Harvest Health Reports Earnings, New Financing, Changes CannaPharmacy Deal

Harvest Health & Recreation Inc. (CSE: HARV)(OTCQX: HRVSF) reported total revenue for the third quarter of 2019 of $33.2 million, an increase of 197% from $11.2 million in the third quarter of 2018. This was an increase of 25% sequentially. The net loss was $39.1 million for the quarter, which the company attributed to the cost of investments to support its growth initiatives, disclosed acquisitions and planned expansion.

“During the third quarter, Harvest continued to execute on its strategy by investing in assets and infrastructure needed to return to profitable growth.  As a Company, we have the assets and team required to achieve operational excellence and succeed in the cannabis industry,” said Chief Executive Officer Steve White.

Subsequent to quarter-end, Harvest Health said it raised $6.5 million in real estate financing and CAD$62.5 million in short term secured debt financing.

The company stated that as of September 30, 2019, it operated 26 retail locations, compared to 16 retail locations at the end of June 30, 2019.  During the quarter, the company opened new retail locations in Chandler, AZVenice, CAGainesville, FLWilliston, NDBismarck, ND, and Reading, PA.  Harvest acquired retail locations in Casa Grande, AZPhoenix, AZGrover Beach, CA, and LuthervilleTimonium, MD during the third quarter.  Harvest was one of eight companies selected to move forward to finalize a cultivation license in Utah.  Subsequent to quarter-end, the company opened new retail locations in Palm Springs, CAScranton, PAJohnstown, PA, and Harrisburg, PA and was awarded a cannabis dispensary permit with delivery service by the City of Hanford, CA.

CannaPharmacy Deal Revised

It was also announced that Harvest and CannaPharmacy, Inc. agreed to revise their pending transaction. “Under a new binding agreement, Harvest and CannaPharmacy have agreed to terminate their current agreement whereby Harvest would have acquired CannaPharmacy’s right to own or operate cannabis licenses in PennsylvaniaDelawareNew Jersey, and Maryland.”

According to the company statement, now Harvest will only acquire Franklin Labs, LLC, a subsidiary of CannaPharmacy, for $26 million payable with $15 million in cash and an $11 million promissory note. The revision went on to note that the parties may elect consideration consisting of certain other cannabis assets and a reduced cash payment of $8 million. The aggregate purchase price in either scenario is well below the purchase price in the previous agreement which consisted of $88 million in cash, plus Harvest stock.

The revised agreement is due, in part, to accommodate Harvest’s plans to more strategically align with Harvest’s operational needs, which have evolved since the previously announced acquisition of CannaPharmacy. The acquisition of Franklin Labs is expected to allow Harvest to more efficiently scale operations in Pennsylvania and provide dispensaries and patients in that state with access to Harvest’s intellectual property, high-quality products, and trusted retail experiences. The acquisition is subject to, among other things, the execution of definitive agreements, the receipt of regulatory approvals and the satisfaction or waiver of closing conditions customary for a transaction of this nature.

“These transactions come at a key strategic time for Harvest, as we’re working to scale our operations in key markets and to enhance our ability to pivot and fulfill product demands for our patients and consumers,” said Harvest Executive Chairman Jason Vedadi. “A critical aspect of our long-term strategy is a sharp focus on operational excellence as we build out new facilities and enhance existing ones in 2020. This revised agreement and attractive funding sources will help us toward achieving our revenue and profitability goals, delivering on our promise to increase shareholder value and ultimately fuel Harvest’s continued growth and success.”

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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