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Edited Transcript of RBE.V earnings conference call or presentation 23-Apr-19 12:00pm GMT

Q4 2018 Harvest Health & Recreation Inc Earnings Call

Vancouver Apr 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Harvest Health & Recreation Inc earnings conference call or presentation Tuesday, April 23, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jason Vedadi

Harvest Health & Recreation Inc. - Executive Chairman

* Leo E. Jaschke

Harvest Health & Recreation Inc. - CFO

* Steven D. Gutterman

Harvest Health & Recreation Inc. - President

* Steven Mathew White

Harvest Health & Recreation Inc. - Founder, CEO & Director

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Conference Call Participants

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* Andrew Samuel Bernstein Kessner

William O'Neil + Co., Incorporated - Equity Research Analyst

* Jesse Pytlak

Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research

* Matt Bottomley

Canaccord Genuity Limited, Research Division - Analyst

* Matthew Pallotta

Echelon Wealth Partners Inc., Research Division - Special Situations Analyst

* Robert Fagan

GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare

* Russell Stanley

Beacon Securities Limited, Research Division - Research Analyst

* Ivan Peill

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Presentation

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Operator [1]

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Good morning, and welcome to the Harvest Health & Recreation's conference call to review fourth quarter 2018 financial and operating results to discuss the company's performance outlook. (Operator Instructions) Today's conference call is being recorded.

At this time, I would like to turn the call over to Ivan Peill of InspIR Group, Harvest's Investor Relations agency. Ivan Peill?

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Ivan Peill, [2]

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Thanks, Elissa. Good morning, everyone, and thank you for joining us today. On today's call are Steven White, Harvest's Chief Executive Officer; Jason Vedadi Executive Chairman; and Steve Gutterman, President. Before we proceed, please note that today's call will contain forward-looking statements, and we refer you to the Forward-looking Information section of Harvest's fourth quarter earnings press release and its recent filings with the Canadian Securities Administrators on SEDAR.

The forward-looking statements on today's call are accurate as of today's date. Harvest assumes no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with International Financial Reporting Standards, Harvest reports certain non-IFRS financial results. Investors are encouraged to review the reconciliation of these non-IFRS financial results as compared with IFRS results, which can be found in the company's fourth quarter earnings press release and unaudited financial statements filed with the CSA.

I'll now turn the call over to Steve White, Harvest's Founder and Chief Executive Officer.

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Steven Mathew White, Harvest Health & Recreation Inc. - Founder, CEO & Director [3]

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Hello, everyone, and thank you for joining us today. In this call, we'll discuss our strategy, review 2018 full year results as well as preliminary results for first quarter 2019. And then we'll provide some guidance for the rest of 2019 as well as 2020. I will then open up the call for a question-and-answer session.

We started Harvest in 2011 with a simple yet powerful goal, to improve people's lives through the goodness of cannabis. Back then, we were focused on our 2 licenses in Arizona, but almost immediately our plans changed as we realized the world was changing and that those changes presented an unparalleled opportunity for growth. But without significant capital in order to seize the opportunity, we had to first be really good at winning licenses; second, be really good at understanding different markets; and third, operate efficiently. And so we embarked on a period of sustained and substantial growth.

In the beginning without much capital, we focused on making smart capital allocations and operating profitably. Over the course of just 6 years, we grew from a single dispensary to a market leader in Arizona with operations blooming in other states. We built a multistate operation with less than $18 million of total invested capital. It is with that entrepreneurial spirit, winning mindset and tremendous momentum that we entered 2018. We had won 47 licenses in multiple states, and we are up and running in 2 of them. Because of our consistently strong track record of winning licenses, operating profitably and serving customers, we were able to raise about $300 million in 2 tranches, while going public via reverse takeover on the Canadian securities exchange. We have used that capital to grow organically and to pursue strategic and accretive acquisitions. Additionally, we'll speak a bit about a $500 million convertible debenture that we recently raised.

Even as we have expanded rapidly, our mission has remained the same. We will seek to improve people's lives through cannabis. Every day we wake up knowing that there is a customer, patient on the other side of every transaction we generate, and that person needs our help and can benefit from what we do. This philosophy guides us in every decision we make. And by delivering on this important mission, we believe that we can deliver our vision to become the most valuable company in the cannabis industry.

