PHOENIX--(BUSINESS WIRE)--The Q3 2018 financial and operation results are for the reverse takeover (“RTO”) acquirer of Harvest Health & Recreation, Inc., which is referred to as the Harvest Enterprises Group of Companies (the “Company” or “Harvest”). Harvest is one of the largest multi-state vertically integrated operators in the cannabis industry. The Harvest team brings broad operational expertise in real estate, legislation, permitting, zoning and retail sales. The Company has been successful in winning licensure in non-competitive and competitive application processes throughout the country, winning many licenses across the states in which it operates or is expanding into. Harvest’s ability to navigate complex regulatory pathways that are different in each state, as well as extensive research into each market the Company enters, are key tenets to its success. Harvest has won licenses in every state in which it has applied, underscoring a high success rate.
Financial Highlights for the Third Quarter Ended September 30, 2018
- Total revenue was $11.2 million, an increase of 62%, compared to $6.9 million in Q3 2017.
- Total revenue increased 6% compared to $10.5 million in Q2 2018.
- Gross profit, excluding impact of biological assets, was $5.6 million, an increase of 61%, up from $3.5 million in Q3 2017.
- Gross profit margin, excluding the impact of biological assets, was 50% for Q3 2018 and Q3 2017.
- Adjusted EBITDA1 gain was $3.2 million, compared to a loss of $0.04 million in Q3 2017.
- Net loss was $0.5 million, including a $3.7 million of RTO and expansion related expenses.
Financial Highlights for the Nine Months Ended September 30, 2018
- Total revenue for the nine months ended September 30, 2018 was $30.0 million, an increase of 92%, compared to $15.6 million for the same period in 2017.
- Gross profit, excluding the impact of biological assets, was $17.4 million, an increase of 96% compared to $8.8 million for the nine months ended September 30, 2018.
- Gross profit margin, excluding the impact of biological assets, was 58% for the nine months ended September 30, 2018, compared to 57% in the same period the prior year.
- Adjusted EBITDA1 gain totaled $7.6 million for the nine months ended September 30, 2018, compared to $3.8 million for the same period in 2017.
- Net gain was $3.6 million for the nine months ended September 30, 2018, including $4.8 million of RTO and expansion related expenses.
Year-to-Date Highlights
Capital Markets, Financing Activities and Growth Strategy
-
On November 13, 2018, Harvest raised $218,149,676 in a brokered
private placement. The company has raised nearly $290 million this
year: approximately $50 million of convertible debentures, which
converted into common stock when Harvest completed its RTO,
approximately $20 million of senior debt, and approximately $218
million of equity issuances. The Company plans to use this cash to:
- Continue to expand its commercial 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 an extremely competitive market, 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 on the Canadian Securities Exchange. Harvest now trades under the ticker symbol “HARV”.
Acquisition Activity
- In November, 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 25 dispensaries, as well as a cultivation and production facility in the State of Florida.
- In November, acquired CBx Enterprises LLC, a Colorado intellectual property company (“CBx”). CBx has entered into a licensing agreement with two Colorado cannabis licensed businesses, THChocolate, LLC and Evolutionary Holdings, LLC (collectively, “EvoLab”). EvoLab owns and operates a Colorado medical and adult-use cannabis operation with a medical and retail processing facility located in Denver, Colorado.
Retail Footprint Expansion
- As of September 30, 2018, the Company operated nine retail locations in two states. Significant expansion of cultivation, manufacturing and retails locations will occur in the 4th quarter and throughout 2019.
Balance Sheet and Liquidity
As of September 30, 2018, the Company had $28 million of cash and cash equivalents.
The company has raised nearly $290 million this year: approximately $50 million of convertible debentures, which converted into common stock when Harvest completed the RTO, approximately $20 million of senior debt, and over $218 million of equity issuances.
In the third quarter of this year, the Company issued approximately $50 million of convertible debentures. These debentures converted into common stock upon close of the RTO on November 14, 2018.
On November 14, 2018, the Company received gross proceeds of over $218 million from the completion of its brokered private placement.
In conjunction with the RTO, Harvest has entered into a Letter Credit Agreement to borrow $20 million for a period of three years at an interest rate that is equal to Bank of Nova Scotia Prime plus 10.3% per annum.
Notes:
(1) See "Non-IFRS Financial and Performance Measures" below for more information regarding Harvest's use of Non-IFRS financial measures.
About Harvest Health & Recreation, Inc.
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 and operational expertise — leveraging in-house legal, HR and marketing teams, along with proven experts in writing and winning state-based applications. The company has 425 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 and now has licenses in 11 states, with planned expansion into additional states by 2020. 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/.
Non-IFRS Financial and Performance Measures
In this press release, Harvest refers to certain non-IFRS financial measures such as Adjusted EBITDA, being Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) less certain non-cash equity compensation expense, including one-time transaction fees and all other non-cash items. These measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other issuers.
Adjusted EBITDA gain for the three-month period of $3.2 million is calculated as the Company's income from operations of $1.8 million, plus depreciation and amortization of $0.3 million, and RTO of $1.1 million. For the nine-month period, adjusted EBITDA gain of $7.6 million is calculated as the Company's income from operations of $5.1 million, plus depreciation and amortization of $1.1 million, and RTO of $1.4 million.
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.
|
Harvest Enterprises Group of Companies (RTO Acquirer of Harvest Health & Recreation, Inc.) |
||||||||||
| Unaudited Interim Condensed Combined Statements of Financial Position | ||||||||||
| (Expressed in United States Dollars) | ||||||||||
|
September 30, 2018 |
December 31, 2017 |
|||||||||
|
ASSETS |
||||||||||
|
Current Assets: |
||||||||||
|
Cash and Cash Equivalents |
$ |
28,174,806 |
$ |
1,098,763 |
||||||
|
Accounts Receivable |
1,159,165 |
497,379 |
||||||||
|
Biological Assets |
6,504,822 |
4,441,785 |
||||||||
|
Inventory |
4,921,422 |
1,340,694 |
||||||||
|
Notes Receivable, Current Portion |
300,860 |
-- |
||||||||
|
Other Current Assets |
545,274 |
312,746 |
||||||||
|
Total Current Assets |
41,606,349 |
7,691,367 |
||||||||
|
Notes Receivable, Net of Current Portion |
1,131,770 |
-- |
||||||||
|
Property, Plant and Equipment, Net |
22,640,322 |
21,397,450 |
||||||||
|
Intangibles Assets, Net |
40,417,110 |
30,869,714 |
||||||||
|
Corporate Investments |
5,000,000 |
-- |
||||||||
|
Acquisition Deposits |
3,488,000 |
-- |
||||||||
|
Goodwill |
4,675,619 |
4,675,619 |
||||||||
|
Other Assets |
765,037 |
430,116 |
||||||||
|
TOTAL ASSETS |
$ |
119,724,207 |
$ |
65,064,266 |
||||||
|
LIABILITIES AND MEMBERS' EQUITY |
|
|||||||||
|
LIABILITIES |
|
|||||||||
|
Current Liabilities: |
|
|||||||||
|
Accounts Payable |
$ |
3,271,974 |
$ |
1,344,745 |
||||||
|
Other Current Liabilities |
1,005,561 |
497,496 |
||||||||
|
Income Tax Payable |
5,423,794 |
3,796,367 |
||||||||
|
Notes Payable, Current Portion |
3,104,544 |
2,909,837 |
||||||||
|
Total Current Liabilities |
12,805,873 |
8,548,445 |
||||||||
|
