ROC
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes
As of May 11, 2022, the registrant had
Table of Contents
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Page |
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PART I. |
i |
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Item 1. |
i |
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i |
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ii |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
ii |
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4 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
5 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
Item 3. |
27 |
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Item 4. |
27 |
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PART II. |
28 |
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Item 1. |
28 |
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Item 1A. |
28 |
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Item 2. |
28 |
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Item 6. |
29 |
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30 |
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that TerrAscend Corp. (“TerrAscend” or the “Company”) believes are, or may be considered to be, “forward-looking statements.” All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q regarding the prospects of the Company’s industry or the Company’s prospects, plans, financial position or business strategy may constitute forward-looking statements. Such statements can be identified by the use of forward-looking terminology such as “expect”, “likely”, “may”, “will”, “should”, “intend”, “anticipate”, “potential”, “proposed”, “estimate” and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussions of strategy. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance, or other statements that are not statements of fact. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements with respect to:
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the performance of the Company’s business and operations; |
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the Company’s expectations regarding revenues, expenses and anticipated cash needs; |
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the competitive conditions of the industry; |
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federal, state, provincial, territorial, local and foreign government laws, rules and regulations, including federal and state laws in the US relating to cannabis operations in the US; the legalization of the use of cannabis for medical and/or recreational use in the US and the related timing and impact thereof; |
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laws and regulations and any amendments thereto applicable to the business and the impact thereof; |
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the competitive advantages and business strategies of the Company; |
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the Company’s ability to source and operate facilities in the US; |
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the Company’s ability to integrate and operate the assets acquired from Arise Bioscience Inc. (“Arise”), the Apothecarium Dispensaries (“The Apothecarium”), Valhalla Confections (“Valhalla”), Ilera Healthcare (“Ilera”), State Flower or ABI SF LLC (“State Flower”), HMS Health, LLC, KCR Holdings LLC, and Gage; |
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any benefits expected from the Gage Acquisition; and |
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Gage’s plans to continue building a diverse portfolio of branded cannabis assets and business arrangements through investments, strategic business relationships and the pursuit of licenses in attractive retail locations in Michigan. |
Certain of the forward-looking statements contained herein concerning the cannabis industry and the general expectations of the Company concerning the cannabis industry are based on estimates prepared by the Company using data from publicly available governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of the cannabis industry. Such data is inherently imprecise. The cannabis industry involves risks and uncertainties that are subject to change based on various factors, which factors are described further below.
With respect to the forward-looking statements contained in this Quarterly Report on Form 10-Q, the Company has made assumptions regarding, among other things: (i) its ability to generate cash flows from operations and obtain necessary financing on acceptable terms; (ii) general economic, financial market, regulatory and political conditions in which the Company operates; (iii) the output from the Company’s operations; (iv) consumer interest in the Company’s products; (v) competition; (vi) anticipated and unanticipated costs; (vii) government regulation of the Company’s activities and products and in the areas of taxation and environmental protection; (viii) the timely receipt of any required regulatory approvals; (ix) the Company’s ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; (x) the Company’s ability to conduct operations in a safe, efficient and effective manner; and (xi) the Company’s construction plans and timeframe for completion of such plans.
Readers are cautioned that the above list of cautionary statements is not exhaustive. Known and unknown risks, many of which are beyond the control of the Company, could cause actual results to differ materially from the forward-looking statements in this Quarterly Report on Form 10-Q. Such risks and uncertainties include, but are not limited to, current and future market conditions; risks related to federal, state, provincial, territorial, local and foreign government laws, rules and regulations, including federal and state laws in the United States relating to cannabis operations in the United States; and those discussed under Item 1A – “Risk Factors” in this Quarterly Report on Form 10-Q. The purpose of forward-looking statements is to provide the reader with a description of management’s expectations, and such forward-looking statements may not be appropriate for any other purpose. You should not place undue reliance on forward-looking statements contained in this Quarterly Report on Form 10-Q. The Company can give no assurance that such expectations will prove to have been correct. Forward-looking statements contained herein are made as of the date of this Quarterly Report on Form 10-Q and are based on the beliefs, estimates, expectations and opinions of management on the date such
forward-looking statements are made. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such forward-looking statements, except as required by applicable law.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
TerrAscend Corp.
Unaudited Interim Condensed Consolidated Balance Sheets
(Amounts expressed in thousands of United States dollars, except for per share amounts)
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At |
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At |
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March 31, 2022 |
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December 31, 2021 |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Investments |
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- |
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Inventory |
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Prepaid Expenses and other current assets |
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Non-Current Assets |
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Property and equipment, net |
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Deposits |
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- |
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Operating lease right of use assets |
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Intangible assets, net |
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Goodwill |
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Indemnification asset |
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Other non-current assets |
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Total Assets |
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$ |
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$ |
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Liabilities and Shareholders' Equity |
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Current Liabilities |
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Accounts payable and accrued liabilities |
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$ |
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$ |
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Deferred revenue |
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Loans payable, current |
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Contingent consideration payable, current |
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Lease liability, current |
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Corporate income tax payable |
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Other current liabilities |
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- |
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Non-Current Liabilities |
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Loans payable, non-current |
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Contingent consideration payable, non-current |
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Lease liability, non-current |
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Warrant liability |
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Deferred income tax liability |
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Financing obligations |
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- |
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Other long term liabilities |
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Total Liabilities |
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Shareholders' Equity |
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Share Capital |
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Series A, convertible preferred stock, par value, shares authorized; |
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Series B, convertible preferred stock, par value, shares authorized; |
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Series C, convertible preferred stock, par value, shares authorized; and |
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Series D, convertible preferred stock, par value, shares authorized; nil and shares outstanding as of March 31, 2022 and December 31, 2021 respectively |
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Proportionate voting shares, par value, shares authorized; nil and shares outstanding as of March 31, 2022 and December 31, 2021 respectively |
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Exchangeable shares, par value, shares authorized; |
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Common stock, par value, shares authorized; |
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Additional paid in capital |
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Accumulated other comprehensive income (loss) |
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( |
) |
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Accumulated deficit |
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( |
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( |
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Non-controlling interest |
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Total Shareholders' Equity |
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Total Liabilities and Shareholders' Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
TerrAscend Corp.
Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss
(Amounts expressed in thousands of United States dollars, except for per share amounts)
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For the Three Months Ended |
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March 31, 2022 |
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March 31, 2021 |
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Revenue |
$ |
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$ |
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Excise and cultivation tax |
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Revenue, net |
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Cost of Sales |
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Gross profit |
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Operating expenses: |
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General and administrative |
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Amortization and depreciation |
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Total operating expenses |
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(Loss) income from operations |
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Other expense (income) |
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Revaluation of contingent consideration |
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(Gain) loss on fair value of warrants and purchase option derivative asset |
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Finance and other expenses |
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Transaction and restructuring costs |
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— |
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Unrealized and realized foreign exchange loss |
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Unrealized and realized loss (gain) on investments |
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- |
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( |
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Loss before provision from income taxes |
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( |
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Provision for income taxes |
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Net loss |
$ |
( |
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$ |
( |
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Foreign currency translation |
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( |
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Comprehensive loss |
$ |
( |
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$ |
( |
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Net loss attributable to: |
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Common and proportionate Shareholders of the Company |
$ |
( |
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$ |
( |
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Non-controlling interests |
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$ |
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Comprehensive loss attributable to: |
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Common and proportionate Shareholders of the Company |
$ |
( |
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$ |
( |
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Non-controlling interests |
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$ |
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Net loss per share, basic and diluted |
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Net income (loss) per share - basic |
$ |
( |
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$ |
( |
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Weighted average number of outstanding common and proportionate voting shares |
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Net income (loss) per share - diluted |
$ |
( |
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$ |
( |
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Weighted average number of outstanding common and proportionate voting shares, assuming dilution |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
TerrAscend Corp.
