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Operator: Good morning, ladies and gentlemen, and welcome to the TerrAscend Corp. Third Quarter 2025 Financial Results. [Operator Instructions] This call is being recorded on Wednesday, November 6, 2025. I would now like to turn the conference over to Valter Pinto. Please go ahead.
Valter Pinto: Thank you, operator, and good morning. Welcome to the TerrAscend Third Quarter 2025 Financial Results Conference Call. Joining us for today's call are Jason Wild, Executive Chairman; Ziad Ghanem, President and Chief Executive Officer; and Alisa Campbell, Interim Chief Financial Officer. Our remarks today include forward-looking statements, including statements with respect to the company's outlook, including the company's expected financial results for the fourth quarter of 2025 and the estimates and assumptions related thereto. The company's expectations regarding its growth prospects in new and existing markets such as Ohio and New Jersey, its M&A strategy, anticipated timing and benefits regarding the sale of the company's assets in Michigan and the expectations regarding regulatory reform and the potential benefits thereof. Each forward-looking statement discussed in today's call are subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Additional information regarding these factors appear under the heading Risk Factors in the company's Form 10-K filed with the Securities and Exchange Commission and other filings that the company makes with the SEC from time to time, which are available at sec.gov, on SEDAR+ and the company's website at terrascend.com. The forward-looking statements in this call speak as of today's date, and the company undertakes any obligation to update or revise any of these statements. Also during the call, the company may present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in the company's earnings press release and our quarterly report on Form 10-Q for the quarter ended September 30, 2025, which you can find in the company's Investor Relations website or on the SEC and SEDAR+ websites. I'd now like to turn the call over to Mr. Jason Wild. Jason, please go ahead.
Jason Wild: Good morning, everyone, and thank you for joining us. Third quarter revenue from continuing operations totaled $65.1 million, flat year-over-year and in line with the expectations we communicated on last quarter's earnings conference call, while gross margins improved 110 basis points year-over-year to 52.1% and adjusted EBITDA margin improved to 26.1% as compared to adjusted EBITDA margin of 25.9% for the same period last year. Gross margin and adjusted EBITDA margin for the quarter also increased sequentially 210 basis points and 150 basis points, respectively. We generated positive cash flow from continuing operations of $7.1 million for the third quarter after net tax payments of $5 million during the quarter and positive free cash flow of $4.9 million. This marks our 13th consecutive quarter of positive cash flow from continuing operations and ninth consecutive quarter of positive free cash flow. Consistent performance in the Northeast markets of New Jersey, Pennsylvania and Maryland were the key drivers of these results. In New Jersey, we maintained our leadership position according to BDSA. And in Pennsylvania, 4 of our 6 stores ranked among the top 10 statewide. In Maryland, our success story continues with a 14.8% increase in revenue year-over-year and gross margin in the high 50s. As we mentioned during our last earnings call, in the second quarter, we made the strategic decision to exit the Michigan market. As expected, this move has unlocked value for TerrAscend, both in terms of additional cash flow generation and enabling the team to focus on our higher-value markets. The divestiture transactions currently consist of all cash deals and all proceeds will be applied to pay down existing debt. Ziad will provide additional details. While our team has worked tirelessly on finalizing our exit from Michigan, we remain focused on our M&A pipeline. In New Jersey, we are working through the closing of our Union Chill dispensary, a well-situated dispensary with limited competition within 10-mile radius, which will bring our total dispensaries in the state to 4. Union Chill currently generates over $11 million in annualized revenue and will be immediately accretive to EBITDA and cash flow. We plan to vertically integrate Union Chill after closing, which is expected to further enhance margins, provide our full array of state-leading products and brands to local customers and enhance our leading market share position in the state. We anticipate the acquisition will be approved soon and look forward to providing more details at the appropriate time. We are evaluating additional opportunities in New Jersey and have a robust pipeline, which we continue to work through in a disciplined manner. During the quarter, we completed a $79 million non-dilutive upsizing to our senior secured syndicated term loan with Focus Growth. The majority of the proceeds were used to retire existing debt across other lenders and the remainder is designated for future growth initiatives. This financing extends the maturity of all of our senior secured debt until late 2028. It also provides us access to an additional uncommitted term loan of up to $35 million for strategic M&A. This transaction reflects Focus Growth's confidence in TerrAscend's vision and strategy, and I'd like to thank their team for their continued support. On the topic of regulatory reform, we are closely monitoring developments at both state and federal levels. There is real potential for reform under the Trump administration. As we have mentioned many times, we have operated and will continue to operate our business independent of federal reform. In PA, we continue to have conversations with lawmakers to gather support for the passage of an adult-use bill. When adult-use implementation happens, we will be prepared to meet the increase in demand by bringing additional capacity online at our 150,000 square foot facility. Our PA canopy space is larger than the canopy at all of our other facilities combined. In summary, TerrAscend has a unique pathway to growth organically and through M&A due to our deep presence in our existing markets and a wide open map for further expansion. Not only have we demonstrated consistent delivery of positive operating and free cash flow for many consecutive quarters, but our steady improvement in operational efficiency has yielded us margins amongst the leaders in the industry regardless of size. Considering the improved performance of our existing business, strength in the balance sheet, having no sale leasebacks, over $36 million in cash, the potential for Pennsylvania to convert to adult use and multiple attractive acquisition opportunities, we believe that our equity is significantly undervalued. With that, I'll now turn the call over to Ziad to provide an update across our key markets. Ziad?
