Jason Wild Unleashed

November 7, 2023 · MG Magazine

In challenging times, people often turn to iconoclasts to blaze new trails. While the industry is at a difficult crossroads, there are few figures charting a bolder or clearer path forward than Jason Wild.

The outspoken New Yorker is the executive chairman of TerrAscend, one of the cannabis industry’s first publicly traded companies. He also has been among the industry’s most active — and vocal— investors and entrepreneurs, consistently leading rounds and blazing paths for others to follow.

Like many natural entrepreneurs, Wild started his first business in high school. In the late 1980s, he and a friend founded Phone-For-Food, a primitive version of Doordash, long before the internet. They signed agreements with some of the restaurants in his suburban town, aggregated the menus onto a single list, and delivered to-go orders in return for 20 percent of the bill.

At age eighteen, Wild sold the business for a humble $10,000 and used the cash to attend college, intent on following in his father’s footsteps as a pharmacist. But while taking classes, Wild found he had a knack for picking undervalued pharmaceutical stocks and dove into investing.

Buoyed by early success and inherent self-confidence, he raised $80,000 to launch the hedge fund JW Asset Management. Over the ensuing two decades, Wild grew the firm to more than $2 billion in assets under management, returning more than 20 percent annually (net of fees) to his limited partners.

His first major success as a business owner came with Arbor Pharmaceuticals, then a small drug company doing $1.5 million in annual sales. Wild and a partner acquired the company for $2.5 million and invested another $3 million in operating capital. Within three years, Arbor was producing $100 million per year in pre-tax profit. In 2015, Wild and his partner sold a third of the company to private-equity firm KKR & Co. at a $1.12-billion valuation. The proceeds from the deal composed the initial capital JW Asset Management invested in the emerging Canadian cannabis market. Wild put money into licensed producers including Canopy Growth and Cronos. The bets delivered impressive returns when tobacco giants Altria and Constellation also bought into the industry.

Unimpressed by the initial pool of executives running Canadian licensed producers and keen to be a business operator again, Wild told Bruce Linton, then chief executive officer at Canopy Growth, he wanted to start an “Arbor 2.0” in cannabis. Linton loved the idea, and Canopy co-led the $52-million private placement that funded TerrAscend in late 2017.

“Jason has been a consistent pioneer in this space as both an operator and investor. He is a major value-add to any company he’s invested in and has a lot of integrity as a human,” said Chad Bronstein, co-founder and chief executive officer at Fyllo, one of the industry’s fastest-growing technology companies. JW Asset Management led Fyllo’s seed round and follow-ons, betting early on its growing suite of marketing tools that today power some of the world’s biggest consumer-packaged-goods brands.

Earlier this year, Wild raised $21 million in equity capital and uplisted TerrAscend onto the Toronto Stock Exchange (TSX), making the company the first multistate operator in the United States to join North America’s third-largest exchange. The news was a welcome bit of positive momentum for the beleaguered industry, which recently emerged from an eighteen-month run of dwindling valuations and legislative limbo.

TerrAscend was not immune to the economic malaise challenging the entire U.S. supply chain. In spring 2022, the company became proactive with cost-cutting and debt repayment to reduce interest expense and drive operating cash flow, all while continuing to drive significant revenue growth. As Wild explained, TerrAscend emerged from the period a leaner, meaner business that is back on the front foot and leading the industry forward again.

mg Magazine spoke to Wild as he was in the midst of relocating to Miami after a decades-long residency in New York.

So what prompted the move to Florida?

You know, I think the timing was right. A few years ago, when we were thinking about moving here, my son was going into the twelfth grade. He told me I would ruin his life if we moved before his senior year. My daughter is starting ninth grade now, so it just made more sense for the family.

But honestly, the disastrous New York cannabis program that’s been unfolding over the past couple of years was really the clincher for me. I’m a New Yorker. I loved being there and never minded paying the higher taxes because there were more opportunities there. But it’s become apparent to me that the state’s benchmark of success is vastly different from what all the other stakeholders in New York were expecting.

What do you mean?

In my opinion, the state regulators’ number-one goal was to make the pie smaller for larger and existing operators. But you can’t make the pie smaller for a certain group without making the pie smaller for everyone, and that’s what they’ve done. They created this pie that is a tiny fraction of what it should have been because they wanted to hurt the big players.

It’s like they weaponized social equity to hurt somebody else and, in the end, they hurt the social-equity players too, perhaps most of all. The Office of Cannabis Management told [equity applicants] they could achieve “generational wealth,” but it’s obvious to anyone paying attention that’s not going to be the case. It’s the opposite. They have financially ruined a number of licensees.

