-- Third quarter revenue of $26.8 million, an increase of 53% from $17.6 million in the second quarter and compared with $1.8 million in the third quarter of 2018
-- Improved gross profit margin to 26.1% from 12.3% in the second quarter
-- Increasing strategic focus on larger and higher margin U.S. markets
-- Significantly higher revenue and continued improvement in Adjusted EBITDA1 margin anticipated in the fourth quarter
TORONTO, Nov. 20, 2019 /CNW/ - TerrAscend Corp. (CSE: TER; OTCQX: TRSSF) ("TerrAscend" or "the Company"), the first and only global cannabis company licensed for sales in Canada, the U.S., and the EU, today reported financial results for the third quarter ending September 30, 2019. All figures are reported in Canadian dollars, unless otherwise indicated.
Third Quarter 2019 Financial Highlights
1. | Pro forma revenue, EBITDA and Adjusted EBITDA are Non-IFRS measures. Please see discussion and reconciliation of Non-IFRS measures below. |
Management Commentary
"Two weeks into my new role, I continue to be impressed with TerrAscend's unique assets and competitive positioning in both the United States and Canada," said Jason Ackerman, TerrAscend's Executive Chairman. "I see even greater potential for our business as we sharpen our focus on the U.S., where we are extremely well positioned to become a leader in the markets we serve. My top priority now is to operationalize the company's strategy while driving continued growth, improving profitability and fortifying our financial strength."
Added Michael Nashat, CEO of TerrAscend, "We are on track to deliver a year of tremendous progress for the overall company both operationally and financially. This has been especially evident in recent months, where we expanded our portfolio of U.S. assets with the addition of Ilera Healthcare in Pennsylvania, booked our first international shipment of medical cannabis to Europe, and received Health Canada approvals which tripled the licensed space at our Mississauga facility enabling future sales of new product formats and extracts for the Canadian Cannabis 2.0 market. Meanwhile, we have grown total sales in the third quarter to nearly $27 million from less than $2 million a year ago with improving margins."
"Looking ahead, we anticipate significantly higher revenue and continued improvement in Adjusted EBITDA margin in the fourth quarter, and further improvement on both fronts next year. While the current Canadian environment has presented challenges for the industry as a whole, the future is bright for TerrAscend and our ability to build long-term shareholder value."
Financial Summary
(In ooo's of Canadian Dollars, Except Per Share Amounts) | Q3 2019 | Q2 2019 | Q1 2019 | Q3 2018 | |||||||
Sales | $ | 26,831 | $ | 17,572 | $ | 14,582 | $ | 1,786 | |||
Gross profit (loss) before gain on fair value of biological assets | 4,800 | 1,509 | 1,507 | (1,464) | |||||||
Net impact, fair value of biological assets | 2,196 | 649 | 427 | 848 | |||||||
Gross profit (loss) | 6,996 | 2,158 | 1,934 | (616) | |||||||
Total operating expenses | 25,342 | 18,246 | 11,604 | 7,338 | |||||||
Loss from operations | (18,346) | (16,088) | (9,670) | (7,954) | |||||||
Net loss and comprehensive loss after income tax | (17,309) | (21,532) | (11,200) | (2,834) | |||||||
Less: Net loss attributable to non-controlling interest | (265) | (432) | (160) | (71) | |||||||
Net loss and comprehensive loss attributable to TerrAscend Corp. | (17,044) | (21,100) | (11,040) | (2,763) | |||||||
Net loss per share - basic and diluted | (0.33) | (0.37) | (0.26) | (0.03) | |||||||
EBITDA (non-IFRS measure) | (15,009) | (16,777) | (9,475) | (2,582) | |||||||
Adjusted EBITDA (non-IFRS measure) | (6,508) | (8,707) | (5,543) | (6,318) |
1. | EBITDA and Adjusted EBITDA are Non-IFRS measures. Please see discussion and reconciliation of Non-IFRS measures below. |
Corporate Highlights
Subsequent Events
Financings
Financial results and analyses are available on the Company's website (www.terrascend.com) and SEDAR (www.sedar.com).