Ziad Ghanem: Thank you, Jason. Let me walk everyone through our performance in each of our key markets this quarter, beginning with New Jersey. In the third quarter of 2025, we maintained a leadership position in the state according to BDSA. Both retail and wholesale revenue were stable quarter-over-quarter. We are proud that all 3 of our stores in New Jersey rank in the top 15 stores in the state with our store in Phillipsburg being #1 out of nearly 250 licensed dispensaries according to LIT Alerts. Our Kind Tree and Legend brands have consistently remained in the top 10 across the state even as the number of brands in the market have doubled to more than 200 in the past year. With the launch of our new pre-rolled assortment, we grew category sales by 32% and improved our share and rank quarter-over-quarter. Kind Tree Cherry Slushee is our best seller and a statewide favorite, ranking #8 out of over 3,000 flower products sold in Q3 according to BDSA. The performance in New Jersey is driven by the quality and consumer appeal of our brands. In the state, our penetration rate and average order size remains stable, and we continue to sell into an increasing number of stores across the state. As Jason mentioned, in early May, we signed a definitive agreement to buy Union Chill in New Jersey, an $11 million revenue run rate dispensary, which upon closing will bring our total number of dispensaries in the state to 4. Long term, we intend to acquire up to an additional 6 dispensaries in New Jersey, extending our retail footprint to the maximum of 10 in the state. Turning to Maryland. We entered this market in 2021 through the acquisition of a small cultivation facility with negligible revenue and then acquired 4 dispensaries during the first half of 2023. Maryland generated another record revenue quarter in Q3, outperforming the market's 2% decline in sales in the state according to BDSA. During the third quarter, retail revenue decreased slightly quarter-over-quarter, while wholesale revenue increased slightly. Our verticality and increased efficiencies have allowed us to maintain our gross profit margin in the mid- to high 50s since the fourth quarter of 2024, with this quarter improving to nearly 58%. The expansion of our Hagerstown facility drove immediate gains in flower sales and share, and our Kind Tree pre-roll sales have doubled since Q1. We delivered positive growth in vapes and extracts and gained share with our Valhalla edibles brand for four consecutive quarters. Our Cumberland and Salisbury stores are top 5 dispensaries in the state according to LIT Alerts. This is yet another reflection of our operational excellence, the quality of our products, customer service and retail experience. Today, we are on an approximate $75 million revenue run rate in the state. In Pennsylvania, during the quarter, 4 of our 6 Apothecarium stores rank in the top 10 across the state. TerrAscend's market share is around 5% of total Pennsylvania cannabis revenue, even though our stores make up only 3% of the total state store count. Said differently, we are capturing more market share per store compared to our competitors. Our vape sales grew 11% quarter-over-quarter and our Ilera branded tinctures consistently rank among the top 10 products in the category according to BDSA. Last week, I spent a day in Pennsylvania with Mike Tyson, meeting with Governor Shapiro, Senators and House Representatives from both parties, answering questions and gathering more support for the passage of an adult-use bill. I remain optimistic that the bipartisan bill will be passed. We have a fully built out large-scale cultivation and manufacturing facility in Pennsylvania with no need for additional investment. In Q4, we are bringing additional capacity online in preparation for the prospects of an adult-use launch. Turning to Ohio. We entered the state during the second quarter, becoming the fifth U.S. state we operate in. The third quarter represented the first full quarter of revenue contribution from Ratio Cannabis, a well-situated and profitable dispensary, which is now fully integrated into our existing operations. Our goal in Ohio is unchanged, to assemble a leading retail footprint by acquiring high-quality stores at the right price, just as we did in Maryland. This will allow us to leverage our existing infrastructure and SG&A to drive higher profitability. Regarding Michigan, as Jason mentioned, we are actively engaged in selling our Michigan assets, and it's going according to plan. I'm proud of the team's effort in working through the exit and exercising diligence and strength as we negotiated transactions for our assets. The majority of our assets are already under contract and awaiting regulatory approval, and we continue to expect the exit to be substantially complete by the end of 2025. In closing, TerrAscend continues to show strong numbers across the board. Our business remains solid due to strong business fundamentals, a targeted M&A strategy, no material debt maturing for the next several years, consistent positive operating and free cash flow quarter-over-quarter, best-in-class sponsorship and a strong leadership team. Given all this, I am more confident in our future than I have ever been. With that, let me turn the call over to Alisa to provide more detail on our financial results for the third quarter of 2025. Alisa?
