Take Profits on TerrAscend

TerrAscend (TSNDF) is a large MSO that is on my Focus List at 420 Investor. I have gotten very cautious on the MSOs after the recent rally, and I downgraded TSNDF in a Seeking Alpha article on 8/22:

Sell TerrAscend And Buy Green Thumb Industries

I currently hold Green Thumb Industries (GTBIF) in my 420 Investor model portfolio, with a position that represents 3.3%.

Since the article was published, TSNDF has increased in price to $1.15 and is up now by 76.9% so far in 2025. Since august 8th, TSNDF has more than doubled, rising 107%, while MSOS has gained 49%. TSNDF is in MSOS, with a weighting of 6.5% making it the 6th largest position.

At New Cannabis Ventures, we post revenue for the publicly-traded companies, and TerrAscend, in Q2, was in 8th place among the MSOS with its $65 million revenue during the quarter. The weighting for TerrAscend is high relative to its relative revenue as well as its market cap.

The stock has rallied since the November elections, while GTI and MSOS are down:

TerrAscend, which is in the process of exiting the Michigan market, saw revenue decline 8% sequentially and 3% from a year earlier as it generated operating profits of $11 million during Q2.

The company ended Q2 with negative tangible equity that worsened during the -$164.7 million. Net debt was $183.2 million, and this excludes certain tax-related liabilities. With 389.6 million shares outstanding on a fully-diluted in-the-money basis (306 million shares, 7 million RSUs, 13 million preferred shares and 63.5 million exchangeable shares), I get a market cap of $448 million. The enterprise value (market cap plus net debt) is 8.7X projected 2026 adjusted EBITDA, which seems high.

I do think that TerrAscend, which is limited in its geographical exposure, has the opportunity to use M&A to enter new markets, and the company has no exposure to the Florida medical cannabis market, which I think is troubled, but there are better ideas within the MSO space, like GTI. I think that WM Technology (MAPS) is far superior, as it has a better balance sheet, it trades on the NASDAQ and has a lower valuation. I like a couple of the cannabis REITs better.

Investors should be concerned with a few things too. First, the CFO left. Second, the company's float is very restricted, and this has resulted in the rally being so big. Third, despite its troubled balance sheet, it has been buying stock.

Some news came out this week that JW Asset Management was closing one of its funds and reducing another. Consequently, 14.7 million TSNDF shares were distributed and could be sold, though Jason Wild, the CEO of TerrAscend and the JW of JW Asset Management is holding the 6+ million shares that he received. I don't think that this is a negative issue for the company.

TSNDF has struggled as a stock for years and fundamentally for more than a year. If 280E taxation ends, it will benefit substantially, but there are other stocks that are are cheaper that could do better. As I wrote in that article, GTBIF, a safer investment, has less downside risk and could do well too.