House leadership announces vote on the MORE Act in December.
House Majority Leader Steny Hoyer (D-MD) announced that the chamber would hold a floor vote on the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act this December. This follows an initial attempt to vote on the MORE Act this September. A plan postponed due to push back from the Democratic party concerned with the optics of passing cannabis reform before another coronavirus package. The MORE Act would decriminalize cannabis by removing it from the Controlled Substances Act, allow states to determine their regulations on commercializing cannabis, expunge convictions for non-violent cannabis offenses, and impose a five percent federal tax on sales. The MORE Act, sponsored by Judiciary Committee Chairman Jerrold Nadler (D-NY) and Vice President-elect Kamala Harris (D-CA), cleared the House Judiciary Committee last November and has been awaiting a floor vote from the House since. While the House's approval of the MORE Act would be largely symbolic with a Republican-controlled Senate, the vote could increase pressure on Biden to embrace full legalization.
In Texas, a State Senator-elect files bill to legalize marijuana.
Texas State Senator-elect Roland Gutierrez (D-San Antonio) has pre-filed a bill that would legalize cannabis for both medical and recreational use if passed. In his campaign, Gutierrez made marijuana legalization a key part of his platform, pushing for the ensuing tax revenues to help fund teacher salaries, law enforcement, and border security instead of raising property taxes.
"There is going to be a budget shortfall to affect all Texans' next legislation session; however, I look forward to working with my colleagues to offer a real solution," Gutierrez said. "Our state’s economic future is uncertain, and to best serve our state, we have to look at cannabis legalization as a solution and not keep going back to the taxpayers and raise their taxes." Gutierrez has said that cannabis legalization in Texas could lead to an estimated $3.2 billion in state revenues and create 30,000 high-paying jobs.
In a report from law firm Vicente Sederberg, Texas could generate $1.1 billion in tax revenues biannually through recreational legalization and following a taxation model like Colorado’s. Based on the assumption that more than 1.5 million Texans consume cannabis monthly, the report estimates adult-use cannabis sales to hit $2.7 billion annually.
While the state has softened on cannabis in the past five years, it still maintains some of the country's strictest cannabis laws. In 2015, state lawmakers passed the Texas Compassionate Use Act, which legalized medical cannabis oil with less than 0.5% THC for people with specific diagnoses, like multiple sclerosis and epilepsy. In 2019, Gov. Greg Abbot (R) signed a bill last summer to legalize industrial hemp.
Harvest Health Earnings (HRVSF)
Harvest is on the Hedgeye LONG bias list and would love to get the opportunity to buy the stock.
We like the company positioning in the market that it operates and is working toward a better economic model; there is just more work. The most important state for the company is Arizona, and it is one of the fastest-growing medical markets in the U.S. It is now obviously poised to allow recreational use as early as the first quarter of 2021. Harvest has the largest retail presence in the state with 15 open retail dispensaries, and with the recent settlement in the case with Devine Holdings, acquired 3 additional vertical licenses. Pennsylvania is the second-largest retail market for the company and is experiencing rapid growth and remain supply-constrained. Harvest currently operates 8 open retail dispensaries in Pennsylvania and a cultivation and processing facility in Reading. Harvest has 5 retail licenses, allowing for up to 15 potential retail locations. The company is expanding cultivation and manufacturing operations to alleviate product supply constraints, enhance margins, and support additional retail locations in 2021.
The company increased its 2020 full-year revenue target to exceed $225 million, up from $215 - $220 million. The limitations on the revenue target depend on the timing of several events and processes, including potential divestitures of non-core assets, which may hurt revenues. The revised target reflects strong 3Q20 while incorporating some level of conservatism. The revenue forecast includes continued growth driven by retail dispensary openings, same-store sales growth, and new and expanded cultivation and manufacturing operations. Forecast for 2020 assumes no impacts or disruptions that we don't successfully manage, including those caused by the COVID-19 pandemic.
In Q3, Harvest Health grew its topline while maintaining gross margin expansion and OpEx reduction. The company posted a slight top-line beat, with Q3 revenues of $61.6 million versus FactSet Consensus $59.4 million, growing 11% QoQ and 86% YoY. Gross profit margin excluding biological adjustments in the third quarter was 46.6%, compared to 35.0% in the third quarter of 2019 and 42.1% in the second quarter of 2020. The company had OpEx of $26.4 million, a sequential reduction of -11%, and YoY of -43%. Net loss was -$2.1 million versus FactSet Consensus -$24.3 million, a significant beat, and an improvement compared to a net loss of -$39.1 million in 3Q 2019 and -$18.3 million in Q2 2020. Adjusted EBITDA excluding biological adjustments in the third quarter was $10.5 million, compared to -$10.9 million in the comparable period a year ago and $4.1 million in Q2 2020. As of September 30, 2020, Harvest had approximately $63 million in cash and a concerning $294 million in debt – as of November 6, 2020, the company had approximately $87 million in cash.
As of November 10, Harvest owned, operated, or managed 39 retail locations in 7 states, including 15 open dispensaries in Arizona. 3Q20 same-store sales increased by 49% year-over-year for the 16 stores that were opened during both periods. For the 35 stores that were opened in both the second and third quarters of 2020, same-store sales increased by 12% sequentially. During 3Q20, Harvest opened one new dispensary in Phoenix, Arizona, and one new dispensary in Cranberry Township, Pennsylvania.
