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Harvest Health & Recreation Inc. Reports Second Quarter 2020 Financial Results

August 11, 2020

PHOENIX, Aug. 11, 2020 /PRNewswire/ --

  • Second quarter revenue was $55.7 million, up 109% from the second quarter 2019 and 26% sequentially
  • Second quarter adjusted EBITDA was $4.1 million compared to ($3.6) million in the first quarter of 2020
  • 2020 Revenue target increased to $215-220 million, up from $200 million

Harvest Health & Recreation Inc. (CSE: HARVOTCQX: HRVSF), a vertically integrated cannabis company and multi-state operator in the U.S., today reported its financial and operating results for the second quarter 2020. All financial information is provided in U.S. dollars unless otherwise indicated.

Second Quarter 2020 Financial Results

  • Total revenue in the second quarter was $55.7 million, an increase of 109% from $26.6 million in the second quarter of 2019 and up 26% compared to $44.2 million in the first quarter of 2020.
  • Gross profit excluding biological adjustments in the second quarter was $23.4 million, compared to $6.7 million in the second quarter of 2019 and $18.1 million in the first quarter of 2020.
  • Gross profit margin excluding biological adjustments in the second quarter was 42.1% compared to 25.1% in the second quarter of 2019 and 41.0% in the first quarter of 2020.
  • Net loss was $18.3 million for the second quarter compared to net loss of $25.5 million in the second quarter of 2019 and $20.0 million for the first quarter 2020. 
  • Adjusted EBITDA excluding biological adjustments in the second quarter was $4.1 million compared to ($12.4) million in the second quarter of 2019 and ($3.6) million in the first quarter of 2020.

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

Second Quarter 2020 Business Highlights

  • Harvest announced the appointment of Deborah Keeley as Chief Financial Officer on June 22, 2020.  
  • Harvest completed the initial closing of the divestment of eight retail assets in California to Hightimes Holding Corp. for consideration of $61.5 million, consisting of $1.5 million in cash and $60.0 million in Series A Preferred Stock.     
  • As of June 30, 2020, Harvest owned, operated, or managed 35 retail locations in seven states, including 14 open dispensaries in Arizona. Harvest owned and operated dispensaries exclude retail locations serviced through Interurban.
  • As of June 30, 2020, Harvest no longer meets the definition of "foreign private issuer" under United States securities laws as more than 50% of Harvest's issued and outstanding shares were directly or indirectly owned by shareholders of record domiciled in the United States.  As a result, Harvest will be deemed a U.S. domestic issuer under United States securities laws and will be subject to SEC reporting requirements applicable to U.S. domestic companies no later than January 1, 2021. These U.S. reporting requirements will require Harvest's financial statements and financial data to be presented under U.S. Generally Acceptable Accounting Principles.     

Outlook
Harvest is increasing its full year 2020 revenue target to $215-220 million, up from the prior target of approximately $200 million. Harvest achieved positive adjusted EBITDA during the second quarter, ahead of the prior guidance of achievement during the second half of 2020. Forecasts assume no meaningful impacts or disruptions to our operations as a result of the COVID-19 pandemic.           

Management Commentary
"Our improved financial results during the second quarter demonstrate continued progress toward our primary goal of returning to profitability through revenue growth, cost reduction measures and investments in core markets Arizona, Florida, Maryland, and Pennsylvania," said Chief Executive Officer Steve White. "We are continuing to build on this positive momentum as we execute on our plan."

Conference Call & Webcast
Harvest Health and Recreation Inc. will host a conference call and audio webcast with Chief Executive Officer Steve White and Chief Financial Officer Deborah Keeley, Tuesday August 11, 2020 at 5:00 PM Eastern Time.

Registration for this event is required. Please use this link to register:
http://www.directeventreg.com/registration/event/6799406

Following registration, an email confirmation will be sent including dial in details and unique conference call codes. Registration will remain open during the call however we recommend advance registration to access the event.    

Second quarter results will be available at:
https://investor.harvesthoc.com/financials/default.aspx

The live conference call webcast and replay will be available at:
https://investor.harvesthoc.com/financials/default.aspx

 

HARVEST HEALTH & RECREATION INC.

