Harvest Health & Recreation: Cannabis Player With One of the Largest Retail Footprints in the U.S.

Harvest Health & Recreation: Cannabis Player
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Harvest Health & Recreation: Third-Largest Cultivator in the U.S.

Harvest Health & Recreation Inc (OTCMKTS:HRVSF, CNSX:HARV) is a great American cannabis stock that few people seem to be talking about right now. That is odd, since it’s one of the best-performing marijuana stocks in 2019, up slightly more than 100% year-to-date.

Harvest Health has the largest market share in Arizona, has been ranked as the third-largest cultivator in the country, and has a strong retail presence in 12 states, with planned expansion in additional states by 2020. Within the next year-and-a-half, Harvest plans to cultivate more than 720,000 square feet of indoor, outdoor, and greenhouse cannabis.

On March 11, the company entered into an agreement to acquire Verano Holdings, LLC, one of the largest privately held multi-state operators (MSOs) of cannabis facilities. This blockbuster deal is the largest acquisition in the cannabis industry to date.

Harvest Health & Recreation Overview

Being “consistently profitable” is not something investors typically hear when it comes to a cannabis company. But that’s exactly what Harvest Health & Recreation is.

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It is one of the first consistently profitable, vertically integrated cannabis companies in the U.S. It also has one of the largest retail footprints in the country. (Source: “Investors,” Harvest Health & Recreation Inc, last accessed April 5, 2019.)

Harvest’s vertical solutions include cultivation, manufacturing, and retail facilities, along with construction, real estate, technology, and operations (in-house legal, HR, and marketing). Thanks to this vertical integration, Harvest delivers production costs of less than $1.00 per gram and industry-leading margins.

Since its founding in 2011, Harvest has grown its footprint every year. It holds the largest market share in Arizona, with 60 licenses in 12 states. Additional states will be added to its roster by 2020.

Most recently, on April 4, the company opened its first California cannabis dispensary in Napa. This also happens to be the first medical cannabis dispensary in Napa, a city which only allows the sale of medical marijuana. (Source: “Harvest Health & Recreation Continues Growth in California with Opening of First Dispensary in Golden State,” Financial Post, April 4, 2019.)

It has also received provisional permits to operate a dispensary and production facility in the California cities of Merced and Moreno Valley. It expects to receive final operating permits once the inspections are complete.

By 2020, Harvest expects to have 100 dispensaries in 14 states.

Acquisitions

The company’s rapid expansion across the U.S. can be attributed, in part, to its aggressive acquisition strategy.

Verano Holdings, LLC

On March 11, Harvest Health & Recreation announced it had entered into a binding agreement to acquire Verano Holdings for an estimated all-stock transaction price of approximately $850.0 million. (Source: “Harvest Health & Recreation to Acquire Verano, Creating One of the Largest U.S. Multi-State Cannabis Operators,” Harvest Health & Recreation Inc, March 11, 2019.)

The combined company will be one of the largest MSOs in the U.S., as measured by licenses held and facilities permitted. When the deal is done, Harvest Health will hold licenses allowing it to operate up to 200 facilities in 16 states and territories across the U.S. This includes 123 retail dispensaries.

San Felasco Nurseries, Inc.

In November 2018, Harvest acquired San Felasco Nurseries, Inc. (Source: “Harvest Health & Recreation Inc. Acquires San Felasco Nurseries, Inc. with Cannabis Super License in Florida Allowing up to 25 Dispensaries,” Harvest Health & Recreation Inc, November 21, 2018.)

San Felasco Nurseries holds a medical marijuana dispensary license and is authorized to operate as a Medical Marijuana Treatment Center in Florida.

The company is allowed to produce, process, and dispense medical marijuana and marijuana products. Each Medical Marijuana Treatment Center is allowed to operate up to 25 dispensaries in Florida.

CBx Enterprises

That same month, it also acquired CBx Enterprises, a Colorado intellectual property company. (Source: “Harvest Enterprises Inc. Acquires CBx Enterprises,” Harvest Health & Recreation Inc, November 15, 2018.)

CBx Enterprises is comprised of Evolab, which is made up of THCholcate LLC and Evolutionary Holdings, LLC. EvoLab owns and operates a Colorado medical and adult-use cannabis operation with a medical and retail processing facility located in Denver, Colorado.

CBx Enterprises also includes CBx Sciences and CBx Essentials. With this acquisition, Harvest now holds exclusive national rights to Evolab’s, CBx Sciences’, and CBx Essentials’ intellectual property, including all technology, methodologies, trademarks, and formulations.

Harvest Health & Recreation Stock

HRVSF Stock Information
Market Cap $2.9 billion
52-Week High $10.85
52-Week Low $5.81
Shares Outstanding 275.7 million
Float 240,520
50-Day Moving Average $8.32
200-Day Moving Average $8.32

(Source: “Harvest Health & Recreation Inc. (HRVSF),” Yahoo! Finance, last accessed April 5, 2019.)

Harvest Health went public back in November, thanks to a reverse take-over (RTO). As far as the broader markets go, it wasn’t the best timing. The markets sold off in October and December was the worst December on Wall Street since the Great Depression.

The Vancouver, B.C.-based company’s share price has been bullish in 2019 though. It is up 100% and continues to hit new highs. Outside of the overblown January effect, investor optimism is being fueled by strong third-quarter results and a solid outlook.

Chart courtesy of StockCharts.com

Q3 Revenue Up 62%, Year-to-Date Revenue Up 92%

On December 3, Harvest Health announced that third-quarter revenue, for the period ended December 31, increased 62% year-over-year to $11.2 million. Gross profit, excluding impact of biological assets, was up 61% at $5.6 million. (Source: “Harvest Health & Recreation, Inc. Reports Third Quarter 2018 Financial and Operation Results,” Harvest Health & Recreation, Inc, December 3, 2018.)

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $3.2 million, compared to a loss of $40,000 in the third quarter of 2017. Net loss for the quarter was $500,000, which included $3.7 million in expenses related to the company’s RTO and expansion-related costs.

For the first nine months of 2018, Harvest reported total revenue of $30.0 million, a 92% increase over the $15.6 million in the first three quarters of 2017. Gross profit, excluding the impact of biological assets, was $17.4 million, a 96% increase over the $8.8 million recorded in the nine months ended September 30, 2018.

Adjusted EBITDA was $7.6 million compared to $3.8 million for the same period in 2017. Harvest reported year-to-date net income of $3.6 million, a 55.6% increase over the $2.3 million recorded in the same period in 2017.

As of September 30, 2018, the company had $28.0 million of cash and cash equivalents and liabilities totaling $12.8 million.

Analyst Take

Harvest Health & Recreation may be a newbie cannabis player on Wall Street but it has a long history of success. Since its founding in 2011, Harvest has grown its footprint every year and is one of the only consistently profitable cannabis stocks.

It has strong fundamentals, a solid cash position, and, because of its vertical integration, one of the lowest production costs per gram and industry-leading margins.

The company is in various stages of expansion, growing its commercial footprint, focusing on building additional retail, cultivation, and production locations for medical and adult-use cannabis.

All of that makes Harvest Health one American cannabis player to keep on your radar.