Harvest Health Archives - Green Market Report

Kaitlin DomangueJuly 15, 2021
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It’s time for your Daily Hit of cannabis financial news for July 15th, 2021. 

On the Site 

Harvest Health Leaves Oregon, Expands Florida Footprint 

Harvest Health & Recreation Inc.  (OTCQX: HRVSF) is done with Utah and expanding its Florida footprint. Harvest said it had completed the divestiture of its cultivation and processing operations in Utah for what it described as an immaterial amount of cash. 

The company said that a local operator bought the cultivation and processing operations located in Ogden, Utah. Following the sale, Harvest no longer has operations in Utah.

The Valens Company Sees Q2 Revenue Increase 

After the markets closed on Wednesday, The Valens Company Inc. (TSX: VLNS) (OTCQX: VLNCF) delivered its second-quarter financial results ending May 31, 2021. Valens reported that its revenue increased 16.1% to $20.5 million versus $17.6 million in the second quarter of 2020. The net loss was $8.6 million in the quarter versus $3.5 million for the same time period in 2020. 

Timbaland, Nas Invest In Cannabis Company Pure Beauty

California-based boutique cannabis brand Pure Beauty reported it has successfully raised $5 million in convertible note fundraising from a consortium of investors led by Gron Ventures, Subversive Capital, Ceres Group Holdings, and notable celebrities including Timbaland, Nas, and director Tom Kuntz, among others.

SAFE Banking Is NOT About Rich People Getting Rich

Despite some chatter, SAFE Banking is not about rich people getting rich. The SAFE Banking Act would address the lack of safety in the cannabis space, as well as provide a pathway for cannabis businesses to establish banking relationships. 

Psychedelic Fund Palo Santo Launches With $35 Million

U.S.-based psychedelic investment fund Palo Santo, has launched with an initial $35 million in capital raised and an active portfolio of 20 companies. The diversified venture fund said in a statement that it is focused on tackling the growing global mental health crisis by investing in innovative psychedelic-based and adjacent therapies that are poised to shape the future of psychiatry and fields beyond.

 

In Other News

Green Organic Dutchman Announces Q2 Revenue 

The Green Organic Dutchman (TSX: TGOD) (US: TGODF) announced their preliminary unaudited revenue for the second quarter. The company achieved $11.7 million in preliminary unaudited revenue, representing a quarter-over-quarter revenue increase of 30% and a year-over-year 143% increase. 

 

Neptune Reports Q4 Results 

Canadian cannabinoid extraction company, Neptune,  announced fourth quarter results this afternoon. (TSX: NEPT) The company reported $6.8 million in revenue, representing a 127% increase from the third quarter. 

Neptune reported a fourth quarter gross profit loss of $24.8 million, compared to the profit loss of $1.1 million during the same period in 2020. 

Reported fourth quarter gross profit loss of $24.8 million compared to a reported gross profit loss of $1.1 million in the comparable period in fiscal 2020 and reported fiscal year 2021 gross profit loss of $36.2 million compared to a gross profit loss of $1.8 million for the fiscal year 2020.


Debra BorchardtMay 10, 2021
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Harvest Health & Recreation Inc.  (OTCQX: HRVSF)  reported its financial and operating results for the first quarter of 2021 with revenue rising 101% to $88.8 million from $44.2 million in the first quarter of 2020. Revenue also rose sequentially by 27% from $69.9 million in the fourth quarter of 2020. This beat the average analyst estimate from Yahoo Finance for revenue of $87 million in the quarter. However, the company missed the estimate for the earnings loss which came in at ($0.06) per share while the estimate was for ($0.01.) per share.

The net loss before non-controlling interest was $23.0 million for the first quarter, compared to $7.4 million in the fourth quarter of 2020. The adjusted EBITDA in the first quarter was $26.9 million, compared to $9.1 million in the fourth quarter of 2020.

Harvest is raising its full-year 2021 revenue target to at least $400 million. The reported gross margins are expected to be at or above 50% and will likely continue to fluctuate from quarter to quarter.

“Our first-quarter results show the benefits of reaching impactful milestones such as the launch of recreational sales in Arizona,” said Chief Executive Officer Steve White. “We are focused on our key operational and financial priorities in 2021 as we continue to build on this positive momentum.”