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.
About TerrAscend
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, the Company participates in the medical and legal adult use market across Canada and in several US states where cannabis has been legalized for therapeutic or adult use. TerrAscend is the first and only cannabis company with sales in the US, Canada, and Europe. TerrAscend operates a number of synergistic businesses, including The Apothecarium, an award-winning cannabis dispensary with several retail locations in California and Nevada; Arise Bioscience Inc., a manufacturer and distributor of hemp-derived products; Ilera Healthcare LLC, Pennsylvania's premier medical marijuana cultivator, processor and dispenser; Ascendant Laboratories Inc., a biotechnology and licensing company committed to the continuous improvement of cannabinoid expressing plants; Solace RX Inc., a proposed Drug Preparation Premises (DPP) focused on the development of novel formulations and delivery forms; and Valhalla Confections, a manufacturer of premium cannabis-infused edibles. Additionally, TerrAscend has been chosen by the State of New Jersey to be one of six permit applicants for a vertically integrated medical cannabis operation. For more information, visit www.terrascend.com.
Non-IFRS Measures, Reconciliation and Discussion
Certain financial measures in this news release are non-IFRS measures, including Pro forma revenue, EBITDA and Adjusted EBITDA. These terms are not defined by IFRS and, therefore, may not be comparable to similar measures provided by other companies. These metrics have no direct comparable IFRS financial measure. Such information is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. For more information, please see "Non-IFRS Financial Measures" in the Company's Interim MD&A available on www.sedar.com.
Pro forma revenue is a non-IFRS measure which management uses to capture total revenue plus revenue from pending and closed acquisitions as if such acquisitions had occurred at the beginning of the performance period. The Company considers this measure to be an appropriate indicator of the growth and scope of the business.
EBITDA is a non-IFRS measure which management uses to evaluate the performance of the Company's business as it reflects its ongoing profitability. EBITDA is calculated as earnings before interest, tax, depreciation and amortization.
Adjusted EBITDA is a non-IFRS measure which management uses to evaluate the performance of the Company's business as it reflects its ongoing profitability. The Company believes that certain investors and analysts use Adjusted EBITDA to measure a company's ability to service debt and to meet other payment obligations or as a common measurement to value companies in the biopharmaceutical industry. The Company measures Adjusted EBITDA as EBITDA less unrealized gain on changes in fair value of biological assets and other income plus fair value changes in biological assets included in inventory sold, purchase accounting adjustments, transaction costs, share based compensation and unrealized loss on investments. The Company believes that this definition is suited to measure the Company's ability to service debt and to meet other payment obligations.
Certain comparative figures have been reclassified to conform to the current period's presentation.
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 US 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.
Forward Looking Information
This news release contains "forward-looking information" within the meaning of applicable securities laws. Forward-looking information contained in this press release may be identified by the use of words such as, "may", "would", "could", "will", "likely", "expect", "anticipate", "believe, "intend", "plan", "forecast", "project", "estimate", "outlook" and other similar expressions, and include statements with respect to future revenue and profits. Forward-looking information is not a guarantee of future performance and is based upon a number of estimates and assumptions of management in light of management's experience and perception of trends, current conditions and expected developments, as well as other factors relevant in the circumstances, including assumptions in respect of current and future market conditions, the current and future regulatory environment; and the availability of licenses, approvals and permits.
Although the Company believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because the Company can give no assurance that they will prove to be correct. Actual results and developments may differ materially from those contemplated by these statements. Forward-looking information is subject to a variety of risks and uncertainties that could cause actual events or results to differ materially from those projected in the forward-looking information. Such risks and uncertainties include, but are not limited to, risks related to closing subsequent tranches of the Offerings; the expected timing for completion of subsequent tranches of the Offerings, including the satisfaction of customary closing conditions; current and future market conditions, including the market price of the common shares of the Company; risks related to federal, state, provincial, territorial, local and foreign government laws, rules and regulations, including federal and state laws in the United States relating to cannabis operations in the United States; and the risk factors set out in the Company's annual information form dated May 31, 2019, filed with the Canadian securities regulators and available under the Company's profile on SEDAR at www.sedar.com.