This industry is at a unique inflection point. We're still early in the game. Total industry revenue just in the U.S. alone is projected to grow by multiple billions each year for the next 10 years. There are very few relevant comps, if any, to the growth that were expect -- that we expect to take place in this industry over the next decade. And yet, the regulation of cannabis presents challenges, as each of our locations is subject to federal, state and local regulatory's oversight and usually all of them are different. And so in this environment, which combines opportunity and complexity, it is only the companies that combine size and scale, regulatory expertise and operational excellence that will succeed. We are biased, of course, but we believe that there is no company that combines all these attributes the way we do.

Since our RTO, we focused on 4 key initiatives: First, building a world-class team; second, aggressively expanding our retail and wholesale footprint across the U.S.; third, building, acquiring, expanding brands and distributing them across our footprint; and fourth, continuing to operate in a disciplined way, evaluating all opportunities on return on invested capital. I'd like to take a moment to discuss our progress in each of these areas.

First, building a world-class team. We've assembled a team that we believe is best in cannabis. We blended extensive expertise in cannabis with experience in leading high-growth companies in other relevant consumer sectors. Our team members have held senior roles at companies like Diageo, Unilever, Beam Suntory, Best Buy, Fiji Water, Einstein, Celestial Seasonings, E-Trade among others. And now they bring that collective experience to bear on growing Harvest. They bring tremendous experience in branding, marketing, retailing, distribution and regulatory affairs. We are excited about the talent that we've gained or will gain from our completed and pending acquisitions.

The leadership teams of our acquired companies have built nationally recognized market-leading cannabis companies, with expertise in cultivation, phenotyping, processing, intellectual property, branding, manufacturing and retail. As we'll discuss in a few minutes, we anticipate substantial revenue growth, and so it's critical that we have the right team in place to manage that growth.

Second, aggressively expanding our retail and wholesale footprint across the U.S. We've made significant strides in expanding our footprint, both through winning licenses and through acquisition. Since last November, we have 24 successful license applications in 6 states, including winning 1 of 2 licenses in a highly competitive process in Santa Monica, being successful on a license for retail processing and distribution, and highly competitive process in University of California, and there will be more to come. In addition to our organic growth, we made key acquisitions to expand our footprint. In November, we acquired San Felasco, which gives us access to Florida, one of the countries most important markets. Our pending acquisitions of Verano Holdings, Devine Holdings and CannaPharmacy will expand our reach across the U.S.

With these acquisitions, we have -- we will have control of licenses to open 219 revenue-generating cannabis facilities throughout the United States and Puerto Rico, which includes 142 retail dispensaries. Both numbers are more than any other MSO in a country by a significant margin.

Our footprint growth is important. This is a landgrab, and there are a discrete number of prime license opportunities. This is true in highly oligopolistic markets like Arizona or Florida, and it's also true in unlimited license states like California, where some locations, like Santa Monica, are better than others. Ultimately, we believe that footprint, combined with leading brands, will drive revenue over time.

Third, building, acquiring and expanding brands across the fastest-growing categories and taking them across our footprint. The U.S. cannabis market does not really have any national brands of any scale due to the state-by-state nature of our business. Our goal is to take industry-leading regional brands, support them and introduce them to patients and consumers across our ever-expanding national footprint. Over the years, we have internally developed several outstanding products and brands, and over the last several months, we have acquired many new and exciting ones. Our CBx acquisition gave us access to the Evolab suite of brands, which is the market leader in Colorado of manufactured cannabis products.

We have initiated our strategy and are now successfully selling those CBx products and brands in Arizona, Florida and California along with Colorado. And the results have thus far been strong. Our pending acquisition of Falcon International provides access to market-leading products, like, Cru flower and vapes, High Garden flower and Littles prerolls. And our pending acquisition of Verano gives us access to market-leading edibles and concentrates. As this portfolio take shapes -- takes shape, our marketing team is actively developing and currently deploying plans to create national supported brands across all leading categories; flower, vapes, concentrates and edibles.

One other important initiative to mention is the establishing the Harvest House of Cannabis brands, which is our retail brand, in all markets where we will operate. It is critical that we introduce patients and consumers alike in the U.S. to a different kind of dispensary, and one that is welcoming, personalized and focused on cannabis as a solution. That marketing has already begun in Arizona, California and Florida.

