ROC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedJune 30, 20222023

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: 021-340690

TerrAscend Corp.

(Exact Name of Registrant as Specified in its Charter)

Ontario

N/A

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

3610 Mavis Road77 City Centre Drive

Suite 501 - East Tower

Mississauga, Ontario

L5C 1W2L5B 1M5

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (855717) 837-7295610-4165

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

N/ANone

N/A

N/A

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 ☐ No No ☐

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 No ☐

As of August 9, 2022,2023, the registrant had 252,907,618286,961,175 shares of common stock,shares, $0.01 par value per share, outstanding.


Table of Contents

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

Unaudited Interim Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

1

Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months and six months ended June 30, 2023 and 2022

2

Unaudited Interim Condensed Consolidated Statements of OperationsChanges in Shareholders' Equity for the three months and Comprehensive Losssix months ended June 30, 2023 and 2022

2

Unaudited Interim Condensed Consolidated Statements of Cash Flows for the three months and six months ended June 30, 2023 and 2022

5

Notes to Unaudited Interim Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2427

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3441

Item 4.

Controls and Procedures

3541

PART II.

OTHER INFORMATION

3542

Item 1.

Legal Proceedings

3542

Item 1A.

Risk Factors

3542

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

3542

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

3642

Signatures

3945


Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements that TerrAscend Corp. (“TerrAscend”("TerrAscend" or the “Company”"Company") believes are, or may be considered to be, “forward-looking statements.”statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q regarding the prospects of the Company’sTerrAscend’s industry or the Company’sTerrAscend’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 "can", “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:

the performance of the Company’s business and operations;

the performance of TerrAscend’s business and operations;
TerrAscend’s expectations regarding revenues, expenses and anticipated cash needs;
TerrAscend's joint venture interests, including, as applicable, required regulatory approvals and licensing, anticipated costs and timing, expected impact thereof, and the ability to enter into future joint ventures;
TerrAscend's ability to complete future strategic alliances and the expected impact thereof;
TerrAscend's ability to source investment opportunities and complete future acquisitions, including in respect of entities in the United States, the ability to finance such acquisitions, and the expected impact thereof, including potential issuances of TerrAscend's common shares;
TerrAscend's ability to continue as a going concern;
TerrAscend may be subject to certain restrictions of the Toronto Stock Exchange, which may constrain our ability to expand our business in the United States;
certain restrictions or limitations on TerrAscend's ability to distribute and expend capital due to the Company's corporate restructure;
the expected growth in the number of customers and patients using TerrAscend's recreational and medical cannabis, respectively;
the expected growth in TerrAscend's cultivation and production capacities;
expectations with respect to future production costs;
the expected methods to be used by TerrAscend to distribute cannabis;
the expected growth in the TerrAscend's number of dispensaries;
the competitive conditions of the industry;
federal, state, provincial, territorial, local and foreign government laws, rules and regulations, including federal and state laws in the U.S. relating to cannabis operations in the U.S.;
the legalization of the use of cannabis for medical and/or recreational use in the U.S. and the related timing and impact thereof;
laws and regulations and any amendments thereto applicable to the business and the impact thereof;
the possibility of actions by individuals, or U.S. federal government enforcement actions, against TerrAscend and the potential impact on TerrAscend;
the competitive advantages and business strategies of TerrAscend;
the grant, renewal and impact of any license or supplemental license to conduct activities with or without cannabis or any amendments thereof;
the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis;
TerrAscend's future product offerings;
the anticipated future gross margins of TerrAscend's operations;

the Company’s expectations regarding revenues, expenses and anticipated cash needs;


the competitive conditions of the industry;

TerrAscend’s ability to source and operate facilities in the United States;
TerrAscend’s ability to integrate and operate the assets acquired from previous acquisitions;
Michigan'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;
the growth of the Michigan wholesale and retail business;
the potential impact of a public health emergency or pandemic, such as the COVID-19 pandemic;
TerrAscend's ability to protect its intellectual property;
the possibility that TerrAscend's products may be subject to product recalls and returns; and
other risks and uncertainties, including those listed under the section titled "Risk Factors" in this Quarterly Report

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;

laws and regulations and any amendments thereto applicable to the business and the impact thereof;

the competitive advantages and business strategies of the Company;

the Company’s ability to source and operate facilities in the US;

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;

any benefits expected from the Gage Acquisition; and

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 CompanyTerrAscend concerning the cannabis industry are based on estimates prepared by the CompanyTerrAscend 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 CompanyTerrAscend 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 CompanyTerrAscend operates; (iii) the output from the Company’sTerrAscend’s operations; (iv) consumer interest in the Company’sTerrAscend’s products; (v) competition; (vi) anticipated and unanticipated costs; (vii) government regulation of the Company’sTerrAscend’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’sTerrAscend’s ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; (x) the Company’sTerrAscend’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,TerrAscend, 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 ("U.S.") relating to cannabis operations in the United States;U.S.; and those discussed under Item 1A – “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2023 and 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 CompanyTerrAscend 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 CompanyTerrAscend 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 share and per share amounts)

 

At

 

 

At

 

 

At

 

 

At

 

 

June 30, 2022

 

 

December 31, 2021

 

 

June 30, 2023

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

48,426

 

 

$

79,642

 

 

$

28,915

 

 

$

26,158

 

Restricted cash

 

 

605

 

 

 

 

 

 

3,106

 

 

 

605

 

Accounts receivable, net

 

 

22,189

 

 

 

14,920

 

 

 

9,478

 

 

 

22,443

 

Investments

 

 

4,072

 

 

 

 

 

 

1,932

 

 

 

3,595

 

Inventory

 

 

54,371

 

 

 

42,323

 

 

 

54,015

 

 

 

46,335

 

Prepaid Expenses and other current assets

 

 

7,655

 

 

 

6,336

 

Assets held for sale

 

 

 

 

 

17,349

 

Prepaid expenses and other current assets

 

 

8,674

 

 

 

4,937

 

Current assets from discontinued operations

 

 

509

 

 

 

571

 

 

 

137,318

 

 

 

143,221

 

 

 

106,629

 

 

 

121,993

 

Non-Current Assets

 

 

 

 

 

 

 

 

 

 

Restricted cash - Non-current

 

 

2,500

 

 

 

 

Property and equipment, net

 

 

238,797

 

 

 

140,762

 

 

 

208,995

 

 

 

215,812

 

Deposits

 

 

4,698

 

 

 

 

 

 

406

 

 

 

837

 

Operating lease right of use assets

 

 

30,570

 

 

 

29,561

 

 

 

32,824

 

 

 

29,451

 

Intangible assets, net

 

 

351,638

 

 

 

168,984

 

 

 

269,594

 

 

 

239,704

 

Goodwill

 

 

240,598

 

 

 

90,326

 

 

 

99,952

 

 

 

90,328

 

Indemnification asset

 

 

-

 

 

 

3,969

 

Other non-current assets

 

 

4,998

 

 

 

5,111

 

 

 

848

 

 

 

3,462

 

 

 

871,299

 

 

 

438,713

 

 

 

615,119

 

 

 

579,594

 

Total Assets

 

$

1,008,617

 

 

$

581,934

 

 

$

721,748

 

 

$

701,587

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

57,535

 

 

$

30,340

 

 

$

50,841

 

 

$

44,286

 

Deferred revenue

 

 

2,404

 

 

 

1,071

 

 

 

3,092

 

 

 

2,935

 

Loans payable, current

 

 

58,856

 

 

 

8,837

 

 

 

23,928

 

 

 

48,335

 

Contingent consideration payable, current

 

 

3,028

 

 

 

9,982

 

 

 

4,434

 

 

 

5,184

 

Operating lease liability, current

 

 

1,394

 

 

 

1,171

 

 

 

1,911

 

 

 

1,857

 

Lease obligations under finance leases, current

 

 

384

 

 

 

22

 

 

 

275

 

 

 

521

 

Corporate income tax payable

 

 

13,189

 

 

 

9,621

 

 

 

45,934

 

 

 

23,077

 

Other current liabilities

 

 

3,613

 

 

 

-

 

 

 

1,608

 

 

 

2,599

 

Current liabilities from discontinued operations

 

 

1,466

 

 

 

9,111

 

 

 

140,403

 

 

 

61,044

 

 

 

133,489

 

 

 

137,905

 

Non-Current Liabilities

 

 

 

 

 

 

 

 

 

 

Loans payable, non-current

 

 

180,781

 

 

 

176,306

 

 

 

180,400

 

 

 

145,852

 

Contingent consideration payable, non-current

 

 

2,620

 

 

 

2,553

 

Operating lease liability, non-current

 

 

31,680

 

 

 

30,573

 

 

 

35,207

 

 

 

31,545

 

Lease obligations under finance leases, non-current

 

 

4,794

 

 

 

181

 

 

 

2,139

 

 

 

6,713

 

Warrant liability

 

 

6,176

 

 

 

54,986

 

Derivative liability

 

 

5,750

 

 

 

711

 

Convertible debt

 

 

6,447

 

 

 

 

Deferred income tax liability

 

 

73,087

 

 

 

14,269

 

 

 

35,596

 

 

 

30,700

 

Financing obligations

 

 

11,606

 

 

 

 

 

 

10,754

 

 

 

11,198

 

Other long term liabilities

 

 

12,502

 

 

 

13,068

 

 

 

16,367

 

 

 

15,792

 

 

 

323,246

 

 

 

291,936

 

 

 

292,660

 

 

 

242,511

 

Total Liabilities

 

 

463,649

 

 

 

352,980

 

 

 

426,149

 

 

 

380,416

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

Share Capital

 

 

 

 

 

 

 

 

 

 

Series A, convertible preferred stock, no par value, unlimited shares authorized; 12,658 and 13,708 shares outstanding as of June 30, 2022 and December 31, 2021 respectively

 

 

 

 

 

 

Series B, convertible preferred stock, no par value, unlimited shares authorized; 610 and 610 shares outstanding as of June 30, 2022 and December 31, 2021 respectively

 

 

 

 

 

 

Series C, convertible preferred stock, no par value, unlimited shares authorized; nil and 36 shares outstanding as of June 30, 2022 and December 31, 2021 respectively

 

 

 

 

 

 

Series D, convertible preferred stock, no par value, unlimited shares authorized; nil and nil shares outstanding as of June 30, 2022 and December 31, 2021 respectively

 

 

 

 

 

 

Proportionate voting shares, no par value, unlimited shares authorized; nil and nil shares outstanding as of June 30, 2022 and December 31, 2021 respectively

 

 

 

 

 

 

Exchangeable shares, no par value, unlimited shares authorized; 52,395,071 and 38,890,571 shares outstanding as of June 30, 2022 and December 31, 2021 respectively

 

 

 

 

 

 

Common stock, no par value, unlimited shares authorized; 252,707,325 and 190,930,800 shares outstanding as of June 30, 2022 and December 31, 2021 respectively

 

 

0

 

 

 

0

 

Series A, convertible preferred stock, no par value, unlimited shares authorized; 12,350 and 12,608 shares outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Series B, convertible preferred stock, no par value, unlimited shares authorized; 600 and 600 shares outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Series C, convertible preferred stock, no par value, unlimited shares authorized; nil and nil shares outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Series D, convertible preferred stock, no par value, unlimited shares authorized; nil and nil shares outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Proportionate voting shares, no par value, unlimited shares authorized; nil and nil shares outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Exchangeable shares, no par value, unlimited shares authorized; 63,492,038 and 76,996,538 shares outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Common shares, no par value, unlimited shares authorized; 286,807,780 and 259,624,531 shares outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Additional paid in capital

 

 

854,948

 

 

 

535,418

 

 

 

945,926

 

 

 

934,972

 

Accumulated other comprehensive income (loss)

 

 

(1,063

)

 

 

2,823

 

Accumulated other comprehensive income

 

 

1,330

 

 

 

2,085

 

Accumulated deficit

 

 

(315,132

)

 

 

(314,654

)

 

 

(653,623

)

 

 

(618,260

)

Non-controlling interest

 

 

6,215

 

 

 

5,367

 

 

 

1,966

 

 

 

2,374

 

Total Shareholders' Equity

 

 

544,968

 

 

 

228,954

 

 

 

295,599

 

 

 

321,171

 

Total Liabilities and Shareholders' Equity

 

$

1,008,617

 

 

$

581,934

 

 

$

721,748

 

 

$

701,587

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

1


TerrAscend Corp.

Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Loss)

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

 

For the Three Months Ended

 

 

For the Six Months Ended

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2023

 

 

June 30, 2022

 

 

June 30, 2023

 

 

June 30, 2022

 

Revenue

 

$

65,367

 

 

$

61,977

 

 

$

115,812

 

 

$

118,473

 

 

$

72,437

 

 

$

64,221

 

 

$

142,157

 

 

$

113,281

 

Excise and cultivation tax

 

 

(563

)

 

 

(3,254

)

 

 

 

(1,349

)

 

 

(6,396

)

 

 

(313

)

 

 

(261

)

 

 

 

(635

)

 

 

(736

)

Revenue, net

 

 

64,804

 

 

 

58,723

 

 

 

114,463

 

 

 

112,077

 

 

 

72,124

 

 

 

63,960

 

 

 

141,522

 

 

 

112,545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Sales

 

 

41,811

 

 

 

23,888

 

 

 

76,330

 

 

 

42,300

 

 

 

35,898

 

 

 

40,009

 

 

 

71,396

 

 

 

72,970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

22,993

 

 

 

34,835

 

 

 

38,133

 

 

 

69,777

 

 

 

36,226

 

 

 

23,951

 

 

 

70,126

 

 

 

39,575

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

33,981

 

 

 

20,750

 

 

 

56,533

 

 

 

41,142

 

 

 

30,476

 

 

 

32,925

 

 

 

58,206

 

 

 

54,349

 

Amortization and depreciation

 

 

3,016

 

 

 

1,844

 

 

 

 

5,634

 

 

 

3,717

 

 

 

2,242

 

 

 

2,581

 

 

 

4,271

 

 

 

4,756

 

Impairment of property and equipment

 

 

10

 

 

 

 

 

 

 

345

 

 

 

 

Total operating expenses

 

 

36,997

 

 

 

22,594

 

 

 

62,167

 

 

 

44,859

 

 

 

32,728

 

 

 

35,506

 

 

 

62,822

 

 

 

59,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from operations

 

 

(14,004

)

 

 

12,241

 

 

 

(24,034

)

 

 

24,918

 

Other expense (income)

 

 

 

 

 

 

 

 

 

Revaluation of contingent consideration

 

 

34

 

 

 

(7

)

 

 

153

 

 

 

2,990

 

(Gain) loss on fair value of warrants and purchase option derivative asset

 

 

(47,345

)

 

 

19,891

 

 

 

(53,058

)

 

 

25,301

 

Income (loss) from operations

 

 

3,498

 

 

 

(11,555

)

 

 

7,304

 

 

 

(19,530

)

Other (income) expense

 

 

 

 

 

 

 

 

Loss from revaluation of contingent consideration

 

 

 

 

 

34

 

 

 

 

 

 

153

 

Gain on fair value of warrants and purchase option derivative asset

 

 

(215

)

 

 

(47,345

)

 

 

(653

)

 

 

(53,058

)

Finance and other expenses

 

 

13,902

 

 

 

8,919

 

 

 

20,758

 

 

 

15,309

 

 

 

8,171

 

 

 

13,663

 

 

 

18,258

 

 

 

20,318

 

Transaction and restructuring costs

 

 

627

 

 

 

432

 

 

 

1,242

 

 

 

432

 

 

 

389

 

 

 

627

 

 

 

392

 

 

 

1,242

 

Impairment of goodwill

 

 

 

 

 

5,007

 

 

 

 

 

 

5,007

 

Impairment of intangible assets

 

 

 

 

 

3,633

 

 

 

 

 

 

3,633

 

Unrealized and realized foreign exchange loss

 

 

(306

)

 

 

3,055

 

 

 

50

 

 

 

5,838

 

Unrealized and realized loss (gain) on investments

 

 

234

 

 

 

(5,964

)

 

 

 

234

 

 

 

(6,192

)

Income (loss) before provision from income taxes

 

 

18,850

 

 

 

(22,725

)

 

 

6,587

 

 

 

(27,400

)

Unrealized and realized foreign exchange (gain) loss

 

 

(101

)

 

 

(315

)

 

 

(132

)

 

 

41

 

Unrealized and realized loss on investments

 

 

1,661

 

 

 

234

 

 

 

 

2,360

 

 

 

234

 

(Loss) Income from continuing operations before provision from income taxes

 

 

(6,407

)

 

 

21,547

 

 

 

(12,921

)

 

 

11,540

 

Provision for income taxes

 

 

4,688

 

 

 

6,937

 

 

 

 

8,431

 

 

 

16,373

 

 

 

6,448

 

 

 

4,688

 

 

 

 

19,112

 

 

 

8,431

 

Net income (loss)

 

$

14,162

 

 

$

(29,662

)

 

 

$

(1,844

)

 

$

(43,773

)

Net (loss) income from continuing operations

 

$

(12,855

)

 

$

16,859

 

 

 

$

(32,033

)

 

$

3,109

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax

 

$

(621

)

 

$

(2,697

)

 

 

$

(4,212

)

 

$

(4,953

)

Net (loss) income

 

$

(13,476

)

 

$

14,162

 

 

 

$

(36,245

)

 

$

(1,844

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

280

 

 

 

(3,025

)

 

 

 

3,887

 

 

 

(5,214

)

 

 

408

 

 

 

280

 

 

 

 

755

 

 

 

3,887

 

Comprehensive income (loss)

 

$

13,882

 

 

$

(26,637

)

 

 

$

(5,731

)

 

$

(38,559

)

Comprehensive (loss) income

 

$

(13,884

)

 

$

13,882

 

 

 

$

(37,000

)

 

$

(5,731

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to:

 

 

 

 

 

 

 

 

 

Net (loss) income from continuing operations attributable to:

 

 

 

 

 

 

 

 

 

Common and proportionate Shareholders of the Company

 

$

13,217

 

 

$

(30,660

)

 

$

(3,140

)

 

$

(44,834

)

 

$

(14,998

)

 

$

15,914

 

 

$

(36,362

)

 

$

1,813

 

Non-controlling interests

 

 

945

 

 

 

998

 

 

 

1,296

 

 

 

1,061

 

 

$

2,143

 

 

$

945

 

 

$

4,329

 

 

$

1,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to:

 

 

 

 

 

 

 

 

 

Comprehensive (loss) income from continuing operations attributable to:

 

 

 

 

 

 

 

 

 

Common and proportionate Shareholders of the Company

 

$

12,937

 

 

$

(27,635

)

 

$

(7,027

)

 

$

(39,620

)

 

$

(16,027

)

 

$

12,937

 

 

$

(41,329

)

 

$

(7,027

)

Non-controlling interests

 

 

945

 

 

 

998

 

 

 

1,296

 

 

 

1,061

 

 

$

2,143

 

 

$

945

 

 

$

4,329

 

 

$

1,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share, basic and diluted

 

 

 

 

 

 

 

 

 

Net income (loss) per share - basic

 

$

0.05

 

 

$

(0.17

)

 

$

(0.01

)

 

$

(0.25

)

Net (loss) income per share

 

 

 

 

 

 

 

 

 

Net (loss) income per share - basic:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.05

)

 

$

0.06

 

 

$

(0.13

)

 

$

0.01

 

Discontinued operations

 

$

-

 

 

$

(0.01

)

 

 

$

(0.02

)

 

$

(0.02

)

Net (loss) income per share - basic

 

$

(0.05

)

 

$

0.05

 

 

$

(0.15

)

 

$

(0.01

)

Weighted average number of outstanding common and proportionate voting shares

 

 

252,305,425

 

 

 

182,369,839

 

 

 

231,829,926

 

 

 

176,901,119

 

 

 

275,186,279

 

 

 

252,305,425

 

 

 

271,223,233

 

 

 

231,829,926

 

Net income (loss) per share - diluted

 

$

0.05

 

 

$

(0.17

)

 

 

$

(0.01

)

 

$

(0.25

)

 

 

 

 

 

 

 

 

 

Net (loss) income per share - diluted:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.05

)

 

$

0.06

 

 

$

(0.13

)

 

$

0.01

 

Discontinued operations

 

 

 

 

$

(0.01

)

 

 

$

(0.02

)

 

$

(0.02

)

Net (loss) income per share - diluted

 

$

(0.05

)

 

$

0.05

 

 

 

$

(0.15

)

 

$

(0.01

)

Weighted average number of outstanding common and proportionate voting shares, assuming dilution

 

 

257,883,711

 

 

 

182,369,839

 

 

 

 

231,829,926

 

 

 

176,901,119

 

 

 

275,186,279

 

 

 

257,883,711

 

 

 

 

271,223,233

 

 

 

231,829,926

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

2


TerrAscend Corp.

Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

 

 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

Exchangeable Shares

 

Series A

 

Series B

 

 

 

Common Shares Equivalent

 

 

 

Additional paid in capital

 

 

Accumulated other comprehensive income (loss)

 

 

 

Accumulated deficit

 

 

 

Non-controlling interest

 

 

 

Total

 

Balance at March 31, 2023

 

 

274,653,743

 

 

63,492,038

 

 

12,350

 

 

600

 

 

 

 

351,095,985

 

 

 

$

936,404

 

 

$

1,738

 

 

 

$

(641,517

)

 

 

$

2,676

 

 

 

$

299,301

 

Shares issued - stock options, warrant and RSU exercises

 

 

1,078

 

 

 

 

 

 

 

 

 

 

1,078

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares, options and warrants issued - acquisitions

 

 

5,442,282

 

 

 

 

 

 

 

 

 

 

5,442,282

 

 

 

 

9,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,524

 

Shares, options and warrants issued - legal settlement

 

 

130,000

 

 

 

 

 

 

 

 

 

 

130,000

 

 

 

 

201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

201

 

Shares issued - conversion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private placement net of share issuance costs

 

 

6,580,677

 

 

 

 

 

 

 

 

 

 

6,580,677

 

 

 

 

7,507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,507

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,981

 

Options and warrants expired/forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,514

)

 

 

 

 

 

 

3,514

 

 

 

 

 

 

 

 

 

Capital distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,531

)

 

 

 

(1,531

)

Acquisition of non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,177

)

 

 

 

 

 

 

 

 

 

 

(1,323

)

 

 

 

(7,500

)

Net (loss) income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,620

)

 

 

 

2,144

 

 

 

 

(13,476

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(408

)

 

 

 

 

 

 

 

 

 

 

 

(408

)

Balance at June 30, 2023

 

 

286,807,780

 

 

63,492,038

 

 

12,350

 

 

600

 

 

 

 

363,250,022

 

 

 

 

945,926

 

 

 

1,330

 

 

 

 

(653,623

)

 

 

 

1,966

 

 

 

 

295,599

 

 

 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

Exchangeable Shares

 

 

Series A

 

 

Series B

 

 

Common Shares Equivalent

 

 

Additional paid in capital

 

 

Accumulated other comprehensive income (loss)

 

 

Accumulated deficit

 

 

Non-controlling interest

 

 

Total

 

Balance at March 31, 2022

 

 

251,971,226

 

 

 

52,395,071

 

 

 

13,358

 

 

 

610

 

 

 

318,334,501

 

 

$

850,386

 

 

$

(783

)

 

 

(329,855

)

 

 

5,491

 

 

$

525,239

 

Shares issued - stock option, warrant and RSU exercises

 

 

36,099

 

 

 

 

 

 

 

 

 

 

 

 

36,099

 

 

 

1,041

 

 

 

 

 

 

 

 

 

 

 

 

1,041

 

Shares issued - conversion

 

 

700,000

 

 

 

 

 

 

(700

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued - liability settlement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,463

 

 

 

 

 

 

 

 

 

 

 

 

4,463

 

Options expired/forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,506

)

 

 

 

 

 

1,506

 

 

 

 

 

 

 

Capital contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

564

 

 

 

 

 

 

 

 

 

(221

)

 

 

343

 

Net income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,217

 

 

 

945

 

 

 

14,162

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(280

)

 

 

 

 

 

 

 

 

(280

)

Balance at June 30, 2022

 

 

252,707,325

 

 

 

52,395,071

 

 

 

12,658

 

 

 

610

 

 

 

318,370,600

 

 

$

854,948

 

 

$

(1,063

)

 

$

(315,132

)

 

$

6,215

 

 

$

544,968

 

3


TerrAscend Corp.

Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)(Continued)

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

 

 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

Exchangeable Shares

 

Series A

 

Series B

 

 

Common Shares Equivalent

 

 

Additional paid in capital

 

 

Accumulated other comprehensive income (loss)

 

 

Accumulated deficit

 

 

Non-controlling interest

 

 

Total

 

Balance at December 31, 2022

 

 

259,624,531

 

 

76,996,538

 

 

12,608

 

 

600

 

 

 

349,829,273

 

 

$

934,972

 

 

$

2,085

 

 

$

(618,260

)

 

$

2,374

 

 

$

321,171

 

Shares issued - stock options, warrant and RSU exercises

 

 

393,924

 

 

 

 

 

 

 

 

 

393,924

 

 

 

81

 

 

 

 

 

 

 

 

 

 

 

 

81

 

Shares, options and warrants issued - acquisitions

 

 

5,913,963

 

 

 

 

 

 

 

 

 

5,913,963

 

 

 

10,267

 

 

 

 

 

 

 

 

 

 

 

 

10,267

 

Shares, options and warrants issued - legal settlement

 

 

532,185

 

 

 

 

 

 

 

 

 

532,185

 

 

 

794

 

 

 

 

 

 

 

 

 

 

 

 

794

 

Shares issued - conversion

 

 

13,762,500

 

 

(13,504,500

)

 

(258

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private placement net of share issuance costs

 

 

6,580,677

 

 

 

 

 

 

 

 

 

6,580,677

 

 

 

7,507

 

 

 

 

 

 

 

 

 

 

 

 

7,507

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,694

 

 

 

 

 

 

 

 

 

 

 

 

3,694

 

Options and warrants expired/forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,212

)

 

 

 

 

 

5,212

 

 

 

 

 

 

 

Capital distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,415

)

 

 

(3,415

)

Acquisition of non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,177

)

 

 

 

 

 

 

 

 

(1,323

)

 

 

(7,500

)

Net (loss) income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40,575

)

 

 

4,330

 

 

 

(36,245

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(755

)

 

 

 

 

 

 

 

 

(755

)

Balance at June 30, 2023

 

 

286,807,780

 

 

63,492,038

 

 

12,350

 

 

600

 

 

 

363,250,022

 

 

$

945,926

 

 

$

1,330

 

 

$

(653,623

)

 

$

1,966

 

 

$

295,599

 

Three months ended

 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Exchangeable Shares

 

Series A

 

Series B

 

Series C

 

Series D

 

Common Shares Equivalent

 

Additional paid in capital

 

Accumulated other comprehensive income (loss)

 

Accumulated deficit

 

Non-controlling interest

 

Total

 

 

Common Shares

 

Exchangeable Shares

 

Series A

 

Series B

 

Common Shares Equivalent

 

Additional paid in capital

 

Accumulated other comprehensive income (loss)

 

Accumulated deficit

 

Non-controlling interest

 

Total

 

Balance at March 31, 2022

 

 

251,971,226

 

 

 

52,395,071

 

 

 

13,358

 

 

 

610

 

 

 

 

 

 

 

 

 

318,334,501

 

 

$

850,386

 

 

$

(783

)

 

 

(329,855

)

 

 

5,491

 

 

$

525,239

 

Balance at December 31, 2021

 

 

190,930,800

 

 

 

38,890,571

 

 

 

13,708

 

 

 

610

 

 

 

244,175,394

 

 

$

535,418

 

 

$

2,823

 

 

 

(314,654

)

 

 

5,367

 

 

$

228,954

 

Shares issued - stock option, warrant and RSU exercises

 

 

36,099

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36,099

 

 

 

1,041

 

 

 

 

 

 

 

 

 

 

 

 

1,041

 

 

 

9,336,728

 

 

 

 

 

 

 

 

 

 

 

 

9,336,728

 

 

 

25,743

 

 

 

 

 

 

 

 

 

 

 

 

25,743

 

Shares issued - acquisitions

 

 

51,349,978

 

 

 

13,504,500

 

 

 

 

 

 

 

 

 

64,854,478

 

 

 

288,044

 

 

 

 

 

 

 

 

 

 

 

 

288,044

 

Shares issued - liability settlement

 

 

4,000

 

 

 

 

 

 

 

 

 

 

 

 

4,000

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

22

 

Shares issued- conversion

 

 

700,000

 

 

 

 

 

 

(700

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,085,819

 

 

 

 

 

 

(1,050

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,463

 

 

 

 

 

 

 

 

 

 

 

 

4,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,819

 

 

 

 

 

 

 

 

 

 

 

 

7,819

 

Options expired/forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,506

)

 

 

 

 

 

1,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,662

)

 

 

 

 

 

2,662

 

 

 

 

 

 

 

Capital Contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

564

 

 

 

 

 

 

 

 

 

(221

)

 

 

343

 

Net income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,217

 

 

 

945

 

 

 

14,162

 

Conversion of convertible debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

564

 

 

 

 

 

 

 

 

 

 

 

 

564

 

Capital contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(448

)

 

 

(448

)

Net (loss) income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,140

)

 

 

1,296

 

 

 

(1,844

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(280

)

 

 

 

 

 

 

 

 

(280

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,886

)

 

 

 

 

 

 

 

 

(3,886

)

Balance at June 30, 2022

 

 

252,707,325

 

 

 

52,395,071

 

 

 

12,658

 

 

 

610

 

 

 

 

 

 

 

 

 

318,370,600

 

 

$

854,948

 

 

$

(1,063

)

 

$

(315,132

)

 

$

6,215

 

 

$

544,968

 

 

 

252,707,325

 

 

 

52,395,071

 

 

 

12,658

 

 

 

610

 

 

 

318,370,600

 

 

$

854,948

 

 

$

(1,063

)

 

$

(315,132

)

 

$

6,215

 

 

$

544,968

 

 

 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Exchangeable Shares

 

 

Proportionate Voting Shares

 

 

Series A

 

 

Series B

 

 

Series C

 

 

Series D

 

 

Common Shares Equivalent

 

 

Additional paid in capital

 

 

Accumulated other comprehensive income (loss)

 

 

Accumulated deficit

 

 

Non-controlling interest

 

 

Total

 

Balance at March 31, 2021

 

 

178,956,366

 

 

 

38,890,571

 

 

 

 

 

 

14,008

 

 

 

610

 

 

 

 

 

 

 

 

 

232,464,485

 

 

$

513,643

 

 

$

(1,473

)

 

 

(332,715

)

 

 

3,705

 

 

$

183,160

 

Shares issued - stock option, warrant and RSU exercises

 

 

1,676,567

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,676,567

 

 

 

7,310

 

 

 

 

 

 

 

 

 

 

 

 

7,310

 

Shares issued - acquisitions

 

 

3,464,870

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,464,870

 

 

 

34,427

 

 

 

 

 

 

 

 

 

 

 

 

34,427

 

Shares issued - liability settlement

 

 

5,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000

 

 

 

57

 

 

 

 

 

 

 

 

 

 

 

 

57

 

Shares issued- conversion

 

 

300,000

 

 

 

 

 

 

 

 

 

(300

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,648

 

 

 

 

 

 

 

 

 

 

 

 

4,648

 

Return of capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(223

)

 

 

(223

)

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,660

)

 

 

998

 

 

 

(29,662

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,025

 

 

 

 

 

 

 

 

 

3,025

 

Balance at June 30, 2021

 

 

184,402,803

 

 

 

38,890,571

 

 

 

 

 

 

13,708

 

 

 

610

 

 

 

 

 

 

 

 

 

237,610,922

 

 

$

560,085

 

 

$

1,552

 

 

$

(363,375

)

 

$

4,480

 

 

$

202,742

 

Six months ended

 

 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Exchangeable Shares

 

 

Series A

 

 

Series B

 

 

Series C

 

 

Series D

 

 

Common Shares Equivalent

 

 

Additional paid in capital

 

 

Accumulated other comprehensive income (loss)

 

 

Accumulated deficit

 

 

Non-controlling interest

 

 

Total

 

Balance at December 31, 2021

 

 

190,930,800

 

 

 

38,890,571

 

 

 

13,708

 

 

 

610

 

 

 

36

 

 

 

 

 

 

244,175,394

 

 

$

535,418

 

 

$

2,823

 

 

 

(314,654

)

 

 

5,367

 

 

$

228,954

 

Shares issued - stock option, warrant and RSU exercises

 

 

9,336,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,336,728

 

 

 

25,743

 

 

 

 

 

 

 

 

 

 

 

 

25,743

 

Shares, options and warrants issued- acquisitions

 

 

51,349,978

 

 

 

13,504,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64,854,478

 

 

 

288,044

 

 

 

 

 

 

 

 

 

 

 

 

288,044

 

Shares issued- liability settlement

 

 

4,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,000

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

22

 

Shares issued- conversion

 

 

1,085,819

 

 

 

 

 

 

(1,050

)

 

 

 

 

 

(36

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,819

 

 

 

 

 

 

 

 

 

 

 

 

7,819

 

Options expired/forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,662

)

 

 

 

 

 

2,662

 

 

 

 

 

 

 

Capital Contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

564

 

 

 

 

 

 

 

 

 

(448

)

 

 

116

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,140

)

 

 

1,296

 

 

 

(1,844

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,886

)

 

 

 

 

 

 

 

 

(3,886

)

Balance at June 30, 2022

 

 

252,707,325

 

 

 

52,395,071

 

 

 

12,658

 

 

 

610

 

 

 

 

 

 

 

 

 

318,370,600

 

 

$

854,948

 

 

$

(1,063

)

 

$

(315,132

)

 

$

6,215

 

 

$

544,968

 

3


 

 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Exchangeable Shares

 

 

Proportionate Voting Shares

 

 

Series A

 

 

Series B

 

 

Series C

 

 

Series D

 

 

Common Shares Equivalent

 

 

Additional paid in capital

 

 

Accumulated other comprehensive income (loss)

 

 

Accumulated deficit

 

 

Non-controlling interest

 

 

Total

 

Balance at December 31, 2020

 

 

79,526,785

 

 

 

38,890,571

 

 

 

76,307

 

 

 

14,258

 

 

 

710

 

 

 

 

 

 

 

 

 

209,692,379

 

 

$

305,138

 

 

$

(3,662

)

 

 

(318,594

)

 

 

3,802

 

 

$

(13,316

)

Shares issued - stock option, warrant and RSU exercises

 

 

3,647,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

87

 

 

 

1,315

 

 

 

5,048,796

 

 

 

33,168

 

 

 

 

 

 

 

 

 

 

 

 

33,168

 

Shares issued - acquisitions

 

 

3,464,870

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,464,870

 

 

 

34,427

 

 

 

 

 

 

 

 

 

 

 

 

34,427

 

Shares issued - liability settlement

 

 

5,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000

 

 

 

57

 

 

 

 

 

 

 

 

 

 

 

 

57

 

Private placement net of share issuance costs

 

 

18,115,656

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,115,656

 

 

 

173,477

 

 

 

 

 

 

 

 

 

 

 

 

173,477

 

Shares issued- conversion

 

 

78,358,768

 

 

 

 

 

 

(76,307

)

 

 

(550

)

 

 

(100

)

 

 

(87

)

 

 

(1,315

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,215

 

 

 

 

 

 

 

 

 

 

 

 

8,215

 

Options expired/forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(53

)

 

 

 

 

 

53

 

 

 

 

 

 

 

Conversion of convertible debt

 

 

1,284,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,284,221

 

 

 

5,656

 

 

 

 

 

 

 

 

 

 

 

 

5,656

 

Return of capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(383

)

 

 

(383

)

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,834

)

 

 

1,061

 

 

 

(43,773

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,214

 

 

 

 

 

 

 

 

 

5,214

 

Balance at June 30, 2021

 

 

184,402,803

 

 

 

38,890,571

 

 

 

 

 

 

13,708

 

 

 

610

 

 

 

 

 

 

 

 

 

237,610,922

 

 

$

560,085

 

 

$

1,552

 

 

$

(363,375

)

 

$

4,480

 

 

$

202,742

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements

4


TerrAscend Corp.

Unaudited Interim Condensed Consolidated Statements of Cash Flows

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Operating activities

 

 

 

 

 

 

Net loss

$

 

(1,844

)

$

 

(43,773

)

Adjustments to reconcile net income to net cash provided by (used in) operating activities

 

 

 

 

 

 

Non-cash write downs of inventory

 

 

8,495

 

 

 

699

 

Accretion expense

 

 

1,936

 

 

 

(544

)

Depreciation of property and equipment and amortization of intangible assets

 

 

12,131

 

 

 

7,050

 

Amortization of operating right-of-use assets

 

 

1,074

 

 

 

2,269

 

Share-based compensation

 

 

7,819

 

 

 

8,215

 

Deferred income tax (recovery) expense

 

 

(787

)

 

 

285

 

(Gain) loss on fair value of warrants and purchase option derivative

 

 

(53,058

)

 

 

25,301

 

Revaluation of contingent consideration

 

 

153

 

 

 

2,990

 

Impairment of intangible assets

 

 

 

 

 

3,633

 

Impairment of goodwill

 

 

 

 

 

5,007

 

Loss on disposal of fixed assets

 

 

929

 

 

 

 

Release of indemnification asset

 

 

3,973

 

 

 

3,796

 

Forgiveness of loan principal and interest

 

 

 

 

 

(766

)

Unrealized and realized foreign exchange loss

 

 

50

 

 

 

5,838

 

Unrealized and realized loss (gain) on investments

 

 

234

 

 

 

(6,192

)

Changes in operating assets and liabilities

 

 

 

 

 

 

Receivables

 

 

475

 

 

 

(950

)

Inventory

 

 

208

 

 

 

(9,879

)

Prepaid expense and deposits

 

 

1,474

 

 

 

(507

)

Deposits

 

 

206

 

 

 

 

Other assets

 

 

461

 

 

 

389

 

Accounts payable and accrued liabilities and other payables

 

 

(8,299

)

 

 

639

 

Operating lease liability

 

 

(614

)

 

 

(1,889

)

Other liability

 

 

(10,353

)

 

 

 

Contingent consideration payable

 

 

(410

)

 

 

(11,394

)

Corporate income tax payable

 

 

5

 

 

 

(293

)

Deferred revenue

 

 

766

 

 

 

 

Net cash used in operating activities

 

 

(34,976

)

 

 

(10,076

)

Investing activities

 

 

 

 

 

 

Investment in property and equipment

 

 

(12,500

)

 

 

(10,856

)

Investment in intangible assets

 

 

(1,330

)

 

 

(40

)

Principal payments received on lease receivable

 

 

392

 

 

 

359

 

Distributions of earnings from associates

 

 

 

 

 

469

 

Deposits for property and equipment

 

 

(10,036

)

 

 

(10,583

)

Deposits for business acquisition

 

 

(852

)

 

 

 

Payments made for land contracts

 

 

(429

)

 

 

 

Cash received on acquisition

 

 

24,716

 

 

 

 

Cash portion of consideration paid in acquisitions, net of cash acquired

 

 

 

 

 

(42,736

)

Net cash used in investing activities

 

 

(39

)

 

 

(63,387

)

Financing activities

 

 

 

 

 

 

Proceeds from options and warrants exercised

 

 

24,158

 

 

 

12,921

 

Loan principal paid

 

 

(5,203

)

 

 

 

Loan amendment fee paid

 

 

(1,200

)

 

 

 

Proceeds from loans payable

 

 

 

 

 

766

 

Cash distributions to NJ partners

 

 

(1,436

)

 

 

 

Capital contributions received (paid) from (to) non-controlling interests

 

 

(448

)

 

 

(383

)

Payments of contingent consideration

 

 

(6,630

)

 

 

(18,274

)

Payments made for financing obligations

 

 

(460

)

 

 

 

Proceeds from private placement, net of share issuance costs

 

 

 

 

 

173,477

 

Net cash provided by financing activities

 

 

8,781

 

 

 

168,507

 

Net (decrease) increase in cash and cash equivalents and restricted cash during the period

 

 

(26,234

)

 

 

95,044

 

Net effects of foreign exchange

 

 

(4,377

)

 

 

(89

)

Cash and cash equivalents and restricted cash, beginning of period

 

 

79,642

 

 

 

59,226

 

Cash and cash equivalents and restricted cash, end of period

$

 

49,031

 

$

 

154,181

 

 

 

 

 

 

 

 

Supplemental disclosure with respect to cash flows

 

 

 

 

 

 

Income taxes paid

$

 

9,213

 

$

 

16,381

 

Interest paid

$

 

14,641

 

$

 

13,290

 

Lease termination fee paid

$

 

3,300

 

 

 

-

 

Non-cash transactions

 

 

 

 

 

 

Equity and warrant liability issued as consideration for acquisition

$

 

294,800

 

$

 

34,427

 

Promissory note issued as consideration for acquisitions

$

 

-

 

$

 

6,750

 

Shares issued for liability settlement

$

 

22

 

$

 

57

 

Accrued capital purchases

$

 

9,776

 

$

 

336

 

5


 

For the Six Months Ended

 

 

 

June 30, 2023

 

 

June 30, 2022

 

Operating activities

 

 

 

 

 

 

Net (loss) income from continuing operations

 

$

(32,033

)

 

$

3,109

 

Adjustments to reconcile net (loss) income to net cash used in operating activities

 

 

 

 

 

 

Non-cash write downs of inventory

 

 

1,081

 

 

 

8,495

 

Accretion expense

 

 

5,673

 

 

 

1,708

 

Depreciation of property and equipment and amortization of intangible assets

 

 

9,761

 

 

 

11,253

 

Amortization of operating right-of-use assets

 

 

932

 

 

 

1,074

 

Share-based compensation

 

 

3,694

 

 

 

7,819

 

Deferred income tax expense

 

 

815

 

 

 

(787

)

Gain on fair value of warrants and purchase option derivative

 

 

(653

)

 

 

(53,058

)

Loss on disposal of fixed assets

 

 

345

 

 

 

 

Revaluation of contingent consideration

 

 

 

 

 

153

 

Loss on disposal of fixed assets

 

 

 

 

 

929

 

Release of indemnification asset

 

 

 

 

 

3,973

 

Unrealized and realized foreign exchange (gain) loss

 

 

(132

)

 

 

41

 

Unrealized and realized loss on investments / derivatives

 

 

2,410

 

 

 

234

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Receivables

 

 

295

 

 

 

(445

)

Inventory

 

 

(7,851

)

 

 

208

 

Prepaid expense and other current assets

 

 

(319

)

 

 

1,434

 

Deposits

 

 

431

 

 

 

206

 

Other assets

 

 

714

 

 

 

461

 

Accounts payable and accrued liabilities and other payables

 

 

4,089

 

 

 

(7,840

)

Operating lease liability

 

 

(337

)

 

 

(614

)

Other liability

 

 

1,085

 

 

 

(10,353

)

Contingent consideration payable

 

 

 

 

 

(410

)

Corporate income tax payable

 

 

22,127

 

 

 

5

 

Deferred revenue

 

 

157

 

 

 

766

 

Net cash provided by (used in) operating activities- continuing operations

 

 

12,284

 

 

 

(31,639

)

Net cash (used in) operating activities- discontinued operations

 

 

(3,164

)

 

 

(3,337

)

Net cash provided by (used in) operating activities

 

 

9,120

 

 

 

(34,976

)

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Investment in property and equipment

 

 

(4,504

)

 

 

(12,500

)

Investment in intangible assets

 

 

(262

)

 

 

(1,330

)

Principal payments received on lease receivable

 

 

104

 

 

 

392

 

Receipt of convertible debenture payment

 

 

738

 

 

 

 

Deposits for property and equipment

 

 

 

 

 

(10,036

)

Deposits for business acquisition

 

 

 

 

 

(852

)

Payment for land contracts

 

 

(769

)

 

 

(429

)

Cash portion of consideration paid in acquisitions, net of cash of acquired

 

 

(14,469

)

 

 

24,716

 

Net cash (used in) investing activities- continuing operations

 

 

(19,162

)

 

 

(39

)

Net cash provided by investing activities- discontinued operations

 

 

14,285

 

 

 

 

Net cash (used in) investing activities

 

 

(4,877

)

 

 

(39

)

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Transfer of Employee Retention Credit

 

 

12,677

 

 

 

 

Proceeds from loan payable, net of transaction costs

 

 

23,872

 

 

 

 

Proceeds from options and warrants exercised

 

 

81

 

 

 

24,158

 

Loan principal paid

 

 

(40,359

)

 

 

(4,968

)

Loan amendment fee paid and prepayment premium paid

 

 

(1,178

)

 

 

(1,200

)

Cash distributions to partners

 

 

(3,415

)

 

 

(1,436

)

Capital contributions paid to non-controlling interests

 

 

 

 

 

(448

)

Payments of contingent consideration

 

 

 

 

 

(6,630

)

Proceeds from private placement, net of share issuance costs

 

 

19,218

 

 

 

 

Payments made for financing obligations and finance lease

 

 

(941

)

 

 

(460

)

Net cash provided by financing activities- continuing operations

 

 

9,955

 

 

 

9,016

 

Net cash (used in) financing activities- discontinued operations

 

 

(5,539

)

 

 

(235

)

Net cash provided by financing activities

 

 

4,416

 

 

 

8,781

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents and restricted cash during the period

 

 

8,659

 

 

 

(26,234

)

Net effects of foreign exchange

 

 

(901

)

 

 

(4,377

)

Cash and cash equivalents and restricted cash, beginning of the period

 

 

26,763

 

 

 

79,642

 

Cash and cash equivalents and restricted cash, end of the period

 

$

34,521

 

 

$

49,031

 

 

 

 

 

 

 

 

Supplemental disclosure with respect to cash flows

 

 

 

 

 

 

Income taxes (refund received) paid

 

$

(4,582

)

 

$

9,213

 

Interest paid

 

$

9,259

 

 

$

14,641

 

Lease termination fee paid

 

$

-

 

 

$

3,300

 

Non-cash transactions

 

 

 

 

 

 

Equity and warrant liability issued as consideration for acquisition

 

$

10,267

 

 

$

294,800

 

Shares issued for legal and liability settlement

 

$

794

 

 

$

22

 

Accrued capital purchases

 

$

529

 

 

$

9,776

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

6


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

1. Nature of operations

TerrAscend Corp. (“TerrAscend” or the “Company”) was incorporated under the Ontario Business Corporations Act on March 7, 2017. TerrAscend provides cannabis products, brands, and services into the United States ("US"(“U.S.”) and CanadaCanadian cannabinoid markets where cannabis production or consumption has been legalized for therapeutic or adult use. TerrAscend operates a number of synergistic businesses, including Gage Growth Corp. ("Gage"), a cultivator, processor and retailer in Michigan,Michigan; KISA Enterprises MI, LLC and KISA Holdings LLC (collectively "Pinnacle"); The Apothecarium (“The Apothecarium”), a cannabis dispensary with several retail locations in California, Pennsylvania and New Jersey; TerrAscend NJ, LLC ("TerrAscend NJ"), a cultivator, processor and retailer with operations in New Jersey,Jersey; Ilera Healthcare (“Ilera”), Pennsylvania’s medical cannabis cultivator, processor and dispenser; vertically integrated operations in Maryland which include HMS Health, LLC and HMS Processing, LLC (collectively “HMS”), a medical cannabis cultivator and processor, based in Maryland;Allegany Medical Marijuana Dispensary ("AMMD"), Peninsula Alternative Health ("Peninsula"), Blue Ridge Wellness ("Blue Ridge"), and Herbiculture Inc. ("Herbiculture"); Valhalla Confections, a manufacturer of cannabis-infused edibles;edibles brand; and State Flower, a California-based cannabis producer operating a licensed cultivation facility in San Francisco; and Arise Bioscience Inc., a manufacturer and distributorFrancisco. Notwithstanding various states in the U.S. which have implemented medical marijuana laws, or which have otherwise legalized the use of hemp-derived products.cannabis, the use of cannabis remains illegal under U.S. federal law for any purpose, by way of the Controlled Substances Act of 1970.

The

Effective July 4, 2023, the Company was listedcommenced trading of its common shares on the Toronto Stock Exchange ("TSX"), under the ticker symbol "TSND". Previously from May 3, 2017 to June 30, 2023, common shares of the Company were traded on the Canadian StockSecurities Exchange effective May 3, 2017, having theunder ticker symbol TER and effective October 22, 2018,"TER". The common shares of the Company began trading on OTCQX on October 22, 2018 under the ticker symbol TRSSF."TRSSF" and changed its ticker symbol to "TSNDF" effective July 6, 2023. The Company’s registered office is located at 3610 Mavis Road,77 City Centre Drive, Suite 501, Mississauga, Ontario, L5C 1W2.L5B 1M5.

2.
Summary of significant accounting policies
(a)
Basis of presentation

These unaudited interim condensed consolidated financial statements as of and for the three and six months ended June 30, 2022 and 2021included herein (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”U.S. Generally Accepted Accounting Principles ("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 and six months ended June 30, 2022 and 20212023 are not necessarily indicative of the operating results for the year ended December 31, 2022,2023, or any other interim or future periods.

The accompanying unaudited interim condensed consolidated financial statements have been prepared on the going concern basis, under the historical cost convention, except for certain financial instruments that are measured at fair value as described herein. At June 30, 2023, TerrAscend had an accumulated deficit of $653,623. During the three and six months ended June 30, 2023, TerrAscend incurred a net loss from continuing operations of $12,855 and $32,033, respectively. Additionally, as of June 30, 2023 the Company’s current liabilities exceed its current assets. Therefore, the Company expects that it will need additional capital to continue to fund its operations.

The aforementioned indicators raise substantial doubt about TerrAscend's ability to continue as a going concern for at least one year from the issuance of these financial statements. The Company believes this concern is mitigated by steps to improve its operations and cash position, including: (i) identifying access to future capital required to meet the Company’s on-going obligations, (ii) improved cashflow growth from the Company's consolidated operations, particularly in New Jersey and most recently Maryland with conversion to adult use sales, and (iii) various cost and efficiency improvements.

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, 20212022 contained in the Company's 20212022 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, 20212022 in the Company's 20212022 Form 10-K.10-K other than the new estimate disclosed in Note 3 of the financial statements.

3.
Accounts receivable, netConsolidation

 

 

June 30, 2022

 

 

December 31, 2021

 

Trade receivables

 

$

22,341

 

 

$

14,684

 

Sales tax receivable

 

 

559

 

 

 

358

 

Other receivables

 

 

437

 

 

 

370

 

Provision for sales returns

 

 

(316

)

 

 

(157

)

Expected credit losses

 

 

(832

)

 

 

(335

)

Total receivables, net

 

$

22,189

 

 

$

14,920

 

7


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

Sales tax receivable represents input tax credits arisingThe Company consolidates entities in which it has a controlling financial interest by evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”).

As a part of the TSX listing, the Company reorganized its ownership in subsidiaries to segregate the Company’s Canadian cannabis operations from sales tax leviedits operations in the United States (the "Reorganization"). After the Reorganization, the Company owns 95% of its Canadian business. The Company continues to consolidate both its Canadian and its U.S. cannabis operation under two different consolidation models.

Voting Interest Entities

A VOE is an entity in which (1) the total equity investment at risk is deemed sufficient to absorb the expected losses of the entity, (2) the at-risk equity holders, as a group, have all of the characteristics of a controlling financial interest and (3) the entity is structured with substantive voting rights. The Company consolidates the Canadian operations under a VOE model based on the supplycontrolling financial interest obtained through common shares with substantive voting rights.

Variable Interest Entities

A VIE is an entity that lacks one or more characteristics of goods purchaseda controlling financial interest defined under the voting interest model. The Company consolidates VIE when it has a variable interest that provide it with (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or servicesthe right to receive benefits from the VIE that potentially could be significant to the VIE (benefits).