The statements in this press release are made as of the date of this release. The Company disclaims any intent or obligation to update any forward-looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.
Financial Outlook
This press release contains a financial outlook within the meaning of applicable Canadian securities laws. The financial outlook has been prepared by management of TerrAscend to provide an outlook for the fourth quarter of 2019 and may not be appropriate for any other purpose. The financial outlook has been prepared based on a number of assumptions including the assumptions discussed under the heading "Forward Looking Information" above and assumptions with respect to production, pricing, and demand, and that the acquisition of the Nevada operations of The Apothecarium will be completed late in the fourth quarter of 2019. The actual results of TerrAscend's operations for any period will likely vary from the amounts set forth in these projections and such variations may be material. TerrAscend and its management believe that the financial outlook has been prepared on a reasonable basis. However, because this information is highly subjective and subject to numerous risks, including the risks discussed under the heading "Forward Looking Information" above, it should not be relied on as necessarily indicative of future results. Except as required by applicable Canadian securities laws, TerrAscend undertakes no obligation to update the financial outlook.
TerrAscend undertakes no obligation to comment on analyses, expectations or statements made by third parties in respect of TerrAscend, its securities, or financial or operating results (as applicable).
SCHEDULE 1 | ||||||||||||
TerrAscend Corp. | ||||||||||||
Unaudited Condensed Interim Consolidated Statements of Loss and Comprehensive Loss | ||||||||||||
For the Three and Nine Months Ended September 30, 2019 and 2018 | ||||||||||||
(Amounts expressed in thousands of Canadian dollars, except for per share amounts) | ||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Sales | $ | 26,831 | $ | 1,786 | $ | 58,985 | $ | 1,795 | ||||
Cost of sales: | ||||||||||||
Cost of goods sold | 19,496 | 1,706 | 46,569 | 1,713 | ||||||||
Impairment of inventory | 980 | 1,081 | 1,744 | 1,704 | ||||||||
Production salaries and wages | 915 | 93 | 1,635 | 543 | ||||||||
Production amortization and depreciation | 114 | 103 | 316 | 280 | ||||||||
Production supplies and expenses | 526 | 267 | 905 | 456 | ||||||||
Gross profit (loss) before gain on fair value of biological assets | 4,800 | (1,464) | 7,816 | (2,901) | ||||||||
Unrealized gain on changes in fair value of biological assets | 2,283 | 917 | 3,736 | 1,593 | ||||||||
Realized fair value amounts included in inventory sold | (87) | (69) | (464) | (69) | ||||||||
Gross profit (loss) | 6,996 | (616) | 11,088 | (1,377) | ||||||||
General and administrative expense | 14,606 | 5,029 | 37,800 | 10,030 | ||||||||
Research and development | 197 | 70 | 494 | 101 | ||||||||
Share-based payments | 7,227 | 2,090 | 11,593 | 4,066 | ||||||||
Amortization and depreciation | 3,312 | 149 | 5,305 | 344 | ||||||||
Total operating expenses | 25,342 | 7,338 | 55,192 | 14,541 | ||||||||
Loss from operations | (18,346) | (7,954) | (44,104) | (15,918) | ||||||||
Finance expense (income) | 2,118 | (100) | 4,187 | (435) | ||||||||
Impairment of intangible assets | ? | ? | 58 | ? | ||||||||
Unrealized loss (gain) on investments | 236 | (5,079) | 2,822 | (5,079) | ||||||||