Continuing to operate in a disciplined way, constantly evaluating opportunities on ROC. We make capital allocations and spending decisions in a disciplined and prudent manner, thinking constantly about return on invested capital. We're proud of our track record as a consistently profitable company. Falcon, CBx and Verano have always operated in the same way, and that shared philosophy was part of what we liked about them. That is not to say that we will not spend money to make money. As we discuss in a few minutes, we actually have a measured EBITDA loss in our Harvest stand-alone operations in Q1 as we ramp up our operations. This is not a deviation from our traditional way of doing business, but rather a continuation of it. When we see opportunities to grow and to create shareholder value, we will not hesitate to do so. By adhering to these 4 core initiatives, we believe that we can fulfill our objective of becoming the most valuable cannabis company in the world. Our growth will come from continued organic execution as well as from mergers and acquisitions.

With that, I'd like to turn the call over to Steve Gutterman, who will discuss our M&A strategy.

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Steven D. Gutterman, Harvest Health & Recreation Inc. - President [4]

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Thanks, Steve, and thanks for -- to everybody for -- on the call for your time. M&A is an important component of our growth, and we put ourselves in a position to be extremely active. We've amassed a sizeable war chest, specifically the market value of our stock is over $2.5 billion and that gives us strong acquisition currency. We see in that sellers want Harvest paper, our pending Verano and Falcon acquisitions are all stock deals. In fact, over the past several months, there has been a noticeable flight to quality at sellers who become more discriminating. They understand that not all MSO paper has the same intrinsic value.

We recently signed an agreement to offer $500 million of convertible debentures. The terms of the notes are quite favorable. The debentures are issuable at our sole discretion in tranches of $100 million. They will have a modest 7% interest rate and the initial tranche of debentures will be convertible at the option of the holder to subordinate voting shares of Harvest at a price of $15.38 per subordinate voting share, and each subsequent tranche will be convertible at the option of the holder at a 15% premium to the volume weighted average price, or VWAP, of our stock as it trades on the Canadian Securities Exchange for the 5 trading day period, immediately preceding the closing of the relevant tranche.

Alternatively, we can require that the debentures be converted if the daily VWAP of our stock is greater than a 40% premium to the applicable conversion price of a tranche for any 10 consecutive day -- 10 consecutive trading day period. We're enthusiastic about securing this convert. Added to the cash that we have on hand and the cash on Verano's balance sheet, subject to the closing of that acquisition, we would have close to $700 million in working capital. Additionally, we've begun to utilize our Aina real estate vehicle for capital projects. This provides an additional $100 million to $200 million in funds. So taken together, our cash on hand, plus Verano's cash, plus the converts, plus Aina, would give us close to $1 billion in accessible capital, again, pending the completion of our -- of the Verano acquisition. Additionally, we expect to be cash flow positive in 2019. And so we believe that our cash position is as strong as anyone in the industry.

Before I move on to the acquisition strategy, I'd like to address some of the rumors that we've heard about the convert. The convert does not tap our stock in any way, rather it provides capital at a highly competitive rate, and we will use this capital to grow. For example, part of the consideration for the CannaPharmacy deal is cash. Effectively then, we've taken capital that could convert at $15.38 per share and upon which we will have to pay 7%, and we've purchased a highly accretive -- or we intend to purchase a highly accretive asset. This is a -- honestly, this is a transaction we should do 10 times out of 10.

Now I'd like to spend a minute on our acquisition strategy. We're looking for acquisitions that can meet at least one of these core objectives: One, expand our wholesale and retail footprint; two, add to our suite of brands across the fastest-growing categories; and/or three, bring the most talented professional management to Harvest. All of our completed and pending acquisitions to date have met these criteria. Specifically, CBx expanded our brand offering, giving us market-leading manufactured products and added depth to our manufacturing team; San Felasco expanded our operations into Florida; Falcon is expected to serve as a foundation in California for cultivation, manufacturing and distribution as well as adding well-regarded brands like Cru and High Garden and key personnel to the team; Verano is expected to add licenses throughout the Midwest and East Coast. It will add edibles to our brand suite and also further strengthens our senior team; Devine Holdings is expected to add to our Arizona footprint; CannaPharmacy is expected to add to our East Coast footprint.

So that's a lot of activity since November. But the truth is that we reject many more M&A opportunities than we seriously pursue. We have a rigorous analytical process in place to evaluate potential acquisitions, and we always look at 3 things; one, does the acquisition meet our strategic focus? Two, is the acquisition financially accretive? And three, if the seller's team is a part of the acquisition, would the team will be a cultural fit with Harvest? And so it's only if we can answer these 3 questions with a clear yes, yes and yes, that we will proceed.

Moving forward, we will continue to be aggressive and selective. There are a lot of interesting companies out there that could be complementary additions, and we will try to dialogue with all of them. Our goal is to find the best fits for Harvest and to continuously drive shareholder value.