Of course, the big news on Monday wasn’t Harvest’s Health earnings but the announcement that Trulieve would buy the company in a deal valued at $2.1 billion.  It’s been a busy month for the company. In addition to today’s acquisition announcement, Harvest noted that it opened two new medical retail dispensaries in Florida on May 5 th and May 6 th in Olympia Heights and West Palm Beach. On May 7, 2021, the company announced that a settlement was reached regarding the grower/processor permittee AGRiMED Industries of PA, LLC.

The company said in its earnings that it has a cash position of $$106 million, but the company’s total liabilities are $554 million. As of March 31, 2021 , Harvest owned, operated, or managed 37 retail locations in six states, including 15 open dispensaries in Arizona.

 


Debra BorchardtMay 10, 2021
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Trulieve Cannabis Corp.  (OTC: TCNNF) is buying  Harvest Health & Recreation Inc.  (OTCQX: HRVSF) in a deal valued at approximately $2.1 billion based on the closing price of the Trulieve Shares on May 7, 2021. The combined businesses will have operations in 11 states, comprised of 22 cultivation and processing facilities with a total capacity of 3.1 million square feet, and 126 dispensaries serving both the medical and adult-use recreational cannabis markets.

“Today’s announcement is the largest and most exciting acquisition so far in our industry, creating the most profitable public multi-state operator.  Importantly, our companies share similar customer values with a focus on going deep in core markets. This combination offers us the opportunity to leverage our respective strong foundations and propel us forward with an unparalleled platform for future growth,” stated Kim Rivers, Chief Executive Officer of Trulieve. “Harvest provides us with an immediate and significant presence in new and established markets and accelerates our entry into the adult-use space in Arizona.  Trulieve and Harvest are leaders in our markets, recognized for our innovation, brands, and operational expertise with true depth and scale in our businesses. We look forward to providing best-in-class service to patients and customers on a broader national scale as we create an iconic US cannabis brand.”

The most directly comparable GAAP financial measure for Adjusted EBITDA is Net Income (loss), which on a combined basis for Trulieve and Harvest for the fiscal year ended December 31, 2020, was $3.4 million. The combined adjusted EBITDA for 2020 would be $250 million. 

Terms of the Deal

Trulieve will acquire all of the issued and outstanding Harvest Shares, with each Harvest Shareholder receiving 0.1170 of a Trulieve Share for each Harvest Share, implying a price per Harvest Share of US$4.79, which represents a 34% premium to the May 7, 2021 closing price of the Harvest Shares. Harvest Shareholders will hold approximately 26.7% of the issued and outstanding pro forma Trulieve Shares (on a fully diluted basis). There is a $100 million reciprocal termination fee under certain circumstances and reciprocal expense reimbursement provisions under certain circumstances.

Harvest Health 

“We are thrilled to be joining Trulieve, a company that has achieved unrivaled success and scale in its home state of Florida,” said Steve White, Chief Executive Officer of Harvest.  “As one of the oldest multi-state operators, we believe our track record of identifying and developing attractive market opportunities combined with our recent successful launch of adult-use sales in Arizona will add tremendous value to the combined organization as it continues to expand and grow in the coming years.”

Trulieve has been delivering a steady flow of earnings and has been methodically expanding its reach beyond Florida. Harvest Health, however, has had a string of acquisitions, some of which closed, while others were terminated or resold. While the companies revenues had been increasing, so has its debt. Harvest ended the third quarter of 2020 with approximately $63 million in cash and $294 million in debt. The company said it had sufficient capital to service its debt in 2020 and 2021. On October 28, Harvest completed a bought deal financing, raising gross proceeds of approximately $34.5 million. Debt service for the remainder of the year is approximately $15.2 million and the company extended the debt maturity of $6.5 million due in October 2020, by one year to October 2021.


Debra BorchardtFebruary 16, 2021
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Verano Holdings Corp. (CSE: VRNO) is set to begin trading on February 17 after closing the reverse takeover of Majesta Minerals Inc. and the merger with Alternative Medical Enterprises LLC, Plants of Ruskin GPS, LLC, RVC 360, LLC, and affiliated companies better known as AltMed and sometimes referred to as AME. The company noted that the Subordinate Voting Shares would begin trading on the CSE, but that the Proportionate Voting Shares will not be listed for trading. 

