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 endedSeptember 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 |
Suite 501 - East Tower Mississauga, Ontario |
|
(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/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 November 11, 2022,8, 2023, the registrant had 258,580,542287,270,514 shares of common stock,shares, $0.01 par value per share, outstanding.
Table of Contents
Page | ||
PART I. | 1 | |
Item 1. | 1 | |
1 | ||
2 | ||
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5 | ||
Notes to Unaudited Interim Condensed Consolidated Financial Statements |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. | 46 | |
Item 4. | 46 | |
Item 5. | 46 | |
Item 6. |
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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:
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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’s activities and products and in the areas of taxation and environmental protection;TerrAscend’s activities; (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; and (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.manner.
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, 2021,2022, filed with the Securities and Exchange Commission (the “SEC”) on March 17, 202216, 2023 and as amendedthis Quarterly Report on March 24, 2022 ("2021 Form 10-K").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 |
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| At |
| ||
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Assets |
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| ||
Current Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 25,410 |
|
| $ | 26,158 |
|
Restricted cash |
|
| 606 |
|
|
| 605 |
|
Accounts receivable, net |
|
| 15,004 |
|
|
| 22,443 |
|
Investments |
|
| 1,917 |
|
|
| 3,595 |
|
Inventory |
|
| 57,403 |
|
|
| 46,335 |
|
Assets held for sale |
|
| — |
|
|
| 17,349 |
|
Prepaid expenses and other current assets |
|
| 6,443 |
|
|
| 4,937 |
|
Current assets from discontinued operations |
|
| 431 |
|
|
| 571 |
|
|
|
| 107,214 |
|
|
| 121,993 |
|
Non-Current Assets |
|
|
|
|
|
| ||
Restricted cash, non-current |
|
| 2,500 |
|
|
| — |
|
Property and equipment, net |
|
| 199,398 |
|
|
| 215,812 |
|
Deposits |
|
| 426 |
|
|
| 837 |
|
Operating lease right of use assets |
|
| 44,497 |
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|
| 29,451 |
|
Intangible assets, net |
|
| 274,172 |
|
|
| 239,704 |
|
Goodwill |
|
| 105,615 |
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|
| 90,328 |
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Other non-current assets |
|
| 844 |
|
|
| 3,462 |
|
|
|
| 627,452 |
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|
| 579,594 |
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Total Assets |
| $ | 734,666 |
|
| $ | 701,587 |
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| ||
Liabilities and Shareholders' Equity |
|
|
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| ||
Current Liabilities |
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|
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| ||
Accounts payable and accrued liabilities |
| $ | 51,032 |
|
| $ | 44,286 |
|
Deferred revenue |
|
| 4,084 |
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|
| 2,935 |
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Loans payable, current |
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| 21,832 |
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|
| 48,335 |
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Contingent consideration payable, current |
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| 4,434 |
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|
| 5,184 |
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Operating lease liability, current |
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| 2,363 |
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|
| 1,857 |
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Lease obligations under finance leases, current |
|
| 2,006 |
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|
| 521 |
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Corporate income tax payable |
|
| 58,707 |
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|
| 23,077 |
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Other current liabilities |
|
| 798 |
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|
| 2,599 |
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Current liabilities from discontinued operations |
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| 1,124 |
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| 9,111 |
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| 146,380 |
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| 137,905 |
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Non-Current Liabilities |
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| ||
Loans payable, non-current |
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| 181,822 |
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| 145,852 |
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Operating lease liability, non-current |
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| 46,437 |
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| 31,545 |
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Lease obligations under finance leases, non-current |
|
| 571 |
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| 6,713 |
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Derivative liability |
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| 7,916 |
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|
| 711 |
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Convertible debt |
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| 7,062 |
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|
| — |
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Deferred income tax liability |
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| 38,253 |
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|
| 30,700 |
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Contingent consideration payable, non-current |
|
| 2,012 |
|
|
| — |
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Financing obligations |
|
| 893 |
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|
| 11,198 |
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Other long term liabilities |
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| 18,538 |
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|
| 15,792 |
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| 303,504 |
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|
| 242,511 |
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Total Liabilities |
|
| 449,884 |
|
|
| 380,416 |
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Commitments and Contingencies |
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Shareholders' Equity |
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Share Capital |
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Series A, convertible preferred stock, no par value, unlimited shares authorized; 12,350 and 12,608 shares outstanding as of September 30, 2023 and December 31, 2022, respectively |
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| — |
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| — |
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Series B, convertible preferred stock, no par value, unlimited shares authorized; 600 and 600 shares outstanding as of September 30, 2023 and December 31, 2022, respectively |
|
| — |
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|
| — |
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Series C, convertible preferred stock, no par value, unlimited shares authorized; nil and nil shares outstanding as of September 30, 2023 and December 31, 2022, respectively |
|
| — |
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|
| — |
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Series D, convertible preferred stock, no par value, unlimited shares authorized; nil and nil shares outstanding as of September 30, 2023 and December 31, 2022, respectively |
|
| — |
|
|
| — |
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Proportionate voting shares, no par value, unlimited shares authorized; nil and nil shares outstanding as of September 30, 2023 and December 31, 2022, respectively |
|
| — |
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|
| — |
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Exchangeable shares, no par value, unlimited shares authorized; 63,492,038 and 76,996,538 shares outstanding as of September 30, 2023 and December 31, 2022, respectively |
|
| — |
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|
| — |
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Common shares, no par value, unlimited shares authorized; 287,270,514 and 259,624,531 shares outstanding as of September 30, 2023 and December 31, 2022, respectively |
|
| — |
|
|
| — |
|
Additional paid in capital |
|
| 944,670 |
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|
| 934,972 |
|
Accumulated other comprehensive income |
|
| 1,610 |
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|
| 2,085 |
|
Accumulated deficit |
|
| (662,075 | ) |
|
| (618,260 | ) |
Non-controlling interest |
|
| 577 |
|
|
| 2,374 |
|
Total Shareholders' Equity |
|
| 284,782 |
|
|
| 321,171 |
|
Total Liabilities and Shareholders' Equity |
| $ | 734,666 |
|
| $ | 701,587 |
|
|
| At |
|
| At |
| ||
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Assets |
|
|
|
|
|
| ||
Current Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 34,288 |
|
| $ | 79,642 |
|
Restricted cash |
|
| 1,031 |
|
|
| — |
|
Accounts receivable, net |
|
| 17,937 |
|
|
| 14,920 |
|
Investments |
|
| 3,556 |
|
|
| — |
|
Inventory |
|
| 49,391 |
|
|
| 42,323 |
|
Prepaid Expenses and other current assets |
|
| 7,194 |
|
|
| 6,336 |
|
|
|
| 113,397 |
|
|
| 143,221 |
|
Non-Current Assets |
|
|
|
|
|
| ||
Property and equipment, net |
|
| 244,125 |
|
|
| 140,762 |
|
Deposits |
|
| 1,455 |
|
|
| 1,977 |
|
Operating lease right of use assets |
|
| 30,044 |
|
|
| 29,561 |
|
Intangible assets, net |
|
| 240,503 |
|
|
| 168,984 |
|
Goodwill |
|
| 90,326 |
|
|
| 90,326 |
|
Indemnification asset |
|
| — |
|
|
| 3,969 |
|
Other non-current assets |
|
| 5,638 |
|
|
| 3,134 |
|
|
|
| 612,091 |
|
|
| 438,713 |
|
Total Assets |
| $ | 725,488 |
|
| $ | 581,934 |
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|
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|
|
| ||
Liabilities and Shareholders' Equity |
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|
|
|
|
| ||
Current Liabilities |
|
|
|
|
|
| ||
Accounts payable and accrued liabilities |
| $ | 61,680 |
|
| $ | 30,340 |
|
Deferred revenue |
|
| 2,309 |
|
|
| 1,071 |
|
Loans payable, current |
|
| 75,305 |
|
|
| 8,837 |
|
Contingent consideration payable, current |
|
| 4,434 |
|
|
| 9,982 |
|
Operating lease liability, current |
|
| 1,582 |
|
|
| 1,171 |
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Lease obligations under finance leases, current |
|
| 369 |
|
|
| 22 |
|
Corporate income tax payable |
|
| 23,088 |
|
|
| 9,621 |
|
Other current liabilities |
|
| 3,575 |
|
|
| - |
|
|
|
| 172,342 |
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|
| 61,044 |
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Non-Current Liabilities |
|
|
|
|
|
| ||
Loans payable, non-current |
|
| 172,322 |
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|
| 176,306 |
|
Contingent consideration payable, non-current |
|
| 1,250 |
|
|
| 2,553 |
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Operating lease liability, non-current |
|
| 31,058 |
|
|
| 30,573 |
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Lease obligations under finance leases, non-current |
|
| 4,698 |
|
|
| 181 |
|
Warrant liability |
|
| 679 |
|
|
| 54,986 |
|
Deferred income tax liability |
|
| 40,414 |
|
|
| 14,269 |
|
Financing obligations |
|
| 11,408 |
|
|
| — |
|
Other long term liabilities |
|
| 12,495 |
|
|
| 13,068 |
|
|
|
| 274,324 |
|
|
| 291,936 |
|
Total Liabilities |
|
| 446,666 |
|
|
| 352,980 |
|
Commitments and Contingencies |
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|
|
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| ||
Shareholders' Equity |
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|
|
|
|
| ||
Share Capital |
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|
|
|
|
| ||
Series A, convertible preferred stock, no par value, unlimited shares authorized; 12,658 and 13,708 shares outstanding as of September 30, 2022 and December 31, 2021, respectively |
|
| — |
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|
| — |
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Series B, convertible preferred stock, no par value, unlimited shares authorized; 610 and 610 shares outstanding as of September 30, 2022 and December 31, 2021, respectively |
|
| — |
|
|
| — |
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Series C, convertible preferred stock, no par value, unlimited shares authorized; nil and 36 shares outstanding as of September 30, 2022 and December 31, 2021, respectively |
|
| — |
|
|
| — |
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Series D, convertible preferred stock, no par value, unlimited shares authorized; nil and nil shares outstanding as of September 30, 2022 and December 31, 2021, respectively |
|
| — |
|
|
| — |
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Proportionate voting shares, no par value, unlimited shares authorized; nil and nil shares outstanding as of September 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 September 30, 2022 and December 31, 2021, respectively |
|
| — |
|
|
| — |
|
Common stock, no par value, unlimited shares authorized; 257,860,852 and 190,930,800 shares outstanding as of September 30, 2022 and December 31, 2021, respectively |
|
| — |
|
|
| — |
|
Additional paid in capital |
|
| 877,298 |
|
|
| 535,418 |
|
Accumulated other comprehensive income (loss) |
|
| 1,694 |
|
|
| 2,823 |
|
Accumulated deficit |
|
| (605,336 | ) |
|
| (314,654 | ) |
Non-controlling interest |
|
| 5,166 |
|
|
| 5,367 |
|
Total Shareholders' Equity |
|
| 278,822 |
|
|
| 228,954 |
|
Total Liabilities and Shareholders' Equity |
| $ | 725,488 |
|
| $ | 581,934 |
|
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 Income (Loss)Loss
(Amounts expressed in thousands of United States dollars, except for share and per share amounts)
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| For the Three Months Ended |
|
| For the Nine Months Ended |
| |||||||||||||||||||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||||||||
Revenue |
| $ | 67,726 |
|
| $ | 50,537 |
|
| $ | 183,538 |
|
| $ | 169,010 |
|
| $ | 89,621 |
|
| $ | 66,567 |
|
| $ | 231,778 |
|
| $ | 179,848 |
| ||
Excise and cultivation tax |
|
| (701 | ) |
|
| (1,398 | ) |
|
|
| (2,050 | ) |
|
| (7,794 | ) |
|
| (381 | ) |
|
| (324 | ) |
|
|
| (1,016 | ) |
|
| (1,060 | ) |
Revenue, net |
|
| 67,025 |
|
|
| 49,139 |
|
|
| 181,488 |
|
|
| 161,216 |
|
|
| 89,240 |
|
|
| 66,243 |
|
|
| 230,762 |
|
|
| 178,788 |
| ||
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| ||||||||||||||||
Cost of Sales |
|
| 42,662 |
|
|
| 27,642 |
|
|
| 118,992 |
|
|
| 69,942 |
|
|
| 41,435 |
|
|
| 35,112 |
|
|
| 112,831 |
|
|
| 108,082 |
| ||
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Gross profit |
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| 24,363 |
|
|
| 21,497 |
|
|
| 62,496 |
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|
| 91,274 |
|
|
| 47,805 |
|
|
| 31,131 |
|
|
| 117,931 |
|
|
| 70,706 |
| ||
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Operating expenses: |
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General and administrative |
|
| 29,385 |
|
|
| 21,320 |
|
|
| 85,918 |
|
|
| 62,462 |
|
|
| 29,299 |
|
|
| 27,404 |
|
|
| 87,505 |
|
|
| 81,753 |
| ||
Amortization and depreciation |
|
| 3,032 |
|
|
| 1,947 |
|
|
| 8,666 |
|
|
| 5,664 |
|
|
| 2,664 |
|
|
| 2,600 |
|
|
| 6,935 |
|
|
| 7,356 |
| ||
Impairment of intangible assets |
|
| 152,928 |
|
|
| — |
|
|
| 152,928 |
|
|
| 3,633 |
|
|
| — |
|
|
| 152,928 |
|
|
| — |
|
|
| 152,928 |
| ||
Impairment of goodwill |
|
| 178,314 |
|
|
| — |
|
|
|
| 178,314 |
|
|
| 5,007 |
|
|
| — |
|
|
| 178,314 |
|
|
| — |
|
|
| 178,314 |
| |
Impairment of property and equipment |
|
| — |
|
|
| — |
|
|
|
| 345 |
|
|
| — |
| |||||||||||||||||
Total operating expenses |
|
| 363,659 |
|
|
| 23,267 |
|
|
| 425,826 |
|
|
| 76,766 |
|
|
| 31,963 |
|
|
| 361,246 |
|
|
| 94,785 |
|
|
| 420,351 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
(Loss) income from operations |
|
| (339,296 | ) |
|
| (1,770 | ) |
|
| (363,330 | ) |
|
| 14,508 |
| ||||||||||||||||||
Other expense (income) |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Revaluation of contingent consideration |
|
| 36 |
|
|
| (338 | ) |
|
| 189 |
|
|
| 2,652 |
| ||||||||||||||||||
Gain on fair value of warrants and purchase option derivative asset |
|
| (5,497 | ) |
|
| (69,016 | ) |
|
| (58,555 | ) |
|
| (43,715 | ) | ||||||||||||||||||
Income (loss) from operations |
|
| 15,842 |
|
|
| (330,115 | ) |
|
| 23,146 |
|
|
| (349,645 | ) | ||||||||||||||||||
Other (income) expense |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
(Gain) loss from revaluation of contingent consideration |
|
| (645 | ) |
|
| 36 |
|
|
| (645 | ) |
|
| 189 |
| ||||||||||||||||||
Loss (gain) on fair value of warrants and purchase option derivative assets |
|
| 3,217 |
|
|
| (5,497 | ) |
|
| 2,564 |
|
|
| (58,555 | ) | ||||||||||||||||||
Gain on disposal of fixed assets |
|
| (1,879 | ) |
|
| — |
|
|
| (1,879 | ) |
|
| — |
| ||||||||||||||||||
Finance and other expenses |
|
| 9,469 |
|
|
| 6,972 |
|
|
| 30,227 |
|
|
| 22,281 |
|
|
| 10,083 |
|
|
| 9,245 |
|
|
| 28,341 |
|
|
| 29,563 |
| ||
Transaction and restructuring costs |
|
| 1,359 |
|
|
| 1,034 |
|
|
| 2,601 |
|
|
| 1,466 |
|
|
| — |
|
|
| 343 |
|
|
| 392 |
|
|
| 1,585 |
| ||
Unrealized and realized foreign exchange loss (gain) |
|
| 586 |
|
|
| (1,256 | ) |
|
| 636 |
|
|
| 4,582 |
| ||||||||||||||||||
Unrealized and realized (gain) loss on investments |
|
| (231 | ) |
|
| — |
|
|
|
| 3 |
|
|
| (6,192 | ) | |||||||||||||||||
(Loss) income before provision from income taxes |
|
| (345,018 | ) |
|
| 60,834 |
|
|
| (338,431 | ) |
|
| 33,434 |
| ||||||||||||||||||
Provision for income taxes |
|
| (34,033 | ) |
|
| 4,999 |
|
|
|
| (25,602 | ) |
|
| 21,372 |
| |||||||||||||||||
Net (loss) income |
| $ | (310,985 | ) |
| $ | 55,835 |
|
|
| $ | (312,829 | ) |
| $ | 12,062 |
| |||||||||||||||||
Unrealized and realized foreign exchange (gain) loss |
|
| (43 | ) |
|
| 583 |
|
|
| (175 | ) |
|
| 624 |
| ||||||||||||||||||
Unrealized and realized loss (gain) on investments |
|
| 5 |
|
|
| (231 | ) |
|
|
| 2,365 |
|
|
| 3 |
| |||||||||||||||||
Income (loss) from continuing operations before provision for (benefit from) income taxes |
|
| 5,104 |
|
|
| (334,594 | ) |
|
| (7,817 | ) |
|
| (323,054 | ) | ||||||||||||||||||
Provision for (benefit from) income taxes |
|
| 13,543 |
|
|
| (34,033 | ) |
|
|
| 32,655 |
|
|
| (25,602 | ) | |||||||||||||||||
Net loss from continuing operations |
| $ | (8,439 | ) |
| $ | (300,561 | ) |
|
| $ | (40,472 | ) |
| $ | (297,452 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Discontinued operations: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Loss from discontinued operations, net of tax |
| $ | (232 | ) |
| $ | (10,424 | ) |
|
| $ | (4,444 | ) |
| $ | (15,377 | ) | |||||||||||||||||
Net loss |
| $ | (8,671 | ) |
| $ | (310,985 | ) |
|
| $ | (44,916 | ) |
| $ | (312,829 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Foreign currency translation |
|
| (2,758 | ) |
|
| 1,745 |
|
|
|
| 1,129 |
|
|
| (3,469 | ) |
|
| (280 | ) |
|
| (2,758 | ) |
|
|
| 475 |
|
|
| 1,129 |
|
Comprehensive (loss) income |
| $ | (308,227 | ) |
| $ | 54,090 |
|
|
| $ | (313,958 | ) |
| $ | 15,531 |
| |||||||||||||||||
Comprehensive loss |
| $ | (8,391 | ) |
| $ | (308,227 | ) |
|
| $ | (45,391 | ) |
| $ | (313,958 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net (loss) income attributable to: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net loss from continuing operations attributable to: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Common and proportionate Shareholders of the Company |
| $ | (313,212 | ) |
| $ | 54,428 |
|
| $ | (316,352 | ) |
| $ | 9,594 |
|
| $ | (10,601 | ) |
| $ | (302,788 | ) |
| $ | (46,963 | ) |
| $ | (300,975 | ) | ||
Non-controlling interests |
|
| 2,227 |
|
|
| 1,407 |
|
|
| 3,523 |
|
|
| 2,468 |
|
| $ | 2,162 |
|
| $ | 2,227 |
|
| $ | 6,491 |
|
| $ | 3,523 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Comprehensive (loss) income attributable to: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Comprehensive loss from continuing operations attributable to: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Common and proportionate Shareholders of the Company |
| $ | (310,454 | ) |
| $ | 52,683 |
|
| $ | (317,481 | ) |
| $ | 13,063 |
|
| $ | (10,553 | ) |
| $ | (310,454 | ) |
| $ | (51,882 | ) |
| $ | (317,481 | ) | ||
Non-controlling interests |
|
| 2,227 |
|
|
| 1,407 |
|
|
| 3,523 |
|
|
| 2,468 |
|
| $ | 2,162 |
|
| $ | 2,227 |
|
| $ | 6,491 |
|
| $ | 3,523 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net (loss) income per share, basic and diluted |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net (loss) income per share - basic |
| $ | (1.23 | ) |
| $ | 0.30 |
|
| $ | (1.32 | ) |
| $ | 0.05 |
| ||||||||||||||||||
Net loss per share |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net loss per share - basic: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Continuing operations |
| $ | (0.04 | ) |
| $ | (1.19 | ) |
| $ | (0.17 | ) |
| $ | (1.26 | ) | ||||||||||||||||||
Discontinued operations |
|
| — |
|
| $ | (0.04 | ) |
|
| $ | (0.02 | ) |
| $ | (0.06 | ) | |||||||||||||||||
Net loss per share - basic |
| $ | (0.04 | ) |
| $ | (1.23 | ) |
| $ | (0.19 | ) |
| $ | (1.32 | ) | ||||||||||||||||||
Weighted average number of outstanding common and proportionate voting shares |
|
| 254,355,792 |
|
|
| 184,438,592 |
|
|
| 239,567,866 |
|
|
| 179,441,224 |
|
|
| 287,072,972 |
|
|
| 254,355,792 |
|
|
| 276,562,869 |
|
|
| 239,567,866 |
| ||
Net (loss) income per share - diluted |
| $ | (1.23 | ) |
| $ | 0.25 |
|
|
| $ | (1.32 | ) |
| $ | 0.04 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net loss per share - diluted: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Continuing operations |
| $ | (0.04 | ) |
| $ | (1.19 | ) |
| $ | (0.17 | ) |
| $ | (1.26 | ) | ||||||||||||||||||
Discontinued operations |
|
| — |
|
| $ | (0.04 | ) |
|
| $ | (0.02 | ) |
| $ | (0.06 | ) | |||||||||||||||||
Net loss per share - diluted |
| $ | (0.04 | ) |
| $ | (1.23 | ) |
|
| $ | (0.19 | ) |
| $ | (1.32 | ) | |||||||||||||||||
Weighted average number of outstanding common and proportionate voting shares, assuming dilution |
|
| 254,355,792 |
|
|
| 214,134,641 |
|
|
|
| 239,567,866 |
|
|
| 214,756,569 |
|
|
| 287,072,972 |
|
|
| 254,355,792 |
|
|
|
| 276,562,869 |
|
|
| 239,567,866 |
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
2
TerrAscend Corp.