Unrealized gain on note receivable | (120) | ? | (120) | ? | ||||||||
Foreign exchange loss | 32 | 168 | 134 | 168 | ||||||||
Other income | (19) | (109) | (19) | (193) | ||||||||
Loss before income taxes | (20,593) | (2,834) | (51,166) | (10,379) | ||||||||
Current income tax recovery | (928) | ? | (889) | ? | ||||||||
Deferred tax recovery | (2,344) | ? | (3,130) | ? | ||||||||
Net loss | (17,321) | (2,834) | (47,147) | (10,379) | ||||||||
Other comprehensive (income) loss | (12) | ? | 2,894 | ? | ||||||||
Comprehensive loss | (17,309) | (2,834) | (50,041) | (10,379) | ||||||||
Net loss attributable to: | ||||||||||||
TerrAscend Corp. | (17,056) | (2,763) | (46,290) | (10,308) | ||||||||
Non-controlling interests | (265) | (71) | (857) | (71) | ||||||||
Comprehensive loss attributable to: | ||||||||||||
TerrAscend Corp. | (17,044) | (2,763) | (49,184) | (10,308) | ||||||||
Non-controlling interests | (265) | (71) | (857) | (71) | ||||||||
Net loss per share ? basic and diluted | (0.33) | (0.03) | (0.99) | (0.11) | ||||||||
Weighted average number of outstanding common shares | 53,140,274 | 95,870,702 | 47,556,603 | 95,218,013 |
SCHEDULE 2 | ||||||||||||
TerrAscend Corp. | ||||||||||||
Unaudited Consolidated Revenue | ||||||||||||
For the Three and Nine Months Ended September 30, 2019 and 2018 | ||||||||||||
(Amounts expressed in thousands of Canadian dollars) | ||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Canada | $ | 8,879 | $ | 1,786 | $ | 25,038 | $ | 1,795 | ||||
United States | 17,952 | ? | 33,947 | ? | ||||||||
Consolidated | $ | 26,831 | $ | 1,786 | $ | 58,985 | $ | 1,795 |
SCHEDULE 3 | |||||||||
TerrAscend Corp. | |||||||||
Unaudited Reconciliation of Net Loss to Adjusted EBITDA | |||||||||
For the Three and Nine Months Ended September 30, 2019 and 2018 | |||||||||
(Amounts expressed in thousands of Canadian dollars) | |||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||
Notes | 2019 | 2018 | 2019 | 2018 | |||||
Net loss | (17,321) | (2,834) | (47,147) | (10,379) | |||||
Add (deduct) the impact of: | |||||||||
Current income tax recovery | (928) | ? | (889) | ? | |||||
Deferred tax recovery | (2,344) | ? | (3,130) | ? | |||||
Finance expense | 2,155 | ? | 4,187 | ? | |||||
Depreciation of property, plant and equipment | 555 | 216 | 1,401 | 549 | |||||
Amortization of intangible assets | 2,874 | 36 | 4,317 | 75 | |||||
EBITDA | (a) | (15,009) | (2,582) | (41,261) | (9,755) | ||||
Add (deduct) the impact of: | |||||||||
Unrealized gain on changes in fair value of biological assets | (b) | (2,283) | (917) | (3,736) | (1,593) | ||||
Realized loss on changes in fair value of biological assets | (c) | 87 | 69 | 464 | 69 | ||||
Purchase accounting adjustments | (d) | 829 | ? | 2,616 | ? | ||||
Transaction costs | (e) | 2,419 | ? | 6,224 | ? | ||||
Share-based payments | (f) | 7,351 | 2,191 | 12,113 | 4,478 | ||||
Unrealized loss (gain) on investments | (g) | 98 | (5,079) | 2,822 | (5,079) | ||||
Adjusted EBITDA | (h) | (6,508) | (6,318) | (20,758) | (11,880) |
Notes: |
(a) EBITDA is a non-IFRS measure and is calculated as earnings before interest, tax, depreciation and amortization. |
(b) Represents fair value changes of biological assets based on the average stage of growth of plants compared to expected growth period of plants from planting to harvesting. |
(c) Represents the portion of inventory harvested and sold in the period that is related to the changes in fair value of biological assets. |
