Stone Fox Capital

About the Author Stone Fox Capital

Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry and exit points. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Invest with Stone Fox Capital's model Net Payout Yields portfolio on IB Asset Management as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: Follow Mark on twitter: @stonefoxcapital

Marijuana Stock Harvest Health (HRVSF) Takes the Lead

The Q1 results confirm Harvest Health & Recreation (HRVSF) is positioned to take the market lead in the domestic cannabis sector. Within months, the Arizona-based cannabis company has gone public via an RTO and acquired numerous businesses to create massive scale. The market has yet to catchup to these facts providing the opportunity as the Canadian companies still grab the headlines.

Only Starting

For Q1, Harvest Health reported modest revenues of $19.2 million. Revenue only grew 14% compared to the prior quarter when some industry players are doubling revenues sequentially.

The key to the story is that Harvest Health is only getting started. The company had an incredible pro-forma revenue base of $51 million when including the operations of acquisitions of Falcon, Verano, Devine and CannaPharmacy that are in the works.

Just as important, the cannabis company only had 13 retail locations in 5 states open at the end of March. Harvest Health expects to have the largest footprint in the U.S. with rights to 230 facilities that include 142 retail locations covering 17 states. The company expects to double retail locations in the next few months.

One big question that is likely holding down the stock below $7 is the soaring expense structure. One of the benefits to the U.S. stocks over the Canadian industry was a stronger focus on cost control.

For the quarter, Harvest Health slipped to an adjusted EBITDA loss of $4.7 million. The net loss soared to $20.0 million as hiring and expanding operations boosted general and administrative expenses to $18.4 million.

A big part of the increases was from transaction costs and share-based compensation costs that are non-cash, but the company still saw financials impacted by rapid expansion plans. The market should eventually look past these losses, if the company can trim them as the deals close and Harvest Health turns them into operating efficiencies.

Stock Price

A key to the story and whether the stock hits the GMP Securities target of doubling to ~$14 is based solely on returning the financials to the black in a meaningful way. The company is already generating pro-forma annualized revenues of $200 million making the $350 million 2019 revenue target and $900 million 2020 target as possible.

The stock only has a market cap topping $3 billion once the deals close providing an incredible value to shareholders. If the company hit 30%+ EBITDA margins as forecast on revenues approaching $1 billion in 2020, the stock is only trading at a level approaching 10x those EBITDA targets for next year. The stock market normally offers valuation 2-3x those levels for a fast growing company.


The key investor takeaway is that Harvest Health continues to build a market leader in the large domestic cannabis sector. As 2019 progresses and the company closes all of the outstanding deals, the scale of Harvest Health will start grabbing more market attention.

The biggest catalyst remains federal approval of cannabis in the future and an uplisting of the stock. As long as the stock doesn’t trade above daily volumes in the millions like the Canadian stocks listed on major stock exchanges, Harvest Health remains a relatively unknown stock. With the 30% dip from the April highs at $10, the stock remains one of the hidden gems in the cannabis sector.

To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.

Disclosure: No position. 



Stay Ahead of Everyone Else

Get The Latest Stock News Alerts