TerrAscend Points to Maryland, Michigan and Pennsylvania as Top Priorities

Company Profile:

 

• Net Revenue: $69.4 million (42.8% increase YoY) 
• Gross Profit: $33.9 million (and gross margin of 48.8%)
• Net Loss: $22.8 million
• Net Loss income from continuing operations: $19.2 million

Brands: Ilera Healthcare, Kind Tree, Legend, Original Hemp, State Flower, Valhalla Confections, Gage, Prism Concentrates

Retail Brands: The Apothecarium Dispensary, GAGE Cannabis 

Total Dispensaries: 38 

Ziad Ghanem, CEO: As of now, we do not have any plan for 2023 or beyond to reduce any of our footprints. The reason for that is we are mainly in limited-license states. In New Jersey, we have three stores that are doing outstanding. We don't plan to reduce retail stores in our states. When it comes to expansion ... Maryland is our top priority.

Editor's note: When TerrAscend announced in late June that it received approval to acquire Peninsula Alternative Health in Maryland, Ghanem said the company expects it to become one of its "highest-performing dispensaries in the nation." The company also reached its four-dispensary cap in Maryland on July 10, with the closing of its Herbiculture acquisition.

Our second priority from [an] expansion perspective is Michigan. We want to go deeper in Michigan. … There are a lot of targets in Michigan that are extremely attractive. Since we have the growth lineup of the states that we have: New Jersey going recreational, Maryland [going recreational], and Pennsylvania the following four to six quarters, we are being super disciplined and patient. But we see ourselves going deeper into retail in Michigan and expanding our retail network.  

Then, [we want to go] deeper in Pennsylvania; as we get closer to the adult-use launch, that will be our third priority. So going deeper in Maryland, Michigan and Pennsylvania is where we are focusing. Maryland definitely and immediately in the next few weeks. Michigan and then Pennsylvania depending on the opportunities that come in Q3/Q4 or Q1 of 2024.  

CBT: Where does TerrAscend plan to expand/reduce its cultivation capacity? Why? 

ZG: We are fortunate to have already deployed all our CapEx in all our states and built all cultivation centers in states that are going or have gone recreational, including Maryland and Pennsylvania. That puts us in a unique situation in that we don't have any money to spend on cultivation; we're just going to capture the revenue when they go recreational. So there's no reduction in cultivation.  

We are expanding cultivation. In 2023 towards the end of the year, or beginning of 2024, New Jersey will be expanded, and that is because New Jersey is doing extremely well, and there are not a lot of cultivation licenses that are being built. As the market continues to grow and as our business continues to grow, we have applied to expand our New Jersey cultivation. That is the majority of our CapEx for 2023, which is close to around $10 million or so.  

Maryland is fully built. In a calculated way based on the state's performance, we will be adding cultivation in 2023 and 2024, but it'll be done similarly to New Jersey to keep the balance between supply and demand in place. There's not a lot of spending … because the shop and buildings are already built. One more thing about Michigan, similar to Maryland, … we have built a facility [and] 95% of the spending is already done. ... Based on the M&A, and based on the dynamic price in Michigan, we will bring it online with minimal CapEx of less than $2.5 million.

CBT: What state(s) is TerrAscend dedicating most of its capital expenditures to in 2023? Why? 

ZG: New Jersey is definitely 90+ percent of our spending from a calculation perspective, and it's simply because the state is [15]-month post adult-use launch [and] continues to grow without an imbalance in cultivation and retail growth. We have the top three market share in the state. Our brands [and] our partners’ brands have performed extremely well. In some form factors, we hold 45% to 50% market share, like in concentrates. So because of the performance and the adoption of New Jersey customers and patients, it's our top priority from an expansion perspective.

CBT: What are some of the company's strategic expansion goals for the remainder of 2023? 

ZG: Maryland first, deeper Michigan, [and] deeper Pennsylvania. We have a lot of conversations [about] potential new markets for companies that are in pre-default or pre-receivership. But we are extremely disciplined, and we will only consider deals that are hard to pass on and deals that are immediately a cash flow creator. ... The way we look at the map, we are in three states in the Northeast and one in the Midwest in Michigan, and of course, we have some on the West Coast.  

CBT: Is there anything I missed that you think would be beneficial to add or include?  

ZG: From a reduction perspective, we're fortunate because of the lineup of the states. We don't have any reduction anywhere in our assets. From an expansion perspective, we're fortunate that we already spent our CapEx, and now we're waiting for the flip. New Jersey will be the immediate expansion we have.