TerrAscend Corp.

Thank you, Joanna. Good morning, everyone.

Welcome to TerrAscend's fourth quarter and year-end 2020 conference call for the 3 and 12-month period ending December 31, 2020. Joining us for today's call is Jason Wild, Executive Chairman; Keith Stauffer, our Chief Financial Officer; and Greg Rochlin, Chief Executive Officer of Northeast Operations.

Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to risks and uncertainties relating to TerrAscend's future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements.

The risk factors that may affect results are detailed in TerrAscend's MD&A and other periodic filings and registration statements. These documents may be accessed via the SEDAR database.

I'd like to remind everyone that this call is being recorded today, Tuesday, March 23, 2021. I would now like to introduce Mr.

Jason Wild. Please go ahead.

Good morning, everybody, and thanks for joining us today. Before we get started, I'd like to say a quick thank you to Jason Ackerman for his contributions during his time with TerrAscend as CEO and Executive Chairman.

On behalf of the entire team, I'd like to wish him all the best in his future pursuits. Now on to the results.

2020 was a tremendously successful year for TerrAscend. We reached new heights across many financial and operational indicators quarter-after-quarter throughout the year.

While 2020 has certainly been an incredibly challenging year for the economy and the country and the world, due to the COVID-19 pandemic, our team came together and executed on all fronts for our customers, patients, consumers, shareholders and the communities in which we work. The results of this execution are reflected in the strong top line growth, continued gross margin expansion, further SG&A leverage and strong cash flow generation for the quarter and the full year.

These improvements drove our profitability to among the highest levels in the industry, with adjusted EBITDA margins reaching 40% in Q4. We achieved this milestone even faster than we expected on the strength of our execution and operational excellence.

Looking at our growth plans for 2021, we will continue to focus on building depth and scale as we expand our footprint in attractive limited license markets. We will also continue to strengthen our capabilities by adding talent across the business to support this growth.

While we continue to scale to meet current and anticipated demand in our markets, we have not lost sight of our core focus on being financially disciplined. Our goal is to build on the outstanding financial success of 2020.

On the strength of this positive momentum, we are confident in raising our guidance for 2021, which Keith will discuss shortly. Turning to an overview of our operations.

In Pennsylvania, we continued to distribute our branded products to 100% of the dispensaries in the state. In addition, in Q3, we further expanded our cultivation capacity at our PA facility by 25%.

This increased capacity began contributing to revenue midway through Q4, and we are happy to report it immediately sold through. In addition to expanding our cultivation footprint, we are also increasing our production output through improved yields.

As an example, output, as measured in grams per square foot of canopy space, increased by 36% from Q4 of 2019 to Q4 of 2020. As a result, our cost per pound has continued to decline, thereby enabling margins to continue to expand.

With our customer-centric philosophy and a focus on first-class service, we have seen demand for our products remain robust, and we've, therefore, begun work on further capacity expansion in 2021 to fuel further growth into 2022. Sales at our 3 retail dispensaries in Pennsylvania have continued to grow at a robust rate.

Our 3 stores are performing well above-average levels per store in the state, with run rates increasing 33% in Q4 sequentially. Patient satisfaction levels are high, with customer return rates increasing 37% and patient counts increasing by 24% in Q4 sequentially.

The success of our business is ultimately decided by customer satisfaction and meeting patient needs. And to that end, we are constantly working to deliver innovative new products and brands.

For example, we recently introduced the Kind Tree brand to our East Coast markets. King Tree is a brand dedicated to producing exceptional cannabis with respect to the earth and love for the plant.

Kind Tree joins our existing brands, Ilera, which is more medically focused, and Prism, which produces high-quality concentrates. Turning to New Jersey.

We're continuing to execute on our growth strategy there and with -- and are very excited about the passing of adult-use legislation. We believe we are extremely well positioned in this emerging and underserved consumer market.

Our current medical cannabis business in New Jersey is now fully operational, performing well, and we will be prepared to service the expanded market with a broad array of products when adult-use sales begin later this year. We have completed several harvests from our 40,000 square foot greenhouse in Booton, New Jersey, and we commenced sales from the greenhouse in late Q4.

In addition, first harvest had been completed from our new 80,000 square foot indoor facility collocated in Booton as well. We also announced last week that we have been awarded a permit to process and extract at our facility, which gives us the full capacity to sell a wide array of manufactured products.

We anticipate the first sales into the market from our indoor harvests and extracted products will begin in the coming weeks. At the end of November 2020, we opened our first New Jersey retail location in Phillipsburg, and I am pleased to report that it is ramping quite well.

