Harvest Health & Recreation Inc. Reports 4th Quarter & Full Year 2020 Financial Results

10.7 min readPublished On: March 30th, 2021By

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

Fourth Quarter and Full Year 2020 Financial Results

  • Total revenue in the fourth quarter was $69.9 million, an increase of 85% from $37.8 million in the fourth quarter of 2019, and up 13% compared to $61.6 million in the third quarter of 2020. Full year revenue increased 98% to $231.5 million in 2020 compared to $116.8 million in 2019.
  • Gross profit in the fourth quarter was $31.3 million, compared to $16.6 million in the fourth quarter of 2019, and $28.7 million in the third quarter of 2020. Gross profit for the full year was $101.6 million compared to $41.1 million in 2019.
  • Gross profit margin in the fourth quarter was 44.8%, compared to 43.8% in the fourth quarter of 2019, and 46.6% in the third quarter of 2020. Gross profit margin for the full year was 43.9% compared to 35.2% in 2019.
  • Net loss before non-controlling interest was $7.4 million for the fourth quarter, compared to $85.2 million in the fourth quarter of 2019. Net loss before non-controlling interest for the full year was $59.6 million compared to $168.8 million in 2019.
  • Adjusted EBITDA in the fourth quarter was $9.1 million, compared to ($8.8) million in the fourth quarter of 2019 and $11.5 million in the third quarter of 2020. Adjusted EBITDA for the full year was $15.3 million compared to ($43.7) million in 2019.

Please see the supplemental information regarding the use of Non-GAAP Financial Measures, and a reconciliation of Non-GAAP Financial Measures.

Fourth Quarter 2020 Business Highlights

  • During the fourth quarter of 2020, Harvest opened two new dispensaries in Camp Hill and King of Prussia, Pennsylvania.
  • On October 2, 2020, Harvest terminated the agreement to sell two California retail assets to Hightimes Holdings for $6 million in preferred stock.
  • On October 28, 2020, Harvest completed a bought deal financing raising gross proceeds of approximately $32.4 million including the overallotment option. Units sold in the offering were priced at Cd$2.26 per unit and included one subordinate voting share and one-half warrant. Each warrant has an exercise price of Cd$3.05 and duration of 30 months.
  • On October 30, 2020, Harvest completed the purchase and license transfer of THChocolate, LLC, including cannabis manufacturing licenses in Colorado. The consideration paid was immaterial.
  • On November 2, 2020, Harvest announced a settlement agreement with Devine Holdings. Under the terms of the agreement, Harvest acquired three vertical medical cannabis licenses in Arizona exchange for the repayment by Devine Holdings of an outstanding $10.45 million receivable owed to Harvest concurrently with the license acquisition.
  • On November 3, 2020, Arizona voters approved Prop 207, a ballot initiative to allow recreational cannabis consumption in Arizona.
  • On November 13, 2020, Harvest completed the divestiture of its ownership in dispensary and cultivation assets in Arkansas, with net cash proceeds to Harvest of $12.9 million.
  • On November 20, 2020, Harvest announced the settlement of a legal dispute with minority owners of Interurban Capital Group. Harvest canceled a total of 42,378.4 Multiple Voting Shares and received a $12 million secured promissory note with 7.5% interest and five-year maturity. Service agreements and call option agreements for Washington retail locations were cancelled.
  • As of December 31, 2020, Harvest owned, operated, or managed 38 retail locations in six states, including 15 open dispensaries in Arizona.

Full Year 2020 Business Highlights

  • Capital raised for full year included $20 million of real estate backed debt, $21.3 million in senior secured debt, and $91.4 million in equity.
  • Capital expenditures for year totaled $26.9 million.
  • During 2020 Harvest completed the acquisitions of Arizona Natural Selections, Interurban Capital Group, and Franklin Labs.
  • During 2020 Harvest divested a group of select California retail assets and Arkansas retail and cultivation assets.

Recent Developments

  • On January 22, 2021, Harvest recorded the first recreational cannabis sale in the state of Arizona at its Scottsdale location. Harvest began serving adult use customers in addition to medical patients at all 15 of its dispensaries on January 22.
  • On January 25, 2021, Harvest announced the closing of a sale leaseback transaction with Innovative Industrial Properties, Inc. Harvest sold a 292,000 square foot facility for $23.8 million. Harvest will operate the cultivation and processing facility and expects to receive up to $10.8 million in tenant improvements.
  • On February 22, 2021, Harvest announced the divestiture of two medical marijuana dispensaries in Bismarck and Williston, North Dakota for an immaterial amount of cash.
  • On March 15, 2021, Harvest announced the settlement of its dispute with Falcon International, Inc. In accordance with the settlement terms, Harvest now owns a 10% equity stake in Falcon and received a ten year warrant to purchase up to 20% of the company’s shares at an exercise price of $1.91 per share.

Outlook

Harvest is introducing a full year 2021 revenue target of $380 million, including at least $87 million in revenue expected during the first quarter. We remain focused on improving the profitability of our business and we expect our gross margins will continue to trend upwards overall, with some fluctuations from quarter to quarter.

