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 asset17,9692,13323,7412,133
    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 administrative21,7643,21840,1505,786
    Sales and marketing2,0532343,642437
    Share-based compensation expense8,09411,397
    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, net901,526901,526
    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 diluted285,071,254284,690,893

     

    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 cash8,0008,000
    Accounts receivable, net8,7592,993
    Notes receivable, current portion34,53913,600
    Biological assets9,8696,788
    Inventory39,04623,177
    Other current assets  5,252  1,810
    Total current assets195,378248,251
    Notes receivable, net of current portion18,5983,076
    Property, plant and equipment, net121,35631,855
    Right-of-use asset, net39,260
    Intangibles assets, net131,068112,830
    Corporate investments5,0005,000
    Acquisition deposits5,4161,350
    Goodwill73,83669,407
    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 liabilities12,6966,715
    Contingent consideration, current portion11,18811,520
    Income tax payable5,0844,120
    Lease liability, current portion2,220
    Notes payable, current portion  7,013  11,806
    Total current liabilities45,53838,855
    Notes payable, net of current portion98,07919,098
    Lease liability, net of current portion38,763
    Deferred tax liability20,02818,173
    Contingent consideration, net of current portion18,24518,190
    Other long-term liabilities  250  4,486
    TOTAL LIABILITIES220,90398,802
    STOCKHOLDERS' EQUITY:
    Capital stock475,063435,495
    Accumulated deficit  (102,509 )  (61,270 )
    Stockholders' equity attributed to Harvest Health & Recreation Inc.372,554374,225
    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)2,9611853,736305
    Income tax1,6378124,0351,420
    Amortization and depreciation (2)2,1303594,206736
    (Gain)/loss on assets(90 )(1,526 )(90 )(1,526 )
    Other income (loss)200249
    Foreign currency loss403778
    Share-based compensation expense8,09411,397
    Other expansion expenses (pre-open)1,3652,495
    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

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Louis O'Neill
Louis O'Neill

Louis is a writer based in Sydney with a focus on social and political issues. Having interviewed local politicians and entrepreneurs, Louis now focuses on cannabis culture, legislation & reform.

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