As the only dispensary in Warren County and one of only a few dispensaries in Northwestern New Jersey, we've seen great foot traffic in the store with some patients traveling more than an hour to access our high-quality products. Our second and third dispensary locations in New Jersey are on track to open in the second quarter and -- the second and early in the third quarter, respectively.

Both stores will be located in the densely populated New York City commuter corridor in the Northeastern part of New Jersey. In Maryland, we are actively preparing to assume control of the HMS business once we receive final regulatory approval, which we expect in early Q2.

Our entry into the $600 million Maryland medical market further strengthens our foundation on the East Coast. We look forward to leveraging our scale, strong portfolio of manufactured brands and veteran Northeast operation teams who also oversee our New Jersey and Pennsylvania operations.

Over time, we expect to achieve full vertical integration and assume a leadership position in this growing market. Turning to the West Coast.

The operating environment in California remains challenging due to the ongoing COVID situation in the State. Our recently opened fourth and fifth California stores in Capitola and Berkeley are gradually ramping up under these conditions.

We expect conditions to improve as COVID restrictions ease and the foot traffic recovers in these areas. Our recently expanded State Flower indoor cultivation facility in San Francisco continues to perform well with all expanded capacity in use and selling through.

This expansion significantly increased our ability to supply our ultra-premium bay flower products into the wholesale market and into our own Apothecarium dispensaries. In Canada, the turnaround of the business there is progressing and we are seeing further signs of success from the implementation of our clear and focused business model and strategy that is aligned with the current market conditions.

As an example, I'm pleased to share that for the fourth quarter, TerrAscend Haven Street Indigo Daze 3.5 grams jar SKU was the #1 selling SKU out of 506 in the dry flower category in Ontario, which is Canada's largest cannabis segment -- or market. The dry flower category represents over half of all cannabis sales in Ontario.

With our improved commercial focus and streamlined product portfolio, we feel confident that our strategy is on the right path in Canada. To summarize, 2020 was an incredible year for TerrAscend.

We delivered record results, and our team successfully adapted to serve customers, while maintaining high levels of customer satisfaction during the COVID pandemic. I'm extremely proud of everybody's hard work throughout the year.

With the strong footprint we have established in attractive states, such as PA and New Jersey, along with the anticipated closing of HMS Maryland, we plan to continue to execute on our growth agenda in 2021. With adult-use legislation now passed in New Jersey and increasingly being discussed in Pennsylvania and Maryland, we are well positioned for future growth, and we look forward to updating you on our continued progress throughout the year.

I would like now to turn the call over to Keith, who will discuss the financial highlights for the quarter as well as providing updates to our financial guidance.

Thanks, Jason. Good morning, everyone.

As a reminder, the results I will be going over today can be found in our financial statements and MD&A and are expressed in Canadian dollars, unless otherwise noted. Net sales increased 152% to $65.3 million in Q4 versus 1 year ago and increased 28% sequentially.

This significant growth in revenue was primarily driven by recent cultivation expansions in Pennsylvania and California, our first sales in the New Jersey market and the continued growth and ramp up in our 3 Apothecarium dispensaries in Pennsylvania and the 2 locations in California. Regarding net sales by channel, we grew our branded manufacturing business in Q4 by 30% sequentially and by almost 200% versus 1 year ago, while we grew our retail business by 24% sequentially and by almost 100% versus 1 year ago.

Branded manufacturing, with its healthier margin profile, represented 70% of our revenue mix in full year 2020. Adjusted gross margin for Q4 was 60% compared with 59% in Q3.

Note that adjusted gross margin is a non-GAAP measure, which excludes fair value of biological assets and also excludes a Q4 inventory impairment in Canada, which is a nonrecurring item. This sequential improvement in gross margin is the result of cultivation yield improvements in Pennsylvania as well as continued increase in mix of Pennsylvania related to our additional expansion there.

We have maintained our strong focus on cost control with SG&A expenses growing 10% sequentially relative to the net sales growth of 28%. As a percentage of revenue, SG&A further improved to 23% in Q4 compared to 27% in Q3.

With these improvements, we remained at or near best-in-class levels of SG&A leverage in the sector. Our strategy to go deep, build scale and leverage our cost structure, teams and capabilities remains a core operating tenant that drives this strong leverage.

Q4 adjusted EBITDA grew 46% to $25.9 million compared to $17.8 million in Q3, further demonstrating the leverage present in our business as we continue to grow revenue. Adjusted EBITDA margin improved to 40% in Q3 from 35% in Q4 -- from 35% in Q3, 24% in Q2 and 14% in Q1.

