Harvest Health looks ready to run, says Beacon Securities

US multi-state operator Harvest Health and Recreation (Harvest Health and Recreation Stock Quote, Chart, News CSE:HARV) is showing good progress on three of its significant acquisitions, says Russell Stanley, analyst at Beacon Securities.

In a report to clients on Tuesday, Stanley reiterated his “Buy” recommendation and C$26.00 target on Harvest Health, which represented a projected 12-month return of 416 per cent at the time of publication.

Tempe, Arizona-based Harvest Health on a pro forma basis controls licenses for over 210 cultivation, manufacturing and retail facilities across the United States, with a footprint covering 18 states and territories and including 135 dispensary licenses.

The company made an announcement on Tuesday by way of providing an update on three of its acquisitions: one being Falcon International, a California-based cannabis company with experience in cultivation, manufacturing, wholesale distribution and brand development, another being Chicago-based Verano Holdings and the third being CannaPharmacy, which owns or operates through management companies cannabis licenses in Pennsylvania, Delaware, New Jersey and Maryland, along with a minority interest in a
pending licensee in Colombia.

On the Falcon acquisition, HARV says that the deal should be done soon after a 30-day waiting period on a US Department of Justice request for information, which should expires around October 23. The deal will expand HARV’s presence in California’s cannabis market.

On the Verano deal, management says that they are nearing certification on substantial compliance with a second request from the DOJ, with the transaction expected to close by year-end. On CannaPharmacy, the company is waiting for certification of compliance from CannaPharmacy, after which the 30-day waiting period will begin.

All in all, HARV says the three transactions should be done by year’s end.

“In this dynamic industry we continue to evaluate our organization and drive towards our goal to build the best team in cannabis. These game-changing transactions not only bring revenue and compelling assets to our portfolio, even more importantly, they bring very talented operational executives and key leadership to the Harvest family,” wrote Harvest CEO Steve White in a press release.

Stanley is viewing the update as a positive for the stock, saying that the next 30 to 45 days should be “particularly active” on the news front for Harvest Health.

Going forward, Stanley thinks that HARV will generate fiscal 2019 revenue and attributable EBITDA of $143 million and negative $10 million, respectively, and fiscal 2020 revenue and attributable EBITDA of $956 million and $293 million, respectively.

The analyst says that HARV is due for some upward momentum. “HARV is testing the bottom end of the downward trend channel that began in March/April, which could prove to be a meaningful support level. Should this support hold, there is little obvious resistance before $6.60 per share, allowing for a potential 25-30 per cent run,” writes Stanley.

“The stock now trades at 6x our F2020 EBITDA estimate, representing a 55 per cent discount to the 14x at which the broad peer group trades, and a 47 per cent discount to the 11x average amongst US operating companies,” he writes.