As a result of the Company's TSX listing effort, TerrAscend Growth Corp., a wholly owned subsidiary of the Company, has issued $1 million of Class A shares to an investor. See Note 10 for accounting treatment of Class A shares. The Company’s ownership in Class B shares, representing 100% of the issued and outstanding shares of TerrAscend Growth Corp., were exchanged for non-voting, non-participating exchangeable shares of TerrAscend Growth Corp. Simultaneously, the Company entered into a protection agreement with TerrAscend Growth Corp. that contains certain negative covenants that are designed to preserve the value of the non-voting shares until such time as they are converted into common shares. The Company determined TerrAscend Growth Corp. is a VIE as all the Company’s US activities continue to be conducted on behalf of the Company which has disproportionately few voting rights. After conducting an analysis of the following VIE factors; purpose and design of the VIE, the protection agreement in place, the board structure of TerrAscend Growth Corp., and substantive kick-out rights of the Class A shareholders, it was determined that the Company has the power to direct the activities of TerrAscend Growth Corp. In addition, given the structure of the Class A shares where all of the losses and substantially all of the benefits of TerrAscend Growth Corp. are absorbed by the Company, the Company consolidates as the primary beneficiary in accordance with ASC 810 Consolidation. Management has applied significant judgment on the decision to consolidate its VIE's based on the facts and circumstances noted above.

The Company's U.S. operations are consolidated through the VIE model. Therefore, substantially all of the Company's current assets, non-current assets, current liabilities and non-current liabilities are consolidated through the VIE model. The Company's assets and liabilities that are not consolidated through the VIE model include convertible debt, derivative liability and assets and liabilities from discontinued operations. The Company also consolidates a minimal amount of assets and liabilities within Canada, see Note 21 for more information.

4.
Accounts receivable, net

 

 

June 30, 2023

 

 

December 31, 2022

 

Trade receivables

 

$

19,213

 

 

$

14,786

 

Sales tax receivable

 

 

120

 

 

 

277

 

Other receivables

 

 

994

 

 

 

17,936

 

Expected credit losses

 

 

(10,849

)

 

 

(10,556

)

Total receivables, net

 

$

9,478

 

 

$

22,443

 

For the year ended December 31, 2022, the Company has an Employee Retention Credit ("ERC") for qualified wages of $14,903 which was included in other receivables in the table above at December 31, 2022. During January 2023, the Company received $12,667, pursuant to a financing agreement with a third-party lender. In exchange, the Company assigned to the lender its interests in Canada. Other receivables atthe $14,903 ERC claim that was submitted during December 2022. The difference between the amount of the claim and the amount received from the lender is the employee retention credits transfer fee which is equal to 15% of the total claim amount. The framework prescribed in

8


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

ASC 860 Transfers and Servicing was reviewed and management has concluded that this should be accounted for as an asset transfer with recourse. This fee is included in finance and other expenses. If the Company does not receive the ERC claim, in whole or in part, the Company is required to repay the related portion of the funds received plus interest of 10% accrued from the date of the financing agreement through the repayment date. The Company’s obligation under the financing agreement will be satisfied upon receipt of the ERC claim or other full repayment. As of June 30, 20222023, the lender has received refunds in the amount of $10,059 and December 31, 2021 mainly include amounts due from the sellersis awaiting receipt of the Apothecarium.remaining refunds. Management has concluded that collection remains probable and no additional recourse obligation was recorded for the six months ended June 30, 2023.

 

June 30, 2022

 

December 31, 2021

 

 

June 30, 2023

 

December 31, 2022

 

Trade receivables

 

$

22,341

 

 

$

14,684

 

 

$

19,213

 

 

$

14,786

 

Less: provision for sales returns and expected credit losses

 

 

(1,148

)

 

 

(492

)

 

 

(10,849

)

 

 

(10,556

)

Total trade receivables, net

 

$

21,193

 

 

$

14,192

 

 

$

8,364

 

 

$

4,230

 

 

 

 

 

 

 

 

 

 

 

Of which

 

 

 

 

 

 

 

 

 

 

Current

 

 

8,173

 

 

 

13,282

 

 

 

7,393

 

 

 

4,045

 

31-90 days

 

 

711

 

 

 

569

 

 

 

1,108

 

 

 

614

 

Over 90 days

 

 

13,457

 

 

 

833

 

 

 

10,712

 

 

 

10,127

 

Less: provision for sales returns and expected credit losses

 

 

(1,148

)

 

 

(492

)

 

 

(10,849

)

 

 

(10,556

)

Total trade receivables, net

 

$

21,193

 

 

 

14,192

 

 

$

8,364

 

 

$

4,230

 

The over 90 days aged balance relates mainly to 1one customer who has agreed to a payment plan and the Company has received payments in accordance with the payment plan subsequent to June 30, 2022.which was deemed uncollectible.

The following is a roll-forward of the provision for sales returns and allowances related to trade accounts receivable:

 

 

June 30, 2022

 

 

December 31, 2021

 

Beginning of period

 

$

492

 

 

 

1,782

 

Provision for sales returns

 

 

255

 

 

 

1,125

 

Expected credit losses

 

 

859

 

 

 

357

 

Write-offs charged against provision

 

 

(431

)

 

 

(2,772

)

Foreign currency translation adjustments

 

 

(27

)

 

 

-

 

Total provision for sales returns and allowances

 

$

1,148

 

 

 

492

 

4.5.
Acquisitions

AMMD

On April 8, 2022,January 27, 2023, TerrAscend closed the Company entered intoacquisition of AMMD, a definitive agreement to acquire Allegany Medical Marijuana Dispensary ("AMMD"), a medical dispensary in Maryland from Moose Curve Holdings, LLC.Cumberland, Maryland. Under the terms of the agreement, the Company will acquireTerrAscend acquired a 100% equity interest in AMMD for total consideration of $10,000 in cash, in addition to acquiring related 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.

Pinnacle

On April 14, 2022, the Company enteredentering into a definitive agreementlong-term lease with the option to acquire KISA Enterprises MI, LLCpurchase the real estate. The cash consideration paid included repayments of indebtedness and KISA Holdings, LLC (collectively, "Pinnacle"), a dispensary operator in Michigan, and related real estate, for total considerationtransaction expenses on behalf of AMMD of $28,500160 and $29, payable in cash, two promissory notes in an aggregate amount of $respectively.10,000, and stock. The transaction includes 6 retail dispensary licenses, 5 of which are currently operational and located in the cities of Addison, Buchanan, Camden, Edmore, and Morenci, Michigan. The Company intends to rebrand each of the dispensaries under either the Gage or Cookies retail brand. This transaction is pending approval.

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 0.3001 equivalent replacement award of the Company's respective security at the time of closing based on the closing price of the Common Shares on the Canadian Stock Exchange ("CSE") on March 10, 2022. On the acquisition date there was consideration in the form of 51,349,978 Common Shares valued at $207,871, 13,504,500 exchangeable units valued at $66,591, 4,940,364 replacement stock options with a fair value of $13,147, and 282,023 replacement warrants with a fair value of $435. Each of the directors, officers and 10% shareholders of Gage entered into voting support and lock-up agreements in which the shares issued to

8


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

these individuals are subject to various vesting periods. As such, a restriction discount of $45,336 has been placed over the shares subject to lock-up. The fair value of the replacement options and warrants was calculated using the Black Scholes Option Pricing Model combined with the percentage of the vesting period that was completed prior to the acquisition. Additionally, total consideration included warrant liabilities convertible into equity with a fair value of $6,756.

The following table presents the fair value of assets acquired and liabilities assumed as of the March 10, 2022January 27, 2023 acquisition date and allocation of the consideration to net assets acquired:

$

Cash and cash equivalents

24,716

Accounts receivable

8,996

Inventory

20,852

Prepaid expenses and other current assets

1,855

Property and equipment

69,595

Operating right of use asset

1,948

Deposits

1,147

Intangible assets

187,953

Goodwill

150,272

Investments

4,121

Accounts payable and accrued liabilities

(29,871

)

Corporate income taxes payable

(5,000

)

Operating lease liability

(1,948

)

Finance lease liability

(308

)

Deferred revenue

(562

)

Loans payable

(60,605

)

Deferred tax liability

(59,603

)

Financing obligations

(12,184

)

Other liabilities

(6,574

)

Net assets acquired

294,800

Common shares of TerrAscend

274,462

Fair value of other equity instruments

13,582

Fair value of warrants classified as liabilities

6,756

Total consideration

294,800

Cash and cash equivalents

 

$

20

 

Inventory

 

 

303

 

Prepaid expense

 

 

4

 

Operating right of use asset

 

 

781

 

Fixed assets

 

 

416

 

Intangible asset

 

 

5,330

 

Goodwill

 

 

6,005

 

Accounts payable and accrued liabilities

 

 

(135

)

Deferred tax liability

 

 

(2,021

)

Corporate income taxes payable

 

 

(291

)

Operating lease liability

 

 

(781

)

Net assets acquired

 

$

9,631

 

 

 

 

 

Cash

 

 

10,000

 

Working capital adjustment

 

 

(369

)

Total consideration

 

$

9,631

 

The acquired intangible assets include cultivation and processing licenses, as well as retail licenses,a medical license, which areis treated as a definite-lived intangible assets which areasset and amortized over a 15 year30-year period. The fair value

9


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of the cultivationUnited States dollars, except for share and processing and the retail licenses are $77,198 and $53,321, respectively. In addition, the intangible assets include brand intangibles which are treated as indefinite lived intangible assets. The fair value of the brand intangibles is $57,435.per share amounts)

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 June 30, 2022.2023. 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. During the 3 months ended June 30, 2023, an adjustment was made to decrease intangible assets by $620 due to new information regarding the fair value at January 27, 2023. This resulted in an increase to goodwill of the same amount.

Costs related to this transaction were $3,949191, including legal, accounting, due diligence, and other transaction-related expenses. Of the total amount of transaction costs, $1,30936 wasand $99 were recorded during the six months ended June 30, 2023 and June 30, 2022, respectively.

On a standalone basis, had the Company acquired the business on January 1, 2023, sales estimates would have been $3,736 for the six months ended June 30, 2023 and net income estimates would have been $1,141. Actual sales and net income for the six months ended June 30, 2023 since the date of acquisition are $3,057 and $897, respectively.

Peninsula

On June 28, 2023, the Company closed the acquisition of Peninsula, a dispensary located in Salisbury, Maryland. Under the terms of the agreement, the Company acquired 100% of the equity interest in Peninsula for total consideration of $14,362 exclusive of assumed financing obligations of $7,698. The consideration was comprised of 5,442,282 common shares of the Company ("Common Shares"), valued at $9,524, a $3,927 secured promissory note at an interest rate of 7.25% maturing on June 28, 2026, and $1,500 in cash, less a working capital adjustment of $589. The cash consideration paid included transaction expenses and repayments of indebtedness on behalf of Peninsula of $290 and $33, respectively. As part of the stock consideration, the Company guaranteed the value of the stock consideration as of the transaction date for a period up to 24 months from the transaction date. This guarantee in transactionvalue is accounted for as a derivative in accordance with ASC 815, Derivatives and restructuring costs inHedging.

The following table presents the consolidated statementfair value of operationsassets acquired and comprehensive income.liabilities assumed as of the June 28, 2023 acquisition date and allocation of the consideration to net assets acquired:

Inventory

 

$

370

 

Prepaid expense

 

 

371

 

Operating right of use asset

 

 

1,168

 

Fixed assets

 

 

68

 

Intangible asset

 

 

21,800

 

Goodwill

 

 

683

 

Accounts payable and accrued liabilities

 

 

(1,123

)

Loans payable

 

 

(7,807

)

Operating lease liability

 

 

(1,168

)

Net assets acquired

 

$

14,362

 

 

 

 

 

Cash

 

 

1,500

 

Common shares of TerrAscend

 

 

9,524

 

Loans payable

 

 

3,927

 

Working capital adjustment

 

 

(589

)

Total consideration

 

$

14,362

 

The acquired intangible assets include a medical license, which is treated as a definite-lived intangible asset and amortized over a 30-year period.

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.

910


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

The accounting for this acquisition has been provisionally determined at June 30, 2023. The fair value of net assets acquired, specifically with respect to inventory, intangible assets, property and equipment, operating right of use assets, lease liabilities, 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 $445, including legal, accounting, due diligence, and other transaction-related expenses and were recorded during the six months ended June 30, 2023.

On a standalone basis, had the Company acquired the business on January 1, 2022,2023, sales estimates would have been $41,4446,987 for the six months ended June 30, 20222023 and net lossincome estimates would have been $($16,9591,168). Actual sales and net loss for the six months ended June 30, 20222023 since the date of acquisition are $28,928200 and $($7,748129), respectively.

Blue Ridge

On June 30, 2023, the Company closed the acquisition of Blue Ridge, a dispensary located in Parkville, Maryland. The Company has plans to relocate Blue Ridge in the next six months to a new, high-traffic retail center. Under the terms of the agreement, the Company acquired a 100% equity interest in Blue Ridge for total consideration of $6,188, comprised of a promissory note of $3,750 at an interest rate of 7.0% maturing on June 30, 2027 and $3,000 in cash, less a working capital adjustment of $562. The cash consideration paid included repayments of indebtedness and transaction expenses on behalf of Blue Ridge of $707 and $281, respectively.

The following table presents the fair value of assets acquired and liabilities assumed as of the June 30, 2023 acquisition date and allocation of the consideration to net assets acquired:

Inventory

 

$

234

 

Prepaid expense

 

 

192

 

Operating right of use asset

 

 

2,325

 

Intangible asset

 

 

6,410

 

Goodwill

 

 

2,936

 

Deferred tax liability

 

 

(2,653

)

Accounts payable and accrued liabilities

 

 

(931

)

Operating lease liability

 

 

(2,325

)

Net assets acquired

 

$

6,188

 

 

 

 

 

Cash

 

 

3,000

 

Loans payable

 

 

3,750

 

Working capital adjustment

 

 

(562

)

Total consideration

 

$

6,188

 

The acquired intangible assets include a medical license, which is treated as a definite-lived intangible asset and amortized over a 30-year period.

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 June 30, 2023. The fair value of net assets acquired, specifically with respect to inventory, intangible assets, operating right of use assets, lease liabilities, 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 $163, including legal, accounting, due diligence, and other transaction-related expenses and were recorded during the six months ended June 30, 2023.

On a standalone basis, had the Company acquired the business on January 1, 2023, sales estimates would have been $2,018 for the six months ended June 30, 2023 and net income estimates would have been $383. Actual sales and net loss for the six months ended June 30, 2023 since the date of acquisition are $21 and $84, respectively.

11


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

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.

The balance of contingent consideration is as follows:

 

State Flower

 

Apothecarium

 

KCR

 

Total

 

 

State Flower

 

Apothecarium

 

Pinnacle

 

Total

 

Carrying amount, December 31, 2021

 

$

8,360

 

 

$

3,028

 

 

$

1,147

 

 

$

12,535

 

Carrying amount, December 31, 2022

 

$

1,406

 

 

$

3,028

 

 

$

750

 

 

$

5,184

 

Payments of contingent consideration

 

 

(7,040

)

 

 

 

 

 

 

 

 

(7,040

)

 

 

 

 

 

 

 

 

(750

)

 

 

(750

)

Revaluation of contingent consideration

 

 

86

 

 

 

 

 

 

67

 

 

 

153

 

Carrying amount, June 30, 2022

 

$

1,406

 

 

$

3,028

 

 

$

1,214

 

 

$

5,648

 

Carrying amount, June 30, 2023

 

$

1,406

 

 

$

3,028

 

 

 

 

 

$

4,434

 

Less: current portion

 

 

 

 

 

(3,028

)

 

 

 

 

 

(3,028

)

 

 

(1,406

)

 

 

(3,028

)

 

 

 

 

 

(4,434

)

Non-current contingent consideration

 

$

1,406

 

 

$

-

 

 

$

1,214

 

 

$

2,620

 

 

 

 

 

 

 

 

 

 

 

 

 

During the six months ended June 30, 2022,2023, the Company made paymentsissued 471,681 shares of $7,040common stock to the sellers of its previously acquired State FlowerPinnacle business. The remaining amount will be paid toissuance of shares fully settles the sellers of State Flower upon$750 earn out consideration provision in the Company's acquisition of the remaining 50.1% of State Flower, which is subject to regulatory approval.

Refer to Note 20 for discussion ofvaluation methods used when determining the fair value of the contingent consideration liability at June 30, 2022, and the changes in fair value during the six months ended June 30, 2022.stock purchase agreement.

5.6.
Inventory

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:

 

June 30, 2022

 

December 31, 2021

 

 

June 30, 2023

 

December 31, 2022

 

Raw materials

 

$

7,161

 

 

$

3,185

 

 

$

1,406

 

 

$

1,181

 

Finished goods

 

 

16,520

 

 

 

8,721

 

 

 

20,691

 

 

 

15,280

 

Work in process

 

 

27,842

 

 

 

26,852

 

 

 

26,891

 

 

 

26,406

 

Accessories, supplies and consumables

 

 

2,848

 

 

 

3,565

 

 

 

5,027

 

 

 

3,468

 

 

$

54,371

 

 

$

42,323

 

 

$

54,015

 

 

$

46,335

 

The Company wrote down $1,081 of packaging inventory due primarily to defective cartridges during the six months ended June 30, 2023.

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 wrote off $1,071 and $1,925 of inventory during the three and six months ended June 30, 2022, respectively.

In addition, management wrote down its inventory by $6,351 and $6,570 for the three and six months ended June 30, 2022, respectively, and $115 and $699 for the three and six months ended June 30, 2021.respectively. The inventory write-downs in the currentprior year period were mainly due to the write down of inventory to lower of cost or market which was related to the Company's operationaloperations reconfiguration of its cultivation facility in Pennsylvania, as well as inventory in Canada that the Company deemed unsaleable. The inventory write-downs in the prior year period were related to inventory that the Company deemed unsaleable.

6.7.
Property and equipmentDiscontinued operations

Property and equipment consisted of:

The Company determined to make available for sale the asset groups related to TerrAscend Canada's Licensed Producer business. Therefore, the results of operations have been reclassified as discontinued operations on a retrospective basis for all periods presented.

The major classes of assets and liabilities from discontinued operations included the following:

10

12


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

 

 

June 30, 2022

 

 

December 31, 2021

 

Land

 

$

7,613

 

 

$

4,183

 

Assets in process

 

 

52,624

 

 

 

6,858

 

Buildings & improvements

 

 

157,814

 

 

 

118,014

 

Machinery & equipment

 

 

27,906

 

 

 

23,424

 

Office furniture & equipment

 

 

8,290

 

 

 

3,232

 

Assets under finance leases

 

 

4,961

 

 

 

239

 

Total cost

 

 

259,208

 

 

 

155,950

 

Less: accumulated depreciation

 

 

(20,411

)

 

 

(15,188

)

Property and equipment, net

 

$

238,797

 

 

$

140,762

 

 

June 30, 2023

 

 

December 31, 2022

 

Land

 

 

 

$

734

 

Buildings & improvements

 

 

 

 

16,529

 

Office furniture & equipment

 

 

 

 

86

 

Total assets held for sale

 

 

 

$

17,349

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

509

 

 

 

571

 

Current assets from discontinued operations

$

509

 

 

$

571

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

$

1,466

 

 

$

3,747

 

Loans payable

 

 

 

 

5,364

 

Current liabilities from discontinued operations

$

1,466

 

 

$

9,111

 

The results of operations for the discontinued operations includes revenues and expenses directly attributable to the operations disposed. Corporate and administrative expenses, including interest expense, not directly attributable to the operations were not allocated to TerrAscend Canada's Licensed Producer business. The results of discontinued operations were as follows:

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30, 2023

 

 

June 30, 2022

 

 

 

June 30, 2023

 

 

June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

$

1,146

 

 

 

 

 

 

$

2,531

 

Excise and cultivation tax

 

 

 

 

(302

)

 

 

 

 

 

 

(613

)

Revenue, net

 

 

 

 

844

 

 

 

 

 

 

 

1,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Sales

 

 

 

 

1,802

 

 

 

 

 

 

 

3,360

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

(958

)

 

 

 

 

 

 

(1,442

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

455

 

 

 

1,056

 

 

 

 

756

 

 

 

2,184

 

Amortization and depreciation

 

 

 

 

435

 

 

 

 

48

 

 

 

878

 

Impairment of property and equipment

 

 

 

 

 

 

 

 

3,064

 

 

 

 

Total operating expenses

 

455

 

 

 

1,491

 

 

 

 

3,868

 

 

 

3,062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

(455

)

 

 

(2,449

)

 

 

 

(3,868

)

 

 

(4,504

)

Other expense

 

 

 

 

 

 

 

 

 

 

 

 

Finance and other expenses

 

166

 

 

 

248

 

 

 

 

344

 

 

 

449

 

Net loss from discontinued operations

$

(621

)

 

$

(2,697

)

 

 

$

(4,212

)

 

$

(4,953

)

Asset Specific Impairment

Certain assets of TerrAscend Canada were determined to be held for sale as they met the criteria under ASC 360 Property, Plant and Equipment. TerrAscend Canada operated out of a 67,300 square foot facility located in Mississauga, Ontario. Assets held for sale are reported at the lower of its carrying value or fair value less cost to sell. On May 23, 2023, the Mississauga, Ontario facility was sold for CAD $19,700 (U.S. $14,285). Net proceeds have been applied to pay down existing Company debt.

8.
Property and equipment

Property and equipment consisted of:

13


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

 

 

June 30, 2023

 

 

December 31, 2022

 

Land

 

$

6,713

 

 

$

6,512

 

Assets in process

 

 

26,181

 

 

 

28,416

 

Buildings & improvements

 

 

159,356

 

 

 

154,742

 

Machinery & equipment

 

 

33,337

 

 

 

30,973

 

Office furniture & equipment

 

 

8,727

 

 

 

7,576

 

Assets under finance leases

 

 

2,530

 

 

 

7,277

 

Total cost

 

 

236,844

 

 

 

235,496

 

Less: accumulated depreciation

 

 

(27,849

)

 

 

(19,684

)

Property and equipment, net

 

$

208,995

 

 

$

215,812

 

Assets in process represent construction in progress related to both cultivation and dispensary facilities not yet completed, or otherwise not placed in service.

During the six months endedAs of June 30, 20222023 and the twelve months ended December 31, 2021,2022, borrowing costs were 0not capitalized because the assets in process did not meet the criteria of a qualifying asset.

Depreciation expense was $3,395 and $6,652 for the three and six months ended June 30, 2023, respectively ($2,023 and $4,040 included in cost of sales) and $3,027 and $5,5134,684 for the three and six months ended June 30, 2022, respectively ($1,670 and $3,406, respectively included in cost of sales) and $1,805 and $3,771 for the three and six months ended June 30, 2021, respectively ($1,127 and $2,2253,171 included in cost of sales).

7.9.
Intangible assets and goodwill

Intangible assets consisted of the following:

At June 30, 2022

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

At June 30, 2023

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

Finite lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

$

2,926

 

 

$

(1,819

)

 

$

1,107

 

 

$

1,286

 

 

$

(817

)

 

$

469

 

Licenses

 

 

284,818

 

 

 

(17,301

)

 

 

267,517

 

 

 

208,384

 

 

 

(22,016

)

 

 

186,368

 

Brand intangibles

 

 

1,144

 

 

 

(568

)

 

 

576

 

 

 

1,144

 

 

 

(1,144

)

 

 

-

 

Non-compete agreements

 

 

280

 

 

 

(48

)

 

 

232

 

 

 

280

 

 

 

(280

)

 

 

-

 

Total finite lived intangible assets

 

 

289,168

 

 

 

(19,736

)

 

 

269,432

 

 

 

211,094

 

 

 

(24,257

)

 

 

186,837

 

Indefinite lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brand intangibles

 

 

82,206

 

 

 

 

 

 

82,206

 

 

 

82,757

 

 

 

 

 

 

82,757

 

Total indefinite lived intangible assets

 

 

82,206

 

 

 

 

 

 

82,206

 

 

 

82,757

 

 

 

 

 

 

82,757

 

Intangible assets, net

 

$

371,374

 

 

$

(19,736

)

 

$

351,638

 

 

$

293,851

 

 

$

(24,257

)

 

$

269,594

 

At December 31, 2021

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

At December 31, 2022

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

Finite lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

$

2,626

 

 

$

(1,353

)

 

$

1,273

 

 

$

1,169

 

 

$

(569

)

 

$

600

 

Licenses

 

 

153,300

 

 

 

(11,311

)

 

 

141,989

 

 

 

178,929

 

 

 

(22,590

)

 

 

156,339

 

Brand intangibles

 

 

1,144

 

 

 

(254

)

 

 

890

 

 

 

1,144

 

 

 

(1,144

)

 

 

-

 

Non-compete agreements

 

 

280

 

 

 

(221

)

 

 

59

 

 

 

280

 

 

 

(272

)

 

 

8

 

Total finite lived intangible assets

 

 

157,350

 

 

 

(13,139

)

 

 

144,211

 

 

 

181,522

 

 

 

(24,575

)

 

 

156,947

 

Indefinite lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brand intangibles

 

 

24,773

 

 

 

 

 

 

24,773

 

 

 

82,757

 

 

 

 

 

 

82,757

 

Total indefinite lived intangible assets

 

 

24,773

 

 

 

 

 

 

24,773

 

 

 

82,757

 

 

 

 

 

 

82,757

 

Intangible assets, net

 

$

182,123

 

 

$

(13,139

)

 

$

168,984

 

 

$

264,279

 

 

$

(24,575

)

 

$

239,704

 

1114


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

Amortization expense was $4,0191,595 and $6,6183,109 for the three and six months ended June 30, 2023, respectively ($725 and $1,450 included in cost of sales) and $3,871 and $6,333 for the three and six months ended June 30, 2022, respectively ($2,345 and $3,076, respectively included in cost of sales) and $1,787 and $3,279 for the three and six months ended June 30, 2021, respectively ($621 and $1,108, respectively included in cost of sales).