With that, I'll turn it over to Leo Jaschke, our CFO, who will run through our performance to date and provide guidance for the rest of this year and for 2020.

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Leo E. Jaschke, Harvest Health & Recreation Inc. - CFO [5]

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Thank you, Steve. Let's start with 2018. On a stand-alone basis, Harvest finished the year at $47 million of revenue and $10.3 million in EBITDA. This is ahead of our forecast of $45.7 million in revenue and $7.6 million in EBITDA. There are 2 important things to note in these numbers. Revenue for Q4 was $16.9 million, is strong 52% increase from Q3 revenue of $11.2 million. For the year, we have a few large noncash expense items, the largest one was the conversion of the convertible equity notes, which we raised prior to our RTO and converted into our RTO equity. Our equity value increased between the time we issued the converts to the time we priced our RTO. IFRS requires that we record the difference in value between the issuance value and the conversion value. In this case, the converts were issued at $3.26 per share and the RTO stock was issued at $6.55 per share, meaning that we had to expense $3.29 per share times 15.4 million shares for a total noncash expense of $50.7 million.

Some of our competitors had similar expenses during the year as they too went public. Note that we are unapologetic and even proud to record this kind of expense. It represents a sustained increase in shareholder value, which is always our objective.

Now let's move to guidance for 2019. We will focus on revenue and EBITDA on a pro forma as consolidated basis and pending the closing of the acquisitions of Devine Holdings, Falcon, Verano and CannaPharmacy. I'll refer to pro forma consolidated revenue as pro forma revenue for the rest of this call.

For the year 2019, we anticipate pro forma revenue will be between $350 million and $400 million with EBITDA margins of 20%. These margins represent a significant increase for our guidance last November. At that time, we anticipated that in 2019, our revenue would be $223 million and our EBITDA would be $57 million. Since cannabis years are like dog years, that November forecast seems decades ago. Major shifts since then include: One, we have added Verano, CannaPharmacy and Devine Holdings. This had a net positive impact to the model. Again, I will note that those acquisitions have not yet closed, and we are adding the results strictly on a pro forma basis; two, store opening schedules have shifted, which I'll add further color soon; three, we had significantly added to our marketing budget. We are committed to building the best brands in cannabis. The first step in doing that was to bring on extremely strong branded offerings from CBx, Falcon and Verano. Then we hired Kevin George, former Chief Marketing Officer of Beam Suntory and CEO of Mosaic, to be our CMO and lead the marketing team. Kevin and his team are hard at work to make our brands the most recognized and coveted brands in the industry.

Accordingly, we have decided to ramp up our marketing spend to seize market share. Marketing will be approximately 5% of revenue in 2019 and 2020. We currently have 13 stores open. We are planning to open an additional 23 stores by the end of July with 3 of them scheduled in Florida within weeks. We remain confident that we will have approximately 60 stores by the end of the year. Our new stores are targeted in Florida, California, Ohio, Pennsylvania, Michigan and North Dakota. In addition, our pending acquisitions add to this total. Verano currently has 5 stores open and plans to open an additional 16 by the end of the year. Devine Holdings adds 8 stores in Arizona and Ohio, 2 that are currently open, 5 more to open in 2019 and 1 that opens in January 2020. CannaPharmacy has 1 store open currently and plans to add 3 more by the end of 2019. System-wide our goal is to open over 120 stores by the end of 2020.

In Q1 2019, pro forma revenue will be approximately $50 million to $55 million. This is a 40% increase over Q4 '18 and over $200 million annualized. Of this amount, approximately $19 million will be from stand-alone revenue at Harvest in Q1, which is roughly a 13% increase from Q4.

As Steve White noted earlier, we remain laser-focused on profitable operations. As we ramp up growth and build out infrastructure, we will have a planned pro forma loss in Q1 of approximately $6 million. This was a planned loss, as we build infrastructure ahead of growth, both for our organic growth and for our acquisition growth.

Our preliminary guidance for 2020 is for pro forma revenue of $900 million to $1 billion and EBITDA margins of 30% to 35%. Again, this is a significant increase above previous guidance, largely driven by our acquisitions and continued organic growth. There is significant upside to these numbers if additional states go RAC. By the end of 2020, we anticipate that system-wide we will have the following key operating metrics; 120-plus dispensaries in 15 states and Puerto Rico, producing an average revenue of approximately $4.5 million per store; at least 12 cultivation facilities in 11 states, with over 1 million total square feet producing 130,000 pounds per year; at least 10 manufacturing facilities in 10 states producing 4 million units for sale; approximately 6,000 dedicated employees. This is quite a ramp up from our 2018 results. We'll take total focus from our entire team on the key initiatives that Steve laid out to get to where we want to go. We know we are up for the challenge.

