TerrAscend Corp. (TSNDF) Q3 2026 Earnings Call Transcript

Operator: Good afternoon, I will be your conference operator today. At this time, I would like to welcome everyone to the TerrAscend Third Quarter 2026 Financial Results Conference Call. I will now turn the call over to Valter Pinto, Managing Director of KCSA Strategic Communications, for introductions. Please go ahead.

Valter Pinto: Thank you, operator, and good afternoon. Welcome to the TerrAscend Third Quarter 2026 Financial Results Conference Call. Joining us for today's call is Jason Wild, Executive Chairman; Ziad Ghanem, President and Chief Executive Officer; and Eric Jackson, Chief Financial Officer. Our remarks today include forward-looking statements, including statements with respect to the company's outlook, including the company's expected financial results for the fourth quarter of 2026, any estimates and assumptions relating thereto. The company's expectations regarding its growth prospects in new and existing markets, such as Ohio and New Jersey, its M&A strategy, including the expected contribution of the Aunt Mary's acquisition, the expansion of its cultivation capacity, the company's share repurchase program and capital allocation priorities, the company's plans regarding a potential uplisting to a U.S. exchange and the expectations regarding regulatory reform, including rescheduling, potential tax relief and hemp regulation and the potential benefits thereof. Each forward-looking statements discussed in today's call is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Additional information regarding these factors appears under the heading Risk Factors in the company's Form 10-K filed with the Securities and Exchange Commission and other filings that the company makes with the SEC from time to time, which are available at sec.gov, on SEDAR+ and the company's website at terrascend.com. The forward-looking statements in this call speak as of today's date, and the company undertakes no obligation to update or revise any of these statements. Also during the call, the company may present both GAAP and non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is included in today's earnings press release and our quarterly report on Form 10-Q for the quarter ended September 30, 2026, which you can find on the company's Investor Relations website or on the SEC and SEDAR+ websites. I'd now like to introduce Mr. Jason Wild. Please go ahead, Jason.

Jason Wild: Good afternoon, everyone, and thank you for joining us. Revenue, gross margin, EBITDA and free cash flow for the third quarter increased year-over-year. Revenue totaled $68.2 million, a year-over-year increase of approximately 5%. Gross margin for the quarter was 52.3% compared to 52.1% in the third quarter of 2025. Our adjusted EBITDA totaled $17.5 million compared to $17 million in the third quarter of 2025. We generated $8.8 million of net cash from operations and $6.1 million of free cash flow during the quarter, marking our 17th consecutive quarter of positive operating cash flow and 13th consecutive quarter of positive free cash flow, representing an impressive 17.7% operating cash flow yield and 14% free cash flow yield. These results reflect continued strength across our vertically integrated core markets of New Jersey, Maryland and Pennsylvania. In New Jersey, we closed on our previously announced transaction with Aunt Mary's, our fifth dispensary in the state, which generates over $10 million in annualized revenue and is immediately accretive on EBITDA and free cash flow basis. We closed on Aunt Mary's in late September, and as a result, it only contributed marginally to revenue in the third quarter. In Maryland, we grew revenue both year-over-year and sequentially, while maintaining strong margins. Pennsylvania, once again, was one of our strongest performing markets during the quarter, delivering substantial year-over-year revenue growth and margin expansion, driven by 12% same-store retail sales growth and a 31% increase in wholesale revenue. Turning to our balance sheet. We ended the quarter with $42.5 million in cash. Our continued free cash flow generation, strong balance sheet and our ability to access capital through our term loan facility provide us with the flexibility to act on additional attractive opportunities. We intend to put our capital to work through accretive acquisitions in markets where we already have scale and operational infrastructure, providing increased vertical revenue and further operating leverage. There are exciting opportunities in the market today, and we look forward to providing an update on them in the coming weeks. Next, I want to provide an update on regulatory reform. As we have said before, we operate the business independent of regulatory reform and successful reform represents upside. The rescheduling of state licensed medical cannabis to Schedule III earlier this year remains a monumental inflection point for our industry. The most immediate impact will be the elimination of the 280E tax burden on medical cannabis, which will materially improve profitability and cash flow generation, further strengthen our balance sheet and lower our cost of capital over time. There also is the potential for retroactive tax relief, which could represent a significant upside opportunity that we do not believe is currently reflected in market valuations. We continue to report our results that include the impact of 280E and anticipate further updates in the fourth quarter. On the broader rescheduling of cannabis, the DEA administrative proceedings continue. While this process remains ongoing and the time and outcome remain uncertain, nothing we have seen changes our view on the eventual results. As part of the medical rescheduling process, the DEA has been conducting on-site inspections of our facilities. We have completed numerous inspections and the process is progressing. We also see continued progress on other important fronts. Enforcement against unregulated hemp products continues to build ahead of the intoxicating hemp ban scheduled to take effect on December 11th. As we have said before, the intoxicating hemp market is arguably our industry's largest competitor, and we look forward to serving those consumers as they return to the regulated market. We remain in active dialogue with the major U.S. exchanges and continue to take the necessary steps to prepare for a potential listing. On the M&A front, we are focused on disciplined accretive acquisitions. As I mentioned, in September, we closed on Aunt Mary's in New Jersey. The current environment continues to present opportunities, including distressed assets, both in our core markets and in select new markets. We have been patient and disciplined in these conversations, and I look forward to sharing an update in the coming weeks. Regarding our share repurchase program, in August, we renewed and replenished the authorization for up to the lesser of 10 million common shares or $10 million of common shares for the period beginning August 24, 2026 through August 23, 2027. During the quarter, we had 35 trading days in our open trading window. During that period, we repurchased 1,013,000 shares. We will continue to execute on the buyback program while balancing other capital allocation priorities, including growth investments, capital expenditures and selected M&A. With that, I will now turn the call over to Ziad to provide an update across our key markets. Ziad?

