A marijuana merger has been announced that could generate great returns for investors. The company is merging with a Canadian firm, which will allow it to expand into the Canadian market.
Aphria Inc. is a Canadian cannabis company that has made great strides in the marijuana industry. The company plans to merge with HEXO Corp., which will create one of the largest cannabis companies in North America. Read more in detail here: aphria.
In the cannabis business, consolidation is inevitable. Marijuana firms will continue to join forces as long as marijuana remains federally banned in the United States and cannabis enterprises need to grow via acquisition to infiltrate additional states. TerrAscend’s (OTC:TRSSF) purchase of Gage Growth (OTC:GAEG.F), a Michigan-based marijuana business, is one transaction that investors should be paying careful attention to right now.
The two companies announced their merger on Sept. 1, and the merged company may become one of the country’s leading multistate operators. In light of this news, here are several reasons why you should consider adding TerrAscend stock to your portfolio.
The company will operate in five major marijuana marketplaces in the United States.
TerrAscend is presently operating in four states in the United States: California, Maryland, New Jersey, and Pennsylvania. However, only one of those states, California, has a functioning recreational market. While adult-use marijuana has been authorized in New Jersey, sales may not begin until next year. TerrAscend will gain another top marijuana market in its portfolio with the purchase of Gage, which is based in Michigan and is completely legal and open for business. In 2020, Michigan’s cannabis sales will reach just around $1 billion, somewhat less than Illinois’. Last year, both states were among the top ten states in terms of cannabis income.
Together, the two companies plan to build 34 shops across five states this year. The majority of the stores, 20 in all, will be run by Gage’s Michigan operations.
It has the potential to bring in far over $300 million in income next year.
Gage’s second-quarter results were released on Aug. 24 (for the period ending June 30), and revenues of $26.4 million were a new high for the company, up more than 130 percent year over year. Its adjusted profits before interest, taxes, depreciation, and amortization (EBITDA) were $1.9 million, down from $3.8 million the previous quarter. The company’s gross margin has been increasing as a result of its premium flower goods, which Gage claims sold for 46 percent more in July than the state average. TerrAscend reported revenues of $58.7 million for the same three-month period, increasing 72 percent from the previous year. Its adjusted EBITDA of $24.3 million was almost three times more than the $8.4 million profit it made a year earlier. Once the deal is completed, the combined sales of more than $85 million will generate an annual run rate of more than $340 million. But, not just because of organic development, but also because of the recreational market’s opening in New Jersey, that figure will undoubtedly be much higher next year.
With so much cash in hand, further mergers and acquisitions may be on the cards.
TerrAscend had a cash balance of $154 million at the end of June, which it claims would be used to “support future expansion efforts.” Gage, on the other hand, declared a cash balance of $32.8 million. While this won’t provide the new company with the funds to purchase a big MSO, it will undoubtedly aid its attempts to expand into other states. What’s more, neither company is churning through large sums of money. Gage spent $3 million on day-to-day operations in the most recent quarter. TerrAscend is coming off its third consecutive quarter of positive cash flow from operations.
Although TerrAscend is financing the purchase with shares in this transaction, for bigger acquisitions, a cash-and-stock arrangement may be preferable since it reduces the amount of shares the cannabis business must issue. As a result, there will be less dilution for shareholders.
Should you purchase TerrAscend before the offer expires?
The deal is expected to close in the first part of next year, according to the businesses. While there’s a lot of potential here, investors should hold off on making a decision just yet. TerrAscend lowered its full-year forecast and indicated that some difficult quarters may be ahead due to building and expansion activities in Pennsylvania, which it claims would impact the quality of its goods there. And it will encounter headwinds in New Jersey as it concentrates more on retail than wholesale, which will likely result in a lag in sales reaching the income statement. As a consequence, TerrAscend’s price may fall much lower in the months ahead; its shares have already dropped more than 40% in the last three months, considerably more than the Horizons Marijuana Life Sciences ETF, which has fallen just 23% in that period.
Whether you’re searching for a bargain, you may want to hold off until TerrAscend publishes its next quarterly results and see if the headwinds have subsided, since there might still be a lot of bearishness in the near term. However, given its solid financials and strategic position in several of the country’s leading marijuana markets, this may be a potential cannabis company to keep for the long term.
Tilray is a company that has been making waves in the cannabis industry. The company is expected to be worth $20 billion by 2028. Reference: tilray news.
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