Net revenue of $74.2 million and gross profit margin of 48.8%Ninth consecutive quarter of positive cash flow from continuing operations and fifth consecutive quarter of positive free cash flow1Closed on a senior secured term loan for gross proceeds of $140 million carrying an interest rate of 12.75%, maturing in August 2028, and containing no warrants or prepayment penaltiesAnnounced the signing of definitive agreement to enter Ohio market through the acquisition of a well situated, profitable dispensary
TORONTO, Nov. 6, 2024 – PRESS RELEASE – TerrAscend Corp., a leading North American cannabis company, reported its financial results for the third quarter ended Sept. 30, 2024. All amounts are expressed in U.S. dollars and are prepared under U.S. generally accepted accounting principles (GAAP), unless indicated otherwise.
The financial results of the company include all entities that are consolidated in the company’s quarterly report on Form 10-Q for the quarterly period ended September 30, 2024 (the “consolidated entities). Any references in this press release to TerrAscend or the company include references to the company and the consolidated entities.
The following financial measures are reported as results from continuing operations due to the shutdown of the company’s licensed producer business in Canada, which is reported as discontinued operations through Sept. 30, 2023. All historical periods have been restated accordingly.
Third Quarter 2024 Financial Highlights
Net revenue was $74.2 million, compared to $77.5 million in Q2 2024.Gross profit margin was 48.8%, compared to 48.6% in Q2 2024.GAAP net loss from continuing operations was $21.4 million, compared to a net loss of $6.2 million in Q2 2024.EBITDA from continuing operations1 was $6.6 million, compared to $18.6 million in Q2 2024.Adjusted EBITDA from continuing operations1 was $13.7 million, compared to $15.6 million in Q2 2024.Adjusted EBITDA margin from continuing operations1 was 18.5%, compared to 20.2% in Q2 2024.Net cash provided by continuing operations was $1.8 million.Free cash flow1 was $1.5 million.
“Our core business was solid during the third quarter as we maintained leading positions in our key markets, including the No. 1 market share position in New Jersey,” TerrAscend Executive Chairman Jason Wild said. “Importantly, the third quarter marked our ninth consecutive quarter of positive cash flow from continuing operations and the fifth consecutive quarter of positive free cash flow. Our consistent positive cash flow generation supports our ability to execute our growth strategy, which includes aggressive pursuit of M&A.
“To that end, I am pleased that today we announced the signing of a definitive agreement, which enables us to enter Ohio through the acquisition of a well-situated and profitable dispensary. Our intention is to assemble a leading retail footprint in Ohio by acquiring high-quality stores, just as we did in Maryland. From a regulatory perspective, we are looking forward to the upcoming DEA hearing concerning the proposed rescheduling of cannabis, and the upcoming oral arguments in the David Boies lawsuit against U.S. Attorney General [Merrick] Garland seeking equal treatment for legal, state-regulated cannabis businesses.”
Third Quarter 2024 Business and Operational Highlights
Achieved ninth consecutive quarter of positive cash flow provided by continuing operations and fifth consecutive quarter of positive free cash flow1.Maintained No. 1 market share position in New Jersey through the third quarter of 2024, according to BDSA.Grew wholesale revenue in Maryland by 26% quarter-over-quarter.Nearly doubled gross margin in Maryland from 25% at the end of 2023 to nearly 50% in the third quarter of 2024.Closed on a senior secured term loan for gross proceeds of $140 million carrying an interest rate of 12.75%, maturing in August 2028, and containing no warrants or prepayment penalties.The board of directors authorized the company to commence a stock repurchase program to repurchase up to $10 million of the company’s common shares.Completed a multi-year implementation of an enterprise resource planning (ERP) tech stack, which is designed to establish a solid foundation from which to grow organically and expand through M&A.
Subsequent Events:
Signed definitive agreement to enter the Ohio market through the acquisition of a well-situated and profitable dispensary.Statute of limitations for the company’s 2020 tax filing expired, which will enable the company to remove the uncertain tax position on its balance sheet related to a refund in the amount of $8.4 million.
