Harvest Health Makes Another Acquisition—What’s New?

On January 2, Harvest Health & Recreation (HARV) (HRVSF) entered into a definitive agreement for acquiring MJardin Group’s (MJARF) 32,000-square-foot cultivation facility in Cheyenne, Nevada, for a consideration of $35 million. An existing lender of Harvest Health & Recreation agreed to fund this transaction.

The company expects the deal to support its expanding retail presence in Nevada. Harvest Health also expects to improve margins and overall profitability through bolt-on acquisitions for vertical integration. MJardin’s proceeds would help trim its debt as well as fund working capital.

According to BDS Analytics, Nevada has maintained the per-gram prices of cannabis flower, despite the many challenges. In the first nine months of 2019, the average price per gram of flower was $9.09, up from $8.61 in the first nine months of 2018. Prices were much higher than those in Colorado and Oregon. This is a major positive factor for cultivators and dispensaries in Nevada.

How much capacity would this acquisition add to Harvest Health?

According to MJardin Group’s investor presentation, the company’s Cheyenne A and Cheyenne B facilities are each around 15,000 square feet in size. The company had expected these facilities to reach a full capacity of 2,880 kgs by the end of the first quarter of 2020. The company had estimated monthly production from Cheyenne A to be around 120 kgs and from Cheyenne B to be close to 0 kgs in December 2019. MJardin Group has estimated Cheyenne A and Cheyenne B’s monthly exit run rate to be 240 kilograms each, both in fiscal 2020 and fiscal 2021.

Subsequent to the completion of this transaction, MJardin Group plans to have a 6,500-square-foot Warm Springs facility in Las Vegas. This facility reached full capacity of 1,100 kgs in 2018. The company also owns an extraction product processing facility spread over 12,000 square feet in Carson City, Nevada.

Nevada is a rapidly growing market opportunity for legal cannabis

According to Marijuana Business Daily, legal cannabis sales in Nevada reached $639 million in fiscal 2019, which ended on June 30, 2019. This was around a 20% hike compared to cannabis sales of $530 million in fiscal 2018. The state earned 80% of its fiscal 2019 cannabis revenues from sales in Clark County. Washoe County accounted for around 14% of the state’s fiscal 2019 revenues. Nevada’s marijuana excise tax revenues were close to $99.18 million in fiscal 2019.

According to the State of Nevada Department of Taxation, the state has earned $243.11 million in the first four months of fiscal 2020. Clark County and Washoe County accounted for around 80% and 15% of the state’s total sales, respectively. The state has already earned $36.67 million as marijuana excise tax revenue in the first four months of fiscal 2020.

According to BDS Analytics, people in Nevada spend an average of $77 on each marijuana dispensary visit. This is higher than the average of $68 per dispensary visit in other states. The research agency also highlighted the trend of Nevadans purchasing an average of three cannabis products per visit. This is higher than the average of two products per visit in other states.

BDS Analytics also highlighted the contribution of tourism to the state’s legal cannabis industry. In 2018, there were 42 million visitors in Nevada. This number is significantly higher than the state’s resident population of around 2.65 million.

The firm also highlighted higher revenue exposure of Nevada to Clark County and Washoe County as a positive for cannabis companies. Cannabis players can deploy the relatively smaller level of resources to effectively introduce brands in Nevada.

Vape sales stabilize as edibles sales rise in Nevada

As reported by Marijuana Business Daily on October 1, data and analytics firm Headset highlighted a slight uptick in the share of vape products of Nevada’s recreational marijuana sales. According to an October 28 Marijuana Business Daily report, Headset also highlighted the increasing share of cannabis-infused edibles in the state’s total recreational sales.

Edibles accounted for 10.9% of Nevada’s recreational cannabis sales as of August 23, 2019. This was the date when the first vaping-related death was reported. This share rose to 14.9% on October 6, 2019.

According to BDS Analytics, 68% of people in Nevada have tried cannabis-infused ingestible products in the first six months of 2019. This was higher than the average of 62% in other states.

Pre-roll joints are also more popular in Nevada compared to Colorado, Oregon, or California. This demand is mainly driven by tourists, as they mostly desire cannabis products that don’t require accessories. This makes it easier for them to dispose of the products after the vacation.

Tourists who visit Nevada also prefer disposable vapes. Currently, disposable vapes make up around 25% of the vape product sales in the state. This is much higher than in California, Colorado, and Oregon, reaching 12%, 12%, and 5%, respectively.

BDS Analytics noted that pills, topicals, and sublingual products have significant growth potential in Nevada.