Estimated future amortization expense for finite lived intangible assets for the next five years is as follows:

2022

 

$

8,236

 

2023

 

$

15,661

 

Remainder of 2023

 

$

4,501

 

2024

 

$

15,234

 

 

 

8,662

 

2025

 

$

14,797

 

 

 

8,396

 

2026

 

$

14,748

 

 

 

8,381

 

2027

 

 

8,301

 

The Company's goodwill is allocated to one reportable segment. The following table summarizes the activity in the Company’s goodwill balance:

Balance at December 31, 2021

 

$

90,326

 

Acquisitions (see Note 4)

 

 

150,272

 

Balance at June 30, 2022

 

$

240,598

 

Impairment of Intangible Assets

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Finite lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 Software

 

$

-

 

 

$

9

 

 

$

-

 

 

$

9

 

 Licenses

 

 

 

 

 

 

 

 

 

 

 

-

 

 Customer Relationships

 

 

 

 

 

2,000

 

 

 

 

 

 

2,000

 

 Non-compete agreements

 

 

 

 

 

224

 

 

 

 

 

 

224

 

Total impairment of finite lived intangible assets

 

 

 

 

 

2,233

 

 

 

 

 

 

2,233

 

Indefinite lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 Brand intangibles

 

 

 

 

 

1,400

 

 

 

 

 

 

1,400

 

Total impairment of indefinite lived intangible assets

 

 

 

 

 

1,400

 

 

 

 

 

 

1,400

 

Total impairment of intangible assets

 

$

-

 

 

$

3,633

 

 

$

-

 

 

$

3,633

 

Balance at December 31, 2022

 

$

90,328

 

Acquisitions (see Note 5)

 

 

9,004

 

Measurement period adjustment

 

 

620

 

Balance at June 30, 2023

 

$

99,952

 

10.
Loans payable

 

 

Ilera Term Loan

 

 

Stearns Loan

 

 

Gage Loans

 

 

Pinnacle Loans

 

 

Pelorus Term Loan

 

 

Maryland Acquisition Loans

 

 

Class A Share Gage Growth Corp

 

 

IHC Note Payable

 

 

Total

 

Balance at December 31, 2022

 

$

110,850

 

 

$

-

 

 

$

29,976

 

 

$

9,333

 

 

$

44,028

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

194,187

 

Loan principal, net of transaction costs

 

 

 

 

 

23,872

 

 

 

 

 

 

 

 

 

 

 

 

15,485

 

 

 

1,000

 

 

 

7,500

 

 

 

47,857

 

Loan amendment fee / Prepayment penalty

 

 

(2,328

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,328

)

Interest and accretion

 

 

8,405

 

 

 

38

 

 

 

2,189

 

 

 

266

 

 

 

3,332

 

 

 

 

 

 

 

 

 

 

 

 

14,230

 

Principal and interest paid

 

 

(40,469

)

 

 

 

 

 

(3,132

)

 

 

(1,266

)

 

 

(3,251

)

 

 

 

 

 

 

 

 

(1,500

)

 

 

(49,618

)

Effects of movements in foreign exchange

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Ending carrying amount at June 30, 2023

 

 

76,458

 

 

 

23,910

 

 

 

29,033

 

 

 

8,333

 

 

 

44,109

 

 

 

15,485

 

 

 

1,000

 

 

 

6,000

 

 

 

204,328

 

Less: current portion

 

 

(3,461

)

 

 

(405

)

 

 

(3,214

)

 

 

(8,333

)

 

 

(551

)

 

 

(1,964

)

 

 

 

 

 

(6,000

)

 

 

(23,928

)

Non-current loans payable

 

$

72,997

 

 

$

23,505

 

 

$

25,819

 

 

 

 

 

$

43,558

 

 

$

13,521

 

 

$

1,000

 

 

$

-

 

 

$

180,400

 

In August 2021, the Company made the decision to undertake a strategic review process to explore, review and evaluate potential alternatives for its Arise business focusedTotal interest paid on maximizing shareholder value. As a result of this review, the Company recorded impairment of intangible assets ofall loan payables was $3,6336,803 and $9,259 for the three and six months ended June 30, 2021.2023, respectively, and $6,370 and $14,406 for the three and six months ended June 30, 2022, respectively.

8.
Loans payable

 

 

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

 

$

8,680

 

 

$

42,165

 

 

$

7,915

 

 

$

8,900

 

 

$

115,233

 

 

$

2,250

 

 

$

-

 

 

$

185,143

 

Addition on acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60,605

 

 

 

60,605

 

Loan amendment fee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,200

)

 

 

 

 

 

 

 

 

(1,200

)

Interest accretion

 

 

665

 

 

 

2,739

 

 

 

319

 

 

 

702

 

 

 

8,542

 

 

 

74

 

 

 

2,819

 

 

 

15,860

 

Principal and interest paid

 

 

(624

)

 

 

(3,837

)

 

 

(2,586

)

 

 

 

 

 

(7,662

)

 

 

(2,324

)

 

 

(2,811

)

 

 

(19,844

)

Effects of movements in foreign exchange

 

 

(142

)

 

 

(691

)

 

 

(94

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(927

)

Ending carrying amount at June 30, 2022

 

$

8,579

 

 

$

40,376

 

 

$

5,554

 

 

$

9,602

 

 

$

114,913

 

 

$

-

 

 

$

60,613

 

 

$

239,637

 

Less: current portion

 

 

(309

)

 

 

(1,170

)

 

 

(464

)

 

 

 

 

 

(42

)

 

 

 

 

 

(56,871

)

 

 

(58,856

)

Non-current loans payable

 

$

8,270

 

 

$

39,206

 

 

$

5,090

 

 

$

9,602

 

 

$

114,871

 

 

$

-

 

 

$

3,742

 

 

$

180,781

 

Ilera Term Loan

12On April 14, 2023, WDB Holding PA agreed to an amendment to the Ilera Term Loan among other things, to (i) permit changes necessary for the TSX Transaction (as defined therein), and (ii) to waive certain tax provisions. On June 22, 2023, WDB Holding PA further agreed to an amendment among other things, to (i) extend the next test date for the interest coverage ratio from June 30, 2023 until September 30, 2023, and (ii) amend the terms for which WDB Holding PA may incur certain indebtedness and liens.

In accordance with ASC 470, Debt, the amendments above were not considered extinguishment of debt.

Stearns Loan

On June 26, 2023, the Company closed on a $25,000 commercial loan with Stearns Bank, secured by the Company's cultivation facility in Pennsylvania and its AMMD dispensary in Cumberland, Maryland ("Stearns Loan"). The loan carries an interest rate of prime plus 2.25% and matures on December 26, 2024. The Company is required to hold $2,500 on deposit in a restricted account.

Gage Loans

15


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

Total interest paid on all loan payables was $6,370 and $14,641On June 9, 2023, TerrAscend Growth Corp. agreed to an amendment among other things, to (i) permit changes necessary for the threeTSX Transaction (as defined therein) and six months ended June 30, 2022, respectively,(ii) to permit certain indebtedness and $4,150 and $13,290 for the three and six months ended June 30, 2021, respectively.waive certain tax provisions.

Pinnacle Loan

Gage loans

The GagePinnacle Acquisition (refer to Note 4)purchase price included a senior secured term loan withtwo promissory notes in an acquisition date fair valueaggregate amount of $53,35710,000. to pay down all Pinnacle liabilities and encumbrances. The Credit Agreement bearspromissory notes carry an interest at a rate equal to the greater of the Prime Rate plus 7% or 10.25%. The term loan is payable monthly and matures on November 30, 2022. The term loan is secured by a first lien on all Gage assets.

Additionally, the Gage Acquisition included a loan payable to a former owner of a licensed entity with an acquisition date fair value of $2,683, and a Promissory Note with an acquisition date fair value of $4,065. The loan payable to the former owner bears interest at a rate of 0.2%. The Promissory Note bears interest at a fixed rate of 6%. On June 27, 2023, Spartan Partners Properties, LLC agreed to an amendment among other things, to extend the obligation date of the loan until December 1, 2023.

In accordance with ASC 470, Debt, the amendments above were not considered extinguishment of debt.

Pelorus Term Loan

On April 17, 2023, TerrAscend NJ, LLC agreed to an amendment among other things, to (i) permit changes necessary for the TSX Transaction (as defined therein), and (ii) to waive certain tax provisions. On June 22, 2023, TerrAscend NJ, LLC further agreed to an amendment to permit certain indebtedness.

In accordance with ASC 470, Debt, the amendments above were not considered extinguishment of debt.

Maryland Acquisition Loans

On June 28, 2023, related to the acquisition of Peninsula, the Company assumed financing obligations in the amount of $7,698, which matures on June 28, 2025. The promissory note carries an interest rate of 8.25%. The Company will make monthly payments of principal and interest totaling $157 beginning on July 28, 2023. The Company is required to make a mandatory prepayment of 50% of the outstanding principal balance on January 28, 2025. The consideration also included a promissory note in the amount of $3,927. The promissory note carries an interest of 7.25% and is payable in twelve quarterly installments, maturing on June 28, 2026.

One June 30, 2023, related to the acquisition of Blue Ridge, the Company agreed to a promissory note in the amount of $3,750 payable in four quarterly installments of accrued interest commencing on September 30, 2023 and twelve equal quarterly installments of principal and accrued interest commencing on September 30, 2024. The remaining amount of the principal and accrued interest is due on June 30, 2027, the maturity date. The promissory note carries an interest rate of 7.0%.

Class A Share of TerrAscend Growth

As a part of the Reorganization (See Note 3), TerrAscend Growth Corp. issued $1,000 of Class A shares with a 20% guaranteed annual dividend. Under the Subscription Agreement, TerrAscend Growth Corp holds a call right to repurchase all of the Class A Shares, at any point in time, issuable to the holder of Class A Shares and the holder of Class A shares is granted a put right that is exercisable at any time following the five-year anniversary of the closing of the investment. The instrument is considered as a debt due to the economic characteristics and risks. The repurchase / put price is defined as the sum of: (a) the Repurchase/Put Price; plus (b) the amount equal to 40% of the Subscription Amount less the aggregate Dividend Amounts paid to the Subscriber as of the date of the Exercise Notice.

IHC Real Estate LP Loan

On June 26, 2023, the Company bought out the minority interest in IHC Real Estate LP and entered into a promissory note of $7,500. The promissory note carries an interest rate of 15% and matures on January 15, 2024. On June 28, 2023, the Company made a payment of $1,500.

Maturities of loans payable

Stated maturities of loans payable over the next five years are as follows:

 

 

June 30, 2022

 

2022

 

$

56,589

 

2023

 

 

9,187

 

2024

 

 

131,869

 

2025

 

 

 

2026

 

 

 

Thereafter

 

 

82,491

 

Total principal payments

 

$

280,136

 

16


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

 

 

June 30, 2023

 

Remainder of 2023

 

$

13,845

 

2024

 

 

137,216

 

2025

 

 

8,466

 

2026

 

 

3,649

 

2027

 

 

43,219

 

Thereafter

 

 

2,264

 

Total principal payments

 

$

208,659

 

9.11.
Leases

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 1 to 28 years. The Company had 3two and three finance leases at June 30, 20222023 and1 finance lease at December 31, 2021.2022, respectively.

Amounts recognized in the consolidated balance sheet arewere as follows:

 

June 30, 2022

 

December 31, 2021

 

 

June 30, 2023

 

December 31, 2022

 

Operating leases:

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

$

30,570

 

 

$

29,561

 

 

$

32,824

 

 

$

29,451

 

 

 

 

 

 

 

 

 

 

 

Operating lease liability classified as current

 

 

1,394

 

 

 

1,171

 

 

 

1,911

 

 

 

1,857

 

Operating lease liability classified as non-current

 

 

31,680

 

 

 

30,573

 

 

 

35,207

 

 

 

31,545

 

Total operating lease liabilities

 

$

33,074

 

 

$

31,744

 

 

$

37,118

 

 

$

33,402

 

 

 

 

 

 

 

 

 

 

 

Finance leases:

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

$

4,724

 

 

$

168

 

 

$

2,374

 

 

$

6,673

 

 

 

 

 

 

 

 

 

 

 

Lease obligations under finance leases classified as current

 

 

384

 

 

 

22

 

 

 

275

 

 

 

521

 

Lease obligations under finance leases classified as non-current

 

 

4,794

 

 

 

181

 

 

 

2,139

 

 

 

6,713

 

Total finance lease obligations

 

$

5,178

 

 

$

203

 

 

$

2,414

 

 

$

7,234

 

The Company recognized operating lease expense of $1,254 and $2,451 for the three and six months ended June 30, 2023, respectively. and 2022, respectively and $1,173 and $2,355 for the three and six months ended June 30, 2022, respectively and $2022.1,231

 and $

2,109 for the three and six months endedOther information related to operating leases at June 30, 2021, respectively.2023 and December 31, 2022 consisted of the following:

 

 

June 30, 2023

 

 

December 31, 2022

 

Weighted-average remaining lease term (years)

 

 

 

 

 

 

Operating leases

 

 

12.9

 

 

 

12.8

 

Finance leases

 

 

0.7

 

 

 

6.8

 

 

 

 

 

 

 

 

Weighted-average discount rate

 

 

 

 

 

 

Operating leases

 

 

11.04

%

 

 

10.69

%

Finance leases

 

 

9.47

%

 

 

9.89

%

On January 27, 2022, the Company made a payment of $

3,300Supplemental cash flow information related to the Lease Termination at its Hagerstown location which enables the Company to terminate its building lease at a later date. The lease termination fee was expensed during the year ended December 31, 2021.leases are as follows:

13

 

 

June 30, 2023

 

 

December 31, 2022

 

Cash paid for amounts included in measurement of operating lease liabilities

 

$

2,451

 

 

$

5,053

 

Right-of-use assets obtained in exchange for operating lease obligations

 

 

3,764

 

 

 

3,097

 

Cash paid for amounts included in measurement of finance lease liabilities

 

 

254

 

 

 

220

 

Assets under finance leases obtained in exchange for finance lease obligations

 

 

-

 

 

 

6,913

 

17


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

Other information related to operating leases at June 30, 2022 and December 31, 2021 consist of the following:

 

 

June 30, 2022

 

 

December 31, 2021

 

Weighted-average remaining lease term (years)

 

 

 

 

 

 

Operating leases

 

 

12.9

 

 

 

14.2

 

Finance leases

 

 

9.9

 

 

 

5.5

 

 

 

 

 

 

 

 

Weighted-average discount rate

 

 

 

 

 

 

Operating leases

 

 

10.69

%

 

 

10.72

%

Supplemental cash flow information related to leases are as follows:

 

 

June 30, 2022

 

 

December 31, 2021

 

Cash paid for amounts included in measurement of operating lease liabilities

 

$

2,434

 

 

$

3,987

 

Right-of-use assets obtained in exchange for lease obligations

 

$

6,641

 

 

$

9,773

 

Cash paid for amounts included in measurement of finance lease liabilities

 

$

67

 

 

$

40

 

Undiscounted lease obligations are as follows:

 

 

Operating

 

 

Finance

 

 

Total

 

2022

 

$

2,448

 

 

$

264

 

 

$

2,712

 

2023

 

 

4,975

 

 

 

824

 

 

 

5,799

 

2024

 

 

4,966

 

 

 

757

 

 

 

5,723

 

2025

 

 

4,950

 

 

 

775

 

 

 

5,725

 

2026

 

 

4,672

 

 

 

794

 

 

 

5,466

 

Thereafter

 

 

43,887

 

 

 

4,608

 

 

 

48,495

 

Total lease payments

 

 

65,898

 

 

 

8,022

 

 

 

73,920

 

Less: interest

 

 

(32,824

)

 

 

(2,844

)

 

 

(35,668

)

Total lease liabilities

 

$

33,074

 

 

$

5,178

 

 

$

38,252

 

 

 

Operating

 

 

Finance

 

 

Total

 

Remainder of 2023

 

 

4,326

 

 

 

96

 

 

$

4,422

 

2024

 

 

6,054

 

 

 

2,130

 

 

 

8,184

 

2025

 

 

6,045

 

 

 

132

 

 

 

6,177

 

2026

 

 

5,570

 

 

 

134

 

 

 

5,704

 

2027

 

 

5,080

 

 

 

136

 

 

 

5,216

 

Thereafter

 

 

48,419

 

 

 

81

 

 

 

48,500

 

Total lease payments

 

 

75,494

 

 

 

2,709

 

 

 

78,203

 

Less: interest

 

 

(38,376

)

 

 

(295

)

 

 

(38,671

)

Total lease liabilities

 

$

37,118

 

 

$

2,414

 

 

$

39,532

 

Under the terms of these operating sublease agreements, future rental income from such third-party leases is expected to be as follows:

 

 

 

 

 

 

2022

 

$

243

 

2023

 

 

435

 

Remainder of 2023

 

$

313

 

2024

 

 

434

 

 

 

551

 

2025

 

 

448

 

 

 

445

 

2026

 

 

263

 

 

 

262

 

2027

 

 

 

Thereafter

 

 

-

 

 

 

 

Total rental payments

 

$

1,823

 

 

$

1,571

 

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, Leases, both parties must assess whether the buyer-lessor has obtained control of the asset and a sale has occurred. The Company's subsidiaryThrough the Gage Acquisition, the Company entered into leaseback transactions on 5six properties of owned real estate. The Company has determined that these transactions do not qualify as a sale because control was not transferred to the buyer-lessor. Therefore, the Company has classified the lease portion of the transaction as a finance lease and continues to depreciate the asset. The Gage Acquisition (refer to Note 4)acquisition included financing obligations. The balance at June 30, 20222023 was $12,35211,614. Of this amount, $746860 is included in other current liabilities and $11,60610,754 is included in financing obligations in the unaudited consolidated balance sheets. The financing obligations had a weighted average term and weighted average discount rate of 7.2 years and 9.6%, respectively, at June 30, 2023.

Undiscounted financing obligations as of June 30, 2023 are as follows:

 

 

 

 

Remainder of 2023

 

 

974

 

2024

 

 

1,940

 

2025

 

 

1,986

 

2026

 

 

2,032

 

2027

 

 

2,079

 

Thereafter

 

 

5,680

 

Total payments

 

 

14,691

 

Less: interest

 

 

(3,077

)

Total financing obligations

 

$

11,614

 

10.12.
Shareholders’ equityConvertible Debt

14

On June 23, 28, and 30, 2023, the Company closed the private placements of 10,105 senior unsecured convertible debentures at a price of $1,000 per debenture for total gross proceeds of $10,105. Unless repaid or converted earlier, the outstanding principal and accrued and unpaid interest on the debentures will be due and payable 36 months following the closing of the debenture Offering (the “Maturity Date”). Each debenture will bear interest at a rate of 9.9% per annum from the date of issuance, calculated and compounded semi-annually, and payable on the Maturity Date. Each holder may, at the option of the holder upon signing of the subscription agreement, elect to receive up to 4.95% per annum of such interest payable in cash on a semi-annual basis. Each debenture will be convertible into

18


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

common shares, at the option of the holder, at any time or times prior to the close of business on the last business day immediately preceding the Maturity Date, at a conversion price of $2.01. Holders converting their debentures will receive accrued and unpaid interest for the period from and including the date of the last interest payment date, to and including, the date of conversion.

In accordance with ASC 815 Derivatives and Hedging, the conversion option was bifurcated from the host instrument as the instrument's strike price is denominated in a currency other than the functional currency of the issuer. It was recorded at fair value, using the Black-Scholes option model (Note 23). The proceeds are allocated first to the conversion option based on its fair value of $3,533, and the residual was allocated to the host instrument and recorded as convertible debt at a fair value of $6,572.

13.
Shareholders' equity

Warrants

The following is a summary of the outstanding warrants for Common Shares: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

 

 

30,995,473

 

 

 

8,855,066

 

 

$

4.20

 

 

 

5.66

 

Exercised

 

 

(7,989,436

)

 

 

 

 

 

 

 

 

 

Replacement warrants granted on acquisition of Gage

 

 

282,023

 

 

 

 

 

 

 

 

 

 

Outstanding, June 30, 2022

 

 

23,288,060

 

 

 

1,110,168

 

 

$

4.71

 

 

 

7.06

 

 

 

Number of Common Share Warrants Outstanding

 

 

Number of Common Share Warrants Exercisable

 

 

Weighted Average Exercise Price $

 

 

Weighted Average Remaining Life (years)

 

Outstanding, December 31, 2022

 

 

23,240,330

 

 

 

728,715

 

 

$

4.49

 

 

 

9.72

 

Expired

 

 

(320,000

)

 

 

(320,000

)

 

 

3.50

 

 

 

 

Outstanding, June 30, 2023

 

 

22,920,330

 

 

 

408,715

 

 

$

4.61

 

 

 

9.35

 

Pursuant to the terms of the Gage Acquisition, each holder of a Gage warrant received a 0.3001 equivalent replacement warrant. Each warrant is exercisable into common share purchase warrants. The warrants range in exercise price from $3.83 to $7.00 and expire at various dates from October 6, 2022 to July 2, 2025. Refer to Note 4 for the determination of fair value of warrants acquired.

The Gage Acquisition also included warrant liabilities that are exchangeable into Common Shares. Refer to Note 4 for the determination of the fair value of the warrant liability.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

 

 

-

 

 

 

-

 

 

$

-

 

 

 

-

 

Granted on acquisition of Gage

 

 

7,129,517

 

 

 

 

 

 

 

 

 

 

Outstanding, June 30, 2022

 

 

7,129,517

 

 

 

7,129,517

 

 

$

8.66

 

 

 

1.49

 

 

 

Number of Common Share Warrants Outstanding

 

 

Number of Common Share Warrants Exercisable

 

 

Weighted Average Exercise Price $

 

 

Weighted Average Remaining Life (years)

 

Outstanding, December 31, 2022

 

 

7,129,517

 

 

 

7,129,517

 

 

$

8.66

 

 

 

0.99

 

Granted

 

 

3,590,334

 

 

 

 

 

$

1.95

 

 

 

1.98

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, June 30, 2023

 

 

10,719,851

 

 

 

7,129,517

 

 

$

6.41

 

 

 

0.99

 

The following is a summary of the outstanding warrants for Proportionate Voting Shares at June 30, 2022. These warrants are exercisable for 0.001 of a Proportionate Voting Share. The Proportionate Voting Shares are exchangeable into Common Shares on a basis of 1,000 Common Shares per Proportionate Voting Share.

 

 

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

 

 

8,590,908

 

 

 

8,590,908

 

 

$

5.69

 

 

 

0.64

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, June 30, 2022

 

 

8,590,908

 

 

 

8,590,908

 

 

$

5.60

 

 

 

0.15

 

The following is a summary of the outstanding Preferred Sharepreferred share warrants at June 30, 2022.2023. Each warrant is exercisable into 1one preferred share:

 

 

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

 

 

16,056

 

 

 

16,056

 

 

$

3,000

 

 

 

1.39

 

Exercised

 

 

(950

)

 

 

 

 

 

 

 

 

 

Outstanding, June 30, 2022

 

 

15,106

 

 

 

15,106

 

 

$

3,000

 

 

 

0.90

 

 

 

Number of Preferred Share Warrants Outstanding

 

 

Number of Preferred Share Warrants Exercisable

 

 

Weighted Average Exercise Price $

 

 

Weighted Average Remaining Life (years)

 

Outstanding, December 31, 2022

 

 

15,106

 

 

 

15,106

 

 

$

3,000

 

 

 

0.39

 

Expired

 

 

(15,106

)

 

 

(15,106

)

 

 

3,000

 

 

 

 

Outstanding, June 30, 2023

 

 

-

 

 

 

-

 

 

$

-

 

 

 

-

 

Private Placement Financing

Concurrently with convertible debenture placements (Note 12), on June 23, 2023, June 28, 2023, and June 30, 2023, the Company closed three tranches of private placements of equity securities at a price of $1.50 per unit for aggregate gross proceeds of $9,871. Each unit is comprised of one common share of the Company and one-half warrant to purchase one common share. Each warrant entitles the holder to acquire one common share at a price of $1.95 per common share for a period of 24 months following the date of issuance.

11.
Share-based compensation plans

15Detachable warrants issued in a bundled transaction are accounted for separately. Under ASC 815 Derivatives and Hedging, the detachable warrants meet the definition of derivative because the exercise price is denominated in a currency that is different from the

19


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

functional currency of the Company. It was recorded at a fair value of $2,216, using the Black-Scholes option model. The proceeds are allocated first to the warrants based on their fair value, and the residual of $7,655 was allocated to the equity (Note 23).

14.
Share-based compensation plans

Share-based payments expense

Total share-based payments expense was as follows:

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2023

 

June 30, 2022

 

 

June 30, 2023

 

June 30, 2022

 

 

Stock options

 

$

3,500

 

 

$

4,316

 

 

$

6,090

 

 

$

7,766

 

 

$

1,437

 

 

$

3,500

 

 

$

2,697

 

 

$

6,090

 

 

Restricted share units

 

 

963

 

 

 

332

 

 

 

1,729

 

 

 

449

 

 

$

544

 

 

$

963

 

 

 

997

 

 

 

1,729

 

 

Total share-based payments

 

$

4,463

 

 

$

4,648

 

 

$

7,819

 

 

$

8,215

 

 

$

1,981

 

 

$

4,463

 

 

$

3,694

 

 

$

7,819

 

 

Stock Options

The following table summarizes the stock option activity for the six months ended June 30, 2022:2023:

 

 

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

 

 

12,854,519

 

 

 

4.84

 

 

$

4.85

 

 

$

27,557

 

 

$

4.22

 

Granted

 

 

4,182,590

 

 

 

 

 

 

5.16

 

 

 

 

 

 

 

Replacement options granted on acquisition of Gage

 

 

4,940,364

 

 

 

 

 

 

2.99

 

 

 

 

 

 

 

Exercised

 

 

(88,015

)

 

 

 

 

 

4.04

 

 

 

 

 

 

 

Forfeited (1)

 

 

(649,376

)

 

 

 

 

 

8.65

 

 

 

 

 

 

 

Expired

 

 

(396,441

)

 

 

 

 

 

8.08

 

 

 

 

 

 

 

Outstanding, June 30, 2022

 

 

20,843,641

 

 

 

4.94

 

 

$

4.24

 

 

 

3,615

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, June 30, 2022

 

 

12,396,267

 

 

 

3.07

 

 

$

3.11

 

 

 

3,615

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested, June 30, 2022

 

 

8,447,374

 

 

 

7.69

 

 

$

5.89

 

 

 

-

 

 

N/A

 

 

 

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, 2022

 

 

20,111,246

 

 

 

4.86

 

 

$

3.63

 

 

$

320

 

 

N/A

 

Granted

 

 

706,627

 

 

 

 

 

 

1.75

 

 

 

 

 

 

 

Exercised

 

 

(405,134

)

 

 

 

 

 

0.19

 

 

 

 

 

 

 

Forfeited

 

 

(1,386,353

)

 

 

 

 

 

5.38

 

 

 

 

 

 

 

Expired

 

 

(1,507,019

)

 

 

 

 

 

4.20

 

 

 

 

 

 

 

Outstanding, June 30, 2023

 

 

17,519,367

 

 

 

4.73

 

 

$

3.65

 

 

 

1,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, June 30, 2023

 

 

11,633,165

 

 

 

2.98

 

 

$

3.58

 

 

 

202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested, June 30, 2023

 

 

5,886,199

 

 

 

8.22

 

 

$

3.81

 

 

$

845

 

 

 

 

(1)
For stock options forfeited, represents one share for each stock option forfeited.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on June 30, 20222023 and December 31, 2021,2022, 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 holdersthey exercised their in-the-money options on June 30, 20222023 and December 31, 2021,2022, respectively.