Interim Unaudited Condensed Consolidated Statements of Financial Position

June 30, 2020 and December 31, 2019

(Amounts expressed in thousands of United States dollars)  














June   30,

2020



December   31,

2019


ASSETS











Current assets:











Cash and cash equivalents




$

61,668



$

22,685


Restricted cash





8,000




8,000


Accounts receivable, net





17,782




12,147


Notes receivable, current portion





47,705




51,349


Biological assets





21,299




8,057


Inventory, net





31,732




28,774


Other current assets





6,866




4,788


Total current assets





195,052




135,800


Notes receivable, net of current portion





39,002




34,430


Property, plant and equipment, net





157,530




149,867


Right-of-use asset, net





55,331




56,955


Intangibles assets, net





233,535




159,209


Corporate investments





19,091





Acquisition deposits





528




3,645


Goodwill





111,459




84,596


Assets held for sale





5,332




2,443


Other assets





17,900




8,619


TOTAL ASSETS




$

834,760



$

635,564


LIABILITIES AND STOCKHOLDERS' EQUITY











LIABILITIES











Current liabilities:











Accounts payable




$

6,478



$

6,969


Other current liabilities





23,318




21,944


Contingent consideration, current portion





15,904




13,764


Income tax payable





5,644




5,310


Lease liability, current portion





8,501




2,885


Notes payable, current portion





32,711




8,395


Total current liabilities





92,556




59,267


Notes payable, net of current portion





257,549




202,619


Lease liability, net of current portion





49,410




54,621


Deferred tax liability





48,990




28,587


Contingent consideration, net of current portion





1,108




16,249


Other long-term liabilities





480




179


TOTAL LIABILITIES





450,093




361,522


STOCKHOLDERS' EQUITY











Capital stock





651,505




505,709


Accumulated deficit





(273,623)




(235,348)


Stockholders' equity attributed to Harvest Health & Recreation Inc.





377,882




270,361


Non-controlling interest





6,785




3,681


TOTAL STOCKHOLDERS' EQUITY





384,667




274,042


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY




$

834,760



$

635,564


 

HARVEST HEALTH & RECREATION INC.

Interim Unaudited Condensed Consolidated Statements of Operations

Three and Six Months Ended June 30, 2020 and 2019

(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,






2020



2019



2020



2019


Revenue, net of discounts




$

55,669



$

26,596



$

99,905



$

45,836


Cost of goods sold





(32,246)




(19,915)




(58,332)




(31,250)


Gross profit before biological asset adjustments





23,423




6,681




41,573




14,586


Realized fair value amounts included in inventory sold





(20,134)




(7,740)




(29,227)




(13,475)


Unrealized fair value gain on growth of biological assets





27,055




13,075




39,873




18,847


Gross profit





30,344




12,016




52,219




19,958


Expenses



















General and administrative





21,498




21,764




45,135




40,150


Sales and marketing





1,246




2,053




2,523




3,642


Share-based compensation





3,276




8,094




17,080




11,397


Depreciation and amortization





3,520




1,600




6,977




3,093


Total expenses





29,540




33,511




71,715




58,282


Operating income (loss)





804




(21,495)




(19,496)




(38,324)


Other (expense) income



















(Loss) gain on sale of assets





(1,627)




90




900




90


Other (expense) income





1,205




(200)




10,255




(249)


Foreign currency loss





30




(403)




(108)




(778)


Interest expense





(12,311)




(2,439)




(19,350)




(3,214)


Contract asset impairment





(2,420)







(2,420)





Loss before taxes and non-controlling interest





(14,319)




(24,447)




(30,219)




(42,475)


Income taxes





(1,132)




(1,637)




(4,926)




(4,035)


Loss from continuing operations before non-controlling interest





(15,451)




(26,084)




(35,145)




(46,510)


Net loss from discontinued operations, net of tax





(905)







(1,289)





Net loss before non-controlling interest





(16,356)




(26,084)




(36,434)




(46,510)


(Loss) gain attributed to non-controlling interest





(1,929)




590




(1,841)




968


Net loss attributed to Harvest Health & Recreation Inc.




$

(18,285)



$

(25,494)



$

(38,275)



$

(45,542)


Loss per share - basic and diluted




$

(0.05)



$

(0.09)



$

(0.11)



$

(0.16)


Attributable to Harvest Health and Recreation Inc. Stockholders




$

(0.04)



$

(0.09)



$

(0.11)



$

(0.16)


Attributable to non-controlling interest




$

(0.01)



$

0.00



$

(0.01)



$

0.00


Weighted-average shares outstanding - basic and diluted





364,580,737




285,071,254




334,380,082




284,690,893


 

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 to Adjusted EBITDA for the periods indicated.










