TerrAscend, a company renowned for its dedication to operational excellence and consistent quality, is signaling a potential major shift in its strategic direction. While their motto has consistently been "best, not biggest," recent hints from their latest earnings call suggest an ambition for something more: **dominance**.

The signs, while subtle, are undeniable. Jason Wild, Executive Chairman, made a striking statement during the Q1 2024 earnings call<a href="https://seekingalpha.com/article/4626177-terrascend-corp-tsndf-q1-2024-earnings-call-transcript" alt="Q1 2024 Earnings Call">[1]</a>, declaring, "I now see a path to TerrAscend becoming not only one of the best, but also one of the biggest." This seemingly casual remark signifies a fundamental change in their aspirations.

Historically, TerrAscend has diligently established a foundation built on profitability and robust cash flow. 2023 served as a testament to this strategy, as they achieved a 28% year-over-year revenue growth, reaching $317.3 million, while maintaining a healthy 50.3% gross margin. They strategically restructured their balance sheet, aggressively paying down debt, lowering interest expenses, and achieving a historic milestone: their first full year of positive operating and free cash flow.

This financial discipline has provided them with the resources they now appear poised to deploy. TerrAscend is entering a new phase, characterized by strategic acquisitions. The company is no longer content with simply being a well-managed operation; they are setting their sights on an expansion that could potentially reshape the cannabis landscape.

Their primary target? Ohio.

TerrAscend is highly focused on entering the Ohio market before adult-use sales commence. This strategy mirrors their successful entry into Maryland, where they swiftly acquired four high-performing dispensaries just before adult-use legalization.

Ohio, with its 12 million residents, represents a potential goldmine for cannabis businesses. TerrAscend clearly recognizes this, and the urgency in their messaging is palpable. Jason Wild emphasized their commitment to entering the market before adult-use legalization, stating, "The state [Ohio] is moving faster, so we're moving faster."<a href="https://seekingalpha.com/article/4626177-terrascend-corp-tsndf-q1-2024-earnings-call-transcript" alt="Q1 2024 Earnings Call">[1]</a>

This pursuit of Ohio is not simply about adding another state to their portfolio; it's about strategically leveraging their existing infrastructure. TerrAscend plans to integrate Ohio into their existing Michigan operations, replicating the model used for their Northeast operations, which successfully absorbed Maryland. This strategy promises operational synergies, maximized SG&A leverage, and ultimately, increased profitability for both states.

However, the real game-changer lies in Wild's mention of **"transformational deals."** <a href="https://seekingalpha.com/article/4626177-terrascend-corp-tsndf-q1-2024-earnings-call-transcript" alt="Q1 2024 Earnings Call">[1]</a> TerrAscend is actively exploring acquisitions that extend beyond single-state expansion. They are seeking opportunities to acquire companies that could propel them into a leadership position. The cannabis industry, currently grappling with challenges from burdensome taxes and a difficult capital market, presents a unique buying opportunity, enabling TerrAscend to acquire assets at valuations considerably lower than their own.

This strategic shift is further fueled by the possibility of significant tax relief. TerrAscend has boldly challenged the applicability of the infamous IRS Section 280E, reclassifying $59.2 million of tax liabilities and anticipating a $26 million refund. This assertive stance, combined with the DEA's potential rescheduling of cannabis to Schedule III, could trigger a surge in profitability, further bolstering their acquisition ambitions.

Hypotheses & Numbers:

Ohio Dominance: If TerrAscend replicates its Maryland strategy in Ohio, acquiring a substantial retail footprint before adult-use legalization, we can hypothesize they aim to secure a top 3 market share position in Ohio, similar to their position in New Jersey. Based on projected market size, this could translate to annual revenues exceeding $300 million in Ohio alone.

Transformational Acquisition: A successful transformational acquisition could double or even triple TerrAscend's current revenue base. Considering their current annual revenue of $317.3 million, a doubling would comfortably place them over $600 million, while tripling would propel them towards the billion-dollar mark.

280E Relief Impact: The elimination of 280E, either through rescheduling or legal challenges, could significantly boost TerrAscend's profitability. Assuming a 20% tax rate on their gross margin, their 2023 gross profit of $159.7 million would have been reduced by $31.9 million due to 280E. This represents a potential 20% increase in net income.

TSX Listing Advantage: Listing on the TSX provides access to a larger pool of investors and potential strategic partners, enhancing their capacity to finance acquisitions.

Revenue Breakdown by State

Source: <a href="https://seekingalpha.com/article/4589408-terrascend-corp-tsndf-q4-2023-earnings-call-transcript" alt="Q4 2023 Earnings Call">[2]</a>

Wholesale Revenue Growth: A Charting Success Story

TerrAscend's strategic focus on wholesale revenue has yielded remarkable results. As new dispensary openings intensify competition in established markets like New Jersey, TerrAscend has adeptly pivoted, leveraging their brand recognition and product quality to capture a significant portion of the wholesale market. The chart below illustrates the impressive growth trajectory of their wholesale revenue.

Source: <a href="https://seekingalpha.com/article/4589408-terrascend-corp-tsndf-q4-2023-earnings-call-transcript" alt="Q4 2023 Earnings Call">[2]</a>

TerrAscend's transformation is a carefully orchestrated maneuver, built on a foundation of operational excellence and fueled by a newfound hunger for expansion. While their commitment to quality remains unwavering, their sights are now set on a larger prize: becoming a cannabis empire. The coming months will be crucial, as their pursuit of Ohio and the whispers of a transformational deal could redefine their position in the industry.

"Fun Fact: TerrAscend challenged the notorious IRS Section 280E, which unfairly penalizes cannabis businesses by disallowing standard business deductions. Their bold stance resulted in a $59.2 million reclassification of tax liabilities and an anticipated $26 million refund. This not only strengthens their financial position but also sets a precedent for other cannabis companies seeking to fight for fairer tax treatment."

Source: <a href="https://seekingalpha.com/article/4589408-terrascend-corp-tsndf-q4-2023-earnings-call-transcript" alt="Q4 2023 Earnings Call">[2]</a>