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TerrAscend has a bright outlook with distressed M&A optionality, says Stifel

Published 2023-03-17, 10:28 a/m
© Reuters.  TerrAscend has a bright outlook with distressed M&A optionality, says Stifel

Proactive Investors - Analysts at Stifel said that Terrascend Corp (CSE:TER) had reported good results that were in-line with expectations and generated positive cash flow from operations.

Stifel currently has a “Buy” rating and C$4.50 price target on TerrAscend’s shares, which trade for around C$2.03 on the Canadian Securities Exchange in Toronto.

TerrAscend is a North American cannabis player with operations predominantly in the US in Pennsylvania, New Jersey, Michigan and California, licensed cultivation and processing operations in Maryland, and sattelite production in Canada. It also has a US-oriented CBD distribution business.

In a note to clients, the analysts said that TerrAscend’s fourth-quarter 2022 results were in-line with expectations.

Good results

With the backing of the company's chairman and the focus on cost control by its CEO, TerrAscend has transitioned from its historical US hemp and Canadian cannabis businesses to its US cannabis platform with the pivotal Ilera acquisition. As a result, the firm has rapidly generated profitability within its current CEO's first full quarter at the helm.

“With Canadian operations classified as discontinued, sales came in at $69 million, up 4.2% quarter-over-quarter, and in-line with our forecast of $69 million and consensus of $68.8 million. Adjusted EBITDA came in at $12.2 million, roughly stable from Q3/22's $13.0, and in-line with our estimate of $12.5 million and consensus of $11.8 million,” said the analysts.

In addition, the company's award-winning 'The Apothecarium' dispensaries in CA complement its portfolio to integrate retail expertise, which together with Ilera's cultivation knowledge, can be leveraged in the company's new growth market of New Jersey, said Stifel.

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The analysts described the management’s updated guidance as “most impressive” and noted that TerrAscend is getting cash flow positive in every market.

“It seems the company is turning the corner after having gone through significant repositioning in Canada, MI and MD most recently to optimize its footprint and focus on cash flow. This is matched with ongoing strong growth in NJ, an apparent stabilization of the wholesale environment in PA where its Cookies/Gage brands are gaining traction as well as pockets of improving pricing in MI,” said the analysts.

“We believe the company is on strong footing to begin 2023 with a near-term focus to generate cash flow in every market on an independent basis while optionality remains in an M&A environment that has finally reached distressed levels and could potentially result in acquisitions at little to no cost to TER.”

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