These significant quarter-by-quarter improvements are a clear indication that our focus on scale and cost control is driving profitability levels that are among the highest in the industry. We expect this progress to continue throughout 2021 as we ramp up our New Jersey business and continue to expand and gain efficiencies in Pennsylvania.

Adjusted net income, a non-GAAP measure which includes fair value of warrant liability and revaluation of contingent consideration, increased by 56% sequentially to a positive $19.9 million for the quarter. Turning to the balance sheet.

We ended the quarter with $75 million in cash. We completed 2 debt financings in December, a US$20 million loan from Canopy Growth to our Arise Bioscience division and a US$120 million term loan secured by our Ilera Healthcare division.

Towards the end of December, we paid US$106 million towards the final earn-out payment for the acquisition of Ilera, with the remaining US$30 million deferred to June 30 of this year. Subsequent to year-end, we closed on a C$224 million equity offering, further bolstering our balance sheet beyond the 75 million cash reported at year-end.

We feel confident that these recent capital raises, combined with our strong cash from operations generation, provide us with the balance sheet strength necessary to execute on our organic expansion plans and on our M&A agenda. Speaking of cash flow from operations, this result has also been improving throughout 2020.

As a reminder, in the second quarter of 2020, we reported our first quarter of positive cash from operations at $10 million. In Q4, we achieved a positive $24 million in cash from operations, resulting in $33 million for the full year.

CapEx spending during the fourth quarter was approximately $20 million compared to $18 million in Q3 and $61 million for the full year. CapEx was largely related to the build-out of our cultivation facility in New Jersey and, to a lesser extent, the opening of new stores in California and cultivation expansions in Pennsylvania and California.

This spending completes the full build-out of our current footprint, with a few final payments due during Q1. Free cash flow, net of CapEx, was a positive $5 million in Q4, which is the first positive free cash flow result for TerrAscend.

We're pleased to report that we achieved this milestone 1 quarter earlier than our internal expectations. However, I'd like to note that due to the timing of certain payments, tax payments and CapEx payments going forward, free cash flow may continue to be choppy on a quarterly basis, but continuing to improve over time, which is only natural given our phase of growth and the significant continued opportunities to invest in extremely attractive ROIC projects.

Lastly, before turning the call over to questions, I'll take a few minutes to discuss our 2021 outlook and guidance. 2021 is shaping up to be a very exciting year for TerrAscend, and we expect to continue to achieve rapid growth and expansion.

We anticipate continued growth in our Pennsylvania business, with Q1 2021 being the first full quarter following the completion of our increased cultivation expansion. New Jersey will be a leading growth driver for us throughout the year, as we realized the full capacity of both the 40,000 square foot greenhouse and the 80,000 square foot indoor facility as the operation ramps throughout the year.

It is important to note that we do expect the scaling and growth in this new capacity to be second quarter and back half weighted as the operation continues to come online throughout the year. For New Jersey retail, Q1 2021 will be the first full quarter of sales from our Phillipsburg dispensary.

And with the openings of our second and third dispensaries in Q2 and early Q3, we expect to see further growth in the back half of the year from these stores. In California, we will fully annualize the late Q3 2020 expansion of our State Flower cultivation facility and we'll see continued growth at retail with the further ramp up in our fourth and fifth stores in Berkeley and Capitola, which opened in the back half of 2020.

With our optimized business in Canada, we expect to see positive contributions to both sales and EBITDA growth in 2021. And finally, our recent acquisition of HMS Maryland will begin contributing to our sales once we have the required regulatory approval for closing of this transaction, which we expect in the early second quarter.

Note that our 2021 guidance does not contemplate any expansion of the Maryland assets, though we do plan to expand the operation in Maryland during 2021, which will contribute to 2022 financially. Turning to our financial guidance.

We plan to convert from Canadian dollars to U.S. dollars, as our reporting currency effective with our Q1 2021 reporting cycle.

Also, work is well underway to prepare TerrAscend to become a U.S. domestic filer with the SEC under U.S.

GAAP later this year. In addition, we are preparing to meet the requirements necessary for our securities to trade on a major U.S.

exchange, if laws should change in the future to permit us to do so. More to come as we progress on all of these fronts.

Finally, as a result of all of the strong growth drivers outlined here, and our conversion to a U.S. dollar reporting currency, we are raising our guidance for 2021 and converting it to U.S.

dollars. Our updated guidance reflects our expectation that we will exceed the high end of the previously announced guidance.

