TORONTO — TerrAscend Corp., a leading North American cannabis company, today reported its financial results for the fourth quarter and full year ended December 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 through September 30, 2023. All historical periods have been restated accordingly.
Fourth Quarter 2023 Financial Highlights
- Net Revenue was $86.6 million, an increase of 25.5% year-over-year.
- Gross Profit Margin was 48.2%, compared to 44.6% in Q4 2022.
- GAAP Net loss from continuing operations was $41.8 million, inclusive of $57.7 million of non-cash impairment charges, compared to a net loss of $2.0 million in Q4 2022. The non-cash impairment charges were recorded against goodwill and intangibles for the Company’s Michigan and California businesses.
- EBITDA from continuing operations1 was ($36.7) million, including the aforementioned non-cash impairment charges of $57.7 million, compared to $30.0 million in Q4 2022.
- Adjusted EBITDA from continuing operations1 was $19.6 million, an increase of 60.7% year-over-year.
- Adjusted EBITDA Margin from continuing operations1 was 22.7%, compared to 17.7% in Q4 2022.
- Cash flow provided by continuing operations was $9.4 million compared to $7.3 million in Q4 2022.
- Free Cash Flow2 was $7.9 million compared to $3.9 million in Q4 2022.
Full Year 2023 Financial Highlights
- Net Revenue was $317.3 million, an increase of 28.0% year-over-year.
- Gross Profit Margin was 50.3% compared to 41.0% in 2022.
- GAAP Net Loss from continuing operations was $82.3 million, inclusive of $58.0 million of non-cash impairment charges, compared to a net loss from continuing operations of $299.4 million in 2022, inclusive of $311.1 million of non-cash impairment charges. The non-cash impairment charges were recorded against goodwill and intangibles for the Company’s Michigan and California businesses.
- EBITDA from continuing operations1 was ($3.3) million, compared to ($248.5) million in 2022, including the aforementioned non-cash impairment charges of $58.0 million in 2023 and $311.1 million in 2022.
- Adjusted EBITDA from continuing operations1 was $68.8 million, an increase of 77.1% year-over-year.
- Adjusted EBITDA Margin from continuing operations1 was 21.7% compared to 15.7% in 2022.
- Cash flow provided by (used in) continuing operations was $31.1 million compared to ($21.8) million in 2022.
- Free Cash Flow2 was $23.4 million compared to ($61.5) million in 2022.
“We made substantial progress in 2023 across virtually all facets of our business, including significantly improving our margins, transforming our balance sheet, materially lowering our interest expense, and delivering positive free cash flow, all while driving industry leading revenue growth of 28%. I am extremely pleased that, for the first time in our history, we generated positive cash flow for a full year, with $31.1 million in cash flow from continuing operations and $23.4 million in free cash flow,” stated Jason Wild, Executive Chairman of TerrAscend. “We have the right team, high-performing assets, strong operating results and cash flow, and ample greenfield opportunities to pursue additional growth. 2023 was about operational excellence and strengthening the foundation. 2024 is about expansion by capitalizing on the current environment and entering into attractive states on accretive terms which would not have been possible two years ago.”
2023 Business and Operational Highlights
- First full year of positive cash flow provided by continuing operations and positive Free Cash Flow in the Company’s history.
- In March 2023, promoted Ziad Ghanem to the role of Chief Executive Officer.
- Closed on Private Placements totaling $21.0 million, enabling qualification for Toronto Stock Exchange (“TSX”) listing.
- Completed sale of Mississauga facility in Canada for CAD $19.7 million.
- Closed on a $25.0 million commercial loan with Stearns Bank carrying an interest rate of prime plus 2.25%, equivalent to 10.5%, with proceeds used to pay down higher interest debt.
- Paid down $43.0 million of Ilera senior secured term loan.
- Closed on the acquisition of four high-performing retail dispensaries in Maryland.
- Commenced adult-use sales in Maryland with the maximum four retail dispensaries permitted and a state-of-the-art cultivation and manufacturing facility.
- Commenced trading on the TSX under the symbol ‘TSND’ on July 4, 2023.
- Introduced Wana infused gummies in New Jersey and Maryland.
- Successfully launched both Kind Tree and Legend in Michigan, as well as Legend and Valhalla in Pennsylvania.
- Scaled up production of non-flower THC SKUs at Hagerstown, Maryland facility.
- Opened 18th and 19th Michigan retail locations.
- Awarded Maryland “Best Retail Expansion Strategy” by Benzinga.
- Provided foundational support to the David Boies lawsuit filed against the U.S. Attorney General, seeking equal treatment for cannabis businesses.
