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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

Time to Buy the Dip in Marijuana Stock Harvest Health & Recreation

In the last month, some of the excitement has disappeared from the cannabis sector as some promises about federal regulation in the U.S. has slowly dissipated. A stock like Harvest Health & Recreation (HRVSF) is down about 25% from the April highs of $10.00 to $7.50 providing the ideal time to enter the cannabis stock while federal approval lingers.

Don’t Forget The Story

The stock market is still so focused on the Canadian LPs that people forget the story of multi-state operators (MSOs). Harvest Health wants to become the world’s most valuable cannabis company via dominating the largest cannabis market.

The company has plans to reach 100 dispensaries in 14 states by 2020. Harvest Health has additional deals in place with rights to licenses for up to 142 dispensaries and 219 facilities in 17 states and territories.

The company plans to open 23 of these retail locations in the time from only April to July. A big catalyst for the stock will be when Harvest Health reports Q1 numbers and provides some updated guidance on the current quarter that is already about 60% complete. As actual revenues expands rapidly form the $16.9 million reported in Q4, the market will catch more onto this growth story.

Bold Call Isn’t Actually Bold

GMP Securities has the stock targeted to reach C$18.50 in the next year. Analyst Robert Fagan is bullish on Harvest Health for the same reasons that make us bullish on the stock and the MSOs, in general. The rapid expansion and growth in the U.S market and relatively under the radar stocks make for a compelling investment.

The company has forecast pro-forma revenues of up to $1 billion in 2020. The bullish GMP Securities call actually is far more conservative with revenues estimates of $800 million and EBITDA of $250 million.

Either way, the stock is a huge bargain with a current value of only $2 billion based on current shares outstanding. The share count will soar when the pending deals for Falcon, Verano and CannaPharmacy close.

Either way, a fully diluted stock valuation that might approach $3 billion is highly attractive in a market where similar revenue targets for the Canadian LPs generate market values in the $10+ billion range. Even more, a stock valuation of about 12x EBITDA would be incredibly cheap for revenues surging at rates still exceeding 100% of the 2019 revenues targets of $350 to $400 million.

The reality is that the price target would probably exceed what amounts to ~$14, if the company hits their internal revenue targets.


The key investor takeaway is that Harvest Health plays exactly in the realm of our prime catalysts for cannabis stocks in 2019: U.S. federal approval and stock uplisting to a major stock exchange plus rapid expansion in the U.S. cannabis market. As the year progresses and the company reports additional quarterly earnings reports along with closing major deals like Verano, the market will become far more familiar with the company name and stock.

The GMP Securities target of ~$14 is a good starting point for investors. Any ability of Harvest Health to top this analyst estimate of 2020 revenues of $800 million would provide further upside to the stock that trades closer to $7 now for nearly 100% upside as just a baseline.

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


Disclosure: The author has no positions in Harvest Health & Recreation stock.

Read more: Health & Recreation Is Very Appealing Based on Long-Term Bullish Fundamentals


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