TerrAscend TSNDF stock is one of my top picks of cannabis stocks. With Cannabis Federal Legalization set for 2022, I am focusing everything on this. Because of cannabis federal legalization I am focusing on all of my top picks and putting together the TSNDF stock forecast. TerrAscend recently acquired Gage Cannabis that focuses in Michigan.
This is a move I liked a great deal and it signals that TerrAscend has every intention of growing a large footprint. So, by focusing on a cannabis company that despite having a few different areas, are mainly concentrated in one area this gets TerrAscend a more dominant position in that part of the country. What is next on the plate for TerrAscend? Aside from cannabis federal legalization, I expect that TerrAscend will move into other parts of the country as well.
But, for now, despite whatever fundamentals we may see print with any one of the cannabis stocks covered, TerrAscend being one of them, the real story and focus right now is Cannabis Federal Legalization. Federal legalization is going to happen in 2022. And, this will mean a fundamental shift in everything about cannabis stocks. Because of this, the biggest thing is going to be up-listing to Nasdaq. Because of that, this is going to be my focus across the board for cannabis stocks. Once federal legalization of cannabis occurs, and cannabis stocks up-list, real money can move into the sphere and start supporting cannabis stocks.
TerrAscend Financial Data
This is from the most recent TerrAscend financial data derived from the TerrAscend financial data website.
TerrAscend Gross Profits
Because of the recent Gage acquisition we can now start to look for larger increases in revenue. Gage Cannabis themselves were starting to gear up in Michigan and other outlets they are working in. And, organic growth still has a great deal of opportunity within Gage Cannabis. Plus, TerrAscend themselves will see organic growth over many quarters and years.
In the meantime, revenue growth inched higher this quarter. A lot of the cannabis stocks I look at had lower revenue growth this quarter. Gross margins are approximately 50% for the quarter. This is a small decline from previous levels. But, I expect that as organic growth accumulates speed, TerrAscend as a whole will increase margins and gross profits.
TerrAscend Operating Profits
One of the cost saving benefits that you will likely see after an acquisition is focusing certain jobs all in one place instead of duplicating these jobs in two separate and different companies. These cost savings will start to show up over the course of a few quarters. But, I am not expecting huge gains to be too relevant toward the bottom line.
For now, operating efficiencies are competitive versus other companies. At 34%, that is the target area for operating efficiencies. Remember, you want to lowest possible number because this is a ratio of operating costs over total revenue. Because of that, with the combined companies, maybe TerrAscend can print below the 30% level as organic growth accelerates on the backs of the same operating structures.
TerrAscend EBITDA & Net Profits
EBITDA has dipped down to 24%. On a comparative basis, the S&P 500 prints about 22% EBITDA/Revenue. And, TerrAscend had been much higher in this area and so I expect management will really work toward driving to improved margins. I see this as a strong foundation to start. From here, if margins are improved on higher organic growth, then this will trickle downward to the bottom line.
However, net earnings took a small hit this quarter. One of the issues that investors in cannabis stocks has to deal with is the inconsistency we see in financial numbers. Last quarter, TerrAscend had a big number for positive net earnings. This quarter, a small loss attributed to outliers. Hopefully, TerrAscend can quickly grow the business to a point where additional outlying costs are small on a comparative basis to revenues and profits.
TerrAscend Cash On Hand
On a cash:debt ratio, TerrAscend is not at the very highest position. But, TerrAscend has no real issues here, either. TerrAscend has been able to build up plenty of assets and if they were to need to do any kind of capital raise that would not be an issue. In the meantime, if TerrAscend can return to profitability on a consistent basis then, building up additional cash reserves is likely to occur.
TerrAscend Total Equity
There is ample equity for TerrAscend to operate. I am always looking for increasing assets & equity while maintaining vigilance with liabilities. Total equity is the area you can look to see what is going on with management driving value to investors. There is plenty of assets to leverage should TerrAscend want to increase its capabilities to make M&A moves.