Management Commentary

“Our fourth quarter results and the initial success of recreational sales in Arizona demonstrate the efficacy of our strategy to make targeted investments in our core markets of Arizona, Florida, Maryland, and Pennsylvania” said Chief Executive Officer Steve White. “We are focused on continuing to build on this positive momentum as we execute on our plan in 2021.”

HARVEST HEALTH & RECREATION INC.
Consolidated Balance Sheets
(Amounts expressed in thousands of United States dollars, except share and per share data)
December 31,

2020

December 31,

2019

ASSETS
Current assets:
Cash and cash equivalents $ 78,055 $ 22,685
Restricted cash 4,542 8,000
Accounts receivable, net 5,051 12,147
Notes receivable, current portion 21,556 47,768
Related party notes receivable, current portion 10,052 3,581
Inventory, net 36,862 27,987
Other current assets 5,280 4,788
Total current assets 161,398 126,956
Notes receivable, net of current portion 18,211 34,430
Property, plant and equipment, net 176,827 149,841
Right-of-use assets for operating leases, net 60,843 52,445
Related party right-of-use assets for operating leases, net 5,621 6,321
Intangibles assets, net 272,118 159,209
Corporate investments 19,091
Acquisition deposits 50 3,645
Goodwill 116,041 84,596
Assets held for sale 6,585 2,444
Other assets 19,850 8,114
TOTAL ASSETS $ 856,635 $ 628,001
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current liabilities:
Accounts payable $ 10,755 $ 6,969
Other current liabilities 28,896 22,029
Contingent consideration, current portion 17,985 13,764
Income tax payable 17,504 5,310
Operating lease liability, current portion 2,906 2,244
Related party operating lease liability, current portion 135 428
Notes payable, current portion 20,910 8,395
Total current liabilities 99,091 59,139
Notes payable, net of current portion 244,066 213,181
Warrant liability 20,908 5,516
Operating lease liability, net of current portion 58,637 48,731
Related party operating lease liability, net of current portion 5,595 5,533
Deferred tax liability 53,082 28,587
Contingent consideration, net of current portion 16,249
Total liabilities associated with assets held for sale 718
Other long-term liabilities 63 179
TOTAL LIABILITIES 482,160 377,115
STOCKHOLDERS’ EQUITY
Capital stock 667,248 481,182
Accumulated deficit (293,607) (233,977)
Stockholders’ equity attributed to Harvest Health & Recreation Inc. 373,641 247,205
Non-controlling interest 834 3,681
TOTAL STOCKHOLDERS’ EQUITY 374,475 250,886
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 856,635 $ 628,001
HARVEST HEALTH & RECREATION INC.
Consolidated Statements of Operations
(Amounts expressed in thousands of United States dollars, except share and per share data)
For the three months ended

December 31,

For the twelve months ended

December 31,

2020 2019 2020 2019
Revenue, net of discounts $ 69,922 $ 37,793 $ 231,460 $ 116,780
Cost of goods sold (38,607) (21,224) (129,873) (75,636)
Gross profit 31,315 16,569 101,587 41,144
Expenses
General and administrative 25,284 29,518 99,603 105,966
Sales and marketing 1,604 2,399 4,960 8,937
Share-based compensation 4,147 (1,420) 22,495 17,695
Depreciation and amortization 2,017 1,123 7,920 5,360
Fixed and intangible asset impairments 664 16,977 664 16,977
Total expenses 33,716 48,597 135,642 154,935
Operating loss (2,401) (32,028) (34,055) (113,791)
Other income (expense)
Gain (loss) on sale of assets 12,266 (2,431) 11,752 (2,313)
Other income (expense) 6,962 (7,773) 17,185 (8,286)
Fair value of liability adjustment (14,433) (1,457) (10,125) 5,482
Foreign currency gain (loss) 19 (469) (63) (970)
Interest expense (13,123) (5,164) (38,612) (9,514)
Contract asset recovery (impairment) 1,688 (35,098) (732) (35,098)
Loss before taxes and non-controlling interest (9,022) (84,420) (54,650) (164,490)
Income taxes 1,482 (185) (3,650) (3,756)
Loss from continuing operations before non-controlling interest (7,540) (84,605) (58,300) (168,246)
Net income (loss) from discontinued operations, net of tax 142 (568) (1,278) (568)
Net loss before non-controlling interest (7,398) (85,173) (59,578) (168,814)
Net income (loss) attributed to non-controlling interest 2,159 696 (52) 2,079
Net loss attributed to Harvest Health & Recreation Inc. $ (5,239) $ (84,477) $ (59,630) $ (166,735)
Net income (loss) per share – basic and diluted $ (0.02) $ (0.29) $ (0.16) $ (0.59)
Attributable to Harvest Health and Recreation Inc. $ (0.01) $ (0.29) $ (0.17) $ (0.58)
Attributable to discontinued operations, net of tax $ $ $ $
Weighted-average shares outstanding – basic and diluted 382,489,611 288,919,231 354,757,211 286,626,553

Use of Non-GAAP Financial Measures

This press release includes certain non-GAAP financial measures as defined by the SEC. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP are included below. This information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP. Our management uses adjusted EBITDA to evaluate our operating performance and trends and make planning decisions. Our management believes adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the items that we exclude. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making.

