TerrAscend has a 50 per cent upside, says Clarus

Cost-cutting measures led to a sizeable earnings beat in the latest quarter from TerrAscend Corp (TerrAscend Stock Quote, Charts, News, Analysts, Financials CSE:TER). Looking at TER’s third quarter numbers in a Tuesday client update was Clarus Securities’ Noel Atkinson, who reiterated a “Buy” rating on the stock and C$2.00 target price, which was good for a projected one-year return of 50.0 per cent.

US multi-state operator in the cannabis industry, TerrAscend has vertically integrated production and retail in Pennsylvania, New Jersey, Maryland and Michigan and is a leading retailer and cultivator in Northern California. The company posted third quarter financials on Monday, which featured net revenue up 36.4 per cent year-over-year to $67 million and adjusted EBITDA up 22.8 per cent year-over-year and up 96 per cent sequentially to $11.3 million. (All figures in US dollars except where noted otherwise.)

“We took decisive action to reduce our operating expenses in the quarter while still generating record sales. These factors combined to drive substantial improvement in adjusted EBITDA margins quarter over quarter and positive cash flow from operations,” said Jason Wild, Executive Chairman, in a press release.

Operationally, the third quarter saw TER close on its Pinnacle acquisition in Michigan, which brought in six dispensary licenses, five of which are currently operational, and the opening of a third Apothecarium dispensary in Lodi, New Jersey. Last month, the company also closed on a $45.5 million debt financing.

Looking at the Q3 results, Atkinson said TER’s $67.0 million topline arrived in-line with his $67.2 million forecast, while the $11.3 million in adjusted EBITDA was well ahead of his $6.4 million estimate. The company’s retail revenues at $53.4 million were better than expected, with Atkinson at $52.0 million, while wholesale revenues at $13.6 million were below the analyst’s estimate at $15.3 million.

“We had expected TER to get into cost-cutting mode in 2023, so the recently-achieved cost savings cause our Q4/22 Adj. EBITDA to rise substantially. We already assumed implementation of significant slicing of operating costs in the coming year, so our 2023 estimates tick higher only modestly,” Atkinson wrote.

Atkinson said TerrAscend is a top-three operator in New Jersey and is well-situated for Maryland’s adult-use sales launch, likely sometime in the second half of 2023, with the company having recently completed a new production and processing facility in Frederick, MD.

Looking ahead, Atkinson is now calling for TER to generate full 2022 revenue and adjusted EBITDA of $251.2 million and $31.9 million, respectively, and 2023 revenue and EBITDA of $361.8 million and $72.2 million, respectively.