Long Ideas | Healthcare | Canada

Harvest One Cannabis: Highly Undervalued Cannabis Stock

Mar. 12, 2019 6:32 PM ET

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About: Harvest One Cannabis Inc. (HRVOF), Includes: ACB

Bilbao Asset Management

Long/short equity, value, special situations, growth at reasonable price

(828 followers)

Summary

Harvest One Cannabis is a cannabis company cultivating and selling cannabis as well as developing medical and nutraceutical products.

With forward revenue of $15 million, Harvest One trades at 5.2x, which looks cheap as compared to other cannabis operators. Many of them trade at more than 25x sales.

The amount of intangibles worth $7.8 million and goodwill of $30 million comprise of 35% of the total amount of assets. Please note that auditors may impair these assets.

Harvest One Cannabis paid for Dream Water a total of CAD 34.5 million. $12.5 million was cash, and the rest was equity. It means that goodwill represented more than 80% of the total amount paid.

It is very relevant noting that cultivation comprises of 38% of the total amount of revenues. The gross profit margin of this activity is large.

Harvest One (OTCPK:HRVOF) should not trade at 5.2x forward revenue as other peers with less revenue growth are trading at more than 25x. Investors should not be able to justify such a low valuation. In addition, the company seems small, which is many times a risk.

With that, if revenue growth continues and the market trusts this name, the EV/Sales ratio should improve. Keep in mind that for the six months ended September 31, 2018, Harvest One had CAD 5.6 million, 3,062% more than that in the same period in 2017.

Business

Founded in 2008, Harvest One Cannabis is a cannabis company cultivating and selling cannabis as well as developing medical and nutraceutical products.

With three subsidiaries operating in three very different activities, investors are able to access many business segments related to the cannabis business. There is United Greeneries, a licensed producer headquartered in British Columbia, which presents its business with the following words: