Total revenue for the three and 12 months ended December 31, 2018
increased 135% and 106%, respectively, from prior year.
Total revenue for Q4 2018 increased 52% compared to Q3 2018.
The Company continues to operate profitably; Adjusted EBITDA for
the 12 months ended December 31, 2018 was $10.3 million (all dollars
are in U.S. dollars, except where noted).
In 2018, successfully raised almost $300 million of funds,
primarily consisting of: $50 million in convertible equity notes, $20
million in senior debt and $218 million in a brokered private
placement.
PHOENIX--(BUSINESS WIRE)--Harvest
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Health & Recreation, Inc. (CSE: HARV,
HRVSF), a vertically-integrated and highly diversified cannabis
company with strong financial and growth profiles, today reported the
company’s fourth quarter fiscal year 2018 financial results. Harvest has
continued to be successful in winning licenses 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 are paramount to its success.
Management Commentary
“2018 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 fueling the revenue growth of
the company.”
Financial Highlights for the Fourth Quarter Ended December 31, 2018
Total revenue was $16.9 million, an increase of 135%, compared to $7.2
million in Q4 2017.
Total revenue increased 52% compared to $11.2 million in Q3 2018.
Gross profit, excluding impact of biological assets, was $7.2 million,
an increase of 342%, up from $1.6 million in Q4 2017.
Gross profit margin, excluding the impact of biological assets, was
42% and 23%, respectively, for Q4 2018 and Q4 2017.
Adjusted EBITDA was $2.6 million, compared to $2.2 million in Q4 2017.
Net loss was $71.1 million, for the three months ended December 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 December 31, 2018
Total revenue for the 12 months ended December 31, 2018 was $47.0
million, an increase of 106%, compared to $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% compared to $10.5 million for the 12
months ended December 31, 2017.
Gross profit margin, excluding the impact of biological assets, was
52% for the 12 months ended December 31, 2018, compared to 46% in the
same period the prior year.
Adjusted EBITDA totaled $10.3 million for the 12 months ended December
31, 2018, compared to $6.0 million for the same period in 2017.
Net loss was $67.5 million for the 12 months ended December 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 November 13, 2018, Harvest raised $218.1 million in a brokered
private placement. In 2018, the company raised approximately $300
million comprised primarily of: $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 licenses and successfully receive them in extremely
competitive markets, further establishing management’s credibility
through a consistent track record of complying with the industry’s
stringent regulations.
Make selective acquisitions of facilities and brands.
On November 14, 2018, the Company completed the RTO and listed its
subordinated voting shares on the Canadian Securities Exchange (the
“CSE”). Harvest trades on the CSE under the ticker symbol “HARV” and
on the OTCQX under the symbol “HRVSF.”
Acquisition Activity
In November 2018, acquired CBx Enterprises LLC, a Colorado
market-leader and intellectual property company (“CBx”). This expanded
our brand offering, giving us market-leading manufactured products and
added depth to our manufacturing team.
In November 2018, acquired San Felasco Nurseries, Inc. (“San
Felasco”), a holder of a medical marijuana license and authorized to
operate as a Medical Marijuana Treatment Center in the state of
Florida. Each Medical Marijuana Treatment Center is allowed to operate
up to 35 dispensaries, as well as a cultivation and production
facility in Florida.
In February 2019 announced pending acquisition of Falcon International
Corp, a California vertically-integrated operator currently serving
more than 80% 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 our portfolio and is expected to add key
personnel to our team.
In February 2019 entered into a binding agreement to acquire six
licenses in Arizona from Devine Holdings, Inc., adding to our national
footprint and further deepening our market share in our home state.
In March 2019 announced pending acquisition of Verano Holdings, LLC
(“Verano”), one of the largest privately held multi-state, vertically
integrated licensed operators of cannabis facilities. Upon completion
of the acquisition it is expected to add licenses throughout the
Midwest and East Coast, add edibles to our brand suite, and expected
to further strengthen our senior management team.
In April 2019 announced pending acquisition of CannaPharmacy with
assets in New Jersey, Pennsylvania, Delaware and Maryland.
Retail Footprint Expansion
As of December 31, 2018, the Company operated ten retail locations in
four states. Significant expansion of cultivation, manufacturing and
retail locations will occur throughout 2019.
Balance Sheet and Liquidity
As of December 31, 2018, the Company had $191.9 million of cash and
cash equivalents.
As of December 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, we had a few large non-cash expense items. The largest
one was the conversion of convertible equity notes, which we raised
prior to our RTO, into equity at our RTO. Our equity value increased
between the time we issued the notes and the time we completed our
RTO. IFRS requires that we 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 we expensed $3.29 per share times 15 million
shares that were issued upon conversion of the notes.
Please see the supplemental information (unaudited) regarding Non-IFRS
Financial Measures at the end of this press release.
Conference Call and Webcast
Harvest Health and Recreation, Inc. 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 23rd at 8:00am ET.
To participate in the conference call, please dial:
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Registration is required; please dial in at least ten minutes prior to
the scheduled start time.
The conference call will be available for replay for 3 months at:
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Three Months Ended | Twelve Months Ended | ||||||||||||||||||
December 31, | December 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 | (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 Inc. | $ | (71,088 | ) | $ | 1,268 | $ | (67,465 | ) | $ | 3,591 | |||||||||
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ASSETS | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 191,883 | $ | 1,099 | |||||
Restricted cash | 8,000 | - | |||||||
Accounts receivable | 2,993 | 497 | |||||||
Notes receivable, current portion | 13,600 | - | |||||||
Biological assets | 6,788 | 4,442 | |||||||
Inventory | 23,177 | 1,341 | |||||||
Other current assets | 1,810 | 313 | |||||||
Total current assets | 248,251 | 7,692 | |||||||
Notes receivable, net of current portion | 3,076 | - | |||||||
Property, plant and equipment, net | 31,855 | 21,397 | |||||||
Intangibles assets, net | 112,830 | 30,870 | |||||||
Corporate investments | 5,000 | - | |||||||
Acquisition deposits | 1,350 | - | |||||||
Goodwill | 69,407 | 4,676 | |||||||
Other assets | 6,831 | 430 | |||||||
TOTAL ASSETS | $ | 478,600 | $ | 65,065 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
LIABILITIES | |||||||||
Current liabilities: | |||||||||
Accounts payable | $ | 4,694 | $ | 1,345 | |||||
Other current liabilities | 6,715 | 499 | |||||||
Contingent consideration, current portion | 11,520 | - | |||||||
Income tax payable | 4,120 | 3,796 | |||||||
Notes payable, current portion | 11,806 | 2,910 | |||||||
Total current liabilities | 38,855 | 8,550 | |||||||
Notes payable, net of current portion | 19,098 | 13,795 | |||||||
Deferred tax liability | 18,173 | 552 | |||||||
Contingent consideration, net of current portion | 18,190 | - | |||||||
Other long-term liabilities | 4,486 | 1,196 | |||||||
TOTAL LIABILITIES | 98,802 | 24,093 | |||||||
Capital stock | 435,495 | 34,253 | |||||||
Accumulated (deficit) earnings | (61,269 | ) | 6,195 | ||||||
STOCKHOLDERS' EQUITY | 374,226 | 40,448 | |||||||
NON-CONTROLLING INTEREST | 5,572 | 524 | |||||||
TOTAL STOCKHOLDERS' EQUITY | 379,798 | 40,972 | |||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 478,600 | $ | 65,065 | |||||
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) Income to Adjusted EBITDA for the
periods indicated.
Three Months Ended | Twelve Months Ended | ||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||
Net (loss) income (IFRS) before minority interest | $ | (71,525 | ) | $ | 2,327 | $ | (68,066 | ) | $ | 4,115 | |||||||||
Add (deduct) impact of: | |||||||||||||||||||
Net interest and other financing costs | 885 | 275 | 1,677 | 371 | |||||||||||||||
Income tax | 1,423 | 444 | 3,877 | 2,090 | |||||||||||||||
Amortization and depreciation | 466 | 623 | 1,544 | 850 | |||||||||||||||
(Gain)/Loss On Assets | 995 | (1,423 | ) | (566 | ) | (1,423 | ) | ||||||||||||
Fair Value Adjustment of Liability | 50,716 | - | 50,716 | - | |||||||||||||||
Foreign Currency Gain | (512 | ) | - | (512 | ) | - | |||||||||||||
Share-Based Compensation Expense | 1,545 | - | 1,545 | - | |||||||||||||||
Other Expansion Expenses (Pre-Opening) | 5,876 | - | 5,876 | - | |||||||||||||||
Transaction & Other Special Charges | 12,760 | - | 14,174 | - | |||||||||||||||
Adjusted EBITDA (non-IFRS) | $ | 2,629 | $ | 2,246 | $ | 10,265 | $ | 6,003 | |||||||||||
About Harvest Health and Recreation
Harvest Health & Recreation Inc. is one of the first consistently
profitable, vertically integrated cannabis companies with one of the
largest footprints in the U.S. 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, HR and marketing
teams, along with proven experts in writing and winning state-based
applications. The company has more than 750 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
is comprised of leaders in finance, compliance, real estate and
operations. Since its founding in 2011, Harvest has grown its footprint
every year, has been ranked as the third largest cultivator in the U.S.
and, subject to completion of announced acquisitions, will have rights
to operate up to 200 facilities, of which 123 are retail locations,
across the U.S. Harvest shares timely updates and releases as part of
its regular course of business with the media and the interested public.
For more information, visit: https://www.harvestinc.com/.
Forward-Looking Information
Certain statements in this press release are forward-looking statements
and are prospective in nature. Forward-looking statements are not based
on historical facts, but rather on current expectations and projections
about future events, many of which, by their nature, are inherently
uncertain and outside of the Company's control and are therefore subject
to risks and uncertainties which could cause actual results to differ
materially from the future results expressed or implied by the
forward-looking statements.
These statements generally can be identified by the use of
forward-looking words such as "may", "should", "will", "could",
"intend", "estimate", "plan", "anticipate", "expect", "believe" or
"continue", or the negative thereof or similar variations.
Forward-looking statements in this news release include, but are not
limited to, information concerning the ability of the Company to
successfully achieve business objectives, and expectations for other
economic, business, and/or competitive factors. Those assumptions and
factors are based on information currently available to the Company.
Although management of the Company has attempted to identify important
factors that could cause actual results to differ materially from those
contained in forward-looking statements or forward-looking information,
there may be other factors that cause results not to be as anticipated,
estimated or intended. Among the key factors that could cause actual
results to differ materially from those projected in the forward-looking
information and statements are the following: the ability of the Company
to develop the Company's brand and meet its growth objectives, the
ability of the Company to complete acquisitions that are accretive to
the Company's revenue, the ability of the Company to obtain and/or
maintain licenses to operate in the jurisdictions in which it operates
or in which it expects or plans to operate. Should one or more of these
risks, uncertainties or other factors materialize, or should assumptions
underlying the forward-looking information or statements prove
incorrect, actual results may vary materially from those described
herein as intended, planned, anticipated, believed, estimated or
expected. There can be no assurance that such statements will prove to
be accurate, as actual results and future events could differ materially
from those anticipated in such statements. Readers should not place
undue reliance on forward-looking statements and forward-looking
information. The forward-looking information contained in this release
is made as of the date hereof and the Company assumes no obligation to
update or revise any forward-looking statements or forward-looking
information that are incorporated by reference herein, whether as a
result of new information, future events or otherwise, except as
required by applicable securities laws.
The foregoing statements expressly qualify any forward-looking
information contained herein. All subsequent written and oral
forward-looking information and statements attributable to the Company
or persons acting on its behalf is expressly qualified in its entirety
by this notice.
Additional Information
The financial information reported in this news release is based on
unaudited management prepared financial statements for the year ended
December 31, 2018. Accordingly, such financial information may be
subject to change. The audit process is nearly complete and
fully-audited financial statements for the period will be released and
filed under the Company’s profiles on SEDAR at www.SEDAR.com by
April 30, 2019. All financial information contained in this news release
is qualified in its entirety with reference to such audited 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 audited financial statements, the financial information
contained in this news release shall be deemed to be modified or
superseded by the Company’s audited 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.
Contacts
Alex Howe, Head of Corporate Communications
(202) 271-7997