(Amounts expressed in thousands of United States dollars, except for per share amounts)
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Number of Shares |
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Convertible Preferred Stock |
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Common Stock |
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Exchangeable Shares |
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Series A |
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Series B |
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Series C |
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Series D |
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Common Shares Equivalent |
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Additional paid in capital |
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Accumulated other comprehensive income (loss) |
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Accumulated deficit |
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Non-controlling interest |
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Total |
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Balance at December 31, 2021 |
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— |
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$ |
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$ |
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( |
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$ |
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Shares issued - stock option, warrant and RSU exercises |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares, options and warrants issued- acquisitions |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares issued- liability settlement |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares issued- conversion |
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— |
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( |
) |
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— |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Options expired/forfeited |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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Capital Contribution |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Net income for the period |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
) |
Balance at March 31, 2022 |
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— |
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— |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
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Number of Shares |
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Convertible Preferred Stock |
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Common Stock |
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Exchangeable Shares |
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Proportionate Voting Shares |
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Series A |
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Series B |
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Series C |
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Series D |
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Common Shares Equivalent |
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Additional paid in capital |
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Accumulated other comprehensive income (loss) |
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Accumulated deficit |
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Non-controlling interest |
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Total |
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Balance at December 31, 2020 |
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— |
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— |
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$ |
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$ |
( |
) |
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( |
) |
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$ |
( |
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Shares issued - stock option, warrant and RSU exercises |
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— |
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— |
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— |
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— |
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— |
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— |
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Private placement net of share issuance costs |
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— |
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— |
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— |
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— |
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— |
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— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||||
Shares issued- conversion |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Options expired/forfeited |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Conversion of convertible debt |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||||
Capital Contribution |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Net loss for the period |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Balance at March 31, 2021 |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements
TerrAscend Corp.
Unaudited Interim Condensed Consolidated Statements of Cash Flows
(Amounts expressed in thousands of United States dollars, except for per share amounts)
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Operating activities |
|
|
|
|
|
|
||
Net loss |
$ |
|
( |
) |
$ |
|
( |
) |
Adjustments to reconcile net income to net cash provided by (used in) operating activities |
|
|
|
|
|
|
||
Non-cash write downs of inventory |
|
|
|
|
|
|
||
Accretion expense |
|
|
( |
) |
|
|
( |
) |
Depreciation of property and equipment and amortization of intangible assets |
|
|
|
|
|
|
||
Amortization of operating right-of-use assets |
|
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
|
||
Deferred income tax (recovery) expense |
|
|
( |
) |
|
|
|
|
(Gain) loss on fair value of warrants and purchase option derivative |
|
|
( |
) |
|
|
|
|
Revaluation of contingent consideration |
|
|
|
|
|
|
||
Release of indemnification asset |
|
|
( |
) |
|
|
|
|
Forgiveness of loan principal and interest |
|
|
- |
|
|
|
( |
) |
Unrealized and realized foreign exchange loss |
|
|
|
|
|
|
||
Unrealized and realized loss (gain) on investments |
|
|
- |
|
|
|
( |
) |
Changes in operating assets and liabilities |
|
|
|
|
|
|
||
Receivables |
|
|
( |
) |
|
|
|
|
Inventory |
|
|
|
|
|
( |
) |
|
Prepaid expense and deposits |
|
|
|
|
|
|
||
Deposits |
|
|
( |
) |
|
|
- |
|
Other assets |
|
|
|
|
|
( |
) |
|
Accounts payable and accrued liabilities and other payables |
|
|
( |
) |
|
|
|
|
Operating lease liability |
|
|
( |
) |
|
|
( |
) |
Other liability |
|
|
( |
) |
|
|
- |
|
Contingent consideration payable |
|
|
( |
) |
|
|
- |
|
Corporate income tax payable |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Net cash (used in) provided by operating activities |
|
|
( |
) |
|
|
|
|
Investing activities |
|
|
|
|
|
|
||
Investment in property and equipment |
|
|
( |
) |
|
|
( |
) |
Investment in intangible assets |
|
|
( |
) |
|
|
( |
) |
Principal payments received on lease receivable |
|
|
|
|
|
|
||
Distributions of earnings from associates |
|
|
- |
|
|
|
|
|
Deposits for property and equipment |
|
|
( |
) |
|
|
( |
) |
Deposits for business acquisition |
|
|
( |
) |
|
|
- |
|
Cash received on acquisition of Gage |
|
|
|
|
|
- |
|
|
Net cash provided by (used in) investing activities |
|
|
|
|
|
( |
) |
|
Financing activities |
|
|
|
|
|
|
||
Proceeds from options and warrants exercised |
|
|
|
|
|
|
||
Proceeds from loans payable |
|
|
- |
|
|
|
|
|
Capital contributions paid to non-controlling interests |
|
|
( |
) |
|
|
( |
) |
Payments of contingent consideration |
|
|
( |
) |
|
|
- |
|
Proceeds from private placement, net of share issuance costs |
|
|
- |
|
|
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
||
Net (decrease) increase in cash and cash equivalents during the period |
|
|
|
|
|
|
||
Net effects of foreign exchange |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, end of period |
$ |
|
|
$ |
|
|
||
|
|
|
|
|
|
|
||
Supplemental disclosure with respect to cash flows |
|
|
|
|
|
|
||
Income taxes paid |
$ |
|
|
$ |
|
|
||
Interest paid |
$ |
|
|
$ |
|
|
||
Lease termination fee paid |
$ |
|
|
|
|
- |
|
|
Non-cash transactions |
|
|
|
|
|
|
||
Equity and warrant liability issued as consideration for acquisition |
$ |
|
|
|
|
- |
|
|
Shares issued for liability settlement |
$ |
|
|
|
|
- |
|
|
Accrued capital purchases |
$ |
|
|
|
|
- |
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
1. Nature of operations
TerrAscend Corp. (“TerrAscend” or the “Company”) was incorporated under the Ontario Business Corporations Act on
The Company was listed on the Canadian Stock Exchange effective May 3, 2017, having the ticker symbol TER and effective October 22, 2018, the Company began trading on OTCQX under the ticker symbol TRSSF. The Company’s registered office is located at PO Box 43125, Mississauga, Ontario, L5C 1W2.
These unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2022 and 2021 (the “Consolidated Financial Statements”) of the Company and its subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The accompanying condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, these unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and notes thereto of the Company and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of the Company’s financial position and operating results. The results for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the year ended December 31, 2022, or any other interim or future periods.
The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company for the year ended December 31, 2021 contained in the Company's 2021 Form 10-K. There were no significant changes to the policies disclosed in Note 2 of the summary of significant accounting policies of the Company’s audited consolidated financial statements for the year ended December 31, 2021 in the Company's 2021 Form 10-K.