“Our public listing will provide us access to capital to execute our long-term strategy of expanding into limited-license, high-growth markets and scaling our wholesale and retail operations into new and existing markets,” said CEO George Archos. Archos holds 19.62% of the issued and outstanding SV Shares of Verano. While the subscription price is $10, it is expected that the stock will trade above that level. 

Verano is in 12 U.S. States, with active operations in nine, which includes 23 active retail locations and approximately 440,000 square feet across its six cultivation facilities. Verano produces a full suite of premium, artisanal cannabis products sold under its trusted portfolio of consumer brands: Encore, Avexia, and Verano. Verano designs, builds, and operates inimitable Zen Leaf branded dispensary environments that deliver a superior cannabis shopping experience in both medical and adult-use markets. 

The merger with Alt-Med brings the company the MÜV brand of medical cannabis-infused products which were launched in Arizona in 2016. Alt Med has  29 active retail locations, the AME Parties have 220,000 square feet of cultivation facilities in Florida, and 33,542 square feet in Arizona, which is expected to increase by an additional 110,000 square feet to meet increased demand. 

“The combination with AltMed joins two complementary companies focused on providing superior customer experiences. We have both been disciplined operators since inception, and together we anticipate continuing to generate strong profitability and an EBITDA margin that would rank us near the top of our peer group,” said Mr. Archos. “Our public listing will provide us with access to capital to execute our growth plan, including the organic growth of our retail presence and product portfolio in addition to the pursuit of strategic acquisitions, with the goal of being a top three operator in the states in which we operate.”

Earnings

For the nine months ending in September 2020, Verano reported revenue of $154 million and AME reported $87 million. The net income for the same period was $118 million for Verano and $88 million for AME. On a pro forma consolidated basis, the nine months of revenue would be $241 million and the net income would be $172 million. 

Winners & Losers

In 2019, Harvest Health & Recreation (OTC: HRVSF) intended to acquire Verano for roughly $850 million. The two companies agreed to terminate the deal without incurring any breakup fees. Part of the problem with the all-stock deal was that Harvest Health’s stock plunged from C$8.79 at the time of the announcement to roughly C$1.62. The stock was lately selling at C$4.61. “This decision was not taken lightly,” said George Archos, Verano Holdings CEO. “While both organizations worked very hard to consummate this transaction, significant delays in closing started with the Hart-Scott-Rodino antitrust review process. Those were followed by state and local regulatory complexities in multiple states.” Harvest has a current market cap of $1.8 billion while Verano’s market cap is expected to be $2.8 billion. 

SOL Global Investments Corp.  (OTCPK: SOLCF) stands to benefit greatly from its investment in Verano. Once the stock begins trading, SOL Global expects to hold 25.2 million subordinate voting shares and was pleased to note that Verano has “effectively scaled up its operations in several key cannabis markets in the U.S., including Illinois, New Jersey and Nevada (either directly or via affiliates/subsidiaries), and is well positioned to continue to generate impressive quarter over quarter growth.”

Sol Global said in a statement that the transaction will have a significant positive impact on its net asset value and the company will update the market in a timely manner as information is available. Sol Global also had to set the record straight with one of its lenders regarding the Verano stake. On February 7, 2021, the company initiated litigation in the State of New York against its lender, 1235 Fund LP, an affiliate of MMCAP who wants Verano stock instead of being paid in cash. 

Back in 2019, the company announced that it had completed a $50,000,000 private placement financing by way of the issue and sale of a senior secured non-convertible debenture. If the deal between Verano and Harvest Health had occurred, the lender would have been repaid in shares of either Verano or Harvest, which would have enabled the lender to cover its short position in Harvest and provided the lender with a reasonable premium of return beyond the stipulated 6%. 

