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There’s still more upside to TerrAscend, says ATB Capital


TerrascendATB Capital Markets analyst Kenric Tyghe has increased his one-year target on cannabis company TerrAscend (TerrAscend Stock Quote, Chart, News, Analysts, Financials CSE:TER), which just released quarterly numbers and guidance for 2021. In an update to clients on Thursday, Tyghe said TerrAscend’s growth prospects in key US states look excellent.

TerrAscend has vertically integrated cannabis operations in Pennsylvania, New Jersey and California and is a licensed producer in Canada with operations in seven provinces. TerrAscend has the Apothecarium dispensary chain and is one of the market leaders in Pennsylvania.

The company, which released preliminary third quarter numbers earlier this month, on Thursday delivered the full Q3, which featured net sales up 90 per cent year-over-year to $51.0 million (and up eight per cent sequentially). Adjusted EBITDA was $17.8 million, up from a loss of $6.6 million a year earlier and up from $11.4 million for the previous quarter.

Management commented on the company’s progress, saying it has high hopes for New Jersey, which will be ushering in recreational cannabis to complement its existing medical cannabis market.

“We continued to build out our footprint in the northeast, including completion of an additional 25 per cent cultivation expansion at our Pennsylvania facility in Q3, which began selling into the market in November,” said Jason Ackerman, CEO, in a press release.

“In New Jersey, where I believe we will be a major player, sales from our newly operational cultivation facility and our first retail location in Phillipsburg are expected to begin in the coming days. I look forward to realizing the full benefit of our substantially larger cultivation and manufacturing capacities across our system, including our recently announced Maryland acquisition, to further accelerate our revenue and adjusted EBITDA growth in Q4 and beyond,” Ackerman said.

Other operational news from the quarter included TER achieving breakeven adjusted EBITDA in Canada, the opening of its third Apothecarium store in Pennsylvania, its fourth California dispensary and receipt of approval for and commencing cultivation at the company’s 37,000-sq ft New Jersey greenhouse. Since the end of the third quarter, TerrAscend opened its fifth California Apothecarium.

Tyghe said while the quarterly numbers came as expected (and strong) it was management’s upbeat guidance that was a surprise. TER is calling for 2021 revenues between $360.0 and $380.0 million and EBITDA in the range of $140.0 to $160.0 million.

On TER’s forecast, Tyghe wrote, “We note that guidance explicitly excludes any contribution from recreational use in New Jersey (only assumes strong medical demand driven sell-through) given that determining the start date is something of a mugs game at this juncture, and conservatively factors in a steady state in the recently acquired Maryland business.”

“In Pennsylvania, the Company expects to leverage the recently completed 25.0-per-cent capacity expansion at its facility to both drive share and shelf space gains in both the broader supply constrained market, and in its three Apothecarium dispensaries. In New Jersey, the Company expects to utilize the full capacity of both its current 40,000 sq ft greenhouse (and 80,000 sq ft indoor manufacturing facility that will be completed prior to month-end and ready for planting), to both supply into the product starved market and its Phillipsburg, New Jersey dispensary which opens on November 23, 2020 (two additional dispensaries are slated to open in H1/21). Within California, TerrAscend expects to capitalize on the completed expansion of its State Flower (super premium) cultivation facility to 20,000 sq ft, and the recent opening of its fifth Apothecarium dispensary in the state (in Capitola),” Tyghe said.

Tyghe has revised his forecast, calling for 2020 revenue and adjusted EBITDA of $199.4 million and $57.9 million, respectively, and for 2021 revenue and adjusted EBITDA of $374.4 million and $153.8 million, respectively.

TerrAscend has already had a remarkable year in the markets, with the stock up 245 per cent year-to-date, but Tyghe sees more upside. With his new forecast, Tyghe maintained his “Outperform” rating for TER and moved his target from $12.00 to $15.00, which at the time of publication represented a projected 12-month return of 46.2 per cent.

“Our EV/EBITDA valuation applies a 16.0x target multiple to our revised 2021e EBITDA of $153.8mm, reflecting strong absolute and relative expected growth prospects in TerrAscend’s key markets of Pennsylvania, New Jersey, California and Maryland,” Tyghe said.

On the opening of its new 3,900-sq-ft Apothecarium in Capitola, California, Ryan Hudson, CEO and co-founder of The Apothecarium said, “We are excited to begin serving guests in Capitola, Santa Cruz and nearby towns at our newest location across from the Capitola Mall. At the Apothecarium, we have emphasized customer education via one-on-one consultations to help our patients and guests find the best products for their needs. Whether they’re looking for help in person, by phone or online, we’ll connect them to one of our expert cannabis consultants.”

TerrAscend is expecting another dispensary opening soon in Phillipsburg, New Jersey.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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