TerrAscend gets price target raise at ATB Capital

New quarterly numbers from TerrAscend (TerrAscend Stock Quote, Chart, News CSE:TER) may be strong but investors should note that management’s guidance for the rest of 2020 is even stronger.

That’s according to ATB Capital Markets analyst Kenric Tyghe who updated clients in a report last Thursday.

Tyghe kept his “Outperform” rating but boosted his one-year target from C$8.00 to C$9.00, saying growth prospects look great for TER in its key markets.

TerrAscend, which has medical and recreational cannabis operations in four states in the US and seven provinces in Canada, including retail, brands and cultivation and processing facilities, announced its second quarter ended June 30 financials last Thursday. The company posted net sales up 169 per cent year-over-year to $47.2 million and adjusted EBITDA of $11.4 million or 24 per cent of net sales compared to $4.9 million for the previous quarter.

The company finished the quarter with cash and equivalents including restricted cash of $75 million.(All figures in US dollars except where noted otherwise.)

Over the second quarter, TerrAscend appointed Jason Ackerman as its permanent CEO and named Keith Stuffer as CFO. The company also closed on an oversubscribed private placement of $37 million and opened its second dispensary in Pennsylvania under its Apothecarium brand. Subsequent to the quarter’s end, the company opened its third Apothecarium dispensary in PA and its fourth in California, while also receiving approval to start cultivation operations in its 37,000 sq ft greenhouse in New Jersey.

“After achieving our first quarter of positive EBITDA in Q1, we have now achieved another significant milestone of positive cashflow from operations in Q2,” said Ackerman in a press release. “Moving into the second half of 2020, we look forward to continued strong revenue and profitable growth as we bring our high-quality products to New Jersey patients through our first Apothecarium dispensary in the state, further expand our cultivation capacity in Pennsylvania, and add to our retail footprint in California.  We are also very excited to complete the buildout of our cultivation facility in New Jersey which will begin to generate material sales in early 2021.”

TerrAscend said it anticipates full-year 2020 net sales to hit at least $192 million, with sales growth over the second half of the year of at least 34 per cent compared to the first half of 2020. Management called for adjusted EBITDA for 2020 to be at least $45 million.

Tyghe said TerrAscend’s quarterly numbers were in line with its preliminary financials as released on August 6, while at the same time featuring better than expected gross margins and expense leverage, which translated into the adjusted EBITDA of $11.4 million, a material positive surprise, according to the analyst.

“On gross profit (excluding biological assets and rebranding costs) of $26.4 million, TerrAscend delivered gross margins of 56.0 per cent versus 44.7 per cent in Q1/20. The combination of the very attractive margin profile of the high growth Pennsylvania market, continued very strong execution and the scaling benefit of the successful ramp of recent capacity expansion support our conviction in the margin profile through 2021.

While the launch in New Jersey will likely create a little noise in the Q4/20 and Q1/20 margin profile, the supply-constrained New Jersey market’s pricing dynamics provide a material buffer,” Tyghe wrote.

Tyghe said he has revised his estimates to better reflect current market dynamics, most notably in Pennsylvania, while he is at the same time supporting management’s guidance range. For 2020, the analyst is calling for revenue of $194.7 million and adjusted EBITDA of $47.8 million. Tyghe’s new target of C$9.00 represented at the time of publication a projected return of 59.2 per cent.