(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 |
|
| Accumulated deficit |
|
| Non-controlling interest |
|
| Total |
| ||||||||||
Balance at June 30, 2023 |
|
| 286,807,780 |
|
| 63,492,038 |
|
| 12,350 |
|
| 600 |
|
|
| 363,250,022 |
|
| $ | 944,259 |
|
| $ | 1,330 |
|
| $ | (653,623 | ) |
| $ | 1,966 |
|
| $ | 293,932 |
|
Shares issued - stock options, warrant and RSU exercises |
|
| 462,734 |
|
| — |
|
| — |
|
| — |
|
|
| 462,734 |
|
|
| 17 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17 |
|
Warrants issued for services performed |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| 1,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,000 |
|
Share-based compensation expense |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| 1,775 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,775 |
|
Options and warrants expired/forfeited |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| (2,381 | ) |
|
| — |
|
|
| 2,381 |
|
|
| — |
|
|
| — |
|
Capital distributions |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,551 | ) |
|
| (3,551 | ) |
Net loss for the period |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,833 | ) |
|
| 2,162 |
|
|
| (8,671 | ) |
Foreign currency translation |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 280 |
|
|
| — |
|
|
| — |
|
|
| 280 |
|
Balance at September 30, 2023 |
|
| 287,270,514 |
|
| 63,492,038 |
|
| 12,350 |
|
| 600 |
|
|
| 363,712,756 |
|
| $ | 944,670 |
|
| $ | 1,610 |
|
| $ | (662,075 | ) |
| $ | 577 |
|
| $ | 284,782 |
|
|
| 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 June 30, 2022 |
|
| 252,707,325 |
|
|
| 52,395,071 |
|
|
| 12,658 |
|
|
| 610 |
|
|
| 318,370,600 |
|
| $ | 889,961 |
|
| $ | (1,063 | ) |
|
| (315,132 | ) |
|
| 6,215 |
|
| $ | 579,981 |
|
Shares issued - stock option, warrant and RSU exercises |
|
| 253,140 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 253,140 |
|
|
| 36 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36 |
|
Shares issued - acquisitions |
|
| 4,803,184 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,803,184 |
|
|
| 7,926 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,926 |
|
Shares issued - liability settlement |
|
| 97,203 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 97,203 |
|
|
| 242 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 242 |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,705 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,705 |
|
Options expired/forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (23,008 | ) |
|
| — |
|
|
| 23,008 |
|
|
| — |
|
|
| — |
|
Capital contribution |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (564 | ) |
|
| — |
|
|
| — |
|
|
| (3,276 | ) |
|
| (3,840 | ) |
Net loss for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (313,212 | ) |
|
| 2,227 |
|
|
| (310,985 | ) |
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,757 |
|
|
| — |
|
|
| — |
|
|
| 2,757 |
|
Balance at September 30, 2022 |
|
| 257,860,852 |
|
|
| 52,395,071 |
|
|
| 12,658 |
|
|
| 610 |
|
|
| 323,524,127 |
|
| $ | 877,298 |
|
| $ | 1,694 |
|
| $ | (605,336 | ) |
| $ | 5,166 |
|
| $ | 278,822 |
|
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 |
|
| 856,658 |
|
| — |
|
| — |
|
| — |
|
|
| 856,658 |
|
|
| 98 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 98 |
|
Shares, options and warrants issued - acquisitions |
|
| 5,913,963 |
|
| — |
|
| — |
|
| — |
|
|
| 5,913,963 |
|
|
| 8,600 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,600 |
|
Shares, options and warrants issued - legal settlement |
|
| 532,185 |
|
| — |
|
| — |
|
| — |
|
|
| 532,185 |
|
|
| 794 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 794 |
|
Warrants issued for services performed |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| 1,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,000 |
|
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 |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| 5,469 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,469 |
|
Options and warrants expired/forfeited |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| (7,593 | ) |
|
| — |
|
|
| 7,593 |
|
|
| — |
|
|
| — |
|
Capital distributions |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,966 | ) |
|
| (6,966 | ) |
Acquisition of non-controlling interest |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| (6,177 | ) |
|
| — |
|
|
| — |
|
|
| (1,323 | ) |
|
| (7,500 | ) |
Net loss for the period |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (51,408 | ) |
|
| 6,492 |
|
|
| (44,916 | ) |
Foreign currency translation |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (475 | ) |
|
| — |
|
|
| — |
|
|
| (475 | ) |
Balance at September 30, 2023 |
|
| 287,270,514 |
|
| 63,492,038 |
|
| 12,350 |
|
| 600 |
|
|
| 363,712,756 |
|
| $ | 944,670 |
|
| $ | 1,610 |
|
| $ | (662,075 | ) |
| $ | 577 |
|
| $ | 284,782 |
|
Three 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 June 30, 2022 |
|
| 252,707,325 |
|
|
| 52,395,071 |
|
|
| 12,658 |
|
|
| 610 |
|
|
| — |
|
|
| — |
|
|
| 318,370,600 |
|
| $ | 889,961 |
|
| $ | (1,063 | ) |
|
| (315,132 | ) |
|
| 6,215 |
|
| $ | 579,981 |
|
Shares issued - stock option, warrant and RSU exercises |
|
| 253,140 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 253,140 |
|
|
| 36 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36 |
|
Shares issued- acquisitions |
|
| 4,803,184 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,803,184 |
|
|
| 7,926 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,926 |
|
Shares issued- liability settlement |
|
| 97,203 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 97,203 |
|
|
| 242 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 242 |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,705 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,705 |
|
Options and warrants expired/forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (23,008 | ) |
|
| — |
|
|
| 23,008 |
|
|
| — |
|
|
| — |
|
Capital distribution |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (564 | ) |
|
| — |
|
|
| — |
|
|
| (3,276 | ) |
|
| (3,840 | ) |
Net (loss) income for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (313,212 | ) |
|
| 2,227 |
|
|
| (310,985 | ) |
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,757 |
|
|
| — |
|
|
| — |
|
|
| 2,757 |
|
Balance at September 30, 2022 |
|
| 257,860,852 |
|
|
| 52,395,071 |
|
|
| 12,658 |
|
|
| 610 |
|
|
| — |
|
|
| — |
|
|
| 323,524,127 |
|
| $ | 877,298 |
|
| $ | 1,694 |
|
| $ | (605,336 | ) |
| $ | 5,166 |
|
| $ | 278,822 |
|
|
| 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, 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 |
|
| 9,589,868 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,589,868 |
|
|
| 25,779 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,779 |
|
Shares issued - acquisitions |
|
| 56,153,162 |
|
|
| 13,504,500 |
|
|
| — |
|
|
| — |
|
|
| 69,657,662 |
|
|
| 330,983 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 330,983 |
|
Shares issued - liability settlement |
|
| 101,203 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 101,203 |
|
|
| 264 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 264 |
|
Shares issued- conversion |
|
| 1,085,819 |
|
|
| — |
|
|
| (1,050 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,524 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,524 |
|
Options expired/forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (25,670 | ) |
|
| — |
|
|
| 25,670 |
|
|
| — |
|
|
| — |
|
Conversion of convertible debt |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Capital contribution |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,724 | ) |
|
| (3,724 | ) |
Net loss for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (316,352 | ) |
|
| 3,523 |
|
|
| (312,829 | ) |
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,129 | ) |
|
| — |
|
|
| — |
|
|
| (1,129 | ) |
Balance at September 30, 2022 |
|
| 257,860,852 |
|
|
| 52,395,071 |
|
|
| 12,658 |
|
|
| 610 |
|
|
| 323,524,127 |
|
| $ | 877,298 |
|
| $ | 1,694 |
|
| $ | (605,336 | ) |
| $ | 5,166 |
|
| $ | 278,822 |
|
|
| 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 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 |
|
Shares issued - stock option, warrant and RSU exercises |
|
| 134,954 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36 |
|
|
| — |
|
|
| 170,773 |
|
|
| 155 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 155 |
|
Shares issued - liability settlement |
|
| 3,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,000 |
|
|
| 23 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23 |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,178 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,178 |
|
Options expired/forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (494 | ) |
|
| — |
|
|
| 494 |
|
|
| — |
|
|
| — |
|
Investment in NJ partnership |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (48,594 | ) |
|
| — |
|
|
| — |
|
|
| (1,406 | ) |
|
| (50,000 | ) |
Capital contribution |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 557 |
|
|
| 557 |
|
Net (loss) income for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 54,428 |
|
|
| 1,407 |
|
|
| 55,835 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,745 | ) |
|
| — |
|
|
| — |
|
|
| (1,745 | ) |
Balance at September 30, 2021 |
|
| 184,540,757 |
|
|
| 38,890,571 |
|
|
| — |
|
|
| 13,708 |
|
|
| 610 |
|
|
| 36 |
|
|
| — |
|
|
| 237,784,695 |
|
| $ | 516,353 |
|
| $ | (193 | ) |
| $ | (308,453 | ) |
| $ | 5,038 |
|
| $ | 212,745 |
|
Nine 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 |
|
| 9,589,868 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,589,868 |
|
|
| 25,779 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,779 |
|
Shares, options and warrants issued- acquisitions |
|
| 56,153,162 |
|
|
| 13,504,500 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 69,657,662 |
|
|
| 330,983 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 330,983 |
|
Shares issued- liability settlement |
|
| 101,203 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 101,203 |
|
|
| 264 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 264 |
|
Shares issued- conversion |
|
| 1,085,819 |
|
|
| — |
|
|
| (1,050 | ) |
|
| — |
|
|
| (36 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,524 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,524 |
|
Options and warrants expired/forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (25,670 | ) |
|
| — |
|
|
| 25,670 |
|
|
| — |
|
|
| — |
|
Capital distribution |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,724 | ) |
|
| (3,724 | ) |
Net (loss) income for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (316,352 | ) |
|
| 3,523 |
|
|
| (312,829 | ) |
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,129 | ) |
|
| — |
|
|
| — | �� |
|
| (1,129 | ) |
Balance at September 30, 2022 |
|
| 257,860,852 |
|
|
| 52,395,071 |
|
|
| 12,658 |
|
|
| 610 |
|
|
| — |
|
|
| — |
|
|
| 323,524,127 |
|
| $ | 877,298 |
|
| $ | 1,694 |
|
| $ | (605,336 | ) |
| $ | 5,166 |
|
| $ | 278,822 |
|
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 |
|
| 3,782,457 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 123 |
|
|
| 1,315 |
|
|
| 5,219,569 |
|
|
| 33,323 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 33,323 |
|
Shares issued - acquisitions |
|
| 3,464,870 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,464,870 |
|
|
| 34,427 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 34,427 |
|
Shares issued - liability settlement |
|
| 8,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,000 |
|
|
| 80 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 80 |
|
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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,393 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,393 |
|
Options expired/forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (547 | ) |
|
| — |
|
|
| 547 |
|
|
| — |
|
|
| — |
|
Conversion of convertible debt |
|
| 1,284,221 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,284,221 |
|
|
| 5,656 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,656 |
|
Investment in NJ partnership |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (48,594 | ) |
|
| — |
|
|
| — |
|
|
| (1,406 | ) |
|
| (50,000 | ) |
Capital contribution |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 174 |
|
|
| 174 |
|
Net (loss) income for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,594 |
|
|
| 2,468 |
|
|
| 12,062 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,469 |
|
|
| — |
|
|
| — |
|
|
| 3,469 |
|
Balance at September 30, 2021 |
|
| 184,540,757 |
|
|
| 38,890,571 |
|
|
| — |
|
|
| 13,708 |
|
|
| 610 |
|
|
| 36 |
|
|
| — |
|
|
| 237,784,695 |
|
| $ | 516,353 |
|
| $ | (193 | ) |
| $ | (308,453 | ) |
| $ | 5,038 |
|
| $ | 212,745 |
|
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 Nine Months Ended |
| ||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Operating activities |
|
|
|
|
|
| ||
Net (loss) income | $ |
| (312,829 | ) | $ |
| 12,062 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities |
|
|
|
|
|
| ||
Non-cash write downs of inventory |
|
| 14,873 |
|
|
| 961 |
|
Accretion expense |
|
| 5,793 |
|
|
| 1,981 |
|
Depreciation of property and equipment and amortization of intangible assets |
|
| 19,241 |
|
|
| 11,250 |
|
Amortization of operating right-of-use assets |
|
| 1,513 |
|
|
| 1,289 |
|
Share-based compensation |
|
| 10,524 |
|
|
| 13,393 |
|
Deferred income tax recovery |
|
| (44,266 | ) |
|
| (682 | ) |
Loss on fair value of warrants and purchase option derivative |
|
| (58,555 | ) |
|
| (43,715 | ) |
Revaluation of contingent consideration |
|
| 189 |
|
|
| 2,652 |
|
Impairment of intangible assets |
|
| 152,928 |
|
|
| 3,633 |
|
Impairment of goodwill |
|
| 178,314 |
|
|
| 5,007 |
|
Loss on disposal of fixed assets |
|
| 848 |
|
|
| — |
|
Release of indemnification asset |
|
| 3,973 |
|
|
| 3,891 |
|
Forgiveness of loan principal and interest |
|
| — |
|
|
| (766 | ) |
Unrealized and realized foreign exchange loss |
|
| 636 |
|
|
| 4,582 |
|
Unrealized and realized loss (gain) on investments |
|
| 3 |
|
|
| (6,192 | ) |
Changes in operating assets and liabilities |
|
|
|
|
|
| ||
Receivables |
|
| 4,317 |
|
|
| 1,144 |
|
Inventory |
|
| (1,894 | ) |
|
| (10,450 | ) |
Prepaid expense and deposits |
|
| 721 |
|
|
| (523 | ) |
Deposits |
|
| 2,340 |
|
|
| (408 | ) |
Other assets |
|
| (1,522 | ) |
|
| (4,214 | ) |
Accounts payable and accrued liabilities and other payables |
|
| (9,530 | ) |
|
| (590 | ) |
Operating lease liability |
|
| (889 | ) |
|
| 3,750 |
|
Other liability |
|
| (9,627 | ) |
|
| (11,394 | ) |
Contingent consideration payable |
|
| (410 | ) |
|
| (14,978 | ) |
Corporate income tax payable |
|
| 9,451 |
|
|
| 305 |
|
Deferred revenue |
|
| 427 |
|
|
| — |
|
Net cash used in operating activities |
|
| (33,431 | ) |
|
| (28,012 | ) |
Investing activities |
|
|
|
|
|
| ||
Investment in property and equipment |
|
| (24,678 | ) |
|
| (26,706 | ) |
Investment in intangible assets |
|
| (1,330 | ) |
|
| (342 | ) |
Principal payments received on lease receivable |
|
| 394 |
|
|
| 559 |
|
Distributions of earnings from associates |
|
| — |
|
|
| 469 |
|
Deposits for property and equipment |
|
| (1,455 | ) |
|
| (1,739 | ) |
Deposits for business acquisition |
|
| (852 | ) |
|
| (25,000 | ) |
Payments made for land contracts |
|
| (888 | ) |
|
| — |
|
Net cash received on acquisition, net of cash paid |
|
| 16,227 |
|
|
| (42,736 | ) |
Net cash used in investing activities |
|
| (12,582 | ) |
|
| (95,495 | ) |
Financing activities |
|
|
|
|
|
| ||
Proceeds from options and warrants exercised |
|
| 24,158 |
|
|
| 14,042 |
|
Loan principal paid |
|
| (6,088 | ) |
|
| (2,250 | ) |
Loan amendment fee paid |
|
| (2,309 | ) |
|
| — |
|
Proceeds from loans payable |
|
| — |
|
|
| 766 |
|
Cash distributions to NJ partners |
|
| (1,436 | ) |
|
| — |
|
Capital contributions (paid) received (to) from non-controlling interests |
|
| (1,237 | ) |
|
| 174 |
|
Payments of contingent consideration |
|
| (6,630 | ) |
|
| (18,274 | ) |
Payments made for financing obligations |
|
| (921 | ) |
|
| — |
|
Proceeds from private placement, net of share issuance costs |
|
| — |
|
|
| 173,477 |
|
Net cash provided by financing activities |
|
| 5,537 |
|
|
| 167,935 |
|
Net (decrease) increase in cash and cash equivalents and restricted cash during the period |
|
| (40,476 | ) |
|
| 44,428 |
|
Net effects of foreign exchange |
|
| (3,847 | ) |
|
| (1,016 | ) |
Cash and cash equivalents and restricted cash, beginning of period |
|
| 79,642 |
|
|
| 59,226 |
|
Cash and cash equivalents and restricted cash, end of period | $ |
| 35,319 |
| $ |
| 102,638 |
|
|
|
|
|
|
|
| ||
Supplemental disclosure with respect to cash flows |
|
|
|
|
|
| ||
Income taxes paid | $ |
| 9,213 |
| $ |
| 37,032 |
|
Interest paid | $ |
| 20,643 |
| $ |
| 17,408 |
|
Lease termination fee paid | $ |
| 3,300 |
|
|
| - |
|
Non-cash transactions |
|
|
|
|
|
| ||
Equity and warrant liability issued as consideration for acquisition | $ |
| 337,739 |
| $ |
| 34,427 |
|
Promissory note issued as consideration for acquisitions | $ |
| 10,000 |
| $ |
| 6,750 |
|
Investment in NJ Partnership | $ |
| - |
| $ |
| 25,000 |
|
Shares issued for liability settlement | $ |
| 264 |
| $ |
| - |
|
Accrued capital purchases | $ |
| 12,118 |
| $ |
| 4,655 |
|
5
| For the Nine Months Ended |
| ||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||
Operating activities |
|
|
|
|
|
| ||
Net loss from continuing operations |
| $ | (40,472 | ) |
| $ | (297,452 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities |
|
|
|
|
|
| ||
Non-cash adjustments of inventory |
|
| 728 |
|
|
| 8,401 |
|
Accretion expense |
|
| 7,497 |
|
|
| 5,676 |
|
Depreciation of property and equipment and amortization of intangible assets |
|
| 15,179 |
|
|
| 17,578 |
|
Amortization of operating right-of-use assets |
|
| 1,630 |
|
|
| 1,513 |
|
Share-based compensation |
|
| 5,469 |
|
|
| 10,524 |
|
Deferred income tax expense |
|
| 1,099 |
|
|
| (44,266 | ) |
Loss (gain) on fair value of warrants and purchase option derivative |
|
| 2,564 |
|
|
| (58,555 | ) |
(Gain) loss on disposal of fixed assets |
|
| (1,534 | ) |
|
| 848 |
|
(Gain) loss from revaluation of contingent consideration |
|
| (645 | ) |
|
| 189 |
|
Impairment of intangible assets |
|
| — |
|
|
| 152,928 |
|
Impairment of goodwill |
|
| — |
|
|
| 178,314 |
|
Release of indemnification asset |
|
| — |
|
|
| 3,973 |
|
Unrealized and realized foreign exchange (gain) loss |
|
| (175 | ) |
|
| 624 |
|
Unrealized and realized loss on investments |
|
| 2,365 |
|
|
| 3 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
| ||
Receivables |
|
| (5,224 | ) |
|
| 2,769 |
|
Inventory |
|
| (10,750 | ) |
|
| (1,104 | ) |
Prepaid expense and other current assets |
|
| (808 | ) |
|
| 611 |
|
Deposits |
|
| 411 |
|
|
| 2,340 |
|
Other assets |
|
| 718 |
|
|
| (1,522 | ) |
Accounts payable and accrued liabilities and other payables |
|
| 7,395 |
|
|
| (11,706 | ) |
Operating lease liability |
|
| (1,566 | ) |
|
| (889 | ) |
Other liability |
|
| 1,542 |
|
|
| (9,627 | ) |
Contingent consideration payable |
|
| — |
|
|
| (410 | ) |
Corporate income tax payable |
|
| 35,140 |
|
|
| 9,451 |
|
Deferred revenue |
|
| 1,149 |
|
|
| 427 |
|
Net cash provided by (used in) operating activities- continuing operations |
|
| 21,712 |
|
|
| (29,362 | ) |
Net cash used in operating activities- discontinued operations |
|
| (3,660 | ) |
|
| (4,069 | ) |
Net cash provided by (used in) operating activities |
|
| 18,052 |
|
|
| (33,431 | ) |
|
|
|
|
|
|
| ||
Investing activities |
|
|
|
|
|
| ||
Investment in property and equipment |
|
| (6,224 | ) |
|
| (24,280 | ) |
Investment in intangible assets |
|
| (262 | ) |
|
| (1,330 | ) |
Principal payments received on lease receivable |
|
| — |
|
|
| 394 |
|
Receipt of convertible debenture payment |
|
| 738 |
|
|
| — |
|
Deposits for property and equipment |
|
| — |
|
|
| (1,455 | ) |
Deposits for business acquisition |
|
| — |
|
|
| (852 | ) |
Success fees related to Alternative Treatment Center license |
|
| (3,750 | ) |
|
| — |
|
Payment for land contracts |
|
| (1,047 | ) |
|
| (888 | ) |
Cash portion of consideration (received) paid in acquisitions, net of cash of acquired |
|
| (17,032 | ) |
|
| 16,227 |
|
Net cash used in investing activities- continuing operations |
|
| (27,577 | ) |
|
| (12,184 | ) |
Net cash provided by (used in) investing activities- discontinued operations |
|
| 14,285 |
|
|
| (398 | ) |
Net cash used in investing activities |
|
| (13,292 | ) |
|
| (12,582 | ) |
|
|
|
|
|
|
| ||
Financing activities |
|
|
|
|
|
| ||
Transfer of Employee Retention Credit |
|
| 12,677 |
|
|
| — |
|
Proceeds from loan payable, net of transaction costs |
|
| 23,869 |
|
|
| — |
|
Proceeds from options and warrants exercised |
|
| 81 |
|
|
| 24,158 |
|
Loan principal paid |
|
| (46,029 | ) |
|
| (6,088 | ) |
Loan amendment fee paid and prepayment premium paid |
|
| (1,178 | ) |
|
| (2,309 | ) |
Cash distributions to partners |
|
| (6,966 | ) |
|
| (1,436 | ) |
Capital contributions paid to non-controlling interests |
|
| — |
|
|
| (1,237 | ) |
Payments of contingent consideration |
|
| — |
|
|
| (6,630 | ) |
Proceeds from private placement, net of share issuance costs |
|
| 21,260 |
|
|
| — |
|
Payments made for financing obligations and finance lease |
|
| (1,158 | ) |
|
| (921 | ) |
Net cash provided by financing activities- continuing operations |
|
| 2,556 |
|
|
| 5,537 |
|
Net cash used in financing activities- discontinued operations |
|
| (5,539 | ) |
|
| — |
|
Net cash (used in) provided by financing activities |
|
| (2,983 | ) |
|
| 5,537 |
|
|
|
|
|
|
|
| ||
Net increase (decrease) in cash and cash equivalents and restricted cash during the period |
|
| 1,777 |
|
|
| (40,476 | ) |
Net effects of foreign exchange |
|
| (24 | ) |
|
| (3,847 | ) |
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 |
| $ | 28,516 |
|
| $ | 35,319 |
|
|
|
|
|
|
|
| ||
Supplemental disclosure with respect to cash flows |
|
|
|
|
|
| ||
Income taxes (refund received) paid |
| $ | (4,582 | ) |
| $ | 9,213 |
|
Interest paid |
| $ | 16,683 |
|
| $ | 20,643 |
|
Lease termination fee paid |
| $ | 217 |
|
| $ | 3,300 |
|
Non-cash transactions |
|
|
|
|
|
| ||
Equity and warrant liability issued as consideration for acquisition |
| $ | 8,600 |
|
| $ | 337,739 |
|
Warrant issued as consideration for services |
| $ | 1,000 |
|
| $ | — |
|
Promissory note issued as consideration for acquisitions |
| $ | 11,689 |
|
| $ | 10,000 |
|
Shares issued for legal and liability settlement |
| $ | 794 |
|
| $ | 264 |
|
Accrued capital purchases |
| $ | 936 |
|
| $ | 12,118 |
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
65
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 ("(“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; 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; 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 distributor of hemp-derived products.Francisco. Notwithstanding various states in the U.S. which have implemented medical marijuana laws, or which 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 Controlled Substances Act of 1970.