Ziad Ghanem: Thank you, Jason. Let me walk you through our performance in each of our key markets this quarter, beginning with New Jersey. Despite increased retail competition and price compression in the state, revenue in New Jersey increased slightly year-over-year. TerrAscend maintained a leading position in New Jersey, gaining both sales and market share across our key product categories reflecting the strength of our brands and the quality of our products. During the quarter, we closed on the Aunt Mary's transaction, adding our fifth dispensary in the state, and we are excited to welcome the Aunt Mary's team to the TerrAscend's family. Each new door in New Jersey increases the utilization of our existing facility leveraging our assets to benefit from the increased economies of scale as well as increased vertical sales of our products. Our goal is to continue to increase our presence in the States through accretive acquisitions. Additionally, we are expanding capacity at our Boonton cultivation facility. We completed a major phase this quarter on budget and are conservatively planning for about 20% more greenhouse yield. This added supply will support our expanding retail base as well as our full brand portfolio from our growing line of premium solventless products to value-focused flower under our Legend brand. In flower, we ranked #3 with 8.3% share. In vapes, our market share continues to improve, and our Legend vapes remained the #1 vape cartridge brand with 12.1% share out of 215 brands. [Audio Gap] Looking ahead, we remain focused on disciplined growth in New Jersey including continued evaluation of capacity expansion at our Boonton cultivation facility and additional retail licenses as we work toward our long-term goal of maximizing our footprint in the state. Turning to Maryland. The business performed well during the quarter. Revenue grew year-over-year and gross margins were roughly flat. Our operation in Maryland is running at an annualized revenue level of approximately $75 million, with gross margins in the high 50s. After entering the Maryland market in 2021 through the acquisition of a small cultivation facility with negligible revenue, we acquired 4 dispensaries during the first half of 2023, just ahead of adult use implementation. Growing from virtually 0 revenue to the performance we are now seeing consistently every quarter demonstrates the power of our vertically integrated operating model in the state with disciplined execution across both cultivation and retail. On the brand side, we are seeing momentum across the portfolio. Across all categories, including flower, pre-rolls and vapes, we have gained market share in the quarter. Additionally, new product launches have supported growth in Valhalla over the last 2 quarters while our new Kind Tree and Tyson 2.0 edibles generated nearly an additional point of market share in the quarter. Looking ahead, we remain focused on improving efficiency expanding our manufacturing footprint and optimizing our cultivation and retail operations in Maryland. Moving to Pennsylvania. It was once again one of our strongest performing markets during the quarter. Revenues grew 16.8% year-over-year, driven by 12% same-store sales growth and a 31% increase in wholesale revenue, while gross margins expanded 800 basis points. 5 of our 6 Apothecarium locations ranked amongst the top 15 stores in the state. This marked our fourth consecutive quarter of sequential revenue growth and made Pennsylvania our fastest-growing core market during the quarter. On the brand side, similar to Maryland, across all categories, we have gained market share in the quarter. Additionally, we were among the first suppliers to introduce 100-milligram medical troches, which has quickly become one of our best-selling SKUs. We also have gained market share in sublingual with 21% share and 5 of the top 15 SKUs in the market are our Ilera branded tinctures. Pennsylvania remained one of our most attractive near- and long-term growth opportunities. Our fully built out large-scale cultivation and manufacturing facility is operating at its highest utilization rate in years with finished flower output increasing 68% year-over-year and additional capacity available to meet future medical and adult use demand. Turning to Ohio. Sales grew double digits percentage-wise year-over-year as we captured consumers returning to the regulated market following the state's ban on intoxicating hemp products. Our strategy in the state to build a scaled, high-quality retail footprint through discipline, accretive acquisitions, and we are actively evaluating several opportunities. Overall, I am very pleased with our performance during the third quarter. Across our core markets of New Jersey, Maryland and Pennsylvania, we demonstrated strong operational progress. During the quarter, we launched a substantial number of new products across our markets. Our focus on efficiency disciplined cost management and vertical integration continues to support consistent financial performance. We generated strong free cash flow driven by our high-quality brand portfolio focus on product innovation and best-in-class execution. With no material debt maturing until 2028, our balance sheet remains a key strength and provides meaningful financial flexibility. Our improving fundamentals, disciplined M&A strategy, sustained free cash flow generation and best-in-class sponsorship give me confidence in our ability to create long-term value for our shareholders in 2026 and beyond. With that, I will turn the call over to Eric to walk through our financial results in more detail. Eric?