Revenue is expected to exceed US$290 million and adjusted EBITDA is expected to exceed US$122 million, leading to a full year EBITDA margin of at least 42%. Note that we have converted our 2021 guidance to U.S.

dollars based on an exchange rate of 1.3082, which prevailed when we originally issued our Canadian dollar guidance on November 19. To close, we're very excited about our strong finish to what has been an extraordinary year for TerrAscend, and are even more excited for what is to come in 2021.

I'd now like to turn the call back to the operator to open it up for questions.

Jason, I mean, congrats to you and the team on the prints and the guidance revision, which I'll get to in my second or third question. I think top of mind this morning for everybody is obviously going to be the surprise announcement of Jason Ackerman's exit.

Is there -- recognizing there are probably limits on what you count or will say, is there any additional color you could provide us on how we went from there to here and in pretty short order with respect to Jason's exit, just such that we can better understand the dynamics at play and some of the risks perhaps that, that imputes for the rest of the year?

Sure. I think that it’s -- to start sort of with the end of your question first, I don't think that it should indicate to anybody that there's any risk as it relates to the business.

Things are going very well. They have been exceeding our own internal forecast.

So Jason's exit has nothing to do with the success of the business or how we've been executing. I think it really just comes down to a difference in philosophy over management style and culture.

I mean, that's really what it comes down to. And I feel a lot better that we were able to do something -- I don't feel good that we did this, but what I'm saying is I feel better that the company is in such a strong position.

And it's not, in any way, an indication of -- Jason's exiting is not in any way an indication of anything that's wrong with the business. And me and the Board just felt like it wasn't going to work out.

And to me, the best time to do something like this is when the business is running really well as opposed to if we were going through some troubles. So sorry, it probably doesn't fully answer all the questions you have about that.

But please don't take it as an indication that anything is -- that there's anything sort of lurking beneath the surface. The business is doing great.

We've got, obviously, a big ramp in revenue coming on this year and a big ramp in profitability and margins. And we just decided that it wasn't going to work out with Jason, and we decided to make the move.

That's great color, Jason. Thank you.

And just if I'm understanding you correctly, it's not just a function of the momentum you have, but the conviction or confidence you have in the bench strength, that we'll see or limit any potential risks from his exit. Is that a correct way to characterize or think about this in terms of you do have that test?

Yes.

And if there were to be time between here and there and appointing a new CEO that, that doesn't impute any potential slippage?

Yes. Thank you for pointing that out.

I should have pointed that out that our -- we have some really strong executives at the company. And everybody has really been stepping up and has -- there are so many people that have deep operational knowledge of the business at this point.

Just to call out a few and people that we have on the call here today, Greg Rochlin, who started Ilera in Pennsylvania and sold that business to us and has stayed on. And has been running the Northeast for us ever since now, probably about 1.5 years.

He is extremely involved in the business, and we'll be stepping up even more so in the coming days. He's on the call, and he's going to be available to answer some questions.

Keith Stauffer, our CFO, has been with the business since the first half of last year, and now has -- is fully up to speed and has been really stepping up and making a great contribution to the business. And I believe we also have Jason Marks, our Chief Legal Officer, is on the call as well, although I don't think we're going to have too many legal questions, but he is -- I've really been happy with the involvement that he's taken in the business over the last several months because he is much more than just a Chief Legal Officer.

He is a lawyer, who really understands business as well and deserves the seat at the table, and we've definitely been inviting him to the table much more. So those are just sort of 3 of the top executives that I think signal our bench strengths.

And I don't have any doubt that these guys are going to continue to execute. And when it comes to finding a CEO, we're not in any rush.

I mean, the business is running well, and we've got a great team. So there's not -- it's not like there's no fire drill going on here, but we are looking for candidates.

And we think that we'll be able to bring somebody in over time and who's going to be able to contribute strongly to what the rest of the team brings.

And a quick final one for me. Just with respect to your guidance, it doesn't -- sorry, it does not include any assumed contribution from New Jersey rec, but is it reasonable to believe that given your expectations around timing of that could potentially provide a buffer if New Jersey rec does actually come online in the fourth quarter, given that it's not in your 2021 guide?

How should we think about the evolution there? And how much room there may be from a guidance perspective?

Sure. I don't know that I would describe it as a buffer, I would describe it more as an upside.

I mean, we -- this guidance is -- does not assume any rec sales. So that would be additive if sales kick-in in Q4.

We're not sure exactly when it will kick in. We've been hearing essentially sometime before the end of the year.

So we did not include any rec sales, and that would just be additive to the guidance that we've provided today.

A very nice job as usual on the profitability. So I'm curious just about -- you obviously guided for higher profitability next year.

Is there -- can you give us some color or some level of understanding as to how much New Jersey is like detracting as of right now from profitability? And how much -- once that kind of flips over to more revenue producing, how much that benefit you'll get from that swing?

