Marijuana multistate operator TerrAscend Corp. could become the first U.S. plant-touching company to list on the Toronto Stock Exchange by this summer if the restructuring plan it shared with shareholders and analysts wins TSX approval.
And if the company is successful, that potential could trickle down to other U.S. plant-touching cannabis operators, which have been barred from major exchanges because marijuana remains federally illegal in the United States.
Massachusetts-based Curaleaf Holdings, for example, has also had discussions with the TSX about the possibility of listing its shares.
Details have been scant since TerrAscend announced the plans last week, but the company’s executive team shared a few more specifics along with its financial results during a recent conference call with analysts.
The additional details included the timeline of the listing and how the TSX could boost the company’s financial health in the future by opening the door to institutional investors.
“With the listing on the TSX, we believe that TerrAscend stock will be afforded greater accessibility to a broader pool of institutional investors seeking opportunities in leading cannabis operators in some of the best markets in the world,” Executive Chair Jason Wild said during the call.
But Wild said uplisting isn’t a “magic bullet” that will ease all the pressures on TerrAscend, particularly because the capital markets have been so challenging in recent months.
“We do believe, however, that a well-run, cash flow-positive company can unlock substantially more value and significantly lower its cost of capital if listed on a major exchange with more participants, higher standards and increased liquidity,” he said.
Restructuring and timeline
Based on the timeline given by Toronto-based legal adviser Cassels, Brock & Blackwell – which is also advising Canadian cannabis operator Canopy Growth on its U.S. entry and uplisting plans – Wild said TerrAscend “could be in a position to list soon after our annual shareholders meeting in June.”
The company plans to send out a proxy to shareholders in mid-April.
Until then, Wild said the company can’t share much except to say that the restructuring will be similar to Canopy Growth’s plans with Canopy USA, which could allow the company to complete its proposed acquisitions of U.S. plant-touching businesses while still listing on the TSX (WEED).
The Nasdaq, where Canopy (CGC) is also currently listed, indicated the company would not be allowed to remain on the exchange after restructuring.
“We believe this (TerrAscend’s) reorganization involves having a holding company – which is also the listing vehicle – that is a non-U.S. cannabis company, or a U.S. company that is non-cannabis (or non-THC),” Owen Bennett, an equity analyst for New York-based investment bank Jefferies Group, wrote in a recent research note.
“This is then ring-fenced from the U.S. assets that are held in a separate company, but for which – similar to the Canopy (Growth) proposed structure – the holding company has non-voting shares.”
Canadian connection an asset
TerrAscend has wound down its cannabis production facility in Mississauga, Ontario, but continues to have a minority ownership in a Cookies retail store in Toronto.
Its head office and registered office is in Mississauga.
The Canadian operations could be helpful to uplisting, and U.S. plant-touching operators might have a more difficult time restructuring without assets in Canada, TerrAscend’s chief financial officer, Keith Stauffer, said during the call.
“This might be obvious, but based upon the fact that TerrAscend was originally a Canadian-domiciled company, as opposed to practically all the other players in the U.S., this reorg is not the least complicated for us, probably versus practically everybody else,” he said.
“We’ve already had these structures in place to make sure that we segregated money in Canada and the U.S. So it’s not a major chore for us to restructure to be compliant with what the TSX is looking for.”
The majority of TerrAscend’s business is in the U.S., however, with cultivation, production and retail operations in California, Maryland, Michigan, New Jersey and Pennsylvania through subsidiaries such as Gage Growth, Ilera Healthcare and The Apothecarium.
For 2022, TerrAscend reported a net revenue of $247 million, a 21% increase from its 2021 revenue of $194 million.
Its net loss from continuing operations was $299.4 million versus net income from continuing operations of $15.7 million in 2021.
TerrAscend attributed the loss to a $311.1 noncash impairment charge against goodwill and intangibles for its Michigan business.
The company reported positive cash flow from operations of $7.3 million for the fourth quarter in 2022, a $1.5 million increase from the third quarter.
Significantly, TerrAscend also reduced its debt by $80 million in the fourth quarter, paying down $30 million in debt to Chicago Atlantic and converting $90 million of debt with Canopy Growth to exchangeable shares at CA$5.10 per share.
‘Zero anxiety’ around raising capital
While uplisting to the TSX could give TerrAscend more access to liquidity, the company’s executive team isn’t planning to use cash for M&A this year.
“This is clearly a buyer’s market, as many operators are facing an existential crisis,” Wild said.
“We have been speaking for about a year about how we’re being patient and believe that we will be able to buy assets for pennies on the dollar.
“In fact, we are now reviewing opportunities to acquire assets, essentially for free, as long as we’re willing to assume certain debt and lease obligations. And even that is up for negotiation.”
But uplisting to the TSX could give TerrAscend an added edge in M&A negotiations, Wild said.
“We believe that sellers will be more willing to accept TerrAscend stock as consideration and assign a greater value to our shares once listed on a major exchange.”
Stauffer said that TerrAscend doesn’t have the same challenges raising capital as the rest of the cannabis industry.
“I want to confirm and I want to assure everyone, we promise that we have zero anxiety around raising any capital that we need for the business,” he said.
“Our only focus and our only worries is how to sequence in the most efficient way to avoid any unnecessary or any high interest that we don’t have to get.
“So we continue to be disciplined, and we continue to sequence things in a very thoughtful manner in order to increase and improve our cash-flow situation.”
Kate Robertson can be reached at firstname.lastname@example.org.