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Trade receivables |
|
$ |
|
|
$ |
|
||
Sales tax receivable |
|
|
|
|
|
|
||
Other receivables |
|
|
|
|
|
|
||
Provision for sales returns |
|
|
( |
) |
|
|
( |
) |
Expected credit losses |
|
|
( |
) |
|
|
( |
) |
Total receivables, net |
|
$ |
|
|
$ |
|
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
Sales tax receivable represents input tax credits arising from sales tax levied on the supply of goods purchased or services received in Canada. Other receivables at March 31, 2022 and December 31, 2021 mainly include amounts due from the sellers of the Apothecarium.
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Trade receivables |
|
$ |
|
|
$ |
|
||
Less: provision for sales returns and expected credit losses |
|
|
( |
) |
|
|
( |
) |
Total trade receivables, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Of which |
|
|
|
|
|
|
||
Current |
|
|
|
|
|
|
||
31-90 days |
|
|
|
|
|
|
||
Over 90 days |
|
|
|
|
|
|
||
Less: provision for sales returns and expected credit losses |
|
|
( |
) |
|
|
( |
) |
Total trade receivables, net |
|
$ |
|
|
|
|
The following is a roll-forward of the provision for sales returns and allowances related to trade accounts receivable:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Beginning of period |
|
$ |
|
|
|
|
||
Provision for sales returns |
|
|
— |
|
|
|
|
|
Expected credit losses |
|
|
|
|
|
|
||
Write-offs charged against provision |
|
|
( |
) |
|
|
( |
) |
Total provision for sales returns and allowances |
|
$ |
|
|
|
|
Gage
On March 10, 2022, in order to expand its footprint in key markets, the Company acquired all of the issued and outstanding subordinate voting shares (or equivalent) of Gage, a cultivator and processor with operations in the Michigan market. Pursuant to the terms of the arrangement agreement, for each Gage subordinate voting share and other equity instruments, including outstanding stock options and warrants, each holder received a
The following table presents the fair value of assets acquired and liabilities assumed as of March 10, 2022 acquisition date and allocation of the consideration to net assets acquired:
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
|
|
$ |
|
|
Cash and cash equivalents |
|
|
|
|
Accounts receivable |
|
|
|
|
Inventory |
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
Property and equipment |
|
|
|
|
Operating right of use asset |
|
|
|
|
Deposits |
|
|
|
|
Intangible assets |
|
|
|
|
Goodwill |
|
|
|
|
Investments |
|
|
|
|
Accounts payable and accrued liabilities |
|
|
( |
) |
Corporate income taxes payable |
|
|
( |
) |
Lease liability |
|
|
( |
) |
Deferred revenue |
|
|
( |
) |
Loans payable |
|
|
( |
) |
Deferred tax liability |
|
|
( |
) |
Financing obligations |
|
|
( |
) |
Other liabilities |
|
|
( |
) |
Net assets acquired |
|
|
|
|
|
|
|
|
|
Common shares of TerrAscend |
|
|
|
|
Fair value of other equity instruments |
|
|
|
|
Fair value of warrants classified as liabilities |
|
|
|
|
Total consideration |
|
|
|
The acquired intangible assets include cultivation and processing licenses, as well as retail licenses, which are treated as definite-lived intangible assets which are amortized over a
The consideration paid reflected the synergies, economies of scale, and workforce. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill recognized is expected to be deductible for income tax purposes.
The accounting for this acquisition has been provisionally determined at March 31, 2022. The fair value of net assets acquired, specifically with respect to inventory, intangible assets, deferred revenue, property and equipment, operating right of use assets, lease liabilities, investments, corporate income taxes payable, deferred tax liability, and goodwill have been determined provisionally and are subject to adjustment. Upon completion of a comprehensive valuation and finalization of the purchase price allocation, the amounts above may be adjusted retrospectively to the acquisition date in future reporting periods.
Costs related to this transaction were $
On a standalone basis, had the Company acquired the business on January 1, 2022, sales estimates would have been $
Contingent consideration
Contingent consideration recorded relates to the Company’s business acquisitions. Contingent consideration is based upon the potential earnout of the underlying business unit and is measured at fair value using a projection model for the business and the formulaic structure for determining the consideration under the terms of the agreement.
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
The balance of contingent consideration is as follows:
|
|
State Flower |
|
|
Apothecarium |
|
|
KCR |
|
|
Total |
|
||||
Carrying amount, December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Payments of contingent consideration |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Revaluation of contingent consideration |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Carrying amount, March 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Less: current portion |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Non-current contingent consideration |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
On January 27, 2022, the Company made a payment of $
Refer to Note 20 for discussion of valuation methods used when determining the fair value of the contingent consideration liability at March 31, 2022, and the changes in fair value during the three months ended March 31, 2022.
The Company’s inventory of dry cannabis and oil includes both purchased and internally produced inventory. The Company’s inventory is comprised of the following items:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Finished goods |
|
|
|
|
|
|
||
Work in process |
|
|
|
|
|
|
||
Accessories, supplies and consumables |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
On February 4, 2022, more than
In addition, management wrote down its inventory by $
Property and equipment consisted of:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Land |
|
$ |
|
|
$ |
|
||
Assets in process |
|
|
|
|
|
|
||
Buildings & improvements |
|
|
|
|
|
|
||
Machinery & equipment |
|
|
|
|
|
|
||
Office furniture & equipment |
|
|
|
|
|
|
||
Assets under finance leases |
|
|
|
|
|
|
||
Total cost |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
Assets in process represent construction in progress related to both cultivation and dispensary facilities not yet completed, or otherwise not placed in service.