Alisa Campbell: Thanks, Ziad. Good morning, everyone. Thank you for joining. I'll take you through our financial results for the third quarter of 2025. The results that I'll be going over today have already been filed on both SEDAR+ and with the SEC, and all results that I will reference today are stated in U.S. dollars. Given our announcement in Q2 of our decision to exit the Michigan market, all financials discussed today reflect results from continuing operations unless otherwise noted. Net revenue for the third quarter of 2025 was $65.1 million compared to $65.2 million for the third quarter of 2024, which was in line with the expectations communicated on last quarter's earnings conference call. Retail revenue increased 3.4% year-over-year. The increase in retail revenue was driven by organic growth in Maryland and a full quarter of sales from the recent Ratio acquisition in Ohio, which was offset by price compression in the New Jersey market. Wholesale revenue declined 6.7% year-over-year, which was driven by organic growth in Maryland and offset by a decline in New Jersey, while Pennsylvania remains steady. It is worth noting that New Jersey wholesale revenue increased sequentially. Gross profit margin for the third quarter of 2025 improved to 52.1% as compared to 51% for the third quarter of 2024, driven by continued strong performance in New Jersey, Maryland and Pennsylvania. G&A expenses for the third quarter of 2025 were $21.3 million and 32.8% of revenue compared to $24.7 million and 37.9% of revenue in the third quarter of 2024. GAAP net loss from continuing operations for the third quarter of 2025 was $9.9 million compared to a net loss of $15.8 million in the third quarter of 2024. Adjusted EBITDA from continuing operations was $17 million for the third quarter of 2025 or 26.1% of revenue compared to adjusted EBITDA from continuing operations for the third quarter of 2024 of $16.9 million or 25.9% of revenue. Turning to the balance sheet and cash flow. Cash and cash equivalents were $36.6 million as of September 30, 2025. Net cash provided by continuing operations in the third quarter of 2025 was $7.1 million after net tax payments of $5 million during the quarter. This represents the company's 13th consecutive quarter of positive cash flow from continuing operations. CapEx spending was $2.2 million in the third quarter, mainly related to expansions in the Maryland and New Jersey facilities. Free cash flow was $4.9 million in the third quarter of 2025, representing the ninth consecutive quarter of positive free cash flow. During the quarter, the company closed on an upsized senior secured syndicated term loan of $79 million, the majority of which was used to retire existing indebtedness with the remainder designated for future growth initiatives. As part of this transaction, the company executed an additional uncommitted term loan facility in the aggregate principal amount of up to $35 million for future M&A. As Jason mentioned, as the Michigan deals begin to close this year, the proceeds will be used to pay down existing debt, reducing our interest expense in 2026 and beyond. During Q3, the Board of Directors authorized the company to renew and replenish its normal course issuer bid to repurchase up to USD 10 million of the company's common shares from time to time over a 12-month period. Looking ahead to Q4, we expect revenue and gross margins to be similar to the results we reported in Q2 and Q3. In closing, our third quarter results marked another period of solid revenue and gross profit margin performance with adjusted EBITDA margins among the best in the industry for our size. In addition, we have now delivered our 13th consecutive quarter of positive cash flow from continuing operations, and our ninth consecutive quarter of positive free cash flow. We look forward to sharing our continued progress on the business during the next quarterly call. This concludes our prepared remarks. I'd now like to turn it over to the operator for questions.
