Harvest Health & Recreation Inc (OTCMKTS: HRVSF) bid to become the most valuable cannabis company has received a significant boost. The closing of $100 million private placement leaves the Company well financed to pursue growth initiatives that have the potential to accelerate growth and reinvigorate market sentiments.
Harvest Health Price Analysis
The stock has not had the best of runs after experiencing strong resistance at the $10 a share resistance level. A strong pullback has since come to play. A 30% plus pullback comes at a time when Harvest Health fundamentals appear to have edged higher.
In addition to the $100 million financing boost, the Company is fresh from delivering stellar financial results supported by a 135% year-over-year increase in revenue. Gross profit increasing 342% also explains why the stock has taken a flight in 2019, amidst the recent pullback.
The stock is still up by more than 50% for the year, even on the short-term momentum turning bearish. A breach of the $8 support level has left the stock vulnerable to a drop back to the $6 mark, which appears to be the next support level.
Above the $6 mark, the stock remains well supported for further upside action. However, a violation of the support level could elicit more selling pressure that could result in the stock plunging back to the $4 mark.
About Harvest Health
Harvest Health is a multi-state cannabis operator that cultivates manufactures and retails cannabis in the U.S. The Company boasts of one of the largest footprints in the U.S cannabis sector with 219 facilities made up of 142 retail locations and more than 1,580 employees in 17 states.
$100 Million Boost
The closing of a $100 million financial deal is a transaction likely to strengthen the stock’s market sentiments after the steep pullback. The financing comes at an acquisitive time in the industry. With the funding, the Company remains well funded to pursue acquisitions and mergers that have the potential to strengthen the core business and accelerate growth into new markets with tremendous growth prospects.
The balance sheet could receive yet another boost on Harvest Health entering into an investment agreement with an institutional investor. Under the terms of the agreement, Eight Capital is to sell to the Institutional up to four additional ranches of 100,000 convertible debentures, valued at $400 million.
Verano Holding Acquisition
The financing deal comes on the heels of Harvest Health receiving a boost on its bid to become the largest multi-state operator, with the signing of an agreement to acquire Verano Holdings. Verano is a privately held multi-state operator of cannabis facilities. The Company also boasts of a robust portfolio of premium branded products.
With the acquisition, Harvest Health gains access to operations in 11 states and territories, including seven cultivation licenses and 37 retail licenses. Verano Holdings also comes with positive cash-flow operations that generated as much as $31million in revenues in 2018. It also boasts of an Ethanol extraction technology as well as a premium portfolio of proprietary strains.
“This accretive transaction will improve our position by strategically expanding our operating base to realize the benefits of scale. From day one, both companies focused on consistent revenue and profit growth. We are excited to bring Vera no’s premium brands, depth of management and sound operations into Harvest,” said Jason Vedadi, Executive Chairman of Harvest.
Verano acquisition could not have come at a better time as Harvest Health is exploring ways of boosting its 2018 performance. Total revenues for the full year totaled $16.9 million, representing a 135% year-over-year increase.
Gross profit, on the other hand, was up 342% to $7.2 million underscoring the Company’s push for positive cash flow. Harvest Health benefited from the expansion of its retail and wholesale footprint that allowed it to enjoy robust sales growth. The Company also made selective acquisitions of facilities as well as brands.
A pullback from a record high in our view presents an opportunity to bet on a stock with tremendous long-term prospects. Harvest Health is in a phase of robust growth if a 135% increase in revenue is anything to go by.
A rapid expansion drive into new cannabis markets should allow the Company to enjoy sales growth going forward. That said the stock is a potential bounce-back play after the minor correction, given the solid underlying fundamentals.
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Disclosure: We have no position in HRVSF and have not been compensated for this article.