Why TRSSF Stock Is Worth Watching

TerrAscend Corp (CNSX:TER, OTCMKTS:TRSSF) is a great U.S. cannabis company that continues to do well, even if this isn’t reflected in its beaten-down share price. The company recently reported fabulous quarterly results, began selling recreational marijuana in New Jersey, and continued an acquisition spree in Michigan.

When it comes to being a multistate operator, location is everything. On that note, TerrAscend is a leading North American cannabis operator with vertically integrated operations in California, Michigan, New Jersey, and Pennsylvania; licensed cultivation and processing operations in Maryland; and licensed production operations in all 10 Canadian provinces. (Source: “Investor Presentation: May 2022,” TerrAscend Corp, last accessed August 25, 2022.)

California legalized medical marijuana in 1996 and recreational marijuana in 2016. Since then, the state has become the world’s largest legal weed market, ringing in $5.2 billion in sales in 2021. That was up by roughly 20% from 2020 and represents about 20% of all legal pot sales in the U.S. (Source: “In California, the World’s Largest Legal Weed Market Is Going Up in Smoke,” The Economist, May 14, 2022.)

Michigan legalized medical cannabis in 2008 and started legal sales of recreational cannabis in December 2019. In July of this year, Michigan set a new monthly record for legal marijuana sales (medical + recreational), reaching nearly $210.0 million. That’s $15.0 million more than the state's previous monthly record, which was set in April. (Source: “Monthly Report: July 1, 2022 – July 31, 2022,” Michigan Cannabis Regulatory Agency, last accessed August 25, 2022.)

When Michigan’s legal marijuana market matures, it could reach $1.9 billion to $2.4 billion per year.

TerrAscend is looking to capitalize on that growth. The company recently expanded its business footprint in Michigan through a $28.5-million deal to acquire KISA Enterprises MI, LLC and KISA Holdings, LLC (aka Pinnacle). (Source: “TerrAscend Accelerates Michigan Retail Expansion Through Acquisition of Pinnacle,” TerrAscend Corp, April 14, 2022.)

Pinnacle is a Michigan dispensary operator with six retail licenses, five of which are currently operational. TerrAscend intends to rebrand each of those dispensaries under the "Gage" or "Cookies" banners, both of which are owned by Gage Growth Corp. TerrAscend made a splash in Michigan last year when it acquired Gage Growth Corp. for $545.0 million.

Pennsylvania, meanwhile, is the fifth-largest state in the U.S. and is positioned to have one of the largest medical cannabis markets. Recreational cannabis is still illegal in Pennsylvania, but small amounts have been decriminalized in several of the state's biggest cities.

New Jersey only began legal sales of recreational pot on April 20 of this year, but the sales figures are already smoking. In their first month of legal sales, the state's recreational cannabis companies generated $24.0 million in sales. Over the first 10 weeks, they raked in approximately $80.0 million in recreational marijuana sales. (Source: “N.J. Is Sparking Up, Bringing in Millions in Tax Revenue From Cannabis,” New Jersey Monitor, August 12, 2022.)

Unlike many U.S. states, there's no limit on the number of cannabis business licenses available in New Jersey.

TerrAscend Corp Swings to Profitability in Second Quarter

For the second quarter ended June 30, TerrAscend announced that its revenue increased by 31% sequentially and 10.4% year-over-year to $65.0 million. The start of legal recreational marijuana sales in New Jersey helped lift the company's sales figures. (Source: “TerrAscend Second Quarter 2-22 Revenue Increased 31% Sequentially to $65 Million,” TerrAscend Corp, August 11, 2022.)

TerrAscend's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) went up by 75% to $5.8 million in the second quarter of 2022. That's compared to $3.3 million in the first quarter. The company's adjusted EBITDA margin improved from 6.6% in the first quarter to 8.9% in the second quarter.

TerrAscend Corp reported second-quarter 2022 net income of $14.2 million, compared to a first-quarter 2022 net loss of $16.0 million and a second-quarter 2021 net loss of $29.6 million.

TerrAscend ended the second quarter of 2022 with cash and cash equivalents of $49.0 million, compared to $88.0 million at the end of the first quarter.

In the second quarter of 2022, TerrAscend Corp also:

• Held the grand openings of two dispensaries in New Jersey
• Launched the Cookies and Gage brands in New Jersey
• Signed a lease on a new facility with a 150,000 square-foot-canopy in New Jersey
• Received a home delivery license for medical patients in New Jersey
• Partnered with Cookies to open a third Cookies-brand dispensary in Michigan
• Announced an agreement to acquire KISA Enterprises and KISA Holdings
• Introduced "Khalifa Kush," a premium cannabis brand, at Gage dispensaries in Michigan
• Announced an agreement to acquire Allegany Medical Marijuana Dispensary in Cumberland, MD

TerrAscend Stock Has 166% Upside

Although TerrAscend Corp's business performance and outlook are robust, its share price is anything but. As of this writing, TRSSF stock is down by:

• 38% over the last month
• 57% over the last three months
• 70% over the last six months
• 72% year-to-date
• 76% year-over-year

TerrAscend stock didn’t even get a boost in late July after a long-awaited U.S. Senate bill to federally legalize cannabis was tabled in the legislature.

Chart courtesy of StockCharts.com

TRSSF stock isn't the only marijuana stock that has taken a beating, though. As of this writing, the ETFMG Alternative Harvest ETF (NYSE:MJ), the world’s largest cannabis exchange-traded fund (ETF), is down by 47% year-to-date and 63% year-over-year. The AdvisorShares Pure US Cannabis ETF (NYSEARCA:MSOS) has been faring even worse, losing 54% of its value year-to-date and 64% year-over-year.

The good news is that Wall Street thinks TerrAscend stock has room to run. Of the analysts providing a 12-month share-price target for TRSSF stock, their average call is $3.22 and their high estimate is $4.50, for potential gains in the range of 90% to 166%.

Analyst Take

TerrAscend Corp is a marijuana company with operations in some of the most lucrative U.S. states. It recently began recreational pot sales in New Jersey, and management expects sales of at least $40.0 million in the company's first full year in that state.

TerrAscend's acquisition of Gage Growth Corp. should help juice its sales figures in Michigan. Moreover, the company has recreational cannabis opportunities in Pennsylvania and Maryland.

All of this could help TerrAscend stock rally over the coming quarters.