And then just on the operating side, you do run some of the highest margins in the industry. So can you give us some confidence that it's just great execution and not that you're kind of like starving the business for profitability now that could be harder to overcome in the future?

Sure. Keith, do you want to answer that question?

Hey, Glenn. Yes.

So on the first part of your question, I would say, broadly speaking, New Jersey, at this point, is a net neutral. And so what you'll see as New Jersey kicks in with, I'd say, equally -- at least equally attractive profit profile to Pennsylvania is that's what's really going to drive our -- continue to drive our margins upward through this year.

So we have -- we started selling some in Q4 that's in our numbers, and that offset some of the start-up costs. And it's broadly neutral, I'd say, in the grand scheme.

And then -- yes. And then to the second part of your question, I think I kind of answered it, which is with New Jersey kicking in throughout the year and will become a very material part of our business with a profit profile at or better than Pennsylvania over time, given pricing differences as wholesale in the market, that should continue.

And then I think the other part you alluded to is really starving the business. We're not starving the business.

We just have, I think, a unique business model with the depth and the scale that gives us the margin profile that we have. And then we continue to invest in our capabilities and in corporate areas and other SG&A-related areas as we feel the need to build out capabilities over time.

So as you see in this quarter, we grew our SG&A 10%, but we continue to grow revenues at multiples of that rate, and we continue to plan to operate with that cost consciousness over time, but making sure we don't starve the business.

Great. The one thing.

And then -- sorry, go ahead, Jason.

I was just going to add one thing, more just from a qualitative perspective, I guess. I think part of the reason that our profitability margins are so good or near the high end of the sector is partly in my mind because we are a lot newer than a lot of the other companies, a lot of our competitors.

So we just have the less -- we've built off less sort of infrastructure and less people over time. I find -- yes, sometimes when businesses are around for a long time, there's people -- there might be some people still there that wouldn't have been there if the company was just starting more from scratch.

So I think that that's not really a quantitative answer. But I think that that's part of it.

We just haven't needed and have them to build up the sort of the staffing levels that some of the other operators have, because I guess we're newer.

Yes. Okay, great.

That's good color there. And then on -- just moving on to Maryland, just can you talk about what kind of expansion plans?

You talked about some investment in 2021 that likely contributes in '22. Can you just give us a sense of what you're thinking there?

Sure. I think that will be a great question for Greg Rochlin to answer.

Sure. Thanks, Jay W.

Glenn, so we're looking forward to getting our license through Maryland, we’re on the docket for late April. And once we have that in hand, our plans are to take advantage of the availability to expand the facility pretty dramatically.

We have some very nice plans. We've hired a very strong GM there, and we're really looking forward to the Maryland market and somebody who lives in Baltimore it's going to be very nice to be doing business in my home state.

Yes. Greg's been pretty much every week.

From the day that we acquired Ilera, Greg has been asking me when are we getting Maryland assets. This was definitely partly, I don't want to say a kit, but I was very excited to be able to -- for us to be able to bring this home for Greg.

Have something in his backyard as opposed to driving 4 hours out to Pennsylvania.

Maybe I missed it, last thing for me would just be on Canada. How -- did you say if it was profitable?

And to what level and it improved from last quarter? I might have missed that, and that's it for me.

Sure. Keith?

Yes. So we continue to progress in Canada.

We don't break out those details. But we did -- I mentioned we had a one-time impairment item on inventory in Canada.

But otherwise, we're really happy with the direction, things continue to head in Canada. Like Jason mentioned, we have some top-selling SKUs.

Our commercial focus and our focused product portfolio is much improved, and our cost structure is now aligned with all the work that we did last year -- or yes, in 2020. And so the path forward, like I mentioned in my guidance comments, we have expectations for Canada to continue to progress both on top line growth and on having a profitable business through 2021.

If I could, just touch and crack on the CEO change. Could you talk a little bit about -- in terms of management style and culture, if you could give a little bit more color on kind of what were the differences there?

And when you are looking for your new CEO, what exactly are you going to be looking for in terms of management style, their qualities? What are your top criteria in choosing a new CEO?

Any more color that you can would be useful.

Sure, Andrew. I would say, I don't really want to -- I'd rather not get into the differences in sort of management style or culture, because then it's going to seem like I'm saying that what me and the Board preferred was sort of the right way and what Jason's view was of how to deal with that with the wrong way.

So I'd rather not get much deeper into that. In terms of somebody -- in terms of the candidates that we're evaluating, we'd like to find somebody that has an experience guiding large consumer companies through extremely high periods of growth.

