Kass: This Low-Priced Cannabis Stock Has '5-Bagger' Potential

TerrAscend Corp. (TSNDF) is a leading cannabis multiple state operator.

All cannabis equities are speculative but for the reasons mentioned in my Daily Diary over the last two months, the industry's upside reward vs. downside risk may have finally turned profoundly positive. While it is unclear that rescheduling and regulatory reform are in the offing over the near term, it is likely inevitable, in our view.

As for TerrAscend, the shares trade at only $0.41/share (size accordingly!) and at a market capitalization of only $146.4 million and have the potential to be a 5-bagger in the years ahead (and in the fullness of time). This is an investment and not a trade.

TerrAscend, as noted by in the above tweet by my friend and cannabis expert Anthony Varrell, is starting to separate itself from the pack.

Fourth-quarter results were ahead of internal forecasts (in some measure because of the implementation of a company-wide ERP system delivering a meaningful reduction in general expenses of nearly $3.6 million in Q4 2024). This led to the tenth consecutive quarter of positive operating cash flow and the sixth consecutive quarter of positive free cash flow.

TerrAscend is forecasting that selling general and administrative expenses will be shaved by $10 million in the current fiscal year.

New Jersey (#1 in state) and Maryland were regional highlights for the company. The company's large cultivation presence in Pennsylvania augurs well if adult recreational use is passed, which is being supported by Governor Shapiro.

Importantly, unlike many of its debt-ridden (and illiquid) brethren, this cannabis company does not face a debt maturity cliff as most of TerrAscend's debt matures in late 2028 (having attractively refinanced $140 million in Q3 2024). As a result, this cannabis company is well-positioned to acquire state dispensaries and to execute transformational mergers and acquisitions (and expand its sales footprint). These transactions will likely be cash flow and earnings accretive. Its acquisition pipeline is "robust" with multiple opportunities.

It can also buy back stock. Here is what Executive Chairman Jason Wild said on this subject on last night's conference call:

"2024 represented marked just the fifth year anniversary of our operating in the U.S. If you said to methen that we would report $74 million in quarterly revenue, over 50% gross margins and positive cash flow I would have been pleased. If you then told me the stock today would be down by more than -90% from where it was pre revenue in the U.S. I am not sure I would have believed you. I would have been very disappointed. And I am very disappointed. To that point in August the company announced our first ever $10 million buyback demonstrating our confidence in the future and our committment to enhancing shareholder value. Considering improved operating performance in our existing businesses, strength of balance sheet, $150 million of owned real estate (with no sales/lease backs), the potential for Pennsylvania to convert to adult use and greenfield expansion opportunities we believe our equity is significantly more undervalued now than last August. We intend to act on that belief in the coming days."

I have gotten to know TerrAscend and its management team over the last few years. The team is sober, disciplined and focused.

I will have a more thorough analysis of TSNDF in the next week or so but I would advise doing your own homework. Start by reviewing the company's Q4 2024 EPS release and listening to the company's Q4 conference call. 

This commentary was originally posted in Doug's Daily Diary on TheStreet Pro. 

At the time of publication, Kass was long TSNDF (VS).

Please note that due to factors including low market capitalization and/or insufficient public float, we consider this name to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.