Modeled after Canopy Growth, this cannabis stock could soon celebrate its listing on Canada’s TSX stock exchange

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• TerrAscend wants to become more attractive by listing on the TSX
• Canopy’s IPO on the TSX acts as a template for TerrAscend’s plans
• The cannabis boom of 2018 and 2020/2021 is over for the time being

TerrAscend is an American cannabis company that operates offices in California, Pennsylvania and also in Ontario (Canada). So far, the company’s shares can be traded on the Canadian Securities Exchange (TER) and in the over-the-counter market (TRSSF), which is hardly regulated. However, TerrAscend is now aiming for a main listing on the much larger Toronto Stock Exchange (TSX). What are the goals behind these plans? And why doesn’t TerrAscend go public on the larger US exchanges like the NYSE or the NASDAQ?

TerrAscend seeks listing on the TSX

In mid-March, TerrAscend made public plans for an IPO in Toronto for the first time. Canadian business portal MJBizDaily reports that the company’s executive team shared some more details about the planned IPO, along with the financial results, during a recent conference call with analysts. Additional details included the timetable for the IPO to take place after the shareholders’ meeting scheduled for June. The Board also addressed how the TSX could support the company’s financial health going forward by opening the door to institutional investors.

“We believe that the listing on the TSX will bring TerrAscend stock to a broader range of institutional investors seeking opportunities in leading cannabis operators in some of the best markets in the world,” said Jason, TerraAscend CEO Wild during the conference call. Nevertheless, Wild concedes that the uplisting is not a “magic bullet” that would ease the economic pressure on TerrAscend, especially since the capital market situation has been so difficult for growth-oriented companies in recent months. “However, we believe that a well-managed, cash-flow positive company can unlock significantly more value and significantly lower its cost of capital by being listed on a larger exchange with more participants, higher standards and greater liquidity,” MJBizDaily quoted the optimistic voted TerrAschend CEO.

Toronto Stock Exchange – the new stock market mecca of cannabis stocks?

TerrAscend’s plans are not unique – in fact, more and more cannabis companies are interested in a primary 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 contingency plans is the legal situation in the USA, where cannabis is still prohibited at the federal level – cannabis is only legal in a few states, most notably California. In Canada, on the other hand, cannabis is legal at the federal level, which also means fewer barriers to listing.

Even so, TerrAscend, which holds some of its assets in Canada, is also in need of some restructuring. Wild wants to follow the example of its larger competitor CanopyGrowth. Namely, Canopy Growth plans to spin off its Canopy USA division, which could allow the company to complete its proposed acquisitions of US plant businesses while remaining listed on the TSX (WEED). However, NASDAQ, on which Canopy (CGC) is also currently listed, indicated that the company would not be allowed to remain public after the reorganization.

“We believe TerrAscend’s restructuring involves a holding company — which is also the vehicle for its public offering — that is a non-US cannabis company or a US non-cannabis company,” wrote Owen Bennett, an equities analyst for New York-based investment bank Jeffries Group, in a recent research note. “This is then differentiated from the US assets, which are held in a separate company but – similar to the structure proposed by Canopy Growth – the holding company owns non-voting interests.”

The Deep Crisis in Cannabis Stocks

While the exact legal steps are yet to be determined, TerrAscend’s Toronto IPO is not necessarily coming at a good 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 stocks like Canopy Growth, Aurora Cannabis, and Tilray skyrocketing. But disillusionment has set in for a few months: the high interest rates as a result of galloping inflation dampened speculation fever – investors have recently preferred stable value stocks and avoided growth-oriented companies, which are often still unprofitable and dependent on increasingly expensive loans. In addition, the cannabis companies could not live up to the high expectations that investors and some analysts attached to them. As a result, the high valuations seemed increasingly unsustainable, and the result was substantial price losses. Some companies have had to lay off workers en masse, with Canopy Growth recently cutting 800 jobs.

After all: TerrAscend is still on a continuous growth path. The Company reported net revenue of $247 million for 2022, an increase of 21 percent from 2021 revenue of $194 million. In the fourth quarter of 2022, TerrAscend reported positive cash flow from operations of $7.3 million, an increase of $1.5 million from the third quarter.

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