TerrAscend To See Top-Line & Margin Improvement In 2022, Analyst's Thoughts Post Q1 Earnings

TerrAscend Corp. TERTRSSF reported its first-quarter financial results late Thursday, reporting net sales of $49.7 million, up 1% sequentially.

The gross profit margin was 30.5% for the period compared to 42.3% in the prior quarter. The adjusted gross profit margin was 38.4% versus 49.8% in the fourth quarter of fiscal 2021.

Jason Wild, the company's executive chairman, said revenue and margins were impacted by a mandatory recall of hundreds of different vape products in Pennsylvania in February and front-loaded operating costs in New Jersey prior to the launch of the recreational marijuana market.

"We expect revenue and margin to increase materially in the second quarter and beyond," Wild stated. "The strategic decisions and investments we have made over the last three years position us well for substantial growth in each of our four key markets – New Jersey, Pennsylvania, Michigan, and Maryland."

The Analyst

Cantor Fitzgerald's analyst Pablo Zuanic maintained an Overweight on the company's stock due to its exposure to the adult-use market in the Garden State while lowering its price target to $6.45 from $7.9.

The Thesis

Zuanic did not rate TerrAscend's stock as a top pick. Why?

The company's reported numbers missed Zuanic's sales and EBITDA estimates for the first quarter.

However, the analyst remains Overweight on the company's stock, considering that he expects the company will "benefit from the exposure" to the newly launched New Jersey adult-use market.

Zuanic said the company has "several levers" in this fiscal year that should "significantly improve top-line and profit margin trends."

Apart from the start of New Jersey recreational sales, the company is also poised to leverage its business recovery in Pennsylvania and the Gage deal in Michigan, the analyst explained.

TerrAscend and Gage revealed their plan to merge in an all-stock deal worth $545 million in September. The deal, which bolstered the company's footprint with owned and managed operations in California, Michigan, Maryland, New Jersey, Pennsylvania and Canada, was closed in March.

In New Jersey, TerrAscend formed a partnership with Cookies to exclusively bring the brand's products to the Garden State. The deal came about through Gage, the exclusive Cookies processor in Michigan.

In the second quarter, the company will "book" a whole quarter with Gage and "likely improve in PA after registering new vape SKUs, and should show the benefit from the start of NJ rec sales," Zuanic said.

Price Action

TerrAscend's shares traded 2.67% lower at $3.65 per share at the time of writing on Friday morning.

Photo: Courtesy of Maxim Hopman on Unsplash