Harvest Health Achieves Q2 Revenue of $26.6 Million

PHOENIX–Harvest Health & Recreation, Inc. (CSE: HARV, OTCQX: HRVSF), vertically- integrated cannabis company with one of the largest and deepest footprints in the U.S., today reported the company's second quarter fiscal year 2019 financial results. Harvest has continued to be successful in winning licenses in non-competitive and competitive application processes throughout the country and has announced several significant strategic acquisitions and mergers. Harvest's ability to combine size, scale, capital, regulatory expertise and operational excellence are paramount to its success.

"During the second quarter, Harvest continued to execute on its strategy by adhering to our four core initiatives: building a world class team, expanding our retail and wholesale footprint across the U.S., building and acquiring brands and distributing them across our footprint and continuing on a path of profitable growth we believe that we can fulfill our objective of becoming the most valuable cannabis company in the world," said Chief Executive Officer Steve White.

Financial Highlights for the Second Quarter Ended June 30, 2019

• Total revenue was $26.6 million, an increase of 39%, compared to $19.2 million in the first quarter of
• On a pro forma basis, Harvest along with completed and pending disclosed acquisitions, generated $78 million of revenue in the second quarter, or over $310 million annualized. Second quarter pro forma revenue increased 53% over first quarter pro forma revenue of $51 million.
• Gross profit was $16.9 million compared to $7.9 million in the first quarter of
• Gross profit margin was 64% compared to 41% for the first quarter of
• Adjusted EBITDA was ($2.2) million, compared to ($4.7) million in the first quarter of 2019.
• Net loss was $20.6 million for the second quarter which is reflective of the planned investments in people and infrastructure to support the company's growth initiatives and planned

Business Highlights

Footprint Expansion

As of June 30, 2019, the Company operated 16 retail locations compared to 13 retail locations at the end of March 31, 2019.  During the quarter, the Company announced the pending acquisition of Cannapharmacy, the award of a retail dispensary license in Pasadena, CA, and

opened three additional retail locations in Florida. Subsequent to quarter end, the Company added six retail locations in Arizona, California, Florida, and North Dakota and was one of eight companies selected to move forward to finalize a cultivation license in Utah. Significant expansion of cultivation, manufacturing and retail locations is expected to occur for the remainder of 2019.

Brand and Product Distribution

During the second quarter, the Company announced an agreement with the Asian American Trade Associations Council to distribute Colors, CBx Essentials, and Harvest branded CBD product lines to more than 10,000 retail locations within the AATAC retailer network.

Financing Activities

During the quarter Harvest closed on an initial $100 million tranche of an available $500 million of convertible debentures. The debentures are issuable, at Harvest's sole discretion, in tranches of $100 million and have a 7% interest rate. The initial tranche of debentures will be convertible at the option of the holder to Subordinate Voting Shares of Harvest at a price of $11.42 per Subordinate Voting Share.

Subsequent to quarter-end, the Company announced the signing of a term sheet for a secured term loan for up to $225 million from an investment fund managed by Torian Capital. The expected loan will be made available to Harvest in three tranches of $75 million, each with substantially identical terms. The loan will be secured by certain current and future assets of Harvest, including cannabis-related licenses.

As of June 30, 2019, the Company had $89.9 million of cash and cash equivalents. As of June 30, 2019, the Company had $105.1 million of debt outstanding.

Team Growth

During the second quarter, Harvest significantly added to its management team, including the hiring of: Nicole Stanton, General Counsel; Allyson Wilcox, Assistant General Counsel, Alex Howe, Head of Corporate Communications and Christine Hersey as Director of Investor Relations. Nicole Stanton has over 20 years' experience and was the first female to lead a national law firm in Phoenix with leadership roles in the community as founder of Stop Bullying AZ and First Lady of Phoenix. Allyson Wilcox has over 15 years' experience as an attorney and has taken a leadership role at Harvest leading the Regulatory Compliance and Licensing Departments. Alex Howe has nearly two decades experience in corporate communications with Fortune 50, corporate, tech, consumer, and cannabis companies and leads the company's external and internal communications. Christine Hersey has over 15 years' experience as a buy side and sell side analyst covering high growth and complex sectors.

