TerrAscend keeps Buy rating with Beacon

Beacon Securities analyst Russell Stanley delivered an update to clients on Monday on cannabis company TerrAscend (TerrAscend Stock Quote, Charts, News, Analysts, Financials CSE:TER), where he kept a “Buy” rating and C$2.50 target price on the stock.

Last week, TerrAscend, which currently trades on the Canadian Securities Exchange, said it had recently filed its preliminary proxy statement toward a potential listing on the Toronto Stock Exchange. TerrAscend, which has vertically integrated cannabis operations in Pennsylvania, New Jersey, Maryland, Michigan and California, along with retail operations in Canada, said it’s planning a shareholder vote on the transaction proposal at its AGM in June.

“We continue to make progress on our strategy to list on the TSX. Assuming the proposed reorganization is approved by our shareholders and the TSX grants approval for the listing of TerrAscend’s common shares, we should be in a position to commence trading on the TSX shortly thereafter,” said TER’s Executive Chairman Jason Wild in a press release.

The company’s plan will be to sell the voting interest in its US operations to a separate entity, aiming to be in compliance with the TSX’s policies regarding cannabis companies, while at the same time retaining the option to repurchase those voting rights on the occasion that such a move would no longer violate the TSX’s rules. Nonetheless, from an accounting perspective, TER is aiming to be able to consolidate the results from its US operations while staying in bounds with the TSX.

Commenting on TER’s plans, Stanley said a TSX listing could broaden the investor audience for the stock, particularly for institutional investors, and support strong trading liquidity.

Stanley said TerrAscend is currently trading at a premium to its industry peers.

“TER is trading at 9.2x our F2024 adjusted EBITDA forecast. This represents a 97 per cent premium to the 4.7x average amongst CSE-listed US operators. We attribute the valuation premium to a combination of Canopy Growth’s indirect stake in TER and TER’s announced plans to list on the TSX,” Stanley wrote.

Looking ahead, Stanley is expected TerrAscend to generate full 2023 revenue of $301 million compared to $248 million in 2022 and moving to $347 million in 2024. On adjusted EBITDA, Stanley is forecasting a move from $39 million in 2022 to $63 million in 2023 and to $90 million by 2024. (All figures in US dollars except where noted otherwise.)

At press time, Stanley’s C$2.50 target represented a projected one-year return of 20 per cent.