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Cannabis fight heats up in Arizona – who’s gonna benefit?

08/11/2020

Arizona has voted Republican in every Presidential election since 1952 – with one exception: in 1996 AZ residents voted for Bill Clinton.

The state’s conservatism has impacted cannabis laws.

Medical cannabis is currently legal in AZ.

Adult-use (recreational) cannabis is not.

AZ is changing its attitude to recreational cannabis [more on this later] which will create economic opportunities for some companies with a footprint in the AZ medical cannabis business.

One of those companies is Harvest Health (HARV.C) – a vertically integrated cannabis company and multi-state operator (MSO) with numerous medical dispensaries in Arizona.

“Headquartered in Tempe, Arizona [pop. 163,000] Harvest Health & Recreation is committed to expanding its retail and wholesale presence throughout the U.S.”

Tempe is home to Arizona State University (ASU), one of the largest universities in the USA. This buzzing youthful little city boasts 330 days of sunshine a year.

HARV is focused on acquiring, manufacturing, and selling cannabis products for patients and consumers in addition to providing services to retail dispensaries.

On June 23, 2020 HARV announced the “completion of the initial closing of the divestment of select retail assets in California to Hightimes”.

Harvest Health and its affiliates sold a portfolio of equity and assets with respect to eight operational and planned dispensaries in California for total consideration of $61.5 million, consisting of $1.5 million in cash and $60.0 million in Series A Preferred Stock issued by Hightimes.

Harvest is keeping four operating dispensaries located in Grover Beach, Napa, Palm Springs, and Venice and select licenses for potential retail locations in California following completion of this planned divestment.

“The previously announced full year 2020 revenue target remains unchanged”.

HARV, like many of its peers, is now trading at a significant discount to its 2-year highs.  Since April 1, 2019 HARV share price is down 86%.

HARV’s Arizona revenues would likely get turbo-charged when/if the state flips to legal recreational cannabis.

“The Smart and Safe Arizona Act would allow people 21 and older to posses up to an ounce of marijuana and set up a system of licensing retailers to sell the drug,” states the Arizona Central.

Early July, 2020 the group submitted 420,000 signatures to the secretary of state’s office—they needed only 237,645 valid signatures from registered voters to qualify.

A recent survey determined that 60% of Arizona voters support legalizing marijuana.

Harvest Health CEO Steve White “remembers telling his parents several years ago his plan to leave a successful business law career to launch a medical marijuana company, which was —and remains — illegal under federal law,” reports The Arizona Central.

“The 1995 Arizona State University graduate who swam and played basketball at Corona Del Sol High School in Tempe was in his late 30s at the time”.

“The multinational companies will be forced to buy their way into the market,” continued The Arizona Central, “by acquiring the biggest and best cannabis companies that got in early, like Harvest”.

It’s possible (likely) that pandemic protocols have thrown a wrench in HARV’s steady upward financial trend.

Over the last 3 quarters, you see revenues rising, gross profit rising and the burn rate falling.

If you loaded up on HARV 13 months ago at $12 – you’ll feel sour [HARV is currently trading at $1.90).

But for HARV true-believers – or new shareholders – those three trends lines (revenue up/gross profits up/overhead down) comprise the world’s sweetest melody.

Arizonans for Health and Public Safety have filed a challenge to the marijuana initiative. The group’s financial backers promote “marriage, family and religious freedom.”

Opponents of the measure argued that the initiative summary was confusing.  Last week, Judge James Smith rejected all of the anti-marijuana arguments.

“Petitioners may believe the initiative should put more limits on possessing, using, or cultivating marijuana,” the judge wrote. “Those are policy arguments for the voters”.

“A well-regulated, licensed, legal environment is the best way to keep marijuana out of the hands of children—period,” states Smart and Safe Arizona, “We set the legal age at 21, limited potency, required childproofed packaging, required products to be unattractive to kids and forbade advertising to youth.”

Last week, the initiative to legalise rec weed in AZ took a significant step closer to becoming a reality.

Harvest Health & Recreation is in a good position to financially benefit from this impending (but not confirmed) regulatory change.

On Tuesday, August 11, 2020 8 p.m. Vancouver time, Harvest Health & Recreation will discuss its Q2, 2020 financial and operating results.  The call will be attended by Steve White, CEO and Deborah Keeley, Chief Financial Officer.

Use this link to register, then an email confirmation will be sent with dial instructions and conference call codes. Second quarter results will be available here.  The live conference call webcast and replay will be available here.

  • Lukas Kane

Full Disclosure:  Equity Guru has no relationship with the companies mentioned in this article.

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