Fourth-quarter and full-year results for 2019.
TerrAscend Corp. (CSE: TER), a leading North American cannabis operator, today reported financial results for its fourth quarter and year ending December 31, 2019.
Fourth Quarter 2019 Financial Highlights
- Net sales increased 414% to $25.9 million from $5.0 million.
- Sales in the U.S. accounted for 93% of total revenue in the quarter.
- Gross loss of $2.8 million, compared to $0.4 million.
- Adjusted EBITDA loss of $5.7 million, compared with $4.5 million.
- IFRS net loss of $171.8 million
"We set out to be a leader in the legal U.S. medicinal and adult-use markets, and our solid top-line performance speaks to the significant strides we have made in attaining this goal," said Jason Ackerman, Executive Chairman and CEO of TerrAscend. "We made substantial progress in 2019 developing our U.S. infrastructure and building our production capacity with a focus on profitable revenue opportunities, all the while continuing to streamline our Canadian operations. As we look ahead, TerrAscend's experienced leadership team has never been better positioned to accelerate our momentum, deliver long-term value for our shareholders, and provide exceptional experiences to our patients and customers."
We are committed to driving shareholder value and will continue to pursue accretive and strategic opportunities.Jason Wild, Chairman
Jason Wild, Chairman added, "Despite the short-term challenges facing the global economy, we remain on track, both operationally and financially, to continue to execute on our goals of driving strong revenue growth in 2020 and achieving adjusted EBITDA positive results."
Outlook and Preliminary Q1 2020 Revenue Guidance
Entering fiscal 2020, the Company remains focused on the execution of its U.S. strategy. Through strategic acquisitions and the growth and expansion of its current asset base, the Company is committed to achieving scale and profitability in each market it operates. In January, the Company completed the first earnout payment to the former owners of Ilera Healthcare, a vertically-integrated cannabis cultivator, processor and dispensary operator in Pennsylvania. Additionally, TerrAscend NJ, LLC received a permit to cultivate medical marijuana by the New Jersey Department of Health. These achievements, in conjunction with the rightsizing of the Canadian operations, position TerrAscend well to become a dominant U.S. operator.
Based on a preliminary (unaudited) review, the Company anticipates Q1 2020 net sales to be approximately $35 million, compared to $25.9 million in Q4 2019 representing approximately 35% sequential growth. The Company continues to make progress in improving its margins and has completed construction of its Pennsylvania production facility, tripling its cultivation capacity. Production output from the expansion was realized towards the end of Q1 2020 and will be fully realized in Q2 2020. The preliminary estimated Q1 2020 financial results set forth above are subject to the completion of the Company's financial closing procedures. Please refer to the section regarding forward-looking information which forms an integral part of this release.
Sales, net of excise tax, increased 414% to $25.9 million in the fourth quarter of 2019 as compared to $5.0 million in the fourth quarter of 2018. Sales in the U.S., net of excise tax, were $24 million in Q4 2019, contributing 93% to total consolidated net revenue, reflecting TerrAscend's focus on this important market. Canadian sales, net of excise taxes, declined to $1.9 million in Q4 2019, down 62% compared to Q4 2018 as a result of the ongoing challenges facing the Canadian cannabis markets.
Gross margin, before gain on the fair value of biological assets, was (16)% in Q4 2019, compared to 18% in Q4 2018. The change in gross margin compared to the prior quarter was driven by a material impairment charge related to the Company's Canadian cannabis inventory which occurred in Q4 2019, as well as a short term increase in the cost of goods sold as the Company scaled up its U.S. operations. Excluding the impact of the non-cash Canadian inventory charges incurred in Q4 2019, gross margin would otherwise have been 39%.
Q4 2019 G&A was $12.3 million, an increase of 52% compared to Q4 2018. The change was primarily driven by the Company's focus and investment in establishing its U.S. operations. TerrAscend expects to continue to strategically invest in acquiring the talent and developing the appropriate infrastructure to ensure continued market share improvement in the high-growth U.S market.
In Q4 2019, adjusted EBITDA loss was $5.7 million compared to $4.5 million in Q4 2018. On a geographic basis, adjusted EBITDA loss from the Company's Canadian and U.S. operations in Q4 2019 was $4.3 million and $1.4 million, respectively. The change in adjusted EBITDA compared to the prior-year period was primarily driven by a decline in Canadian cannabis revenues as a result of ongoing demand issues which persisted through December 2019, as well as an increase in G&A expenses and an increase in the cost of goods sold as the Company scaled up the organization through investments in additional headcount as it continues its U.S. expansion.
