Clarus Securities analyst Noel Atkinson slightly revised his take on US cannabis name TerrAscend Corp (TerrAscend Corp Stock Quote, Charts, News, Analysts, Financials CSE:TER) in a Tuesday report to clients where the analyst moved his target price from C$3.25 to C$3.00 while keeping a “Buy” rating on the stock.
Multi-state operator (MSO) TerrAscend has vertically integrated production and retail operations in a number of states including Pennsylvania, New Jersey, Maryland and Michigan, with has a leading retail operation in northern California.
Atkinson reported that cannabis pricing continues to slip in Michigan, where the retail flower price dropped six per cent month-over-month in September and 46 per cent year-over-year. And with TerrAscend’s Gage premium flower still priced far above the state average, the gap in pricing could impact demand, Atkinson offered.
“We are taking a more conservative view on 2022/2023 as expected strong demand and solid pricing in NJ is offset through at least mid-2023 by softer growth in PA and NJ. We expect TER management to continue to pursue cost savings across the company, which should help drive Adj. EBITDA margin improvements in 2022,” Atkinson wrote.
TerrAscend’s share price spiked on October 7 as the market reacted to news from President Joe Biden on cannabis, with Biden announced a federal pardon for past cannabis possession convictions and a call for regulators to reassess cannabis’ current status as a Schedule 1 narcotic.
But Atkinson said he’s staying cautious on potential cannabis reform, although he said a real indication that the SAFE Banking Act could make it past the US Senate would be extremely good news for the industry.
“[I]f there is evidence of movement on Capital Hill, the Oct. 7 spike could be just the start of a very substantial re-rating of cannabis stocks. We are revising our target multiple to 16x 2023e EV/Adj. EBITDA on our updated 2023 Adj. EBITDA estimate, or C$3.00 per share (was C$3.25). We think this multiple is very reasonable, considering the coiled spring of interest that was evident in the Oct. 7 price moves across the sector,” he said.
Atkinson thinks TER will generate full 2022 revenue and adjusted EBITDA of $251.2 million and $23.6 million, respectively, and 2023 revenue and adjusted EBITDA of $360.3 million and $70.3 million, respectively. (All figures are in US dollars except where noted otherwise.)
At press time, the new Clarus target on TER of C$3.00 represented a projected one-year return of 43 per cent.