TerrAscend TRSSF Stock is buying Gage Cannabis GAEGF stock in a $545M deal. The terms of the deal are simple: Each GAEGF stock shareholder will receive 0.3001 of a TRSSF Stock share. This gives GAEGF shareholders an immediate 18% premium. The deal is an all-stock deal. TerrAscend is already in 4 states and 10 Canadian provinces, so this will expand the company’s reach to another jurisdiction; Michigan.
I have reviewed Gage Cannabis previously and had thought about adding them to my Top Picks of the Best Marijuana Stocks to Buy Now. They fell short a little on some analytics. Also, the fact that Gage Cannabis just went public I had wanted to give them a couple more quarters to see some more consistency in the metrics. But, as some of you may already know, TerrAscend is already in my Top Picks and, therefore, now conveniently GAEGF stock has been added to my Top Picks with less risk. I just missed out on the 18% premium potential.
I wanted to break down TerrAscend TRSSF Stock as a potential investment since they are in my top picks, as I mentioned. Their recent numbers are solid and this will be a cannabis company that will grow continuously. Gage GAEGF stock is growing as well, and the combination will print a lot of revenue over many quarters and years. But, we are a little thin on knowing Gage’s full numbers since they just went public a very short time ago. Because of that, I am going to focus on TerrAscend and pepper it in with some of the numbers we do know for Gage.
TerrAscend TRSSF Stock Comparisons
Here are the metrics for TerrAscend as it stacks up to all of the other cannabis companies in the Complete List of Top 100 Cannabis Companies.
- #13 Market Cap: $800M
- #49 Revenue Growth Rate: 8.8%
- #12 Revenue Per Share: $0.31
- #22 Gross Margins: 60.4%
- #24 Operating Efficiencies: 40%
- #2 EBITDA/Revenue: 41.8%
- #48 Cash/Debt Ratio: 31.9%
TerrAscend will advance higher in many of these metrics as they bring Gage into the fold. Revenues, for example, will move upwards about 50% per quarter and it may be that the addition of all of the new shares will push the market cap upwards significantly.
TerrAscend TRSSF Stock Financial Data
To start, here is TerrAscend’s financial data.
Revenue
TerrAscend is increasing revenues consistently, as this revenue chart shows:
First, Gage has added about $50M in revenue so far this year and is expected to add in an additional $65M – $70M for the final two quarters of 2021. This is about a 50% increase in revenues for the above chart. Plus, Gage Cannabis is still expanding and growing so Gage’s own revenue run rate puts it at a level that will continue to grow rapidly.
Even so, TerrAscend is up 8.8% QoQ. Keep in mind that the S&P 500 grows some 3.5% per year on average for all 500 companies. The run rate for TerrAscend puts them on a path close to 50% for the year; far outpacing the S&P 500.
Gross margins
One of the reasons I like TerrrAscend so much is that its analytics are as impressive as they are, and they are consistent:
When you have a company that is consistently printing numbers then we can reasonably predict the future. In the case of TerrAscend, as they have printed so many metrics at 60%, I can reasonably predict that the future will be the same.
Except, they are bringing in Gage into the fold. For now, Gage’s gross margins came in about 30%. If they remain consistent with that number, and if we assume the revenue increases are about linear, then I can factor the numbers. Very likely, the Gage numbers will bring gross margins down to 50%. That’s not horrible.
Gage is expecting significant increases in revenues. They are predicting production possibilities of 7K pounds of cannabis processed per month, up from about 3K pounds now. This increase will utilize a lot of production capabilities that are already being paid for. This means that the future will improve for Gage’s portion of its gross margins. But, it might take a small amount of time.
Operating Efficiencies
Operating efficiencies are a continuous bright spot for TerrAscend:
One important thing to keep in mind is that any overlap with Gage and TerrAscend may actually be optimized. This has the ability to cut costs and decrease the above percentages. This is an opportunity as the two companies are growing and expanding.