And with that, I'll turn it over to the team and the operator to open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Andrew Kessner of William O'Neil + Co.

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Andrew Samuel Bernstein Kessner, William O'Neil + Co., Incorporated - Equity Research Analyst [2]

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Wondering if you could give an update on Florida on the cultivation capacity expansion there? And then on the store count, is that 12 to 15 locations by year-end that I think you previously indicated? Is that still a fair target?

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Steven D. Gutterman, Harvest Health & Recreation Inc. - President [3]

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Yes. So there's couple of things there. This is Steve Gutterman. That is still a fair count. We have the ability to open up 35 stores, and so we have quite an extensive pipeline. This by the way, is an example, I want to use this as an example to show how all these pieces fit together. When the pending acquisition of Verano is complete, we will -- Verano had -- has a Florida license that we will not be acquiring. But we will be looking at some of the locations that Verano was looking at and incorporating those into our plan for expansion.

And so the idea is to take the best locations that we've identified and the best locations that Verano identified and using them to get to our number of 35. On the cultivation side, yes, you're right about that as well. We are adding 200,000 square feet of indoor cultivation and that is proceeding on pace as well.

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Andrew Samuel Bernstein Kessner, William O'Neil + Co., Incorporated - Equity Research Analyst [4]

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And then just one more on Maryland. Looks like the state has relaxed its dispensary cap there, I think, to explicitly allow 4 locations per company. So with the Verano acquisition, it looks like you guys will be at 4. Is that an accurate way to think about it or is there -- are there any other plans for the state there?

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Steven Mathew White, Harvest Health & Recreation Inc. - Founder, CEO & Director [5]

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This is Steve White. It is true that Maryland has relaxed the cap. The governor is yet to sign the bill, so it is yet to become law. That cap will be 4 stores. The way that we look at is we will always comply with all local regulatory -- regulations and rules. And so we anticipate that we will get to whatever limit is provided to us in the way that we -- as quickly as we can.

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Operator [6]

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The next question comes from Matt Bottomley of Canaccord Genuity.

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Matt Bottomley, Canaccord Genuity Limited, Research Division - Analyst [7]

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I appreciate the color given on some of these guided numbers going forward. My first question is just on those ranges you gave, whether it's '19 or '20, what's the sensitivity or assumptions in those estimates with respect to recreational markets coming online? Or is this just a bottom-up approach, where you give a very conservative estimate for what an average retail dispensary does regardless of the market?

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Steven D. Gutterman, Harvest Health & Recreation Inc. - President [8]

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Hi, Matt. This is Steve.

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Jason Vedadi, Harvest Health & Recreation Inc. - Executive Chairman [9]

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Matt, this is Jason. I can take this one, Steve.

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Steven Mathew White, Harvest Health & Recreation Inc. - Founder, CEO & Director [10]

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Great. Yes. Take it.

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Jason Vedadi, Harvest Health & Recreation Inc. - Executive Chairman [11]

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Matt, you've actually kind of hit the nail on the head there. These numbers are predicated on continual basis on medical stores or medical markets that haven't turned RAC. What could actually adjust numbers up is we're anticipating recreation in Illinois sometime in May, that's a hopeful sometime this year with New Jersey, late next year with Arizona. So we're giving guidance predicated on non-legislative changes from medical direct, so we're taking a more conservative approach.

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Matt Bottomley, Canaccord Genuity Limited, Research Division - Analyst [12]

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Okay. Great. And then just a bit of housekeeping here, but there's a lot of good info given on the dispensary count. What's your pro forma dispensary count today with respect to what open -- I tried to calculate quickly, it seems like it might be 20 something, but I just want to confirm that number?

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Steven D. Gutterman, Harvest Health & Recreation Inc. - President [13]

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Yes. So right now on a pro forma basis, open today, we have 20. You're exactly right. We have 21.

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Matt Bottomley, Canaccord Genuity Limited, Research Division - Analyst [14]

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21. Okay. And then just last question before I jump in queue. Just on the $500 million raised. I know a lot of that is earmarked for M&A, but given the huge amount of expansion initiatives in the portfolio you guys already have, can you give a split out with respect to what you think you're going to have to allocate just for things like dispensaries in Florida and continued penetration into existing markets versus what might be considered more dry powder?