(d) In connection with the Company's acquisitions, inventory was acquired at fair value, which included a markup for profit. Recording inventory at fair value in purchase accounting had the effect of increasing inventory and thereby increasing the cost of sales in subsequent periods as compared to the amounts the Company would have recognized if the inventory was sold through at cost. The write-up of acquired inventory represents the incremental cost of sales that were recognized as a result of purchase accounting. It is anticipated that this inventory will be sold in fiscal 2019 and fiscal 2020 and will impact net income in both periods. |
(e) In connection with the Company's acquisitions, the Company incurred expenses related to professional fees, consulting, legal and accounting that would otherwise not have been incurred. These fees are not indicative of the Company's ongoing costs and are expected to be incurred only as additional acquisitions are completed. |
(f) Represents non-cash share-based compensation expense. |
(g) Represents unrealized loss on fair value changes on strategic investments held. |
(h) Adjusted EBITDA is a non-IFRS measure and is calculated as EBITDA before realized and unrealized fair value changes in biological assets, acquisition related adjustments and transactions costs, share-based payments and fair value changes in investments. |
SCHEDULE 4 | ||||||
TerrAscend Corp. | ||||||
Unaudited Condensed Interim Consolidated Statements of Financial Position | ||||||
(Amounts Expressed in Canadian Dollars) | ||||||
September 30 2019 | December 31, 2018 | |||||
Assets | ||||||
Cash and cash equivalents | $ | 6,853 | $ | 21,773 | ||
Receivables, net of expected credit losses | 18,225 | 9,641 | ||||
Notes receivable | 6,290 | 1,561 | ||||
Investments | 4,993 | 7,690 | ||||
Biological assets | 4,916 | 545 | ||||
Inventory | 32,182 | 14,844 | ||||
Prepaid expenses and deposits | 10,939 | 2,427 | ||||
Deferred costs | 291 | 313 | ||||
Total Current Assets | 84,689 | 58,794 | ||||
Investment in joint venture | ? | 2,732 | ||||
Investment in associate | 1,324 | ? | ||||
Property, plant and equipment | 98,243 | 25,427 | ||||
Intangible assets and goodwill | 345,280 | 2,025 | ||||
Deferred tax asset | 1,165 | ? | ||||
Total Assets | $ | 530,701 | $ | 88,978 | ||
Liabilities and Shareholders' Equity | ||||||
Accounts payable and accrued liabilities | 27,062 | 17,677 | ||||
Deferred revenue | 1,256 | 12 | ||||
Loan payable | 60,546 | 12,683 | ||||
Contingent consideration payable | 47,802 | ? | ||||
Lease liability | 983 | ? | ||||
Corporate income tax payable | 2,329 | 16 | ||||
Total Current Liabilities | 139,978 | 30,388 | ||||
Loan payable | 6,331 | ? | ||||
Contingent consideration payable | 118,566 | ? | ||||
Lease liability | 20,566 | ? | ||||
Other liability | 18,111 | ? | ||||
Deferred tax liability | 25,180 | 688 | ||||
Total Liabilities | 328,732 | 31,076 | ||||
Shareholders' Equity | ||||||
Share capital | 228,975 | 64,883 | ||||
Warrants reserve | 30,707 | 14,335 | ||||
Share-based payments reserve | 17,886 | 7,849 | ||||
Accumulated other comprehensive loss | (2,894) | ? | ||||
Deficit | (76,649) | (30,596) | ||||
Non-controlling interest | 3,944 | 1,431 | ||||
Total Shareholders' Equity | 201,969 | 57,902 | ||||
Total Liabilities and Shareholders' Equity | $ | 530,701 | $ | 88,978 |
SOURCE TerrAscend
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