Analysts at Stifel GMP said TerrAscend Corp’s application to list on the Toronto Stock Exchange (TSX) is more likely than not to be successful, with expanded investor access to the stock and higher trading volumes potentially leading to the stock achieving a valuation re-rating.
In a note to clients, the analysts said they were maintaining their ‘Buy’ rating and C$4.50 price target for the stock of the North American cannabis operator following the uplisting application announcement.
TerrAscend’s Canadian Securities Exchange-listed shares are currently trading at C$2.14.
“We note the company’s shares trade at a similar level to large cannabis companies on an EV/sales basis (about 2x forward), however, TER’s cannabis business has achieved meaningful earnings before interest, taxes, depreciation, and amortization (EBITDA) and is on the path towards sustainable cash flow generation, which we believe is necessary to fully capitalize on an uplisting strategy,” they wrote.
The analysts noted that TerrAscend has proposed an internal reorganization, which requires shareholder approval at its Annual General Meeting, potentially resulting in a closing timeframe of this summer.
“While we wait for full details of the reorganization, expected to be disseminated in its proxy statement in the next month or so, we could speculate that it could resemble the initially proposed structure of Canopy Growth’s (WEED) reorganization attempt whereby the Canadian business is the listed entity while its US business is ring-fenced with exchangeable non-voting shares and its own Board of Directors,” they wrote.
“We would expect the company to largely maintain its overall cost structure as its businesses are already mostly organized in this way while a key goal would be to maintain the consolidation of US financials, which WEED had initially proclaimed was in line with accounting standards after discussion with its auditors.”
Stifel’s analysts concluded: “Overall, while TER still requires formal approval from the TSX and we are navigating uncharted waters, we believe there is a more likely than not probability the listing is successful.”
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