The total pre-tax intrinsic value (the difference between the market price of the Company’s Common Stockcommon shares on the exercise date and the price paid by the option holder to the exercise the option) related to stock options exercised is presented below:

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Exercised

 

$

79

 

 

$

1,721

 

 

$

140

 

 

$

4,798

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

 

June 30, 2023

 

 

June 30, 2022

 

 

June 30, 2023

 

 

June 30, 2022

 

 

Exercised

 

 

 

 

$

79

 

 

$

551

 

 

$

140

 

 

The Gage Acquisition included consideration in the form of 4,940,364 replacement options that had been issued before the acquisition date to employees of Gage. The post-combination options vest over a 1-3 year period. The fair value of the replacement options are estimated using the Black-Scholes Option Pricing Model with the following assumptions:

1620


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

March 10, 2022

Volatility

55.0%-80.0%

Risk-free interest rate

1.22%-1.94%

Expected life (years)

1.00-5.00

Dividend yield

0

%

The fair value of the various stock options granted waswere estimated using the Black-Scholes Option Pricing Modeloption pricing model with the following assumptions:

 

June 30, 2022

 

 

December 31, 2021

 

 

June 30, 2023

 

 

December 31, 2022

 

Volatility

 

77.55% - 79.04%

 

 

79.05% - 81.51%

 

 

80.04% - 80.16%

 

 

77.55% - 77.89%

 

Risk-free interest rate

 

1.63% - 3.02%

 

 

0.90% - 1.72%

 

 

2.85% - 3.21%

 

 

1.63% - 3.51%

 

Expected life (years)

 

9.62 - 10.01

 

 

4.57 - 10.05

 

 

10.01

 

 

9.62 - 10.01

 

Dividend yield

 

 

0

%

 

 

0

%

 

 

0.00

%

 

 

0.00

%

Forfeiture rate

 

 

23.73

%

 

23.21% - 27.73%

 

 

 

26.11

%

 

 

26.11

%

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 USU.S. treasury bond issues with a remaining term approximately equal to the expected life of the options. Dividend yield is zero sincebased on the fact that the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future.

The total estimated fair value of stock options that vested during the six months ended June 30, 20222023 and 20212022 was $4,9215,563 and $9,140, respectively. As of June 30, 2022,2023, there was $30,80623,572 of total unrecognized compensation cost related to unvested options.

Restricted Share Units

The following table summarizes the activities for the unvested RSUs for the three and six months ended June 30, 2022:2023:

 

Number of RSUs

 

Number of RSUs vested

 

Weighted average remaining contractual life (in years)

 

Number of RSUs

 

Number of RSUs vested

 

Weighted average remaining contractual life (in years)

 

Outstanding, December 31, 2021

 

 

192,171

 

 

 

13,294

 

 

N/A

Outstanding, December 31, 2022

 

 

415,640

 

 

 

13,050

 

 

N/A

 

Granted

 

 

573,716

 

 

 

 

 

 

 

1,785,092

 

 

 

 

 

 

 

Vested

 

 

(58,825

)

 

 

 

 

 

 

(113,640

)

 

 

 

 

 

 

Forfeited

 

 

(23,250

)

 

 

 

 

 

(78,634

)

 

 

 

 

 

 

Outstanding, June 30, 2022

 

 

683,812

 

 

 

13,050

 

 

N/A

Outstanding, June 30, 2023

 

 

2,008,458

 

 

 

14,564

 

 

N/A

 

As of June 30, 2022,2023, there was $3,9163,129 of total unrecognized compensation cost related to unvested RSUs.

12.15.
Non-controlling interest

Non-controlling interest consists mainly of the Company’s ownership minority interest in its New Jersey operations andoperations.

On June 26, 2023, the Company reduced its non-controlling interest through a buy out of the minority interest in IHC Real Estate operations and consistsLP (Note 10).

The following table summarizes the non-controlling interest activity for the six months ended June 30, 2023:

 

 

June 30, 2023

 

 

December 31, 2022

 

Opening carrying amount

 

$

2,374

 

 

$

5,367

 

Capital distributions

 

 

(3,415

)

 

 

(7,550

)

Transfer of minority interest

 

 

(1,323

)

 

 

-

 

Net income attributable to non-controlling interest

 

 

4,330

 

 

 

4,557

 

Ending carrying amount

 

$

1,966

 

 

$

2,374

 

This transaction was accounted for as an equity transaction. The carrying amount of the following amounts:non-controlling interest was adjusted by $1,323 to reflect the change in the net book value ownership interest. The difference from the consideration paid of $7,500 is recognized in additional paid in capital and attributed to the parent’s equity holders.

 

 

June 30, 2022

 

 

December 31, 2021

 

Opening carrying amount

 

$

5,367

 

 

$

3,802

 

Capital distributions

 

 

(448

)

 

 

(53

)

Investment in NJ partnership

 

 

 

 

 

(1,406

)

Net income attributable to non-controlling interest

 

 

1,296

 

 

 

3,024

 

Ending carrying amount

 

$

6,215

 

 

$

5,367

 

13.16.
Related parties

1721


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

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 June 30, 20222023 amounts due to/from related parties consisted of:

(a)
Loans payable:payable: During the year ended December 31, 2020, a small number of related persons, which consisted of key management of the Company, participated in the Ilera term loan (Note 8)9), which makes up $3,550163 of the total loan principal balance at June 30, 20222023 and December 31, 2021, respectively.2022.
(b)
Shareholders’ Equity: DuringPrivate Placement: The Private Placement constitutes a related party transaction because related persons, which consisted of key management and directors of the Company participated in the transaction. The Company’s Executive Chairman, participated, directly and indirectly, in the equity offering and acquired 800,002 Units for gross proceeds of $1,200. In total, the related persons acquired, in the aggregate, 2,000 Debentures and 825,734 Units in connection with the Private Placements for aggregate gross proceeds of $3,239.

17.
Income taxes

The Company's effective tax rate was (101%) and (148%) for the three and six months ended June 30, 2022, the Company had the following transactions related to shareholders’ equity:

Pursuant to the Gage Acquisition, Jason Wild2023, respectively and his respective affiliates received 10,467,229 of the Company's Common Shares in exchange for their Gage subordinate voting shares that were owned, held, controlled or directed, directly or indirectly, by Mr. Wild and his respective affiliates and 7,129,517 of the Company's warrants in exchange for their Gage warrants that were owned, held, controlled or directed, directly or indirectly, by Mr. Wild and his respective affiliates. The value of the interests of funds controlled directly or indirectly by Mr. Wild in the transaction in respect of the common shares was $52,335, in addition to the Company warrants issued in replacement of Gage warrants, at the implied consideration of $1.50 per Gage warrant. Richard Mavrinac, a former director of the Company, received 40,213 Common Shares in exchange for his Gage subordinate voting shares that were owned, held, controlled or directed, directly or indirectly, by Mr. Mavrinac and also received 6,683 Common Shares in exchange for his Gage restricted stock units that were owned, held, controlled or directed, directly or indirectly by Mr. Mavrinac. The value of Mr. Mavrinac's interest in the transaction was $234.
14.
Income taxes

The effective tax rate was 25% and 128% for the three and six months ended June 30, 2022, respectively and -31% and -60%respectively. The effective tax rate for the three and six months ended June 30, 2021, respectively.2023 differed from the federal statutory tax rate primarily due to the disallowed tax deductions for business expenses pursuant to Section 280E of the Internal Revenue Code of 1986, as amended (the "Code"), and a return to provision adjustment primarily related to the Company's New Jersey tax return filings. The effective tax rate for the three and six months ended June 30, 2022 differed from the federal statutory tax rate primarily due to the disallowed tax deductions for business expenses pursuant to Section 280E of the Code.

UnrecognizedThe Company's effective tax benefitsrate can vary each reporting period depending on, among other factors, the Unaudited Interim Condensed Consolidated Balance Sheets of $9,318 were reclassed from corporate income tax payable to other long term liability at December 31, 2021 as the classification better aligns with the recognitiongeographic and business mix of the benefits.Company's earnings, changes to the valuation allowance, and permanently non-deductible expenses. Certain of these and other factors, including the Company's history and projections of pre-tax earnings, are considered in assessing the Company's ability to realize any deferred tax assets including net operating losses.

15.18.
General and administrative expenses

The Company’s general and administrative expenses were as follows:

For the Three Months Ended

 

For the Six Months Ended

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2023

 

June 30, 2022

 

June 30, 2023

 

June 30, 2022

 

Office and general

 

$

6,042

 

 

$

3,369

 

 

$

9,608

 

 

$

7,224

 

 

$

3,801

 

 

$

5,821

 

 

 

7,805

 

 

 

9,101

 

Professional fees

 

 

3,564

 

 

 

3,070

 

 

 

6,492

 

 

 

5,749

 

 

 

5,103

 

 

 

3,373

 

 

 

8,476

 

 

 

6,093

 

Lease expense

 

 

1,105

 

 

 

1,109

 

 

 

2,355

 

 

 

2,109

 

 

 

1,294

 

 

 

1,099

 

 

 

2,538

 

 

 

2,345

 

Facility and maintenance

 

 

813

 

 

 

597

 

 

 

1,450

 

 

 

1,315

 

 

 

1,364

 

 

 

813

 

 

 

2,608

 

 

 

1,450

 

Salaries and wages

 

 

13,629

 

 

 

7,451

 

 

 

22,917

 

 

 

15,102

 

 

 

14,334

 

 

 

13,147

 

 

 

27,830

 

 

 

21,945

 

Share-based compensation

 

 

4,463

 

 

 

4,648

 

 

 

7,819

 

 

 

8,215

 

 

 

1,981

 

 

 

4,463

 

 

 

3,694

 

 

 

7,819

 

Sales and marketing

 

 

4,365

 

 

 

506

 

 

 

5,892

 

 

 

1,428

 

 

 

2,599

 

 

 

4,209

 

 

 

5,255

 

 

 

5,596

 

Total

 

$

33,981

 

 

$

20,750

 

 

$

56,533

 

 

$

41,142

 

 

$

30,476

 

 

$

32,925

 

 

$

58,206

 

 

$

54,349

 

16.19.
Revenue, net

The Company’s disaggregated net revenue by source, primarily due to the Company’s contracts with its external customers werewas as follows:

For the Three Months Ended

 

For the Six Months Ended

 

 

 

 

 

 

 

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2022

 

June 30, 2021

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30, 2023

 

June 30, 2022

 

 

June 30, 2023

 

June 30, 2022

 

Retail

 

$

58,254

 

 

$

47,979

 

 

$

113,676

 

 

$

73,697

 

Wholesale

 

$

16,825

 

 

$

36,330

 

 

$

40,766

 

 

$

74,714

 

 

 

13,870

 

 

 

15,981

 

 

 

27,846

 

 

 

38,848

 

Retail

 

 

47,979

 

 

 

22,393

 

 

 

73,697

 

 

 

37,363

 

Total

 

$

64,804

 

 

$

58,723

 

 

$

114,463

 

 

$

112,077

 

 

$

72,124

 

 

$

63,960

 

 

$

141,522

 

 

$

112,545

 

1822


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)


For the three and six months ended June 30, 20222023 and 20212022
, the Company did 0not have any single customer that accounted for 10% or more of the Company’s revenue.

As a result of the vape recall in Pennsylvania (refer to noteNote 5), the Company recorded sales returns of $nil and $1,040 during the three and six months ended June 30, 2022, respectively.2022.

17.20.
Finance and other expenses

The Company’s finance and other expenses included the following:

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Interest accretion

 

$

8,758

 

 

$

6,464

 

 

$

15,860

 

 

$

12,746

 

Forgiveness of principal and interest on loans

 

 

 

 

 

766

 

 

 

 

 

 

-

 

Indemnification asset release

 

 

3,998

 

 

 

2,599

 

 

 

3,973

 

 

 

3,796

 

Loss on disposal of fixed assets

 

 

845

 

 

 

37

 

 

 

929

 

 

 

37

 

Other expense (income)

 

 

301

 

 

 

(947

)

 

 

(4

)

 

 

(1,270

)

Total

 

$

13,902

 

 

$

8,919

 

 

$

20,758

 

 

$

15,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30, 2023

 

 

June 30, 2022

 

 

June 30, 2023

 

 

June 30, 2022

 

 

Interest and accretion

 

$

7,965

 

 

$

8,515

 

 

$

15,840

 

 

$

15,412

 

 

Indemnification asset release

 

 

 

 

 

3,998

 

 

 

 

 

 

3,973

 

 

Employee retention credits transfer with recourse

 

 

 

 

 

 

 

 

2,235

 

 

 

 

 

Other (income) expense

 

 

206

 

 

 

1,150

 

 

 

183

 

 

 

933

 

 

Total

 

$

8,171

 

 

$

13,663

 

 

$

18,258

 

 

$

20,318

 

 

The indemnification asset release is the reduction of the indemnification asset relatedRefer to the expiration of the escrow agreement related to the acquisition of The Apothecarium.Note 4, for further explanation about employee retention credits transfer with recourse.

18.21.
Segment information

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 1one operating segment, being the cultivation, production and sale of cannabis products.

Geography

The Company operates withhas subsidiaries located in Canada and the US.

The Company hadUnited States. For each of the followingsix months ended June 30, 2023 and 2022, net revenue by geography of:was primarily generated from sales in the United States. As a result of the Reorganization (Note 3) the Company consolidates its retail location in Canada and generated net revenue of $290 for the three months and six months ended June 30, 2023.

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

United States

 

$

63,952

 

 

$

52,457

 

 

$

112,545

 

 

$

102,141

 

Canada

 

 

852

 

 

 

6,266

 

 

 

1,918

 

 

 

9,936

 

Total

 

$

64,804

 

 

$

58,723

 

 

$

114,463

 

 

$

112,077

 

The Company had non-current assets by geography of:

 

June 30, 2022

 

December 31, 2021

 

 

June 30, 2023

 

December 31, 2022

 

United States

 

$

842,569

 

 

$

409,150

 

 

$

614,277

 

 

$

577,750

 

Canada

 

 

28,730

 

 

 

29,563

 

 

 

842

 

 

 

1,844

 

Total

 

$

871,299

 

 

$

438,713

 

 

$

615,119

 

 

$

579,594

 

19.22.
Capital management

19


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

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.and debt. The equity issuances are outlined in Note 11 and13, debt issuancesmodification are outlined in Note 8.10, and debt financing are outline in Note 12.

23


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

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 June 30, 2022. Other than these items related to loans payable as of June 30, 2022 and December 31, 2021, the Company is not subject to externally imposed capital requirements.2023.

On April 28, 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 30 months (from 18 months) from the closing date, subject to a premium payment due.

On August 10, 2022, the Gage senior secured term loan (refer to Note 8) was amended asAs a result of the corporate restructure in conjunctionReorganization, the Company has agreed to implement certain equity and capital management restrictions to comply with the Gage Acquisition. The amendmentsrules and policies of the TSX. As such, the Company has agreed to limitations on the utilization of any proceeds raised through the sale of Company equity, including restrictions on funding of its US operations with such proceeds.

Additionally, the Company is prohibited from converting the exchangeable shares of TerrAscend Growth Corp. into common shares so long as the common shares are listed on the TSX or until the exchange of shares is permitted by TSX rules and policies. Until such time that the Company is permitted to convert its exchangeable shares for common shares, TerrAscend Growth Corp. may not issue dividends to the Gage senior secured term loan include the addition of a borrower and guarantor under the term loan and a right of first offer in favor of the administrative agent for a refinancing of the term loan.Company.

20.23.
Financial instruments and risk management

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.

The following table represents the fair value amounts of financial assets and financial liabilities measured at estimated fair value on a recurring basis:

At June 30, 2022

 

At December 31, 2021

 

At June 30, 2023

 

At December 31, 2022

 

 

Level 1

 

Level 2

 

 

 

Level 3

 

Level 1

 

Level 2

 

 

 

Level 3

 

 

Level 1

 

Level 2

 

Level 3

 

Level 1

 

Level 2

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

48,426

 

 

$

-

 

 

$

-

 

 

$

79,642

 

 

$

-

 

 

$

-

 

 

$

28,915

 

 

 

 

 

 

 

 

$

26,158

 

 

 

 

 

 

 

Restricted cash

 

 

605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,606

 

 

 

 

 

 

 

 

 

605

 

 

 

 

 

 

 

Purchase option derivative asset

 

 

 

 

 

 

 

 

 

50

 

 

 

 

 

 

 

 

 

 

868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50

 

Total Assets

 

$

49,031

 

 

$

-

 

 

 

$

50

 

 

$

79,642

 

 

$

-

 

 

 

$

868

 

 

$

34,521

 

 

 

 

 

 

 

 

$

26,763

 

 

 

 

 

$

50

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration payable

 

 

 

 

$

-

 

 

 

$

5,648

 

 

$

-

 

 

$

-

 

 

 

$

12,535

 

 

 

 

 

$

4,434

 

 

 

 

 

 

 

 

$

5,184

 

 

 

 

Warrant liability

 

 

 

 

 

6,176

 

 

 

 

 

 

 

 

 

 

54,986

 

 

 

 

 

Derivative liability

 

 

 

 

 

5,750

 

 

 

 

 

 

 

 

 

711

 

 

 

 

Total Liabilities

 

$

-

 

 

$

6,176

 

 

 

$

5,648

 

 

$

-

 

 

$

54,986

 

 

 

$

12,535

 

 

 

 

 

$

10,184

 

 

 

 

 

 

 

 

$

5,895

 

 

 

 

There were 0no transfers between the levels of fair value hierarchy during the three and six months ended June 30, 2022.2023.

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, and restricted cash, 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 warrantderivative liability for the three and six months ended June 30, 2022:2023:

Balance at December 31, 2022

 

$

711

 

Included in gain on fair value of warrants

 

 

(703

)

Conversion Option issued in 2023 private placement

 

 

3,533

 

Detachable warrants issued in 2023 private placement

 

 

2,216

 

Effects of movements in foreign exchange

 

 

(7

)

Balance at June 30, 2023

 

$

5,750

 

Warrant liability and conversion option

2024


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

Balance at December 31, 2021

 

$

54,986

 

Addition on acquisition

 

 

6,756

 

Included in gain on fair value of warrants

 

 

(53,876

)

Exercises

 

 

(1,690

)

Balance at June 30, 2022

 

$

6,176

 

The Company's warrant liability consists of the warrant liability acquired through its Gage Acquisition ("Gage Warrant Liability"), a detachable warrant liability issued through the private placement (Note 13), and a conversion option related to the convertible debenture offering (Note 12). Series A, B, C, and D convertible preferred stock issued through its 2020 private placements ("private placement warrant liability"), as well as the warrant liability acquired through its Gage Acquisition ("Gage warrant liability") (refer to Note 4).

The private placement warrant liability has been measured at fair value at June 30, 2022. Key inputs and assumptions used in the Black Scholes valuation were as follows:

 

 

June 30, 2022

 

 

December 31, 2021

 

Common Stock Price of TerrAscend Corp.

 

$

2.28

 

 

$

6.11

 

Warrant exercise price

 

$

3,000

 

 

$

3,000

 

Warrant conversion ratio

 

$

1,000

 

 

$

1,000

 

Annual volatility

 

 

65.7

%

 

 

65.5

%

Annual risk-free rate

 

 

2.9

%

 

 

0.6

%

Expected term (in years)

 

 

0.9

 

 

1.4

 

The Gage warrant liability has been remeasured at fair value at June 30, 2022. Key inputs and assumptions used in the Black Scholes valuation were as follows:

 

 

June 30, 2022

 

 

March 10, 2022

 

Common Stock Price of TerrAscend Corp.

 

$

2.28

 

 

$

5.70

 

Warrant exercise price

 

$

8.66

 

 

$

8.66

 

Annual volatility

 

62.88% - 63.73%

 

 

61.65% - 61.87%

 

Annual risk-free rate

 

 

2.9

%

 

 

1.8

%

Expected term (in years)

 

 

1.5

 

 

 

1.7

 

Level 3

Purchase option derivative asset

The following table summarizes the changes in the purchase option derivative asset:

Balance at December 31, 2021

 

$

868

 

Revaluation of purchase option derivative asset

 

 

(818

)

Balance at June 30, 2022

 

$

50

 

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:

 

 

June 30, 2022

 

 

December 31, 2021

 

Term (in years)

 

 

0.8

 

 

 

1.3

 

Risk-free rate

 

 

2.5

%

 

 

0.4

%

EBITDA discount rate

 

 

15.5

%

 

 

15.0

%

EBITDA volatility

 

 

37.1

%

 

 

44.0

%

Contingent Consideration Payable

21


TerrAscend Corp.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for per share amounts)

The fair value of contingent consideration at June 30, 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 12.2% (June 30, 2021 – 12.8%) was utilized to determine the present value of the liabilities, resulting in a loss on revaluation of contingent consideration of $34 and $153 forhave expired during the three and six months ended June 30, 2022, respectively (June 30, 2021 - ($2023.7

)

The Gage Warrant Liability has been remeasured to fair value. Key inputs and $assumptions used in the Black-Scholes model were as follows:

2,990

 

 

June 30, 2023

 

 

December 31, 2022

 

Common Stock Price of TerrAscend Corp.

 

$

1.52

 

 

$

1.13

 

Warrant exercise price

 

$

8.66

 

 

$

8.66

 

Annual volatility

 

 

56.3

%

 

97.1%-98.4%

 

Annual risk-free rate

 

 

5.5

%

 

 

4.8

%

Expected term (in years)

 

 

0.5

 

 

 

1.0

 

, respectively).

Detachable Warrants

The fair value of the detachable warrants as a part of June 2023 private placement (Note 13) was estimated using the Black-Scholes option pricing model with the following assumptions:

 

 

June 30, 2023

 

Common Stock Price of TerrAscend Corp.

 

$1.65-$1.81

 

Option exercise price

 

$

1.95

 

Annual volatility

 

71.0%-71.1%

 

Annual risk-free rate

 

4.58%-4.66%

 

Expected term (in years)

 

1.98-2.00

 

Bifurcated conversion options

The illustrative varianceconversion option issued as a part of the total contingent considerationJune 2023 private placement (Note 12) has been measured at fair value as of June 30, 2022 based on reasonably possible changes to one of2023. Key inputs and assumptions used in the significant unobservable inputs, holding other inputs constant, would have the following effects:Black-Scholes valuation were as follows:

Discount rate sensitivity

 

KCR

 

Increase 100 basis points

 

$

1,175

 

Increase 50 basis points

 

$

1,195

 

Decrease 50 basis points

 

$

1,236

 

Decrease 100 basis points

 

$

1,258

 

 

 

June 30, 2023

 

Common Stock Price of TerrAscend Corp.

 

$1.65-$1.81

 

Option exercise price

 

$

2.01

 

Annual volatility

 

68.2%-68.3%

 

Annual risk-free rate

 

4.13%-4.25%

 

Expected term (in years)

 

2.98-3.00

 

21.24.
Commitments and contingencies

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. At June 30, 2022,2023, there were no pending lawsuits that could reasonably be expected to have a material effect on the results of the Company’s consolidated financial statements.

2225


TerrAscend Corp.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts expressed in thousands of United States dollars, except for share and per share amounts)

22.25.
Subsequent events

i)

Subsequent to June 30, 2022,On July 4, 2023, the Company opened The Apothecarium Lodi,commenced trading of its third retail location in New Jersey and 27th dispensary overall. The retail locationcommon shares on TSX under the new ticker symbol “TSND”. Subsequently, the ticker symbol on the OTC market was opened onalso changed to “TSNDF” effective July 25, 2022 to medical patients. 6, 2023.

On July 26, 2022,10, 2023, the Company received approval for Adult Use sales at this location.

acquired Herbiculture Inc. (“Herbiculture”) a dispensary in Maryland.

ii)

On July 27, 2022,28, 2023, subsequent to closing of the Company's first "Cookies Corner" opened in its Maplewood dispensary in New Jersey.
Stearns Loan, the Company met the criteria for $2,500 of $5,000 of restricted cash to be released.

2326


ItemITEM 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company'sTerrAscend's financial condition and results of operations should be read in conjunction with the Company'sTerrAscend's 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 the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2021,2022, which was filed with the Securities and Exchange Commission, or SEC, on March 17, 2022.16, 2023, or the Annual Report. 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 the Company'sTerrAscend's plans and strategy for its 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 the Company'sour Annual Report, on Form 10-K, its actual results could differ materially from the results described in or implied by the "Cautionary Note Regarding Forward-Looking Statements" contained in this Quarterly Report on Form 10-Q and in the following discussion and analysis.

Unless otherwise noted, dollar amounts in this Item 2 are in thousands of U.S. dollars.

This Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations of TerrAscend is for the three and six months ended June 30, 20222023 and 20212022 and the accompanying notes for each respective period.

