Will TerrAscend Be the Next Cannabis Company Listed on the TSX
There are several U.S. cannabis companies seeking a listing on Canada’s main exchange, the Toronto Stock Exchange (TSX), for legal reasons. Canopy Growth has been the prominent trendsetter in this regard. The next company that is expected to make the leap to Canada soon is TerrAscend. Canopy Growth’s IPO on the TSX acts as a model for TerrAscend’s plans.
TerrAscend is a U.S. cannabis company that operates offices in California, Pennsylvania, and also in Ontario, Canada. So far, the company’s shares are tradable on the Canadian Securities Exchange (TER) and in the barely regulated over-the-counter market (TRSSF).
But now TerrAscend is seeking a primary listing on the much larger Toronto Stock Exchange (TSX). What are the goals behind these plans? And why isn’t TerrAscend going to the larger U.S. exchanges like the NYSE or NASDAQ?
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TerrAscend aims for listing on the TSX
TerrAscend first made public its plan for a Toronto IPO in mid-March. As reported by the Canadian business portal “MJBizDaily,” during a recent conference call with analysts, the company’s management team shared some additional details about the planned IPO, in addition to financial results. Among the additional details was the timeline for the listing, which is scheduled to take place after the shareholder meeting set for June. Also addressed by the board was how the TSX might promote the company’s financial health in the future by opening the door to institutional investors.
“We believe that listing TerrAscend stock on the TSX will make it more accessible to a broader range of institutional investors looking for opportunities with leading cannabis operators in some of the best markets in the world,” TerraAscend CEO Jason Wild said during the conference call. Still, Wild acknowledges that uplisting is not a “magic bullet” that would relieve economic pressure on TerrAscend, especially because the capital markets situation has been so difficult in recent months, particularly for growth-oriented companies.
“However, we believe that a well-managed, cash-flow positive company can unlock much more value and significantly lower its cost of capital if it is listed on a larger exchange with more participants, higher standards and greater liquidity,” “MJBizDaily” quoted the optimistic TerrAschend CEO as saying.
Toronto Stock Exchange – the new stock market mecca for cannabis stocks?
TerrAschend’s plans are not an isolated case – in fact, more and more cannabis companies are interested in an initial or secondary listing on the Toronto Stock Exchange. Massachusetts-based Curaleaf Holdings, for example, has also been in talks with the TSX about the possibility of listing its shares. The main reason for these fallback plans is the legal situation in the U.S., where cannabis is still considered illegal at the federal level – only in some individual states, such as California first and foremost, is cannabis legal. In Canada, on the other hand, cannabis is allowed at the federal level, which also presents fewer obstacles to a stock market listing.
Nevertheless, TerrAscend, which holds some of its assets in Canada, also needs some restructuring. In doing so, Wild wants to follow the example of its larger competitor CanopyGrowth. Namely, Canopy Growth wants to spin off its Canopy USA division, which could allow the company to complete its planned acquisitions of U.S. crop businesses while remaining listed on the TSX (WEED). However, NASDAQ, where Canopy (CGC) is also currently listed, indicated that the company may not remain on the exchange after the restructuring.
“We believe TerrAscend’s restructuring involves a holding company – which is also the vehicle for the listing – that is a non-U.S. cannabis company or a U.S. company that is not a cannabis company,” Owen Bennett, an equity analyst for New York-based investment bank Jeffries Group, wrote in a recent research note. “This is then segregated from the U.S. assets, which are held in a separate company but in which – similar to Canopy Growth’s proposed structure – the holding company holds non-voting shares.”
The deep crisis in cannabis stocks
While the exact legal steps have not been determined, it can still be noted that TerrAscend’s Toronto IPO may not come at a great time for a cannabis stock. In 2018 and then again in 2020 and early 2021, cannabis stocks were one of the hottest topics on the stock market, with prices of stocks like Canopy Growth, Aurora Cannabis, and Tilray literally exploding. But for some months now, disillusionment has set in: high-interest rates as a result of galloping inflation dampened the speculative fever – investors recently preferred stable value stocks and avoided growth-oriented companies, which are often still unprofitable and dependent on increasingly expensive loans.
In addition, cannabis companies failed to live up to the high expectations that investors and, in some cases, analysts placed on them. As a result, the high valuations appeared increasingly unsustainable, and whopping share price losses were the result. Some companies have had to lay off employees en masse, with Canopy Growth recently cutting 800 jobs.
Nevertheless, TerrAscend is still on a continuous growth path. For example, the company reported net sales of $247 million for 2022, up 21 percent from net sales of $194 million in 2021. In the fourth quarter of 2022, TerrAscend reported positive cash flow from operations of $7.3 million, up $1.5 million from the third quarter.
(Featured image by Tima Miroshnichenko via Pexels)
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