“The Harvest Transaction did not close and thus the Debenture is repayable only in cash. Nevertheless, on February 5, 2021, the lender has wrongfully sent a formal notice purportedly electing to receive, instead of cash, Verano shares currently owned by the Company whose value is more than 200% of the principal value of the Debenture. The Company advised the lender that it will repay the Debenture in cash pursuant to its terms. To address any uncertainty resulting from the lender’s positions, the Company commenced litigation against the lender and another seeking declaratory relief that, among other things, the lender has no right to be repaid in Verano shares. As a result of the lender’s positions, SOL Global has decided that it will no longer do business with it nor participate in any transaction in which the lender is involved.”


StaffNovember 20, 2020
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Harvest Health & Recreation Inc. (OTCQX: HRVSF) said it has settled its dispute with a small group of the previous owners of Interurban Capital Group. The disagreement goes back to March when Harvest had agreed to pay $85.8 million through Harvest stock and the assumption of $19.1 million of debt convertible into 205,594 Multiple Voting Shares. Plus a payment of an additional $9.3 million upon exercise of a call option agreement to acquire controlling interests in five Washington cannabis dispensaries or alternatively $12.4 million to acquire substantially all of the assets of these dispensaries.

It wasn’t long before Harvest decided to sue ICG in April against the Washington dispensaries and a small group of the previous owners of ICG to enforce terms of service agreements and the call option agreements.

“We are pleased to settle this dispute and move forward,” said Chief Executive Officer Steve White. “We are very excited to continue to focus on our core business operations as we execute on our plan to return to profitability.”

Settlement Agreement

The settlement resulted in a mutually agreeable resolution for all parties. Harvest said it will cancel a total of 42,378.4 Multiple Voting Shares issued to the small group of previous owners of ICG (equivalent to 4,237,840 Subordinate Voting Shares on an as-converted basis). Harvest will also receive a $12 million secured promissory note with 7.5% interest and five-year maturity. The settlement includes cancellation of the service agreements and call option agreements for the Washington retail locations.

Back Story

ICG would have added to Harvest’s existing retail footprint with three open retail locations and seven potential retail licenses in California, five open retail locations in Washington state and two open retail locations in Iowa. The California locations were dispensaries called Have-A-Heart and trouble began almost immediately. The employees complained about layoffs to Marijuana Business Daily, and in April it was learned that Harvest was suing ICG. The company has since sold those properties, but the litigation remains.

ICG and its Washington partners are also fighting amongst themselves. Harvest Health wrote in its SEC filing that on May 28, 2020, ICG filed a complaint in the King County Superior Court against the Respondents and other members of the Washington Retailers and their wives alleging a breach of the Washington Entities Options collectively, by the “Washington Entities Sellers”, who sold the properties to Harvest Health. The case alleges a series of charges, including breach of contract and, engaging in unfair or deceptive acts or practices.

The filing stated: In April, Harvest Health filed a Notice of Intention to Arbitrate before the Judicial Dispute Resolution, LLC in Seattle, Washington against Boyden Investment Group, LLC; Tierra Real Estate Group, LLC; Have A Heart Compassion Care, Inc.; Phat Sacks Corp.; Green Outfitters, LLC (collectively, the “Washington Entities”) and Ryan Kunkel (“Kunkel”, together with the Washington Entities, the “Respondents”) to compel mandatory arbitration for breach of contract, engaging in unfair or deceptive acts or practices in the conduct of the Respondents trade or commerce and affects the public interest, tortious interference with contractual relationships, and awards of damages, treble damages, and fees and costs.

Ryan Kunkel is a former officer, director and shareholder of ICG and manager and equity holder in the Washington Entities. The Arbitration relates to Amended and Restated Services Agreements entered into between ICG and the Washington Entities pursuant to which they agreed to pay ICG fees for services it provides to them (the “Service Agreements”). On
April 2, 2020, the Respondents filed a motion for temporary restraining order in the Superior Court for the State of Washington, in and for the County of King, seeking access to certain records and accounts related to the operation of the Washington Entities’ business. On April 7, 2020, the court denied the motion in the TRO Action and found, among other things, that the Retailers failed to show (i) they were likely to prevail on their claim that ICG breached the Service Agreements, (ii) a clear legal or equitable right to the relief sought, (iii) an invasion of their rights, and (iv) they would suffer an actual and substantial injury.