So it would be somebody with CPG experience, somebody with overall large company experience and somebody to really be complementary to the greater executive team that we have right now.

Thanks for that additional color. Cognizant you can only provide so much on today's call.

In terms of the 2021 guidance, you already talked about how New Jersey rec could provide upside. Could you talk about your production now?

Are you guys selling everything you can produce? And if you are, when rec hits, how exactly do you see that demand curve changing or the sales curve rather changing?

Could you see a significant increase in prices? I'm just curious, if things are running on all cylinders now, when rec hits and that strong demand hits, how should we think about sales changing or margins changing?

Sure. I think in terms of, as we look at the medical versus rec, our view is that we are going to sell everything that we cultivate and manufacture, whether it's medical or rec.

So it's really a matter of the difference that we're going to see is going to be -- once adult-use kicks in, is going to be retail sales. Those sales should increase significantly under adult-use versus rec.

That's really going to be the big driver. It's going to be -- essentially, it's going to be us selling more of our wholesale products through our own stores, where, obviously, we're going to be booking a much higher amount of revenues if we sell it all the way through essentially seed to sale.

I can -- I'd like to throw it over to Greg in terms of the first part of your question about where we are now in terms of production and something through everything that we can make.

Sure. Thanks, Jay.

Andrew, great question. We've quite a few different levers that we're looking to pull for when adult-use.

One of the things, as Jay and Keith mentioned earlier, we are continuing to expand our existing facilities in Pennsylvania. We have some expansion plans in New Jersey as well.

And of course, as we just discussed, Maryland, that really is in preparation for adult-use in the states when that's available. We also have a very strong culture of innovation, where we are continually coming out with new products and new forms.

One example of that is our Prism line, which is, of course, our concentrate line. In New Jersey, we're looking forward to taking advantage of the existing Valhalla brand and expanding our edible lines, all of which help our high profit margin items.

And so we're -- we do believe that we are setting ourselves up for a really nice bump when adult-use happens. As Keith and Jason mentioned, this is not in any of our guidance or any of our numbers currently, but we do expect to see a nice bump when those markets to really flip to adult-use.

Just maybe one more on housekeeping item. Could you just confirm the exchange rate that you guys are using when converting your 2021 guidance to USD?

Yes, Andrew. Hi, Keith.

Yes, it's 1.3082. And we have a slide on that, I think those was up on the screen for those that were looking when I was talking through it.

And we also have it clearly footnoted in our press release. And the thinking there is just that we introduced our guidance in Canadian dollars back on our Q3 conference call, that was the exchange rate.

So that was the right rate to convert into U.S. dollars.

Yes. Just to add to that a bit, Andrew.

We originally -- we -- the business is -- the vast majority of our business is in U.S. dollars, well over 90%.

When we do our own forecast, we forecast them in U.S. dollars, and then we converted it.

We say, in November when we give this guidance, we converted it to Canadian dollars. But the real -- the way that we're booking all of these sales is in U.S.

dollars. So we -- so in our view, our real guidance was what we had based it off of at that conversion rate.

It's just a matter of the way we're reporting it, but there's -- we actually don't have any FX risk as it relates to the business there.

It’s [indiscernible]. First one is on the -- going back to the Pennsylvania expansion, you said it's already underway, I believe.

Is at that facility, I believe it can go up to 30%. Is that on facility size or is canopy square footage?

And when can you see that starting to hit revenue?

I'm sorry, Evan, you were skipping up just a little bit. Could you please repeat that question?

Yes. Is this better?

Yes.

Let's see. It was a combination expansion.

I believe you have another 30% in Pennsylvania. I think you said that's currently underway.

That facility, a 30% increase on facility size or canopy square footage? And when could you see that come online?

So that is actually on -- do you want me to get that, Jay?

Yes, absolutely.

So Evan, thanks for the question. The expansion is actually -- it will be -- from current footprint, including what we're doing -- part of what we're doing is renovating our existing greenhouse into an indoor facility.

So we will be able to not only increase the square footage, but increase the grams per foot and our yields. And that will be completed, all the expansions will be completed this year, and will really hit our revenue very late this year or early next year.

And again, these are not in our '21 guidance. It's a '22 event from that perspective.

Okay. Got you.

That's helpful. And then my second question is some other operators on the call to mention weather-related issues in 1Q, particularly on the East Coast in February due to cold weather and snow.

Have you seen a notable impact from that? Or is it not -- really not material so far from what you've seen?

I apologize, we have a little bit of a tough connection. Could you repeat?

Yes. I heard question, Greg, I can answer that.