Subsequent Events
- Paid down additional $9.8 million of debt.
- Acquired the remaining 50.1% equity in State Flower, a California cultivator, and three Apothecarium dispensaries in California, all of which were already previously consolidated into financial results.
- Expanded Valhalla product lineup to include one of the first 100mg edibles in Pennsylvania.
Fourth Quarter 2023 Financial Results
Net revenue for the fourth quarter of 2023 was $86.6 million as compared to $69.0 million for the fourth quarter of 2022, representing year-over-year growth of 25.5%. The 25.5% year-over-year growth was driven by the acquisition of four dispensaries and commencement of adult-use sales in Maryland, and a more than doubling of the Company’s wholesale business in New Jersey, partially offset by retail declines in New Jersey and Michigan.
Gross profit margin for the fourth quarter of 2023 was 48.2% as compared to 44.6% in the fourth quarter of 2022. The year-over-year improvement of 360 basis points was driven by yield improvements in New Jersey, margin optimization in Michigan, and the acquisition of four dispensaries and commencement of adult-use sales in Maryland. In the fourth quarter, gross margin in Maryland declined compared to the previous quarter, resulting from an equipment malfunction which led to a crop failure at its Maryland facility. The product output from that incident led to higher discounting in the quarter. Maryland gross margins in the quarter were also impacted by temporary under absorption of fixed costs in non-flower production due to scale up in this area. The Company is increasing output of non-flower product to meet its growing wholesale business and increase verticality in its four dispensaries. The increased output is expected to partially improve gross margin in Q1 and more fully absorb fixed costs into Q2.
General & Administrative expenses (G&A) for the fourth quarter of 2023 were $27.7 million as compared to $34.5 million in the fourth quarter of 2022. G&A expenses, excluding stock-based compensation, were $25.4 million compared to $32.9 million in the fourth quarter of 2022. G&A as a percent of revenue, excluding stock-based compensation, was 29.4% in the fourth quarter, achieving the Company’s stated goal of 30%, compared to 47.6% in the fourth quarter of 2022. The fourth quarter of 2022 included a $10.0 million reserve for bad debt related to one customer in Michigan.
GAAP Net loss from continuing operations was $41.8 million, inclusive of $57.7 million of non-cash impairment charges, compared to a net loss of $2.0 million in Q4 2022. The non-cash impairment charges were recorded against goodwill and intangibles for the Company’s Michigan and California businesses.
Adjusted EBITDA from continuing operations, a non-GAAP measure, was $19.6 million, representing a 22.7% Adjusted EBITDA margin, as compared to $12.2 million and 17.7% in Q4 2022. The year-over-year improvement of 490 basis points was driven by gross margin expansion and G&A expense leverage.
Full Year 2023 Financial Results
Net revenue for the full year 2023 totaled $317.3 million, as compared to $247.8 million for 2022, an increase of 28.0%, primarily driven by adult-use sales in New Jersey, the acquisition of four retail dispensaries in Maryland, the commencement of adult-use sales in Maryland, and growth in retail sales in Michigan.
Gross profit margin was 50.3% compared to 41.0% for the full year 2022. The increase was driven by adult-use sales and yield improvements in New Jersey, adult-use sales and the acquisition of four retail dispensaries in Maryland, various margin optimization efforts in Michigan, and cost optimizations in Pennsylvania.
While revenue grew 28.0%, General & Administrative expenses (G&A) declined year-over-year. G&A expenses were $115.2 million, as compared to $115.6 million in 2022. G&A as a percent of revenue was 36.3% as compared to 46.6% in 2022. This 1,030 basis points of reduction as a percentage of revenue was driven by the growth in sales and the Company’s across the board efforts to optimize its costs and drive positive cash flow. Also, the fourth quarter of 2022 included a $10.0 million reserve for bad debt related to one customer in Michigan.
GAAP Net Loss from continuing operations was $82.3 million, inclusive of $58.0 million of non-cash impairment charges, compared to a net loss of $299.4 million in 2022, inclusive of $311.1 million of non-cash impairment charges. The non-cash impairment charges were recorded against goodwill and intangibles for the Company’s Michigan and California businesses.
Adjusted EBITDA from continuing operations, a non-GAAP measure, was $68.8 million as compared to $38.8 million in 2022 resulting in an increase of 77.1% year-over-year. The year-over-year increase in Adjusted EBITDA from continuing operations was driven by the growth in revenue of 28.0% year-over-year, and improvements in gross margin. Adjusted EBITDA margin from continuing operations was 21.7% as compared to 15.7% in 2022, an improvement of 600 basis points year-over-year. The year-over-year improvement was driven by the improvements in gross margin and optimizations of G&A.