On April 8, 2020, the Respondents filed a motion for dismissal of the TRO Action and the case has been dismissed. In a separate lawsuit, ICG filed a petition for provisional remedies in aid of arbitration against each of the Washington Entities seeking prejudgment writs of attachment as a result of the Respondents’ conduct related to the termination of the Service Agreements (the “Provisional Remedies Action”). Following consolidation of the Receiver Action and the Provisional Remedies Action before the Superior Court, the case was dismissed on May 21, 2020 because the court ruled it lacked jurisdiction as a result of the appointment of an arbitrator in the Arbitration. In dismissing the Provisional Remedies Action, the Superior Court noted that the arbitrator should make the decision on ICG’s petitions for provisional remedies. The Arbitration is in the pleading stage of litigation, no discovery has commenced and no substantive rulings have been made other than the TRO Order.

 


Debra BorchardtNovember 11, 2020
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Harvest Health & Recreation Inc. (OTCQX: HRVSF) reported its financial results for the third quarter of 2020 after the market closed on Tuesday with revenue rising 86% to $61.6 million. This was a sequential increase of 11% compared to $55.7 million in the second quarter of 2020. The company delivered a 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 of 2020.

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.

Making The Case For Arizona

During the recent 2020 elections, Arizona voters said yes to Prop 207, a ballot initiative to allow and implement recreational cannabis sales in the state. CEO Steve White noted that this initiative was unique because it established some aspects of what the eventual program would look like. “Because the license structure is specifically detailed in the initiative, we have a high level of confidence in our understanding of how licensing will work and the maximum number of potential competitors that can operate unless and until the market structure is changed at the ballot box.,” he said on the company’s earnings call. He went on to add, “As outlined in Prop 207, existing medical operators may apply for a recreational license on January 19, 2021.”  The Arizona Department of Health Services has 60 days to approve or reject the application. If it isn’t rejected it is then approved.

“Theoretically, this timeline may permit recreational cannabis sales at the end of the first quarter of 2021,” said White.  He cautioned that such a transition often doesn’t happen without bumps. ” As we have seen in other instances where existing medical markets were expanded to include recreational use, we expect that there could be some regulatory delays, logistical constraints or supply shortages in connection with the rollout. But given the maturity and stability of the Arizona medical market, we would expect these hiccups to be relatively short-term and readily addressable in nature.”

The Arizona market is estimated to reach $2 billion at maturity. The recreational licenses will be fully vertical like the medical market. White stated that existing operators in good standing in the medical market may apply for a recreational license, which means up to 130 recreational license applications may be submitted. In counties with less than 2 dispensaries, the state may issue additional licenses in order to reach a minimum of 2 licenses per county, adding approximately 10 or so store fronts.

“Unlike other dispensaries, those newly permitted locations must remain within the county. At some point in the future, 26 social equity licenses may also be issued. One way to estimate the expected average performance of the store would be to take the conservative $2 billion total market size and divide it by 166 stores. Based on our view of the market, we have a high degree of confidence that 166 store locations represent a fair approximation of the total retail footprint in the state. Applying those metrics, the average store would realize a little more than $12 million per year in revenue. In practice, of course, some storefronts will underperform or exceed the average revenue generated per store. With the recent acquisition of 3 additional licenses in Arizona, Harvest expects to be operating at least 18 of those stores.”

On November 2, Harvest announced a settlement of ongoing litigation with Devine Holdings which resulted in Harvest getting three vertical medical licenses in Arizona in exchange for the forgiveness of the outstanding $10.45 million receivable owed to Harvest by Devine Holdings. Harvest will also have the right of first refusal on 4 additional vertical medical licenses in Arizona. “We are very pleased with this resolution,” said White.

Huge Debt

Harvest ended the third quarter of 2020 with approximately $63 million in cash and $294 million in debt. The company said it had sufficient capital to service its debt in 2020 and 2021. On October 28, Harvest completed a bought deal financing, raising gross proceeds of approximately $34.5 million. Debt service for the remainder of the year is approximately $15.2 million and the company extended the debt maturity of $6.5 million due in October 2020, by one year to October 2021.