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Steven D. Gutterman, Harvest Health & Recreation Inc. - President [15]

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Jason, do you want to take that one, too?

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Jason Vedadi, Harvest Health & Recreation Inc. - Executive Chairman [16]

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Yes. So we have -- between our REITs and capital on hand, we have enough capital actually to get everything open without using any part of the convert. So the convert really is dry powder for acquisitions on a go-forward basis.

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Operator [17]

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Our next question comes from Robert Fagan of GMP Securities.

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Robert Fagan, GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare [18]

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Congrats on the good quarter. Just wondering if you could shed a little bit light on the sales growth in Q4, which is quite impressive, up 52%. And maybe some of the growth trends in some of the states that were contributing to the results?

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Steven D. Gutterman, Harvest Health & Recreation Inc. - President [19]

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Yes. There were really 3 things that contributed to our Q4 growth over Q3. One -- and you were not going to see this as much moving forward unfortunately. But you have to remember, in 2018, our results were still largely Arizona based, and there is a seasonal uptick from Q3 to Q4. So it's summer in Q3 in Arizona and no one's here. So part of it admittedly was that.

The other part, which you'll see, is continued maturation of stores, and we expect to see that continue throughout 2019 and 2020. And then the final thing is, just really the increasing velocity from all parts of our business. So we've to think about 3 business lines; cultivation, manufacturing and retail. All of those businesses continue to grow and develop.

And then finally, there is -- actually, I'll add a fourth thing. We'll note that our original projections include -- did not include CBx. And then we acquired CBx on November 14. We picked up about $1 million in CBx in Q4. So we're still ahead of -- if you think about it, we were at $45.7 million in revenue in guidance in November. We've finished above that, even backing out CBx. And the increase, like I said, was attributable to those 3 factors.

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Robert Fagan, GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare [20]

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Okay. Great. And just if I think I heard you correctly, but for Q1 you had spoken about guidance on a pro forma basis of $50 million to $55 million in sales. But I believe you said $19 million on a stand-alone basis for Harvest. So I guess, would we be seeing some of that seasonality effect coming off in that quarter? And in that sense, do you have any guidelines around when you expect the Verano and CannaPharmacy acquisitions to close?

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Steven Mathew White, Harvest Health & Recreation Inc. - Founder, CEO & Director [21]

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Yes. This is Steve White. First of all, with respect to seasonality of revenue in Arizona, actually, typically what you see is an increase of people in the state in quarter 1. You'll start to see in the summer months -- it will be the summer hotter months when people start to leave.

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Steven D. Gutterman, Harvest Health & Recreation Inc. - President [22]

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And do you want to talk about Verano and CannaPharmacy?

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Steven Mathew White, Harvest Health & Recreation Inc. - Founder, CEO & Director [23]

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So the Verano, CannaPharmacy, the guidance that we've previously provided was summer, for close. We currently don't have any reason to alter that guidance. Largely that is dependent upon regulatory approval. So we'll do everything we can to get it closed as quickly as we can. There are 2 acquisitions that we're really excited about. But we have to wait for a lot of regulators to plus the transaction.

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Jason Vedadi, Harvest Health & Recreation Inc. - Executive Chairman [24]

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Those are good points. I'll add one more thing to that is that Harvest would have had its own processing facility online for Q4 in California. But with the Falcon acquisition, we decided to hold off. So some of that pro forma would have actually come into our own consolidated numbers.

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Robert Fagan, GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare [25]

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Okay. Excellent. And last quick one on the 2020 outlook. Quite an impressive top line expectation there. Is there any additional M&A in that guidance?

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Jason Vedadi, Harvest Health & Recreation Inc. - Executive Chairman [26]

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So there's no additional M&A in that guidance. That's with existing assets and portfolio today on a consolidated basis between the acquisitions we have definitive documents on now.

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Operator [27]

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Our next question comes from Jesse Pytlak of Cormark.

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Jesse Pytlak, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [28]

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Obviously, M&A is a pretty big theme for the company. I just wonder if you can maybe comment a little bit on any potential changes in your seeing for evaluations for some of the private targets that are out there.

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Jason Vedadi, Harvest Health & Recreation Inc. - Executive Chairman [29]

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So on a consistent basis, we are seeing an increase in the market on pricing, but we've sifted through enough acquisitions to where we still get them at highly accretive rates. We're working on several other acquisitions right now that are typical of what we saw last year. There are some markets that seem like they have moved in pricing, where you would want a target focus on other areas. But all in all, they're still highly accretive and plenty of opportunity.