During Q4 2019, the Company recorded the following asset impairment, goodwill and write off charges:
- A $66.2 million impairment charge to goodwill related to the acquisition of The Apothecarium and the closure of Solace RX Inc.;
- A $7.4 million impairment charge and a $4.4 million write-off related to the Company's Canadian cannabis inventory both related to an excess of stock relative to the Company's anticipated, short-term demand;
- A $2.3 million impairment charge related to the Company's Canadian property, plant and equipment as the netbook value exceeded the current market appraisal of the Company's Canadian production facility.
In addition, during Q4 2019 the Company reported a $61.9 million revaluation of contingent consideration liability related to the acquisition of Ilera, driven by the outperformance of the business versus the Company's initial expectations. As a result, the Company now expects to pay the full final payout based on its success to date.
Cash and cash equivalents were $11.9 million as of December 31, 2019, compared to $21.8 million as of December 31, 2018. Subsequent to the quarter-end, the Company raised gross proceeds in excess of $120 million, including the previously announced loan financing agreement with Canopy Growth in the amount of $80.5 million. A portion of the proceeds received from Canopy Growth were used to fully pay off the outstanding principal and interest amounts under the Credit Facility with JW Asset Management.
Fourth Quarter 2019 Operational Highlights
- On October 7, 2019, TerrAscend Canada announced that it received approval from Health Canada for an expansion at its EU GMP certified production facility, nearly tripling its licensed space to 51,800 sq. ft.
- On October 22, 2019, TerrAscend Canada received an additional amendment to its license from Health Canada to allow for sales of cannabis extracts, topicals and edibles.
- On November 4, 2019, the Company announced the appointment of Jason Ackerman to the Board of Directors in the role of Executive Chairman.
- On December 10, 2019, TerrAscend announced its intention to complete a non-brokered private placement offering to raise approximately US$20 million through the issuance of units of TerrAscend Corp. The first tranche of 12,968,325 units resulting in proceeds of $31.8 million was completed on December 30, 2019.
- On January 10, 2020, the Company closed the second tranche of the non-brokered private placement announced on December 30, 2019, issuing 3,450,127 units resulting in proceeds of $8.4 million.
- On January 15, 2020, the Company made the first earnout payment to the former owners of Ilera in the amount of US$19.4 million, with an additional US$12.5 million deferred until the final earnout payment is due on March 15, 2021, and earning interest at 6% payable over five instalments every three months beginning January 15, 2020. The full amount of US$31.9 million is included in accounts payable and accrued liabilities as of December 31, 2019.
- On January 16, 2020, TerrAscend NJ was issued a permit to cultivate medical marijuana by the New Jersey Department of Health.
- On January 23, 2020, the Company announced the termination of the Securities Purchase Agreement, pursuant to which the Company would have acquired all of the issued and outstanding equity interest of Gravitas Nevada. The Company paid US$3 million termination fee to the sellers, which was released from escrow.
- On January 27, 2020, the Company closed the third tranche of the non-brokered private placement announced on December 30, 2019, issuing 1,863,659 units resulting in proceeds of $4.6 million.
- On January 29, 2020, TerrAscend Utah, LLC was issued a medical cannabis processor license by the Utah Department of Agriculture and Food.
- On February 5, 2020, the Company amended the terms of its previously announced US$10 million convertible debenture issuance to Canopy Rivers Corporation to comply with TSX policies. Pursuant to the amended terms, the debentures have been converted into a C$13.2 million loan agreement entered into between Canopy Rivers and the Company. Interest on the principal amount outstanding will accrue at a rate of 6% per annum and all interest payments are payable in cash.
- On March 11, 2020, TerrAscend Canada Inc. entered a loan financing agreement with Canopy Growth in the amount of $80.5 million pursuant to a secured debenture. In connection with the funding of the loan, the Company has issued 17,808,975 common share purchase warrants to Canopy Growth. The secured debenture bears interest at a rate of 6.10% per annum and matures on March 10, 2030. The debenture is secured by the assets of TerrAscend Canada, is not convertible and is not guaranteed by the Company. The warrants will be exercisable by Canopy Growth following changes in U.S. federal laws permitting the cultivation, distribution and possession of marijuana or to remove the regulations of such activities from the federal laws of the United States.
- On March 30, 2020, the Company announced that it had opened two of its award-winning Apothecarium retail dispensary locations in Pennsylvania; one in Lancaster and a second in Plymouth Meeting. Both locations will serve Pennsylvania medical marijuana patients.
- On April 14, 2020, TerrAscend announced that it had appointed Jason Ackerman as Chief Executive Officer and that it would relocate its financial operations to its U.S. headquarters in New York City. As part of the move, Toronto-based Adam Kozak stepped down as Chief Financial Officer.
Disclaimer: Past performance is not an indicator of future performance.
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