Harvest Health & Recreation Inc (CNSX:HARV, OTCMKTS:HRVSF) is an excellent U.S. pot stock that has experienced solid gains since March, but it has not made the kind of meteoric gains its peers have. But thanks to the results of the U.S. election, that should change over the coming months.
HRVSF stock is actually down 12% year-over-year and down 39% year-to-date, but it’s up 328% since bottoming in March. And it continues to have great momentum.
Harvest Health & Recreation stock still needs to climb 85% to erase all of its losses associated with the coronavirus-fueled sell-off in March. It also needs to advance 450% to return to its April 2019 highs. That’s not out of the question.
During the November election, five states had marijuana legalization initiatives on the ballot and they all passed. Arizona, Montana, and New Jersey voted to legalize recreational marijuana. Mississippi voted to legalize medical cannabis. South Dakota voters approved measures for both medical and recreational marijuana.
While this is an obvious win for the overall U.S. cannabis industry, it’s particularly a big win for Harvest Health & Recreation Inc, which is headquartered in sunny Tempe, AZ. In fact, of its 38 U.S. retail locations, 15 are in Arizona. Most of those are in and around the Phoenix area.
Harvest Health & Recreation is well known in Arizona, and now that the state is transitioning from medical-only to medical and recreational marijuana, the company should be able to expand its operations significantly in the state. The expected boost in revenue should also help it expand its operations across the U.S.
That will likely happen sooner rather than later. In Arizona, existing medical cannabis operators in good standing can submit recreational marijuana applications as soon as January 19, 2021, with departmental review required within 60 days of submittal.
It’s expected that Arizona’s legal cannabis market will reach $2.0 billion at maturity. It might take a little while to get to that point, but even the near-term prospects are solid. Legal recreational cannabis sales in the state could reach $375.0–$400.0 million in the first year and $700.0–$760.0 million by 2024.
While localities in the state have the right to ban recreational marijuana, any existing medical cannabis operator already doing business in an Arizona city cannot be stopped by local authorities from transitioning to recreational marijuana.
If a company doesn’t already have a strong footprint in the Arizona medical cannabis market, it could be difficult to get up and running in the state’s new recreational pot market.
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HRVSF Stock Overview
Harvest Health is a vertically integrated, multi-state cannabis company with 38 retail locations plus 11 cultivation and processing facilities. (Source: “Investor Presentation November 2020,” Harvest Health & Recreation Inc, last accessed December 21, 2020.)
While you can find the company’s dispensaries in six states (Arizona, California, Florida, Maryland, North Dakota, and Pennsylvania), the majority of them are in Arizona (40%) and Pennsylvania (21%).
As for future growth, the company’s capital expenditures are targeted at its four core markets: Arizona, Florida, Maryland, and Pennsylvania.
Right now, Arizona provides the most near-term promise for Harvest Health. The state is a limited-license medical cannabis market, with 123 operational dispensaries and 130 vertical licenses. Of those, Harvest Health operates 15 dispensaries and it expects to open three more in 2021.
Harvest Health & Recreation Inc also has five cultivation/processing facilities in Arizona:
- Camp Verde: cultivation facility with a 37,372-square-foot greenhouse and 3.3 acres of outdoor growing capacity
- El Mirage: 9,234-square-foot indoor cultivation facility
- Flagstaff: 10,000-square-foot processing facility
- Phoenix: 58,890-square-foot indoor cultivation and processing facility
- Willcox: cultivation facility with a 70,000-square-foot greenhouse and zoning for 25 acres of outdoor growing capacity
The company has six retail dispensaries in Florida and two cultivation facilities that will support additional retail locations in 2021.
It has three dispensaries in Maryland, which is also a limited-license medical marijuana market.
In Pennsylvania, Harvest Health & Recreation Inc has eight retail locations but is licensed for 15. The company will be expanding its retail footprint in Pennsylvania in 2021.
Strong Q3 Results, Raised Guidance
On November 10, Harvest Health announced that its revenue for the third quarter ended September 30 increased 86% year-over-year and 11% sequentially to $61.6 million. (Source: “Harvest Health & Recreation Inc. Reports Third Quarter 2020 Financial Results,” November 10, 2020.)
The company reported a third-quarter net loss of $2.1 million ($0.01 per share) in the third quarter, compared to a net loss of $39.1 million ($0.09 per share) in the third quarter of 2019 and a net loss of $18.3 million ($0.05 per share) in the second quarter of 2020.
Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA)—excluding biological adjustments—in the third quarter were $10.5 million, compared to an EBITDA loss of $10.9 million in the third quarter of 2019 and EBITDA of $4.1 million in the second quarter of 2020.
Steve White, CEO, commented, “Our third quarter results demonstrate further progress toward our primary goal of returning to profitability through revenue growth, cost controls, and investments in our core markets of Arizona, Florida, Maryland, and Pennsylvania.” (Source: Ibid.)
For fiscal 2020, Harvest Health is increasing its revenue target to greater than $225.0 million, up from previous guidance of $215.0–$220.0 million. For fiscal 2019, the company reported full-year revenue of $116.8 million. For fiscal 2018, it reported full-year revenue of $47.0 million.
Investors have not shown Harvest Health & Recreation Inc the same kind of love they have for other U.S. multi-state marijuana operators, but that should change in 2021.
As discussed earlier, Arizona voters recently approved a ballot initiative for the legalization of recreational cannabis, and Harvest Health is looking to open three new dispensaries in that state in 2021.