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

May 20, 2020

- First quarter revenue was $45.0 million, up 134% from the first quarter 2019 and 19% sequentially

- Cost cutting measures expected to save $24 million annually

PHOENIX, May 20, 2020 /PRNewswire/ -- Harvest Health & Recreation Inc. (CSE: HARV, OTCQX: HRVSF), a vertically integrated cannabis company and multi-state operator (MSO) in the U.S., today reported its financial and operating results for the first quarter 2020. All financial information is provided in U.S. dollars unless otherwise indicated.

First Quarter 2020 Financial Results

  • Total revenue in the first quarter was $45.0 million, an increase of 134% from $19.2 million in the first quarter of 2019 and up 19% compared to $37.8 million in the fourth quarter of 2019.
  • Gross profit excluding biological adjustments in the first quarter was $18.3 million, compared to $7.9 million in the first quarter of 2019 and $16.0 million in the fourth quarter of 2019.
  • Gross profit margin excluding biological adjustments in the first quarter was 40.6% compared to 41.1% in the first quarter of 2019 and 42.3% in the fourth quarter of 2019.
  • Net loss was $20.0 million for the first quarter compared to net loss of $20.0 million in the first quarter of 2019 and $88.9 million for the fourth quarter 2019.
  • Adjusted EBITDA excluding biological adjustments in the first quarter was ($3.9) million compared to ($4.7) million in the first quarter of 2019 and ($6.8) million in the fourth quarter of 2019.

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

First Quarter 2020 Business Highlights

  • New capital raised included $20 million of real estate backed debt, $21.3 million in senior secured debt, and $59 million in equity.
  • Harvest added five retail locations through a combination of organic store openings and acquisitions of operational retail locations in Arizona, Arkansas, and Michigan. As of May 20, 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 Capital Group.
  • Harvest completed the acquisition of Franklin Labs on March 26, 2020, adding cultivation and manufacturing capabilities to its operations in Pennsylvania.
  • The acquisition of Interurban Capital Group was completed on March 13, 2020, adding strategic investors to the shareholder base and direct and indirect licenses in California and Iowa and rights to acquire assets and provide cannabis retail support services for dispensaries in California, Iowa and Washington.
  • The acquisition of Arizona Natural Selections was completed on February 18, 2020, adding three open retail locations, an indoor cultivation facility, greenhouse cultivation facility and potential outdoor cultivation to Harvest's existing operational footprint in Arizona. The acquisition included a fourth vertical license in Arizona and the Darwin product line.

Subsequent Events

  • High Times Holdings agreed to purchase a portfolio of 13 planned and operational dispensaries in California for total consideration up to $80 million including $5 million in cash, $7.5 million as a one-year promissory note with 10% interest, and $67.5 million in Series A Preferred Stock.
  • Ongoing cost cutting measures implemented companywide year to date are expected to yield annualized savings of $24 million.
  • Our facilities have remained online with modified operating procedures due to the COVID-19 pandemic. Last week we were able to resume in store purchases with appropriate social distancing measures at select retail locations.

Outlook
Full year 2020 revenue target is approximately $200 million. Harvest is on track to achieve positive Adjusted EBITDA during the second half of 2020. Forecasts assume no meaningful impacts or disruptions to our operations as a result of the COVID-19 pandemic beyond the new protocols and safeguards already implemented throughout the company.           

Management Commentary
"Our improved financial results during the first quarter demonstrate progress toward our primary goal of returning to profitability through cost reduction measures and investments in core markets Arizona, Florida, Maryland, and Pennsylvania," said Chief Executive Officer Steve White. "In 2020 we have raised additional capital and completed several acquisitions adding strategic assets in core markets while continuing to streamline operations as highlighted by continued improving quarterly trends."

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 Leo Jaschke, Wednesday May 20, 2020 at 5:00 PM Eastern Time.

To participate in the conference call via telephone, please dial:

North America toll free: + 1(833) 513-0564

Conference ID: 8496809

United Kingdom toll free: 08000323836

Conference ID: 8496809

South Africa toll free: 0800984088

Conference ID: 8496809

China, Hong Kong: 58030358

Conference ID: 8496809

Australia toll Free: 1800637926

Conference ID: 8496809

Access the live webcast link here:
https://investor.harvesthoc.com/events-and-presentations/default.aspx

First quarter results and the conference call replay will be available at:
investor.harvesthoc.com/financials

HARVEST HEALTH & RECREATION INC.