Notes Payable, Net of Current Portion |
56,335,544 |
13,795,275 |
||||||||
|
Deferred Tax Liability |
552,200 |
552,200 |
||||||||
|
Deferred Compensation |
859,625 |
859,625 |
||||||||
|
Other Long-Term Liabilities |
305,263 |
336,842 |
||||||||
|
TOTAL LIABILITIES |
70,858,505 |
24,092,387 |
||||||||
|
MEMBERS' EQUITY |
44,071,135 |
40,447,946 |
||||||||
|
NON-CONTROLLING INTEREST |
4,794,567 |
523,933 |
||||||||
|
TOTAL MEMBERS' EQUITY |
48,865,702 |
40,971,879 |
||||||||
|
TOTAL LIABILITIES AND MEMBERS' EQUITY |
$ |
119,724,207 |
$ |
65,064,266 |
||||||
|
Harvest Enterprises Group of Companies |
||||||||||||||||||||||||
|
Unaudited Interim Condensed Combined Statements of Operations |
||||||||||||||||||||||||
|
(Expressed in United States Dollars) |
||||||||||||||||||||||||
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||||||||||
|
2018 |
2017 |
2018 |
2017 |
|||||||||||||||||||||
| Revenue | $ | 11,153,726 | $ | 6,881,604 | $ | 30,012,392 | $ | 15,615,722 | ||||||||||||||||
| Cost of Goods Sold | (5,565,725 | ) | (3,420,651 | ) | (12,642,080 | ) | (6,774,484 | ) | ||||||||||||||||
| Gross Profit Before Biological Asset Adjustments | 5,588,001 | 3,460,953 | 17,370,312 | 8,841,238 | ||||||||||||||||||||
| Unrealized Gain on Changes in Fair Value of Biological Asset | 5,690,989 | 885,082 | 5,690,989 | 885,082 | ||||||||||||||||||||
| Cost of Goods Sold on Biological Asset Transformation | (2,132,896 | ) | (1,190,162 | ) | (3,558,987 | ) | (111,242 | ) | ||||||||||||||||
| Gross Profit | 9,146,094 | 3,155,873 | 19,502,314 | 9,615,078 | ||||||||||||||||||||
|
Expenses |
||||||||||||||||||||||||
| General and Administrative | 6,571,065 | 3,006,126 | 12,357,167 | 5,447,133 | ||||||||||||||||||||
| Sales and Marketing | 485,915 | 189,415 | 922,972 | 410,693 | ||||||||||||||||||||
| Depreciation and Amortization | 341,773 | 143,910 | 1,077,855 | 226,730 | ||||||||||||||||||||
|
Total Expenses |
7,398,753 | 3,339,451 | 14,357,994 | 6,084,556 | ||||||||||||||||||||
|
Operating Income |
1,747,342 | (183,578 | ) | 5,144,320 | 3,530,522 | |||||||||||||||||||
|
Other Income / (Expenses) |
||||||||||||||||||||||||
| Gain on Sale of Asset | 34,684 | -- | 1,560,953 | -- | ||||||||||||||||||||
| Interest Expense | (486,645 | ) | 16,113 | (791,888 | ) | (96,372 | ) | |||||||||||||||||
|
Income Before Taxes and Non-Controlling Interest |
1,295,380 | (167,465 | ) | 5,913,385 | 3,434,150 | |||||||||||||||||||
| Income Taxes | (1,034,247 | ) | (872,047 | ) | (2,453,706 | ) | (1,646,370 | ) | ||||||||||||||||
|
Income Before Non-Controlling Interest |
261,133 | (1,039,512 | ) | 3,459,679 | 1,787,780 | |||||||||||||||||||
|
Loss (Income) Attributed to Non-Controlling Interest |
(714,137 | ) | 265,511 | 163,510 | 534,884 | |||||||||||||||||||
|
Net Income (Loss) Attributed to Harvest Enterprises Group of Companies |
$ |
(453,004 |
) |
$ |
(774,001 |
) |
$ |
3,623,189 |
|
$ |
2,322,664 |
|
||||||||||||
| Reconciliation to Adjusted EBITDA | ||||||||||||||||||||||||
| Operating Income (Loss) | 1,747,342 | (183,578 | ) | 5,144,320 | 3,530,522 | |||||||||||||||||||
| Depreciation and Amortization | 341,773 | 143,910 | 1,077,855 | 226,730 | ||||||||||||||||||||
| RTO Expenses | 1,085,014 | -- | 1,413,617 | -- | ||||||||||||||||||||
|
Adjusted EBITDA |
3,174,129 |
(39,668 |
) |
7,635,792 |
3,757,252 |
|||||||||||||||||||