Eric Jackson: Thank you, Ziad. Good afternoon, everyone. The results I will be reviewing today have been filed with both SEDAR+ and with the SEC, and all figures are presented in U.S. dollars. Net revenue for the third quarter of 2026 totaled $68.2 million compared to $65.1 million in the third quarter of 2025, representing year-over-year growth of approximately 5%. Retail revenue increased year-over-year, while wholesale revenue was essentially flat. Gross margin for the third quarter was 52.3% compared to 52.1% in the third quarter of 2025, reflecting a return to more normalized levels following an exceptionally strong second quarter. G&A expenses for the third quarter were $24 million, or 35.2% of revenue compared to $21.3 million or 32.8% of revenue in the third quarter of 2025. The increase was primarily driven by one-time transaction costs related to our convertible debenture financing and acquisition-related professional fees, which are excluded from adjusted EBITDA. Net loss from continuing operations for the third quarter was $5.5 million compared with a net loss from continuing operations of $9.9 million in the third quarter of 2025. The improvement primarily reflects a $4.8 million gain on the fair value of derivative liabilities compared to a $700,000 loss in the prior year period, partially offset by lower income from operations and a higher provision for income taxes. Adjusted EBITDA for the third quarter was $17.5 million or 25.6% of revenue compared to $17 million or 26.1% of revenue in the third quarter of 2025. The year-over-year increase reflects gross profit growth, partially offset by higher operating expenses. Turning to the balance sheet and cash flow. Cash and cash equivalents were $42.5 million as of September 30, 2026. Cash flow from operations in the third quarter was $8.8 million, representing our 17th consecutive quarter of positive operating cash flow. Capital expenditures were $2.7 million in the third quarter primarily related to ongoing cultivation and facility optimization projects. Free cash flow for the third quarter was $6.1 million, representing our 13th consecutive quarter of positive free cash flow. During the quarter, we continue to allocate capital in a disciplined manner while maintaining a strong liquidity position. We expect mid-single-digit year-over-year revenue growth in Q4 2026. We also expect consistent strong gross margin performance. In summary, our third quarter results reflect continued operational momentum, improving profitability and consistent cash flow generation supported by disciplined cost management and a strong operating platform. I look forward to sharing continued progress in the quarters ahead. This concludes our prepared remarks. I'll now turn it back to the operator for questions.