TerrAscend doesn’t do business in New York or Florida. New Jersey is the jewel in the company’s crown, right?

New Jersey definitely is. We’re a top-three player there, with some excellent dispensaries producing real cash flow even after taxes. We have three of the top-performing stores in the state, our wholesale is going very well, and our yields are increasing significantly. We’re happy with how our business is growing there. 

We’ve been thinking about this mess in New York and our position in New Jersey and how we can capitalize on it. A lot of New Yorkers drive over the bridge to New Jersey to fill up their tanks because the gas taxes are far lower. Same thing with cannabis taxes. So, we’re thinking of putting up some billboards on the West Side Highway in Manhattan to advertise The Apothecarium Lodi, which is next to the Bada Bing! strip club from The Sopranos. Maybe it will say something like “Hey New Yorkers: Two kinds of gas are taxed lower in NJ. Visit The Apothecarium Lodi.”

Which other states are exciting you at the moment?

Maryland was big for us and shows how we like to enter states now. We finished a brand-new cultivation facility in December, and then we swooped in and got to the four-dispensary license cap right before adult use became legal on July 1.

Earlier this year, Maryland came out with new regulations that said if you convert your medical dispensary to an adult-use store, you can’t sell it for five years. So all of a sudden we had people coming out of the woodwork to sell us their single medical dispensaries in Maryland, some of which were the top-performing stores in the state.

Did you get them for a good price?

We think so, but you never know for sure how good a price you got until you have the benefit of hindsight a few years later. That being said, we feel very good about the deals we struck. One of the stores is in Peninsula, near the border with Delaware, and there are no other stores within a twenty-five-mile radius. Its current run rate is more than $20 million a year. We paid $22 million for it, of which only a million and a half was cash, with the rest being stock and seller financing at around 7.5 percent. So we’re happy, because we got an asset that is producing considerable cash flow and preserved our cash. And they’re happy, because they were a mom-and-pop operator that got some cash and stock in a more diversified, TSX-listed company. Because, as you know, long-term success definitely is not guaranteed in this business.

TerrAscend also operates in Michigan, a state many public MSOs have avoided due to the lack of limits on licenses. What’s your case for moving into such a brutally competitive market? 

When we were doing that Gage deal to enter Michigan, a lot of people couldn’t understand why we wanted to be in this competitive, unlimited-license state. We knew Michigan was going to become one of the largest states from a sales perspective, and that has proven out.

The advantage of an unlimited-license state is that if you get the model right, you can have 150 stores if it makes sense. We think we’re getting it right in Michigan and are on track to be EBITDA-positive there this quarter. [EBITDA is an acronym for earnings before interest, taxes, depreciation, and amortization.]

These competitive states also create brands that can stand on their own, and we definitely found one of those in Gage, which has been performing extremely well in New Jersey and Maryland.

It is important we get it right in Michigan, because we think every market eventually becomes more like Michigan. So if you can’t make money there, then your business is not sustainable.

How does TerrAscend approach maximizing value and expanding margins in a store transitioning from medical to recreational use?

Once we get in there, we bring our operational know-how and, because we’re vertically integrated, our own products. We expect our own brands to account for 60–70 percent of sales over time. That’s a huge margin-driver for the company.

Where we’ve really excelled in the past eighteen months is in improving our operational efficiencies. This year we promoted Ziad Ghanem from president and chief operating officer to president and CEO. He brings extensive experience from Walgreens, where he spent seventeen years focusing on retail, operational excellence, product launch, and innovation. His experience and expertise have been extremely helpful as we’ve focused on improving our overall efficiencies and customer experience.

How so?

One of the metrics we focused on was labor as a percentage of sales at retail. At Walgreens, the target was 7 percent, and in recent years they brought it down to around 5 percent. But TerrAscend’s labor as a percentage of sales was more like 12 percent. So we started learning to do more with less and managed to bring that number down to 7 percent, which improved cash flow significantly without impacting the customer experience.

What prompted this focus on efficiency?

Last summer, it definitely became clear to us we needed to move forward under the assumption there would be no federal regulatory relief. That meant really getting our balance sheet and our cost structure in shape so we would be a sustainable, cash-flowing company regardless of what happens in Washington D.C.

We managed to take $12 million in operating expenses out of our business and pay down $150 million in debt over the past year, lowering our interest expense significantly. This was really important, because our view is if you want to get to cash flow sustainability without any help from the government, then the high-interest-rate loans and the taxes from [Internal Revenue Code Section] 280E cannot coexist. There’s just not enough money left over.

