment will present opportunities for us to acquire assets which could drive significant additional profitability for the Company.”
Financial Summary Q1 2023 and Comparative Periods
All figures are restated for the Canadian business recorded as discontinued operations.
|(in millions of U.S. Dollars)||Q1 2023||Q4 2022||Q1 2022|
|Quarter-over-Quarter increase (decrease)||0.6 %||4.2 %||5.9 %|
|Year-over-Year increase||42.8 %||50.3 %||-2.2 %|
|Gross profit margin||48.8 %||44.6 %||32.1 %|
|Adjusted Gross Profit1||34.0||31.3||19.6|
|Adjusted Gross Profit Margin %||49.0 %||45.3 %||40.3 %|
|General & Administrative expense||27.7||35.2||21.5|
|Share-based compensation expense (included in G&A expense above)||1.7||1.6||3.4|
|G&A as a % of revenue, net||39.9 %||51.0 %||44.2 %|
|Net (loss) income from continuing operations||(19.2)||(2.0)||(13.8)|
|EBITDA from continuing operations1||6.1||30.0||1.1|
|Adjusted EBITDA from continuing operations1||12.2||12.2||4.9|
|Adjusted EBITDA Margin from continuing operations||17.6 %||17.7 %||10.1 %|
|Cash (used in) provided by operations||8.4||7.3||(18.8)|
|1. Adjusted Gross Profit, Adjusted Gross Profit Margin, EBITDA from continuing operations, Adjusted EBITDA from continuing operations and Adjusted EBITDA Margin from continuing operations are non-GAAP measures. Please see discussion of non-GAAP measures and reconciliation to Gross Profit (for Adjusted Gross Profit), Net Income/(Loss) (for Adjusted EBITDA from continuing operations) and Net Revenue (for Adjusted Gross Profit Margin and Adjusted EBITDA Margin from continuing operations), the closest comparable GAAP measures, at the end of this press release.|
First Quarter 2023 Business and Operational Highlights
- Applied to list common shares on the Toronto Stock Exchange (TSX), upon completion of a reorganization which is expected to qualify the Company for listing, subject to shareholder approval at the Company’s annual general meeting scheduled for June 22nd, and subject to TSX approval.
- Promoted Ziad Ghanem to Chief Executive Officer.
- Launched Gage branded products in Maryland.
- Partnered with The Hoffman Centers to offer free expungement services in New Jersey.
- Held grand opening of 18th Michigan retail location at Lemonnade Center Line.
- Appointed Jeroen De Beijer as Chief People and Culture Officer.
- Launched adult-use cannabis sales at Cookies Detroit retail location.
- Closed on acquisition of Allegany Medical Marijuana Dispensary (AMMD), a high performing and well located dispensary in Maryland.
- Entered into multi-year agreement to introduce Wana’s products at The Apothecarium retail stores and additional third-party retailers in New Jersey and Maryland.
- Announced details of internal reorganization in connection with proposed uplisting to the TSX.
- Expanded partnership with Cookies to cultivate and manufacture top-shelf genetics in Maryland.
- Increased ownership interest in Cookies Retail Canada Corp to 95% of the issued and outstanding shares.
First Quarter 2023 Financial Results
Net revenue for the first quarter of 2023 was $69.4 million as compared to fourth quarter of 2022 net revenue of $69.0, representing 0.6% growth sequentially and 42.8% growth year over year. The sequential growth was driven primarily by strong performance in New Jersey and the closing of the Allegany dispensary acquisition in Maryland, partially offset by first quarter versus fourth quarter seasonality.
Gross margin for the first quarter of 2023 was 48.8% as compared to 44.6% in the fourth quarter of 2022 and 32.1% in the first quarter of 2022. Adjusted gross profit margin, a non-GAAP financial measure, was 49.0% for the first quarter of 2022 as compared to 45.3% for the fourth quarter of 2022 and 40.3% for the first quarter of 2022. The 420 basis point sequential improvement in gross profit margin from the fourth quarter of 2022 to the first quarter of 2023 was driven by increased yields, optimization of mix and better utilization of capacity in New Jersey, Michigan and Maryland.