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
During the three months ended March 31, 2022 and the twelve months ended December 31, 2021, borrowing costs were
Depreciation expense was $
Intangible assets consisted of the following:
At March 31, 2022 |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|||
Finite lived intangible assets |
|
|
|
|
|
|
|
|
|
|||
Software |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Licenses |
|
|
|
|
|
( |
) |
|
|
|
||
Brand intangibles |
|
|
|
|
|
( |
) |
|
|
|
||
Non-compete agreements |
|
|
|
|
|
( |
) |
|
|
|
||
Total finite lived intangible assets |
|
|
|
|
|
( |
) |
|
|
|
||
Indefinite lived intangible assets |
|
|
|
|
|
|
|
|
|
|||
Brand intangibles |
|
|
|
|
|
- |
|
|
|
|
||
Total indefinite lived intangible assets |
|
|
|
|
|
- |
|
|
|
|
||
Intangible assets, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
At December 31, 2021 |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|||
Finite lived intangible assets |
|
|
|
|
|
|
|
|
|
|||
Software |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Licenses |
|
|
|
|
|
( |
) |
|
|
|
||
Brand intangibles |
|
|
|
|
|
( |
) |
|
|
|
||
Non-compete agreements |
|
|
|
|
|
( |
) |
|
|
|
||
Total finite lived intangible assets |
|
|
|
|
|
( |
) |
|
|
|
||
Indefinite lived intangible assets |
|
|
|
|
|
|
|
|
|
|||
Brand intangibles |
|
|
|
|
|
- |
|
|
|
|
||
Total indefinite lived intangible assets |
|
|
|
|
|
- |
|
|
|
|
||
Intangible assets, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
Amortization expense was $
Estimated future amortization expense for finite lived intangible assets for the next five years is as follows:
2022 |
|
$ |
|
|
2023 |
|
$ |
|
|
2024 |
|
$ |
|
|
2025 |
|
$ |
|
|
2026 |
|
$ |
|
The following table summarizes the activity in the Company’s goodwill balance:
Balance at December 31, 2021 |
|
$ |
|
|
Acquisitions (see Note 4) |
|
|
|
|
Balance at March 31, 2022 |
|
$ |
|
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
|
|
Canopy Growth (formerly RIV Capital) Loan |
|
|
Canopy Growth- Canada Inc Loan |
|
|
Other Loans |
|
|
Canopy Growth- Arise Loan |
|
|
Ilera Term Loan |
|
|
KCR Loan |
|
|
Gage loans |
|
|
Total |
|
||||||||
Balance at December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||||||
Addition on acquisition |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Interest accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Principal and interest paid |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|||
Effects of movements in foreign exchange |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||||
Ending carrying amount at March 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Less: current portion |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Non-current loans payable |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
Total interest paid on all loan payables was $
Gage loan
The Gage Acquisition (refer to Note 4) included a senior secured term loan with an acquisition date fair value of $
Additionally, the Gage Acquisition included a loan payable to a former owner of a licensed entity with an acquisition date fair value of $
Maturities of loans payable
Stated maturities of loans payable over the next five years are as follows:
|
|
March 31, 2022 |
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
— |
|
2026 |
|
|
— |
|
Thereafter |
|
|
|
|
Total principal payments |
|
$ |
|
The majority of the Company’s leases are operating leases used primarily for corporate offices, retail, cultivation and manufacturing. The operating lease periods generally range from
Amounts recognized in the consolidated balance sheet were as follows:
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Operating leases: |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Operating lease liability classified as current |
|
|
|
|
|
|
||
Operating lease liability classified as non-current |
|
|
|
|
|
|
||
Total operating lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Finance leases: |
|
|
|
|
|
|
||
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
||
Lease obligations under finance leases classified as current |
|
|
|
|
|
|
||
Lease obligations under finance leases classified as non-current |
|
|
|
|
|
|
||
Total finance lease obligations |
|
$ |
|
|
$ |
|
The Company recognized operating lease expense of $
During the three months ended March 31, 2022, the Company recognized operating right-of-use assets and operating lease liabilities of $
On January 27, 2022, the Company made a payment of $
Other information related to operating leases at March 31, 2022 and December 31, 2021 consisted of the following:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Weighted-average remaining lease term (years) |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Weighted-average discount rate |
|
|
|
|
|
|
||
Operating leases |
|
|
% |
|
|
% |
Supplemental cash flow information related to leases were as follows:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Cash paid for amounts included in measurement of operating lease liabilities |
|
$ |
|
|
$ |
|
||
Right-of-use assets obtained in exchange for lease obligations |
|
$ |
|
|
$ |
|
||
Cash paid for amounts included in measurement of finance lease liabilities |
|
$ |
|
|
$ |
|
Undiscounted lease obligations are as follows:
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
|
|
Operating |
|
|
Finance |
|
|
Total |
|
|||
2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2023 |
|
|
|
|
|
|
|
|
|
|||
2024 |
|
|
|
|
|
|
|
|
|
|||
2025 |
|
|
|
|
|
|
|
|
|
|||
2026 |
|
|
|
|
|
|
|
|
|
|||
Thereafter |
|
|
|
|
|
|
|
|
|
|||
Total lease payments |
|
|
|
|
|
|
|
|
|
|||
Less: interest |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
Under the terms of these operating sublease agreements, future rental income from such third-party leases is expected to be as follows:
|
|
|
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total rental payments |
|
$ |
|
A sale-leaseback transaction occurs when an entity sells an asset it owns and then immediately leases the asset back from the buyer. The seller then becomes the lessee and the buyer becomes the lessor. Under ASC 842, both parties must assess whether the buyer-lessor has obtained control of the asset and a sale has occurred. The Company's subsidiary Gage entered into leaseback transactions on
Warrants
The following is a summary of the outstanding warrants for Common Shares:
|
|
Number of Common Share Warrants Outstanding |
|
|
Number of Common Share Warrants Exercisable |
|
|
Weighted Average Exercise Price $ |
|
|
Weighted Average Remaining Life (years) |
|
||||
Outstanding, December 31, 2021 |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Replacement warrants granted on acquisition of Gage |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding, March 31, 2022 |
|
|
|
|
|
|
|
$ |
|
|
|
|
Pursuant to the terms of the Gage Acquisition, each holder of a Gage warrant received a
The following is a summary of the outstanding warrants for Proportionate Voting Shares at March 31, 2022. These warrants are exercisable for
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
|
|
Number of Proportionate Share Warrants Outstanding |
|
|
Number of Proportionate Share Warrants Exercisable |
|
|
Weighted Average Exercise Price $ |
|
|
Weighted Average Remaining Life (years) |
|
||||
Outstanding, December 31, 2021 |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
Exercised |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Outstanding, March 31, 2022 |
|
|
|
|
|
|
|
$ |
|
|
|
|
The following is a summary of the outstanding Preferred Share warrants at March 31, 2022. Each warrant is exercisable into
|
|
Number of Preferred Share Warrants Outstanding |
|
|
Number of Preferred Share Warrants Exercisable |
|
|
Weighted Average Exercise Price $ |
|
|
Weighted Average Remaining Life (years) |
|
||||
Outstanding, December 31, 2021 |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding, March 31, 2022 |
|
|
|
|
|
|
|
$ |
|
|
|
|
Share-based payments expense
Total share-based payments expense was as follows:
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Stock options |
|
$ |
|
|
$ |
|
||
Restricted share units |
|
|
|
|
|
|
||
Total share-based payments |
|
$ |
|
|
$ |
|
The Board of Director's fees are expected to be settled in restricted share units during the year ended December 31, 2022.
Stock Options
The following table summarizes the stock option activity for the three months ended March 31, 2022:
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
|
|
Number of Stock Options |
|
|
Weighted average remaining contractual life (in years) |
|
|
Weighted Average Exercise Price (per share) $ |
|
|
Aggregate intrinsic value |
|
|
Weighted average fair value of nonvested options (per share) $ |
|
|||||
Outstanding, December 31, 2021 |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Replacement options granted on acquisition of Gage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forfeited (1) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expired |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding, March 31, 2022 |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Exercisable, March 31, 2022 |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
N/A |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Nonvested, March 31, 2022 |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
N/A |
|
The Gage acquisition included consideration in the form of
|
|
March 10, 2022 |
|
|
Volatility |
|
|
||
Risk-free interest rate |
|
|
||
Expected life (years) |
|
|
||
Dividend yield |
|
|
% |
The fair value of the various stock options granted were estimated using the Black-Scholes option pricing model with the following assumptions:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Volatility |
|
|
% |
|
|
|||
Risk-free interest rate |
|
|
% |
|
|
|||
Expected life (years) |
|
|
|
|
||||
Dividend yield |
|
|
% |
|
|
% |
||
Forfeiture rate |
|
|
% |
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Company’s closing stock price on March 31, 2022 and December 31, 2021, respectively, and the exercise price, multiplied by the number of the in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options on March 31, 2022 and December 31, 2021, respectively.
The total pre-tax intrinsic value (the difference between the market price of the Company’s Common Stock on the exercise date and the price paid by the option holder to the exercise the option) related to stock options exercised during the three months ended March 31, 2022 and 2021, was $
Volatility was estimated by using the historical volatility of the Company's stock price. The expected life in years represents the period of time that the options issued are expected to be outstanding. The risk-free rate is based on US treasury bond issues with a remaining
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
term approximately equal to the expected life of the options. Dividend yield is zero since the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future.