This is Keith. We really have not seen a notable impact really materially impacting anything from weather in the first quarter.

First off, could you talk a bit about the potential financial benefits to TerrAscend if the Safe Banking Act passes and there's termination of 280E?

Should I take that JW?

Yes. Go for it.

So there's kind of 2 parts to that question and a lot of the debate about it, right? Safe Banking, as I think we all know, has multiple potential benefits.

The cost of capital being one. It's hard to handicap exactly how much that could be worth.

But I think we -- it's clear kind of what we borrow at and what our cost of capital is, and that could come down from kind of low to mid-teens, down into the single-digits and it'd be worth several million dollars on that front. There's banking fees that are maybe less material, but they can come down as well.

And then 280E, the simple math there is look at our SG&A expenses and take 30% of that, and that's how much savings we can get on a recurring basis. So quite a bit of unlocked value there potentially into our market cap.

So hopefully, that answers the question.

Okay, great. Secondly, are you guys able to give us sort of a relative production capacity of what you have in New Jersey versus Pennsylvania currently?

Sure. Greg?

Did you hear that?

Yes, sure. Of course.

Yes. Okay.

Right now, we have approximately 2/3 the capacity in Jersey that we have in PA before the expansions in PA that we were just discussing. So we have really a good amount of capacity between the indoor and the greenhouse.

And really looking forward to that program, continuing expansion and us putting together -- opening our second and third dispensaries to really be able to get the quality cannabis into the hands of the patients and New Jersey that really needed and then, of course, moving into the adult-use market. So we're extraordinarily bullish on New Jersey.

Okay. Great.

And then finally, Jason, maybe you could talk a bit about what your M&A pipeline looks like? In general terms right now, it seems like there's very busy activity along the East Coast in Pennsylvania, Massachusetts, Florida.

What's your outlook there?

Sure. Yes, we are definitely looking at many things.

We hope to be able to announce some things in the next few months, but there's definitely a lot of opportunities, even though prices have gone up some. There are -- I think that that's one of the areas where we excel is finding not necessarily going after the assets that everybody knows of, but sort of turning over a lot more rocks and finding great assets and great operators on a sort of on a single state level.

And very often, you're able to get those assets if you're willing to sort of cobble them together, you can get better assets at better prices than just sort of looking at the same ones that everybody else is looking at or the ones that bankers are showing around. So I think our pipeline is really strong there, and we -- they're never done until they're done, obviously, but we would hope to be announcing at least one deal in the coming months.

Just wanted to ask on the decision to raise the 2021 guidance so earlier in the year. Was there any new information that rose in Q1 that kind of supported your confidence in the guidance, perhaps maybe some of your businesses may be ramping more quickly than previously expected?

Or maybe you're more confident in being able to deliver on New Jersey? If you could speak to some of those factors, that would be appreciated.

Sure. Keith, you want to -- would you like to take that?

Yes. Yes, sure.

Andrew, I'd say there's really 2 main elements there. One is the continued momentum in Pennsylvania that just continues to surpass our internal expectations, as Jason alluded to earlier, we continue to beat our forecast internally.

And then the second major component, Andrew, you alluded to, which is being granted the processing license in New Jersey, was sort of the final step in unlocking the full potential and capability of our business in New Jersey for the rest of the year. So I'd say those 2 were the main ingredients and to us being confident in raising the guidance.

Great. That's very helpful.

You also called out the strong same-store sales growth in Pennsylvania in your prepared remarks. I'm just wondering, how important was the expansion to your production facilities that you underwent within the fourth quarter to ensure adequate supply for your own dispensaries?

Was that a factor to supporting retail the retail store growth? Or were there other primary factors behind the increase in retail sales?

Greg?

So great question. It's a combination of both.

We saw strong demand. There's quite a bit more patients that have actually entered the market in Pennsylvania.

We're currently supplying 100% of the market, every dispensary in the state, and we continue to do so. We have great partnerships where we supply some of the other MSOs, and they supply us as well as well as the local suppliers in that state.

And again, a lot of it had to do with real just overall growth in Pennsylvania on the patient growth. And it's been a really strong state, obviously.

And we're pleased to really be able to leverage that and our -- luckily, our products and our stores and our incredible staff have done just a wonderful job, especially during the pandemic in an extremely difficult time to really pivot to whether it was drive-through, curbside and just making sure that we met the customers and the patients where they wanted to be so that we were continuing to be best-in-class from a service perspective as well as the quality of the product. So it was a confluence of all those things that really allowed us to experience that impressive growth.

That's great. And another quick one, if I may.

