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Cannabis company TerrAscend moves into Michigan with $545 million all-stock Gage Growth acquisition

November 5, 2021
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TerrAscend Corp. on Thursday drew praise for its $545 million all-stock purchase of Gage Growth Corp. in a move by the cannabis dispensary company to set up shop in Michigan.

Shares of TerrAscend Corp TRSSF, +2.97% fell 2% on Thursday, the day after it said it would pay 0.3 shares of its stock for each share of Gage Growth GAEGF, +6.55%. Gage Growth stock rose 0.7% on Thursday.

TerrAscend said its footprint will grow to five states and Canada, including seven cultivation facilities and 23 dispensaries serving the medical and adult use markets, once the deal closes.

Jefferies analyst Owen Bennett said the acquisition by TerrAscend marks a “nice move on a number of fronts” including footprint expansion and presence in a “strategically attractive” state with positive size, growth and relatively less competition limited mostly to Cresco Labs CRLBF, CL, +1.26% and Curaleaf CURLF, +4.33%.

Gage Growth also offers access to a “very strong proprietary premium brand portfolio,” Bennett said.

Finally, TerrAscend is paying a “compelling” price for Gage Growth at a lower multiple than elsewhere in the U.S., he said.

TerrAscend currently operates in Pennsylvania, New Jersey, and California, with licensed cultivation and processing operations in Maryland and licensed production in Canada.

TerrAscend Corp. on Aug. 19 said its second-quarter loss widened to $25.9 million, or 14 cents a share, compared with a loss of $9.2 million, or 6 cents a share, in the year-ago period.

The Mississauga, Ontario-based company’s gross sales climbed to $62 million from $36.4 million, while net sales including the effects of taxes increased to $58.7 million from $34.2 million.

Adjusted earnings before interest, taxes, depreciation and amortization tripled to $24.3 million from $8.4 million.

While states such as Michigan allow use of cannabis for medical and recreational purposes, it remains classified as a Schedule I drug at the federal level, grouping it with heroin. Efforts are ongoing on Capitol Hill for reform legislation, but no major moves are currently on the front burner in Congress.

Terrascend shares have fallen 33% in the year to date, while the Cannabis ETF THCX, -2.16% has gained 19%, the AdvisorShares Pure US Cannabis ETF MSOS, +3.32% has fallen 11% and the S&P 500 SPX, +0.39% has gained 20%.