GMP launches coverage of Harvest Health & Recreation with a “Buy” rating

US cannabis play Harvest Health & Recreation (Harvest Health & Recreation Stock Quote, Chart CSE:HARV) has emerged from the pack as the industry’s most aggressive acquirer, says analyst Robert Fagan of GMP Securities, who on Wednesday launched coverage of the company with a “Buy” rating and C$18.50 target price, representing a projected 12-month return of 86.9 per cent at the time of publication.

A cannabis cultivator, manufacturer and retailer, multi-state operator Harvest Health has historically had its core operations in Arizona — it opened its first dispensary in Tempe, AZ, in 2013 —but over the past year has spread out across 16 states, currently with 28 stores open and an estimated 136 dispensary licenses. That goes along with a production footprint of approximately 550,000 square feet, allowing for vertical integration approaching 50 per cent in some states.

Fagan’s bullish stance is based on, first, the company’s impressive track record of license winning, giving it a sustainable competitive advantage; second, HARV’s aggressive acquisition approach, which should do well within the highly fragmented US cannabis industry (and should lead to multiple future catalysts for the stock); and, third, its portfolio of 136 licenses, which is twice its peer average, should lead to a robust retail growth pipeline, the best in the industry, says Fagan.

“We visited some of HARV’s operations during a recent tour in Arizona, which provided a good viewpoint into the solid operating procedures developed over a long track record (about six years) of success in its core markets, thus supporting our view that HARV is not only an aggressive industry consolidator but a strong operator as well. This bodes well for HARV’s capability to spread its best practices across its platform,” says Fagan.

The analyst points out that Harvest Health’s management is calling for 2020 proforma revenues of between $900 million and $1 billion, one of the most bullish outlooks that he has encountered to date among US MSO’s. Fagan is more conservative, however, calling for fiscal 2019 revenue and EBITDA of $202.7 million and $20.3 million, respectively, and 2020 revenue and EBITDA of $800.3 million and $253.3 million, respectively. (All figures in US dollars unless noted otherwise.)