Harvest Health CEO: Second Quarter Results Exceeded Expectations
Harvest Health & Recreation (CSE: HARV, OTCQX: HRVSF) announced Tuesday its second quarter financial results, reporting a net loss of $18.3 million, a slight improvement over the $20 million it lost during the first quarter of 2020.
The vertically integrated cannabis firm, which operates 35 dispensaries in seven states, said quarter over quarter revenue increased 26%, to $55.7 million. Growth was driven by increased sales in existing stores, as well as expanded cultivation and manufacturing capabilities and contributions from previously announced acquisitions.
During a call with investors and analysts, Harvest founder and chief executive Steve White said his firm’s Q2 results “exceeded expectations.”
“Revenue was up significantly, we quickly and meaningfully reduced costs, our adjusted EBITDA turned positive earlier than expected, and we haven’t seen a single one of our core markets expand to allow recreational sales yet,” he said.
Indeed, Harvest’s gross profit grew from $18.1 million in Q1 to $23.4 million in Q2, while overhead decreased, resulting in a positive adjusted EBITDA totaling $4.1 million versus a loss of $3.6 million in Q1.
"Our improved financial results during the second quarter demonstrate continued progress toward our primary goal of returning to profitability through revenue growth, cost reduction measures and investments in core markets Arizona, Florida, Maryland, and Pennsylvania," White said via a news release. "We are continuing to build on this positive momentum as we execute on our plan."
Speaking during the Q2 call, White noted that Harvest has so far opened or acquired fewer retail locations in 2020 compared to last year. However, strong same store sales, expansions in core markets and cost reductions have enabled the company to “streamline the business for greater efficiency.”
“We still believe that we have additional opportunities to further reduce costs while growing the business, and we expect to demonstrate further progress in the future,” he said, noting that the company had approximately $62 million in cash and $291 million in debt.
According to recently appointed chief financial officer Deborah Keeley, same store sales increased 29% sequentially at 31 of its stores that were open in both Q1 and Q2.
“During this second quarter, we realized a 4% increase in traffic and 24% increase in basket size compared to the first quarter,” she said.
For his part, White speculates that some of the “bumps” the company saw in Q2 could have come from the distribution of federal stimulus checks.
“We don’t know if that is going to happen in Q3 or Q4,” he said. “We hope it is, but we don’t have any idea.”
Meanwhile, at the state level, Harvest said it would continue to focus on Arizona, Florida, Maryland and Pennsylvania, markets where it spent nearly $14 million on capital expenditures during the first half of 2020 and derived about 84% of its revenue in Q2.
“Our home state of Arizona is one of the fastest growing medical markets in the U.S.,” White said. “The number of qualified patients as of May 2020 was over 245,000, of 23% from a year earlier. Total marijuana sold year-to-date through May 2020 was almost 82,000 pounds, up 30% from the same time period and in 2019.”
Harvest is the largest medical marijuana retailer in Arizona, with 14 open dispensary locations and five cultivation and manufacturing facilities throughout the state. The company also has a combined 14 operating dispensaries in Florida (6), Maryland (3), and Pennsylvania (5).
"We firmly believe that investing in markets with favorable regulatory frameworks, and limited licenses to operate, afford the company the best opportunity to return to profitability in the near-term," White added.
Founded in 2011, Harvest now has over 950 employees, 35 retail stores and 12 cultivation and procession locations, according to its most recent investor presentation. It projects that 2020 revenue could reach $220 million.
Additional information can be found in Harvest's news release.