TerrAscend Makes First Profit As Revenue Rises

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Multimate cannabis operator TerrAscend (OTC: TRSSF) purchased new facilities and acquired new brands in the Midwest and East Coast cannabis spheres in the first quarter of 2022, adapting its strategy to deepen medical markets ahead of the arrival of adult-use cannabis. As a result, costs have increased as the company has acquired new facilities and workforce in the medical cannabis and adult cannabis states. But over the past four years, that big spending seems to have resulted in an even bigger gain.

TerrAscend expands into new markets

Building on the brand’s major presence in the San Francisco market, where it has a cultivation facility and five regional dispensaries, TerrAscend has bolstered its operations in four Midwest and East Coast markets.

  • New Jersey: Thanks to its forays into the state’s medical cannabis market before adult use arrived, the company was selling cannabis on the first day of statewide legalization at its dispensaries in Maplewood and Phillipsburg. TerrAscend was also the first company in the state to sell a hydrocarbon concentrate – a technique for increasing the potency of cannabis products and one of the best-selling categories of cannabis products. He signed a lease for a new 150,000 square foot grow facility as he plans to open a third dispensary.
  • Michigan: TerrAscend acquired Gage, a Michigan dispensary chain with five stores, as a wholly-owned subsidiary last year, and recently announced it would open another dispensary in the state. The multi-state operator then purchased five new dispensaries from Pinnacle and was approved by state regulators for a concentrate extraction and packaging facility. Michigan allows sales of medical and adult-use cannabis.
  • Maryland: The company picked up Allegany Medical Marijuana in Cumberland, Md., preparing to vertically integrate into the medical-only state in hopes that adult-use cannabis will pass in November. The company is just beginning to move into this state.
  • Pennsylvania: TerrAscend offered the first hydrocarbon concentrates in this medical-only state, in addition to its extensive strain library. It has six medical stores, a respectable footprint that will likely need to expand to fill an adult-oriented market.

Spend more to do more

You can see TerrAscend’s gaze to the future in its significant increase in selling, general and administrative (SG&A) expenses over the past four years as the company hires new employees, strengthens its brand and discovers new markets. SG&A’s expansion appears to have spurred strong increases in revenue and profit:

Metric

2018

TTM Q1 2022

Increase

General and administrative costs

$14 million

$83.1 million

4.9 times

Total income

$5.3 million

$206.7 million

38 times

Gross profit (loss)

($2.2 million)

$97.6 million

N / A

Free movement of capital

($27.8 million)

($94.9 million)

2.4 times

Source: S&P Capital Intelligence.

The above comparisons show how much the company gets for its money from SG&A spending. General and administrative expenses accounted for 260% of revenue in 2018. This percentage had fallen to just 40% of revenue in the last 12 months ended Q1 2022, a decline of 84%. As a proportion of gross profit, general and administrative expenses have increased from 1,400% in 2018 to 90% in the past 12 months, underscoring the strength of TerrAscend’s business plan.

This growing resilience is also reflected in the company’s operating profit, which turned positive in 2020 and, although not growing steadily, has remained in the black since. The same goes for the net income of TerrAscend; the company posted its first net profit of $3.1 million in 2021, and it has remained profitable, even just barely, with around $930,000 in net income over the past 12 months.

All signs point to TerrAscend consolidating its presence in its core adult-use markets, while expanding operations in Maryland and Pennsylvania, which could be delayed until 2025, or beyond, before adopting an adult use program. Whether it’s expanding in these key markets, entering other medical markets early, or taking action when federal legalization occurs, the company is in good shape to continue implementing its plan. business despite increases in general and administrative expenses.

Rising revenues and profits are a good sign for TerrAscend. But the steady growth in negative free cash flow — from $28.8 million in cash burnt in fiscal 2018 to $94.5 million burnt in the past 12 months — is worth watching. Even though TerrAscend shows earnings on paper, its continued cash burn could hamper the company’s ability to take advantage of future growth opportunities as regulations become more favorable to the cannabis industry in the coming years. .

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Lukas Barfield has no financial position in TerrAscend Corp. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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