Operator: [Operator Instructions] And your first question comes from the line of Frederico Gomes with ATB Cormark.

Frederico Yokota Gomes: Congrats on the great quarter. I want to start by asking about Pennsylvania. Obviously, very strong and impressive same-store sales growth there and growth on the wholesale side. So can you talk a little bit more about what exactly is driving that? And then in the capacity utilization and the margin expansion that you saw there, how much more can that facility take? And what could be the potential upside to margins if you plan to ramp that up a little bit more?

Ziad Ghanem: Yes. Thanks, Fred. Look, we're super proud of the work that we've done in Pennsylvania, both on the revenue growth and gross margin. When we look at both sequential growth and year-over-year. I mean, we've seen year-over-year growth of double digit, around 11.6% and our revenue with improvement in gross margin. There's really not one magic bullet that is causing this. We always talk about the combination of multiple differentiators that we have. It starts with the quality and strain selections and the brand portfolio that we have. And the real judge on this has been the consumer, right? So the consumer continue to come back for more continue to drive our verticality upward. The fresh supply, most of our -- all our inventory is not lasting from harvest to consumption more than 60 days. So that freshness is helping. We launched a new partnership with Tyson 2.0, we couldn't keep the product on the shelves. Again the combination of outreach marketing by our marketing team and the service in our retail stores have really given us that advantage. And we've had multiple quarters of that performance in Pennsylvania, but what's also unique in Pennsylvania when you look at the average price at retail in the state, it has gone down. For us, it has gone up, and it's because of all those factors I have described. Now from a capacity perspective, we talked about Pennsylvania being our biggest facility as big as all our facilities combined -- facilities combined. We have added more capacity. We are almost at 50% capacity. So we feel pretty comfortable without any CapEx expansion, without any CapEx need to be able to flex up with that increase that we are seeing organically as medical program, but also we sit here prepared to be ready for adult use that is looking better and better with the change that we've seen with the trifecta politically that happened in Pennsylvania. So capacity is not a challenge. We are excited to see more of that demand coming in, driven by organic growth, driven by adult use potential and then the hemp loop that will be closing in December.

Jason Wild: Yes. The only thing I would jump in and add. Ziad had actually sold us short there a little bit. He said our business in Pennsylvania was up 11.6%. That was only at retail and that was on the same-store base, a figure of about 12% same-store sales growth. But our wholesale, as we mentioned, was up 31% year-over-year, and that added up to 16-and-change percent growth total in Pennsylvania.

Ziad Ghanem: How did I do that?

Jason Wild: No, you missed it.

Frederico Yokota Gomes: Okay. I appreciate that. And then just a second question on Pennsylvania. You mentioned the potential for adult use. Obviously, you guys have talked about M&A before, New Jersey, Ohio. But what about in Pennsylvania, you see opportunities there? Does it make you more bullish maybe to try to execute M&A maybe more dispensaries given that the outlook for adult use has potentially improved for next year?

Ziad Ghanem: Yes. Look, Fred, from an M&A perspective, we have shown that we have the ability and we have the muscle internally to acquire operating businesses, integrating them well, accomplishing the synergy and driving growth in those we said from an M&A perspective, you want to go deeper in the states that we are in, similar to what we've done in New Jersey and then we're looking for the right opportunity in any states that we are in, that's Pennsylvania, that's Ohio. But also, we're looking at new states, whether it's new application or whether states that are just recently have gone through adult use or that are still medical. So we like Florida, we like Missouri, we like Ohio. So we are having a lot of conversations. The one thing that we keep ourselves accountable for is to stay disciplined and to make the right deal at the right price that is immediately accretive to our EBITDA and to our cash flow. We swung and we missed in Pennsylvania. So we continue to look for opportunities that will allow us to leverage our facility and to grow our business and continue to improve our gross margin. We are convinced because of the opportunities that we are seeing in the conversations that we are having and the stage of the conversations that now after building the efficiency and have delivered on some of the strongest margin in the industry regardless of size, that our company will look totally different in 2027, and we can't wait to share those news.