The
Effective July 4, 2023, the Company has been listedcommenced trading of its common shares on the Toronto Stock Exchange ("TSX"), under the ticker symbol "TSND". Beginning on May 3, 2017 until the Company's listing on the TSX, common shares of the Company were traded on the Canadian StockSecurities Exchange since May 3, 2017, having theunder ticker symbol "TER" and, effective October 22, 2018,. The common shares of the Company began trading on OTCQX on October 22, 2018 under the ticker symbol "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.
These unaudited interim condensed consolidated financial statements as of and for the three and nine months ended September 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 nine months ended September 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.
At September 30, 2022, the Company had cash and cash equivalents of $34,288. As reflected in theThe accompanying unaudited interim condensed consolidated financial statements have been prepared on the Company has incurred net lossesgoing concern basis, under the historical cost convention, except for certain financial instruments that are measured at fair value as described herein. At September 30, 2023, TerrAscend had an accumulated deficit of $662,075. During the three and nine months ended September 30, 20222023, TerrAscend incurred a net loss from continuing operations of $310,9858,439 and $312,82940,472, respectively, which primarily related to impairmentrespectively. Additionally, as of goodwill and intangible assets inSeptember 30, 2023 the Company’s current liabilities exceed its Michigan business (refer to Note 7), andcurrent assets. Therefore, the Company had negative cash flow from operating activities for the nine months ended September 30, 2022 of $33,431. Subsequentexpects that it may need additional capital to the quarter end, the Company entered into a senior secured term loan in an aggregate amount of $45,478 (refercontinue to Note 22 for further details about the loan). The Company has $55,000 of debt that becomes due on November 30, 2022 that the Company plans to refinance (refer to Note 8 for more information about the senior secured term loan that becomes due on November 30, 2022).fund its operations.
While the Company's cash flow and net losses for the nine months ended September 30, 2022 are
The aforementioned indicators that raise substantial doubt about whetherTerrAscend's ability to continue as a going concern for at least one year from the Company will be able to support its operations and meet its obligations in the near term, theissuance of these financial statements. The Company believes this concern is mitigated by steps to improve its operations and cash position, includingincluding: (i) identifying access to future capital required to meet the Company’s on-going obligations, (ii) continued salesimproved 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 actions that were implemented during the three months ended September 30, 2022 leading to generalcost and administrative expense reductions. If the Company is unable to refinance its debt obligations that become due November 30, 2022 and the efforts outlined above are ineffective, there could be a material adverse effect on the results of the Company's operations and financial condition.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 2021Company's 2022 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 2021Company's 2022 Form 10-K other than noted below.the new estimate disclosed in Note 3 of the financial statements.
(b) New standards, amendments and interpretations adopted
76
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 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 its operations in the United States and amended its share structure at TerrAscend (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.
Subsequent to the Reorganization, all operations in the United States have a functional currency of USD. Canadian operations continue to have a functional currency of CAD.
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 controlling 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 a 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 the 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, 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 June 2022,addition, given the Financialstructure 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 Accounting Standards BoardCodification ("FASB"ASC") issued ASU 2022-03, Fair value Measurement810 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 Equity Securities Subject to Contractual Sale Restrictions, which is intended to clarifythe 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 contractual sale restrictions are not considered in measuring equity securities at fair value. The ASU differentiates between (i) a restriction that is characteristic of a security (for whichconsolidated through the effect of the restriction is included in the equity security's fair value because it is a security-specific characteristic)VIE model include convertible debt, derivative liability and (2) a contractual sale restriction (for which the effect of the restriction is not included in the equity security's fair value because it is an entity-specific characteristic). The effective date for adoption is for fiscal years beginning after December 15, 2023 for public business entities, with early adoption permitted for both interimassets and annual financial statements.liabilities from discontinued operations. The Company early adopted this beginning in the interim period ending June 30, 2022 in order to increase the comparabilityalso consolidates a minimal amount of reported financialassets and liabilities within Canada, see Note 21 for more information.
|
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||||
Trade receivables |
| $ | 18,213 |
|
| $ | 14,684 |
|
| $ | 24,888 |
|
| $ | 14,786 |
|
Sales tax receivable |
|
| 454 |
|
|
| 358 |
|
|
| 6 |
|
|
| 277 |
|
Other receivables |
|
| 188 |
|
|
| 370 |
|
|
| 1,100 |
|
|
| 17,936 |
|
Provision for sales returns |
|
| (350 | ) |
|
| (157 | ) | ||||||||
Expected credit losses |
|
| (568 | ) |
|
| (335 | ) |
|
| (10,990 | ) |
|
| (10,556 | ) |
Total receivables, net |
| $ | 17,937 |
|
| $ | 14,920 |
|
| $ | 15,004 |
|
| $ | 22,443 |
|
Sales tax receivable represents input tax credits arising from sales tax levied on the supply of goods purchased or services received in Canada. Other receivables at September 30, 2022 and December 31, 2021 mainly include amounts due from the sellers of The Apothecarium.
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Trade receivables |
| $ | 18,213 |
|
| $ | 14,684 |
|
Less: provision for sales returns and expected credit losses |
|
| (918 | ) |
|
| (492 | ) |
Total trade receivables, net |
| $ | 17,295 |
|
| $ | 14,192 |
|
|
|
|
|
|
|
| ||
Of which |
|
|
|
|
|
| ||
Current |
|
| 6,158 |
|
|
| 13,282 |
|
31-90 days |
|
| 464 |
|
|
| 569 |
|
Over 90 days |
|
| 11,591 |
|
|
| 833 |
|
Less: provision for sales returns and expected credit losses |
|
| (918 | ) |
|
| (492 | ) |
Total trade receivables, net |
| $ | 17,295 |
|
|
| 14,192 |
|
The over 90 days aged balance relates mainly to one customer who has agreed to a payment plan and the Company has received payments in accordance with the payment plan subsequent to September 30, 2022.
The following is a roll-forward of the provision for sales returns and allowances related to trade accounts receivable:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Beginning of period |
| $ | 492 |
|
|
| 1,782 |
|
Provision for sales returns |
|
| 359 |
|
|
| 1,125 |
|
Expected credit losses |
|
| 607 |
|
|
| 357 |
|
Write-offs charged against provision |
|
| (512 | ) |
|
| (2,772 | ) |
Foreign currency translation adjustments |
|
| (28 | ) |
|
| - |
|
Total provision for sales returns and allowances |
| $ | 918 |
|
|
| 492 |
|
87
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)
AMMDFor 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 the $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 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 September 30, 2023, the lender has received refunds in the amount of $11,527. Subsequent to quarter end, the lender has received a further $1,739, and is awaiting receipt of the remaining refunds. Management has concluded that collection remains probable and no additional recourse obligation was recorded for the nine months ended September 30, 2023.
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Trade receivables |
| $ | 24,888 |
|
| $ | 14,786 |
|
Less: provision for sales returns and expected credit losses |
|
| (10,990 | ) |
|
| (10,556 | ) |
Total trade receivables, net |
| $ | 13,898 |
|
| $ | 4,230 |
|
|
|
|
|
|
|
| ||
Of which |
|
|
|
|
|
| ||
Current |
|
| 12,276 |
|
|
| 4,045 |
|
31-90 days |
|
| 1,492 |
|
|
| 614 |
|
Over 90 days |
|
| 11,120 |
|
|
| 10,127 |
|
Less: provision for sales returns and expected credit losses |
|
| (10,990 | ) |
|
| (10,556 | ) |
Total trade receivables, net |
| $ | 13,898 |
|
| $ | 4,230 |
|
The over 90 days aged balance relates mainly to one customer which was deemed uncollectible.
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 relatedentering into a long-term lease with the option to purchase 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.
Pinnacle
On August 23, 2022, in order to expand its retail footprint in Michigan, the Company acquired all of the outstanding equity interests in KISA Enterprises MI, LLC and KISA Holdings, LLC (collectively, "Pinnacle"), a dispensary operator in Michigan, and related real estate, for total consideration of $30,253, which included consideration paid in cash of $12,327, two promissory notes in an aggregate amount of $10,000, and 4,803,184 common shares of the Company, no par value ("Common Shares"), valued at $7,926. Subject to compliance with securities laws, the Common Shares are subject to a contractual lock-up with one-third of the securities vesting on each of the thirty, sixty and ninety days from the closing date of the transaction.estate. The cash consideration paid included repayments of indebtedness and transaction expenses on behalf of PinnacleAMMD of $3,913160 and $61929, respectively. The transaction includes six retail dispensary licenses, five of which are currently operational and located in the cities of Addison, Buchanan, Camden, Edmore, and Morenci, Michigan. The Company intends to rebrand each of the dispensaries under either the Gage or Cookies retail brand.
The terms of the agreement included earn-out consideration to Pinnacle equal to the greater of (i) two times net revenue of Pinnacle over the period commencing April 1, 2022 and continuing through and ending on September 30, 2022, or (ii) eight times EBITDA of Pinnacle over the same period, minus $28,500 for either case. If gross margin of Pinnacle is determined to be 90% or less of the gross margin for the six month period ended July 31, 2022, then the payment is calculated based solely on eight times EBITDA. The Company calculated the amount of this earn-out consideration to be $nil at both the closing date and at September 30, 2022.
The following table presents the fair value of assets acquired and liabilities assumed as of the August 23, 2022January 27, 2023 acquisition date and allocation of the consideration to net assets acquired:
| ||||
|
| |||
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| |||
|
| |||
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| |||
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| |||
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| |||
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|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
| |||
|
| |||
|
| |||
|
| |||
|
|
| ||
|
|
Cash and cash equivalents |
| $ | 20 |
|
Inventory |
|
| 303 |
|
Prepaid expense |
|
| 4 |
|
Operating right of use asset |
|
| 1,499 |
|
Fixed assets |
|
| 416 |
|
Intangible asset |
|
| 5,330 |
|
Goodwill |
|
| 6,151 |
|
Accounts payable and accrued liabilities |
|
| (366 | ) |
Deferred tax liability |
|
| (1,936 | ) |
Corporate income taxes payable |
|
| (291 | ) |
Operating lease liability |
|
| (1,499 | ) |
Net assets acquired |
| $ | 9,631 |
|
|
|
|
| |
Cash |
|
| 10,000 |
|
Working capital adjustment |
|
| (369 | ) |
Total consideration |
| $ | 9,631 |
|
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)
The acquired intangible assets include retail licenses,a medical license, which areis treated as a definite-lived intangible assetsasset and amortized over a 15 year30-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 September 30, 2022.2023. The fair value of the net assets acquired, specifically with respect to inventory, intangible assets, property and equipment, intangibleoperating right of use assets, lease liabilities, corporate income taxes payable, deferred tax liability, and goodwill hashave been determined
9
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
provisionally and isare 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. An adjustment was made to decrease intangible assets of $nil for the three months ended September 30, 2023 and of $620 for the nine months ended September 30, 2023 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 $117191, including legal, accounting, due diligence, and other transaction-related expenses,expenses. Of the total amount of transaction costs, $36 and $99were included in transactionrecorded during the nine months ended September 30, 2023 and restructuring costs in the consolidated statement of operations and comprehensive income (loss).2022, respectively.
On a standalone basis, had the Company acquired the business on January 1, 2022,2023, sales estimates would have been $19,0007,956 for the nine months ended September 30, 20222023 and net income estimates would have been -$$7,5332,716. Actual sales and net income for the nine months ended September 30, 20222023 since the date of acquisition are $2,7277,277 and $3292,472, 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 $15,394 exclusive of assumed financing obligations of $7,226. The consideration was comprised of 5,442,282 common shares of the Company, valued at $7,857 ("stock consideration"), a $3,646 secured promissory note at an interest rate of 7.25% maturing on June 28, 2026, and $1,234 in cash. The cash consideration paid included transaction expenses and repayments of indebtedness on behalf of Peninsula of $290 and $33, respectively.
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, processor and retailer 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 outstandingThe 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 thereconsideration was consideration in the form of 51,349,978 Common Shares valued at $242,884, 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 contractual lock-up agreements, which included a total of 23,988,758 Common Shares and 13,504,500 exchangeable share units ("Exchangeable Share Units"). Of these Common Shares and Exchangeable Share Units, 2,496,137 were not subject to contractual lock-up restrictions, 3,117,608 were subject to 3 months contractual lock-up restrictions; 11,828,458 were subject to 6 month contractual lock-up restrictions; 7,519,165 were subject to 12 month contractual lock-up restrictions; 5,012,776 were subject to 18 month contractual lock-up restrictions; 5,012,776 were subject to 24 month contractual lock-up restrictions; and 2,506,338 were subject to 30 month contractual lock-up restrictions. Of these Common Shares and Exchangeable Share Units, 10,467,229 Common Shares were subject to a statutory lock-up restriction of 6 month legalmonths, and, as such, a share restriction in which the restriction is a characteristic of the security, and thereforediscount was considered in determining the fair value of share consideration. As such, a restriction discountthe closing stock payment as at the transaction date. The Company guaranteed that if within 18 months from the transaction date of has been placed over the stock consideration, the aggregate gross proceeds resulting from the sales of the common shares subject to lock-upplus the aggregate value of the remaining common shares is less than $10,3239,000, the Company shall pay the difference ("Peninsula contingent consideration"). The fair value of the replacement options and warrantsPeninsula contingent consideration was calculated using the Black ScholesBlack-Scholes Option Pricing Model ("Black ScholesBlack-Scholes 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, 2022June 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 |
|
| 840 |
|
Accounts payable and accrued liabilities |
|
| (829 | ) |
Loans payable |
|
| (7,226 | ) |
Operating lease liability |
|
| (1,168 | ) |
Net assets acquired |
| $ | 15,394 |
|
|
|
|
| |
Cash |
|
| 1,234 |
|
Common shares of TerrAscend |
|
| 7,857 |
|
Loans payable |
|
| 3,646 |
|
Contingent consideration |
|
| 2,657 |
|
Total consideration |
| $ | 15,394 |
|
109
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)
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The acquired intangible assets include cultivation and processing licenses, as well as retail licenses,a license, which areis treated as a definite-lived intangible assetsasset and are amortized over a 15 year30-year period. The fair value of the cultivation and processing and the retail licenses are $81,862 and $56,665, 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 $77,185.
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 September 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 three months ended September 30, 2023, an adjustment was made to reflect the the fair market value of the contingent consideration which resulted in an increase to goodwill at June 28, 2023.
During the three months ended September 30, 2023, the following adjustments were made to the provisional amounts:
Costs related to this transaction were $623, including legal, accounting, due diligence, and other transaction-related expenses and were recorded during the nine months ended September 30, 2023.
On a standalone basis, had the Company acquired the business on January 1, 2023, sales estimates would have been $12,587 for the nine months ended September 30, 2023 and net income estimates would have been $2,574. Actual sales and net loss for the nine months ended September 30, 2023 since the date of acquisition are $5,800 and $1,512, 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 $6,535, comprised of a promissory note of $3,109 at an interest rate of 7.0% maturing on June 30, 2027 and $3,426 in cash. 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 |
|
| 5,530 |
|
Goodwill |
|
| 3,803 |
|
Deferred tax liability |
|
| (1,952 | ) |
Accounts payable and accrued liabilities |
|
| (679 | ) |
Operating lease liability |
|
| (2,325 | ) |
Other long term liabilities |
|
| (593 | ) |
Net assets acquired |
| $ | 6,535 |
|
|
|
|
| |
Cash |
|
| 3,426 |
|
Loans payable |
|
| 3,109 |
|
Total consideration |
| $ | 6,535 |
|
10
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 acquired intangible assets include a 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 September 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, other long term liabilities, 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 three months ended September 30, 2022,2023, the following adjustments were made to the provisional amounts:
Costs related to this transaction were $401, including legal, accounting, due diligence, and other transaction-related expenses and were recorded during the nine months ended September 30, 2023.
On a standalone basis, had the Company acquired the business on January 1, 2023, sales estimates would have been $3,813 for the nine months ended September 30, 2023 and net income estimates would have been $778. Actual sales and net loss for the nine months ended September 30, 2023 since the date of acquisition are $1,815 and $406, respectively.
Herbiculture
On July 10, 2023, the Company closed the acquisition of Herbiculture Inc. (“Herbiculture”), a dispensary in Maryland. Under the terms of the agreement, the Company acquired 100% of the equity interest in Herbiculture for total consideration of $7,695, comprised of $2,761 in cash, and a promissory note of $4,934 at an interest rate of 10.50% per annum maturing on June 30, 2026. The cash consideration paid included transaction expenses and repayments of indebtedness on behalf of Herbiculture which were $616 and $1,674, respectively.
The following table presents the fair value of assets acquired and liabilities assumed as of the July 10, 2023 acquisition date and allocation of the consideration to net assets acquired:
Inventory |
| $ | 140 |
|
Prepaid expense |
|
| 111 |
|
Accounts receivable |
|
| 10 |
|
Fixed assets |
|
| 231 |
|
Operating right of use asset |
|
| 1,458 |
|
Intangible asset |
|
| 7,580 |
|
Goodwill |
|
| 4,603 |
|
Deferred tax liability |
|
| (2,676 | ) |
Accounts payable and accrued liabilities |
|
| (648 | ) |
Corporate income taxes payable |
|
| (199 | ) |
Operating lease liability |
|
| (1,458 | ) |
Other long term liabilities |
|
| (1,457 | ) |
Net assets acquired |
| $ | 7,695 |
|
|
|
|
| |
Cash |
|
| 2,761 |
|
Loans payable |
|
| 4,934 |
|
Total consideration |
| $ | 7,695 |
|
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)
•
The consideration paid reflected the synergies, economies of scale, and increase prepaid expenses and other assets to better reflectworkforce. These benefits were not recognized separately from goodwill because they do not meet the naturerecognition criteria for identifiable intangible assets. None of the accounts.
The accounting for this acquisition has been provisionally determined at September 30, 2023. The fair value of net assets acquired, specifically with respect to inventory, intangible assets, operating right of use asset, accounts payableassets, lease liabilities, deferred tax liability, other long term liabilities, and accrued liabilities, operatinggoodwill have been determined provisionally and finance lease liability, financing obligations,are subject to adjustment. Upon completion of a comprehensive valuation and other liabilities, resultingfinalization of the purchase price allocation, the amounts above may be adjusted retrospectively to the acquisition date in a decrease to goodwill.
Costs related to this transaction were $3,680786, including legal, accounting, due diligence, and other transaction-related expenses. Of the total amount of transaction costs, $1,040 wasexpenses and were recorded during the nine months ended September 30, 2022, and was included in transaction and restructuring costs in the consolidated statement of operations and comprehensive income.2023.
On a standalone basis, had the Company acquired the business on January 1, 2022,2023, sales estimates would have been $57,8642,459 for the nine months ended September 30, 20222023 and net lossincome estimates would have been $($314,365110). Actual sales and net loss for the nine months ended September 30, 20222023 since the date of acquisition are $45,348603 and $($305,15482), respectively.
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 |
|
| Pinnacle |
|
| Peninsula |
|
| Total |
| |||||
Carrying amount, December 31, 2022 |
| $ | 1,406 |
|
| $ | 3,028 |
|
| $ | 750 |
|
| $ | — |
|
| $ | 5,184 |
|
Amount recognized on acquisition |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,657 |
|
|
| 2,657 |
|
Payments of contingent consideration |
|
| — |
|
|
| — |
|
|
| (750 | ) |
|
| — |
|
|
| (750 | ) |
Gain on revaluation of contingent consideration |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (645 | ) |
|
| (645 | ) |
Carrying amount, September 30, 2023 |
| $ | 1,406 |
|
| $ | 3,028 |
|
| $ | — |
|
| $ | 2,012 |
|
| $ | 6,446 |
|
Less: current portion |
|
| (1,406 | ) |
|
| (3,028 | ) |
|
| — |
|
|
| — |
|
|
| (4,434 | ) |
Non-current contingent consideration |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 2,012 |
|
| $ | 2,012 |
|
|
| State Flower |
|
| Apothecarium |
|
| KCR |
|
| Total |
| ||||
Carrying amount, December 31, 2021 |
| $ | 8,360 |
|
| $ | 3,028 |
|
| $ | 1,147 |
|
| $ | 12,535 |
|
Payments of contingent consideration |
|
| (7,040 | ) |
|
| — |
|
|
| — |
|
|
| (7,040 | ) |
Revaluation of contingent consideration |
|
| 86 |
|
|
| — |
|
|
| 103 |
|
|
| 189 |
|
Carrying amount, September 30, 2022 |
| $ | 1,406 |
|
| $ | 3,028 |
|
| $ | 1,250 |
|
| $ | 5,684 |
|
Less: current portion |
|
| (1,406 | ) |
|
| (3,028 | ) |
|
| — |
|
|
| (4,434 | ) |
Non-current contingent consideration |
| $ | - |
|
| $ | - |
|
| $ | 1,250 |
|
| $ | 1,250 |
|
During the nine months ended September 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 September 30, 2022, and the changes in fair value during the nine months ended September 30, 2022.stock purchase agreement.
The Company’s inventory of dry cannabis and oilcannabis derived products includes both purchased and internally produced inventory. The Company’s inventory is comprised of the following items:
|
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||||
Raw materials |
| $ | 6,826 |
|
| $ | 3,185 |
|
| $ | 1,689 |
|
| $ | 1,181 |
|
Finished goods |
|
| 11,314 |
|
|
| 8,721 |
|
|
| 23,027 |
|
|
| 15,280 |
|
Work in process |
|
| 27,704 |
|
|
| 26,852 |
|
|
| 29,211 |
|
|
| 26,406 |
|
Accessories, supplies and consumables |
|
| 3,547 |
|
|
| 3,565 |
|
|
| 3,476 |
|
|
| 3,468 |
|
|
| $ | 49,391 |
|
| $ | 42,323 |
|
| $ | 57,403 |
|
| $ | 46,335 |
|
The Company adjusted inventory by $728 during the nine months ended September 30, 2023primarily due to defective cartridges.
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)
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 $nil and $1,925 of inventory during the three and nine months ended September 30, 2022, respectively.
12
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
In addition, management wrote down its inventory by $6,378nil and $12,9486,570 for the three and nine months ended September 30, 2022, respectively, and $388 and $1,087 for the three and nine months ended September 30, 2021.respectively. The inventory write-downs in the three months ended September 30, 2022 primarily related to inventory the Company deemed unsaleable in its business in Canada. Additionally, the remaining impairment taken during the nine months ended September 30, 2022 waswere 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. The inventory write-downs in the prior year period were related to unsaleable disposable vape pens with faulty batteries as well as inventory in Canada that the Company deemed unsaleable.