Business Overview

TerrAscend is a leading North American cannabis operator with vertically integrated licensed operations in Pennsylvania, New Jersey, Michigan, Maryland and California, licensed cultivation and processing operationsis a cannabis retailer in Michigan and Maryland, and licensed processing operationsOntario, Canada with a majority-owned dispensary in Toronto, Ontario, 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 and high-quality cannabis, providing industry-leading product selection to both the medical and legal adult-use market.markets. Notwithstanding the fact that various states in the US whichU.S. have implemented medical marijuana laws or whichthat have otherwise legalized the use of cannabis, the use of cannabis remains illegal under USU.S. federal law for any purpose, by way of the CSA.Controlled Substances Act of 1970.

TerrAscend operates under one operating segment, which is the cultivation, production and sale of cannabis products.

TerrAscend’sTerrAscend owns a portfolio of operating businesses and several synergistic brands include:including:

Allegany Medical Marijuana Dispensary ("AMMD"), a dispensary in Cumberland, Maryland;
Blue Ridge Wellness (“Blue Ridge”), a dispensary located in Parkville, Maryland;
Gage Growth Corp. ("Gage"), a vertically integrated cannabis cultivator, processor and processordispensary operator in MichiganMichigan;
Herbiculture Inc ("Herbiculture"), a dispensary located in Burtonsville, Maryland;
HMS Health, LLC (“HMS Health”) and HMS Processing, LLC (“HMS Processing” and together with HMS Health, “HMS”), a producer and seller of dried flower and oil products for the wholesale cannabis market in Maryland;
Ilera Healthcare ("Ilera"), a vertically integrated cannabis cultivator, processor and dispensary operator in Pennsylvania;
TerrAscend NJKISA Enterprises MI, LLC and KISA Holdings, LLC (collectively "Pinnacle"), a majority owned subsidiary that holds a permit to operate up to three alternative treatment centersdispensary operator in New Jersey with the ability to cultivate and process;Michigan;
The Apothecarium, consisting of retail dispensariesPeninsula Alternative Health ("Peninsula"), a dispensary located in California, Pennsylvania and New Jersey;Salisbury, Maryland;
Valhalla Confections, a provider of premium edible products;
State Flower, a California-based cannabis producer operating a licensed cultivation facility in San Francisco, California;
HMS Health, LLC and HMS Processing, LLC, a producer and seller of dried flower and oil products for the wholesale medical cannabis market in Maryland;
TerrAscend Canada Inc.,(“TerrAscend Canada” or “TCI”) is a cannabis retailer in Ontario, Canada with a majority-owned dispensary in Toronto, Ontario, Canada ("Cookies Canada"). TerrAscend Canada was previously a Licensed Producer (as such term is defined in the Cannabis Act) of cannabis withuntil TerrAscend commenced an optimization of its current principal business activities including processing and sale of cannabis flower and oil productsoperations in Canada;
Canada, whereby TerrAscend reduced its manufacturing footprint in order to focus on its Cookies Canada the operator of a minority owned retail cannabis dispensarybusiness, as well as monetize its intellectual property portfolio in Toronto, Canada; and
Arise Bioscience, a manufacturer and distributor of hemp-derived products, located in Boca Raton, Florida.

Objective

TerrAscend's MD&A is designed to provide information aboutCanada. TerrAscend ceased operations at its financial condition and results of operations from management's perspective. It includes relevant components of TerrAscend's financial condition and current and long-term liquidity. Primary revenue drivers include the manufacture, distribution, and sale of medical and adult-use cannabis products where permitted. TerrAscend's primary obligations are related to compliance with state and federal regulators, as applicable. TerrAscend's primary sources of capital have been through the issuance of equity securities or debt. TerrAscend's objective is to discuss how all these factors have affected our historical results and, where applicable, how it expects these factors to impact its future results and future liquidity.

24


Results from Operations- Three months ended June 30, 2022 and June 30, 2021

The following tables represent the Company’s results from operations for the three months ended June 30, 2022 and 2021.

Revenue, net

 

For the Three Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Revenue

 

$

65,367

 

 

$

61,977

 

Excise and cultivation taxes

 

 

(563

)

 

 

(3,254

)

Revenue, net

 

$

64,804

 

 

$

58,723

 

$ change

 

$

6,081

 

 

 

 

% change

 

 

10

%

 

 

 

The increase in net revenue at June 30, 2022 as compared to June 30, 2021 was due to an increase in retail revenue of $25,586 from $22,393 for the three months ended June 30, 2021 to $47,979 for the three months ended June 30, 2022. The increase in revenue is mainly due to adult use sales in New Jersey which commencedmanufacturing facility during the three months ended December 31, 2022 and increased its ownership interest in Cookies Retail Canada Corp. to 95% of the issued and outstanding shares effective April 14, 2023;

TerrAscend NJ, LLC (“TerrAscend NJ”), a majority owned subsidiary that operates three dispensaries in New Jersey with the ability to cultivate and process;
The Apothecarium, consisting of retail dispensaries in California, Pennsylvania, and New Jersey;

27


Valhalla Confections, a provider of premium edible products.

TerrAscend’s head office and registered office is located at 77 City Centre Drive, Suite 501 – East Tower, Mississauga, Ontario, Canada, L5B 1M5.

TerrAscend’s telephone number is 1.717.610.4165 and its website is www.terrascend.com. Information contained on or accessible through TerrAscend’s website is not a part of this Quarterly Report, and the inclusion of TerrAscend’s website address in this Quarterly Report on Form 10-Q is an inactive textual reference only.

Recent Developments

On May 23, 2023, the Company completed the sale of its facility located in Mississauga, Canada for CAD $19,700 with net proceeds used to pay down existing Company debt.
On June 23, 28, and 30, 2023, the Company closed the private placements of 10,105 senior unsecured convertible debenture at a price of $1,000 per debenture for total gross proceeds of approximately $10,105. Unless repaid or converted earlier, the outstanding principal and accrued and unpaid interest on the debentures will be due and payable on the Maturity Date. Each debenture will bear interest at a rate of 9.9% per annum from the date of issuance, calculated and compounded semi-annually, and payable on the Maturity Date. Each holder may, at the option of the holder upon signing of the subscription agreement, elect to receive up to 4.95% per annum of such interest payable in cash on a semi-annual basis. Each debenture will be convertible into Common Shares, at the option of the holder, at any time or times prior to the close of business on the last business day immediately preceding the Maturity Date, at a conversion price of $2.01. Holders converting their debentures will receive accrued and unpaid interest for the period from and including the date of the last interest payment date, to and including, the date of conversion.
On June 26, 2023, the Company closed on the Stearns Loan, a $25,000 million commercial loan with Stearns Bank, secured by the Company’s cultivation facility in Pennsylvania and its AMMD dispensary in Cumberland, Maryland. The loan carries an interest rate of prime plus 2.25% and matures on December 26, 2024. The Company is required to hold $2,500 on deposit in a restricted account. The proceeds from the loan were used to pay down the Company's higher interest rate Ilera Term Loan, thereby lowering its overall interest expense.
On June 28, 2023, the Company completed the acquisition of Derby 1, LLC (d/b/a “Peninsula Alternative Health”), a dispensary in Maryland.
On June 29, 2023, the Company announced that its common shares would commence trading on the TSX on July 4, 2023 under the new ticker symbol “TSND”.
On June 30, 2022,2023, WDB Holding PA, Inc., a subsidiary of the Company, completed the paydown of $37,000 of its senior secured term loan in Pennsylvania.
On June 30, 2023, the Company completed the acquisition of Hempaid, LLC (d/b/a “Blue Ridge Wellness”), a dispensary in Maryland.

Subsequent Transactions

On July 4, 2023, the Company commenced trading of its common shares on the TSX under the new ticker symbol “TSND”. Subsequently, the ticker symbol on the OTC market was also changed to “TSNDF” effective July 6, 2023.
On July 10, 2023, the Company completed the acquisition of Herbiculture Inc. (“Herbiculture”) a dispensary in Maryland.
On July 28, 2023, subsequent to closing of the Stearns Loan, the Company met the criteria for $2,500 of restricted cash to be released.

28


Components of Results of Operations

The following discussion sets forth certain components of our Unaudited Condensed Consolidated Statements of Comprehensive Loss as well as the acquisition of Gage (the "Gage Acquisition") in Michigan in March 2022. Retail dispensaries increased from thirteen at June 30, 2021 to twenty-six at June 30, 2022.factors that impact those items.

The increase is partially offset by the decrease of $19,505 in wholesale

Revenue

TerrAscend generates revenue from $36,330 at June 30, 2021 to $16,825 for the three months ended June 30, 2022 which was mainly relatedsale of cannabis products, brands, and services to the operational reconfigurationUnited States and Canadian markets. Revenues consist of wholesale and retail sales in the Company's cultivation facilitymedical and legal adult use market across Canada and in Pennsylvania.several U.S. states where cannabis has been legalized for medical or adult use.

Cost of Salessales

 

For the Three Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Cost of sales

 

$

34,389

 

 

$

23,773

 

Impairment and write downs of inventory

 

 

7,422

 

 

 

115

 

Total cost of sales

 

$

41,811

 

 

$

23,888

 

$ change

 

$

17,923

 

 

 

 

% change

 

 

75

%

 

 

 

Cost of sales as a % of revenue

 

 

65

%

 

 

41

%

The increase in costCost of sales forprimarily consists of expenses related to providing cannabis products and services to TerrAscend's customers, including personnel-related expenses, the three months ended June 30, 2022 as compareddepreciation of property and equipment, amortization of acquired intangible assets, and other overhead costs.

General and administrative

General and administrative ("G&A") consists primarily of personnel costs related to the three months ended June 30, 2021 was driven mainly by the Gage Acquisition,finance, human resources, legal, and other administrative functions. Additionally G&A expense includes professional fees to third parties, as well as anmarketing expenses. In addition, G&A expense includes share-based compensation on options, restricted stock units and warrants. TerrAscend expects that G&A expense will increase in New Jersey due to the increase in adult use sales which commenced during the three months ended June 30, 2022. The increase in cost of sales as a percentage of revenue was due to lower volumes in Pennsylvania leading to under-absorption, primarily related to lower wholesale flower sales, as well as operational challenges at the Company's cultivation facility in Frederick, Marylandabsolute dollars as the Company transitions to its Hagerstown location.business grows.

In addition, management wrote down its inventory by $7,422Amortization and $115depreciation

Amortization and depreciation includes the amortization of intangible assets. Amortization is calculated on a straight line basis over the following terms:

Brand intangibles- indefinite lives

Indefinite useful lives

Brand intangibles- definite lives

3 years

Software

5 years

Licenses

5-30 years

Customer relationships

5 years

Non-compete agreements

3 years

Depreciation of property and equipment is calculated on a straight-line basis over the estimated useful life of the asset using the following terms:

Buildings and improvements

Lesser of useful life or 30 years

Land

Not depreciated

Machinery & equipment

5-15 years

Office furniture & production equipment

3-5 years

Right of use assets

Lease term

Assets in process

Not depreciated

Impairment of intangible assets and goodwill

Goodwill and indefinite lived intangible assets are reviewed for the three months ended June 30, 2022impairment annually and 2021, respectively. The inventory write-downswhenever there are events or changes in the current year period were mainly due to the write down of inventory to lower of cost or market which was related to the aforementioned operational reconfiguration of its cultivation facility in Pennsylvania, write downs of inventory related to a recall by the Pennsylvania Department of Health of certain vape products produced by the Company, as well as inventory in Canadacircumstances that indicate that the Company deemed unsaleable. On February 4, 2022,carrying amount has been impaired. TerrAscend first performs a qualitative assessment. If based on the results of a qualitative assessment it has been determined that it is more likely than 500 vape products were recalled bynot that the Pennsylvania's Departmentfair value of Health, including severala reporting unit exceeds

29


its carrying value, additional quantitative impairment test is performed which compares the carrying value of the Company's SKUs. reporting unit to its estimated fair value. If the carrying value exceeds the estimated fair value, an impairment is recorded.

Definite lived intangible assets are tested for impairment when there are indications that an asset may be impaired. When indicators of impairment exist, TerrAscend performs a quantitative impairment test which compares the carrying value of the assets for intangible assets to their estimated fair values. If the carrying value exceeds the estimated fair value, an impairment is recorded.

(Gain) loss from revaluation of contingent consideration

As a result of some of its acquisitions, TerrAscend recognizes a contingent consideration payable, which is an obligation to transfer additional assets to the recall,seller if future events occur. The liability is revalued at the Company wrote off $1,071end of inventory during the three months ended June 30, 2022. The inventory write-downseach reporting period to determine its fair value. A gain or loss is recognized in the prior year period were related to inventory thatother (income) expense in the Company deemed unsaleable.

GeneralConsolidated Statements of Operations and Administrative Expense (G&A)

 

For the Three Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

General and administrative expense

 

$

33,981

 

 

$

20,750

 

$ change

 

$

13,231

 

 

 

 

% change

 

 

64

%

 

 

 

G&A excluding share-based compensation

 

$

29,518

 

 

$

16,102

 

G&A excluding share-based compensation as a % of revenue

 

 

46

%

 

 

27

%

25


The increase in G&A expenses was primarily a result of increased salaries and wages of $6,178, sales and marketing expense of $3,859, and office and general expense of $2,673, which is primarilyComprehensive Loss as a result of the Gage Acquisition in March 2022.revaluation.

Amortization and Depreciation Expense

 

For the Three Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Amortization and depreciation

 

$

3,016

 

 

$

1,844

 

$ change

 

$

1,172

 

 

 

 

% change

 

 

64

%

 

 

 

The increase in amortization and depreciation expense for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 is primarily due to the Gage Acquisition during March 2022. The company acquired intangible assets including cultivation and processing licenses, as well as retail licenses, which are amortized over a 15 year period. The fair value of the cultivation and processing and retail licenses at acquisition were $77,198 and $53,321, respectively.

(Gain) loss on fair value of warrants and purchase option derivative asset

 

For the Three Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

(Gain) loss on fair value of warrants and purchase option derivative asset

 

$

(47,345

)

 

$

19,891

 

$ change

 

$

(67,236

)

 

 

 

% change

 

 

-338

%

 

 

 

The Company's warrant liability has beenconsists of the warrant liability acquired through its Gage Acquisition, a detachable warrant liability issued through the private placement (Note 13), and a conversion option related to the convertible debenture offering (Note 12). These warrants were recorded as a warrant liability and are remeasured to fair value at the end of each reporting unit using the Black-Scholes model. A gain or loss is recognized in the other (income) expense in the Consolidated Statements of Operations and Comprehensive Loss as a result of the revaluation.

Finance and other expenses

Finance and other expenses consists primarily of interest expense on TerrAscend's outstanding debt obligations.

Transaction and restructuring costs

Transaction costs include costs incurred in connection with TerrAscend's acquisitions, such as expenses related to professional fees, consulting, legal and accounting. Restructuring costs are those costs associated with severance and restructuring of business units.

Impairment of property and equipment

TerrAscend evaluates the recoverability of property and equipment whenever events or changes in circumstances indicate that the carrying value of the asset, or asset group, may not be recoverable. When TerrAscend determines that the carrying value of the long-lived asset may not be recoverable based upon the existence of one or more indicators, the assets are assessed for impairment based on the estimate of future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the carrying value of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying value over its fair value.

Unrealized and realized foreign exchange loss

Unrealized and realized foreign exchange loss represents the loss recognized on the remeasurement of USD denominated cash and other assets recorded in the Canadian dollars functional currency at TerrAscend's Canadian operations.

Unrealized and realized gain on investments

TerrAscend accounts for its investment in equity securities without readily determinable fair values using a valuation technique which maximizes the use of relevant observable inputs, with subsequent holding changes in fair value recognized in unrealized gain or loss on investments in the consolidated statement of loss.

Provision for income taxes

Provision for income taxes consists of U.S. federal and state income taxes in certain jurisdictions in which TerrAscend conducts business.

Results from Operations- Three Months Ended June 30, 2023 and June 30, 2022

The following tables represent the Company’s results from operations for the six months ended June 30, 2023 and 2022.

Revenue, net

30


 

For the Three Months Ended

 

 

 

June 30, 2023

 

 

June 30, 2022

 

Revenue

 

$

72,437

 

 

$

64,221

 

Excise and cultivation taxes

 

 

(313

)

 

 

(261

)

Revenue, net

 

$

72,124

 

 

$

63,960

 

$ change

 

$

8,164

 

 

 

 

% change

 

 

13

%

 

 

 

Revenue increased from $63,960 to $72,124 driven by growth in retail offset by a decline in wholesale. Retail revenue increased from $47,979 during the three months ended June 30, 2022 to $58,254 during the three months ended June 30, 2023. The increase is primarily a result of adult use coming online in New Jersey in April 2022 and the acquisition of AMMD in Maryland in January 2023. The increase in retail revenue is partially offset by a $2,111 decrease in wholesale revenue related to declines in wholesale in the Pennsylvania market offset by growth in the wholesale market in New Jersey related to adult use sales in the state.

Cost of Sales

 

For the Three Months Ended

 

 

 

June 30, 2023

 

 

June 30, 2022

 

Cost of sales

 

$

34,817

 

 

$

32,587

 

Impairment and write downs of inventory

 

 

1,081

 

 

 

7,422

 

Total cost of sales

 

$

35,898

 

 

$

40,009

 

$ change

 

$

(4,111

)

 

 

 

% change

 

 

-10

%

 

 

 

Cost of sales as a % of revenue

 

 

50

%

 

 

63

%

The reduction of $4,111 in cost of sales for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 is mainly a result of impairments and write-downs of inventory in Pennsylvania of $7,422 in the prior period.

General and Administrative Expense

 

For the Three Months Ended

 

 

 

June 30, 2023

 

 

June 30, 2022

 

General and administrative expense

 

$

30,476

 

 

$

32,925

 

$ change

 

$

(2,449

)

 

 

 

% change

 

 

-7

%

 

 

 

The decline in G&A expense of $2,449 for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 was primarily a result of actions the Company undertook in the latter part of 2022 to reduce expenses and reduce its workforce in order to strengthen the position for the Company to generate positive cashflow from operations.

Amortization and Depreciation Expense

 

For the Three Months Ended

 

 

 

June 30, 2023

 

 

June 30, 2022

 

Amortization and depreciation

 

$

2,242

 

 

$

2,581

 

$ change

 

$

(339

)

 

 

 

% change

 

 

-13

%

 

 

 

The decrease of $339 in amortization and depreciation expense for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 is primarily due to a brand intangible asset that was fully amortized during 2022.

Gain on fair value of warrants and purchase option derivative asset

 

For the Three Months Ended

 

 

 

June 30, 2023

 

 

June 30, 2022

 

Gain on fair value of warrants and purchase option derivative asset

 

$

(215

)

 

$

(47,345

)

$ change

 

$

47,130

 

 

 

 

% change

 

 

-100

%

 

 

 

The Preferred Share warrant liability was remeasured to fair value at June 30, 2022 using the Black ScholesBlack-Scholes model. The Company recognized a gain during the three months ended June 30, 2022 as a result of the reduction of the Company's share price from March 31, 20212022 as compared to June 30, 2022, as well as from warrants exercised during the three months ended June 30, 2022. The combined impact resulted in a gain on fair value of warrants of $47,845.$47,345.

31


The Preferred Share warrant liability expired during the three months ended June 30, 2023.

For the three months ended June 30, 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 $500.

During the three months ended June 30, 2021, the Company recognized a loss on fair value of warrants of $19,891 as a result of the increase in the Company's share price from December 31, 2020 to June 30, 2021 as well as warrants exercised during the three months ended June 30, 2021.

Finance and other expenses

For the Three Months Ended

 

For the Three Months Ended

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2023

 

June 30, 2022

 

Finance and other expenses

 

$

13,902

 

 

$

8,919

 

 

$

8,171

 

 

$

13,663

 

$ change

 

$

4,983

 

 

 

 

 

$

(5,492

)

 

 

 

% change

 

 

56

%

 

 

 

 

 

-40

%

 

 

 

The increasedecrease of $5,492 in finance expenseand other expenses for the three months ended June 30, 20222023 as compared to the three months ended June 30, 20212022 is primarily due to interest expense recognized on the loans acquiredindemnification of asset release as parta result of the Gage Acquisition, as well as a loss recognized on disposalexpiration of fixed assets of $981escrow agreement related to lights at the Pennsylvania cultivation facility which were discardedacquisition of Apothecarium during the three months ended June 30, 2022.

Transaction and restructuring costs

For the Three Months Ended

 

For the Three Months Ended

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2023

 

June 30, 2022

 

Transaction and restructuring costs

 

$

627

 

 

$

432

 

 

$

389

 

 

$

627

 

$ change

 

$

195

 

 

 

 

 

$

(238

)

 

 

 

% change

 

 

45

%

 

 

 

 

 

-38

%

 

 

 

The increasedecrease of $238 in transaction and restructuringrestricting costs for the three months ended June 30, 20222023 as compared to the three months ended June 30, 2021 was2022 relates primarily due to work done for Sarbanes Oxley implementation during the three months ended June 30, 2022.

Impairment of goodwill

26Unrealized and realized foreign exchange (gain) loss


For the Three Months Ended

 

For the Three Months Ended

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2023

 

June 30, 2022

 

Impairment of goodwill

 

$

-

 

 

$

5,007

 

Unrealized and realized foreign exchange (gain) loss

 

$

(101

)

 

$

(315

)

$ change

 

$

(5,007

)

 

 

 

 

$

214

 

 

 

 

% change

 

 

-100

%

 

 

 

 

 

-68

%

 

 

 

The impairmentincrease of goodwill$214 in unrealized foreign exchange gain for the three months ended June 30, 2021 was related to the Company's Florida reporting unit as the Company determined that the estimated cash flows of its Arise business did not support the carrying value of the intangible assets and goodwill. As a result, the Company recorded impairment to reduce the balance of goodwill at its Florida reporting unit to $nil.

Impairment of intangible assets

 

For the Three Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Impairment of intangible assets

 

$

-

 

 

$

3,633

 

$ change

 

$

(3,633

)

 

 

 

% change

 

 

-100

%

 

 

 

The impairment recorded during the three months ended June 30, 2021 relates to the write-off of intellectual property at the Company's Arise business.

Unrealized and realized foreign exchange loss

 

For the Three Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Unrealized and realized foreign exchange loss

 

$

(306

)

 

$

3,055

 

$ change

 

$

(3,361

)

 

 

 

% change

 

 

-110

%

 

 

 

The decrease in unrealized foreign exchange loss for the three months ended June 30, 20222023 as compared to the three months ended June 30, 20212022 is a result of the remeasurement of USDU.S. dollar denominated cash and other assets recorded in C$Canadian dollar functional currency at the Company’s Canadian operations.

Unrealized and realized gain on investments

 

For the Three Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Unrealized and realized loss (gain) on investments

 

$

234

 

 

$

(5,964

)

$ change

 

$

6,198

 

 

 

 

% change

 

 

-104

%

 

 

 

The loss on investment during the three months ended June 30, 2022 is related to the revaluation of the investments acquired through the Gage Acquisition. The gain on investment during the three months ended June 30, 2021 relates to the acquisition of the remaining 90% investment in Guadco LLC and KCR Holdings LLC on April 30, 2021.

Provision for income taxes

For the Three Months Ended

 

For the Three Months Ended

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2023

 

June 30, 2022

 

Provision for income taxes

 

$

4,688

 

 

$

6,937

 

 

$

6,448

 

 

$

4,688

 

$ change

 

$

(2,249

)

 

 

 

 

$

1,760

 

 

 

 

% change

 

 

-32

%

 

 

 

 

 

38

%

 

 

 

The decreaseincrease in provision for income taxes for the three months ended June 30, 20222023 as compared to the three months ended June 30, 20212022 was due toprimarily driven by the decline in revenue and associated declineincrease in gross profit mainly related to the operational reconfigurationas a result of the Company's cultivation facilitygrowth in Pennsylvania.new jurisdictions.

Results from Operations- Six months endedMonths Ended June 30, 20222023 and June 30, 20212022

The following tables represent the Company’s results from operations for the six months ended June 30, 20222023 and 2021.2022.

Revenue, net

2732


For the Six Months Ended

 

For the Six Months Ended

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2023

 

June 30, 2022

 

Revenue

 

$

115,812

 

 

$

118,473

 

 

$

142,157

 

 

$

113,281

 

Excise and cultivation taxes

 

 

(1,349

)

 

 

(6,396

)

 

 

(635

)

 

 

(736

)

Revenue, net

 

$

114,463

 

 

$

112,077

 

 

$

141,522

 

 

$

112,545

 

$ change

 

$

2,386

 

 

 

 

 

$

28,977

 

 

 

 

% change

 

 

2

%

 

 

 

 

 

26

%

 

 

 

The increase in net revenue at June 30, 2022 as compared

Revenue increased from $112,281 to June 30, 2021 was due to an increase in retail revenue of $36,334 from $37,363 for the six months ended June 30, 2021 to $73,697 for the six months ended June 30, 2022. The increase in revenue is mainly due to adult use sales in New Jersey which commenced$141,522 during the six months ended June 30, 2022,2023 as well as the Gage Acquisition. Retail dispensaries increased from thirteen at June 30, 2021compared to twenty-six at June 30, 2022.

This increase is partially offset by a decrease of $33,948 in wholesale revenue from $74,714 for the six months ended June 30, 2021 to $40,766 for the six months ended June 30, 2022 which was mainly related todriven by growth in retail offset by a decline in wholesale. The growth in retail was driven by the Canada business, as well asconversion to adult use in New Jersey, the operational reconfigurationacquisition of Gage in March 2022, and the Company's cultivation facilityacquisition of AMMD in January 2023. The decline in wholesale was driven by market dynamics in Pennsylvania as well asand the aforementioned vape recall. As a result of the recall,decision the Company recorded sales returns of $1,040 during the six months ended June 30, 2022.made to discontinue bulk wholesale in Michigan, partially offset by an increase in New Jersey driven by adult use implementation.

Cost of Sales

For the Six Months Ended

 

For the Six Months Ended

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2023

 

June 30, 2022

 

Cost of sales

 

$

67,835

 

 

$

41,601

 

 

$

70,315

 

 

$

65,663

 

Impairment and write downs of inventory

 

 

8,495

 

 

 

699

 

 

 

1,081

 

 

 

7,307

 

Total cost of sales

 

$

76,330

 

 

$

42,300

 

 

$

71,396

 

 

$

72,970

 

$ change

 

$

34,030

 

 

 

 

 

$

(1,574

)

 

 

 

% change

 

 

80

%

 

 

 

 

 

-2

%

 

 

 

Cost of sales as a % of revenue

 

 

67

%

 

 

38

%

 

 

50

%

 

 

65

%

The increasereduction of $1,574 in cost of sales for the six months ended June 30, 20222023 as compared to the six months ended June 30, 2021 was driven2022 is mainly bya result of impairments and write downs of inventory in Pennsylvania of $7,422 in the Gage Acquisition, as well as an increase in New Jersey due to adult use sales which commenced during the six months ended June 30, 2022. prior year.