Reconciliation of Non-GAAP Financial Measures

The table below reconciles Net income (loss) to Adjusted EBITDA for the periods indicated.

For the three months ended

December 31,

For the twelve months ended

December 31,

2020 2019 2020 2019
Net loss (GAAP) before non-controlling interest $ (7,398) $ (85,173) $ (59,578) $ (168,814)
Add (deduct) impact of:
Net interest and other financing costs(1) 13,194 5,328 39,013 10,198
Income tax (1,482) 185 3,650 3,756
Amortization and depreciation(2) 2,827 2,002 11,290 7,754
Fixed and intangible asset impairments 664 16,977 664 16,977
(Gain) loss on assets (12,266) 2,431 (11,752) 2,313
Fair value adjustment of liability 14,433 1,457 10,125 (5,482)
Other (income) expense (6,962) 7,773 (17,185) 8,286
Foreign currency (gain) loss (19) 469 63 970
Share-based compensation expense 4,147 (1,420) 22,495 17,695
Contract asset (recovery) impairment (1,688) 35,098 732 35,098
Discontinued operations, net of tax (142) 568 1,278 568
Other expansion expenses (pre-open) 3,648 2,658 12,719 9,770
Transaction & other special charges 136 2,894 1,830 17,200
Adjusted EBITDA (non-GAAP) $ 9,092 $ (8,753) $ 15,344 $ (43,711)
(1) Includes $71, $164, $401, and $684 of interest reported in cost of sales.
(2) Includes $810, $879, $3,370, and $2,394 of depreciation reported in cost of sales.

Forward-looking Statements

This press release contains “forward-looking statements,” within the meaning of United States and Canadian securities laws. Such statements reflect current estimates, expectations and projections about future events and involve risks and uncertainties relating to future events and Harvest’s performance, and actual events may differ materially from these forward looking statements, which may be identified by the use of words such as, “may”, “would”, “could”, “will”, “likely”, “expect”, “anticipate”, “believe, “intend”, “plan”, “forecast”, “project”, “estimate”, “outlook” and other similar expressions. These forward looking statements include, without limitation, statements regarding our expectations for 2021 financial performance and targeted revenue; prospects for revenue growth and profitability in our core markets and in the U.S. cannabis industry generally; our continued growth in retail dispensary openings, same store sales growth, recreational sales in Arizona, and expanded cultivation and manufacturing operations; the development of federal and state cannabis regulatory framework in the United States applicable to multi-state operators, including a delay in, or a failure to, federally decriminalize cannabis in the United States, as well as such frameworks in Harvest’s core markets; adverse changes in the application or enforcement of current laws, including those related to taxation; adverse changes in the public perception of cannabis; the effects of the weather, natural disasters, and health pandemics, including the novel coronavirus (COVID-19) on customer demand, Harvest’s supply chain as well as its consolidated results of operation, financial position and cash flows; the ability of Harvest to develop Harvest’s brand and meet its growth, revenue and profitability projections and objectives; its ability to generate sufficient cash flow to repay debt obligations and to fund operating expenses and future investment; the ability of Harvest to complete planned acquisitions that are accretive to its revenue; the ability of Harvest to obtain and/or maintain licenses 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, the ability of Harvest to raise debt and equity capital in the amounts and at the costs that it expects; the ability to locate and acquire suitable companies, properties or assets necessary to execute on Harvest’s business plans; the ability of Harvest to execute planned store openings and secure cannabis supply at appropriate amounts and cost; fluctuations in the prevailing prices for cannabis and cannabis products in the markets that Harvest operates in and sources supply; its ability to resolve existing and future litigation and arbitrations on acceptable terms; and increasing costs of compliance with extensive government regulation. These risks, uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described herein. In addition, even if the outcome and financial effects of the plans and events described herein are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods.

Forward-looking statements involve significant risks, assumptions, uncertainties and other factors that may cause actual future results or anticipated events to differ materially from those expressed or implied in any forward-looking statements. Please see the heading “Risk Factors” in Harvest’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission and in Harvest’s Annual Information Circular, which was filed on SEDAR, both of which were filed on March 30, 2021, and subsequent filings that Harvest makes with the Securities and Exchange Commission and SEDAR, for a discussion of the material risk factors that could cause actual results to differ materially from the forward-looking information. Harvest does not undertake to update any forward-looking statements that are included herein, except in accordance with applicable securities laws.

(This information is primarily sourced from Harvest Health & Recreation.  Highly Capitalized has neither approved nor disapproved the contents of this news release. Read our Disclaimer here)

 

 

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