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:
| September 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 |
| 431 |
|
|
| 571 |
|
Current assets from discontinued operations | $ | 431 |
|
| $ | 571 |
|
|
|
|
|
|
| ||
Accounts payable and accrued liabilities | $ | 1,124 |
|
| $ | 3,747 |
|
Loans payable |
| — |
|
|
| 5,364 |
|
Current liabilities from discontinued operations | $ | 1,124 |
|
| $ | 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 Nine Months Ended |
| ||||||||||||
| September 30, 2023 |
|
| September 30, 2022 |
|
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
| — |
|
| $ | 1,159 |
|
|
|
| — |
|
| $ | 3,690 |
|
Excise and cultivation tax |
| — |
|
|
| (377 | ) |
|
|
| — |
|
|
| (990 | ) |
Revenue, net |
| — |
|
|
| 782 |
|
|
|
| — |
|
|
| 2,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of Sales |
| — |
|
|
| 7,550 |
|
|
|
| — |
|
|
| 10,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross profit |
| — |
|
|
| (6,768 | ) |
|
|
| — |
|
|
| (8,210 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and administrative |
| 144 |
|
|
| 1,981 |
|
|
|
| 900 |
|
|
| 4,165 |
|
Amortization and depreciation |
| — |
|
|
| 432 |
|
|
|
| 48 |
|
|
| 1,310 |
|
Impairment of property and equipment |
| — |
|
|
| — |
|
|
|
| 3,036 |
|
|
| — |
|
Total operating expenses |
| 144 |
|
|
| 2,413 |
|
|
|
| 3,984 |
|
|
| 5,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loss from discontinued operations |
| (144 | ) |
|
| (9,181 | ) |
|
|
| (3,984 | ) |
|
| (13,685 | ) |
Other expense |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Finance and other expenses |
| 88 |
|
|
| 1,243 |
|
|
|
| 460 |
|
|
| 1,692 |
|
Net loss from discontinued operations | $ | (232 | ) |
| $ | (10,424 | ) |
|
| $ | (4,444 | ) |
| $ | (15,377 | ) |
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)
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 (USD $14,285). Net proceeds have been applied to pay down existing Company debt.
Property and equipment consisted of:
|
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||||
Land |
| $ | 7,762 |
|
| $ | 4,183 |
|
| $ | 6,072 |
|
| $ | 6,512 |
|
Assets in process |
|
| 29,574 |
|
|
| 6,858 |
|
|
| 27,117 |
|
|
| 28,416 |
|
Buildings & improvements |
|
| 185,563 |
|
|
| 118,014 |
|
|
| 150,813 |
|
|
| 154,742 |
|
Machinery & equipment |
|
| 30,492 |
|
|
| 23,424 |
|
|
| 33,877 |
|
|
| 30,973 |
|
Office furniture & equipment |
|
| 8,492 |
|
|
| 3,232 |
|
|
| 9,011 |
|
|
| 7,576 |
|
Assets under finance leases |
|
| 4,760 |
|
|
| 239 |
|
|
| 2,529 |
|
|
| 7,277 |
|
Total cost |
|
| 266,643 |
|
|
| 155,950 |
|
|
| 229,419 |
|
|
| 235,496 |
|
Less: accumulated depreciation |
|
| (22,518 | ) |
|
| (15,188 | ) |
|
| (30,021 | ) |
|
| (19,684 | ) |
Property and equipment, net |
| $ | 244,125 |
|
| $ | 140,762 |
|
| $ | 199,398 |
|
| $ | 215,812 |
|
Assets in process primarily represent construction in progress related to both cultivation and dispensary facilities not yet completed, or otherwise not placed in service.
During the nine months endedAs of September 30, 20222023 and the twelve months ended December 31, 2021,2022, borrowing costs were not capitalized because the assets in process did not meet the criteria of a qualifying asset.
Depreciation expense was $2,481 and $9,133 for the three and nine months ended September 30, 2023, respectively ($2,029 and $6,069 included in cost of sales) and $3,0062,710 and $8,5197,630 for the three and nine months ended September 30, 2022, respectively ($2,5382,420 and $5,9445,591, respectively, were included in cost of sales) and $2,144 and $5,915 for the three and nine months ended September 30, 2021, respectively ($1,503 and $3,728, respectively, were included in cost of sales).
Intangible assets consisted of the following:
At September 30, 2022 |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| |||||||||||||||
At September 30, 2023 |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| |||||||||||||||
Finite lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Software |
| $ | 2,677 |
|
| $ | (1,985 | ) |
| $ | 692 |
|
| $ | 1,185 |
|
| $ | (678 | ) |
| $ | 507 |
|
Licenses |
|
| 172,593 |
|
|
| (16,166 | ) |
|
| 156,427 |
|
|
| 215,178 |
|
|
| (24,270 | ) |
|
| 190,908 |
|
Brand intangibles |
|
| 1,144 |
|
|
| (540 | ) |
|
| 604 |
|
|
| 1,144 |
|
|
| (1,144 | ) |
|
| — |
|
Non-compete agreements |
|
| 280 |
|
|
| (257 | ) |
|
| 23 |
|
|
| 280 |
|
|
| (280 | ) |
|
| — |
|
Total finite lived intangible assets |
|
| 176,694 |
|
|
| (18,948 | ) |
|
| 157,746 |
|
|
| 217,787 |
|
|
| (26,372 | ) |
|
| 191,415 |
|
Indefinite lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Brand intangibles |
|
| 82,757 |
|
|
| — |
|
|
| 82,757 |
|
|
| 82,757 |
|
|
| — |
|
|
| 82,757 |
|
Total indefinite lived intangible assets |
|
| 82,757 |
|
|
| — |
|
|
| 82,757 |
|
|
| 82,757 |
|
|
| — |
|
|
| 82,757 |
|
Intangible assets, net |
| $ | 259,451 |
|
| $ | (18,948 | ) |
| $ | 240,503 |
|
| $ | 300,544 |
|
| $ | (26,372 | ) |
| $ | 274,172 |
|
1314
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)
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 |
|
Amortization expense was $2,878 and $5,987 for the three and nine months ended September 30, 2023, respectively ($725 and $2,175 included in cost of sales) and $4,1043,968 and $10,72210,301 for the three and nine months ended September 30, 2022, respectively ($1,555 and $4,631, respectively, were included in cost of sales) and $2,056 and $5,335 for the three and nine months ended September 30, 2021, respectively ($750 and $1,858, respectively, were included in cost of sales).
Estimated future amortization expense for finite lived intangible assets for the next five years is as follows:
2022 |
| $ | 2,166 |
| ||||
2023 |
| $ | 7,594 |
| ||||
Remainder of 2023 |
| $ | 2,220 |
| ||||
2024 |
| $ | 7,167 |
|
|
| 8,890 |
|
2025 |
| $ | 6,768 |
|
|
| 8,624 |
|
2026 |
| $ | 6,780 |
|
|
| 8,609 |
|
2027 |
|
| 8,529 |
|
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) |
|
| 160,201 |
|
Measurement period adjustment (see Note 4) |
|
| 18,113 |
|
Impairment of goodwill |
|
| (178,314 | ) |
Balance at September 30, 2022 |
| $ | 90,326 |
|
Balance at December 31, 2022 |
| $ | 90,328 |
|
Additions at acquisition date |
|
| 13,607 |
|
Measurement period adjustment |
|
| 1,680 |
|
Balance at September 30, 2023 |
| $ | 105,615 |
|
Impairment of Intangible Assets
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||
Finite lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Software |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 9 |
|
Licenses |
|
| 133,728 |
|
|
| — |
|
|
| 133,728 |
|
|
| — |
|
Customer Relationships |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,000 |
|
Non-compete agreements |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 224 |
|
Total impairment of finite lived intangible assets |
|
| 133,728 |
|
|
| — |
|
|
| 133,728 |
|
|
| 2,233 |
|
Indefinite lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Brand intangibles |
|
| 19,200 |
|
|
| — |
|
|
| 19,200 |
|
|
| 1,400 |
|
Total impairment of indefinite lived intangible assets |
|
| 19,200 |
|
|
| — |
|
|
| 19,200 |
|
|
| 1,400 |
|
Total impairment of intangible assets |
| $ | 152,928 |
|
| $ | - |
|
| $ | 152,928 |
|
| $ | 3,633 |
|
|
| Ilera Term Loan |
|
| Stearns Loan |
|
| Gage Loans |
|
| Pinnacle Loans |
|
| Pelorus Term Loan |
|
| Maryland Acquisition Loans |
|
| IHC Note Payable |
|
| Class A Share Gage Growth Corp |
|
| Total |
| |||||||||
Balance at December 31, 2022 |
| $ | 110,850 |
|
| $ | — |
|
| $ | 29,976 |
|
| $ | 9,333 |
|
| $ | 44,028 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 194,187 |
|
Loan principal, net of transaction costs |
|
|
|
|
| 23,856 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18,929 |
|
|
| 7,500 |
|
|
| 1,000 |
|
|
| 51,285 |
| |
Loan amendment fee / Prepayment penalty |
|
| (2,328 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,328 | ) |
Interest and accretion |
|
| 12,444 |
|
|
| 887 |
|
|
| 3,267 |
|
|
| 426 |
|
|
| 5,349 |
|
|
| 567 |
|
|
| 282 |
|
|
| — |
|
|
| 23,222 |
|
Principal and interest paid |
|
| (43,893 | ) |
|
| (765 | ) |
|
| (5,358 | ) |
|
| (4,125 | ) |
|
| (4,983 | ) |
|
| (806 | ) |
|
| (2,782 | ) |
|
| — |
|
|
| (62,712 | ) |
Effects of movements in foreign exchange |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| - |
|
Ending carrying amount at September 30, 2023 |
|
| 77,073 |
|
|
| 23,978 |
|
|
| 27,885 |
|
|
| 5,634 |
|
|
| 44,394 |
|
|
| 18,690 |
|
|
| 5,000 |
|
|
| 1,000 |
|
|
| 203,654 |
|
Less: current portion |
|
| (4,082 | ) |
|
| (417 | ) |
|
| (3,864 | ) |
|
| (5,634 | ) |
|
| (577 | ) |
|
| (2,258 | ) |
|
| (5,000 | ) |
|
| — |
|
|
| (21,832 | ) |
Non-current loans payable |
| $ | 72,991 |
|
| $ | 23,561 |
|
| $ | 24,021 |
|
| $ | — |
|
| $ | 43,817 |
|
| $ | 16,432 |
|
| $ | — |
|
| $ | 1,000 |
|
| $ | 181,822 |
|
Total interest paid on all loan payables was $
Long-lived assets7,424 and $16,683 for the three and nine months ended September 30, 2023, respectively, and $5,890 and $20,294 for the three and nine months ended September 30, 2022, respectively. The current portion of loans payable included $3,384 of interest payable as of September 30, 2023.
The Company evaluates the recoverability of long-lived assets, including definite lived intangible assets, whether events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company determined that changes in market
1415
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)
expectationsIlera Term Loan
On 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 cash flows in its Michigan business, as well as increased competition and supply in the state, were indicators that an impairment test was appropriate.debt.
Stearns Loan
The impairment test for long-lived assets is a two-step test, whereby management first determines the recoverable amount by calculating the undiscounted cash flows of each asset group. If the recoverable amount is lower than the carrying value of the asset group, then impairment is indicated. The Company then determines the fair value of the asset group and allocates the impairment to the assets, being the (i) cultivation and processing licenses, and (ii) retail licenses, acquired through the Gage Acquisition. The Company compared the carrying value of the assets to its fair value and determined that the carrying value exceeded the fair value for both the retail and the cultivation and processing licenses. As such,On June 26, 2023, the Company recorded impairment ofclosed on a $78,99825,000 commercial loan with Stearns Bank, secured by the Company's cultivation facility in Pennsylvania and $54,730 for the cultivation and processing licenses and retail licenses, respectively, reducing both the carrying values to $nil.
The fair value of each asset group was determined using cash flows expected to be generated by market participants, discounted at a weighted average cost of capital. The fair value of the specific assets that were impaired was determined using the multi period excess earnings method based on the following key assumptions:
Indefinite lived intangible assets
Indefinite lived intangible assets are reviewed for impairment annually and whether there are events or changes in circumstances that indicate that the carrying amount has been impaired. The Company determined that the existence of impairment on certain long-lived assets, together with the changes in market expectations of cash flows in Michigan, as well as increased competition and supply in the state since the Company acquired the indefinite lived assets, indicate that the fair value of the Gage brand intangible assets are more likely than not lower than the carrying value. As such, the Company performed an impairment analysis and determined the fair value of its brand intangibles using the relief of royalty method. As a result of the quantitative analysis performed, the Company recognized impairment of $19,200, reducing the carrying value of the brand intangibles to $57,985.
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 focused on maximizing shareholder value. As a result of this review, the Company recorded impairment of intangible assets of $3,633 for the nine months ended September 30, 2021.
Impairment of goodwill
Goodwill is reviewed for impairment annually and whenever there are events or changes in circumstances that indicate the carrying value has been impaired. Based on the indicators of impairment noted previously, the Company determined that there were indicators that the fair value of its reporting units are more likely than not lower than its carrying value. As such, a one-step quantitative impairment test was performed over its Michigan reporting unit, which includes goodwill acquired through the Gage Acquisition and the Pinnacle Acquisition. The following significant assumptions were applied in the determination of the fair value of the reporting unit using a discounted cash flow model:
15
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
During the nine months ended September 30, 2022, the Company recorded impairment of goodwill of $178,314 at its Michigan reporting unit, reducing the carrying value of the goodwill acquired through the Gage Acquisition and Pinnacle Acquisition to $nil.
As discussed in Note 4, the accounting for the acquisitions is provisional and subject to adjustment. Therefore, the impairment loss recognized for intangible assets and goodwill are also provisional until management has finalized the accounting for the acquisitions.
|
| Canopy Growth (formerly RIV Capital) Loan |
|
| Canopy Growth- Canada Inc Loan |
|
| Other Loans |
|
| Canopy Growth- Arise Loan |
|
| Ilera Term Loan |
|
| KCR Loan |
|
| Gage loans |
|
| Pinnacle 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 |
|
|
| 10,000 |
|
|
| 70,605 |
|
Loan amendment fee |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,200 | ) |
|
| — |
|
|
| (1,109 | ) |
|
| — |
|
|
| (2,309 | ) |
Interest accretion |
|
| 1,006 |
|
|
| 4,117 |
|
|
| 557 |
|
|
| 1,080 |
|
|
| 12,959 |
|
|
| 74 |
|
|
| 5,456 |
|
|
| 15 |
|
|
| 25,264 |
|
Principal and interest paid |
|
| (624 | ) |
|
| (3,837 | ) |
|
| (2,700 | ) |
|
| — |
|
|
| (11,556 | ) |
|
| (2,324 | ) |
|
| (5,509 | ) |
|
| (181 | ) |
|
| (26,731 | ) |
Effects of movements in foreign exchange |
|
| (672 | ) |
|
| (3,177 | ) |
|
| (496 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,345 | ) |
Ending carrying amount at September 30, 2022 |
| $ | 8,390 |
|
| $ | 39,268 |
|
| $ | 5,276 |
|
| $ | 9,980 |
|
| $ | 115,436 |
|
| $ | - |
|
| $ | 59,443 |
|
| $ | 9,834 |
|
| $ | 247,627 |
|
Less: current portion |
|
| (437 | ) |
|
| (2,003 | ) |
|
| (474 | ) |
|
| — |
|
|
| (5,042 | ) |
|
| — |
|
|
| (57,515 | ) |
|
| (9,834 | ) |
|
| (75,305 | ) |
Non-current loans payable |
| $ | 7,953 |
|
| $ | 37,265 |
|
| $ | 4,802 |
|
| $ | 9,980 |
|
| $ | 110,394 |
|
| $ | - |
|
| $ | 1,928 |
|
| $ | - |
|
| $ | 172,322 |
|
Total interest paid on all loan payables was $6,002 and $20,643 for the three and nine months ended September 30, 2022, respectively, and $4,118 and $17,408 for the three and nine months ended September 30, 2021, respectively.
Gage loans
The Gage Acquisition (refer to Note 4) included a senior secured term loan with an acquisition date fair value of $53,859. The Credit Agreement bears interest at a rate equal to the greater of (i) the Prime Rateprime plus 72.25% or (ii) 10.25%. The term loan is payable monthly and matures on November 30, 2022December 26, 2024. The term loan is secured byCompany was required to hold $5,000 on deposit in a first lienrestricted account, of which $2,500 of the restricted cash was released on all Gage assets.July 28, 2023 upon meeting certain criteria pursuant to the terms of the Stearns Loan.
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%.
Gage Loans
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.
Pinnacle loansLoan
The Pinnacle Acquisition purchase price included two promissory notes in an aggregate amount of $10,000 to paythat paid down all Pinnacle liabilities and encumbrances. The promissory notes maturecarry an interest 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 and interest payable 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 makes 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.
On 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, 20232027, the maturity date. and bearThe promissory note carries an interest ratesrate of 67.0%.
Maturities of loans payable
Stated maturitiesOn July 10, 2023, related to the acquisition of loans payable overHerbiculture, the next five years are as follows:Company entered into a promissory note in the amount of $5,250. The promissory note carries a fixed interest rate of 10.50%. Commencing on September 30, 2023, and thereafter until December 31, 2024, all accrued interest during each quarter will be added to the outstanding principal balance on the last day of each fiscal quarter. Beginning on March 31, 2025, and thereafter until March 31, 2026, only interest payments will be due on the last day of each fiscal quarter. The entire outstanding balance of the principal and accrued interest is due on June 30, 2026, the maturity date of the note.
|
| September 30, 2022 |
| |
2022 |
| $ | 61,047 |
|
2023 |
|
| 18,183 |
|
2024 |
|
| 126,253 |
|
2025 |
|
| — |
|
2026 |
|
| — |
|
Thereafter |
|
| 78,748 |
|
Total principal payments |
| $ | 284,231 |
|
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)
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 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 and July 31, 2023, the Company made a payment of $1,500 and $1,000, respectively.
Maturities of loans payable
Stated maturities of loans payable over the next five years are as follows:
|
| September 30, 2023 |
| |
Remainder of 2023 |
| $ | 9,374 |
|
2024 |
|
| 134,993 |
|
2025 |
|
| 7,942 |
|
2026 |
|
| 11,082 |
|
2027 |
|
| 44,483 |
|
Thereafter |
|
| 1,000 |
|
Total principal payments |
| $ | 208,874 |
|
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 for operating leases and 6 to 10 years for finance leases.years. The Company hadtwo and three finance leases at September 30, 20222023 andone finance lease at December 31, 2021.2022, respectively.
Amounts recognized in the consolidated balance sheet arewere as follows:
|
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||||
Operating leases: |
|
|
|
|
|
|
|
|
|
| ||||||
Operating lease right-of-use assets |
| $ | 30,044 |
|
| $ | 29,561 |
|
| $ | 44,497 |
|
| $ | 29,451 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating lease liability classified as current |
|
| 1,582 |
|
|
| 1,171 |
|
|
| 2,363 |
|
|
| 1,857 |
|
Operating lease liability classified as non-current |
|
| 31,058 |
|
|
| 30,573 |
|
|
| 46,437 |
|
|
| 31,545 |
|
Total operating lease liabilities |
| $ | 32,640 |
|
| $ | 31,744 |
|
| $ | 48,800 |
|
| $ | 33,402 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Finance leases: |
|
|
|
|
|
|
|
|
|
| ||||||
Property and equipment, net |
| $ | 4,523 |
|
| $ | 168 |
|
| $ | 2,312 |
|
| $ | 6,673 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lease obligations under finance leases classified as current |
|
| 369 |
|
|
| 22 |
|
|
| 2,006 |
|
|
| 521 |
|
Lease obligations under finance leases classified as non-current |
|
| 4,698 |
|
|
| 181 |
|
|
| 571 |
|
|
| 6,713 |
|
Total finance lease obligations |
| $ | 5,067 |
|
| $ | 203 |
|
| $ | 2,577 |
|
| $ | 7,234 |
|
The Company recognized operating lease expense of $1,3101,747 and $3,6654,198 for the three and nine months ended September 30, 2023, respectively, and $1,305 and $3,650 for the three and nine months ended September 30, 2022, respectively, and $1,365 and $3,474 for the three and nine months ended September 30, 2021, respectively.
During the year ended December 31, 2021, the Company entered into a lease termination agreement (the "Lease Termination") with the landlord of its 22,000 square foot facility in Frederick, Maryland to enable the Company to terminate the lease prior to the end of the lease term. On January 27, 2022, the Company made a payment of $3,300 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.
Other information related to operating leases at September 30, 2022 and December 31, 2021 consist of the following:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Weighted-average remaining lease term (years) |
|
|
|
|
|
| ||
Operating leases |
|
| 13.2 |
|
|
| 14.2 |
|
Finance leases |
|
| 9.5 |
|
|
| 5.5 |
|
|
|
|
|
|
|
| ||
Weighted-average discount rate |
|
|
|
|
|
| ||
Operating leases |
|
| 10.69 | % |
|
| 10.72 | % |
Supplemental cash flow information related to leases are as follows:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Cash paid for amounts included in measurement of operating lease liabilities |
| $ | 3,665 |
|
| $ | 3,987 |
|
Right-of-use assets obtained in exchange for operating lease obligations |
| $ | 6,371 |
|
| $ | 9,773 |
|
Cash paid for amounts included in measurement of finance lease liabilities |
| $ | 116 |
|
| $ | 40 |
|
Assets under finance leases obtained in exchange for finance lease obligations |
| $ | 308 |
|
| $ | - |
|
Undiscounted lease obligations are as follows:
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)
|
| Operating |
|
| Finance |
|
| Total |
| |||
2022 |
| $ | 1,224 |
|
| $ | 215 |
|
| $ | 1,439 |
|
2023 |
|
| 4,971 |
|
|
| 824 |
|
|
| 5,795 |
|
2024 |
|
| 4,962 |
|
|
| 757 |
|
|
| 5,719 |
|
2025 |
|
| 4,947 |
|
|
| 775 |
|
|
| 5,722 |
|
2026 |
|
| 4,671 |
|
|
| 794 |
|
|
| 5,465 |
|
Thereafter |
|
| 43,887 |
|
|
| 4,608 |
|
|
| 48,495 |
|
Total lease payments |
|
| 64,662 |
|
|
| 7,973 |
|
|
| 72,635 |
|
Less: interest |
|
| (32,022 | ) |
|
| (2,906 | ) |
|
| (34,928 | ) |
Total lease liabilities |
| $ | 32,640 |
|
| $ | 5,067 |
|
| $ | 37,707 |
|
Other information related to operating leases at September 30, 2023 and December 31, 2022 consisted of the following:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Weighted-average remaining lease term (years) |
|
|
|
|
|
| ||
Operating leases |
|
| 12.2 |
|
|
| 12.8 |
|
Finance leases |
|
| 1.5 |
|
|
| 6.8 |
|
|
|
|
|
|
|
| ||
Weighted-average discount rate |
|
|
|
|
|
| ||
Operating leases |
|
| 11.41 | % |
|
| 10.69 | % |
Finance leases |
|
| 9.47 | % |
|
| 9.89 | % |
Supplemental cash flow information related to leases are as follows:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Cash paid for amounts included in measurement of operating lease liabilities |
| $ | 4,364 |
|
| $ | 5,053 |
|
Right-of-use assets obtained in exchange for operating lease obligations |
|
| 16,955 |
|
|
| 3,097 |
|
Cash paid for amounts included in measurement of finance lease liabilities |
|
| 120 |
|
|
| 220 |
|
Assets under finance leases obtained in exchange for finance lease obligations |
|
| — |
|
|
| 6,913 |
|
Undiscounted lease obligations are as follows:
|
| Operating |
|
| Finance |
|
| Total |
| |||
Remainder of 2023 |
|
| 1,922 |
|
|
| 32 |
|
| $ | 1,954 |
|
2024 |
|
| 7,828 |
|
|
| 2,130 |
|
|
| 9,958 |
|
2025 |
|
| 7,863 |
|
|
| 132 |
|
|
| 7,995 |
|
2026 |
|
| 7,488 |
|
|
| 134 |
|
|
| 7,622 |
|
2027 |
|
| 7,043 |
|
|
| 136 |
|
|
| 7,179 |
|
Thereafter |
|
| 64,214 |
|
|
| 81 |
|
|
| 64,295 |
|
Total lease payments |
|
| 96,358 |
|
|
| 2,645 |
|
|
| 99,003 |
|
Less: interest |
|
| (47,558 | ) |
|
| (68 | ) |
|
| (47,626 | ) |
Total lease liabilities |
| $ | 48,800 |
|
| $ | 2,577 |
|
| $ | 51,377 |
|
Under the terms of these operating sublease agreements, future rental income from such third-party leases is expected to be as follows:
|
|
|
|
|
|
| ||
2022 |
| $ | 122 |
| ||||
2023 |
|
| 433 |
| ||||
Remainder of 2023 |
| $ | 104 |
| ||||
2024 |
|
| 434 |
|
|
| 550 |
|
2025 |
|
| 447 |
|
|
| 445 |
|
2026 |
|
| 263 |
|
|
| 261 |
|
Thereafter |
|
| - |
| ||||
Total rental payments |
| $ | 1,699 |
|
| $ | 1,360 |
|
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 Financial Accounting Standards Board Accounting Standards CodificationASC 842Leases, 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 fivesix 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. During 2023, five out of six agreements were amended to remove the purchase option which qualified the transactions as a sale. As a result, the Company derecognized underlying assets of $8,725 and its related financial obligations in the amount of $10,528, resulting in a gain of $1,803 during the three months ended September 30, 2023. The Gage Acquisition (refer to Note 4) included financing obligations.Company concurrently recognized an operating right of use asset and operating lease liability of $10,518 for the five dispensaries. The balance of the remaining financial obligation at September 30, 20222023 was $12,182991. Of this amount, $77598 is included in other current liabilities and $11,407893 is included in financing obligations in the unaudited condensed consolidated balance sheets.
