CNSX:TER is still a Buy, Beacon says

With a TSX listing likely imminent for US cannabis company TerrAscend (TerrAscend Stock Quote, Charts, News, Analysts, Financials CSE:TER), there are bound to be similar such moves made in the sector, according to Beacon Securities analyst Russell Stanley, who provided an update to clients on Friday where he reiterated a “Buy” rating on TerrAscend.

TerrAscend, which has vertically integrated cannabis operations in a number of US states including Pennsylvania, Maryland and California, along with retail operations in Canada, announced last week receiving conditional approval from the Toronto Stock Exchange to list is common shares on the TSX. TER also announced that shareholders approved the move.

“We have an exciting future ahead of us and we can’t wait to share the TerrAscend story with the larger audience of participants that this listing brings,” said Executive Chairman Jason Wild in a press release.

Looking at the development, Stanley said other US multi-state operators may follow suit, saying that companies Curaleaf and Ascend Wellness have indicated they are following TerrAscend’s progress and are considering doing the same if the results appear to justify it.

“If a few more MSOs ‘jump in the pool’ – particularly a major MSO such as CURA – we would not be surprised to see other operators feel pressured to do the same,” Stanley wrote.

At the same time, Stanley noted that companies like TerrAscend and Curaleaf have non-US operations, a necessary attribute for any company hoping to get a TSX listing and one which may drive up the demand for such assets if and when there’s a wider movement towards TSX listings.

“TER’s share price performance and trading liquidity will therefore be important to watch as other US operators may follow suit, and secondarily, this may create some demand for non-US cannabis assets,” Stanley said.

On TER, the stock is up about 39 per cent so far this year, although TER is down considerably over the past two years, much like the rest of the cannabis sector. 

Stanley sees more upside over the next 12 months for TER and has maintained a C$2.50 target price in his report, representing at press time a projected return of 15 per cent.

On valuation, Stanley said at 10.2x 2024 EV/EBITDA TER is currently trading at a 121 per cent premium to its peer group average of 4.6x for CSE-listed US operators, with Curaleaf at a distant second at 7.9x. Stanley said TER’s 2024 EV/EBITDA multiple has expanded by 29 per cent from 7.9x to 10.2x over the past six months.