JohnCM Investment Corner

[JohnCM]

Harvest Health (HRVSF)

Third Quarter 2020 Financial Results

Total revenue in the third quarter was $61.6 million, an increase of 86% from $33.2 million in the third quarter of 2019, and up 11% compared to $55.7 million in the second quarter of 2020.

Meets my criteria of at least $100M in annual revenue.

Gross profit excluding biological adjustments in the third quarter was $28.7 million, compared to $11.6 million in the third quarter of 2019, and $23.4 million in the second quarter of 2020.

Gross profit margin excluding biological adjustments in the third quarter was 46.6%, compared to 35.0% in the third quarter of 2019, and 42.1% in the second quarter of 2020.

I like the margin number 46,6%.

Net loss was $2.1 million for the third quarter, compared to a net loss of $39.1 million in the third quarter of 2019 and $18.3 million for the second quarter 2020.

You are buying a stock that acts like it lost $2.1M, but forward-looking, great momentum here.

Adjusted EBITDA excluding biological adjustments in the third quarter was $10.5 million, compared to ($10.9) million in the third quarter of 2019 and $4.1 million in the second quarter of 2020.

Nice little $21.4M swing.

Please see the supplemental information regarding unaudited results and Non-IFRS Financial Measures at the end of this press release.

Third Quarter 2020 Business Highlights

During the third quarter of 2020, Harvest opened one new dispensary in Phoenix, Arizona and one new dispensary in Cranberry Township, Pennsylvania.

As of September 30, 2020, Harvest owned, operated, or managed 37 retail locations in seven states, including 15 open dispensaries in Arizona. Harvest owned and operated dispensaries exclude retail locations serviced through Interurban.

Subsequent Events

Subsequent to September 30, 2020, Harvest opened two retail locations in Camp Hill and King of Prussia, Pennsylvania.

On October 2, 2020, Harvest terminated the agreement to sell two California retail assets to Hightimes Holdings for $6 million in preferred stock.

On October 28, 2020, Harvest completed a bought deal financing raising gross proceeds of approximately $32.4 million including the overallotment option. Units sold in the offering were priced at Cd$2.26 per unit and included one subordinate voting share and one-half warrant. Each warrant has an exercise price of Cd$3.05 and duration of 30 months.
On October 30, 2020, Harvest completed the purchase and license transfer of THChocolate, LLC, including cannabis manufacturing licenses in Colorado. The consideration paid was immaterial.

On November 2, 2020, Harvest announced a settlement agreement with Devine Holdings. Under the terms of the agreement, Harvest will acquire three vertical medical cannabis licenses in Arizona exchange for the repayment by Devine Holdings of an outstanding $10.45 million receivable owed to Harvest concurrently with the license acquisition.

On November 3, 2020, Arizona voters approved Prop 207, a ballot initiative to allow recreational cannabis consumption in Arizona.

Outlook

Harvest is increasing its full year 2020 revenue target to greater than $225 million, up from the prior target of $215-220 million. We remain focused on improving the profitability of our business and we expect our gross margins will continue to trend upwards overall, with some quarterly fluctuations due to mix and market changes. This forecast assumes no meaningful impacts or disruptions to our operations as a result of the COVID-19 pandemic.