Between the high interest expenses and the taxes, you have more control over reducing your interest expense by paying down your outstanding debt. If we hadn’t done that, we would not have been able to push to where we are today, which is right on the verge of becoming fully cash-flow-positive.

It’s important for entrepreneurs to be able to pivot from a growth-at-all-costs mindset to cost-cutting and running lean, isn’t it?

It is, and not all entrepreneurs can make that pivot. I read a quote somewhere about how great business leaders and entrepreneurs need to run at crises at the same speed they run at opportunities. When things start to feel unsafe, you need to be as enthusiastic about making your business safe as you were about growing it. Thankfully, we emerged from this period in a stronger condition without being forced to stop funding our growth drivers.

In my experience, entrepreneurs are optimistic people, and they often think they’ll get through tough times. I’m very grateful we as a team were able to make those major strides, because the sector continues to experience significant pain and capital is still extremely tight.

What narrative did you present to investors as TerrAscend raised the capital to satisfy the requirements for listing on the Toronto Stock Exchange? 

Showing our discipline as operators and paying down our debt was certainly a big part of that. We’ve improved our gross margins and EBITDA margins in each of the past four quarters, all while growing revenue sequentially for eight consecutive quarters. I believe we’re growing revenues faster this year than any other public MSO. This was all part of the pitch.

We’ve been saying for a year or so that [industry] distress was going to make it so we could buy assets at super-attractive terms. I think our recent Maryland deals demonstrated this and gave investors confidence we have the right strategy and infrastructure to capitalize on the chaos.

Reportedly, a significant portion of the $21-million capital raise was composed of small checks. 

That’s right. We did have some bigger $2-million to $3-million investments, but we didn’t turn down the $10,000 to $15,000 checks. The way I’ve always liked to raise money for my fund is that I don’t turn people away for smaller checks. I believe in my ability to compound and grow their investment. My view is if you get somebody in the door for something small, you can prove yourself and they’ll likely write a bigger check later.

Becoming the first U.S. company on the TSX is an admirable achievement, but you’ve been reserved when speaking about the feat. Why?

It’s not a magic bullet. It’s not like we’re on a bigger exchange and everything is just going to work. We have to continue the strong execution we delivered for the past four quarters or so. And if that happens, logic would say if a larger audience of investors can access our stock because we’re on the TSX, then we won’t be like the tree that fell in the woods that no one heard.

That being said, the combination of uplisting and the recent rescheduling news increased our trading volume by more than 400 percent with bid-ask spreads narrowing. We also have gotten numerous inbounds from larger institutional investors since our uplisting.

What do growth and mergers and acquisitions (M&A) look like in the coming year?

We feel great and believe we don’t need to do any M&A transactions right now. We have best-in-class revenue growth and an excellent lineup of states with a lot more growth in front of us. In my experience, the best way to get great deals is to not need any deals. That’s how some of these other opportunities are going to fall into our lap.

In New Jersey, Governor [Phil] Murphy just signed a bill that opens the door to us owning substantial stakes in up to seven additional dispensaries. We are in active discussion with several operators. We can even have franchise arrangements where these dispensaries would open under our The Apothecarium banner, which is exciting for us.

We also want to go deeper in Michigan. We can buy distressed dispensaries and then bring in the labor model and the product brands and absorb costs into our state-level infrastructure and drive real cash flow and profitability there.

We’re looking to enter additional states as well. TerrAscend’s model is to go deep, not wide, so we’re only in five states today. When we look at this wide-open map, we see a ton of opportunity to find great assets at distressed prices. This is in contrast to a lot of our competitors who overpaid early on for subprime assets and now are carrying debt from those deals. We’re also hearing from the mom-and-pop operators selling their assets that our TSX listing is attractive to them.

What are your thoughts about the recent news cannabis could be rescheduled? Is this something to get excited about, or should we be skeptical?

I think it’s huge. We don’t know all the details, but it could be a really important moment for this industry. Going to Schedule III would eliminate 280E, which would mean cannabis businesses would be taxed like every other business in the U.S. For context, this alone would put more than $40 million back on our balance sheet if enacted for 2024.

At this point, we’re all a little traumatized from getting our hopes up around anything relating to the federal government. It’s a little like in [the comics], when Charlie Brown tries to kick the football but Lucy keeps pulling it away. Call me crazy, but I actually have faith we can kick the ball this time. (Full Story)

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