As of March 31, 2022, there was $
Restricted Share Units
The following table summarizes the activities for the unvested RSUs for the three months ended March 31, 2022:
|
|
Number of RSUs |
|
|
Number of RSUs vested |
|
|
Weighted average remaining contractual life (in years) |
||
Outstanding, December 31, 2021 |
|
|
|
|
|
|
|
N/A |
||
Vested |
|
|
( |
) |
|
|
|
|
|
|
Outstanding, March 31, 2022 |
|
|
|
|
|
|
|
N/A |
As of March 31, 2022, there was $
Non-controlling interest consists mainly of the Company’s ownership minority interest in its New Jersey operations and IHC Real Estate operations and consists of the following amounts:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Opening carrying amount |
|
$ |
|
|
$ |
|
||
Capital distributions |
|
|
( |
) |
|
|
( |
) |
Investment in NJ partnership |
|
|
— |
|
|
|
( |
) |
Net income attributable to non-controlling interest |
|
|
|
|
|
|
||
Ending carrying amount |
|
$ |
|
|
$ |
|
Parties are related if one party has the ability to control or exercise significant influence over the other party in making financing and operating decisions. At March 31, 2022 amounts due to/from related parties consisted of:
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
The effective tax rate was -
The Company’s general and administrative expenses were as follows:
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Office and general |
|
$ |
|
|
$ |
|
||
Professional fees |
|
|
|
|
|
|
||
Lease expense |
|
|
|
|
|
|
||
Facility and maintenance |
|
|
|
|
|
|
||
Salaries and wages |
|
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
|
||
Sales and marketing |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
The Company’s disaggregated net revenue by source, primarily due to the Company’s contracts with its external customers were as follows:
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Wholesale |
|
$ |
|
|
$ |
|
||
Retail |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
For the three months ended March 31, 2022 and 2021, the Company did
As a result of the vape recall in Pennsylvania (refer to note 5), the Company recorded sales returns of $
The Company’s finance and other expenses included the following:
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Interest accretion |
|
$ |
|
|
$ |
|
||
Forgiveness of principal and interest on loans |
|
|
— |
|
|
|
( |
) |
Other (expense) income |
|
|
( |
) |
|
|
|
|
Total |
|
$ |
|
|
$ |
|
Operating Segment
The Company determines its operating segments according to how the business activities are managed and evaluated by the Company’s chief operating decision maker. The Company operates under
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
Geography
The Company operates with subsidiaries located in Canada and the US.
The Company had the following net revenue by geography of:
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
United States |
|
$ |
|
|
$ |
|
||
Canada |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
The Company had non-current assets by geography of:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
United States |
|
$ |
|
|
$ |
|
||
Canada |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
The Company’s objective in managing capital is to ensure a sufficient liquidity position to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. In order to achieve this objective, the Company prepares a capital budget to manage its capital structure. The Company defines capital as borrowings, equity comprised of issued share capital, share-based payments, accumulated deficit, as well as funds borrowed from related parties.
Since inception, the Company has primarily financed its liquidity needs through the issuance of share capital through borrowings. The equity issuances are outlined in Note 11 and debt issuances are outlined in Note 8.
The Company is subject to financial covenants as a result of its loans payable with various lenders. The Company is in compliance with its debt covenants as of March 31, 2022. Other than these items related to loans payable as of March 31, 2022 and December 31, 2021, the Company is not subject to externally imposed capital requirements.
Effective March 31, 2022, the Ilera term loan (refer to Note 8) was amended to provide the Company with greater flexibility, and the optional prepayment date was amended to
Assets and liabilities measured at fair value
Cash and cash equivalents, net accounts receivable, accounts payable and accrued liabilities, loans payable, convertible debentures, and other current receivables and payables represent financial instruments for which the carrying amount approximates fair value due to their short-term maturities.
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
The following table represents the fair value amounts of financial assets and financial liabilities measured at estimated fair value on a recurring basis:
|
At March 31, 2022 |
|
At December 31, 2021 |
|
||||||||||||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
|
Level 3 |
|
|
Level 1 |
|
|
Level 2 |
|
|
|
Level 3 |
|
||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents |
|
$ |
|
|
$ |
- |
|
|
— |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
— |
|
$ |
- |
|
||
Purchase option derivative asset |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||||
Total Assets |
|
$ |
|
|
$ |
- |
|
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
|
$ |
|
||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Contingent consideration payable |
|
|
— |
|
|
$ |
- |
|
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
$ |
|
||||
Warrant liability |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
||||
Total Liabilities |
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
There were
The valuation approaches and key inputs for each category of assets or liabilities that are classified within levels of the fair value hierarchy are presented below:
Level 1
Cash and cash equivalents, net accounts receivable, accounts payable and accrued liabilities, loans payable, convertible debentures, and other current receivables and payables represent financial instruments for which the carrying amount approximates fair value due to their short-term maturities.
Level 2
Warrant liability
The following table summarizes the changes in the warrant liability for the three months ended March 31, 2022:
Balance at December 31, 2021 |
|
$ |
|
|
Addition on acquisition |
|
|
|
|
Included in gain on fair value of warrants |
|
|
( |
) |
Exercises |
|
|
( |
) |
Balance at March 31, 2022 |
|
$ |
|
The warrant liability has been measured at fair value at March 31, 2022. Key inputs and assumptions used in the Black Scholes valuation were as follows:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Common Stock Price of TerrAscend Corp. |
|
$ |
|
|
$ |
|
||
Warrant exercise price |
|
$ |
|
|
$ |
|
||
Warrant conversion ratio |
|
$ |
|
|
$ |
|
||
Annual volatility |
|
|
% |
|
|
% |
||
Annual risk-free rate |
|
|
% |
|
|
% |
||
Expected term (in years) |
|
|
|
|
|
Level 3
Purchase option derivative asset
The following table summarizes the changes in the purchase option derivative asset:
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
Balance at December 31, 2021 |
|
$ |
|
|
Revaluation of purchase option derivative asset |
|
|
( |
) |
Balance at March 31, 2022 |
|
$ |
|
The purchase option derivative asset has been measured at fair value at the transaction date using the Monte Carlo simulation model that relies on assumptions around the Company's EBITDA volatility and risk adjusted discount, among others. Key inputs and assumptions used in the Monte Carlo simulation model are summarized below:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Term (in years) |
|
|
|
|
|
|
||
Risk-free rate |
|
|
% |
|
|
% |
||
EBITDA discount rate |
|
|
% |
|
|
% |
||
EBITDA volatility |
|
|
% |
|
|
% |
Contingent Consideration Payable
The fair value of contingent consideration at March 31, 2022 and December 31, 2021 was determined using a probability weighted model based on the likelihood of achieving certain revenue and EBITDA scenario outcomes. A discount rate of
The illustrative variance of the total contingent consideration at March 31, 2022 based on reasonably possible changes to one of the significant unobservable inputs, holding other inputs constant, would have the following effects:
Discount rate sensitivity |
|
KCR |
|
|
Increase 100 basis points |
|
$ |
|
|
Increase 50 basis points |
|
$ |
|
|
Decrease 50 basis points |
|
$ |
|
|
Decrease 100 basis points |
|
$ |
|
In the ordinary course of business, the Company is involved in a number of lawsuits incidental to its business, including litigation related to intellectual property, product liability, employment, and commercial matters. Although it is difficult to predict the ultimate outcome of these cases, management believes that any ultimate liability would not have a material adverse effect on the Company's consolidated balance sheets or results of operations. However, an unforeseen unfavorable development. At March 31, 2022, there were no pending lawsuits other than those disclosed that could reasonably be expected to have a material effect on the results of the Company’s consolidated financial statements.
