Harvest Health has lots of upside, says Beacon Securities

It’s six up and running and nine more to go for Harvest Health & Recreation (Harvest Health Stock Quote, Chart, News CSE:HARV), which just opened its sixth retail location in Pennsylvania.

Reflecting on the event in an update to clients Wednesday, Beacon Securities analyst Russell Stanley
said Pennsylvania offers a strong medical market along with the potential for rec use coming up.

Arizona-based Harvest Health is a multi-state operator in the US with now 35 cannabis dispensaries nationwide, including stores in its core markets of Arizona, Florida, Maryland and Pennsylvania. The new retail location is in Cranberry Township, Pennsylvania, to go with the company’s other locations in Harrisburg, Johnstown, reading and Scranton. Harvest Health now has six stores and is licensed for nine more for the state maximum of 15 (currently there are 92 stores statewide).

“We are very excited to open our sixth location in Pennsylvania, one of the fastest growing medical markets in the U.S.” said CEO Steve White in a press release. “We look forward to serving patients and providing quality products at this new location in one of our core markets.”

In his comments, Stanley viewed the new announcement as a positive for the company and stock, saying, “This follows the March acquisition of a 46,000 sq ft cultivation/manufacturing facility in Reading (one of just 33 licensed in PA), which allows the company to support its retail buildout in a market that is otherwise reportedly supply constrained.”

Stanley said the Pennsylvania patient count stands at about 330,000 or 2.6 per cent of the population, which is under the current state leader, Arizona, at a penetration of 3.7 per cent (and still growing at 32 per cent year-over-year). Thus, not only is there more room for growth in PA, according to Stanley, the prospect of adult-use sales are there, as Governor Tom Wolf, a Democrat, has “recently stepped up his calls on the Republican-controlled legislature to legalize adult-use,” Stanley said.

On Arizona’s market, Stanley reported on the legalization climate, saying that recent polls have adult-use as having a slim lead over its opposition at 46 per cent in favour versus 45 per cent opposed and nine per cent undecided, with those numbers casting a different tone than ones from a poll in July where 62 per cent were in favour and 32 per cent opposed.

“HARV is the largest operator in Arizona by dispensary count, having just opened its 15th last week (out of 123 statewide),” Stanley wrote. “The 2016 legalization initiative was defeated by just 67k votes (a 51-49 per cent margin), and we believe the 2020 initiative has been crafted to address or mitigate concerns raised towards the 2016 version (i.e., the 2020 version was built to ‘win it all’ this year). We therefore expect legalization supporters, including HARV and other major cannabis companies in AZ, to step up campaigning efforts down the stretch.”

With the update, Stanley reiterated his “Buy” rating for HARV as well as his C$3.50 price target, which at press time represented a projected return of 148 per cent. Stanley estimated that HARV is currently trading at a 34 per cent discount to its US peer group and at a 40 per cent discount to the wider cannabis peer group.