Prospects are not looking good for cannabis name Harvest One (Harvest One Stock Quote, Chart, News TSXV:HVT), according to Haywood Capital Markets analyst Neal Gilmer, who reviewed the company’s latest quarter in an update to clients on Wednesday.
The conclusion? Sell, says Gilmer.
Vancouver-based Harvest One has a number of wholly-owned subsidiaries in the cannabis space, including licensed producer United Greeneries, medial and nutraceutical business Satipharm as well as health product companies Dream Water Global and Delivra.
The stock has been decimated over the past 12 months during the downturn in the cannabis market, losing upwards of 93 per cent of its value over that span.
Harvest One delivered a strategic update and announced its fiscal second quarter 2020 results on Monday, reporting net revenue down 57 per cent from the previous quarter to $1.8 million.
The drop was precipitated by product returns, pricing adjustments and smaller provincial orders compared to the previous year. HVT’s adjusted EBITDA was a loss of $4.9 million.
This past November, the company announced a strategic plan to cut down on SG&A expenses and has since instigated a more than 20-per-cent reduction in its workforce, a salary reduction at the management level, downsizing of corporate offices and the implementation of remote workforce programs. Harvest says the results should be a 30 per cent reduction in SG&A, to which in February the company added the sale of non-core assets including a 19.99 interest in Burb Cannabis and the sale of a 398-acres site in
"In light of industry challenges, Harvest One realigned its strategy to focus on our core strengths of brands and distribution and undertook significant cost cutting initiatives to rightsize the organization,” wrote CEO Grant Froese in a press release.
“We anticipate a strong rollout of our Cannabis 2.0 products, specifically our LivRelief cannabinoid-infused topical creams, which are in strong demand from retailers. We remain focused on solidifying our balance sheet with additional sales of non-core assets and continuing to evaluate various financing alternatives. We are confident that we are taking all the necessary steps to reduce costs and move the Company towards profitability,” he said.
For his part, Gilmer says that the Q2 came in below expectations, where the analyst was calling for revenue of $5.5 million and an adjusted EBITDA loss of $3.5 million. In his report, Gilmer noted that despite poor results from Harvest’s Cultivation and Medical and Nutraceutical segments, the Consumer division grew by 11 per cent in the quarter.
Yet, the glaring issue is the company’s need for more capital, says Gilmer. Ending the Q2 with $0.8 million in cash and having since raised $2.3 million through the sale of non-core assets, but Gilmer says the company needs more funds to support its operations.
“Harvest One has an immediate need to address its capital requirements and, as a result, the outlook for future financial results is more uncertain, depending on size of financing and working capital requirements to support operations,” Gilmer wrote. “We have materially lowered our estimates and highlight the high risk to our estimates given the constrained balance sheet.”
The analyst has lowered his rating from “Hold” to “Sell” and dropped his price target from $0.20 to $0.05, representing at press time a projected return of negative 41 per cent.