Warrants
The following is a summary of the outstanding warrants for Common Shares:
|
| Number of Common Share Warrants Outstanding |
|
| Number of Common Share Warrants Exercisable |
|
| Weighted Average Exercise Price $ |
|
| Weighted Average Remaining Life (years) |
| ||||
Outstanding, December 31, 2021 |
|
| 30,995,473 |
|
|
| 8,855,066 |
|
| $ | 4.20 |
|
|
| 5.66 |
|
Exercised |
|
| (7,989,436 | ) |
|
|
|
|
| 2.53 |
|
|
|
| ||
Replacement warrants granted on acquisition of Gage |
|
| 282,023 |
|
|
|
|
|
| 6.47 |
|
|
|
| ||
Outstanding, September 30, 2022 |
|
| 23,288,060 |
|
|
| 1,110,168 |
|
| $ | 4.43 |
|
|
| 6.81 |
|
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 included warrant liabilities that are exchangeable into Common Shares. Refer to Note 4 for the determination of the fair value of the warrant liability.
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)
|
| 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, September 30, 2022 |
|
| 7,129,517 |
|
|
| 7,129,517 |
|
| $ | 8.66 |
|
|
| 1.24 |
|
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 6.9 years and 8.5%, respectively, at September 30, 2023.
Undiscounted financing obligations as of September 30, 2023 are as follows:
|
|
|
| |
Remainder of 2023 |
|
| 45 |
|
2024 |
|
| 182 |
|
2025 |
|
| 186 |
|
2026 |
|
| 191 |
|
2027 |
|
| 195 |
|
Thereafter |
|
| 525 |
|
Total payments |
| $ | 1,324 |
|
Less: interest |
|
| (333 | ) |
Total financing obligations |
| $ | 991 |
|
In June and August 2023, the Company closed the private placements of a total of 10,355 senior unsecured convertible debentures at a price of $1,000 per debenture for total gross proceeds of $10,355. 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 bears 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 had the option to 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.
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 model (Note 23). The proceeds are allocated first to the conversion option based on its fair value of $3,600, and the residual was allocated to the host instrument and recorded as convertible debt at a fair value of $6,755.
The following table summarizes the convertible debt activity for the nine months ended September 30, 2023:
Balance at December 31, 2022 |
| $ | - |
|
Convertible debt proceeds, net of transaction costs |
|
| 10,230 |
|
Allocation to conversion option |
|
| (3,600 | ) |
Interest and accretion |
|
| 432 |
|
Ending carrying amount at September 30, 2023 |
| $ | 7,062 |
|
Warrants
The following is a summary of the outstanding warrants for proportionate voting shares of the Company at September 30, 2022. These warrants are exercisable for common shares:0.001
|
| 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 |
|
Granted |
|
| 435,212 |
|
|
| 435,212 |
|
|
| 1.81 |
|
|
| 2.76 |
|
Expired |
|
| (345,000 | ) |
|
| (345,000 | ) |
|
| 3.14 |
|
|
| — |
|
Outstanding, September 30, 2023 |
|
| 23,330,542 |
|
|
| 818,927 |
|
| $ | 4.46 |
|
|
| 8.99 |
|
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.
19
|
| 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 |
|
Expired |
|
| (8,590,908 | ) |
|
|
|
|
|
|
|
|
| |||
Outstanding, September 30, 2022 |
|
| - |
|
|
| - |
|
| N/A |
|
| N/A |
|
TerrAscend Corp.
The expiration of the warrants for proportionate voting shares resulted in an increase to additional paid in capital and a decreaseNotes to the accumulated deficit in the unaudited interim condensed consolidated balance sheets.Unaudited Interim Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for share and per share amounts)
The following is a summary of the outstanding warrant liabilities that are exchangeable into 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, 2022 |
|
| 7,129,517 |
|
|
| 7,129,517 |
|
| $ | 8.66 |
|
|
| 0.99 |
|
Granted |
|
| 3,590,334 |
|
|
| — |
|
|
| 1.95 |
|
|
| 1.73 |
|
Outstanding, September 30, 2023 |
|
| 10,719,851 |
|
|
| 7,129,517 |
|
| $ | 6.41 |
|
|
| 0.74 |
|
The following is a summary of the expired preferred share warrants at September 30, 2022.2023. Each warrant is exercisable into one 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, September 30, 2022 |
|
| 15,106 |
|
|
| 15,106 |
|
| $ | 3,000 |
|
|
| 0.64 |
|
|
| 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, September 30, 2023 |
|
| — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
Private Placement Financing
Concurrently with convertible debenture placements (Note 12), in June 2023, the Company closed three tranches of private placements of equity securities (together with the Convertible Debt (Note 12), the "Private Placements") 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.
Detachable 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 functional currency of the Company. It was recorded at a fair value of $2,216, using the Black-Scholes 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). As of September 30, 2023, the warrants were revalued at $3,020 and a loss was recorded in (Gain) loss on fair value of warrants and purchase option derivative asset on the Consolidated Statements of Operations and Comprehensive Loss.
Share-based payments expense
Total share-based payments expense was as follows:
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
| For the Three Months Ended |
| For the Nine Months Ended |
| For the Three Months Ended |
| For the Nine Months Ended |
|
| ||||||||||||||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
|
| September 30, 2023 |
| September 30, 2022 |
|
| ||||||||||||
Stock options |
| $ | 2,338 |
|
| $ | 1,179 |
|
| $ | 8,428 |
|
| $ | 8,945 |
|
| $ | 845 |
|
| $ | 2,338 |
|
| $ | 3,542 |
|
| $ | 8,428 |
|
|
Restricted share units |
|
| 367 |
|
|
| 3,999 |
|
|
| 2,096 |
|
|
| 4,448 |
|
|
| 930 |
|
|
| 367 |
|
|
| 1,927 |
|
|
| 2,096 |
|
|
Total share-based payments |
| $ | 2,705 |
|
| $ | 5,178 |
|
| $ | 10,524 |
|
| $ | 13,393 |
|
| $ | 1,775 |
|
| $ | 2,705 |
|
| $ | 5,469 |
|
| $ | 10,524 |
|
|
20
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)
Stock Options
The following table summarizes the stock option activity for the nine months ended September 30, 2022:2023:
|
| Number of Stock Options |
|
| Weighted average remaining contractual life (in years) |
|
| Weighted Average Exercise Price (per share) $ |
|
| Aggregate intrinsic value |
|
| ||||
Outstanding, December 31, 2022 |
|
| 20,111,246 |
|
|
| 4.86 |
|
| $ | 3.63 |
|
| $ | 320 |
|
|
Granted |
|
| 2,006,627 |
|
|
| — |
|
|
| 1.68 |
|
|
| — |
|
|
Exercised |
|
| (416,852 | ) |
|
| — |
|
|
| 0.23 |
|
|
| — |
|
|
Forfeited |
|
| (3,084,873 | ) |
|
| — |
|
|
| 4.68 |
|
|
| — |
|
|
Expired |
|
| (1,657,019 | ) |
|
| — |
|
|
| 3.67 |
|
|
| — |
|
|
Outstanding, September 30, 2023 |
|
| 16,959,129 |
|
|
| 4.75 |
|
| $ | 3.32 |
|
|
| 3,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Exercisable, September 30, 2023 |
|
| 11,516,297 |
|
|
| 3.01 |
|
| $ | 3.32 |
|
|
| 1,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nonvested, September 30, 2023 |
|
| 5,442,832 |
|
|
| 8.43 |
|
| $ | 3.30 |
|
| $ | 1,829 |
|
|
19
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
|
| Number of Stock Options |
|
| Weighted average remaining contractual life (in years) |
|
| Weighted Average Exercise Price (per share) $ |
|
| Aggregate intrinsic value |
|
| Weighted average fair value of nonvested options (per share) $ |
| |||||
Outstanding, December 31, 2021 |
|
| 12,854,519 |
|
|
| 4.84 |
|
| $ | 4.85 |
|
| $ | 27,557 |
|
| $ | 4.22 |
|
Granted |
|
| 7,058,840 |
|
|
|
|
|
| 3.67 |
|
|
|
|
|
|
| |||
Replacement options granted on acquisition of Gage |
|
| 4,940,364 |
|
|
|
|
|
| 2.99 |
|
|
|
|
|
|
| |||
Exercised |
|
| (238,065 | ) |
|
|
|
|
| 1.60 |
|
|
|
|
|
|
| |||
Forfeited (1) |
|
| (1,457,049 | ) |
|
|
|
|
| 7.21 |
|
|
|
|
|
|
| |||
Expired |
|
| (408,684 | ) |
|
|
|
|
| 8.00 |
|
|
|
|
|
|
| |||
Outstanding, September 30, 2022 |
|
| 22,749,925 |
|
|
| 5.30 |
|
| $ | 3.63 |
|
|
| 1,173 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Exercisable, September 30, 2022 |
|
| 12,657,335 |
|
|
| 2.84 |
|
| $ | 2.99 |
|
|
| 1,173 |
|
| N/A |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Nonvested, September 30, 2022 |
|
| 10,092,588 |
|
|
| 8.38 |
|
| $ | 4.43 |
|
|
| - |
|
| N/A |
|
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 September 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 September 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 Nine Months Ended |
| ||||||||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||
Exercised |
| $ | 188 |
|
| $ | 492 |
|
| $ | 328 |
|
| $ | 5,290 |
|
| For the Three Months Ended |
| For the Nine Months Ended |
|
| ||||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| ||||
Exercised |
| $ | 7 |
|
| $ | 188 |
|
| $ | 558 |
|
| $ | 328 |
|
|
The Gage Acquisition included consideration in the form of 4,940,364 replacement options that had been issued on 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:
| ||||
|
| |||
|
| |||
|
| |||
|
|
|
The fair value of the various stock options granted waswere estimated using the Black-Scholes Option Pricing Modelmodel with the following assumptions:
|
| September 30, 2022 |
|
| December 31, 2021 |
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||||
Volatility |
| 77.55% - 77.89% |
|
| 79.05% - 81.51% |
|
| 78.61% - 80.16% |
|
| 77.55% - 77.89% |
| ||||
Risk-free interest rate |
| 1.63% - 3.51% |
|
| 0.90% - 1.72% |
|
| 2.85% - 3.40% |
|
| 1.63% - 3.51% |
| ||||
Expected life (years) |
| 9.62 - 10.01 |
|
| 4.57 - 10.05 |
|
| 9.78 - 10.01 |
|
| 9.62 - 10.01 |
| ||||
Dividend yield |
|
| 0 | % |
|
| 0 | % |
|
| 0.00 | % |
|
| 0.00 | % |
Forfeiture rate |
|
| 24.47 | % |
| 23.21% - 27.73% |
|
|
| 26.11 | % |
|
| 26.11 | % |
20
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
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 nine months ended September 30, 20222023 and 20212022 was $6,3784,587 and $13,3586,378, respectively. As of September 30, 2022,2023, there was $39,6588,190 of total unrecognized compensation cost related to unvested options.
21
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)
Restricted Share Units
The following table summarizes the activities for the unvested restricted stock units ("RSUs")RSUs for the three and nine months ended September 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 |
|
| 1,176,397 |
|
|
|
|
|
|
| 2,087,275 |
|
|
| — |
|
|
| — |
| ||
Vested |
|
| (165,833 | ) |
|
|
|
|
|
| (113,640 | ) |
|
| — |
|
|
| — |
| ||
Forfeited |
|
| (253,998 | ) |
|
|
|
|
| (78,634 | ) |
|
| — |
|
|
| — |
| |||
Outstanding, September 30, 2022 |
|
| 948,737 |
|
|
| 13,050 |
|
| N/A | ||||||||||||
Outstanding, September 30, 2023 |
|
| 2,310,641 |
|
|
| — |
|
| N/A |
|
As of September 30, 2022,2023, there was $3,9042,868 of total unrecognized compensation cost related to unvested RSUs.
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).
This transaction was accounted for as an equity transaction. The carrying amount of the 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.
The following amounts:table summarizes the non-controlling interest activity for the nine months ended September 30, 2023:
|
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||||
Opening carrying amount |
| $ | 5,367 |
|
| $ | 3,802 |
|
| $ | 2,374 |
|
| $ | 5,367 |
|
Capital distributions |
|
| (3,724 | ) |
|
| (53 | ) |
|
| (6,966 | ) |
|
| (7,550 | ) |
Investment in NJ partnership |
|
| — |
|
|
| (1,406 | ) | ||||||||
Acquisition of non-controlling interest |
|
| (1,323 | ) |
|
| — |
| ||||||||
Net income attributable to non-controlling interest |
|
| 3,523 |
|
|
| 3,024 |
|
|
| 6,492 |
|
|
| 4,557 |
|
Ending carrying amount |
| $ | 5,166 |
|
| $ | 5,367 |
|
| $ | 577 |
|
| $ | 2,374 |
|
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 September 30, 20222023 amounts due to/from related parties consisted of:
The Company's effective tax rate was (265%) and (418%) for the three and nine months ended September 30, 2022, the Company had the following transactions related to shareholders’ equity:
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 effective tax rate was 10% and 8% for the three and nine months ended September 30, 2022, respectively, and 8% and 64%respectively. The effective tax rate for the three and nine months ended September 30, 2021, respectively.2023 differed from the federal statutory tax rate primarily due to the disallowed tax deductions for
22
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)
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 nine months ended September 30, 2022 differed from the federal statutory tax rate primarily due to the disallowed tax deduction related to the Company's impairment of goodwill recorded during the three months ended September 30, 2022, and the disallowed tax deductions for business expenses pursuant to Section 280E of the Internal Revenue Code of 1986 (the "Code"). The effective tax rate for the three and nine months ended September 30, 2021 differed from the federal statutory tax rate primarily due to the disallowed tax deductions for business expenses pursuant to Section 280E of the Code.
DuringThe Company's effective tax rate can vary each reporting period depending on, among other factors, the threegeographic and nine months ended September 30, 2022,business mix of the Company recorded impairment of goodwill and intangible assets (refer to Note 7). The impairment charge resulted in a $41,316 reductionCompany'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 liability associated with the Gage Acquisition intangibles recorded in purchase accounts (refer to Note 4). As discussed in Note 4, the accounting for the acquisitions is provisional and subject to adjustment. Therefore, the deferred tax liability is provisional until management has finalized the accounting for the acquisitions.
Unrecognized tax benefits on the unaudited interim condensed consolidated balance sheets of $9,318 were reclassified from corporate income tax payable to other long term liability at December 31, 2021 as the classification better aligns with the recognition of the benefits.assets including net operating losses.
The Company’s general and administrative expenses were as follows:
| For the Three Months Ended |
| For the Nine Months Ended |
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||||||||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| September 30, 2023 |
| September 30, 2022 |
| |||||||||||||
Office and general |
| $ | 5,749 |
|
| $ | 276 |
|
| $ | 15,357 |
|
| $ | 7,500 |
|
| $ | 4,935 |
|
| $ | 4,431 |
|
| $ | 12,740 |
|
|
| 13,532 |
|
Professional fees |
|
| 3,333 |
|
|
| 4,927 |
|
|
| 9,825 |
|
|
| 10,676 |
|
|
| 1,923 |
|
|
| 3,210 |
|
|
| 10,399 |
|
|
| 9,303 |
|
Lease expense |
|
| 1,275 |
|
|
| 1,471 |
|
|
| 3,630 |
|
|
| 3,580 |
|
|
| 1,916 |
|
|
| 1,270 |
|
|
| 4,454 |
|
|
| 3,615 |
|
Facility and maintenance |
|
| 1,828 |
|
|
| 6 |
|
|
| 3,278 |
|
|
| 1,321 |
|
|
| 1,125 |
|
|
| 1,733 |
|
|
| 3,733 |
|
|
| 3,183 |
|
Salaries and wages |
|
| 11,971 |
|
|
| 8,703 |
|
|
| 34,888 |
|
|
| 23,805 |
|
|
| 15,716 |
|
|
| 11,683 |
|
|
| 43,546 |
|
|
| 33,628 |
|
Share-based compensation |
|
| 2,705 |
|
|
| 5,178 |
|
|
| 10,524 |
|
|
| 13,393 |
|
|
| 1,775 |
|
|
| 2,705 |
|
|
| 5,469 |
|
|
| 10,524 |
|
Sales and marketing |
|
| 2,524 |
|
|
| 759 |
|
|
| 8,416 |
|
|
| 2,187 |
|
|
| 1,909 |
|
|
| 2,372 |
|
|
| 7,164 |
|
|
| 7,968 |
|
Total |
| $ | 29,385 |
|
| $ | 21,320 |
|
| $ | 85,918 |
|
| $ | 62,462 |
|
| $ | 29,299 |
|
| $ | 27,404 |
|
| $ | 87,505 |
|
| $ | 81,753 |
|
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 Nine Months Ended |
| ||||||||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||
Wholesale |
| $ | 13,579 |
|
| $ | 24,221 |
|
| $ | 54,345 |
|
| $ | 98,935 |
|
Retail |
|
| 53,446 |
|
|
| 24,918 |
|
|
| 127,143 |
|
|
| 62,281 |
|
Total |
| $ | 67,025 |
|
| $ | 49,139 |
|
| $ | 181,488 |
|
| $ | 161,216 |
|
22
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
|
|
|
|
|
|
|
|
| ||||||||
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||
Retail |
| $ | 66,142 |
|
| $ | 53,446 |
|
| $ | 179,817 |
|
| $ | 127,143 |
|
Wholesale |
|
| 23,098 |
|
|
| 12,797 |
|
|
| 50,945 |
|
|
| 51,645 |
|
Total |
| $ | 89,240 |
|
| $ | 66,243 |
|
| $ | 230,762 |
|
| $ | 178,788 |
|
For each of the three and nine months ended September 30, 20222023 and 20212022, the Company did not 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 Note 5)6), the Company recorded sales returns of $nil$nil and $1,040 during the three and nine months ended September 30, 2022, respectively.
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’s finance and other expenses included the following:
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||
Interest accretion |
| $ | 10,576 |
|
| $ | 6,643 |
|
| $ | 26,436 |
|
| $ | 19,389 |
|
Indemnification asset release |
|
| — |
|
|
| 95 |
|
| $ | 3,973 |
|
|
| 3,891 |
|
(Gain)/loss on disposal of fixed assets |
|
| (81 | ) |
|
| 219 |
|
| $ | 848 |
|
|
| 256 |
|
Other (income) expense |
|
| (1,026 | ) |
|
| 15 |
|
| $ | (1,030 | ) |
|
| (1,255 | ) |
Total |
| $ | 9,469 |
|
| $ | 6,972 |
|
| $ | 30,227 |
|
| $ | 22,281 |
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| For the Three Months Ended |
| For the Nine Months Ended | ||||||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| ||||
Interest and accretion |
| $ | 10,203 |
|
| $ | 10,347 |
|
| $ | 26,041 |
|
| $ | 25,759 |
|
|
Indemnification asset release |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,973 |
|
|
Employee retention credits transfer with recourse |
|
| — |
|
|
| — |
|
|
| 2,235 |
|
|
| — |
|
|
Other (income) expense |
|
| (120 | ) |
|
| (1,102 | ) |
|
| 65 |
|
|
| (169 | ) |
|
Total |
| $ | 10,083 |
|
| $ | 9,245 |
|
| $ | 28,341 |
|
| $ | 29,563 |
|
|
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.
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 one 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 followingnine months ended September 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 consolidated its retail location in Canada and generated net revenue of $347 and $637 for the three and nine months ended September 30, 2023, respectively.
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||
United States |
| $ | 66,243 |
|
| $ | 46,117 |
|
| $ | 178,788 |
|
| $ | 148,258 |
|
Canada |
|
| 782 |
|
|
| 3,022 |
|
|
| 2,700 |
|
|
| 12,958 |
|
Total |
| $ | 67,025 |
|
| $ | 49,139 |
|
| $ | 181,488 |
|
| $ | 161,216 |
|
The Company had non-current assets by geography of:
|
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||||
United States |
| $ | 584,905 |
|
| $ | 409,150 |
|
| $ | 626,677 |
|
| $ | 577,750 |
|
Canada |
|
| 27,186 |
|
|
| 29,563 |
|
|
| 775 |
|
|
| 1,844 |
|
Total |
| $ | 612,091 |
|
| $ | 438,713 |
|
| $ | 627,452 |
|
| $ | 579,594 |
|
23
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 and through borrowings.debt. The equity issuances are outlined in Note 11 and13, debt issuancesmodifications are outlined in Note 8.10, and debt financing are outlined in Note 12.
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 September 30, 2022.2023.
Canopy Growth- Canada Inc loan
On November 11, 2022, TerrAscend Canada Inc. and Canopy USA III Limited Partnership ("Canopy USA III LP"), a successr to Canopy Growth Corporation, entered into an agreement for the period commencing August 31, 2022 to (and including) November 30, 2022, subject to certain conditions, whereby Canopy USA III LP agreed to a waiver of TerrAscend Canada Inc.’s obligation to maintain the minimum current assets as set forth in the loan financing agreement with Canopy USA LLL LP (see Note 8, referncing "Canopy Growth Canada Inc. loan").
