Mr. Steve White reports
HARVEST HEALTH & RECREATION, INC. REPORTS FOURTH QUARTER AND FISCAL YEAR 2018 FINANCIAL RESULTS
Harvest Health & Recreation Inc. has released the
company's fourth quarter fiscal year 2018 financial results. Harvest has
continued to be successful in winning licences in non-competitive and
competitive application processes throughout the country and has made a
number of significant strategic acquisitions and mergers. Harvest's
ability to combine size, scale, capital, regulatory expertise and
operational excellence is paramount to its success.
All currency figures are in U.S. dollars.
Management commentary
"Two thousand eighteen continued to set records for Harvest's growth and momentum across
the United States," said chief executive officer Steve White. "Three key
initiatives dictated our decisions throughout the year and will continue
to be our focus in 2019: aggressively expanding our retail and wholesale
footprint across the U.S., building, acquiring and expanding our suite
of brands across our footprint, and continuing to operate in a
financially disciplined way, while also fuelling the revenue growth of
the company."
Financial highlights for the fourth quarter ended Dec. 31, 2018:
- Total revenue was $16.9-million, an increase of 135 per cent, compared with $7.2-million in the fourth quarter of 2017.
- Total revenue increased 52 per cent compared with $11.2-million in the third quarter of 2018.
-
Gross profit, excluding impact of biological assets, was $7.2-million,
an increase of 342 per cent, up from $1.6-million in the fourth quarter of 2017.
-
Gross profit margin, excluding the impact of biological assets, was
42 per cent and 23 per cent, respectively, for the fourth quarter of 2018 and the fourth quarter of 2017.
-
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $2.6-million, compared with $2.2-million in the fourth quarter of 2017.
- Net loss was $71.1-million, for the three months ended Dec. 31,
2018, and includes a non-recurring, non-cash fair value charge of
$50.7-million associated with convertible debt that was converted to
equity during the year.
Financial highlights for the 12 months ended Dec. 31, 2018:
-
Total revenue for the 12 months ended Dec. 31, 2018, was $47.0-million, an increase of 106 per cent, compared with $22.8-million for the same
period in 2017.
- Gross profit, excluding the impact of biological assets, was $24.6-million, an increase of 135 per cent compared with $10.5-million for the 12
months ended Dec. 31, 2017.
- Gross profit margin, excluding the impact of biological assets, was
52 per cent for the 12 months ended Dec. 31, 2018, compared with 46 per cent in the
same period the prior year.
- Adjusted EBITDA totalled $10.3-million for the 12 months ended Dec.
31, 2018, compared with $6.0-million for the same period in 2017.
- Net loss was $67.5-million for the 12 months ended Dec. 31, 2018,
and includes a non-recurring, non-cash fair value charge of $50.7-million associated with convertible debt that was converted to equity
during the year.
Year-end highlights
Capital markets, financing activities and growth strategy:
-
On Nov. 13, 2018, Harvest raised $218.1-million in a brokered
private placement. In 2018, the company raised approximately $300-million comprising primarily: $50-million of convertible debt, which
converted into equity when Harvest completed a reverse takeover (RTO),
$20-million of senior debt and $218-million of equity issuances.
- The
company has used this cash to:
- Continue to expand its retail and wholesale footprint focusing on
building additional retail, cultivation, and production locations for
medical and adult-use cannabis;
- Apply for new licences and successfully receive them in extremely
competitive markets, further establishing management's credibility
through a consistent record of complying with the industry's
stringent regulations;
- Make selective acquisitions of facilities and brands.
- On Nov. 14, 2018, the company completed the RTO and listed its
subordinated voting shares on the Canadian Securities Exchange. Harvest trades on the CSE under the ticker symbol HARV and
on the OTCQX under the symbol HRVSF.
Acquisition activity:
- In November, 2018, the company acquired CBx Enterprises LLC, a Colorado
market leader and intellectual property company (CBx). This expanded
the company's brand offering, giving it market-leading manufactured products and
added depth to its manufacturing team.
- In November, 2018, the company acquired San Felasco Nurseries Inc., a holder of a medical marijuana licence and authorized to
operate as a medical marijuana treatment centre in the state of
Florida. Each medical marijuana treatment centre is allowed to operate
up to 35 dispensaries, as well as a cultivation and production
facility in Florida.
- In February, 2019, the company announced pending acquisition of Falcon International
Corp., a California vertically integrated operator currently serving
more than 80 per cent of the legal dispensaries in California. Upon
finalization of the acquisition it is expected to serve as a beachhead
in California, providing cultivation, manufacturing and distribution,
wholesale opportunities, is expected to add well-regarded brands like
Cru and High Garden to the company's portfolio and is expected to add key
personnel to the company's team.