Harvest Health noted that it terminated the agreement to sell two additional California retail assets to Hightimes Holdings for $6 million on October 2. The sale of eight California retail assets to Hightimes was completed in June. On October 30, Harvest completed the purchase and license transfer of THChocolate, including licenses for cannabis and cannabis products manufacturing in Colorado.

Guidance

Harvest Health increased its 2020 full year revenue target to exceed $225 million up from its prior target of $215 million to $220 million. The company said that the magnitude of its full year revenue in excess of $225 million depends on the timing of a number of events and processes, including potential divestitures of noncore assets, which may result in a decrease in revenue. The revenue forecast includes continued growth driven by retail dispensary openings, same-store sales growth, and new and expanded cultivation and manufacturing operations. “Forecast for 2020 assumes no impacts or disruptions that we don’t successfully manage, including those caused by the COVID-19 pandemic,” said CFO Deborah Keeley.


Debra BorchardtSeptember 15, 2020
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Arizona-based Fibonacci Brands is buying the cannabis company  Darwin Brands from Harvest Health and Recreation (OTC:HRVSF) for an undisclosed amount. Darwin is part of the Arizona Natural Selections company and its products include Caramel Hard Candies, Seriously Good Gummies and award-winning vapes.

In February 2020, Harvest acquired AZ Natural Selections in a deal valued at approximately $30 million, the issuance of a $6.6 million promissory note and it assumed $3.8 million in debt at closing and paid off another $2.9 million at closing. The acquisition provided Harvest with two operational cultivation facilities: a 55,000 sq. ft. indoor cultivation and production facility in Phoenix and a 322-acre site of which 25 acres are zoned for cannabis with 70,000 square feet of greenhouse in Willcox.

“We are thrilled with the opportunity to execute the vision of Darwin: to reintroduce humanity to cannabis, with integrity, so everyone can ‘Enjoy with Confidence,’” says Fibonacci Brands founder James George. “We thank everyone who has supported Darwin over the years, and we are excited to evolve our products to make Darwin even more accessible to the cannabis community.”

Darwin has won Best Vape at the Errl Cup and Best CBD Edible at the 710 Cup. Its brand icon, named Darwin is a lifelike lion dressed in a vintage suit. The company said that production and distribution will soon recommence in Arizona. Should voters enact adult-use consumption through Proposition 207 in November, the company said that Darwin is primed, given its proud roots in the state, brand appeal, quality products, and its “Origin Series,” which ensures new consumers avoid an overwhelming first-time cannabis experience. Deriving its name from a mathematical principle that underlies the structure and beauty of nature, Fibonacci Brands’ vision is to craft an international house of brands that delivers the myriad benefits of cannabis.

“We have a big vision: to provide every consumer that comes into contact with cannabis their best possible experience through products they trust and brands they love, no matter the occasion,” says George. “Our desire to fulfill cannabis consumers’ needs fires our purpose.” The company’s team says it includes veterans of the cannabis and marketing industries who have launched products in global markets, built global brands but does not name these veterans.

Harvest Health Arizona Dominance

Harvest Health is based in Arizona and is one of its largest operators. As of June, the company had 14 retail locations in the state, plus an indoor and outdoor growing facility along with a processing lab. The company’s website currently lists 15 retail locations. When Harvest Health acquired AZ Natural Selections, it was seen as a move to buy up its competition. Harvest and Curaleaf now control one-sixth of the state’s 131 dispensaries and nine MSOs have captured approximately 30% of the market share in the state.

Harvest has been on a dizzying pace for acquisitions and divestments. Earlier this year, the company made fast work of its acquisition of $85 million acquisition of  Interurban Capital Group, which it then sold to another party within two months. However, Harvest Health is tied up in a lawsuit with the original owner of ICG.


Debra BorchardtJune 12, 2020
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Harvest Health & Recreation Inc. (OTCQX: HRVSF) is changing the number of retail assets it had planned to sell to Hightimes Holding Corp. Originally Harvest announced it was selling 13 planned and operational California licenses to the iconic cannabis publisher High Times in a deal valued at $80 million.