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission, or SEC, on March 17, 2022. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth under "Risk Factors" in our Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the "Cautionary Note Regarding Forward-Looking Statements" contained in our Quarterly Report on Form 10-Q and in the following discussion and analysis.
This Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations of TerrAscend is for the three months ended March 31, 2022 and 2021 and the accompanying notes for each respective period.
Business Overview
TerrAscend is a leading North American cannabis operator with vertically integrated operations in Pennsylvania, New Jersey, and California, licensed cultivation and processing operations in Michigan and Maryland, and licensed processing operations in Canada. TerrAscend operates a chain of Apothecarium dispensary retail locations, as well as scaled cultivation, processing, and manufacturing facilities on both the east and west coasts of the United States. TerrAscend’s cultivation and manufacturing practices yield consistent, high-quality cannabis, providing industry-leading product selection to both the medical and legal adult-use market. Notwithstanding various states in the US which have implemented medical marijuana laws, or which have otherwise legalized the use of cannabis, the use of cannabis remains illegal under US federal law for any purpose, by way of the CSA
TerrAscend operates under one operating segment being the cultivation, production and sale of cannabis products.
TerrAscend’s portfolio of operating businesses and brands include:
Results from Operations- Three months ended March 31, 2022 and March 31, 2021
The following tables represent the Company’s results from operations for the three months ended March 31, 2022 and 2021.
Revenue, net
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Revenue |
|
$ |
50,445 |
|
|
$ |
56,496 |
|
Excise and cultivation taxes |
|
|
(786 |
) |
|
|
(3,142 |
) |
Revenue, net |
|
$ |
49,659 |
|
|
$ |
53,354 |
|
$ change |
|
$ |
(3,695 |
) |
|
|
|
|
% change |
|
|
-7 |
% |
|
|
|
The decrease in net revenue at March 31, 2022 as compared to March 31, 2021 was due to a decrease in wholesale revenue of $14,443 from $38,384 for the three months ended March 31, 2021 to $23,941 for the three months ended March 31, 2022. This reduction in wholesale revenue was mainly related to a reset of the Company's cultivation facility in Pennsylvania and a recall by the Pennsylvania Department of Health of certain vape products produced by the Company. On February 4, 2022, more than 500 vape products were recalled by the Pennsylvania's Department of Health, including several of the Company's SKUs. As a result of the recall, the Company recorded sales returns of $1,040 during the three months ended March 31, 2022. In addition, the Company continued its intentional accumulation of inventory in New Jersey, versus selling wholesale, in preparation for adult use sales.
This decrease is partially offset by an increase of $10,748 in retail sales from $14,970 for the three months ended March 31, 2021 to $25,718 for the three months ended March 31, 2022 which is primarily a result of the increase in retail dispensaries across Pennsylvania, California, and New Jersey, as well as the acquisition of Gage (the "Gage Acquisition") in Michigan in March 2022. Retail dispensaries increased from nine in the first quarter of 2021 to twenty-five during the first quarter of 2022.
Cost of Sales
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Cost of sales |
|
$ |
33,446 |
|
|
$ |
17,828 |
|
Impairment and write downs of inventory |
|
|
1,073 |
|
|
|
584 |
|
Total cost of sales |
|
$ |
34,519 |
|
|
$ |
18,412 |
|
$ change |
|
$ |
16,107 |
|
|
|
|
|
% change |
|
|
87 |
% |
|
|
|
|
Cost of sales as a % of revenue |
|
|
70 |
% |
|
|
35 |
% |
The increase in cost of sales, as well as cost of sales as a percentage of revenue, for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 was driven mainly by lower volumes in Pennsylvania leading to under-absorption, primarily related to lower wholesale flower sales, as well as the aforementioned vape recall.
As a result of the recall, the Company wrote off $854 of inventory. In addition, management wrote down its inventory by $219 and $584 for the three months ended March 31, 2022 and 2021, respectively, related to inventory that it deemed unsaleable.
General and Administrative Expense (G&A)
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
General and administrative expense |
|
$ |
22,552 |
|
|
$ |
20,392 |
|
$ change |
|
$ |
2,160 |
|
|
|
|
|
% change |
|
|
11 |
% |
|
|
|
|
G&A excluding share-based compensation |
|
$ |
19,196 |
|
|
$ |
16,825 |
|
G&A excluding share-based compensation as a % of revenue |
|
|
39 |
% |
|
|
32 |
% |
The increase in G&A expenses was primarily a result of increased salaries and wages of $1,637 and sales and marketing expense of $605, which is primarily a result of the Gage Acquisition in March 2022.
Amortization and Depreciation Expense
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Amortization and depreciation |
|
$ |
2,618 |
|
|
$ |
1,873 |
|
$ change |
|
$ |
745 |
|
|
|
|
|
% change |
|
|
40 |
% |
|
|
|
The increase in amortization and depreciation expense for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 is primarily due to the Gage Acquisition during March 2022 as the Company recorded additional definite lived intangible assets of $130,519.
Revaluation of contingent consideration
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Revaluation of contingent consideration |
|
$ |
119 |
|
|
$ |
2,997 |
|
$ change |
|
$ |
(2,878 |
) |
|
|
|
|
% change |
|
|
-96 |
% |
|
|
|
The decrease in the revaluation of contingent consideration for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 is a result of a reduction in the liability as compared to March 31, 2021 due to payments for the earnout of Ilera of $29,668, and State Flower of $6,954 made subsequent to March 31, 2021, reducing the amount outstanding. This decrease is partially offset by the accretion of the contingent consideration payable for KCR, which are recorded at the present value of future payments upon initial recognition.
(Gain) loss on fair value of warrants and purchase option derivative asset
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
(Gain) loss on fair value of warrants and purchase option derivative asset |
|
$ |
(5,713 |
) |
|
$ |
5,410 |
|
$ change |
|
$ |
(11,123 |
) |
|
|
|
|
% change |
|
|
-206 |
% |
|
|
|
The Preferred Share warrant liability has been remeasured to fair value at March 31, 2022 using the Black Scholes model. The Company recognized a gain during the three months ended March 31, 2022 as a result of the reduction of the Company's share price from December 31, 2021 as compared to March 31, 2022, as well as from warrants exercised during the three months ended March 31, 2022. The combined impact resulted in a gain on fair value of warrants of $7,208. Additionally, the Company remeasured the warrant liability acquired through the Gage Acquisition at March 31, 2022 using the Black Scholes model. The Company recognized a loss of $3,864 during the three months ended March 31, 2022 as a result of the increase in the Company's stock price at the acquisition date of March 10, 2022, as compared to March 31, 2022.
During the three months ended March 31, 2021, the Company recognized a loss on fair value of warrants of $5,410 as a result of the increase in the Company's share price from December 31, 2020 to March 31, 2021.
For the three months ended March 31, 2022, the purchase option derivative asset related to the option to purchase an additional 6.25% ownership of the Company's New Jersey partnership, was remeasured using the Monte Carlo simulation model and resulted in a loss of $318.