General and Administrative Expense

 

For the Six Months Ended

 

 

 

June 30, 2023

 

 

June 30, 2022

 

General and administrative expense

 

$

58,206

 

 

$

54,349

 

$ change

 

$

3,857

 

 

 

 

% change

 

 

7

%

 

 

 

The increase in costG&A expense of sales as a percentage of revenue was primarily due to lower wholesale flower sales volume in Pennsylvania leading to under-absorption, and unfavorable mix, primarily related to lower Gage bulk wholesale sales at the end of the first quarter.

In addition, management wrote down its inventory by $8,495 and $699$3,857 for the six months ended June 30, 2022 and 2021, respectively. The inventory write-downs in the current year period were mainly due2023 as compared to the write down of inventory to lower of cost or market which was related to the Company's operational reconfiguration of its cultivation facility in Pennsylvania, write downs of inventory related to the vape recall, as well as inventory in Canada that the Company deemed unsaleable. As a result of the recall, the Company wrote off $1,925 of inventory during the six months ended June 30, 2022. The inventory write-downs in the prior year period were related to inventory that the Company deemed unsaleable.

General and Administrative Expense (G&A)

 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

General and administrative expense

 

$

56,533

 

 

$

41,142

 

$ change

 

$

15,391

 

 

 

 

% change

 

 

37

%

 

 

 

G&A excluding share-based compensation

 

$

48,714

 

 

$

32,927

 

G&A excluding share-based compensation as a % of revenue

 

 

43

%

 

 

29

%

The increase in G&A expenses2022 was primarily a result of increased salariesexpenses related to implementation of adult use in New Jersey in April 2022 and wagesthe acquisition of $7,815, sales and marketingGage in March 2022, partially offset by expense reductions the Company undertook during the second half of $4,464, and office and general expense of $2,384, which is primarily a result2022 across all areas of the Gage Acquisition.Company as part of its plan to streamline operations and drive positive cashflow.

Amortization and Depreciation Expense

 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Amortization and depreciation

 

$

5,634

 

 

$

3,717

 

$ change

 

$

1,917

 

 

 

 

% change

 

 

52

%

 

 

 

28


 

For the Six Months Ended

 

 

 

June 30, 2023

 

 

June 30, 2022

 

Amortization and depreciation

 

$

4,271

 

 

$

4,756

 

$ change

 

$

(485

)

 

 

 

% change

 

 

-10

%

 

 

 

The increasedecrease of $485 in amortization and depreciation expense for the six months ended June 30, 20222023 as compared to the six months ended June 30, 20212022 is primarily due to the Gage Acquisition. The Company acquireda brand intangible assets including cultivation and processing licenses, as well as retail licenses, which areasset that was fully amortized over a 15 year period. The fair value of the cultivation and processing licenses and retail licenses at acquisition were $77,198 and $53,321, respectively.during 2022.

Revaluation of contingent consideration

 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Revaluation of contingent consideration

 

$

153

 

 

$

2,990

 

$ change

 

$

(2,837

)

 

 

 

% change

 

 

-95

%

 

 

 

The decrease in the revaluation of contingent consideration for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 is a result of a reduction in the liability as compared to June 30, 2021 due to payments for the earnout of Ilera of $29,668, and State Flower of $7,040 made subsequent to June 30, 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) lossGain on fair value of warrants and purchase option derivative asset

For the Six Months Ended

 

For the Six Months Ended

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2023

 

June 30, 2022

 

(Gain) loss on fair value of warrants and purchase option derivative asset

 

$

(53,058

)

 

$

25,301

 

Gain on fair value of warrants and purchase option derivative asset

 

$

(653

)

 

$

(53,058

)

$ change

 

$

(78,359

)

 

 

 

 

$

52,405

 

 

 

 

% change

 

 

-310

%

 

 

 

 

 

-99

%

 

 

 

The Preferred Share warrant liabilities have beenliability was remeasured to fair value at June 30, 2022 using the Black ScholesBlack-Scholes model. The Company recognized a gainloss during the six months ended June 30, 2022 as a result of the reduction of the Company's share price from December 31, 2021June 30, 2022 as compared to June 30, 2022, as well as from warrants exercised2022.

33


The Preferred Share warrant liability expired during the six months ended June 30, 2022. The combined impact resulted in a gain on fair value of warrants of $53,876.2023.

For the six months ended June 30, 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 $818.

During the six months ended June 30, 2021 the Company recognized a loss on fair value of warrants of $25,301 as a result of the increase in the Company's share price from December 31, 2020 to June 30, 2021 as well as warrants exercised during the six months ended June 30, 2021.

Finance and other expenses

For the Six Months Ended

 

For the Six Months Ended

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2023

 

June 30, 2022

 

Finance and other expenses

 

$

20,758

 

 

$

15,309

 

 

$

18,258

 

 

$

20,318

 

$ change

 

$

5,449

 

 

 

 

 

$

(2,060

)

 

 

 

% change

 

 

36

%

 

 

 

 

 

-10

%

 

 

 

The increasedecrease of $2,060 in finance expenseand other expenses for the six months ended June 30, 20222023 as compared to the six months ended June 30, 20212022 is primarily due to interest expense recognized on the loans acquired as part of the Gage Acquisition.acquisition which closed on March 10, 2022.

Transaction and restructuring costs

For the Six Months Ended

 

For the Six Months Ended

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2023

 

June 30, 2022

 

Transaction and restructuring costs

 

$

1,242

 

 

$

432

 

 

$

392

 

 

$

1,242

 

$ change

 

$

810

 

 

 

 

 

$

(850

)

 

 

 

% change

 

 

188

%

 

 

 

 

 

-68

%

 

 

 

The increasedecrease of $850 in transaction and restructuringrestricting costs for the sixthree months ended June 30, 20222023 as compared to the six months ended June 30, 2021 was2022 relates primarily due to the Gage Acquisition, as well as work done for Sarbanes Oxley implementation.

Impairment of goodwill

29


 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Impairment of goodwill

 

$

-

 

 

$

5,007

 

$ change

 

$

(5,007

)

 

 

 

% change

 

 

-100

%

 

 

 

The impairment of goodwill for the six months ended June 30, 2021 was related to the Company's Florida reporting unit as the Company determined that the estimated cash flows of its Arise business did not support the carrying value of the intangible assets and goodwill. As a result, the Company recorded impairment to reduce the balance of goodwill at its Florida reporting unit to $nil.

Impairment of intangible assets

 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Impairment of intangible assets

 

$

-

 

 

$

3,633

 

$ change

 

$

(3,633

)

 

 

 

% change

 

 

-100

%

 

 

 

The impairment recorded during the six months ended June 30, 2021 relates to the write-off of intellectual property at the Company's Arise business.which closed on March 10, 2022.

Unrealized and realized foreign exchange loss

For the Six Months Ended

 

For the Six Months Ended

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2023

 

June 30, 2022

 

Unrealized and realized foreign exchange loss

 

$

50

 

 

$

5,838

 

Unrealized and realized foreign exchange loss (gain)

 

$

(132

)

 

$

41

 

$ change

 

$

(5,788

)

 

 

 

 

$

(173

)

 

 

 

% change

 

 

-99

%

 

 

 

 

 

-422

%

 

 

 

The decrease of $173 in unrealized foreign exchange loss for the six months ended June 30, 20222023 as compared to the six months ended June 30, 20212022 is a result of the remeasurement of USDU.S. dollar denominated cash and other assets recorded in C$Canadian dollar functional currency at the Company’s Canadian operations.

Unrealized and realized gain on investments

 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Unrealized and realized loss (gain) on investments

 

$

234

 

 

$

(6,192

)

$ change

 

$

6,426

 

 

 

 

% change

 

 

-104

%

 

 

 

The loss on investment during the six months ended June 30, 2022 is related to the revaluation of the investments acquired through the Gage Acquisition. The gain on investment during the six months ended June 30, 2021 relates to the acquisition of the remaining 90% investment in Guadco LLC and KCR Holdings LLC on April 30, 2021.

Provision for income taxes

For the Six Months Ended

 

For the Six Months Ended

 

 

June 30, 2022

 

June 30, 2021

 

 

June 30, 2023

 

June 30, 2022

 

Provision for income taxes

 

$

8,431

 

 

$

16,373

 

 

$

19,112

 

 

$

8,431

 

$ change

 

$

(7,942

)

 

 

 

 

$

10,681

 

 

 

 

% change

 

 

-49

%

 

 

 

 

 

127

%

 

 

 

The decreaseincrease in provision for the income taxes for the six months ended June 30, 20222023 as compared to the six months ended June 30, 20212022 was due toprimarily driven by the decline in revenue and associated declineincrease in gross profit mainly related to the operational reconfigurationas a result of the Company's cultivation facilitygrowth in Pennsylvania, as well as the vape recall by the Pennsylvania Department of Health.new jurisdictions.

Liquidity and Capital Resources

 

 

June 30, 2023

 

 

December 31, 2022

 

 

 

$

 

 

$

 

Cash and cash equivalents

 

 

28,915

 

 

 

26,158

 

Restricted Cash

 

 

3,106

 

 

 

605

 

Current assets

 

 

106,629

 

 

 

121,993

 

Non-current assets

 

 

615,119

 

 

 

579,594

 

Current liabilities

 

 

133,489

 

 

 

137,905

 

Non-current liabilities

 

 

292,660

 

 

 

242,511

 

Working capital

 

 

(26,860

)

 

 

(15,912

)

Total shareholders' equity

 

 

295,599

 

 

 

321,171

 

3034


 

 

June 30, 2022

 

 

December 31, 2021

 

 

 

$

 

 

$

 

Cash and cash equivalents

 

 

48,426

 

 

 

79,642

 

Current assets

 

 

137,318

 

 

 

143,221

 

Non-current assets

 

 

871,299

 

 

 

438,713

 

Current liabilities

 

 

140,403

 

 

 

61,044

 

Non-current liabilities

 

 

323,246

 

 

 

291,936

 

Working capital

 

 

(3,085

)

 

 

82,177

 

Total shareholders' equity

 

 

544,968

 

 

 

228,954

 

The calculation of working capital provides additional information and is not defined under GAAP. The CompanyTerrAscend 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.

Liquidity and going concern

At June 30, 2022,2023, TerrAscend had cashan accumulated deficit of $653,623. During the three and six months ended June 30, 2023, TerrAscend incurred a net loss from continuing operations of $12,855 and $32,033, respectively. Additionally, as of June 30, 2023 the Company’s current liabilities exceed its current assets. Therefore, it is possible that the Company may need additional capital to continue to fund its operations.

The aforementioned indicators raise substantial doubt about TerrAscend's ability to continue as a going concern for at least one year from the issuance of these financial statements. The Company believes this concern is mitigated by steps to improve its operations and cash equivalentsposition, including: (i) identifying access to future capital required to meet the Company’s on-going obligations, (ii) improved cashflow growth from TerrAscend's consolidated operations, particularly in New Jersey and most recently Maryland with conversion to adult use sales, and (iii) various cost and efficiency improvements.

Since its inception, TerrAscend's primary sources of $48,426, which is sufficientcapital have been through the issuance of equity securities or debt facilities, and TerrAscend has received aggregate net proceeds from such transactions totaling $654,000 as of June 30, 2023.

TerrAscend expects to fund the Company’s ongoing operations. Anyany additional future requirements will be funded through the following sources of capital:

Cashcash from ongoing operations.

Marketmarket offerings.

Debt - the Company may seek to obtain additional debt from additional creditors.

Sale leaseback - the Company may seek to sell and lease back its capital properties.sale of real property.

Exercise of options and warrants - the Company would receive funds from sale leaseback transactions.
exercise of options and warrants fromwarrants.

Capital requirements

The Company has $208,659 in principal amounts of loans payable at June 30, 2023. Of this amount, $22,336 are due within the holders of such securitiesnext twelve months.

TerrAscend has entered into leases for certain premises and offices for which it owes monthly lease payments. TerrAscend has $78,204 in lease obligations. Of this amount, $6,151 are due in the event theynext twelve months. Additionally, TerrAscend makes monthly payments on financing obligations on six of its real estate properties with $14,691 payable, $1,944 of which is due in the next twelve months.

TerrAscend's undiscounted contingent consideration payable is $4,434 at June 30, 2023. The contingent consideration payable relates to TerrAscend's business acquisitions of the Apothecarium and State Flower and is due in the next twelve months.

During the year ended December 31, 2020, TerrAscend expensed $7,500 related to amounts payable to an entity controlled by the minority shareholders of TerrAscend NJ pursuant to services surrounding the granting of certain licenses. The final payment of $3,750 was made in July 2023.

At June 30, 2023, the Company had accounts payable and accrued liabilities of $50,841 and corporate income taxes payable of $45,934.

TerrAscend does not have any off-balance sheet arrangements that have, or are exercised.reasonably likely to have, a current or future effect on TerrAscend's results of operations or financial condition, including and without limitation, such consideration as liquidity and capital resources.

The Company’s

TerrAscend intends to meet its capital commitments through any or all of the sources of capital noted above. TerrAscend'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.future obligations.

The Company has $280,136 in principal amounts

Debt facilities

35


Ilera Term Loan

On December 18, 2020, WDB Holding PA, a subsidiary of loans payable at June 30, 2022. Of this amount, $68,955 are due within the next twelve months. The Company hasTerrAscend, entered into operating leases fora senior secured term loan with a syndicate of lenders in the amount of $120,000 ("Ilera Term Loan"). The term loan bears interest at 12.875% per annum and matures on December 17, 2024. TerrAscend has the ability to increase the facility by up to $30,000. WDB Holding PA's obligation under the Ilera Term Loan and related transaction documents are guaranteed by TerrAscend, TerrAscend USA, Inc., and certain premisessubsidiaries of WDB Holding PA, and offices for which it owes monthly leasesecured by TerrAscend USA Inc.'s equity interest in WDB Holding PA and substantially all of the assets of WDB Holding PA and the subsidiary guarantors party thereto. The loan can be refinanced at the option of the borrower after 18 months from the closing date subject to a premium payment due. Of the total proceeds received, $105,767 was used to satisfy the remaining Ilera earn-out payments.

In addition,

On April 28, 2022, the Company's undiscounted contingent consideration payable is $10,734 at June 30, 2022. The contingent consideration payable relatesIlera Term Loan was amended to provide WDB Holding PA with greater flexibility by resetting 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 revaluedminimum consolidated interest coverage ratio levels that must be satisfied at the end of each reporting period.measurement period and extending the date in which WDB Holding PA is required to deliver its budget for the fiscal year ending December 31, 2021. In addition, the no-call period was extended from 18 months to 30 months, subject to a premium payment. This modification was not considered extinguishment of debt under ASC 470 Debt.

On November 11, 2022, WDB Holding PA, TerrAscend, TerrAscend USA Inc. and the subsidiary guarantors party to the Ilera Term Loan and the PA Agent (on behalf of the required lenders) entered into an amendment to the PA Credit Agreement, pursuant to which PA Agent and the required lenders agreed that WDB Holding PA's obligation to maintain the consolidated interest coverage ratio as set forth in the PA Credit Agreement for the period ended September 30, 2022, shall not apply, subject to certain conditions, including (but not limited to) an obligation to enter into a subsequent amendment agreement on or before December 15, 2022, documenting certain enhancements and amendments to the PA Credit Agreement to be agreed. In addition, WDB Holding PA offered a prepayment of $5,000 pro rata to all lenders holding outstanding loans thereunder at a price equal to 103.22% of the principal amount prepaid, plus accrued and unpaid interest.

On December 21, 2022, WDB Holding PA completed an amendment to reduce TerrAscend's principal debt by $35,000 and annual interest expense by $5,000. TerrAscend agreed to make a $35,000 payment at the original prepayment price of 103.22% to par, and agreed to use commercially reasonable efforts to add certain collateral to Ilera Term Loan, collectively by March 15, 2023. The amendment further provided that should WDB Holding PA not maintain the prescribed interest coverage ratio, the Company shall be required to deposit funds, as outlined in the amendment, into a restricted account, and no event of default shall occur. This amendment was not considered extinguishment of debt under ASC 470 Debt.

On March 15, 2023, WDB Holding PA, in exchange for a fee in the amount of 1% of the then outstanding principal loan balance, agreed to an amendment among other things, to (i) extend the obligation date to prepay TerrAscend's debt from March 15, 2023 to June 30, 2023 in which WDB Holding PA must use commercially reasonable efforts to add additional collateral to the Ilera Term Loan, (ii) increase the amount of debt to be reduced by up to $37,000, subject to certain reductions in amount based on meeting certain time based milestones, at a prepayment price of 103.22% to par, and (iii) extend the next test date in respect of the interest coverage ratio until June 30, 2023. This amendment was not considered extinguishment of debt under ASC 470 Debt. There is $115,000 of principal amounts outstanding at March 31, 2023.

On April 14, 2023, WDB Holding PA agreed to an amendment to the Ilera Term Loan to, among other things, to (i) permit changes necessary for the TSX Transaction (as defined therein), and (ii) to waive certain tax provisions.

On June 22, 2023, WDB Holding PA further agreed to an amendment among other things, to (i) extend the next test date for the interest coverage ratio from June 30, 2023to September 30, 2023, and (ii) amend the terms for which WDB Holding PA may incur certain indebtedness and liens.

Gage Loans

The Gage Acquisition included a senior secured term loan (the "Original Gage Term Loan") with an acquisition date fair value of $53,857. The credit agreement bears interest at a rate equal to the greater of (i) the Prime Rate plus 7% or (ii) 10.25%. The term loan is payable monthly and matures on November 30, 2022. The term loan is secured by a first lien on all Gage assets.

On August 10, 2022, the Original Gage Term Loan was amended as a result of the corporate restructure in conjunction with the Gage Acquisition. The amendment to the Original Gage Term Loan includes the addition of a borrower and guarantor under the term loan and a right of first offer in favor of the administrative agent for a refinancing of the term loan. This amendment was not considered extinguishment of debt under ASC 470 Debt.

36


On November 29, 2022, TerrAscend repaid $30,000 outstanding principal amount on the Original Gage Term Loan. On November 30, 2022, the remaining loan principal amount of $25,000 on the Original Gage Term Loan was amended (the "Amended Gage Term Loan"). The Amended Gage Term Loan bears interest on $25,000 at a per annum rate equal to the greater of (i) the U.S. "prime rate" plus 6.00%, and (ii) 13.0% and matures on November 1, 2024. Commencing on May 31, 2023, TerrAscend will make monthly principal repayments of 0.40% of the aggregate principal amount outstanding. Additionally, the unpaid principal amount of the loan shall bear paid in kind interest at a rate of 1.50% per annum. No prepayment fees are owed if TerrAscend voluntarily prepays the loan after 18 months. If such prepayment occurs prior to 18 months, a prepayment fee equal to all of the interest on the loans that would be due after the date of such prepayment, is owed. Under the Amended Gage Term Loan, TerrAscend has the ability to borrow incremental term loans of $30,000 at the option of TerrAscend and subject to consents from the required lenders. The additional $30,000 incremental term loans available under the amendment have not been drawn as of December 31, 2022. This loan represents a loan syndication, and therefore TerrAscend assessed each of the lenders separately under ASC 470 Debt to determine if this represents a modification, or an extinguishment of debt. For three of the four remaining lenders, it was determined that this was a modification. For the remaining lender, it was determined that this represented an extinguishment of debt and therefore the fees paid to the lenders on modification were expensed. As a result of this transaction, TerrAscend expensed $1,907 of fees paid to the lenders and third parties as they did not meet the criteria for capitalization under ASC 470 Debt.

Additionally, the Gage Acquisition included a loan payable to a former owner of a licensed entity with an acquisition date fair value of $2,683, and a promissory note with an acquisition date fair value of $4,065. The loan payable to the former owner bears interest at a rate of 0.2%. The promissory note bears interest at a rate of 6%. There is $4,583 of principal amounts outstanding at June 30, 2023 on the loan payable and promissory note.

On June 9, 2023, TerrAscend Growth Corp. agreed to an amendment among other things, to (i) permit changes necessary for the TSX Transaction (as defined therein) and (ii) to permit certain indebtedness and waive certain tax provisions.

This amendment was not considered extinguishment of debt under ASC 470 Debt.

Pinnacle Loans

The Pinnacle Acquisition purchase price included two promissory notes in an aggregate amount of $10,000 to pay down all Pinnacle liabilities and encumbrances. The promissory note matures on June 30, 2023 and bears interest rates of 6%. On June 27, 2023, Spartan Partners Properties, LLC, agreed to an amendment among other things, to extend the obligation date of the loan until December 1, 2023. There is $8,833 of principal amounts outstanding at March 31, 2023 on the two promissory notes.

Pelorus Term Loan

On October 11, 2022, subsidiaries of TerrAscend, among others, entered into a loan agreement with Pelorus Fund REIT, LLC ("Pelorus") for a single-draw senior secured term loan ("Pelorus Term Loan") in an aggregate principal amount of $45,478. The Pelorus Term Loan bears interest at a variable rate tied to the one month secured overnight financing rate (SOFR), subject to a base rate, plus 9.5%, with interest-only payments for the first 36 months. The base rate is defined as, on any day, the greatest of (i) 2.5%, (b) the effective federal funds rate in effect on such day plus 0.5%, and (c) one month SOFR in effect on such day. The obligations of the borrowers under the Pelorus Term Loan are guaranteed by TerrAscend, TerrAscend USA Inc. and certain other subsidiaries of TerrAscend and secured by all of the assets of TerrAscend's Maryland and New Jersey businesses, including certain real estate in Maryland and New Jersey, but excludes all MD dispensaries. The Pelorus Term Loan matures on October 11, 2027. There is $45,478 of principal amounts outstanding at June 30, 2023.

On April 17, 2023, TerrAscend NJ, LLC agreed to an amendment among other things, to (i) permit changes necessary for the TSX Transaction (as defined therein), and (ii) to waive certain tax provisions. On June 22, 2023, TerrAscend NJ, LLC further agreed to an amendment to permit certain indebtedness.

This amendment was not considered extinguishment of debt under ASC 470 Debt.

Stearns Loan

On June 26, 2023, the Company closed on a $25,000 commercial loan with Stearns Bank, secured by the Company's cultivation facility in Pennsylvania and its AMMD dispensary in Cumberland, Maryland. The Company expectsis required to hold $2,500 on deposit in a restricted account. The loan carries an interest rate of prime plus 2.25% and matures in December 2024. The proceeds from the loan were used to pay down the Company's higher interest rate debt, thereby lowering the Company's overall interest expense.

37


Class A Share of TerrAscend Growth

As a part of the Reorganization (Note 3), TerrAscend Growth Corp. issued $ 1 million of Class A shares with a 20% guaranteed annual dividend. Under the Subscription Agreement, TerrAscend Growth Corp holds a call right to repurchase all of the Class A Shares, at any point in time, issuable to the holder of Class A shares and the holder of Class A shares is granted a put right that its cashis exercisable at any time following the five-year anniversary of the closing of the investment. The instrument is considered as a debt due to the economic characteristics and risks.

IHC Real Estate LP Loan

On June 26, 2023, the Company bought out the minority interest in IHC Real Estate LP and entered into a promissory note of $7,500. The promissory note carries an interest rate of 15% and matures on hand and cash flows from operations, along with financing transactions, will be adequate to meet its capital requirements and operational needs for at leastJanuary 15, 2024. On June 28, 2023, the next 12 months.Company made a payment of $1,500.

Cash Flows

Cash Flows

Cash flows from(used in) / provided by operating activities

 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Net cash used in operating activities

 

$

(34,976

)

 

$

(10,076

)

 

For the Six Months Ended

 

 

 

June 30, 2023

 

 

June 30, 2022

 

Net cash (used in) / provided by operating activities

 

$

9,120

 

 

$

(34,976

)

The increase of $44,096 in net cash used inprovided by operating activities for the six months ended June 30, 2023 as compared to June 30, 2022 is due primarily due to lower interest of $5,832, reduced taxes of $22,127, and an increase in loss from operationsaccounts payable and accrued liabilities and other payables of $11,929 due to $24,034 from a profittiming of $24,918those payments, offset by an increase in the prior year period, as well as changes in working capital itemsinventory of $16,081.$8,059.

Cash flows fromused in investing activities

 

For the Six Months Ended

 

 

 

June 30, 2023

 

 

June 30, 2022

 

Net cash (used in) investing activities

 

$

(4,877

)

 

$

(39

)

31The net cash used in investing activities for the six months ended June 30, 2023 primarily relates to the cash paid for the acquisition of three dispensaries in Maryland. Additionally, TerrAscend increased the investment in property and equipment by $5,426 during the six months ended June 30, 2023.


 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Net cash provided used in investing activities

 

$

(39

)

 

$

(63,387

)

TheIn comparison, the net cash used in investing activities for the six months ended June 30, 2022 primarily relates to investments in property and equipment of $12,500 and deposits for property and equipment of $10,036, 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. Additionally, the Company had investments in intangible assets of $1,330, primarily related to adult use licenses in New Jersey. The cash used in investing activities is offset by cash inflows of $24,716 related to the cash acquired through the Gage Acquisition.

In comparison, the netCash flows provided by financing activities

 

For the Six Months Ended

 

 

 

June 30, 2023

 

 

June 30, 2022

 

Net cash provided by financing activities

 

$

4,416

 

 

$

8,781

 

Net cash used in investingprovided by financing activities for the six months ended June 30, 20212023 was primarily relatesdue to cash considerationinflow as a result of transfer with recourse of Employee Retention Credit of $12,677, net proceeds from the commercial loan with Stearns bank of $23,872, and net proceeds from private placements of $19,218, offset by loan principal paid for the acquisitions of KCR$40,359 and HMS totaling $42,736. Additionally, the Company had investments in property and equipmentdistributions to minority partners of $10,856 primarily related to the buildout of the New Jersey operations and expansions in Pennsylvania cultivation and $10,583 related to deposits paid for expansion of the cultivation premises in Pennsylvania.$3,415.