Three months ended June 30,



Six months ended June 30,




2020



2019



2020



2019


Net loss (IFRS) before non-controlling interest


$

(16,356)



$

(26,084)



$

(36,434)



$

(46,510)


Add (deduct) impact of:

















Net interest and other financing costs (1)



12,532




2,961




19,737




3,736


Income tax



1,132




1,637




4,926




4,035


Amortization and depreciation (2)



4,599




2,130




8,840




4,206


(Gain) loss on assets



1,627




(90)




(900)




(90)


Other (expense) income



(1,205)




200




(10,255)




249


Foreign currency loss



(30)




403




108




778


Share-based compensation expense



3,276




8,094




17,080




11,397


Contract asset impairment



2,420







2,420





Discontinued operations, net of tax



905







1,289





Realized fair value amounts included in inventory sold



20,134




7,740




29,227




13,475


Unrealized fair value gain on growth of biological assets



(27,055)




(13,075)




(39,873)




(18,847)


Other expansion expenses (pre-open)



1,203




1,365




2,926




2,495


Transaction & other special charges



955




2,336




1,402




7,956


Adjusted EBITDA (non-IFRS)


$

4,137



$

(12,383)



$

493



$

(17,120)


 

(1) Includes $221, $522, $387 and $522 of interest reported in cost of sales.

(2) Includes $1,079, $530, $1,863 and $1,113 of depreciation reported in cost of sales. 

About Harvest Health & Recreation Inc.

Headquartered in Tempe, Arizona, Harvest Health & Recreation Inc. is a vertically integrated cannabis company and multi-state operator. Since 2011, Harvest has been committed to expanding its retail and wholesale presence throughout the U.S., acquiring, manufacturing, and selling cannabis products for patients and consumers in addition to providing services to retail dispensaries. Through organic license wins, service agreements, and targeted acquisitions, Harvest has assembled an operational footprint spanning multiple states in the U.S. Harvest's mission is to improve lives through the goodness of cannabis. We hope you'll join us on our journey: https://harvesthoc.com  

Facebook: @HarvestHOC 
Instagram: @HarvestHOC 
Twitter: @HarvestHOC

Forward-looking Statements

This press release contains statements which constitute "forward-looking information" within the meaning of applicable securities laws, including statements regarding the plans, intentions, beliefs and current expectations of Harvest with respect to future business activities. Forward-looking information is often identified by the words "may," "would," "could," "should," "will," "intend," "plan," "anticipate," "believe," "estimate," "expect" or similar expressions and include information regarding: (i) expectations regarding the size of the U.S. cannabis market, (ii) the ability of the Company to successfully achieve its business objectives, (iii) plans for expansion of Harvest, and (iv) expectations for other economic, business, and/or competitive factors.

Investors are cautioned that forward-looking information is not based on historical facts but instead reflects Harvest management's expectations, estimates or projections concerning future results or events based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although Harvest believes that the expectations reflected in such forward-looking information are reasonable, such information involves risks and uncertainties, and undue reliance should not be placed on such information, as unknown or unpredictable factors could have material adverse effects on future results, performance or achievements of the combined Company. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information are the following: the effects of the weather, natural disasters, and health pandemics, including the novel coronavirus (COVID-19), on customer demand, the Company's supply chain as well as its consolidated results of operation, financial position and cash flows, the ability of Harvest to open additional retail locations and meet its revenue growth and profitability objectives, the ability of Harvest to integrate recent acquisitions, the ability of Harvest to obtain and/or maintain licenses or other contractual rights to operate in the jurisdictions in which it operates or in which it expects or plans to operate; changes in general economic, business and political conditions, including changes in the financial markets; and in particular in the ability of Harvest to raise debt and equity capital in the amounts needed and at the costs that it expects; adverse changes in the public perception of cannabis; decreases in the prevailing prices for cannabis and cannabis products in the markets that Harvest operates in; adverse changes in applicable laws; or adverse changes in the application or enforcement of current laws, including those related to taxation; and increasing costs of compliance with extensive government regulation. This forward-looking information may be affected by risks and uncertainties in the business of Harvest and market conditions.

Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although Harvest has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended. Harvest does not intend, and does not assume any obligation, to update this forward-looking information except as otherwise required by applicable law.

Additional Information

The financial information reported in this news release is based on unaudited management prepared financial statements for the quarter ended June 30, 2020. Accordingly, such financial information may be subject to change. Financial statements for the period will be released and filed under the Company's profiles on SEDAR at www.SEDAR.com by August 28, 2020. All financial information contained in this news release is qualified in its entirety with reference to such unaudited financial statements. While the Company does not expect there to be any material changes, to the extent that the financial information contained in this news release is inconsistent with the information contained in the Company's unaudited financial statements, the financial information contained in this news release shall be deemed to be modified or superseded by the Company's unaudited financial statements. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation for purposes of applicable securities laws.

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