Ilera term loan
On April 28, 2022, the Ilera term loan (refer to Note 8) was amended to provide WDB Holding PA, a subsidiary of the Company, with greater flexibility by resetting the minimum consolidated interest coverage ratio levels that must be satisfied at the end of each measurement period and extending the date in which WDB Holding PA is required to deliver its budget for the fiscal year ending 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 extinguishments of debt under ASC 470, Debt.
On November 11, 2022, WDB Holding PA, the Company, TerrAscend USA Inc. and the subsidiary guarantors party to the PA Credit Agreement and the PA Agent (on behalf of the required lenders) entered into an amendment to the PA Credit Agreement, pursuant to which the 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.
Gage loan
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.
24
TerrAscend Corp.
Notes to the Gage senior secured term loan includeUnaudited Interim Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for share and per share amounts)
Additionally, the additionCompany is prohibited from converting the exchangeable shares of a borrowerTerrAscend 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 guarantor underpolicies. Until such time that the term loan and a right of first offer in favor ofCompany is permitted to convert its exchangeable shares for common shares, TerrAscend Growth Corp. may not issue dividends to the administrative agent for a refinancing of the term loan. This modification was not considered extinguishments of debt under ASC 470, Debt.Company.
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.
24
TerrAscend Corp.
Notes to the Unaudited Condensed Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars, except for per share amounts)
The following table represents the fair value amounts of financial assets and financial liabilities measured at estimated fair value on a recurring basis:
| At September 30, 2022 |
| At December 31, 2021 |
| At September 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 |
| $ | 34,288 |
|
| $ | - |
| — |
| $ | - |
|
| $ | 79,642 |
|
| $ | - |
| — |
| $ | - |
|
| $ | 25,410 |
|
|
| — |
|
|
| — |
|
| $ | 26,158 |
|
|
| — |
|
|
| — |
| ||
Restricted cash |
|
| 1,031 |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| 3,106 |
|
|
| — |
|
|
| — |
|
|
| 605 |
|
|
| — |
|
|
| — |
| ||
Purchase option derivative asset |
|
| — |
|
|
| — |
|
|
|
| 50 |
|
|
| — |
|
|
| — |
|
|
|
| 868 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 50 |
| ||
Total Assets |
| $ | 35,319 |
|
| $ | - |
|
|
| $ | 50 |
|
| $ | 79,642 |
|
| $ | - |
|
|
| $ | 868 |
|
| $ | 28,516 |
|
|
| — |
|
|
| — |
|
| $ | 26,763 |
|
|
| — |
|
| $ | 50 |
| ||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Contingent consideration payable |
| $ | - |
|
| $ | - |
|
|
| $ | 5,684 |
|
| $ | - |
|
| $ | - |
|
|
| $ | 12,535 |
|
|
| — |
|
| $ | 6,446 |
|
|
| — |
|
|
| — |
|
| $ | 5,184 |
|
|
| — |
| ||
Warrant liability |
|
| — |
|
|
| 679 |
|
|
|
| — |
|
|
| — |
|
|
| 54,986 |
|
|
|
| — |
| ||||||||||||||||||||||||||
Derivative liability |
|
| — |
|
|
| 7,916 |
|
|
| — |
|
|
| — |
|
|
| 711 |
|
|
| — |
| ||||||||||||||||||||||||||||
Total Liabilities |
| $ | - |
|
| $ | 679 |
|
|
| $ | 5,684 |
|
| $ | - |
|
| $ | 54,986 |
|
|
| $ | 12,535 |
|
|
| — |
|
| $ | 14,362 |
|
|
| — |
|
|
| — |
|
| $ | 5,895 |
|
|
| — |
|
There were no transfers between the levels of fair value hierarchy during the three and nine months ended September 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 nine months ended September 30, 2022:2023:
Balance at December 31, 2021 |
| $ | 54,986 |
|
Addition on acquisition |
|
| 6,756 |
|
Included in gain on fair value of warrants |
|
| (59,373 | ) |
Exercises |
|
| (1,690 | ) |
Balance at September 30, 2022 |
| $ | 679 |
|
Balance at December 31, 2022 |
| $ | 711 |
|
Conversion option issued in 2023 private placement |
|
| 3,600 |
|
Detachable warrants issued in 2023 private placement |
|
| 2,216 |
|
Fair value loss on revaluation of warrants and conversion option |
|
| 1,514 |
|
Effects of movements in foreign exchange |
|
| (125 | ) |
Balance at September 30, 2023 |
| $ | 7,916 |
|
Warrant liability and conversion option
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 asexpired during the warrant liability acquired through its Gage Acquisition ("Gage warrant liability") (refer to Note 4).second quarter of 2023.
The private placement warrant liability has been measured at fair value at September 30, 2022. Key inputs and assumptions used in the Black Scholes model were as follows:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Common Stock Price of TerrAscend Corp. |
| $ | 1.28 |
|
| $ | 6.11 |
|
Warrant exercise price |
| $ | 3,000 |
|
| $ | 3,000 |
|
Warrant conversion ratio |
| $ | 1,000 |
|
| $ | 1,000 |
|
Annual volatility |
|
| 73.3 | % |
|
| 65.5 | % |
Annual risk-free rate |
|
| 4.0 | % |
|
| 0.6 | % |
Expected term (in years) |
|
| 0.6 |
|
| 1.4 |
|
The Gage warrant liability has been remeasured at fair value at September 30, 2022. Key inputs and assumptions used in the Black Scholes model were as follows:
25
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)
|
| September 30, 2022 |
|
| March 10, 2022 |
| ||
Common Stock Price of TerrAscend Corp. |
| $ | 1.28 |
|
| $ | 4.92 |
|
Warrant exercise price |
| $ | 8.66 |
|
| $ | 8.66 |
|
Annual volatility |
| 69.72% - 70.19% |
|
|
| 65.0 | % | |
Annual risk-free rate |
|
| 4.2 | % |
|
| 1.7 | % |
Expected term (in years) |
|
| 1.3 |
|
|
| 2.0 |
|
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 September 30, 2022 |
| $ | 50 |
|
The purchase option derivative assetGage Warrant Liability has been measured atremeasured to 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.value. Key inputs and assumptions used in the Monte Carlo simulationBlack-Scholes model are summarized below:were as follows:
|
| September 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 | % |
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Common Stock Price of TerrAscend Corp. |
| $ | 2.05 |
|
| $ | 1.13 |
|
Warrant exercise price |
| $ | 8.66 |
|
| $ | 8.66 |
|
Annual volatility |
| 60.69%-65.96% |
|
| 97.1%-98.4% |
| ||
Annual risk-free rate |
|
| 5.6 | % |
|
| 4.8 | % |
Expected term (in years) |
|
| 0.21 |
|
|
| 1.00 |
|
Contingent Consideration Payable
Detachable Warrants
The detachable warrants issued as a part of the June 2023 private placement (Note 13) have been measured at fair value as of contingent consideration at September 30, 20222023. Key inputs and December 31, 2021 was determined using a probability weightedassumptions used in the Black-Scholes model based on the likelihood of achieving certain revenue and EBITDA scenario outcomes. A discount rate of were as follows:12.2% (September 30, 2021 – 12.8%) was utilized to determine the present value of the liabilities, resulting in a loss on revaluation of contingent consideration of $36
and $189
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||
Common Stock Price of TerrAscend Corp. |
| $ | 2.05 |
|
| $1.65 - $1.81 |
| |
Option exercise price |
| $ | 1.95 |
|
| $ | 1.95 |
|
Annual volatility |
|
| 72.5 | % |
| 71.0% - 71.1% |
| |
Annual risk-free rate |
|
| 5.0 | % |
| 4.58% - 4.66% |
| |
Expected term (in years) |
|
| 1.73 |
|
| 1.98 - 2.00 |
|
for the three and nine months ended September 30, 2022, respectively (September 30, 2021 - ($
338Bifurcated conversion options) and $2,652, respectively).
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 September 30, 2022 based on reasonably possible changes to one2023. Key inputs and assumptions used in the Black-Scholes model were as follows:
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||
Common Stock Price of TerrAscend Corp. |
| $ | 2.05 |
|
| $1.65 - $1.81 |
| |
Option exercise price |
| $ | 2.01 |
|
| $ | 2.01 |
|
Annual volatility |
|
| 69.2 | % |
| 68.2% - 68.3% |
| |
Annual risk-free rate |
|
| 4.8 | % |
| 4.13% - 4.25% |
| |
Expected term (in years) |
|
| 2.73 |
|
| 2.98 - 3.00 |
|
The conversion option issued as a part of the significant unobservableAugust 2023 private placement (Note 12) has been measured at fair value as of September 30, 2023. Key inputs holding other inputs constant, would haveand assumptions used in the following effects:Black-Scholes model were as follows:
Discount rate sensitivity |
| KCR |
| |
Increase 100 basis points |
| $ | 1,212 |
|
Increase 50 basis points |
| $ | 1,231 |
|
Decrease 50 basis points |
| $ | 1,271 |
|
Decrease 100 basis points |
| $ | 1,292 |
|
|
| September 30, 2023 |
|
| August 2, 2023 |
| ||
Common Stock Price of TerrAscend Corp. |
| $ | 2.05 |
|
| $ | 1.41 |
|
Option exercise price |
| $ | 2.01 |
|
| $ | 2.01 |
|
Annual volatility |
|
| 69.2 | % |
|
| 68.1 | % |
Annual risk-free rate |
|
| 4.8 | % |
|
| 4.4 | % |
Expected term (in years) |
|
| 2.84 |
|
|
| 3.00 |
|
Legal proceedings
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
26
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)
or results of operations. At September 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.
2627
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)
On October 11, 2022, subsidiaries2, 2023, the Company completed a prepayment of the Company, among others, entered into a loan agreement with Pelorus Fund REIT, LLC ("Pelorus")Ilera Term Loan of $1,500 at the original prepayment price of 103.22% to par for a single-draw senior secured term loan ("Pelorus Term Loan") in an aggregate principal amounttotal of $45,4781,550. The Pelorus Term Loan bears interest of 12.77% per annum, which is based on a variable rate tied to the one month secured overnight financing rate (SOFR), subject to a 2.5% floor plus 9.5%, with interest-only payments for the first 36 months. The obligations of the borrowers under the Pelorus Term Loan are guaranteed by the Company, TerrAscend USA Inc. and certain other subsidiaries of the Company and secured by substantially all of the assets of the Company’s Maryland and New Jersey businesses, including certain real estate in Maryland and New Jersey. The Pelorus Term Loan matures on October 11, 2027.
2728
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 2021Company’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 2021 Form 10-K,Company's Annual Report, 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 nine months ended September 30, 2023 and 2022 and the accompanying notes for each respective period.
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 U.S. which have implemented medical marijuana laws or whichthat have otherwise legalized the use of cannabis, the use of cannabis remains illegal under U.S. federal law for any purpose, by way of the 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:
29
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
Pending and
Subsequent Transactions
28
Components of Results of Operations
The following discussion sets forth certain components of the Company's Unaudited Condensed Consolidated Statements of Comprehensive Loss as well as factors that impact those items.
Revenue
TerrAscend generates revenue from the sale of cannabis products, brands, and services to the United States and Canadian markets. Revenues consist of wholesale and retail sales in the medical and legal adult use market across Canada and in several U.S. states where cannabis has been legalized for medical or adult use.
Cost of sales
Cost of sales primarily consists of expenses related to providing cannabis products and services to TerrAscend's customers, including personnel-related expenses, the depreciation 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 finance, human resources, legal, and other administrative functions. Additionally G&A expense includes professional fees to third parties, as well as marketing 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 absolute dollars as the business grows.
Amortization and depreciation
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 |
30
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 impairment annually and whenever there are events or changes in circumstances that indicate that the carrying amount has been impaired. TerrAscend first performs a qualitative assessment. If based on the results of a variable rate tied toqualitative assessment it has been determined that it is more likely than not that the one month secured overnight financing rate (SOFR), subject tofair value of a 2.5% floor plus 9.5%, with interest-only payments forreporting unit exceeds its carrying value, an additional quantitative impairment test is performed which compares the first 36 months. The obligationscarrying value of the borrowers underreporting unit to its estimated fair value. If the Pelorus Term Loancarrying value exceeds the estimated fair value, an impairment is recorded.
Definite lived intangible assets are guaranteed bytested 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 Company, TerrAscend USA Inc. and certain other subsidiaries of the Company and secured by substantially allcarrying 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 seller if future events occur. The liability is revalued at the end of each reporting period to determine its fair value. 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 Company’s Marylandrevaluation.
Loss (gain) on fair value of warrants and New Jersey businesses, including certain real estate in Maryland and New Jersey. purchase option derivative asset
The Pelorus Term Loan matures on October 11, 2027.
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
31
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 (gain) loss
Unrealized and realized foreign exchange (gain) 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 loss (gain) on investments
TerrAscend accounts for its investment in equity interestsecurities without readily determinable fair values using a valuation technique which maximizes the use of relevant observable inputs, with subsequent holding changes in AMMDfair value recognized in unrealized gain or loss on investments in the Consolidated Statements of Operations and Comprehensive Loss.
Provision for total consideration(benefit from) income taxes
Provision for income taxes consists of $10,000U.S. federal and state income taxes in cash,certain jurisdictions 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.
Results from Operations-Operations - Three months endedMonths Ended September 30, 20222023 and September 30, 20212022
The following tables represent the Company’s results from operations for the three months ended September 30, 20222023 and 2021.2022.
Revenue, net
| For the Three Months Ended |
| For the Three Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Revenue |
| $ | 67,726 |
|
| $ | 50,537 |
|
| $ | 89,621 |
|
| $ | 66,567 |
|
Excise and cultivation taxes |
|
| (701 | ) |
|
| (1,398 | ) |
|
| (381 | ) |
|
| (324 | ) |
Revenue, net |
| $ | 67,025 |
|
| $ | 49,139 |
|
| $ | 89,240 |
|
| $ | 66,243 |
|
$ change |
| $ | 17,886 |
|
|
|
|
| $ | 22,997 |
|
|
|
| ||
% change |
|
| 36 | % |
|
|
|
|
| 35 | % |
|
|
|
The increase in net revenue at September 30, 2022 as compared
Revenue increased from $66,243 to September 30, 2021 was due to an increase in retail revenue of $28,528 from $24,918$89,240 for the three months ended September 30, 20212023 as compared to $53,446 for the three months ended September 30, 2022. The increase in revenue was mainly due to adult use sales in New Jersey which commenced during the current year, as well as the acquisition of Gage (the "Gage Acquisition") in Michigan in March 2022. Retail dispensaries increased from 13 at September 30, 2021 to 30 at September 30, 2022.
The increase was partially offset by the decrease of $10,642 in wholesale revenue from $24,221 for the three months ended September 30, 2021 to $13,579 for the three months ended September 30, 2022 which was mainly related to challenging market dynamicsdriven by the implementation of adult use sales in Maryland along with the acquisitions of Peninsula, Blue Ridge, and Herbiculture in the second quarter of 2023 combined with an increase in wholesale sales in New Jersey and an increase in both wholesale and retail sales in Pennsylvania.
Cost of Salessales
| For the Three Months Ended |
| For the Three Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Cost of sales |
| $ | 36,284 |
|
| $ | 27,494 |
|
| $ | 41,788 |
|
| $ | 35,206 |
|
Impairment and write downs of inventory |
|
| 6,378 |
|
|
| 148 |
| ||||||||
Non-cash adjustment of inventory |
|
| (353 | ) |
|
| (94 | ) | ||||||||
Total cost of sales |
| $ | 42,662 |
|
| $ | 27,642 |
|
| $ | 41,435 |
|
| $ | 35,112 |
|
$ change |
| $ | 15,020 |
|
|
|
|
| $ | 6,323 |
|
|
|
| ||
% change |
|
| 54 | % |
|
|
|
|
| 18 | % |
|
|
| ||
Cost of sales as a % of revenue |
|
| 64 | % |
|
| 56 | % |
|
| 46 | % |
|
| 53 | % |
The increase of $6,323 in cost of sales for the three months ended September 30, 20222023 as compared to the three months ended September 30, 20212022 was driven mainly by the Gage Acquisition, as well asdue to an increase in New Jersey due to the increase in adult use sales which commenced during the current year. The increase in costsales. Cost of sales as a percentage of revenue was dueimproved 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, Maryland as the Company transitioned to its Hagerstown location.
In addition, management wrote down its inventory by $6,378 and $14846% from 53% for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, driven by increased yields in New Jersey, improved utilization in Maryland, lower costs in Pennsylvania as a result of scaling back the cultivation facility, and 2021, respectively. The inventory write-downsreduced discounting combined with improved verticalization in the current year period were mainly due to inventory deemed unsaleable in its business in Canada. The inventory write-downs in the prior year period were related to inventory that the Company deemed unsaleable in its business in Canada.Michigan.
2932
General and Administrative Expense (G&A)administrative expense
| For the Three Months Ended |
| For the Three Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
General and administrative expense |
| $ | 29,385 |
|
| $ | 21,320 |
|
| $ | 29,299 |
|
| $ | 27,404 |
|
$ change |
| $ | 8,065 |
|
|
|
|
| $ | 1,895 |
|
|
|
| ||
% change |
|
| 38 | % |
|
|
|
|
| 7 | % |
|
|
| ||
G&A excluding share-based compensation |
| $ | 26,680 |
|
| $ | 16,142 |
| ||||||||
G&A excluding share-based compensation as a % of revenue |
|
| 40 | % |
|
| 33 | % |
The increase in general and administrative ("G&A expenses&A") expense of $1,895 for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 was primarily a result of increased office and general expenses of $7,030 and increasedan increase in salaries and wages due to Maryland acquisitions during the third quarter of $3,268, which are primarily a result of the Gage Acquisition2023. The Company continues to advance its plan to reduce administrative expenses in March 2022.order to strengthen its position to generate positive cashflow from operations.
Amortization and Depreciation Expensedepreciation expense
| For the Three Months Ended |
| For the Three Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Amortization and depreciation |
| $ | 3,032 |
|
| $ | 1,947 |
|
| $ | 2,664 |
|
| $ | 2,600 |
|
$ change |
| $ | 1,085 |
|
|
|
|
| $ | 64 |
|
|
|
| ||
% change |
|
| 56 | % |
|
|
|
|
| 2 | % |
|
|
|
The increase of $64 in amortization and depreciation expense for the three months ended September 30, 20222023 as compared to the three months ended September 30, 20212022 was primarily due to Maryland acquisitions during the Gage Acquisition during March 2022. The Company acquired retail licenses, which are amortized over a 15 year period. The fair valuethird quarter of the retail licenses at acquisition were $56,665.2023.
Impairment(Gain) loss from revaluation of intangible assetscontingent consideration
| For the Three Months Ended |
| For the Three Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Impairment of intangible assets |
| $ | 152,928 |
|
| $ | - |
| ||||||||
(Gain) loss from revaluation of contingent consideration |
| $ | (645 | ) |
| $ | 36 |
| ||||||||
$ change |
| $ | 152,928 |
|
|
|
|
| $ | (681 | ) |
|
|
| ||
% change |
|
| 100 | % |
|
|
|
|
| -1892 | % |
|
|
|
DuringThe decrease in the revaluation of contingent consideration for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 the Company performed impairment analyses over its indefinite lived and definite lived intangible assets acquired through the Gage Acquisition as the changeswas due to a reduction in the market expectations of cash flows in Michigan, as well as increased competition and supply in the state, were determined to be indicators of impairment. The Company determined that itcontingent liability for Peninsula acquisition, which was more likely than not that the carrying value of its definite lived retail and cultivation and processing licenses was greater than its fair value, and therefore recorded impairment of $78,998 and $54,730 for the retail and cultivation and processing licenses, respectively, reducing both the carrying values to $nil at September 30, 2022. Additionally, the Company recorded impairment of its indefinite lived brand intangible assets acquired through the Gage Acquisition of $19,200, reducing the carrying value of the brand intangibles to $57,985 at September 30, 2022.
Impairment of goodwill
| For the Three Months Ended |
| ||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Impairment of goodwill |
| $ | 178,314 |
|
| $ | - |
|
$ change |
| $ | 178,314 |
|
|
|
| |
% change |
|
| 100 | % |
|
|
|
During the three months ended September 30, 2022, as it was determined that it was more likely than not that the Michigan reporting unit's fair value was less than its carrying value, a one-step goodwill quantitative impairment test was performed. As a result of the quantitative impairment test,increase in the Company recorded impairment of goodwill of $178,314 at its Michigan reporting unit, reducing the carrying value of the goodwill acquired through the Gage Acquisition and Pinnacle AcquisitionCompany's share price from June 30, 2023, as compared to $nil.September 30, 2023.
30
The impairment of goodwill for the three months ended September 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.
GainLoss (gain) on fair value of warrants and purchase option derivative asset
| For the Three Months Ended |
| For the Three Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Gain on fair value of warrants and purchase option derivative asset |
| $ | (5,497 | ) |
| $ | (69,016 | ) | ||||||||
Loss (gain) on fair value of warrants and purchase option derivative assets |
| $ | 3,217 |
|
| $ | (5,497 | ) | ||||||||
$ change |
| $ | 63,519 |
|
|
|
|
| $ | 8,714 |
|
|
|
| ||
% change |
|
| -92 | % |
|
|
|
|
| -159 | % |
|
|
|
The warrant liability was remeasured to fair value at September 30, 20222023 using the Black Scholes Option Pricing Model ("Black Scholes model").Black-Scholes model. The Company recognized a loss of $3,217 during the three months ended September 30, 2023 as a result of the rising share price from June 30, 2023, as compared to September 30, 2023.
During the three months ended September 30, 2022, the Company recognized a gain on fair value of warrants of $5,497 during the three months ended September 30, 2022 as a result of the reduction of the Company's share price from June 30, 2022, as compared to September 30, 2022.
During the three months ended September 30, 2021, the Company recognized a gain on fair value of warrants of $69,016 as a result of the decrease in the Company's share price from June 30, 2021 to September 30, 2021 as well as warrants exercised during the three months ended September 30, 2021.
Finance and other expenses
| For the Three Months Ended |
| For the Three Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Finance and other expenses |
| $ | 9,469 |
|
| $ | 6,972 |
|
| $ | 10,083 |
|
| $ | 9,245 |
|
$ change |
| $ | 2,497 |
|
|
|
|
| $ | 838 |
|
|
|
| ||
% change |
|
| 36 | % |
|
|
|
|
| 9 | % |
|
|
|
33
The increase of $838 in finance and other expenses for the three months ended September 30, 20222023 as compared to the three months ended September 30, 2021 was2022 is primarily due to interest expense recognized on the loans acquired as part of the Gage Acquisition.sublease income received in 2022.
Transaction and restructuring costs
| For the Three Months Ended |
| For the Three Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Transaction and restructuring costs |
| $ | 1,359 |
|
| $ | 1,034 |
|
| $ | - |
|
| $ | 343 |
|
$ change |
| $ | 325 |
|
|
|
|
| $ | (343 | ) |
|
|
| ||
% change |
|
| 31 | % |
|
|
|
|
| -100 | % |
|
|
|
The transaction and restructuring costs for the three months ended September 30, 2022 were primarily due to personnel related reorganization and severance costs in Canada. The transaction
Unrealized and restructuring costsrealized foreign exchange (gain) loss
| For the Three Months Ended |
| ||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||
Unrealized and realized foreign exchange (gain) loss |
| $ | (43 | ) |
| $ | 583 |
|
$ change |
| $ | (626 | ) |
|
|
| |
% change |
|
| -107 | % |
|
|
|
Unrealized foreign exchange (gain) loss changed from a loss of $583 for the three months ended September 30, 2021 included legal costs related2023 as compared to a gain of $43 for the acquisitionsthree months ended September 30, 2022 as a result of KCR, HMS, and Gage.the Company's subsidiary TerrAscernd Growth Corp changing its functional currency to U.S. dollars from Canadian dollars during the third quarter of 2023.