Cash flows from financing activities

 

For the Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Net cash provided by financing activities

 

$

8,781

 

 

$

168,507

 

During the six months ended June 30, 2022, 7,989,436 Common Share warrants were exercised for total proceeds of $23,797 and 88,015 stock options were exercised for total gross proceeds of $361. The cash provided by financing activities was offset by payments of contingent consideration related to the acquisition of State Flower of $6,630, loan principal payments of $5,203, loan amendment fee paid on the modification of the Ilera term loan of $1,200, and tax distributions paid on behalf of the partners of the New Jersey operations of $1,436.

Net cash provided by financing activities for the six months ended June 30, 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 six months ended June 30, 2021, 2,590,178 Common Share warrants were exercised for total proceeds of $6,777 and 699,009 stock options were exercised at $0.67-$6.93 (C$0.85-$8.52) per unit for total gross proceeds of $2,385. In addition, 1,900 preferred share warrants were exercised at $3,000 per unit for total gross proceeds of $3,759. The cash provided by financing activities was offset by payments of contingent consideration related to the acquisition of Ilera of $18,274.38


Reconciliation of Non-GAAP Measures

In addition to reporting the financial results in accordance with GAAP, the CompanyTerrAscend 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 CompanyTerrAscend believes that certain investors and analysts use these measuresmetrics to measure a company'scompany’s ability to meet other payment obligations or as a common measurement to value companies in the cannabis industry, and the CompanyTerrAscend calculates (i) Adjusted gross profit as gross profit from continuing operations adjusted for certain material non-cash items, and (ii) Adjusted EBITDA from continuing operations as EBITDA from continuing operations adjusted for certain material non-cash items and certain other adjustments which 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

TerrAscend believes this definitionAdjusted EBITDA from continuing operations is a useful performance measure to assess the performance of the CompanyTerrAscend as it provides more meaningful ongoing operating results by excluding the effects of expenses that are not reflective of the Company'sTerrAscend’s underlying business performance and other one-time or non-recurring expenses.

32


The table below reconciles net loss to EBITDA from continuing operations and Adjusted EBITDA from continuing operations for the three and six months ended June 30, 20222023 and 2021.2022:

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

Notes

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Net income (loss)

 

 

$

14,162

 

 

$

(29,662

)

 

$

(1,844

)

 

$

(43,773

)

Add (deduct) the impact of:

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

4,688

 

 

 

6,937

 

 

 

8,431

 

 

 

16,373

 

Finance expenses

 

 

 

9,427

 

 

 

6,424

 

 

 

16,125

 

 

 

11,783

 

Amortization and depreciation

 

 

 

7,046

 

 

 

3,529

 

 

 

12,131

 

 

 

7,050

 

EBITDA

(a)

 

 

35,323

 

 

 

(12,772

)

 

 

34,843

 

 

 

(8,567

)

Add (deduct) the impact of:

 

 

 

 

 

 

 

 

 

 

 

 

 

Relief of fair value upon acquisition

(b)

 

 

549

 

 

 

567

 

 

 

2,355

 

 

 

567

 

Non-cash write downs of inventory

(c)

 

 

5,894

 

 

 

449

 

 

 

5,894

 

 

 

449

 

Vape recall

(d)

 

 

1,071

 

 

 

-

 

 

 

2,965

 

 

 

 

Share-based compensation

(e)

 

 

4,463

 

 

 

4,648

 

 

 

7,819

 

 

 

8,215

 

Impairment of goodwill and intangible assets

(f)

 

 

-

 

 

 

8,640

 

 

 

-

 

 

 

8,640

 

Loss on disposal of fixed assets

(g)

 

 

929

 

 

 

36

 

 

 

929

 

 

 

36

 

Revaluation of contingent consideration

(h)

 

 

34

 

 

 

(7

)

 

 

153

 

 

 

2,990

 

Restructuring costs and executive severance

(i)

 

 

-

 

 

 

467

 

 

 

-

 

 

 

467

 

Legal settlements

(j)

 

 

-

 

 

 

740

 

 

 

 

 

 

2,121

 

Other one-time items

(k)

 

 

924

 

 

 

860

 

 

 

2,898

 

 

 

1,122

 

(Gain) loss on fair value of warrants and purchase option derivative asset

(l)

 

 

(47,345

)

 

 

19,891

 

 

 

(53,058

)

 

 

25,301

 

Indemnification asset release

(m)

 

 

3,998

 

 

 

2,599

 

 

 

3,973

 

 

 

3,796

 

Unrealized and realized loss (gain) on investments

(n)

 

 

234

 

 

 

(5,964

)

 

 

234

 

 

 

(6,192

)

Unrealized and realized foreign exchange loss

(o)

 

 

(306

)

 

 

3,055

 

 

 

50

 

 

 

5,838

 

Adjusted EBITDA

 

 

$

5,768

 

 

$

23,209

 

 

$

9,055

 

 

$

44,783

 

 

 

 

For the Three Months Ended

 

 

 

For the Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

 

June 30, 2023

 

 

 

June 30, 2022

 

 

 

June 30, 2023

 

 

 

June 30, 2022

 

Net loss

 

 

$

(13,476

)

 

 

$

14,162

 

 

 

$

(36,245

)

 

 

$

(1,844

)

Loss from discontinued operations

 

 

 

621

 

 

 

 

2,697

 

 

 

 

4,212

 

 

 

 

4,953

 

Loss from continuing operations

 

 

 

(12,855

)

 

 

 

16,859

 

 

 

 

(32,033

)

 

 

 

3,109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add (deduct) the impact of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

6,448

 

 

 

 

4,688

 

 

 

 

19,112

 

 

 

 

8,431

 

Finance expenses

 

 

 

7,963

 

 

 

 

10,315

 

 

 

 

15,838

 

 

 

 

16,920

 

Amortization and depreciation

 

 

 

4,991

 

 

 

 

6,493

 

 

 

 

9,762

 

 

 

 

11,018

 

EBITDA from continuing operations

(a)

 

 

6,547

 

 

 

 

38,355

 

 

 

 

12,679

 

 

 

 

39,478

 

Add (deduct) the impact of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Relief of fair value upon acquisition

(b)

 

 

 

 

 

 

549

 

 

 

 

 

 

 

 

2,355

 

Non-cash write downs of inventory

(c)

 

 

 

 

 

 

5,894

 

 

 

 

 

 

 

 

5,894

 

Vape recall

(d)

 

 

 

 

 

 

1,071

 

 

 

 

 

 

 

 

2,965

 

Share-based compensation

(e)

 

 

1,981

 

 

 

 

4,463

 

 

 

 

3,694

 

 

 

 

7,819

 

Loss from revaluation of contingent consideration

(f)

 

 

 

 

 

 

34

 

 

 

 

0

 

 

 

 

153

 

Other one-time items

(g)

 

 

2,932

 

 

 

 

924

 

 

 

 

4,290

 

 

 

 

2,898

 

Employee Retention Credits Transfer Fee

(h)

 

 

 

 

 

 

 

 

 

 

2,235

 

 

 

 

 

Loss on lease termination and derecognition of ROU asset

(i)

 

 

 

 

 

 

 

 

 

 

205

 

 

 

 

 

Gain on fair value of warrants and purchase option derivative asset

(j)

 

 

(215

)

 

 

 

(47,345

)

 

 

 

(653

)

 

 

 

(53,058

)

Indemnification asset release

(k)

 

 

 

 

 

 

3,998

 

 

 

 

 

 

 

 

3,973

 

Impairment of property and equipment and loss on disposal of fixed assets

(l)

 

 

10

 

 

 

 

929

 

 

 

 

345

 

 

 

 

929

 

Unrealized and realized loss on investments

(m)

 

 

1,661

 

 

 

 

234

 

 

 

 

2,360

 

 

 

 

234

 

Unrealized and realized foreign exchange loss

(n)

 

 

(101

)

 

 

 

(315

)

 

 

 

(132

)

 

 

 

41

 

Adjusted EBITDA from continuing operations

 

 

$

12,815

 

 

 

$

8,791

 

 

 

$

25,023

 

 

 

$

13,681

 

TerrAscend calculates adjusted gross profit by adjusting gross profit for the one-time relief of fair value of inventory upon acquisition, non-cash write downs of inventory, vape recall, and other one time adjustments to gross profit as TerrAscend does not believe that these impacts are reflective of ongoing operations. The table below reconciles gross profit to adjusted gross profit for the three and six months ended June 30, 20222023 and 2021.2022:

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

Notes

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

$

22,993

 

 

$

34,835

 

 

$

38,133

 

 

$

69,777

 

Add (deduct) the impact of:

 

 

 

 

 

 

 

 

 

 

 

 

 

Relief of fair value upon acquisition

(b)

 

 

549

 

 

 

567

 

 

 

2,355

 

 

 

567

 

Non-cash write downs of inventory

(c)

 

 

5,894

 

 

 

449

 

 

 

5,894

 

 

 

449

 

Vape recall

(d)

 

 

1,071

 

 

 

-

 

 

 

2,965

 

 

 

-

 

Accelerated depreciation

(p)

 

 

-

 

 

 

-

 

 

 

238

 

 

 

-

 

 

 

 

$

30,507

 

 

$

35,851

 

 

$

49,585

 

 

$

70,793

 

39


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

For the Six Months Ended

 

 

Notes

 

June 30, 2023

 

 

 

June 30, 2022

 

 

 

June 30, 2023

 

 

 

June 30, 2022

 

Gross profit

 

 

$

36,226

 

 

 

$

23,951

 

 

 

$

70,126

 

 

 

$

39,575

 

Add (deduct) the impact of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Relief of fair value upon acquisition

(b)

 

 

 

 

 

 

549

 

 

 

 

 

 

 

 

2,355

 

Non-cash write downs of inventory

(c)

 

 

 

 

 

 

5,894

 

 

 

 

 

 

 

 

5,894

 

Vape recall

(d)

 

 

 

 

 

 

1,071

 

 

 

 

 

 

 

 

2,965

 

Other one time adjustments to gross profit

(g)

 

 

 

 

 

 

 

 

 

 

94

 

 

 

 

238

 

 Adjusted gross profit

 

 

$

36,226

 

 

 

$

31,465

 

 

 

$

70,220

 

 

 

$

51,027

 

(a)a)
EBITDA from continuing operations is a non-GAAP measure and is calculated as earnings from continuing operations before interest, tax, depreciation and amortization.
(b)b)
In connection with the Company'sTerrAscend's acquisitions, inventory was acquired at fair value, which included a markup or markdown for profit. Recording inventory at fair value in purchase accounting has the effect of increasing or decreasing inventory and thereby increasing or decreasing cost of sales as compared to the amounts the CompanyTerrAscend would have recognized if the inventory was sold through at cost. The write-up or down of acquired inventory represents the incremental cost of sales that were recorded during purchase accounting.
(c)c)
Represents inventory write downs outside of the normal course of operations. These inventory write-downs were related to the the write down of aged inventory to lower of cost or market which was related to the Company's operational reconfiguration of its cultivation facility in Pennsylvania.
(d)d)
On February 4, 2022, more than 500 vape products were recalled by the Pennsylvania's Department of Health, including several of the Company'sTerrAscend's SKUs. As a result of the recall the CompanyTerrAscend recorded sales returns of $nil and $1,040 and write-downs of inventory of $1,071 and $1,925$854 for the three and six months ended June 30, 2022, respectively.March 31, 2022.
(e)e)
Represents non-cash share-based compensation expense.
(f)
Represents impairment charges taken on the Company's intangible assets and goodwill.
(g)
Represents loss taken on write-down of property and equipment.
(h)f)
Represents the revaluation of the Company’sTerrAscend’s contingent consideration liabilities.
(i)
Represents costs associated with executive severance and restructuring of business units.
(j)
Represents one-time legal settlement charges.
(k)g)
Includes one-time fees incurred in connection with the Company’sTerrAscend’s acquisitions, such as expenses related to professional fees, consulting, legal, settlements, and accounting, that would otherwise not have been incurred. In addition, includes one-time charges for Sarbanes Oxley implementation, as well as work completed in preparationAct of becoming a US filer.2022 implementation. These fees are not indicative of the Company’sTerrAscend’s ongoing costs.

33


(l)h)
Represents expenses associated with ERC transfer of assets with recourse.
i)
Represents loss taken as a result on the derecognition of right of use assets.
j)
Represents the (gain) loss on fair value of warrants, including effects of the foreign exchange of the USU.S. denominated preferred share warrants, as well as the revaluation of the fair value of the purchase option derivative asset.
(m)k)
Represents the reduction to the indemnification asset related to the Apothecarium tax audit settlement and statute expirations for tax years ended September 30, 2014 and September 30, 2015.
(n)l)
Represents impairment charges taken on TerrAscend's property and equipment, as well as write-downs of property and equipment.
m)
Represents unrealized and realized loss (gain)gain on fair value changes on strategic investments.
(o)n)
Represents the remeasurement of USD denominated cash and other assets recorded in C$ functional currency.

(p)

Represents accelerated depreciation taken in Maryland due to the move of the cultivation facility from Frederick and Hagerstown.

The decreaseincrease in Adjusted EBITDA from continuing operations for the three and six months ended June 30, 20222023 compared to the three and six months ended June 30, 20212022 was primarily due to lower volume and resulting gross margin compressionimplementation of adult use sales in Pennsylvania related to the Company's operational reconfiguration of its cultivation facility in Pennsylvania.New Jersey.

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, payable in cash, two promissory notes in an aggregate amount of $10,000, and stock. The transaction includes six retail dispensary licenses, five of which are currently operational and located in the cities of Addison, Buchanana, Camden, Edmore, and Morenci, Michigan. The Company intends to rebrand each of the dispensaries under either the Gage or Cookies retail brand. This transaction is pending approval.

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 requirerequires 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

40


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," includedother than the significant judgment relating to variable interest entities.

Variable interest entities

Management has applied significant judgment on the decision to consolidate its variable interest entity (“VIE”), TerrAscend Growth Corp.. The Company consolidates VIE when it has a variable interest that provide it with (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). Key areas of judgment related to the assessment of the purpose and design of the VIE, the protection agreement in place, the Annual Report on Form 10-K forboard structure of TerrAscend Growth Corp., and substantive kick-out rights of the year ended December 31, 2021, which was filed on March 17, 2022.Class A shareholders.

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,its initial public offering, (b) in which we have total annual gross revenue of $1.07$1.235 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 stockCommon Stock that is held by non-affiliates exceeds $700.0 million$700,000 as of the prior June 30th;30th; and (ii) the date on which the Company has issued more than $1.0 billion$1,000,000 in non-convertible debt during the prior three-year period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

34


There have been no material changes in the Company's primary risk exposures or management of market risks for the quarter ended June 30, 2022 from those disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company'sOur management, with the participation of its Presidentour Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company'sour 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, the Presidentour Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2022 the Company's2023 our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Companyus in the reports that it fileswe 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 the Company'sour management, including its Presidentour Chief Executive Officer 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 the Company'sour internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the six monthsquarter ended June 30, 2022,2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

41


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

In the ordinary course of business, TerrAscend is from time to time involved in various legal proceedings,a number of lawsuits incidental to its business, including litigation related to intellectual property, product liability, employment, and commercial matters. TerrAscendAlthough it is difficult to predict the ultimate outcome of these cases, management believes that none of the litigation in which it is currently involved in individually or in the aggregate, isany ultimate liability would not have a material to the Company’sadverse effect on TerrAscend's consolidated financial conditionbalance sheets or results of operations. ThereAt June 30, 2023, there were no pending lawsuits that could reasonably be expected to have been noa material changes toeffect on the Company's legal proceedings as previously disclosed in its Quarterly Report on Form 10-Q for the period ended March 31, 2022.results of TerrAscend's consolidated financial statements.

Item 1A. Risk Factors.

Investing in the Company'sour common stockshares involves a high degree of risk. For a detailed discussion of the risks that affect the Company's business, please referIn addition to the section titledother information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors described in Part I, Item 1.A. “Risk Factors” in the Company's 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 the Company's risk factors as previously disclosed in itsour Annual Report on Form 10-K forReport. We may disclose changes to risk factors or disclose additional factors from time to time in our future filings with the year ended December 31, 2021.SEC. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may impair our business operations.

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 June 30, 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.None.

Recent Sales of Unregistered

Item 3. Defaults Upon Senior 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.

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

35


Item 6. Exhibits.

Exhibit

 

 

 

Description of Exhibit Incorporated Herein by Reference

Filed

Number

 

Description

 

Form

File No.

Exhibit

Filing Date

Herewith

 

 

 

 

 

 

 

 

 

2.1*

 

Arrangement Agreement, dated October 8, 2018, by and among TerrAscend Corp., Canopy Growth Corporation, Canopy Rivers Corporation, JW Opportunities Master Fund, Ltd., JW Partners, LP and Pharmaceutical Opportunities Fund, LP.

 

10-12G

000-56363

2.1

11/2/2021

 

 

 

 

 

 

 

 

 

 

2.2*

 

Securities Purchase Agreement, dated February 10, 2019 by and among BTHHM Berkeley, LLC, PNB Noriega, LLC, V Products, LLC, certain limited liability company interest holders of each of the forgoing entities, Michael Thomsen and TerrAscend Corp. and WDB Holding CA, Inc.

 

10-12G

000-56363

2.2

11/2/2021

 

 

 

 

 

 

 

 

 

 

2.3*

 

Securities Purchase Agreement, dated February 10, 2019, by and among RHMT, LLC, Deep Thought, LLC, Howard Street Partners, LLC, certain limited liability company interest holders of each of the forgoing entities, Michael Thomsen, and TerrAscend Corp. and WDB Holding CA, Inc.

 

10-12G

000-56363

2.3

11/2/2021

 

 

 

 

 

 

 

 

 

 

2.4*

 

Securities Purchase and Exchange Agreement, dated August 1, 2019, by and among Ilera Holdings LLC, Mera I LLC, Mera II LLC, TerrAscend Corp., WDB Holding PA, Inc. and Osagie Imasogie.

 

10-12G

000-56363

2.4

11/2/2021

 

 

 

 

 

 

 

 

 

 

2.5*

 

Securities Purchase Agreement, dated February 10, 2019, by and among Gravitas Nevada Ltd, Verdant Nevada LLC, Green Achers Consulting Limited, TerrAscend Corp. and WDB Holding, NV, Inc.

 

10-12G

000-56363

2.5

11/2/2021

 

 

 

 

 

 

 

 

 

 

2.6*

 

Arrangement Agreement, dated August 31, 2021, by and between TerrAscend Corp. and Gage Growth Corp.

 

10-12G

000-56363

2.6

11/2/2021

 

2.7*

 

Membership Interest Purchase Agreement, dated August 31, 2021, by and between WDB Holdings MI, Inc. and 3 State Park, LLC, AEY Holdings, LLC, AEY Capital, LLC, AEY Thrive, LLC and Seller.

 

10-12G

000-56363

2.7

11/2/2021

 

 

 

 

 

 

 

 

 

 

2.8*

 

First Amendment to Membership Purchase Agreement, dated November 9, 2021, by and between WDB Holdings MI, Inc. and 3 State Park, LLC, AEY Holdings, LLC, AEY Capital, LLC, AEY Thrive, LLC and Seller.

 

10-12G/A

000-56363

2.8

12/22/2021

 

 

 

 

 

 

 

 

 

 

2.9

 

Amending Agreement, dated October 4, 2021, by and between TerrAscend Corp. and Gage Growth Corp.

 

10-12G

000-56363

2.9

11/2/2021

 

 

 

 

 

 

 

 

 

 

3.1

 

Articles of TerrAscend Corp., dated March 7, 2017

 

10-12G

000-56363

3.1

11/2/2021

 

 

 

 

 

 

 

 

 

 

3.2

 

Articles of Amendment to the Articles of TerrAscend Corp., dated November 30, 2018

 

10-12G/A

000-56363

3.2

12/22/2021

 

 

 

 

 

 

 

 

 

 

Exhibit

Description of Exhibit Incorporated Herein by Reference

Filed

Number

Description

Form

File No.

Exhibit

Filing Date

Herewith

3.1

Articles of TerrAscend Corp., dated March 7, 2017.

10-12G

000-56363

3.1

11/2/2021

3.2

Articles of Amendment to the Articles of TerrAscend Corp., dated November 30, 2018.

10-12G/A

000-56363

3.2

12/22/2021

3.3

Articles of Amendment to the Articles of TerrAscend Corp., dated May 22, 2020.

10-12G/A

000-56363

3.3

12/22/2021

3642


3.3

 

Articles of Amendment to the Articles of TerrAscend Corp., dated May 22, 2020.

 

10-12G/A

000-56363

3.3

12/22/2021

 

 

 

 

 

 

 

 

 

 

3.4

 

By-Laws of TerrAscend Corp., dated March 7, 2017

 

10-12G

000-56363

3.4

11/2/2021

 

 

 

 

 

 

 

 

 

 

10.1

 

Second Amendment to Membership Interest Purchase Agreement, dated March 8, 2022, by and between WDB Holdings MI, Inc. and 3 State Park, LLC, AEY Holdings, LLC, AEY Capital, LLC, AEY Thrive, LLC, Seller* and Gage Growth Corp.

 

 8-K

000-56363

10.1

 3/14/2022

 

 

 

 

 

 

 

 

 

 

10.2

 

Second Amendment to Arrangement Agreement, dated March 8, 2022, by and between TerrAscend Corp. and Gage Growth Corp.

 

 8-K

 000-56363

 10.2

  3/14/2022

 

 

 

 

 

 

 

 

 

 

10.3*

 

Debenture Agreement, dated March 10, 2020 by and between Canopy Growth and TerrAscend Canada, Inc.

 

10-K

000-56363

10.2

 3/17/2022

 

 

 

 

 

 

 

 

 

 

10.4

 

Credit Agreement, dated December 18, 2020, by and among WDB Holding PA, Inc., the lenders party thereto and Acquiom Agency Services LLC, as Administrative Agent.

 

10-K

000-56363

10.3

 3/17/2022

 

 

 

 

 

 

 

 

 

 

110.5

 

Credit Agreement, dated November 2, 2021, by and among Gage Growth Corp. and its subsidiaries, as Borrowers, and Chicago Atlantic Admin, LLC, as Administrative Agent and Collateral Agent

 

10-K

000-56363

10.21

3/17/2022

 

 

 

 

 

 

 

 

 

 

10.6*

 

Employment Agreement, dated May 23, 2022, by and between TerrAscend Corp. and Lynn Gefen

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

10.7

 

First Amendment to Credit Agreement, dated December 18, 2020, by and among WDB Holding PA, Inc., the lenders party thereto and Acquiom Agency Services LLC, as Administrative Agent

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

31.1*

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

X

31.2*

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

X

32.1*

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

X

32.2*

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

101.INS

 

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.

 

 

 

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

3.4

By-laws of TerrAscend Corp., dated March 7, 2017.

10-12G

000-56363

3.3

11/2/2021

4.1

Warrant Indenture.

8-K

000-56363

4.1

6/29/2023

10.1#

Subscription Agreement, dated April 20, 2023, by and between TerrAscend Growth Corp. and TerInvest LLC.

8-K/A

000-56363

10.1

4/26/2023

10.2#

Protection Agreement, dated April 20, 2023, by and between TerrAscend Growth Corp. and TerrAscend Corp.

8-K/A

000-56363

10.2

4/26/2023

10.3

Form of Subscription Agreement for Equity Offering.

8-K

000-56363

10.1

6/29/2023

10.4

Form of Subscription Agreement for Equity Offering with Registered Broker-Dealer.

8-K

000-56363

10.2

6/29/2023

10.5

Form of Subscription Agreement for Debenture Offering.

8-K

000-56363

10.3

6/29/2023

10.6

Form of Convertible Debenture.

8-K

000-56363

10.4

6/29/2023

10.7

Fifth Amendment to Credit Agreement, dated April 14, 2023 by and among WDB Holding PA, Inc., the lenders party thereto and Acquiom Agency Services LLC as Administrative Agent.

X

10.8

Sixth Amendment to Credit Agreement, dated June 22, 2023 by and among WDB Holding PA, Inc., the lenders party thereto and Acquiom Agency Services LLC as Administrative Agent.

X

10.9

Joinder, Third Amendment to Credit Agreement and Security Agreements and Consent, dated as of June 9, 2023, among WDB Holding MI, Inc., Gage Growth Corp., Gage Innovations Corp., Cookies Retail Canada Corp., other borrower and lender parties thereto, and Chicago Atlantic Admin, LLC, as administrative agent for the lenders and Chicago Atlantic, as collateral agent for the secured parties thereto.

X

10.10

First Amendment, dated April 17, 2023, by and among subsidiaries of TerrAscend Corp., TerrAscend NJ LLC, HMS Processing LLC, HMS Hagerstown, LLC, HMS Health, LLC, as Borrowers, and Pelorus Fund REIT, LLC, as Lender.

X

10.11

Second Amendment, dated June 22, 2023, by and among subsidiaries of TerrAscend Corp., TerrAscend NJ LLC, HMS Processing LLC, HMS Hagerstown, LLC, HMS Health, LLC, as Borrowers, and Pelorus Fund REIT, LLC, as Lender.

X

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

3743


32.1*

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

32.2*

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

101.INS

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.

X

101.SCH

Inline XBRL Taxonomy Extension Schema Document

X

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

X

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

X

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

X

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

X

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

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* This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of TerrAscend Corp. under the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

# Certain confidential information has been excluded fromportions of this exhibit have been omitted because it isthey are both (i) not material and (ii) would be competitively harmful if publicly disclosed.the type of information the Company treats as private or confidential.

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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.

Company NameTerrAscend Corp.

Date: August 11, 202210, 2023

By:

/s/ Ziad Ghanem

Ziad Ghanem

President and Chief OperatingExecutive Officer

(Principal Executive Officer)

Date: August 10, 2023

By:

/s/ Keith Stauffer

Keith Stauffer

Chief Financial Officer

(Principal Financial Officer)

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