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
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.
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.
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.
(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)
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
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
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