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Jesse Pytlak, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [30]

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Okay. Great. And then just in terms of kind of integration. Obviously, it looks like your plate is a little full with, obviously, Verano, CannaPharmacy and Falcon, but how do you -- just kind of going forward, how do you think about being able to integrate those and then continue to execute on that M&A pipeline?

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Steven D. Gutterman, Harvest Health & Recreation Inc. - President [31]

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Yes. That's a great question, and it's something that we've given really a lot of thought to, because, as you know, if you look statistically at M&A activity over the last 10 years, the statistics say that somewhere between 60% and 70% of all M&A fails to meet its financial objectives. And we believe that success or failure is often predicated on integration.

So what we've done, we've done 2 things. Number one, we have built an integrations team. The team is led by a guy named Johnnie Hernandez, who was the person in charge of retail at Best Buy, and Johnnie has staffed the integrations team with similar outstanding professionals. And so we have a dedicated team, and they have a dedicated checklist that has over 200 items that range from how you would answer the phones to strategically how we think about looking at products and territories. And we use that integration checklist and the team drives that process to make sure that the big questions are answered and the little details don't fall through the cracks. Now our integration work obviously is pending regulatory approval and where we are in the -- where we are in that approval process, but it's something that we put a lot of thought and effort into and we take very seriously.

The second thing is that as we get closer to approval for the Verano transaction, since that is the largest one that we're doing, it is most likely that we will bring aboard a very high-powered consulting group that does integrations to help our integrations team, just to make sure that we haven't missed anything and that we're really using best practices. So I'm glad you asked that question because I think that oftentimes companies don't focus as much as they should or could on what happens the day the transaction. It's something we have given a lot of thought to and we believe, frankly, is a competitive advantage.

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Jesse Pytlak, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [32]

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Okay. And then just one final question, just on the Q1 guidance. I know you gave the stand-alone revenue expectation and you gave a planned pro forma loss on EBITDA. But did you give -- did you provide a stand-alone EBITDA projection as well?

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Leo E. Jaschke, Harvest Health & Recreation Inc. - CFO [33]

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Not at this time. We're projecting about $6 million loss on a pro forma basis.

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Operator [34]

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(Operator Instructions) Our next question comes from Russell Stanley of Beacon Securities.

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Russell Stanley, Beacon Securities Limited, Research Division - Research Analyst [35]

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Congrats on the quarter, and thank you for the guidance. First question, I think, just on the -- on your comments, Steve, around acquisitions requiring regulatory approval. Understanding each state has their own requirements there, I am wondering, especially given the size of the Verano transaction, I'm wondering if you're seeing any federal attention being paid, notwithstanding Cannabis federal status. I'm wondering if you have any federal eyes looking at the transaction or if that's something you anticipate happening.

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Steven Mathew White, Harvest Health & Recreation Inc. - Founder, CEO & Director [36]

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This is Steve White. At this point, the plan is with each of these acquisitions to file an HSR report and go through the process that is required there. We don't have any idea of what that process is. We don't anticipate any significant irregularities with that process. But it is a process that everybody even outside of cannabis goes through.

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Russell Stanley, Beacon Securities Limited, Research Division - Research Analyst [37]

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Great. And just around the guidance and specifically for 2020 and the outlook provided there, wondering if you can provide a little color on the buildup and perhaps some idea as to what you expect the Verano transaction, in particular, to add?

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Steven D. Gutterman, Harvest Health & Recreation Inc. - President [38]

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We're still sorting through the constituent pieces, which is why we gave a pretty broad range. I mean it's a range that obviously has 10% variance in it. And so rather than go through the specifics on this call, we're going to continue to firm up those numbers. And so Russ, let me table that answer for now.

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Russell Stanley, Beacon Securities Limited, Research Division - Research Analyst [39]

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Great. And maybe if we could move on to Florida. You mentioned taking some of the best locations identified by Verano there. I am wondering how many leases in aggregate on a pro forma basis you effectively have signed? And how that's playing out?

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Steven D. Gutterman, Harvest Health & Recreation Inc. - President [40]

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Yes. We have about 20-plus leases that we're working on right now, that are actually done.

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Russell Stanley, Beacon Securities Limited, Research Division - Research Analyst [41]

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Just one last question from me and I'll hop back in the queue. In Arizona, just wondering what the latest is on the -- on your view as to when the Supreme Court might render a decision around the Robbie Jones case?