Provision for (benefit from) income taxes
| For the Three Months Ended |
| ||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||
Provision for (benefit from) income taxes |
| $ | 13,543 |
|
| $ | (34,033 | ) |
$ change |
| $ | 47,576 |
|
|
|
| |
% change |
|
| -140 | % |
|
|
|
Unrealized and realized foreign exchange loss (gain)
| For the Three Months Ended |
| ||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Unrealized and realized foreign exchange loss (gain) |
| $ | 586 |
|
| $ | (1,256 | ) |
$ change |
| $ | 1,842 |
|
|
|
| |
% change |
|
| -147 | % |
|
|
|
The Company recognized an unrealized foreign exchange losschange in provision for (benefit from) income taxes from a $34,033 benefit for the three months ended September 30, 2022 as compared to a gainprovision for income taxes of $13,543 for the three months ended September 30, 2021, which was a result of the remeasurement related to USD denominated liabilities recorded in C$ functional currency at the Company’s Canadian operations.
31
Unrealized and realized gain on investments
| For the Three Months Ended |
| ||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Unrealized and realized gain on investments |
| $ | (231 | ) |
| $ | - |
|
$ change |
| $ | (231 | ) |
|
|
| |
% change |
|
| 100 | % |
|
|
|
The gain on investment during the three months ended September 30, 2022 was related to the revaluation of the investments acquired through the Gage Acquisition.
Provision for income taxes
| For the Three Months Ended |
| ||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Provision for income taxes |
| $ | (34,033 | ) |
| $ | 4,999 |
|
$ change |
| $ | (39,032 | ) |
|
|
| |
% change |
|
| -781 | % |
|
|
|
The decrease in provision for income taxes for the three months ended September 30, 2022 as compared to the three months ended September 30, 20212023 was primarily driven by the decreaseincrease in pre-tax book income as a result of the impairment of intangible assets and goodwill recorded by the Company during the quarter.Gage Growth Corp in 2022.
Results from Operations-Operations - Nine months endedMonths Ended September 30, 20222023 and September 30, 20212022
The following tables represent the Company’s results from operations for the nine months ended September 30, 20222023 and 2021.2022.
Revenue, net
| For the Nine Months Ended |
| For the Nine Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Revenue |
| $ | 183,538 |
|
| $ | 169,010 |
|
| $ | 231,778 |
|
| $ | 179,848 |
|
Excise and cultivation taxes |
|
| (2,050 | ) |
|
| (7,794 | ) |
|
| (1,016 | ) |
|
| (1,060 | ) |
Revenue, net |
| $ | 181,488 |
|
| $ | 161,216 |
|
| $ | 230,762 |
|
| $ | 178,788 |
|
$ change |
| $ | 20,272 |
|
|
|
|
| $ | 51,974 |
|
|
|
| ||
% change |
|
| 13 | % |
|
|
|
|
| 29 | % |
|
|
|
The increase in net revenue at September 30, 2022 as comparedRevenue increased from $178,788 to September 30, 2021 was due to an increase of $64,862 in retail sales from $62,281 for$230,762 during the nine months ended September 30, 20212023 as compared to $127,143 for the nine months ended September 30, 2022. The increase in revenue was mainly due to adult use sales in New Jersey, which commenced during the current year, as well as the Gage Acquisition in March. Retail dispensaries increased from thirteen at September 30, 2021 to thirty at September 30, 2022.
The increase was partially offset by the decrease of $44,590 in wholesale revenue from $98,935 for the nine months ended September 30, 2021 to $54,345 for the nine months ended September 30, 2022 whichdriven by growth in retail and wholesale market sales. The increase was mainly related to challenging market dynamicsprimarily a result of the implementation of adult use sales in Pennsylvania.New Jersey in April 2022 and Maryland in July 2023 along with the acquisition of AMMD, Peninsula, Blue Ridge, and Herbiculture in the first and second quarters of 2023, and the acquisition of Gage in Michigan in March 2022. These increases were partially offset by a reduction in wholesale sales in Pennsylvania and retail sales in California.
34
Cost of Salessales
| For the Nine Months Ended |
| For the Nine Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Cost of sales |
| $ | 104,119 |
|
| $ | 69,679 |
|
| $ | 112,103 |
|
| $ | 99,681 |
|
Impairment and write downs of inventory |
|
| 14,873 |
|
|
| 263 |
| ||||||||
Non-cash adjustment of inventory |
|
| 728 |
|
|
| 8,401 |
| ||||||||
Total cost of sales |
| $ | 118,992 |
|
| $ | 69,942 |
|
| $ | 112,831 |
|
| $ | 108,082 |
|
$ change |
| $ | 49,050 |
|
|
|
|
| $ | 4,749 |
|
|
|
| ||
% change |
|
| 70 | % |
|
|
|
|
| 4 | % |
|
|
| ||
Cost of sales as a % of revenue |
|
| 66 | % |
|
| 43 | % |
|
| 49 | % |
|
| 60 | % |
The increase of $4,749 in cost of sales for the nine months ended September 30, 20222023 as compared to the nine months ended September 30, 2021 was driven2022 is mainly by the Gage Acquisition, as well as an increase in New Jersey due to the increase in adult use sales which commenced
32
during the current year. The increase in costa result of sales as a percentageimpairments and write-downs of revenue was due to lower volumesinventory 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, Maryland as the Company transitions to its Hagerstown location.
In addition, management wrote down its inventory by $14,873 and $263of $7,422 for the nine months ended September 30, 2022 and 2021, respectively. The inventory write-downsas well as increased yields in the current year period were mainly due to the write down of inventory toNew Jersey, improved utilization in Maryland, 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 recallcosts in Pennsylvania as well as inventory deemed unsaleablea result of scaling back the cultivation facility, and reduced discounting combined with improved verticalization in its business in Canada. The impairment recorded in the prior year period was due to obsolete or slow-moving inventory at the Company's Arise business and other inventory that the Company deemed unsaleable in its business in Canada.Michigan.
General and Administrative Expense (G&A)administrative expense
| For the Nine Months Ended |
| For the Nine Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
General and administrative expense |
| $ | 85,918 |
|
| $ | 62,462 |
|
| $ | 87,505 |
|
| $ | 81,753 |
|
$ change |
| $ | 23,456 |
|
|
|
|
| $ | 5,752 |
|
|
|
| ||
% change |
|
| 38 | % |
|
|
|
|
| 7 | % |
|
|
| ||
G&A excluding share-based compensation |
| $ | 75,394 |
|
| $ | 49,069 |
| ||||||||
G&A excluding share-based compensation as a % of revenue |
|
| 42 | % |
|
| 30 | % |
The increase in G&A expensesexpense of $5,752 for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily a result of increasedan increase in salaries and wages due to the addition of $11,083, office and generalworkforce in Maryland for the four retail acquisitions which occurred during the nine months ended September 30, 2023 combined with a full year of adult use sales in New Jersey. The Company continues to advance its plan to optimize administrative expenses of $9,415, and sales and marketing of $4,672, which is primarily a result of the Gage Acquisition.to strengthen its position in order to generate positive cashflow from operations.
Amortization and Depreciation Expensedepreciation expense
| For the Nine Months Ended |
| For the Nine Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Amortization and depreciation |
| $ | 8,666 |
|
| $ | 5,664 |
|
| $ | 6,935 |
|
| $ | 7,356 |
|
$ change |
| $ | 3,002 |
|
|
|
|
| $ | (421 | ) |
|
|
| ||
% change |
|
| 53 | % |
|
|
|
|
| -6 | % |
|
|
|
The increasedecrease of $421 in amortization and depreciation expense for the nine months ended September 30, 20212023 as compared to September 30, 2020 was primarily due to the Gage Acquisition during March 2022. The company acquired retail licenses which are amortized over a 15 year period. The fair value of the retail licenses at acquisition was $53,321.
Impairment of intangible assets
| For the Nine Months Ended |
| ||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Impairment of intangible assets |
| $ | 152,928 |
|
| $ | 3,633 |
|
$ change |
| $ | 149,295 |
|
|
|
| |
% change |
|
| 4109 | % |
|
|
|
During the nine months ended September 30, 2022 the Company performed impairment analyses over its indefinite lived and definite lived intangible assets acquired through the Gage Acquisition as the changes in the market expectations of cash flows in Michigan, as well as increased competition and supply in the state, were determinedwas primarily due to be indicators of impairment. The Company determined that it was more likely than not that the carrying value of its definite lived retail and cultivation and processing licenses was greater than its fair value, and therefore recorded impairment of $78,998 and $54,730 for the retail and cultivation and processing licenses, respectively, reducing both the carrying values to $nil at September 30, 2022. Additionally, the Company recorded impairment of its indefinite liveda brand intangible assets acquired through the Gage Acquisition of $19,200, reducing the carrying value of the brand intangibles to $57,985 at September 30,asset that was fully amortized during 2022.
The impairment recorded during the nine months ended September 30, 2021 related to the write-off of intellectual property at the Company’s Arise business.
Impairment of goodwill
33
�� | For the Nine Months Ended |
| ||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Impairment of goodwill |
| $ | 178,314 |
|
| $ | 5,007 |
|
$ change |
| $ | 173,307 |
|
|
|
| |
% change |
|
| 3461 | % |
|
|
|
During the nine months ended September 30, 2022, as it was determined that it was more likely than not that the Michigan reporting unit's fair value was less than its carrying value, a one-step goodwill quantitative impairment test was performed. As a result of the quantitative impairment test, the Company recorded impairment of goodwill of $178,314 at its Michigan reporting unit, reducing the carrying value of the goodwill acquired through the Gage Acquisition and Pinnacle Acquisition to $nil.
The impairment recorded for the nine months ended September 30, 2021 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.
Revaluation(Gain) loss from revaluation of contingent consideration
| For the Nine Months Ended |
| For the Nine Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Revaluation of contingent consideration |
| $ | 189 |
|
| $ | 2,652 |
| ||||||||
(Gain) loss from revaluation of contingent consideration |
| $ | (645 | ) |
| $ | 189 |
| ||||||||
$ change |
| $ | (2,463 | ) |
|
|
|
| $ | (834 | ) |
|
|
| ||
% change |
|
| -93 | % |
|
|
|
|
| -441 | % |
|
|
|
35
The decrease in the revaluation of contingent consideration for the nine months ended September 30, 20222023 as compared to the nine months ended September 30, 20212022 was a result of a reduction in the contingent liability for Peninsula acquisition due to increase in the Company's share price as compared toof September 30, 2021 due to payments for the earnout of State Flower of $7,040 made subsequent to September 30, 2021, reducing the amount outstanding. This decrease was partially offset by the accretion of the contingent consideration payable for KCR, which is recorded at the present value of future payments upon initial recognition.2023.
GainLoss (gain) on fair value of warrants and purchase option derivative asset
| For the Nine Months Ended |
| For the Nine Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Gain on fair value of warrants and purchase option derivative asset |
| $ | (58,555 | ) |
| $ | (43,715 | ) | ||||||||
Loss (gain) on fair value of warrants and purchase option derivative assets |
| $ | 2,564 |
|
| $ | (58,555 | ) | ||||||||
$ change |
| $ | (14,840 | ) |
|
|
|
| $ | 61,119 |
|
|
|
| ||
% change |
|
| 34 | % |
|
|
|
|
| -104 | % |
|
|
|
The warrant liability was remeasured to fair value at September 30, 2023 using the Black-Scholes model. The Company recognized a loss of $2,564 during the nine months ended September 30, 2023 as a result of the rising share price from December 31, 2022, as compared to September 30, 2023.
The Preferred Share warrant liability expired during the nine months ended September 30, 2023. The purchase option derivative asset related to the option to purchase an additional 6.25% ownership of the Company's New Jersey partnership also expired during nine months ended September 30, 2023.
The warrant liability was remeasured to fair value at September 30, 2022 using the Black ScholesBlack-Scholes model. The Company recognized a gain during the nine months ended September 30, 2022 as a result of the reduction of the Company's share price from December 31, 2021 as compared to September 30, 2022, as well as from warrants exercised during the nine months ended September 30, 2022. The combined impact resulted in a gain on fair value of warrants of $59,373.
For the nine months ended September 30, 2022, the purchase option derivative asset related to the option to purchase an additional 6.25% of ownership of the Company's New Jersey partnership, were remeasured using the Monte Carlo simulation model and resulted in a loss of $818.
During the nine months ended September 30, 2021, the Company recognized a gain on fair value of warrants of $43,715 as a result of the decrease in the Company's share price from December 31, 2020 to September 30, 2021 as well as warrants exercised during the nine months ended September 30, 2021.
Finance and other expenses
| For the Nine Months Ended |
| For the Nine Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Finance and other expenses |
| $ | 30,227 |
|
| $ | 22,281 |
|
| $ | 28,341 |
|
| $ | 29,563 |
|
$ change |
| $ | 7,946 |
|
|
|
|
| $ | (1,222 | ) |
|
|
| ||
% change |
|
| 36 | % |
|
|
|
|
| -4 | % |
|
|
|
34
The increasedecrease of $1,222 in finance and other expenses for the nine months ended September 30, 20222023 as compared to the nine months ended September 30, 2021 was2022 is primarily due to interest expense recognized ona loss recorded from the loans acquired as partindemnification asset release related to the acquisition of the Gage Acquisition.Apothecarium during nine months ended September 30, 2022.
Transaction and restructuring costs
| For the Nine Months Ended |
| For the Nine Months Ended |
| ||||||||||||
|
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2023 |
| September 30, 2022 |
| ||||||
Transaction and restructuring costs |
| $ | 2,601 |
|
| $ | 1,466 |
|
| $ | 392 |
|
| $ | 1,585 |
|
$ change |
| $ | 1,135 |
|
|
|
|
| $ | (1,193 | ) |
|
|
| ||
% change |
|
| 77 | % |
|
|
|
|
| -75 | % |
|
|
|
The increasedecrease of $1,193 in transaction and restructuringrestructering costs for the nine months ended September 30, 2022 was primarily due2023 as compared to personnel related reorganization and severance costs in Canada. The transaction and restructuring costs for the threenine months ended September 30, 2021 included legal costs related2022 relates primarily to the acquisitions of KCR, HMS, and Gage.Gage Acquisition, which closed on March 10, 2022.
36
Unrealized and realized foreign exchange (gain) loss
| For the Nine Months Ended |
| ||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Unrealized and realized foreign exchange loss |
| $ | 636 |
|
| $ | 4,582 |
|
$ change |
| $ | (3,946 | ) |
|
|
| |
% change |
|
| -86 | % |
|
|
|
| For the Nine Months Ended |
| ||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||
Unrealized and realized foreign exchange (gain) loss |
| $ | (175 | ) |
| $ | 624 |
|
$ change |
| $ | (799 | ) |
|
|
| |
% change |
|
| -128 | % |
|
|
|
The decreasechange in unrealized foreign exchange (gain) loss from a loss of $624 for the nine months ended September 30, 2022 to a gain of $175 for the nine months ended September 30, 2023 was a result of the Company's subsidiary TerrAscend Growth Corp, changing its functional currency to U.S. dollars from Canadian dollars in July 2023.
Provision for (benefit from) income taxes
| For the Nine Months Ended |
| ||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||
Provision for (benefit from) income taxes |
| $ | 32,655 |
|
| $ | (25,602 | ) |
$ change |
| $ | 58,257 |
|
|
|
| |
% change |
|
| -228 | % |
|
|
|
The change in provision for (benefit from) income taxes from a $25,602 benefit for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was a result of the remeasurement of USD denominated liabilities recorded in C$ functional currency at the Company’s Canadian operations.
Unrealized and realized gain on investments
| For the Nine Months Ended |
| ||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Unrealized and realized loss (gain) on investments |
| $ | 3 |
|
| $ | (6,192 | ) |
$ change |
| $ | 6,195 |
|
|
|
| |
% change |
|
| -100 | % |
|
|
|
The loss on investment during the nine months ended September 30, 2022 was related to the revaluation of the investments acquired through the Gage Acquisition. The gain on investment during the nine months ended September 30, 2021 related to the acquisition of the remaining 90% investment in Guadco LLC and KCR Holdings LLC.
Provision for income taxes
| For the Nine Months Ended |
| ||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Provision for income taxes |
| $ | (25,602 | ) |
| $ | 21,372 |
|
$ change |
| $ | (46,974 | ) |
|
|
| |
% change |
|
| -220 | % |
|
|
|
The decrease in provision for income taxes of $32,655 for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 20212023 was primarily driven by the decrease in pre-tax book incomeloss for 2023 as a result of the impairment of intangible assets and goodwill recorded by the Company during the period.Gage Growth Corp in 2022.
Liquidity and Capital Resources
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
| $ |
|
| $ |
| ||
Cash and cash equivalents |
|
| 25,410 |
|
|
| 26,158 |
|
Restricted Cash |
|
| 606 |
|
|
| 605 |
|
Current assets |
|
| 107,214 |
|
|
| 121,993 |
|
Non-current assets |
|
| 627,452 |
|
|
| 579,594 |
|
Current liabilities |
|
| 146,380 |
|
|
| 137,905 |
|
Non-current liabilities |
|
| 303,504 |
|
|
| 242,511 |
|
Working capital |
|
| (39,166 | ) |
|
| (15,912 | ) |
Total shareholders' equity |
|
| 284,782 |
|
|
| 321,171 |
|
35
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| $ |
|
| $ |
| ||
Cash and cash equivalents |
|
| 34,288 |
|
|
| 79,642 |
|
Current assets |
|
| 113,397 |
|
|
| 143,221 |
|
Non-current assets |
|
| 612,091 |
|
|
| 438,713 |
|
Current liabilities |
|
| 172,342 |
|
|
| 61,044 |
|
Non-current liabilities |
|
| 274,324 |
|
|
| 291,936 |
|
Working capital |
|
| (58,945 | ) |
|
| 82,177 |
|
Total shareholders' equity |
|
| 278,822 |
|
|
| 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 September 30, 2023, TerrAscend had an accumulated deficit of $662,075. During the three and nine months ended September 30, 2023, TerrAscend incurred a net loss from continuing operations of $8,439 and $40,472, respectively. Additionally, as of September 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.
Sources
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 liquiditythese 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 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, the Company'sTerrAscend's primary sources of capital have been through the issuance of equity securities or debt facilities, and the CompanyTerrAscend has received aggregate net proceeds from such transactions totaling $564,896$654,250 as of September 30, 2022.2023.
The Company
37
TerrAscend expects to fund any additional future requirements through the following sources of capital:
Capital requirements
As of September 30, 2022, there were no material changes in the Company's short-term and long-term cash requirements from those disclosed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's 2021 10-K, except as those described below:
The Company has $284,231$208,874 in principal amounts of loans payable at September 30, 2022.2023. Of this amount, $78,847$18,448 are due within the next twelve months.
At September 30, 2022, the Company had cash and cash equivalents of $34,288. As reflected in the unaudited condensed consolidated financial statements, the Company has incurred net losses for the three and nine months ended September 30, 2022 of $310,985 and $312,829, respectively, which primarily related to impairment of goodwill and intangible assets in its Michigan business (refer to Note 7), and the Company had negative cash flow from operating activities for the nine months ended September 30, 2022 of $33,431. Subsequent to the quarter end, the Company entered into a senior secured term loan in an aggregate amount of $45,478 (refer to Note 22 for further details about the loan). The Company has $55,000 of debt that becomes due on November 30, 2022 that the Company plans to refinance (refer to Note 8 for more information about the senior secured term loan that becomes due on November 30, 2022).
While the Company's cash flow and net losses for the nine months ended September 30, 2022 are indicators that raise substantial doubt about whether the Company will be able to support its operations and meet its obligations in the near term, the Company believes this concern is mitigated by steps to improve its operations and cash position, including (i) identifying access to future capital, (ii) continued sales growth from the Company's consolidated operations, and (iii) various actions that were implemented during the three months ended September 30, 2022 leading to general and administrative expense reductions. If the Company is unable to refinance its debt obligations that become due November 30, 2022 and the efforts outlined above are ineffective, there could be a material adverse effect on the results of the Company's operations and financial condition.
The CompanyTerrAscend has entered into leases for certain premises and offices for which it owes monthly lease payments. The CompanyTerrAscend has $5,809$99,003 in lease obligationsobligations. Of this amount, $9,948 are due in the next twelve months. Additionally, the CompanyTerrAscend makes monthly payments on financing obligations on fiveone of its real estate properties with $971 payable, $181 of owned real estate. The Company has $1,887 in financing obligationswhich is due in the next twelve months.
36
Through the pending acquisition of AMMD, the Company has capital commitments of $10,000 to purchase all the outstanding equity, in addition to acquiring the real estate for $1,700. In addition, the Company'sTerrAscend's undiscounted contingent consideration payable is $10,734$6,446 at September 30, 2022.2023. The contingent consideration payable relates to the Company'sTerrAscend's business acquisitions of Thethe Apothecarium, State Flower, and KCR. Contingent consideration is based uponPeninsula. Those payments are due in the potential earnoutnext twelve months, with the exception of the underlying business unit and is measured at fair value using a projection model for the business and the formulaic structure for determining the consideration under the agreement. The contingent consideration is revalued at the end of each reporting period.Peninsula.
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 September 30, 2023, the Company had accounts payable and accrued liabilities of $51,032 and corporate income taxes payable of $58,707.
TerrAscend does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company'sTerrAscend'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.
Debt facilities
Canopy Growth- Canada Inc loan
Ilera Term Loan
On November 11, 2022,December 18, 2020, WDB Holding PA, a subsidiary of TerrAscend, Canada Inc. and Canopy USA III Limited Partnership ("Canopy USA III LP"), a successor to Canopy Growth Corporation, entered into an agreement fora senior secured term loan with a syndicate of lenders in the period commencing August 31, 2022amount 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 (and including) November 30, 2022,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 subsidiaries of WDB Holding PA, and secured 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 certain conditions, whereby Canopy USA III LP agreeda premium payment due. Of the total proceeds received, $105,767 was used to a waiver of TerrAscend Canada Inc.’s obligation to maintainsatisfy the minimum current assets as set forth in the loan financing agreement with Canopy USA LLL LP (see Note 8 of the unaudited condensed consolidated financial statements referencing "Canopy Growth Canada Inc. loan").remaining Ilera earn-out payments.
Ilera term loan
On April 28, 2022, the Ilera term loan (refer to Note 8 of the unaudited condensed consolidated financial statements)Term Loan was amended to provide WDB Holding PA a subsidiary of the Company, with greater flexibility by resetting the minimum consolidated interest coverage ratio levels that must be satisfied at the end of each 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 extinguishmentsextinguishment of debt under ASC 470 Debt.Debt.