• Subsequent to quarter end, Harvest welcomed Michael Aguirre as Assistant General Counsel. Michael Aguirre has 14 years' experience serving companies across a wide range of industries and adds M&A and financing capabilities to the growing legal
• Harvest continues to build out its team, ending Q2 with 782 FTEs, up from 476 FTEs at the end of Q1HARVEST HEALTH & RECREATION INC.Interim Unaudited Condensed Consolidated Statements of Operations Three and Six Months Ended June 30, 2019 and 2018

  (Amounts expressed in thousands of United States dollars, except share or per share data)

  For the three months ended June 30, For the six months ended June 30.

   

  	2019	2018	2019	2018
  Revenue	$         26,596	$      10,524	$         45,836	$      18,859
  Cost of goods sold	(19,915 )	(3,059 )	(31,250 )	(7,077 )
  Gross profit, before biological asset adjustments	6,681	7,465	14,586	11,782
  Unrealized gain on changes in fair value of biological asset	17,969	2,133	23,741	2,133
  Cost of goods sold on biological asset transformation	(7,740 )	(3,929 )	(13,475 )	(3,559 )
  Gross profit	16,910	5,669	24,852	10,356
  Expenses
  General and administrative	21,764	3,218	40,150	5,786
  Sales and marketing	2,053	234	3,642	437
  Share-based compensation expense	8,094	—	11,397	—
  Depreciation and amortization	1,600	359	3,093	736
  Total expenses	33,511	3,811	58,282	6,959
  Operating (loss) income	(16,601 )	1,858	(33,430 )	3,397
  Other (expense) income
  Gain on sale of assets and impairment, net	90	1,526	90	1,526
  Other (loss) income	(200 )	—	(249 )	—
  Foreign currency (loss) gain	(403 )	—	(778 )	—
  Interest expense	(2,439 )	(185 )	(3,214 )	(305 )
  (Loss) income before taxes and non-controlling interest	(19,553 )	3,199	(37,581 )	4,618
  Income taxes	(1,637 )	(812 )	(4,035 )	(1,420 )
  (Loss) income before non-controlling interest	(21,190 )	2,387	(41,616 )	3,198
  Loss (income) attributed to non-controlling interest	590	443	968	878
  Net (loss) income attributed to Harvest Health & Recreation Inc.	(20,600 )	2,830	(40,648 )	4,076
  (Loss) income per share – basic and diluted	$           (0.07 )		$           (0.14 )
  Attributable to Harvest Health and Recreation Inc. Stockholders	$           (0.07 )		$           (0.15 )
  Attributable to non-controlling interest	$             0.00		$             0.00
  Weighted-average shares outstanding – basic and diluted	285,071,254		284,690,893

   