Finance and other expenses
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Finance and other expenses |
|
$ |
6,856 |
|
|
$ |
6,390 |
|
$ change |
|
$ |
466 |
|
|
|
|
|
% change |
|
|
7 |
% |
|
|
|
The increase in finance expense in the current period is primarily due to interest expense recognized on the loans acquired as part of the Gage Acquisition during March 2022.
Transaction and restructuring costs
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Transaction and restructuring costs |
|
$ |
615 |
|
|
$ |
- |
|
$ change |
|
$ |
615 |
|
|
|
|
|
% change |
|
|
100 |
% |
|
|
|
The increase in transaction and restructuring costs for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 was primarily due to the Gage Acquisition.
Unrealized and realized foreign exchange loss
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Unrealized and realized foreign exchange loss |
|
$ |
356 |
|
|
$ |
2,783 |
|
$ change |
|
$ |
(2,427 |
) |
|
|
|
|
% change |
|
|
-87 |
% |
|
|
|
The decrease in unrealized foreign exchange loss is a result of the remeasurement of USD denominated cash and other assets recorded in C$ functional currency at the Company’s Canadian operations.
Provision for income taxes
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Provision for income taxes |
|
$ |
3,743 |
|
|
$ |
9,436 |
|
$ change |
|
$ |
(5,693 |
) |
|
|
|
|
% change |
|
|
-60 |
% |
|
|
|
The decrease in provision for income taxes was due to the decline in revenue and associated decline in gross profit, mainly related to the reset of the Pennsylvania facility and the vape recall by the Pennsylvania Department of Health.
Liquidity and Capital Resources
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
|
$ |
|
|
$ |
|
||
Cash and cash equivalents |
|
|
88,407 |
|
|
|
79,642 |
|
Current assets |
|
|
187,135 |
|
|
|
143,221 |
|
Non-current assets |
|
|
849,266 |
|
|
|
438,713 |
|
Current liabilities |
|
|
148,266 |
|
|
|
70,362 |
|
Non-current liabilities |
|
|
362,896 |
|
|
|
282,618 |
|
Working capital |
|
|
38,869 |
|
|
|
72,859 |
|
Total shareholders' equity |
|
|
525,239 |
|
|
|
228,954 |
|
The calculation of working capital provides additional information and is not defined under GAAP. The Company defines working capital as current assets less current liabilities. This measure should not be considered in isolation or as a substitute for any standardized measure under GAAP.
At March 31, 2022, TerrAscend had cash and cash equivalents of $88,407, which is sufficient to fund the Company’s ongoing operations. Any additional future requirements will be funded through the following sources of capital:
For additional information regarding regulatory and legal risks, please see Item 1A – “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, which was filed on March 17, 2022.
The Company’s objective with respect to its capital management is to ensure it has sufficient cash resources to maintain its ongoing operations and finance its research and development activities, corporate and administration expenses, working capital and overall capital expenditures. Since inception, the Company has primarily financed its liquidity needs through the issuance of shares and utilization of borrowings.
The Company has $280,332 in principal amounts of loans payable at March 31, 2022. Of this amount, $59,490 are due within the next twelve months. The Company has entered into operating leases for certain premises and offices for which it owes monthly lease payments.
In addition, the Company's undiscounted contingent consideration payable is $10,820 at March 31, 2022. The contingent consideration payable relates to the Company's business acquisitions of The Apothecarium, State Flower, and KCR. Contingent consideration is based upon the potential earnout of the underlying business unit and is measured at fair value using a projection model for the business and the formulaic structure for determining the consideration under the agreement. The contingent consideration is revalued at the end of each reporting period.
The Company expects that its cash on hand and cash flows from operations, along with financing transactions, will be adequate to meet its capital requirements and operational needs for at least the next 12 months.
Cash Flows
Cash flows from operating activities
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Net cash (used in) provided by operating activities |
|
$ |
(18,847 |
) |
|
$ |
6,212 |
|
The increase in cash used in operating activities for the three months ended March 31, 2022 is primarily due to an increase in loss from operations to $10,030 from a profit of $12,677 in the prior year period, as well as a $5,276 increase in changes in working capital items.
Cash flows from investing activities
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Net cash provided by (used in) investing activities |
|
$ |
13,913 |
|
|
$ |
(12,885 |
) |
The net cash provided by investing activities for the three months ended March 31, 2022 primarily relates to the cash acquired through the Gage Acquisition of $24,716. The cash provided by investing activities is offset by investments in property and equipment of $4,193 primarily related to the buildout of a cultivation site in Maryland, continuing renovations at the Company's Pennsylvania cultivation site, as well as the continued buildout of the Company's Lodi alternative treatment center in New Jersey.
In comparison, the cash outflow from investing activities during the three months ended March 31, 2021 was primarily related to investments in property and equipment of $8,311 related to the buildout of the New Jersey operations and expansions in Pennsylvania cultivation and deposits of $4,826 paid for expansion of the cultivation premises in Pennsylvania.
Cash flows from financing activities
|
For the Three Months Ended |
|
||||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Net cash provided by financing activities |
|
$ |
17,068 |
|
|
$ |
183,252 |
|
During the three months ended March 31, 2022, 7,989,436 Common Share warrants were exercised for total proceeds of $23,330 and 68,215 stock options were exercised at $1.93-$5.21 (C$2.42-$6.53) per unit for total gross proceeds of $192. The cash provided by financing activities was offset by payments of contingent consideration related to the acquisition of State Flower of $6,630.
Net cash provided by financing activities for the three months ended March 31, 2021, was mainly the result of the private placement on January 28, 2021, in which the Company issued 18,115,656 Common Shares at a price of $9.64 (C$12.35) per Common Share for total proceeds of $173,477, net of share issuance costs of $1,643. Additionally, during the three months ended March 31, 2021, 1,486,075 Common Share warrants were exercised for total proceeds of $3,854 and 381,820 stock options were exercised at $0.67-$6.34 (C$0.85-$8.09) per unit for total gross proceeds of $1,499. In addition, 1,570 preferred share warrants were exercised at $3,000 per unit for total gross proceeds of $3,735.
Reconciliation of Non-GAAP Measures
In addition to reporting the financial results in accordance with GAAP, the Company reports certain financial results that differ from what is reported under GAAP. Non-GAAP measures used by management do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. The Company believes that certain investors and analysts
use these measures to measure a company's ability to meet other payment obligations or as a common measurement to value companies in the cannabis industry, and the Company calculates Adjusted EBITDA as EBITDA adjusted for material non-cash items and certain other adjustments management believes are not reflective of the ongoing operations and performance. Such information is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The Company believes this definition is a useful measure to assess the performance of the Company as it provides more meaningful operating results by excluding the effects of expenses that are not reflective of the Company's underlying business performance and other one-time non-recurring expenses.