On November 11, 2022, WDB Holding PA, the Company,TerrAscend, TerrAscend USA Inc. and the subsidiary guarantors party to the PA Credit AgreementIlera Term Loan and the PA Agent (on behalf of the required lenders) entered into an amendment to the PA Credit Agreement, pursuant to which the PA Agent and the required lenders agreed that WDB Holding PA’sPA's obligation to maintain the consolidated interest coverage ratio as set
38
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.
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 8, June 15, and June 29, 2023, WBD Holding PA made repayments of principal in the amounts of $7,896, $442, and $28,236, respectively.
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. There is $78,427 of principal amounts outstanding at September 30, 2023.
On October 2, 2023, TerrAscend completed a prepayment of the Ilera Term Loan of $1,500 at the original prepayment price of 103.22% to par.
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.
On November 29, 2022, TerrAscend Growth Corp. 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 Growth Corp 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 Growth Corp 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.
39
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 $2,979 of principal amounts outstanding at September 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 $5,582 of principal amounts outstanding at September 30, 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 September 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 was required to hold $5,000 on deposit in a restricted account, of which $2,500 of the restricted cash was released on July 28, 2023 upon meeting certain criteria pursuant to the terms of the Stearns Loan. 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. There is $24,913 of principal amounts outstanding at September 30, 2023.
Maryland Acquisition Loans
On June 28, 2023, related to the acquisition of Peninsula, the Company assumed existing indebtedness in the form of a promissory note 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 for the Peninsula acquisition 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.
On June 30, 2023, related to the acquisition of Blue Ridge, the Company entered into 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
40
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%.
On July 10, 2023, related to the acquisition of Herbiculture, the Company entered into a promissory note in the amount of $5,250. The promissory note carries a fixed interest rate of 10.50%. Commencing on September 30, 2023, and thereafter until December 31, 2024, all accrued interest during such quarter will be added to the outstanding principal balance on the last day of each fiscal quarter. Beginning on March 31, 2025, and thereafter until March 31, 2026, only interest payments will be due on the last day of each fiscal quarter. The entire outstanding balance of the principal and accrued interest is due on June 30, 2026, the maturity date of the note.
There is $20,991 of principal amounts outstanding at September 30, 2023 on the promissory notes.
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 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. There is $1,000 of principal amounts outstanding at September 30, 2023.
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 and July 31, 2023, the Company made a payment of $1,500 and $1,000, respectively. There is $5,000 of principal amounts outstanding at September 30, 2023.
Cash Flows
Cash flows used inprovided by (used in) operating activities
| For the Nine Months Ended |
| ||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Net cash used in operating activities |
| $ | (33,431 | ) |
| $ | (28,012 | ) |
| For the Nine Months Ended |
| ||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||
Net cash provided by (used in) operating activities |
| $ | 18,052 |
|
| $ | (33,431 | ) |
The increase of $51,483 in net cash used inprovided by operating activities for the nine months ended September 30, 2023 as compared to nine months ended September 30, 2022 is due primarily due to an increase in lossincome from operations, excluding non-cash impairment losses on intangible assets and goodwill, of $32,088 from a profit of $23,148 in the prior year period, as well as changeslower interest, reduced tax payments, partially offset by an increase in working capital items of $6,616.capital.
Cash flows used in investing activities
| For the Nine Months Ended |
| ||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Net cash used in investing activities |
| $ | (12,582 | ) |
| $ | (95,495 | ) |
| For the Nine Months Ended |
| ||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||
Net cash used in investing activities |
| $ | (13,292 | ) |
| $ | (12,582 | ) |
37
The net cash used in investing activities for the nine months ended September 30, 2023 primarily relates to the cash paid for the acquisition of four dispensaries in Maryland. Additionally, the Company increased the investment in property and equipment by $6,224 during the nine months ended September 30, 2023. The Company also paid the success fee of $3,750 related to Alternative Treatment Center licenses issued by the New Jersey Department of Health during nine months ended September 30, 2023. These investments were partially offset by proceeds from the sale of the Company's Canadian facility of $14,285.
In comparison, the net cash used in investing activities for the nine months ended September 30, 2022 primarily relates to investments in property and equipment of $24,678, 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 iswas offset by cash inflows of $16,227 related to the cash acquired through the Gage Acquisition, offset by net cash paid for consideration for the Pinnacle Acquisition.
41
Cash flows (used in) provided by financing activities
| For the Nine Months Ended |
| ||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||
Net cash (used in) provided by financing activities |
| $ | (2,983 | ) |
| $ | 5,537 |
|
Net cash used in investingfinancing activities for the nine months ended September 30, 20212023 was primarily relatesdue to loan principal paid of $46,029 and distributions to minority partners of $6,966 and offset by the cash consideration paid forinflow of transfer with recourse of Employee Retention Credit of $12,677, net proceeds from the acquisitioncommercial loan with Stearns bank of KCR$23,869, and HMS totaling $42,736. During the nine months ended September 30, 2021, the Company made paymentsnet proceeds from private placements of $25,000 related to the purchase of the additional 12.5% of the issued and outstanding equity of TerrAscend NJ from BWH NJ, LLC and Blue Marble Ventures, LLC. Additionally, the Company had investments in property and equipment of $26,706 primarily related to the buildout of the New Jersey operations and expansions in Pennsylvania cultivation and $1,739 related to deposits paid for expansion of the cultivation premises in Pennsylvania.$21,260.
Cash flows fromNet cash provided by financing activities
| For the Nine Months Ended |
| ||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Net cash provided by financing activities |
| $ | 5,537 |
|
| $ | 167,935 |
|
During for the nine months ended September 30, 2022, 7,989,436 Common Sharews primarily due to the exercise of warrants were exercised for total proceeds of $23,797 and 238,065 stock options were exercised for total gross proceeds of $361. The cash provided by financing activities was partially offset by payments of contingent consideration related to the acquisition of State Flower of $6,630, loan principal payments of $6,088, loan amendment fees paid on the modification of the Ilera term loan and the Gage senior secured term loan of $2,309, tax distributions paid on behalf of the partners of the New Jersey operations of $1,436, and distributions to non-controlling interests of $1,237.
Net cash provided by financing activities for the nine months ended September 30, 2021, was primarily a 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 nine months ended September 30, 2021, 2,590,178 Common Share warrants were exercised for total proceeds of $6,777 and 829,675 stock options were exercised at $0.67-$6.93 (C$0.85-$8.82) per unit for total gross proceeds of $3,677. In addition, 1,968 Preferred Share warrants were exercised at $3,000 per unit for total gross proceeds of $3,588. The cash provided by financing activities was offset by payments of contingent consideration related to the acquisition of Ilera of $18,274.
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 CompanyTerrAscend believes Adjusted 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
38
business performance and other one-time or non-recurring expenses. The table below reconciles net loss to
42
EBITDA from continuing operations and Adjusted EBITDA from continuing operations for the three and nine months ended September 30, 20222023 and 2021.2022:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||||||
| Notes |
| September 30, 2022 |
|
|
| September 30, 2021 |
|
|
| September 30, 2022 |
|
|
| September 30, 2021 |
| ||||
Net income (loss) |
|
| $ | (310,985 | ) |
|
| $ | 55,835 |
|
|
| $ | (312,829 | ) |
|
| $ | 12,062 |
|
Add (deduct) the impact of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provision for income taxes |
|
|
| (34,033 | ) |
|
|
| 4,999 |
|
|
|
| (25,602 | ) |
|
|
| 21,372 |
|
Finance expenses |
|
|
| 10,092 |
|
|
|
| 6,351 |
|
|
|
| 26,217 |
|
|
|
| 18,134 |
|
Amortization and depreciation |
|
|
| 7,110 |
|
|
|
| 4,200 |
|
|
|
| 19,241 |
|
|
|
| 11,250 |
|
EBITDA | (a) |
|
| (327,816 | ) |
|
|
| 71,385 |
|
|
|
| (292,973 | ) |
|
|
| 62,818 |
|
Add (deduct) the impact of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Relief of fair value upon acquisition | (b) |
|
| 415 |
|
|
|
| 1,163 |
|
|
|
| 2,770 |
|
|
|
| 1,730 |
|
Non-cash write downs of inventory | (c) |
|
| 6,037 |
|
|
|
| — |
|
|
|
| 11,931 |
|
|
|
| 449 |
|
Vape recall | (d) |
|
| — |
|
|
|
| — |
|
|
|
| 2,965 |
|
|
|
| — |
|
Share-based compensation | (e) |
|
| 2,705 |
|
|
|
| 5,178 |
|
|
|
| 10,524 |
|
|
|
| 13,393 |
|
Impairment of goodwill and intangible assets | (f) |
|
| 331,242 |
|
|
|
| — |
|
|
|
| 331,242 |
|
|
|
| 8,640 |
|
(Gain) loss on disposal of fixed assets | (g) |
|
| (81 | ) |
|
|
| 220 |
|
|
|
| 848 |
|
|
|
| 256 |
|
Revaluation of contingent consideration | (h) |
|
| 36 |
|
|
|
| (338 | ) |
|
|
| 189 |
|
|
|
| 2,652 |
|
Restructuring costs and executive severance | (i) |
|
| 1,443 |
|
|
|
| 450 |
|
|
|
| 1,443 |
|
|
|
| 917 |
|
Legal settlements | (j) |
|
| 1,170 |
|
|
|
| — |
|
|
|
| 1,170 |
|
|
|
| 2,121 |
|
Other one-time items | (k) |
|
| 1,311 |
|
|
|
| 1,365 |
|
|
|
| 4,209 |
|
|
|
| 2,487 |
|
Gain on fair value of warrants and purchase option derivative asset | (l) |
|
| (5,497 | ) |
|
|
| (69,016 | ) |
|
|
| (58,555 | ) |
|
|
| (43,715 | ) |
Indemnification asset release | (m) |
|
| — |
|
|
|
| 95 |
|
|
|
| 3,973 |
|
|
|
| 3,891 |
|
Unrealized and realized (gain) loss on investments | (n) |
|
| (231 | ) |
|
|
| — |
|
|
|
| 3 |
|
|
|
| (6,192 | ) |
Unrealized and realized foreign exchange loss (gain) | (o) |
|
| 586 |
|
|
|
| (1,256 | ) |
|
|
| 636 |
|
|
|
| 4,582 |
|
Adjusted EBITDA |
|
| $ | 11,320 |
|
|
| $ | 9,246 |
|
|
| $ | 20,375 |
|
|
| $ | 54,029 |
|
The Company
|
|
| For the Three Months Ended |
|
|
| For the Nine Months Ended |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Notes |
| September 30, 2023 |
|
|
| September 30, 2022 |
|
|
| September 30, 2023 |
|
|
| September 30, 2022 |
| ||||
Net loss |
|
| $ | (8,671 | ) |
|
| $ | (310,985 | ) |
|
| $ | (44,916 | ) |
|
| $ | (312,829 | ) |
Loss from discontinued operations |
|
|
| 232 |
|
|
|
| 10,424 |
|
|
|
| 4,444 |
|
|
|
| 15,377 |
|
Loss from continuing operations |
|
|
| (8,439 | ) |
|
|
| (300,561 | ) |
|
|
| (40,472 | ) |
|
|
| (297,452 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Add (deduct) the impact of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provision for income taxes |
|
|
| 13,543 |
|
|
|
| (34,033 | ) |
|
|
| 32,655 |
|
|
|
| (25,602 | ) |
Finance expenses |
|
|
| 10,203 |
|
|
|
| 10,347 |
|
|
|
| 26,041 |
|
|
|
| 25,759 |
|
Amortization and depreciation |
|
|
| 5,417 |
|
|
|
| 6,560 |
|
|
|
| 15,179 |
|
|
|
| 17,578 |
|
EBITDA from continuing operations | (a) |
|
| 20,724 |
|
|
|
| (317,687 | ) |
|
|
| 33,403 |
|
|
|
| (279,717 | ) |
Add (deduct) the impact of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Relief of fair value upon acquisition | (b) |
|
| — |
|
|
|
| 415 |
|
|
|
| — |
|
|
|
| 2,770 |
|
Non-cash write downs of inventory | (c) |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 5,894 |
|
Vape recall | (d) |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 2,965 |
|
Share-based compensation | (e) |
|
| 1,775 |
|
|
|
| 2,705 |
|
|
|
| 5,469 |
|
|
|
| 10,524 |
|
Impairment of goodwill and intangible assets | (f) |
|
| — |
|
|
|
| 331,242 |
|
|
|
| — |
|
|
|
| 331,242 |
|
(Gain) loss from revaluation of contingent consideration | (g) |
|
| (645 | ) |
|
|
| 36 |
|
|
|
| (645 | ) |
|
|
| 189 |
|
Other one-time items | (h) |
|
| 998 |
|
|
|
| 1,311 |
|
|
|
| 5,287 |
|
|
|
| 4,209 |
|
Employee Retention Credits Transfer Fee | (i) |
|
| — |
|
|
|
| — |
|
|
|
| 2,236 |
|
|
|
| — |
|
Loss on lease termination and derecognition of ROU asset | (j) |
|
| — |
|
|
|
| — |
|
|
|
| 205 |
|
|
|
| — |
|
Loss (gain) on fair value of warrants and purchase option derivative asset | (k) |
|
| 3,217 |
|
|
|
| (5,497 | ) |
|
|
| 2,564 |
|
|
|
| (58,555 | ) |
Indemnification asset release | (l) |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 3,973 |
|
Impairment of property and equipment | (m) |
|
| — |
|
|
|
| (81 | ) |
|
|
| 345 |
|
|
|
| 848 |
|
Gain on disposal of fixed assets | (n) |
|
| (1,879 | ) |
|
|
| — |
|
|
|
| (1,879 | ) |
|
|
| — |
|
Unrealized and realized loss (gain) on investments | (o) |
|
| 5 |
|
|
|
| (231 | ) |
|
|
| 2,365 |
|
|
|
| 3 |
|
Unrealized and realized foreign exchange (gain) loss | (p) |
|
| (43 | ) |
|
|
| 583 |
|
|
|
| (175 | ) |
|
|
| 624 |
|
Adjusted EBITDA from continuing operations |
|
| $ | 24,152 |
|
|
|
| 12,796 |
|
|
| $ | 49,175 |
|
|
| $ | 24,969 |
|
TerrAscend calculates adjusted gross profit to adjustby adjusting gross profit for the one-time relief of fair value of inventory upon acquisition, non-cash write downs of inventory, vape recall, and accelerated depreciationother one-time adjustments to gross profit as the CompanyTerrAscend 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 nine months ended September 30, 20222023 and 2021.2022:
|
| For the Three Months Ended |
| For the Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
| Notes |
| September 30, 2022 |
| September 30, 2021 |
|
| September 30, 2022 |
|
|
| September 30, 2021 |
|
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Notes |
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
|
| September 30, 2022 |
| |||||||||||||
Gross profit |
|
| $ | 24,363 |
|
| $ | 21,497 |
|
| $ | 62,496 |
|
| $ | 91,274 |
|
| $ | 47,805 |
|
| $ | 31,131 |
|
| $ | 117,931 |
|
|
| $ | 70,706 |
| ||||||
Add (deduct) the impact of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Relief of fair value upon acquisition | (b) |
|
| 415 |
|
|
| 1,163 |
|
|
| 2,770 |
|
|
| 1,730 |
| (b) |
|
| — |
|
|
| 415 |
|
|
| — |
|
|
| 2,770 |
| ||||||
Non-cash write downs of inventory | (c) |
|
| 6,037 |
|
|
| — |
|
|
| 11,931 |
|
|
| 449 |
| (c) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,894 |
| ||||||
Vape recall | (d) |
|
| — |
|
|
| — |
|
|
| 2,965 |
|
|
| — |
| (d) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,965 |
| ||||||
Facility transition costs | (p) |
|
| 107 |
|
|
| — |
|
|
| 107 |
|
|
| — |
| |||||||||||||||||||||||
Accelerated depreciation | (q) |
|
| — |
|
|
|
| — |
|
|
|
| 238 |
|
|
|
| — |
| ||||||||||||||||||||
Other one time adjustments to gross profit | (q) |
|
| — |
|
|
|
| — |
|
|
|
| 94 |
|
|
|
| 238 |
| ||||||||||||||||||||
Adjusted gross profit |
|
| $ | 30,922 |
|
|
| $ | 22,660 |
|
|
| $ | 80,507 |
|
|
| $ | 93,453 |
|
|
| $ | 47,805 |
|
|
| $ | 31,546 |
|
|
| $ | 118,025 |
|
|
| $ | 82,573 |
|
43
39
The decreaseincrease in Adjusted EBITDA and adjusted gross profitfrom continuing operations for the three and nine months ended September 30, 20222023 compared to the three and nine months ended September 30, 20212022 was primarily due to lower volumeimplementation of adult use sales in New Jersey and resulting gross margin compression mainly related to challenging market dynamics in Pennsylvania.Maryland along with the reduction of general and administrative expenses.
Recent Accounting Pronouncements
Information regarding the Company's adoption of new accounting and reporting standards is discussed in Note 2 to the accompanying unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
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 included in this Quarterly Report on Form 10-Q.
Critical Accounting 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 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 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 2021 Form 10-K.board structure of TerrAscend Growth Corp., and substantive kick-out rights of the Class A shareholders.
44
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 its initial public offering, (b) in which we havethe Company has total annual gross revenue of $1.235 billion$1,235,000 or more, or (c) in which the Company is deemed to be a large accelerated filer, which means the market value of ourthe Company's Common Stock that is held by non-affiliates exceeds $700.0 million$700,000 as of the prior June 30th;last business day of the Company's most recent second fiscal quarter; 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.
There have been no material changes in the Company's primary risk exposures or management of market risks for the quarter ended September 30, 2022 from those disclosed in its 2021Annual Report on Form 10-K.10-K for the fiscal year ended December 31, 2022.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
40
The Company's management, with the participation of its PrincipalChief Executive officerOfficer and Chief Financial Officer, has evaluated the effectiveness of the Company's 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 PrincipalCompany's Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 20222023, the Company's 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's management, including its PrincipalChief 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's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2022,2023, that have materially affected, or are reasonably likely to materially affect, ourthe Company's internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating ourthe Company's 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. ReferAt September 30, 2023, there were no pending lawsuits that could reasonably be expected to Note 21, Legal Proceedings, inhave a material effect on the notes to the unaudited condensedresults of TerrAscend's consolidated financial statements in this Quarterly Report on Form 10-Q.statements.
45
Item 1A. Risk Factors.
Investing in the Company's Common Stockcommon shares 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 2021 Form 10-K for the year ended December 31, 2021, which was filedCompany'sAnnual Report. The Company may disclose changes to risk factors or disclose additional factors from time to time in its future filings with the SEC on March 17, 2022SEC. Additional risks and as amended. There have been no material changesuncertainties not presently known to the Company's risk factors as previously disclosed inCompany or that the 2021 Form 10-K.Company currently deems immaterial may impair its business operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.On August 2, 2023, TerrAscend closed a private placement of approximately 250,000 senior unsecured convertible debentures at a price of $1,000 per debenture for total gross proceeds of approximately $250,000. 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 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 connection with the terms of this debenture offering, TerrAscend agreed to make certain cash commission payments equal to an average rate of approximately 1% of the gross proceeds received by it based on the source of funds.
The securities issued in the private placement described above were offered and sold in reliance upon (i) the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(a)(2) thereof and (ii) exemptions from the formal valuation and minority shareholder approval requirements of MI 61–101 contained in sections 5.5(a) and 5.7(1)(a) of MI 61–101 in respect of the Insider Participation as the fair market value (as determined under MI 61-101) of the Insider Participation in the private placement is below 25% of TerrAscend’s market capitalization (as determined in accordance with MI 61-101).
Item 6. Exhibits.3. Defaults Upon Senior Securities
41
Exhibit |
|
|
| Description of Exhibit Incorporated Herein by Reference | Filed | |||
Number |
| Description |
| Form | File No. | Exhibit | Filing Date | Herewith |
3.1 |
|
| 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 |
|
|
|
|
|
|
|
|
|
|
3.4 |
|
| 10-12G | 000-56363 | 3.4 | 11/2/2021 |
| |
|
|
|
|
|
|
|
|
|
10.8*† |
|
|
|
|
|
| X | |
|
|
|
|
|
|
|
|
|
31.1* |
|
|
|
|
|
| X | |
|
|
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
| X | |
|
|
|
|
|
|
|
|
|
32.1+ |
|
|
|
|
|
| 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 |
|
|
|
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
104 |
| Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
|
|
|
* Filed herewith.
† Certain schedulesNone.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On November 9, 2023, the Company entered into an Amended and exhibitsRestated Employment Agreement with Keith Stauffer (the “Stauffer A&R Agreement”), the Company’s Chief Financial Officer, which among other things, provides for the issuance of 300,000 restricted share units ("RSUs") in exchange for the surrender of stock options to this Exhibit have been omittedpurchase 300,000 shares of the Company's common stock taht were granted to Mr. Stauffer pursuant to Regulation S-K Item 601(a)(5).his original employment agreement dated April 22, 2020. In addition, the Stauffer A&R Agreement provides for certain change of control provisions, including that in the event of a change of control, 100% of Mr. Stauffer’s unvested options and RSUs will accelerate and vest immediately. Mr. Stauffer’s employment is terminated without cause or for good reason within 12 months following a change of control, Mr. Stauffer will be entitled to two times his Severance Pay (as defined in the Stauffer A&R Agreement), two times his COBRA Cash Stipend (as defined in the Stauffer A&R Agreement) and, if not yet paid, his full bonus for the prior calendar year and full bonus for the current calendar year. The Registrant agrees to furnish supplementally a copyforegoing description of any omitted schedule or exhibitthe Stauffer A&R Agreement is qualified in its entirety by reference to the SEC upon request[AU1] .
[AU1]Important addition here
+ This certificationfull text of such agreement, which is being furnished solelyfiled as Exhibit 10.1 to accompany this Quarterly Report on Form 10-Q pursuantand is incorporated by reference herein.
46
Item 6. Exhibits.
Exhibit | Description of Exhibit Incorporated Herein by Reference | Filed | ||||||
Number | Description | Form | File No. | Exhibit | Filing Date | Herewith | ||
3.1 | 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 | |||
3.4 | 10-12G | 000-56363 | 3.3 | 11/2/2021 | ||||
10.1# | X | |||||||
|
|
|
|
|
|
|
|
|
10.2# |
|
|
|
|
|
| X | |
|
|
|
|
|
|
|
|
|
31.1 | X | |||||||
31.2 | X | |||||||
32.1* | X | |||||||
32.2* | 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 | ||||||
47
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | X |
* This certification accompanies the Form 10-Q to 18 U.S.C. Section 1350,which it relates, is not deemed filed with the Securities and Exchange Commission and is not being filed for purposesto be incorporated by reference into any filing of Section 18 ofTerrAscend Corp. under the Securities Exchange Act of 1934, as amended (whether made before or otherwise subject toafter the liability.date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
# Indicates management contract or compensatory plan.
42
48
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.
TerrAscend Corp. | |||
Date: November | By: |
| |
Ziad Ghanem | |||
President and Chief | |||
(Principal Executive Officer) |
Date: November | By: |
| |
Keith Stauffer | |||
Chief Financial Officer | |||
(Principal Financial |
43
49