Harvest One Cannabis Inc (CVE:HVT) (OTCQX:HRVOF) is selling its United Greeneries cannabis cultivation and processing business in Duncan, British Columbia as it transitions more into the consumer packaged goods space, the company announced Friday.
Harvest One agreed to an C$8.2 million deal with Costa Canna Production LLP and 626875 BC Ltd. The parties also plan to execute a licenses agreement, which will see Harvest One’s subsidiaries provide Costa LLP with licensed intellectual property to produce and distribute Cannabis 2.0 products in Canada. In exchange, Harvest One will receive a 95% royalty and distribution of its products.
"The agreement to sell our Duncan Facility and its related operations represents a strategic step forward for Harvest One, further divesting from its capital intensive cultivation activities and firmly establishing ourselves as a cannabis-focused CPG company," CEO Andrew Bayfield said in a statement. "We will continue to focus on expanding our core brands of LivRelief, Dream Water and Satipharm together with the commercialization of Cannabis 2.0 product offerings in Canada."
The purchasers will also issue a pair of promissory notes to Harvest One subsidiaries representing the value of certain cannabis and other item inventories that will be calculated at closing, the company said. The deal is expected to close on June 30.
"When complete, this transaction will significantly improve the company's overall cost structure and will provide liquidity to strengthen our balance sheet,” Bayfield said. “We are continuing to take necessary and decisive measures to streamline our operations, lower our cost structure and reduce our cash burn. I am confident we are on the right path and this transaction serves to further reinforce the company's plan to become cash flow positive in fiscal 2021."
Along with the transaction, Harvest One secured a C$1.5 million bridge financing facility from Costa which will become available once the deal is signed. The facility is meant to mature and be repaid in full, the company said.
Vancouver-based Harvest One serves as an umbrella over three wholly owned subsidiaries: Satipharm, which develops cannabis-based health products; Dream Water, which offers consumer sleep aids; and a controlling interest in Greenbelt Greenhouse.
Third quarter results
Harvest One also released its fiscal third-quarter results before the bell Friday, which showed improved revenue and a consumer division only moderately affected by the coronavirus pandemic.
Revenue for the three months ended March 31 came in at C$3.3 million, up 10% from C$3 million in the same period last year. On a quarter-over-quarter basis, revenue jumped 88% due to higher recreational cannabis and bulk cannabis sales.
The company’s consumer division decreased 2% quarter-over-quarter despite the impact of coronavirus in the back end of the period, the company said.
Harvest One’s net loss was C$35 million, or C$0.16 per share, which was due primarily to C$27.5 million in non-cash goodwill impairment charges and C$1.5 million in non-cash inventory write-downs. A year earlier, that figure was C$5.1 million, or $0.03 per share.
The company’s adjusted EBITDA, though, was a loss of C$2.4 million, compared to a C$1.6 million loss in the same period of 2019.
The company also stressed that its outlook remains promising for sales volumes in both its consumer and medical divisions for the rest of fiscal 2020 and fiscal 2021. Next quarter’s report will reflect Cannabis 2.0 sales, and the company said it has seen strong demand from its retail and provincial partners.
Harvest One is also continuing to undergo a strategic review, the results of which could possibly include the sale of its 50.1% interest in Greenbelt Greenhouse and the Lucky Lake facility.
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