Jason Wild: The only thing I would add to that, Ziad mentioned that we swung in this in Pennsylvania, just to give a little more clarity on that. We were the stalking horse bid for a multi-store acquisition that ended up going to somebody else. I think we got paid $1 million or $1 million and change for being a stalking horse bid. But I think it also -- it just speaks to our discipline. The eventual price was substantially higher than our original bid and we walked away from it. But I would say the -- there's lots of other deals on the table, and we feel increasingly confident that we're going to deliver on some significant transactions going forward.

Operator: [Operator Instructions] Your next question comes from the line of Kenric Tyghe with Canaccord Genuity.

Kenric Tyghe: Last quarter, you sort of -- you guys executed a bit of a reset in New Jersey. I think certainly we're seeing the fruits of that in the current quarter. Could you sort of remind us on what it is that differentiates your footprint being as cultivation-forward as you are in each of New Jersey and Pennsylvania and how valuable those differentiator could be as we look to the evolution of the market here, the hemp ban and the transition of sales back into the legal channel and your ability to capture that sort of in absolute and relative terms compared to some of your peers in these key markets.

Ziad Ghanem: Yes, Kenric, look, we have the same playbook in all our states and the combination of our -- the brands on our portfolio, the combination of the value brand and the -- premium brand, the response that we are seeing from our consumers, the loyalty and the increase in loyalty that we are seeing, the velocity that we are seeing in all our channels, retail and wholesale, have us convinced that we have the right playbook to deliver the best financials, and we already bragged about this. I would say from a hemp perspective, we don't have to guess. We'll just look at a small case study that exists in Ohio. We've talked to a lot of operators in Ohio, and they've seen somewhere between 20% to 30% less in the revenue. We're seeing a double-digit lift in only one store we have in Ohio. Look, common sense says, this is a -- those are products that have made humongous positive change to consumers' lives. Consumers have exited synthetic drugs that are sleep medication, anxiety medication, pain medication and won their life back by taking a 5 mg gummy in the evening. And by losing accessibility to the illicit market or to smoke shop or to the gas stations, they will have to find a replacement, and we sit, as an industry, us and our competitors, ready to welcome those consumers and give them better products, better experience, safe and tested products that will combine two industries that seem to be similar size and could eventually double the size of our industry.

Kenric Tyghe: That's useful. And then just maybe with respect to New Jersey as well. Could you just refresh us on sort of the cadence of new store openings. Are you seeing that slow as the market matures? And how does that impact your growth algorithm in the state? I mean, I think certainly, we're over what was a big hump and we're perhaps seeing a more normal cadence of openings, but would love to hear your perspective on new doors, cadence of new doors and the read-through from that for your wholesale ramp or continuing ramp also?

Ziad Ghanem: Yes. We are seeing new doors open in New Jersey. And the impact that each company that we see on our own stores is depending where geographically those stores are. Early on, when we went from 17 stores to 100, 150 stores, we've had plenty that came in around our stores, and we've seen that hit at retail. Since then, we have managed to see increase in same-store volume, and we started to benefit on wholesale as more stores open in different trade areas. But recently, that's something I'm super proud of with our team. Our biggest store, our retail network in Phillipsburg, a store that does north of 30 million had a store get opened just a couple of hundred yards from our store. In April, the soft launch happened in May, the full opening took place, the grand opening takes place. And our store every month since has not seen any impact on our revenue, and this is not by coincidence, that is by targeted approach and targeted pricing that we do store-by-store. And the quality that we talked about that our consumers continue to show their loyalty. From an overall perspective, yes, the more stores open, the more penetration we have from a wholesale perspective, and we continue to manage our capacity between improved capacity and improved verticality in our stores and then adding new doors in the state.

Operator: [Operator Instructions] And I'm showing no further questions at this time. I would like to turn it back to Jason Wild for closing remarks.

Jason Wild: Thank you. In closing, we often say that we aren't focused on being the biggest operator in the cannabis space, we're focused on being the best. For the last several quarters, we have driven top-tier profitability margins even when compared to companies that are 4 to 5x our size. Based upon the opportunities we're seeing in the market, we are super excited to show you what this business looks like in 2027 and beyond. Thank you.

Operator: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.