While quarterly sales were sluggish for multistate cannabis operator TerrAscend Corp. (CSE: TER) (OTCQX: TRSSF), net income surprisingly skyrocketed due to a value gain on warrants.
On Tuesday, the company released its earnings for the three months ended Sept. 30, with net sales dipping 16 per cent to US$49.1 million compared to US$58.7 million last quarter.
TerrAscend said the drop was primarily due to “temporary yield declines” in Pennsylvania related to ongoing construction and expansion efforts.
Adjusted gross margin, before gain on fair value of biological assets, was 46 per cent compared to 61 per cent in the second quarter. The company also blamed the compression on the Pennsylvania setbacks, which it said led to less absorption of fixed costs and a higher mix of retail versus wholesale sales.
The compression year over year and quarter over quarter in adjusted gross margin was due to yield declines in Pennsylvania leading to under absorption of fixed costs and a higher mix of retail versus wholesale sales.
Selling, general and administrative expenses rose to 30 per cent of net sales, from 25 per cent.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was US$10.5 million, a 57-per-cent drop from US$24.3 million.
But net income soared to US$62 million, which TerrAscend said was largely due to a non-cash gain on fair value warrants of US$69 million.
It ended the quarter with US$103 million in cash.
During the quarter, the firm said it rectified the Pennsylvania issues.
It announced deals to buy competitor Gage Growth Corp (CSE: GAGE) — which was recently approved by shareholders and received final court approval Monday — and to produce and sell Cookies products at its three Apothecarium dispensaries in New Jersey.
Also in the quarter, it upped its equity stake in TerrAscend New Jersey by 12.5 per cent for a total ownership of 87.5 per cent.
Executive chairman Jason Wild said he’s pleased with improvements made in Pennsylvania since the company withdrew full-year 2021 guidance in August.
“The ratio of quality flower to trim from recent harvests has increased dramatically. Additionally, THC and terpene potency has been testing at all-time highs,” he said in a statement.
“In New Jersey, we are well prepared for adult use once the state gives us the go ahead. Our New Jersey Apothecarium dispensaries will have some of the best selection and depth of product available in the state at launch.”
Former CEO Jason Ackerman stepped down in March. TerrAscend has yet to find a replacement.