EBITDA Profits & Net Earnings
TerrAscend has been EBITDA profitable for some time:
With a company that is starting to roll out its production and earning revenue, this is the first stop to look. EBITDA is expanding and I expect this to continue for TerrAscend.
First, TerrAscend printed 41% EBITDA/Revenue. That puts them at #2 on my list of complete list of cannabis companies. Keep in mind that average EBTIDA/Revenue for the S&P 500 is about 5% – 7.5%. Cannabis companies are outpacing the average companies by significant amounts.
We don’t know if Gage is EBITDA profitable. But, they are net earnings negative. As they continue to expand and grow, this is somewhere to look towards to determine when they will start turning a net earnings profit as well as printing free cash flow.
Net Earnings
Both TerrAscend & Gage were net earnings negative and the amounts were similar:
This is a process. With revenues continuing to expand you can expect to see continued increases towards net earnings. Right now, TerrAscend is printing 60% gross margins and 40% operating costs. They printed 41% EBTIDA/Revenue. With 10% going towards continuing costs, TerrAscend should be printing 10% of revenue for profits.
But, outlying costs are bringing down net earnings. But, if TerrAscend were to scale up by 50% themselves, with its current metrics to, say $100M per quarter (Excluding Gage), they would be spending about 35% on cost of goods, another 35% on operating costs, 10% on continuing costs, and TerrAscend will be printing 20% of revenue in net earnings. They could easily spend about half of that for CapEx and still be positive with an expanding foundation of future business.
Earnings Per Share
Mirroring net earnings, EPS was down:
While I believe on its own TerrAscend could achieve EPS positive soon, I wonder with the Gage inclusion. We don’t know their numbers that deeply to know this.
TerrAscend TRSSF Stock Chart
The market has not been kind to TRSSF stock; but, they are just like so many other cannabis companies.
TRSSF Stock Chart
TRSSF is sliding lower and lower, but, again, all of cannabis has been doing this.
Still, when the latest earnings were released, investors were not pleased with the last negative earnings report. But, the fall may have had to do more with a vacuum of trading than the stock actually following along with fundamentals.
MSOS ETF Chart
TerrAscend is included in the MSOS ETF. Given the slide in nearly all of the cannabis stocks, the ETF moving lower is no surprise:
Truthfully, when you consider how cannabis is being valued compared to the broader market, this is a major buying opportunity. And, while you may be holding on to stocks that are eroding during this time, this misalignment will not last forever. Mr. Market will not ignore profits forever. Since other marijuana stocks are undervalued like they are relative to their profits, it is a matter of time that eventually this ETF will turn upwards.
TRSSF Stock Projection
On the one hand, I can see TerrAscend TRSSF stock heading higher over the long term. On the other hand, I think Gage may hinder the stock movement upwards for some time, but not by much.
TerrAscend alone would likely print these numbers if they were not hit by outlying costs and spending on CapEx:
- $400M Revenue
- 60% Gross Margins
- 35% Operating Costs
- 10% Continuing Costs
- $60M Net Earnings
TerrAscned has about 185M shares outstanding which would give a profitable version of this company about $0.3250 EPS for a TRSSF Stock price of about $32.50.
Is TerrAscend TRSSF Stock A Good Buy?
However, when you look at TerrAscend, you now have to consider Gage, a company that we do not fully have information on with regard to their inclusion to TerrAscend. I expect that Gage will grow and eventually hit EBTIDA profitability, if they are not already (EBTIDA is not a GAAP standard number so they have not reported it in the latest MD&A).
But, overall, Gage is a company that is going to expand and as they do so their metrics will continue to improve. Gage’s inclusion into the stock could also add in some $15.00 to the above mentioned $32.50 for TRSSF stock. That is a lot of upside potential.
An Undervalued Marijuana Stock
All cannabis stocks are out of favor right now despite companies being profitable. These will be the days we look back on and giggle that we bought undervalued marijuana stocks when no one else would touch them. Trust the process. The profits are arriving. Next are the stock valuations that these companies merit.
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