Harvest Health & Recreation has a big upside, says Beacon Securities

A new acquisition by US cannabis company Harvest Health & Recreation (Harvest Health Stock Quote, Chart CSE:HARV) would position it strongly within New Jersey’s pot market, says Russell Stanley, analyst for Beacon Securities, who on Wednesday maintained his “Buy” recommendation and C$23.00 target for HARV.

Announced on Tuesday, the planned acquisition is of CannaPharmacy, which owns or operates cannabis licenses in Pennsylvania, Delaware, New Jersey and Maryland, as well as holding a minority interest in a pending licensee in Columbia. The purchase price has not been disclosed, as it falls under the materiality threshold of five per cent of market cap.

Stanley notes that CannaPharmacy is one of six companies operating in New Jersey, where, if and when HARV completes another announced acquisition of Verano Holdings, HARV will hold two of just 12 vertically integrated licenses in the state. That sets up Harvest Health well in the New Jersey market, he says.

The analyst thinks HARV is trading at a discount to its cannabis peers.

“After making new highs with a C$13.98/sh closing price last Wednesday, the stock retreated 16 per cent to close at C$11.75/sh last night. It is now trading at approximately 15x our 2020E EBITDA estimate, which reflects a 60-per-cent discount to the 39x average amongst companies with a C$1 billion-plus market capitalization. However, we note that we are not yet including the Verano or CannaPharmacy transactions in our model, pending additional colour on what their potential revenue/EBITDA contributions might be,” says Stanley.

The analyst is expecting HARV to generate fiscal 2019 revenue and Attrib. EBITDA of $183 million and $46 million, respectively, and 2020 revenue and Attrib. EBITDA of $521 million and $171 million, respectively. (All figures in US dollars unless noted otherwise.) His target represents a projected return of 89 per cent at the time of publication.