That has now been reduced to ten operational and planned retail assets in a deal now valued at $67.5 million. The deal is now $1.5 million in cash and a $4.5 million one-year promissory note with 10% interest and $61.5 million in Series A Preferred stock issued by Hightimes Holding Corp. The stock though is not publicly traded and could potentially never be traded.

Harvest says it will retain four operating dispensaries located in Grover BeachNapaPalm Springs, and Venice and select licenses for potential retail locations in California following completion of this planned divestment.  Harvest has said that its the previously announced full-year 2020 revenue target remains unchanged.

Third-Party Approvals

The announcement came with one big disclaimer at the bottom. “The transaction is subject to various closing conditions and contingencies including third party and regulatory approvals. Assets may be excluded from the divestment plan if required approvals are not obtained resulting in an adjustment to the total consideration.” That’s because at least one of the assets, a Have A Heart (HAH) location in San Francisco, is fighting the transaction.

The company’s CEO Alexis Bronson said the transactions weren’t legal. Bronson owns 40% of the HAH dispensary and he claims his business partners sold their shares to Interurban Capital Group (ICG) without his approval. The dispensary was then flipped to Harvest Health & Recreation, who just sold it to HHI Acquisition Corp, a subsidiary of Hightimes Holding Corp. also known as High Times. All of these transactions occurred within an eight-week time frame.

Bronson had informed ICG that it had no authority to offer up the shares to Harvest Health. The company’s response was that it was just due diligence discussions and that news in the press was often wrong. That wasn’t the case and the property was sold. Harvest Health said it was acquiring ICG in a deal valued at $85 million. “We are excited to welcome the Have Heart dispensaries into the Harvest family,” said Harvest Chief Executive Officer Steve White. Almost immediately after that statement, Harvest Health laid off numerous Have A Heart employees.

The High Times Purchase Agreement acknowledges the Bronson position in HAH. The document states, “Neither ICG nor Harvest holds any rights to acquire the 40% interest held by Bronson. Assignment of Contingent Assignment requires the consent of the Board of Managers of HAH 2 CA LLC.” High Times was to deliver $1 million to Harvest Health on April 27 as a deposit and then another $4 million at the closing date or within 45 days of the effective date.

“As CEO, Owner and managing member I have a fiduciary responsibility to my cannabis social equity business,” said Bronson. “Yet there is this large divide between apparent authority and actual authority that puts my social equity business in a terrible (and arguably unsustainable) position — from one side I have a tremendous responsibility and potential liability and yet from the other side I’ve been kept in the dark regarding major business decisions and have been treated as nothing more than a straw CEO and rendered completely powerless.”

Bronson didn’t seem adverse to Kunkel transferring his shares in general, but he did express great displeasure at the entities Kunkel chose. The name Have A Heart now sounds like a cruel joke for Bronson who feels like he has been victimized twice. First by the war on drugs and second by what he described as “Caucasian Canna-Bro greed.”


Debra BorchardtMarch 27, 2020
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One day after announcing it had terminated its deal to acquire Verano Holdings, Harvest Health & Recreation Inc. (CSE: HARV, OTCQX: HRVSF) has now said it is going to buy Franklin Labs, LLC, a subsidiary of CannaPharmacy, for approximately $25.5 million payable with $15.5 million in cash and a $10 million promissory note.

Harvest Health stock fell over 16% to 94 cents yesterday on the news that the deal with Verano had been terminated. This was despite the broader markets trading much higher as shareholders were clearly not happy about the ending of the deal. Eight Capital looks to have cut its target price on the stock from C$14 to C$3. The Canadian stock was lately trading at C$1.32.

The Franklin Labs acquisition includes a 46,800 sq. ft. cultivation and manufacturing/processing facility in Reading, Pennsylvania. Pending necessary approvals, Harvest said it expects to expand the existing cultivation operation this year and potentially complete further expansion in the future to support market growth. Manufacturing and processing operations are projected to commence this year during the second quarter. The Franklin Labs facility is the only cultivation facility owned by Harvest in Pennsylvania and is expected to supply significant product to retail dispensaries across the state.

“This accretive acquisition helps to alleviate supply constraints in a fast-growing market while contributing to improved financial performance,” said Harvest CEO Steve White. “This investment in Pennsylvania is an important milestone in our plan to expand operations in key states and return to profitability.”