Third Quarter 2024 Financial Results Net revenue for the third quarter of 2024 was $74.2 million as compared to $77.5 million for the second quarter of 2024. This decrease was mainly due to declines in wholesale revenue in New Jersey and retail revenue in Michigan, partially offset by 26% wholesale growth in Maryland.
Gross profit margin for the third quarter of 2024 was 48.8% as compared to 48.6% in the second quarter of 2024 and 48% in the first quarter of 2024. This positive trend throughout the year was driven by improvements in Maryland, while margins have remained relatively stable in Pennsylvania, New Jersey, and Michigan.
General and administrative (G&A) expenses for the third quarter of 2024 were $31.6 million as compared to $24.1 million in the second quarter of 2024. Excluding stock-based compensation expense, and two one-time items which occurred in the second quarter of 2024, G&A expenses were flat quarter-over-quarter. These one-time items include a reversal of bad debt and insurance recovery proceeds totaling $5 million.
Net loss from continuing operations for the third quarter of 2024 was $21.4 million, compared to a net loss of $6.2 million in the second quarter of 2024. The sequential increase in net loss was driven by a $1.9 million reduction in adjusted EBITDA from continuing operations as well as several one-time non-cash accounting items totaling $13 million, which include a reversal of bad debt expense in the second quarter of 2024, a gain on termination of a lease in the second quarter of 2024, a change in accounting for stock based compensation expense, a loss on extinguishment of debt related to the company’s recent refinancing, and a loss on fair value of derivative liabilities.
Adjusted EBITDA from continuing operations for the third quarter of 2024 was $13.7 million, or 18.5% of revenue, as compared to $15.6 million, or 20.2% of revenue, in the second quarter of 2024. The reduction in adjusted EBITDA from continuing operations was driven by the decline in revenue quarter-over-quarter.
Balance Sheet and Cash Flow Cash and cash equivalents, including restricted cash, were $27.2 million as of Sept. 30, 2024, compared to $30.5 million as of June 30, 2024. Net cash provided by continuing operations was $1.8 million for the third quarter of 2024. This positive result represented the company’s ninth consecutive quarter of positive cash flow from continuing operations. Capital expenditure spending was negligible in the quarter. Free cash flow was $1.5 million in the third quarter, representing the company’s fifth consecutive quarter of positive free cash flow.
During the quarter, $2.9 million was distributed to the company’s New Jersey minority partners and the company paid down $1 million of debt, excluding debt retired as part of the company’s senior secured term loan with FocusGrowth.
On Aug. 1, the company closed on a senior secured term loan (the “loan”) for total gross proceeds of $140 million from funds managed by FocusGrowth Asset Management LP, a leading capital provider to the cannabis sector, along with other members of a loan syndicate. The loan included an initial draw of $114 million in gross proceeds by certain of the consolidated entities in Pennsylvania, Maryland and California, followed by a second draw of $26 million in gross proceeds completed in September 2024 by the consolidated entities in Michigan.
The loan carries an interest rate of 12.75%, matures in August 2028, contains no prepayment penalties, and is guaranteed by the company and TerrAscend USA Inc. No warrants were issued as part of the loan. The net proceeds were used to retire the company’s existing indebtedness in Pennsylvania and Michigan.
On Aug. 20, the company announced commencement of a share repurchase program to repurchase up to $10 million of the company’s common shares, from time to time over a 12-month period. The share repurchase program became effective on Aug. 22, 2024, and remains in effect through Aug. 21, 2025. During the third quarter of 2024, the company repurchased 107,400 shares for an aggregate repurchase price of $133 thousand. There is currently approximately $9.87 million remaining available under the share repurchase program.
As of Nov. 5, 2024, there were approximately 369 million basic shares of the company issued and outstanding, including 292 million common shares, 13 million preferred shares, as converted, and 63 million exchangeable shares. Additionally, there are 44 million warrants and options outstanding at a weighted average price of $3.78.
1. EBITDA from continuing operations, Adjusted EBITDA from continuing operations, Adjusted EBITDA Margin from continuing operations, and Free Cash Flow are non-GAAP measures defined in the section titled “Definition and Reconciliation of Non-GAAP Measures” below and reconciled to the most directly comparable GAAP measure, at the end of this release.
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