The table below reconciles net loss to EBITDA and Adjusted EBITDA for the three months ended March 31, 2022 and 2021.
|
|
For the Three Months Ended |
|
||||||
|
Notes |
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Net loss |
|
|
$ |
(16,006 |
) |
|
$ |
(14,111 |
) |
Add (deduct) the impact of: |
|
|
|
|
|
|
|
||
Provision for income taxes |
|
|
|
3,743 |
|
|
|
9,436 |
|
Finance expenses |
|
|
|
6,698 |
|
|
|
5,359 |
|
Amortization and depreciation |
|
|
|
5,085 |
|
|
|
3,521 |
|
EBITDA |
(a) |
|
|
(480 |
) |
|
|
4,205 |
|
Add (deduct) the impact of: |
|
|
|
|
|
|
|
||
Relief of fair value upon acquisition |
(b) |
|
|
1,806 |
|
|
|
— |
|
Vape recall |
(c) |
|
|
1,894 |
|
|
|
— |
|
Share-based compensation |
(d) |
|
|
3,356 |
|
|
|
3,567 |
|
Revaluation of contingent consideration |
(e) |
|
|
119 |
|
|
|
2,997 |
|
Legal settlements |
(f) |
|
|
— |
|
|
|
1,381 |
|
Other one-time items |
(g) |
|
|
1,974 |
|
|
|
262 |
|
(Gain) loss on fair value of warrants and purchase option derivative asset |
(h) |
|
|
(5,713 |
) |
|
|
5,410 |
|
Indemnification asset release |
(i) |
|
|
(25 |
) |
|
|
1,197 |
|
Unrealized and realized loss (gain) on investments |
(j) |
|
|
- |
|
|
|
(228 |
) |
Unrealized and realized foreign exchange loss |
(k) |
|
|
356 |
|
|
|
2,783 |
|
Adjusted EBITDA |
|
|
$ |
3,287 |
|
|
$ |
21,574 |
|
The decrease in Adjusted EBITDA for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to lower volume and resulting gross margin compression in Pennsylvania related to the reset of the facility and associated reduction in the wholesale business.
Pending and Subsequent Transactions
On April 8, 2022, the Company entered into a definitive agreement to acquire Allegany Medical Marijuana Dispensary ("AMMD"), a medical dispensary in Maryland from Moose Curve Holdings, LLC. Under the terms of the agreement, the Company will acquire 100% equity interest in AMMD for total consideration of $10,000 in cash, in addition to acquiring the real estate for $1,700. The transaction is subject to customary closing conditions and regulatory approvals. The Company intends to rebrand the 8,000 square foot dispensary as The Apothecarium.
On April 14, 2022, the Company entered into a definitive agreement to acquire KISA Enterprises MI, LLC and KISA Holdings, LLC ("Pinnacle"), a dispensary operator in Michigan, and related real estate, for total consideration of $28,500. The transaction includes six retail dispensary licenses, five of which are currently operational and located in the cities of Addison, Buchanan, Camden, Edmore, and Morenci. The Company intends to rebrand each of the dispensaries under either the Gage or Cookies retail brand.
Changes in or Adoption of Accounting Principles
Information regarding the Company's adoption of new accounting and reporting standards is discussed in Note 2 to the accompanying condensed consolidated financial statements.
Descriptions of the recently issued and adopted accounting principles are included in Item 1. "Financial Statements" in Note 1, Summary of Significant Accounting Policies, to the Condensed Consolidated Financial Statements.
Critical Accounting Policies and Estimates
The condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. The Company bases its estimates on historical experience and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and actual results, the Company's future financial statements will be affected. There have been no significant changes to the critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation," included in the Annual Report on Form 10-K for the year ended December 31, 2021, which was filed on March 17, 2022.
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, the condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
The Company will remain an emerging growth company until the earlier to occur of: (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of the IPO, (b) in which we have total annual gross revenue of $1.07 billion or more, or (c) in which the Company is deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th; and (ii) the date on which the Company has issued more than $1.0 billion in non-convertible debt during the prior three-year period.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in the Company's primary risk exposures or management of market risks from those disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Executive Chairman and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Executive Chairman and Chief Financial Officer concluded that, as of March 31, 2022 our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Executive Chairman and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is from time to time involved in various legal proceedings. Other than as noted below, TerrAscend believes that none of the litigation in which it is currently involved, or has been involved, in individually or in the aggregate, is material to the Company’s consolidated financial condition or results of operations.
PharmHouse and 261 Matter
On October 15, 2018, the Company’s wholly owned subsidiary TerrAscend Canada entered into a multi-year cultivation agreement (the “PharmHouse Agreement”) with PharmHouse Inc. (“PharmHouse”), a joint venture between RIV Capital and 2615975 Ontario Inc., the operators of a leading North American greenhouse produce company (“261”). Under the terms of the PharmHouse Agreement, it was expected that PharmHouse would grow and supply cannabis to TerrAscend Canada from its existing 1.3 million square foot greenhouse located in Leamington, Ontario. Once fully licensed, the production of flower, trim and clones from up to 20% of the dedicated flowering space planted at the greenhouse was expected to be made available to TerrAscend Canada. To date, PharmHouse has not yet delivered product in accordance with the terms of the PharmHouse Agreement.
On September 11, 2020, the Company and TerrAscend Canada were informed that a statement of claim was issued on August 31, 2020 in the Ontario Superior Court of Justice by 261 against RIV Capital, Canopy Growth, the Company and TerrAscend Canada (the “261 Claim”). In the 261 Claim, 261 alleged the Company worked with the other defendants to bankrupt PharmHouse in order to avoid having to purchase certain products to be provided by PharmHouse under the PharmHouse Agreement. 261 sought damages from the defendants in the amount of C$500 million and alleged certain causes of action, including bad faith, fraud, civil conspiracy, breach of the duty of honesty and good faith in contractual relations and breach of fiduciary duty.
On September 16, 2020, PharmHouse obtained an order from the Ontario Superior Court of Justice granting PharmHouse creditor protection under the Companies’ Creditors Arrangement Act (“CCAA”). Pursuant to the CCAA order, the 261 Claim has been stayed. During a CCAA hearing in November, 261 objected to the stay of the 261 Claim. The judge presiding over the CCAA process agreed to allow 261 to discontinue the 261 Claim against the defendants “without prejudice” to its right to recommence the 261 Claim against all parties except PharmHouse Inc., provided that such recommenced claim can only be brought after January 1, 2021. This does not affect any of the defendants’ ability to move for a stay of the recommenced 261 Claim. On February 10, 2021, 261 served the Company and TerrAscend Canada with the recommenced 261 Claim. The recommenced 261 Claim contains the same factual allegations as the 261 Claim, the same legal claims and the same relief sought.
On May 1, 2022, the Company received a full and final release from the 261 Claim. As a result, the Company will not accrue any contingencies with respect to the 261 Claim.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. For a detailed discussion of the risks that affect our business, please refer to the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 17, 2022. There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following information describes securities sold by the Company during the fiscal quarter ending March 31, 2022, which were not registered under the Securities Act. Included are securities issued in exchange other securities. The Company sold all of the securities listed below pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act, or Regulation D or Regulation S promulgated thereunder.
Recent Sales of Unregistered Securities
During the year ended December 31, 2021, the Company did not issue or sell any unregistered securities as previously disclosed in its Current Report on Form 8-K, as originally filed with the SEC on March 14, 2022.
Item 6. Exhibits.
Exhibit |
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Description of Exhibit Incorporated Herein by Reference |
Filed |
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Number |
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Description |
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Form |
File No. |
Exhibit |
Filing Date |
Herewith |
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10.1 |
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8-K |
000-56363 |
10.1 |
3/14/2022 |
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10.2 |
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8-K |
000-56363 |
10.2 |
3/14/2022 |
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31.1* |
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X |
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31.2* |
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X |
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32.1* |
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X |
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32.2* |
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X |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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* Certain confidential information has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Company Name |
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Date: May 12, 2022 |
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By: |
/s/ Ziad Ghanem |
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Ziad Ghanem |
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President and Chief Operating Officer |