US-based cannabinoid (CBD) company TerrAscend reported its results for the fourth quarter and full year of 2020 in the latter half of February. The stock closed at $19.2 the day it was announced. Since then, the stock has fallen almost 23% and is currently trading at $14.84. This hemp stock has shown promise in the past – but is TerrAscend stock a strong buy?
Strong Q4 Results for TerrAscend
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Full-year net sales came in at $198 million while adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) came in at $60 million. Corresponding figures for Q4 2019 were $65 million and $26 million respectively. Adjusted EBITDA margins for Q4 were 40%, up from 35% in Q3 2020 and 24% in Q2 2020.
The company was gung-ho about the results and this was reflected in the words of Jason Ackerman, CEO and Executive Chairman of TerrAscend. “Our fourth quarter results demonstrate robust sequential revenue growth and continued expansion of EBITDA margins, which reflect the strong fundamentals of our business,” he said.
“During the quarter, we realized sales from key expansion projects in Pennsylvania, New Jersey, and California, that together with our pending entrance into the Maryland market, position the company for continued growth in 2021,” he added.
The company reiterated its 2021 guidance for net sales between $360 million – $380 million and adjusted EBITDA between $140 million – $160 million. That’s a predicted increase of 92% and 167% respectively (at the midpoint) compared to 2020 numbers.
TerrAscend’s ascent since March 2020 has been amazing. The hemp stock was trading at $2 on March 16 before it zoomed to $19.2 in February. That’s an increase of 860% in 11 months.
Is that too high for a cannabis MSO that operates in just three states? Is TerrAscend hemp stock a buy?
TerrAscend: More than Meets the Eye
Cannabis and hemp stocks across the spectrum have risen significantly in 2021, especially after November 2020, when it became apparent that US President Joe Biden’s administration would ease up on marijuana restrictions.
However, TerrAscend stock seems to be valued so highly only because of its affiliation with Canopy Growth. In fact, Canopy Growth recently increased its stake in TerrAscend. In a press release, it said, “Canopy Growth beneficially owns approximately 20% of the issued and outstanding TerrAscend shares on a fully-diluted basis. The securities in the capital of TerrAscend held by Canopy Growth are not currently convertible or exercisable and will not be convertible or exercisable until federal laws in the United States with respect to marijuana are amended.”
TerrAscend shares are quite expensive when you compare them to other MSOs (multi-state operators). But is this hemp stock a strong buy?
Is TerrAscend Expanding Too Fast?
The simple answer is maybe – which is probably why this hemp stock is so volatile, and why shares fell even after good results. TerrAscend is focusing on New Jersey where it has one dispensary in this region and is opening two more. Speaking to Forbes, Jason Wild, who chairs the Board at TerrAscend said, “New Jersey is going to be a very large market, and we’re just really excited to be open in one of the first very large markets [on the East Coast].”
If things go well, the company’s wholesale operation should kick off in time to justify the valuations. Maryland should also begin to contribute later this year as TerrAscend expands production in the state.
Bottom Line: Is TerrAscend Stock a Strong Buy?
The US market is very attractive for pot companies and investors, thanks primarily due to its market size. The US market is larger than all other markets in the world combined with the potential to hit around $42 billion in sales by 2025. As more and more states are willing to decriminalize marijuana, the numbers are likely to shoot up even further.
Analyst Noel Atkinson of Clarus Securities, in a note to his clients, said “This would likely cause a substantial increase again in the valuations of US cannabis companies, particularly larger and stronger vertically-integrated MSOs such as TerrAscend.”
Given all the information available about this hemp stock, Cannin.com believes that TerrAscend is a strong buy for those willing to tolerate some short term volatility.
Is TerrAscend Stock a Strong Buy?
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