Balance Sheet and Cash Flow
Cash and cash equivalents, including restricted cash, were $25.3 million as of December 31, 2023, compared to $26.8 million as of December 31, 2022. Net cash provided by operating activities was $9.4 million for the fourth quarter of 2023 compared to $7.3 million in the fourth quarter of 2022. This represented the Company’s sixth consecutive quarter of positive cash flow from continuing operations. Capex spending was $1.5 million in the fourth quarter of 2023 related to the Company’s Hagerstown, Maryland expansion. Free cash flow was $7.9 million compared to $3.9 million in the fourth quarter of 2022. During the quarter, payments were made related to $4.1 million of debt paydown and $4.7 million of cash distributions to the Company’s New Jersey partners.
After initiating a comprehensive evaluation in early 2023, and based on legal interpretations, the Company has changed its tax position to challenge its tax liability under Internal Revenue Code – Section 280E. This has resulted in the reclassification of $59.2 million of tax liabilities, as of December 31, 2023, to long term liabilities and an uncertain tax position on the balance sheet. The Company will be filing amended returns for calendar years 2020, 2021 and 2022 and expects to receive refunds of approximately $26 million of federal and state refunds related to 2020 and 2021. The current income tax liability on December 31, 2023 was $4.8 million and the Company plans to make payments as an ordinary taxpayer going forward.
As of March 13, 2024, there were 367 million basic shares outstanding including 291 million common shares, 13 million preferred shares as converted, and 63 million exchangeable shares. Additionally, there are 42 million warrants and options outstanding at a weighted average price of $3.91.
Financial results and analyses are available on the Company’s website (www.terrascend.com) and SEDAR+ (www.sedarplus.ca).
The Toronto Stock Exchange (“TSX”) has neither approved nor disapproved the contents of this news release. Neither the TSX nor any securities regulator accepts responsibility for the adequacy or accuracy of this release.
About TerrAscend
TerrAscend is a leading TSX-listed cannabis company with interests across the North American cannabis sector, including vertically integrated operations in Pennsylvania, New Jersey, Maryland, Michigan, and California through TerrAscend Growth Corp. and retail operations in Canada through TerrAscend Canada, Inc. (“TerrAscend”). TerrAscend operates The Apothecarium, Gage, and other 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 or licenses several synergistic businesses and brands including Gage Cannabis, The Apothecarium, Cookies, Lemonnade, Ilera Healthcare, Kind Tree, Legend, State Flower, Wana, and Valhalla Confections. For more information visit www.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.
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, current and future market conditions; 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 most recently filed MD&A, filed with the Canadian securities regulators and available under the Company’s profile on SEDAR+ at www.sedarplus.ca and in the section titled “Risk Factors” in the Company’s Annual Report for the year ended December 31, 2023 filed with the Securities and Exchange Commission on March 14, 2024.
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.
Definition and Reconciliation of Non-GAAP Measures
In addition to reporting the financial results in accordance with GAAP, the Company reports certain financial results that differ from what is reported under GAAP. Non-GAAP measures used by management do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. The Company believes that certain investors and analysts use these measures to measure a company’s ability to meet other payment obligations or as a common measurement to value companies in the cannabis industry, and the Company calculates: (i) EBITDA from continuing operations and Adjusted EBITDA from continuing operations as net income (loss), adjusted to exclude [provision for income taxes, finance expenses, depreciation and amortization, relief of fair value upon acquisition, share-based compensation, gain on extinguishment of debt, restructuring related charges, impairment of good will and intangible assets and certain other items which management believes are not reflective of the ongoing operations and performance, (ii) Adjusted EBITDA Margin from continuing operations as EBITDA from continuing operations adjusted for certain material non-cash items such as inventory write downs outside of the normal course of operations, share based compensation expense, impairment charges taken on goodwill, intangible assets and property and equipment, the gain or loss recognized on the revaluation of our contingent consideration liabilities, the gain or loss recognized on the remeasurement of the fair value of the U.S denominated preferred share warrants and other warrants liabilities, one time fees incurred in connection with our acquisitions and certain other adjustments management believes are not reflective of the ongoing operations and performance, (iii) Free Cash Flow as net cash provided by operating activities from continuing operations as presented in the Consolidated Statements of Cash Flows, less capital expenditures for property and equipment, and (iv) General & Administrative expenses excluding stock-based compensation as a percentage of Revenue, net. 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 GAAP. The Company believes this definition is a useful measure to assess the performance of the Company as it provides more meaningful operating results by excluding the effects of expenses that are not reflective of the Company’s underlying business performance and other one-time or non-recurring expenses.
