TerrAscend Private Placement Oversubscribed

Currently, the marijuana sector is showing weakness. The excess supply of cannabis products, pricing pressure, rising operating losses, and vaping-related deaths have dragged the sector down. Since the beginning of 2019, the ETFMG Alternative Harvest ETF (MJ) has lost 32.2% of its value. Amid the pessimistic sentiments, TerrAscend Corporation (TRSSF) announced on December 30 that its private placement received strong interest from investors and was oversubscribed.

As a result, the company increased the offering to approximately $30 million from its earlier plan of $20 million. The new offering was fully subscribed, and the company expects to close it in two tranches.

TerrAscend closed its first tranche on December 30. According to the company, TerrAscend issued 12,968,325 units at an issue price of 2.45 Canadian dollars. The transaction generated proceeds of approximately 31.8 million Canadian dollars ($24.5 million). Each unit includes one common share and warrants to purchase one common share for an excise price of 3.25 Canadian dollars by January 14, 2022.

TerrAscend announced that its $30 million offerings were fully subscribed, driven by strong interest from chairman Jason Wild, executive chairman Jason Ackerman, and other directors. It expects to close its second tranche on January 7 after receiving the approval of the Canadian Securities Exchange.

TerrAscend plans to utilize the proceeds from the offerings to complete its cultivation and processing facilities in New Jersey. These proceeds would pay for the acquisition of Ilera Healthcare and meet its working capital expenses.

Operating in both Canada and the US, TerrAscend offers medical and recreational cannabis products. Since the beginning of 2019, the company has lost 54.6% of its stock value.

On November 30, the company reported its third-quarter earnings. For the quarter, the company reported revenues of 26.83 Canadian dollars, beating analysts’ expectations of 26.0 million Canadian dollars.

Its EBITDA came in at -6.5 million Canadian dollars. This was higher than analysts’ expectation of -7.2 million Canadian dollars. Despite its impressive performance, the company’s stock fell. The weakness in the marijuana sector could have caused its share price to decline.

During the same period, its peers Cresco Labs (CRLBF), Charlotte’s Web Holdings (CWEB), and Organigram Holdings (OGI) fell 8.1%, 35.7%, and 37.0%, respectively.

Analysts project TerrAscend to report revenue of 101.2 million Canadian dollars in fiscal 2019 and 335.0 million Canadian dollars in fiscal 2020. For fiscal 2019, they forecast the company’s EBITDA to be -27.9 million Canadian dollars.

However, analysts expect the company to become profitable in fiscal 2020. For the fiscal year, they expect the company’s EBITDA to come at 74.7 million Canadian dollars.

As of January 2, only two analysts cover the stock. One analyst has a “strong buy” rating, while the other analyst favors a “buy” rating. Analysts’ consensus price target stands at 10.95 Canadian dollars, which implies a 12-month return potential of 307.2%.

Let’s look at analysts’ recommendations for its peers:

• Analysts are bullish on Cresco Labs, with all 11 analysts favoring a “buy” rating. Please read Cresco Labs: Analysts’ Ratings Post Q3 Earnings to learn more about analysts’ opinions.
• Twelve of the 15 analysts that cover Organigram stock gave it a “buy” rating, while the remaining three favored a “hold” rating. Analysts’ consensus price target stands at 7.18 Canadian dollars with a 12-month return potential of 135.5%.
• Of the 10 analysts covering Charlotte’s Web Holdings, eight gave it a “buy” rating, while the remaining two gave it a “hold” rating. Analysts’ average price target stands at 21.16 Canadian dollars, which implies a return potential of 116.8%.

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