Operator: [Operator Instructions] Your first question comes from Frederico Gomes with ATB.
Frederico Yokota Gomes: First question on Maryland. You said you're outperforming the market, but you also saw a 2% decline in sales in the state overall. I'm just curious what's driving that decline in sales in the state? Is it price or volume? If you could comment on that? And then secondly, what's the growth outlook here that you see for your business, specifically in Maryland, just given that decline in state sales?
Ziad Ghanem: Fred, just to be clear, and we apologize if the script was not ready. The 2% decline was the state decline, not TerrAscend. We continue to be on a $75 million run rate in Q3, similar to what we had in Q2. Our wholesale business after we expanded our cultivations continue to grow in the state. Looking into Maryland, we are starting to see some retail stores opening, but we haven't seen any impact on our business yet. The cycle where the state is being 2 years behind New Jersey, we expect it at some point to be similar dynamic where our wholesale growth makes up for any pressure in Maryland. But we are looking in 2026 to expand cultivation further because of the reception of our brands, the new product performance and the order size and the new penetrations we're seeing from a wholesale perspective. Fred, does that answer your question?
Frederico Yokota Gomes: Yes. Yes, I appreciate that. And then I guess the second question, just on New Jersey. I guess, can you just talk about the -- maybe the delay in terms of closing that transaction there? And then secondly, how is the M&A environment looking there for your target of additional 6 dispensaries? Are valuations coming down or are pretty much in the same place that they were before when you talked about it?
Ziad Ghanem: Yes. Starting with Union Chill, we're not happy with the delay. There's still full alignment between the seller and the buyer. It's driven by the regulatory body. We've been active with answering questions. We do believe, as we mentioned on our script, that we will be on the next agenda, and we expect to get approval and closing this year on Union Chill. As far as the pipeline, the pipeline is still robust. The dynamic is still very similar. The valuation is still very attractive, and the deals are accretive, and we are negotiating same format that we have negotiated with Union Chill. But then to expand more on M&A, for us, going deeper in New Jersey continue to be in the core of our strategy, but also expanding in new states and going deeper in other states is -- will be a major play for us in 2026. There are a few assets that perform very well independently for some of the companies who have faced balance sheet troubles. Those assets need homes, and we are prepared to house some of those assets, and we are excited about some of those. So we expand -- we expect, in 2026, a major part of our growth in addition to some of the organic growth to come from some of those transformative deals. And we can't wait to share more news on that.
Operator: Your next question comes from Kenric Tyghe, Canaccord Genuity.
Kenric Tyghe: So very encouraging comments around Pennsylvania. It certainly sounds like a warmer discussion. What do you believe is driving the change in tone? I mean, I realize it's a stretch with Virginia expected to start legalized adult-use sales next year, but Pennsylvania really is increasingly looking like something of an outlier. Can you provide any more insight around the discussions or the change in tonality around those discussions?
Ziad Ghanem: Yes, Kenric, first, welcome back. Good to have you back and look forward to our discussions. Pennsylvania is a very important state to us. Before I talk about the regulatory environment, I want to remind what we said on our prepared remarks, our cultivation facility in Pennsylvania is fully prepared. We have expanded it fully. And with a plane switch -- flip of a switch, we can expand and increase that capacity by up to 100%. In Q4, in this quarter, we plan to turn some of that facility on and bring in more inventory. And we're in a position that allows us to do this. I'm super proud of the team of the inventory level that we have. We're at an all-time best inventory level with all of it being healthy inventory. My optimistic -- or being optimistic about Pennsylvania did not only come from last week being with the champ in Pennsylvania, talking to the Governor, Senators, Representatives from both sides of the aisle, but from multiple visits that myself and many of our peers have done in Pennsylvania. And we've heard from many decisions makers that there's not a cannabis challenge in Pennsylvania, there's a political challenge. And the political challenge continue to play to our favor because the budget has not passed yet, and it's almost at a record delay. So connecting all the dots from all those meetings, I believe that it's not if, it's just when. And the biggest takeaway that I saw last week and made me feel that optimistic is if the President reschedule cannabis at a federal level, then that would be the catalyst that will flip Pennsylvania almost immediately, in my opinion. And that confidence is along some of the M&A comments that I've done is what's given me the confidence to expand our capacity in Pennsylvania with sensitivity analysis that if one event happened or more than one event happened, what would we do? And I feel pretty good about our plan.
