Benzinga | Aug 12, 2020 11:58AM EDT

Cantor Maintains Neutral Ratings For Harvest Health, Acreage Post-Earnings

Both Harvest Health & Recreation Inc. (OTCQX:HRVSF) and Acreage Holdings Inc. (OTCQX:ACRGF) reported sales and earnings growth for the second quarter, with overall market growth across key states, according to Cantor Fitzgerald.

The Cannabis Analyst: In separate reports, Pablo Zuanic maintained neutral ratings for Harvest and Acreage, while leaving their price targets unchanged at $1.65 and $3.80, respectively. He said that while Harvest's limited scale in states where it operates outside Arizona is the reason for remaining on the sidelines, Acreage's model may be updated after its earnings call.

The Harvest Thesis: The company reported second-quarter sales at $55.7 million, handsomely beating the consensus estimate. Sales growth was driven by 38% growth in retail and 15% growth in wholesale, which offset the 24% decline in licensing revenues.

Zuanic noted that Arizona contributed to about 50% of Harvest's total sales.

The company reached positive EBITDA in the second quarter, backed by a sequential expansion in gross margins. "Despite the improved EBITDA trends, cash burn is still an issue, and net debt increased by $22Mn seq to $229Mn despite asset divestitures and new equity raised," the analyst wrote.

The Acreage Thesis: The company reported proforma sales of $43.8 million, ahead of Cantor's estimate of $40.5 million. While retail grew 13% sequentially, wholesale was up 9%.

Acreage does not provide sales by region, but Zuanic believes growth in Connecticut, Pennsylvania and Illinois offset weakness in Massachusetts.

The company managed to improve earnings in the second quarter, but to a lower extent than the analyst expected. Management cited cost controls and divesting and closing of underperforming assets as the reasons for the company's improving profitability.

Related LinksAcreage Buys New Jersey's Compassionate Care Foundation For $10MHarvest Health Closes $100M Private Placement, Announces $85M M&A Deal

Courtesy photo