Just what you're seeing on the ground in New Jersey, has there been any change to the supply-demand dynamics in that state? And how do you see that kind of evolving over the course of 2021?

We see our experience in Pennsylvania really serving us extremely well in New Jersey. There is still a huge demand supply imbalance as you probably are very aware where there is much more demand than supply.

As that program continues to ramp up we're fully expecting to see that continue for the foreseeable future. And again, it is one of the reasons that we're so focused on delivering high-quality products in a whole bunch of different formats as the patients would like through our New Jersey facility.

And one of the reasons we're again, looking to continue to expand to be able to meet as well as we can, the continued and growing demand in New Jersey as well as, of course, Maryland and then -- Pennsylvania and then Maryland.

This is Clarke Murphy on for Eric Des Lauriers. First, I wanted to just extend my congratulations on another great quarter and a great guidance, really impressive results.

Kind of switching to my questions -- yes, no problem. Moving over to California.

We've noticed that the -- obviously, the illicit market is still really strong. A lot of retailers have been continuously hit by COVID.

So just kind of trying to understand any trends that you guys have seen in the stores as we exit the lockdown here, both on like the store and operational side and kind of how consumer behavior is evolving?

Jason, do you want me to take that?

Yes. Yes.

Okay. That would be great.

Hi, Clarke. So I think it's no surprise that back earlier in 2020 COVID hit, well, it impacted various areas.

But for us, for our business, it impacted our stores in California, in the San Francisco area. And once we kind of found a new level of sales, they've remained relatively stable at that level.

And so if we were to compare kind of quarter-by-quarter, in 2020, even into this year, it's been at a similar -- sales have been at a similar level. And slowly here, as things are unfolding across the country and restrictions are becoming unlocked, we're seeing some gradual improvements, in particular, in our 2 new stores in Berkeley and Capitol, certainly not to the levels that we expect longer-term once, for example, college students are back on-campus in Berkeley and so forth.

But we remain very -- we remain cautious, but we plan that over time this year, into the summer and into the back half of the year, we'll see improvements across the stores there.

Yes. Got it.

Sorry, the only thing I would add to that is, it's sort of -- we absorbed the weakness over the last year or so in California. And I think that in terms of our profitability last year, it's a testament to, A, the fact that we acted quickly and we're able to control costs in California, but also the fact that our East Coast operations were so strong that they were able to more than make up for any of that slack in California.

But going forward, I mean, I was just thinking last night, watching on the news, what's happening in Miami and all these huge crowds and everybody's sort of itching to come back to the cities. I think that it sort of popped into my head that, that is what we may have in store for us in San Francisco.

The fact is our 3 existing stores were in Downtown San Francisco and a large percentage of our customers were either commuters or tourists, and most of them have not been in the city for about 1 year. But they will come back.

Hopefully, they're going to be coming back in the coming months. And that's another area of potential upside because we have not really modeled a strong resurgence in California, but it's certainly within the realm of possibility that, that could happen.

Got it. That's really full color.

And then kind of just switching over to your CapEx plans for 2021. Just any color you guys could give there in terms of what CapEx is looking like?

And in what markets you guys will be putting that into? I'm assuming mostly New Jersey, Pennsylvania, Maryland, but any color you could give there would be helpful.

Sure. Keith?

Yes, sure. So you're right, Clark.

So it's really focused in those 3 markets, and you heard us talking about expansion plans in each. So that's where the CapEx will be spent in 2021.

And those investments will lay the groundwork for continued strong growth we expect in 2022. And if I were to frame it before you, I would say, more or less at similar levels to spending in the full year 2020.

So that's kind of to put kind of a frame around it. So hopefully, that helps.

Yes. No, that's great color.

And then just lastly for me, going back to kind of the management transition here and kind of business continuity. Just looking to see if you guys expect -- or if we should expect any involvement from Canopy or Constellation in this process?

In terms of management, I would say no. I mean, they know what's -- everything that's been going on.

And they are continually reaffirm their support for us. But I -- likely from Canopy isn't coming over any time soon to work at TerrAscend, but we have a great relationship with the company.

We talk to them multiple times per week. And I think that the relationship is only going to continue to grow over time.

Okay. Thank you, Keith.

Did you have the closing comments? Or did you want me to close it out?

Nothing formal, Jason. Go ahead.

Sure. Yes.

Thank you, everybody, for being on the being on the call today. It's gratifying to see the numbers of people joining and asking questions versus just 1 year ago.

I think back to just about 1 year ago or less than 1 year ago, we actually had our first conference call ever. And I think this business is on a really long way from many different perspectives in that time since then.

And we look forward to sharing our progress going forward. You'll hear from us soon.