- In February, 2019, the company entered into a binding agreement to acquire six
licences in Arizona from Devine Holdings Inc., adding to the company's national
footprint and further deepening the company's market share in its home state.
- In March, 2019, the company announced pending acquisition of Verano Holdings LLC, one of the largest privately held multistate, vertically
integrated licensed operators of cannabis facilities. Upon completion
of the acquisition it is expected to add licences throughout the
Midwest and East Coast, add edibles to the company's brand suite, and expected
to further strengthen the company's senior management team.
- In April, 2019, the company announced pending acquisition of CannaPharmacy with
assets in New Jersey, Pennsylvania, Delaware and Maryland.
Retail footprint expansion:
-
As of Dec. 31, 2018, the company operated 10 retail locations in
four states. Significant expansion of cultivation, manufacturing and
retail locations will occur throughout 2019.
Balance sheet and liquidity:
-
As of Dec. 31, 2018, the company had $191.9-million of cash and
cash equivalents.
- As of Dec. 31, 2018, the company had $30.9-million of debt
outstanding.
- The company has raised nearly $300-million in 2018: approximately $50-million of convertible equity notes, which converted into common stock
when Harvest completed the RTO, approximately $20-million of senior
debt, and over $218-million of equity issuances.
- For the year, the company had a few large non-cash expense items. The largest
one was the conversion of convertible equity notes, which the company raised
prior to its RTO, into equity at the company's RTO. The company's equity value increased
between the time the company issued the notes and the time it completed its RTO. IFRS (international financial reporting standards) requires that the company record the difference in value between the
issuance value and the conversion value. In this case, the conversion
price was $3.26 per share and the RTO stock was issued at $6.55 per
share, meaning that the company expensed $3.29 per share times 15 million
shares that were issued upon conversion of the notes.
Conference call and webcast
Harvest Health and Recreation will host a conference call and
audio webcast with executive chairman Jason Vedadi, chief executive
officer Steve White, president Steve Gutterman and chief financial
officer Leo Jaschke, Tuesday, April 23, at 8 a.m. Eastern Time.
To participate in the conference call, please dial:
U.S. toll-free:
1-866-777-2509
Canada toll-free: 1-866-605-3852
United Kingdom toll-free: 44-080-823-89064
International dial-in number: 1-412-317-5413
Registration is required; please dial in at least 10 minutes prior to
the scheduled start time.
The conference call will be available for replay for three months.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND 12 MONTHS ENDED DEC. 31, 2018, AND 2017
(amounts expressed in thousands of dollars)
Three months ended 12 months ended
Dec. 31, Dec. 31,
2018 2017 2018 2017
Revenue $16,943 $7,210 $46,955 $22,825
(Cost) of goods sold (9,760) (5,586) (22,402) (12,360)
Gross profit before biological asset adjustments 7,183 1,624 24,553 10,465
Unrealized gain on changes in fair value of biological asset 267 2,674 5,958 3,559
(Cost) of goods sold on biological asset transformation - - (3,559) (111)
Gross profit 7,450 4,298 26,952 13,913
Expenses
General and administrative 22,900 1,780 35,658 7,227
Sales and marketing 557 272 1,079 683
Share-based compensation expense 1,545 - 1,545 -
Depreciation and amortization 466 623 1,544 850
Total expenses 25,468 2,675 39,826 8,760
Operating (loss) income (18,018) 1,623 (12,874) 5,153
Other income (expenses)
Gain/(loss) on sale of assets (995) 1,423 566 1,423
Other income/(loss) (50,716) - (50,716) -
Foreign currency gain/(loss) 512 - 512 -
Interest income/(expense) (885) (275) (1,677) (371)
(Loss) income before taxes and non-controlling interest (70,102) 2,771 (64,189) 6,205
Income taxes (loss) (1,423) (444) (3,877) (2,090)
(Loss) income before non-controlling interest (71,525) 2,327 (68,066) 4,115
Loss (income) attributed to non-controlling interest 437 (1,059) 601 (524)
Net income (loss) attributed to Harvest Health and Recreation (71,088) 1,268 (67,465) 3,591
About Harvest Health & Recreation Inc.
Harvest Health & Recreation is one of the first consistently profitable, vertically integrated cannabis companies with one of the largest footprints in the United States. Harvest's complete vertical solution includes industry-leading cultivation, manufacturing and retail facilities, construction, real estate, technology, operational, and brand building expertise, leveraging in-house legal, human resources and marketing teams, along with proven experts in writing and winning state-based applications. The company has more than 680 employees with proven experience, expertise and knowledge of in-house best practices that are drawn upon whenever Harvest enters new markets. Harvest's executive team comprises leaders in finance, compliance, real estate and operations.
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