TerrAscend Stock Forecast
TerrAscend Discounted Cash Flow Statement
| Assumptions | ||
|---|---|---|
| Tax Rate | 25% | |
| Discount Rate | 8.000% | |
| Perpetural Growth Rate | 45.0% | |
| EV/EBITDA Mulltiple | 50.0x | |
| Transaction Date | December 31, 2021 | |
| Fiscal Year End | 12/31/21 | |
| Current Price | $5.930 | |
| Shares Outstanding | $251,863,097 | |
| Debt | $352,500,000 | |
| Cash | $79,900,000 |
| Market Value | ||
|---|---|---|
| Market Cap | $1,493,548,165 | |
| Plus: Debt | $352,500,000 | |
| Less: Cash | $79,900,000 | |
| Enterprise Value | $1,766,148,165 | |
| Equity Value/Share | $5.9300 |
| Date | December 31, 2021 | Dec 31, 2022 | Dec 31, 2023 | Dec 31, 2024 | Dec 31, 2025 | Dec 31, 2026 | Dec 31, 2026 | |
|---|---|---|---|---|---|---|---|---|
| Time Periods | 1 | 2 | 3 | 4 | 5 | |||
| Year Fraction | 1 | 1 | 1 | 1 | 1 | |||
| EBIT | $100,000,000.00 | $206,250,000.00 | $300,000,000.00 | $406,250,000.00 | $525,000,000.00 | |||
| Less: Cash Taxes | $25,000,000.00 | $51,562,500.00 | $75,000,000.00 | $101,562,500.00 | $131,250,000.00 | |||
| Plus: D&A | $5,000,000.00 | $6,000,000.00 | $7,500,000.00 | $10,000,000.00 | $12,500,000.00 | |||
| Less: Capex | $40,000,000.00 | $50,000,000.00 | $60,000,000.00 | $75,000,000.00 | $85,000,000.00 | |||
| Less: Changes in NWC | -$25,000,000.00 | -$37,500,000.00 | -$50,000,000.00 | -$65,000,000.00 | -$75,000,000.00 | |||
| Unlevered FCF | 1 | $65,000,000.00 | $148,187,500.00 | $222,500,000.00 | $304,687,500.00 | $396,250,000.00 | ||
| (Entry)/Exit | -$1,766,148,165.00 | $12,661,064,189.00 | ||||||
| Transaction CF | 0 | $65,000,000.00 | $148,187,500.00 | $222,500,000.00 | $304,687,500.00 | $396,250,000.00 | $12,661,064,189.00 | |
| Transaction CF | -$1,766,148,164.00 | $65,000,000.00 | $148,187,500.00 | $222,500,000.00 | $304,687,500.00 | $396,250,000.00 | $12,661,064,189.00 |
| Rate of Return | |
|---|---|
| Target Price Upside | 516% |
| Internal Rate of Return (IRR) | 53% |
| Market Value vs Intrinsic Value | |
| Market Value | $5.93 |
| Upside | $30.60 |
| Intrinsic Value | $36.53 |
The TerrAscend TSNDF stock forecast is a good start to understand how undervalued cannabis stocks actually are right now. I have seen other websites that are claiming that nearly all cannabis stocks are some 95% undervalued. But, with cannabis stocks about to see a big move upward because of federal legalization, this is all about to change.
Having a plan going in to federal legalization is going to be important for cannabis investments. This gives you a working idea of what any one of these cannabis stocks is worth. So, if there is a big surge in cannabis stocks, an investor could get out a levels that are well above the true value of a stock.
Is TerrAscend Stock A Good Investment?
TerrAscend is one of my top picks. I believe this is a company that is going to build up a big foundation and generate a lot of profits. At the current price levels, this is an excellent level to get into TerrAscend on a value basis. Then, with federal legalization of cannabis just on the cusp, cannabis stocks are set to take off. Afterward, fundamentals will take over and cannabis investors will be able to get a better investment strategy from where they are.