Kenric Tyghe: Great color. And just on that rescheduling since you mentioned it. Asking the M&A question another way, to what extent in quarter did all the rescheduling chatter perhaps cloud or color the timelines on Michigan divestitures or your target acquisitions in each, New Jersey and Ohio?
Jason Wild: Yes, I would say the rescheduling conversations have not had any impact on our divestiture conversations in Michigan or any other M&A conversations. I think everybody over the last several years has learned to sort of run their M&A and operate their business regardless of what we're seeing from the rescheduling perspective just because it hasn't happened, and it's been delayed for a lot longer than people have expected.
Operator: [Operator Instructions] Your next question comes from Andrew Semple, Ventum.
Andrew Semple: Congrats on the results here. First off, I just want to maybe call out that a few other of the larger MSOs appear to be getting more constructive on M&A. I know TerrAscend has been fairly early on this and certainly engaged in -- or prospectively engaged in a number of conversations. Are you starting to see some increased competition on M&A deals? And has there been any change in prospective valuation multiples as a result? Just want to get a sense if that's getting more competitive out there.
Ziad Ghanem: Andrew, thank you for your comments. But from an M&A perspective, for an optimal discussion and negotiation of M&A, a few factors needs to exist. You have to have the advantage of having an open map and having the ability to go in the state, whether it's deeper or new state. You have the ability -- you have to have the ability to have the balance sheet and the support from your lender for accessibility, and we have that and then have the ability to integrate and move quickly, but also stay disciplined. We are doing all this, and we have the advantage of doing all this. In some places, we do see some competition. In other places, we see less competition. But we don't make our decision based on competition at all. We make our decision based on the value we bring to our shareholders, and the deal has to be accretive. And the third filter we have that we cannot afford to inherit any buddy's problem or balance sheet cancer or anything that we've worked so hard as a company to get where we are.
Jason Wild: Yes. Andrew, the only thing I'd add is, the competitive tension has not increased over the last few months. We're not seeing any more on the deals that we're relatively far down the road on, or do we think that we might be able to get over the finish line. We have not been dealing with a high level of competitive tension with other bidders that are sort of bidding us up. I mean if that does happen, then we just walk away, but it really has not -- we haven't encountered that.
Andrew Semple: Great. That's helpful. And then maybe turning to cost controls. Well done on that this quarter. I guess, excluding share-based comp, your kind of cash operating expenses have been continuing to decline as a percentage of sales. And it's been that way for a number of quarters. I'm just wondering how much further that could go and whether you see room for continued operating leverage opportunities within the business.
Ziad Ghanem: Yes. Andrew, I'm so proud of the team for the discipline to get us where we got on our cash-based expense. We've done a robust exercise starting from a zero-based budget, looking at every line, asking, is that a nice to have, must-have. And the team has done a lot and put a lot of their plate and continues to perform and do well, and I couldn't thank them enough. The way I look at cash-based expense, we are where we need to be, $20 million on a $65 million revenue with the absence of leverage for our scale is a place I'm happy. Will we be able to save more? Yes, but it wouldn't be hitting the bottom line. It would be more safe to invest. One area that I am focused on is the wholesale business, is investing in platforms, investing in infrastructure, investing in analytical platform that supplement and complement our ERP. So it would be a little saving to reinvest it, but I would say this is where our cash-based expense would be. Now as we bring in more revenue from an M&A perspective, we are prepared to add disproportional expenses. So think about labor model and leases being around 12% to 15% on every $10 million that we bring in. So that will continue to push that efficiency in OpEx below that 30%, but being around 30% is a target that we declared, and I committed and promised to the Board, and we delivered on.
Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call over to Jason Wild. Please continue.
Jason Wild: Thank you so much for joining us today. I'm really proud of this team and what we've accomplished this quarter and what we've accomplished actually over the last several quarters. We will see you on the next quarterly conference call in March.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.