Cannabis company TerrAscend draws kudos from analysts with Toronto Stock Exchange listing on tap for next week

The stock was up 2.8% in over-the-counter trading Friday.

“We think this has the potential to drive meaningful support to the valuation, primarily through greater institutional access, but also a broader retail investor base,” Jefferies analyst Own Bennett said in a research note on Friday.

For now, plant-touching U.S. cannabis companies trade on the OTC bulletin board or on the Canadian Securities Exchange, but none have been listed on the New York Stock Exchange or the Nasdaq because cannabis remains a Schedule I–listed controlled substance under U.S. federal law.

Also read: Customer donations at cannabis shops may help fund new super PAC called Legalize America

TerrAscend, headquartered in Mississauga, Ontario, said on June 21 that it had won conditional approval from the Toronto Stock Exchange for the listing. On Thursday, the company announced that its first day of trading on the TSX would be July 4.

Current owners of TerrAscend shares do not need to take any action as the listing moves to the TSX.

TerrAscend’s executive chairman, Jason Wild, said in a prepared statement that the TSX listing renders the company independent of needed U.S. regulatory reform. “The U.S. cannabis industry is an economic, employment, and wellness engine that has been forced to endure onerous treatment by the federal government within an uncertain and inequitable regulatory environment,” Wild said.

Craig-Hallum Capital Group analyst Eric Des Lauriers on Friday upgraded TerrAscend to buy from hold and said the company offers “one of the
strongest near-term growth outlooks thanks to its exposure to high-growth markets” including New Jersey and Maryland and exclusive rights to the Cookies brand for indoor-grown products in New Jersey, Michigan, Pennsylvania and Maryland. Adult-use cannabis sales in Maryland kick off on Saturday.

Des Lauriers said a series of successful capital-raising transactions in recent weeks “not only alleviate near-term balance-sheet concerns but also justify [TerrAscend’s] premium valuation, in our view.”

Jefferies analyst Bennett said TerrAscend is essentially “listing a legal holding company that has nonvoting shares in the U.S. assets, thereby ring-fencing the US assets.”

“U.S. cannabis multiples are depressed not due to fundamentals, which remain attractive, but due to the current federal illegality, and linked to that, the exchanges they have been trading on,” Bennett said. “This severely restricts institutional access for a couple of reasons. One, many can’t or won’t invest due to the current legal status and fear of federal prosecution or indeed reputational damage. Two, even if legal status was not an issue for certain institutions, many still then can’t as the current exchanges do not provide enough liquidity.”

TerrAscend’s stock has defied a downdraft in cannabis stocks this year.

The AdvisorShares Pure U.S. Cannabis ETF
MSOS,
-0.18%
is down 20.3% in 2023 while TerrAscend’s stock is up 63.7%.

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TerrAscend on May 11 said its first-quarter loss widened to $19.2 million from a net loss of $13.8 million in the year-ago quarter. Revenue of $69.4 million increased 42.8% from the year-ago quarter and rose 0.6% from the previous quarter.

TerrAscend operates in Pennsylvania, New Jersey, Maryland, Michigan and California, with retail operations in Canada. The company runs the Apothecarium and Gage dispensaries, as well as cultivation, processing and manufacturing facilities in its core markets.

Founded in 2017 with investments from Canopy Growth Corp.
CGC,
-11.38%
and JW Asset Management, it refocused on the U.S. market in 2018 from its corporate headquarter in Mississauga, Ontario. At last check, it employed about 1,200 people and ran 34 dispensaries.

Read on: TerrAscend eyes more M&A after closing big acquisition of Gage