  HARVEST HEALTH & RECREATION INC.
  Interim Unaudited Condensed Consolidated Statements of Financial Position
  June 30, 2019 and 2018
  (Amounts expressed in thousands of United States dollars)
  	June 30,                2019	December 31,                2018
  ASSETS
  Current assets:
  Cash and cash equivalents	$              89,913	$            191,883
  Restricted cash	8,000	8,000
  Accounts receivable, net	8,759	2,993
  Notes receivable, current portion	34,539	13,600
  Biological assets	9,869	6,788
  Inventory	39,046	23,177
  Other current assets	5,252	1,810
  Total current assets	195,378	248,251
  Notes receivable, net of current portion	18,598	3,076
  Property, plant and equipment, net	121,356	31,855
  Right-of-use asset, net	39,260	—
  Intangibles assets, net	131,068	112,830
  Corporate investments	5,000	5,000
  Acquisition deposits	5,416	1,350
  Goodwill	73,836	69,407
  Other assets	8,149	6,830
  TOTAL ASSETS	$            598,061	$            478,599
  LIABILITIES AND STOCKHOLDERS' EQUITY
  LIABILITIES
  Current liabilities:
  Accounts payable	$                7,337	$                4,694
  Other current liabilities	12,696	6,715
  Contingent consideration, current portion	11,188	11,520
  Income tax payable	5,084	4,120
  Lease liability, current portion	2,220	—
  Notes payable, current portion	7,013	11,806
  Total current liabilities	45,538	38,855
  Notes payable, net of current portion	98,079	19,098
  Lease liability, net of current portion	38,763	—
  Deferred tax liability	20,028	18,173
  Contingent consideration, net of current portion	18,245	18,190
  Other long-term liabilities	250	4,486
  TOTAL LIABILITIES	220,903	98,802
  STOCKHOLDERS' EQUITY:
  Capital stock	475,063	435,495
  Accumulated deficit	(102,509 )	(61,270 )
  Stockholders' equity attributed to Harvest Health & Recreation Inc.	372,554	374,225
  Non-controlling interest	4,604	5,572
  TOTAL STOCKHOLDERS' EQUITY	377,158	379,797
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$            598,061	$            478,599

   

  Non-IFRS Financial and Performance Measures

  The Company provides additional financial metrics that are not prepared in accordance with IFRS. Management uses non-IFRS financial measures, in addition to IFRS financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes and to evaluate the Company's financial performance. This non-IFRS financial measure is Adjusted EBITDA.

  Management believes that these non-IFRS financial measures reflect the Company's ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. Management also believes that these non-IFRS financial measures enable investors to evaluate the Company's operating results and future prospects in the same manner as management. These non-IFRS financial measures may also exclude expenses and gains that may be unusual in nature, infrequent or not reflective of the Company's ongoing operating results.

  As there are no standardized methods of calculating these non-IFRS measures, the Company's methods may differ from those used by others, and accordingly, the use of these measures may not be directly comparable to similarly titled measures used by others. Accordingly, these

  non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

  Reconciliations of Non-IFRS Financial and Performance Measures

   

  The table below reconciles Net (Loss) Income to Adjusted EBITDA for the periods indicated.

  	2019	2018	2019	2018
  Net (loss) income (IFRS) before non-controlling interest	$       (21,190 )	$          2,387	$       (41,616 )	$          3,198
  Add (deduct) impact of:
  Net interest and other financing costs (1)	2,961	185	3,736	305
  Income tax	1,637	812	4,035	1,420
  Amortization and depreciation (2)	2,130	359	4,206	736
  (Gain)/loss on assets	(90 )	(1,526 )	(90 )	(1,526 )
  Other income (loss)	200	—	249	—
  Foreign currency loss	403	—	778	—
  Share-based compensation expense	8,094	—	11,397	—
  Other expansion expenses (pre-open)	1,365	—	2,495	—
  Transaction & other special charges	2,337	—	7,959	—
  Adjusted EBITDA (non-IFRS)	$         (2,153 )	$          2,217	$         (6,851 )	$          4,133

   

   

   

  Disclaimer: Past performance is not an indicator of future performance.

  About Harvest Health & Recreation, Inc.                                                                                        

  Headquartered in Tempe, Arizona, Harvest Health & Recreation, Inc. is a multi-state cannabis operator (MSO) and vertically-integrated cannabis company. Subject to completion of announced acquisitions, Harvest will have one of the largest footprints in the U.S., with rights to more than 210 facilities, of which approximately 135 are retail locations, and more than 1,700 employees across 18 states and territories. Since 2011, the company has been committed to expanding its Harvest House of Cannabis retail and wholesale presence throughout the U.S., acquiring, creating and growing leading brands for patients and consumers nationally and continuing on a path of profitable growth. Harvest's mission is to improve lives through the goodness of cannabis and is focused on its vision to become the most valuable cannabis company in the world