Interim Unaudited Condensed Consolidated Statements of Financial Position

March 31, 2020 and December 31, 2019

(Amounts expressed in thousands of United States dollars)





March   31,

2020



December   31,

2019


ASSETS










Current assets:










Cash and cash equivalents



$

82,515



$

22,685


Restricted cash




9,050




8,000


Accounts receivable, net




15,682




12,147


Notes receivable, current portion




51,811




51,349


Biological assets




14,796




8,057


Inventory, net




36,629




28,774


Other current assets




6,213




4,788


Total current assets




216,696




135,800


Notes receivable, net of current portion




35,949




34,430


Property, plant and equipment, net




169,509




151,050


Right-of-use asset, net




81,362




57,288


Intangibles assets, net




235,065




160,114


Acquisition deposits




652




3,645


Goodwill




110,501




84,596


Assets held for sale




8,500





Other assets




18,719




8,641


TOTAL ASSETS



$

876,953



$

635,564


LIABILITIES AND STOCKHOLDERS' EQUITY










LIABILITIES










Current liabilities:










Accounts payable



$

7,950



$

6,969


Other current liabilities




24,592




21,944


Contingent consideration, current portion




20,809




13,764


Income tax payable




9,285




5,310


Lease liability, current portion




6,545




2,885


Notes payable, current portion




32,964




8,395


Total current liabilities




102,145




59,267


Notes payable, net of current portion




257,045




202,619


Lease liability, net of current portion




75,048




54,621


Deferred tax liability




48,990




28,587


Contingent consideration, net of current portion




1,108




16,249


Other long-term liabilities




528




179


TOTAL LIABILITIES




484,864




361,522


STOCKHOLDERS' EQUITY










Capital stock




642,446




505,709


Accumulated deficit




(255,338)




(235,348)


Stockholders' equity attributed to Harvest Health & Recreation Inc.




387,108




270,361


Non-controlling interest




4,981




3,681


TOTAL STOCKHOLDERS' EQUITY




392,089




274,042


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY



$

876,953



$

635,564


 

HARVEST HEALTH & RECREATION INC.

Interim Unaudited Condensed Consolidated Statements of Operations

Three Months Ended March 31, 2020 and 2019

(Amounts expressed in thousands of United States dollars, except share or per share data)





For the three months ended
March
  31,





2020



2019


Revenue, net of discounts



$

45,018



$

19,240


Cost of goods sold




(26,743)




(11,335)


Gross profit before biological asset adjustments




18,275




7,905


Realized fair value amounts included in inventory sold




(9,093)




(5,735)


Unrealized fair value gain on growth of biological assets




12,818




5,772


Gross profit




22,000




7,942


Expenses










General and administrative




23,962




18,386


Sales and marketing




1,299




1,589


Share-based compensation




13,804




3,303


Depreciation and amortization




3,475




1,493


Total expenses




42,540




24,771


Operating loss




(20,540)




(16,829)


Other (expense) income










Gain on sale of assets




2,527





Other (expense) income




9,050




(49)


Foreign currency gain (loss)




(138)




(375)


Interest expense




(7,045)




(775)


Loss before taxes and non-controlling interest




(16,146)




(18,028)


Income taxes




(3,932)




(2,398)


Loss before non-controlling interest




(20,078)




(20,426)


Loss attributed to non-controlling interest




88




378


Net loss attributed to Harvest Health & Recreation Inc.



$

(19,990)



$

(20,048)


Loss per share - basic and diluted



$

(0.07)



$

(0.07)


Attributable to Harvest Health and Recreation Inc. Stockholders



$

(0.07)



$

(0.07)


Attributable to non-controlling interest



$

0.00



$

0.00


Weighted-average shares outstanding - basic and diluted




304,179,427




284,310,532


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 March   31,





2020



2019



Net loss (IFRS) before non-controlling interest


$

(20,078)



$

(20,426)



Add (deduct) impact of:










Net interest and other financing costs (1)



7,214




775



Income tax



3,932




2,398



Amortization and depreciation (2)



4,256




2,076



Gain on assets



(2,527)






Other expense (income)



(9,050)




49



Foreign currency loss



138




375



Share-based compensation expense



13,804




3,303



Realized fair value amounts included in inventory sold



9,093




5,735



Unrealized fair value gain on growth of biological assets



(12,818)




(5,772)



Other expansion expenses (pre-open)



1,740




1,130



Transaction & other special charges



446




5,622



Adjusted EBITDA (non-IFRS)


$

(3,850)



$

(4,735)




(1)

Includes $166 and $0 of interest reported in cost of sales.

(2)

Includes $784 and $583 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 (MSO). 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 with cultivation, manufacturing and retail locations 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 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 March 31, 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 May 30, 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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