Harvest Health and Recreation has one of the industry’s strongest balance sheets: GMP

A new financing for Harvest Health and Recreation (Harvest Health and Recreation News, Stock Quote, Chart CSE:HARV) is a positive, says GMP Securities analyst Robert Fagan.

This morning, HARV announced a (US) $225-million secured loan from a fund managed by U.S.-based Torian Capital Partners.

“Harvest is in a strong financial position in the cannabis industry and this growth capital, which we believe is provided at an attractive financing cost will enable us to deliver on our commitment to enhance shareholder value,” CEO Steve White said. “This transaction positions us well for the strategic acquisition of assets across the cannabis supply chain. With greater financial flexibility, we are better equipped to execute our strategy to aggressively expand our retail and wholesale footprint across the U.S. into key markets, while seeking to build and acquire brands for broad distribution.”

Harvest Health and Recreation: stock is undervalued, says analyst

Fagan says this is a clear positive and makes HARV an industry leader in at least one metric.

“With this non-convertible debt financing potentially replacing its convertible debt facility, HARV seems to have improved its cost of capital while removing potential share dilution, in our view, with a similarly large source of funds,” the analyst writes. “We estimate HARV is effectively reducing its cost of capital from ~20% to ~13% with this new debt facility, roughly in line with similarly structured debt financings recently. As a result of today’s financing, we believe HARV’s proforma cash balance is amongst the strongest in the industry at ~$300m.”

In a research “Flash” update to clients today, Fagan maintained his “Buy” rating and one-year price target of $18.50 on Harvest Health and Recreation, implying a return of 159.1 per cent at the time of publication.