Harvest Health and Recreation Inc (HARV)

[JohnCM]

Tempe-based Harvest Health plans divestitures to shore up bottom line

By Angela Gonzales – Senior Reporter, Phoenix Business Journal

Nov 18, 2020, 7:00am MST

Steve White is changing his strategy — and he says it's starting to pay off.

Over the past few years, the CEO of Tempe-based Harvest Health & Recreation Inc., one of the country's largest publicly traded cannabis industry businesses, was in full acquisition mode, but now he's in divestiture mode.

Last year, the feds threw a monkey wrench into his acquisition plans, White told the Business Journal.

"Some of those acquisitions didn't close," he said. "We had to start cutting back on some of our costs and rightsizing the organization. We are largely complete with that process at this point. Our financials reflect the efforts we've made over the past nine months or so."

On Nov. 13, Harvest Health completed the divestiture of its dispensary and cultivation assets in Arkansas for $25 million. In June, Harvest Health announced it was selling 13 planned and operational dispensaries in California for about $67 million.

On a third-quarter earnings call with analysts on Nov. 10, White said Harvest is on track to surpass $225 million in 2020 revenue. That's up from previous projections of between $215 million and $200 million.

For the three months ended Sept. 30, Harvest lost $2.14 million on $61.64 million in revenue. That compares with a loss of $39.1 million on revenue of $33.15 million during the same period in 2019 — and a step closer to achieving his goal of returning to profitability.

As of Nov. 17, Harvest owned and operated 38 retail locations in six states, with 15 open medical dispensaries in Arizona.

Harvest also owns three vertical medical cannabis licenses in Arizona, with plans to open three additional retail locations in 2021.

Retail operations in Arizona are supported by a 32,372-square-foot greenhouse and a 3.3-acre outdoor cultivation facility in Camp Verde; a 9,234-square-foot indoor cultivation facility in El Mirage; 10,000-square-foot processing facility in Flagstaff; 58,890-square-foot indoor cultivation and processing facility in Phoenix and 70,000-square-foot greenhouse facility in Willcox, with 25 acres zoned for outdoor cultivation, according to the company's earnings call.

Arizona's passage of Proposition 207 expanding the 10-year-old medical marijuana program to include recreational use in 2021 is expected to generate even more revenue for the company.

"Proposition 207 is good for everybody in the cannabis ecosystem from operators like Harvest to support services," White told the Phoenix Business Journal. "It's great for everybody who is interested in participating in some way in the fastest growing industry in the United States."

Demitri Downing, founder of the Marijuana Trade Association, said he wasn't surprised Prop 207 passed.

"Arizona has been pushing in this direction for nearly a decade," he said. "Regardless of how you feel about marijuana use, prohibition is a poor management strategy."