General & Administrative (G&A) expenses, excluding share-based compensation expense, for the first quarter of 2023 were $26.0 million as compared to $33.6 million in the fourth quarter of 2022 and $18.1 million in the first quarter of 2022. Excluding one-time items of $1.9 million in the first quarter primarily related to SOX implementation and legal settlements, and $9.9 million in the fourth quarter mainly related to bad debt, as previously disclosed, G&A expenses were $24.1 million and $23.7 million, respectively, with the modest increase mainly related to the acquisition of the AMMD dispensary in Maryland. Share based compensation expense in the first quarter of 2023 was $1.7 million as compared to $1.6 million in the fourth quarter of 2022 and $3.4 million in the first quarter of 2022.
GAAP Net loss from continuing operations in the first quarter of 2023 was $19.2 million compared to $2.0 million in the fourth quarter of 2022 and $13.8 million in the first quarter of 2022. The increase in net loss of $17.2 million quarter over quarter primarily relates to a $21.2 million reversal of goodwill and intangibles impairments in the fourth quarter of 2022 related to the finalization of the acquisition accounting for Gage.
Adjusted EBITDA from continuing operations for the first quarter of 2023, a non-GAAP measure, was $12.2 million, representing a 17.6% margin, compared to $12.2 million and a 17.7% margin in the fourth quarter of 2022 and $4.9 million and a 10.1% margin in the first quarter of 2022.
Balance Sheet and Cash Flow
Cash and cash equivalents were $32.9 million as of March 31, 2023, compared to $26.2 million as of December 31, 2022. Cash provided by operations was $8.4 million for the first quarter of 2023 compared to $7.3 million in the previous quarter. The quarter-over-quarter increase was driven by reduced interest payments partially offset by an increase in inventory in Maryland related to the scale up of the new facility and the preparation for adult use beginning July 1st. Accrued income tax related to the current quarter was $7.6 million. No cash income tax payments were made during the quarter. Capex spending was $2.5 million in the first quarter of 2023, primarily related to two store openings in Michigan, compared to $14.2 million in Q4 2022, primarily related to completion of the Hagerstown, MD facility, and $4.2 million in Q1 2022. Free cash flow for the quarter was a positive $5.9 millioncompared to ($6.9) million in Q4 2022 and ($23.0) million in Q1 2022.
The Company received $12.7 million during the quarter related to a factoring with recourse agreement for employee retention credits. The Company also closed on the acquisition of AMMD for all cash consideration of $9.6 million.
As of May 10, 2023 there were 351 million basic shares outstanding including 275 million common shares, 13 million preferred shares as converted, and 63 million exchangeable non-voting shares. Additionally, there are 65 million warrants and options outstanding at a weighted average price of $4.33.
TerrAscend will host a conference call today, May 11, 2023, to discuss these results. Jason Wild, Executive Chairman, Ziad Ghanem, Chief Executive Officer, and Keith Stauffer, Chief Financial Officer, will host the call starting at 5:00 p.m. Eastern time. A question-and-answer session will follow management’s presentation.
|CONFERENCE CALL DETAILS|
|Date:||Thursday, May 11, 2023|
|Time:||5:00 p.m. Eastern Time|
|Replay:||416-764-8677 or 1-888-390-0541Available until 12:00 midnight Eastern Time Thursday, May 25, 2023 Replay Entry Code: 703912#|
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, Maryland, Michigan and California and retail operations in Canada. TerrAscend operates The Apothecarium and Gage dispensary retail locations as well as scaled cultivation, processing, and manufacturing facilities in its core markets. TerrAscend’s cultivation and manufacturing practices yield consistent, high-quality cannabis, providing industry-leading product selection to both the medical and legal adult-use markets. The Company owns several synergistic businesses and brands including Gage Cannabis, The Apothecarium, Ilera Healthcare, Kind Tree, Legend, State Flower, and Valhalla Confections. For more information visitwww.terrascend.com.
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 U.S. 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.