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Steven Mathew White, Harvest Health & Recreation Inc. - Founder, CEO & Director [42]

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This is Steve White. The -- well, as you probably know, the Supreme Court issues the opinion when the Supreme Court issues the opinion. But the anticipated -- it was anticipated that, that would come sometime in the summer. The oral argument was in March, and we are looking at a roughly 3-month time frame as what we're estimating at the time.

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Operator [43]

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Our next question comes from Matt Bottomley of Canaccord Genuity.

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Matt Bottomley, Canaccord Genuity Limited, Research Division - Analyst [44]

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Just wondering if you can give any more insight on what's happening in New Jersey? Obviously, you guys have pretty good exposure there now. So I'm happy to take any sort of crystal balling, but I imagine you'll do that. But maybe just where the process is now? Is there another vote expected to go through in the spring and maybe a moderate scenario, but where do you expect that market to go this year?

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Steven Mathew White, Harvest Health & Recreation Inc. - Founder, CEO & Director [45]

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Matt, this is Steve White. We don't -- when it comes to New Jersey, we don't know anything that you don't know. We know that the Adult Use law did not pass, and we know that the governor's office is excited to get it passed. There are a number of mechanisms by which that can happen. But we have no projections as to when that may happen nor do we include that change in the law in any of our projections.

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Matt Bottomley, Canaccord Genuity Limited, Research Division - Analyst [46]

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That's helpful. And then the other thing I wanted to just touch on. I don't think we ever chatted on potential hemp strategy or what your views are since the farm bill passed? Do you view that as a way to potentially market your brand in a more traditional retail? Just curious how you're lining up that strategy, given some of your peers are starting to move the levers on that a little bit.

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Steven Mathew White, Harvest Health & Recreation Inc. - Founder, CEO & Director [47]

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We have traditionally been a THC-focused business, particularly with emphasis in oligopolistic opportunities across the U.S., whether that be by state or by municipality. That will continue to be our primary focus going forward. That is not to say that, you will not hear something from us, some way for us to take advantage of the farm bill and the regulations that will ultimately be promulgated there under. But we don't have -- but we remain focused on what we remain focused on. So it's the U.S. opportunity, THC oligopolistic opportunities.

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Matt Bottomley, Canaccord Genuity Limited, Research Division - Analyst [48]

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Great. And last question for me for real this time. I know you touched on this, but I want to make sure I captured it. The Q1 pro forma of $50 million, with about $19 million of that coming from Harvest, can you speak to what states you're expecting to contribute to that other delta, so the other 60%? It's not important in terms of the company or the closing, but just what states actually bring that contribution?

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Leo E. Jaschke, Harvest Health & Recreation Inc. - CFO [49]

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You mean from the other entities?

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Matt Bottomley, Canaccord Genuity Limited, Research Division - Analyst [50]

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Yes. From the other 60%, so the other, call it, $30 million, what state or couple -- maybe the top 2 states or something that is actually contributing to that number?

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Leo E. Jaschke, Harvest Health & Recreation Inc. - CFO [51]

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Yes. I mean, the biggest states are California and Illinois, and then sprinkling of other ones, but those are the 2 biggest.

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Operator [52]

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Our next question comes from Pallotta, Matthew of Echelon Wealth Partners.

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Matthew Pallotta, Echelon Wealth Partners Inc., Research Division - Special Situations Analyst [53]

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Matthew Pallotta here. Just a quick question on the integration front. With all these dispensaries opening up and obviously number of them -- your target is pretty impressive, 120 by next year, and a number of them coming from some of the acquisitions you guys made.

Do you plan to rebrand existing dispensaries under Harvest banner? And are all the ones moving forward going to be branded under the Harvest banner, or do you plan to keep different sort of retail chains under different names there?

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Steven D. Gutterman, Harvest Health & Recreation Inc. - President [54]

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Yes, that's the plan, absent a compelling reason not to. Our take is that it's hard work to create brand equity and to create brand awareness. And so if we can do that once as opposed to twice or 3x, that's better. So yes, that is the plan.

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Matthew Pallotta, Echelon Wealth Partners Inc., Research Division - Special Situations Analyst [55]

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Okay. And then quickly. Also just wanted to confirm on the 2020 guidance. Did you say 30% to 35% on the EBITDA margin side?

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Steven D. Gutterman, Harvest Health & Recreation Inc. - President [56]

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We did.

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Operator [57]

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This concludes our question-and-answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.