Harvest affiliated entities own and operate five retail dispensaries in Pennsylvania: two in Reading, and one each in HarrisburgJohnstown, and Scranton. Harvest affiliated entities are permitted for up to 15 total retail locations across the state.

Have A Heart Layoffs

Apparently Harvest Health did not “have a heart” when it came to the employees of the Have A Heart dispensaries. The company recently announced that it would be getting these dispensaries as part of its acquisition of ICG.  At the time White said, “We are excited to welcome the Have a Heart dispensaries into the Harvest family.”

Not too excited it seems.  Employees said that within days, Harvest laid off 85% of the Have a Heart‘s corporate office in Seattle or roughly 20 people in total. Employees were said to have been given 2 week’s severance pay. The employees did not see the layoffs coming as it seems they were assured their jobs were safe following the acquisition.

 


Debra BorchardtMarch 26, 2020
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 Harvest Health & Recreation Inc. (CSE: HARV, OTCQX:HRVSF) and Verano Holdings, LLC  have announced the mutual termination of the Business Combination Agreement dated April 22, 2019. At the time this was announced, Harvest Health had agreed to buy  Verano in an all-stock deal valued at approximately $850 million based on a share price of C$8.79. The stock was lately trading at C$1.62 or $1.13.

“Given the persistent challenges in consummating this deal and current market conditions both companies felt it was prudent to move forward separately at this time,” said Steve White, Harvest CEO. “We have tremendous respect for the entire team and operations at Verano Holdings. We wish them well and look forward to possibly working together in the future.”

The companies stated that prolonged obstacles in meeting requirements for state and local regulatory authorities needed to transfer ownership and operational licenses, adverse capital market conditions, a challenging environment for asset sales, all contributed significantly to the decision not to move forward with the pending acquisition. No breakup fees or other considerations are owned by either party as a result of the termination of the BCA.

Mr. White continued, “We remain focused on the continued development of assets in our core markets including ArizonaFloridaMaryland, and Pennsylvania. Recent capital raising efforts have afforded the company sufficient resources to continue to invest in strategic projects while moving toward profitability.”

“This decision was not taken lightly,” said George Archos, Verano Holdings CEO. “While both organizations worked very hard to consummate this transaction, significant delays in closing started with the Hart-Scott-Rodino antitrust review process. Those were followed by state and local regulatory complexities in multiple states. Now with the COVID-19 pandemic often being dealt with in the very agencies that must approve the transaction, it has become clear that this combination would not be completed within the established timeframe. We look forward to continuing to grow our operations as one of the largest privately held multi-state operators in the U.S.”

Harvest’s Numerous Flings

Harvest Health had started 2020 with breakup news from Falcon International. In January Harvest filed suit against Falcon International, Inc. asking to terminate the planned merger agreement and return the money Harvest paid to Falcon under the Merger Agreement. That lawsuit alleged that Falcon’s principals stalled due to the falling share price of Harvest. Harvest went on to suggest that Falcon International engaged in illegal activities.

Falcon has said that Harvest owes the company $50 million in a breakup fee. In addition to that Falcon said, “Amounts previously funded by Harvest to Falcon are convertible into Falcon equity at Harvest’s or Falcon’s option and, accordingly, are unlikely to be paid.”

Just a few weeks ago Harvest announced that it would acquire Interurban Capital Group for approximately $85.8 million payable by the issuance of 309,452 multiple voting shares, assumption of approximately $19.1 million of debt convertible into 205,594 multiple voting shares and payment of an additional $9.3 million upon exercise of a call option agreement to acquire controlling interests in five Washington cannabis dispensaries or alternatively $12.4 million to acquire substantially all of the assets of these dispensaries. ICG’s assets include direct and indirect licenses and rights to acquire entities with licenses in CaliforniaIowa, and Washington. In addition, ICG is a service provider to these entities.

Verano

Verano is a private company that is known to have licenses and operations in 11 states and territories, including seven cultivation licenses, 37 retail licenses and the potential to reach 150+ million Americans. The company is vertically integrated with cash-flow positive operations.

 


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