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Harvest Health’s Rapid Expansion Hits Snags

April 30, 2019

By all appearances, Phoenix, Arizona-based Harvest Health and Recreation is having a banner year. The company raised approximately $300 million in 2018, according to its most recent earnings report, and used it to make a series of acquisitions in the last few months that have dramatically expanded its national footprint. In February, Harvest announced the pending acquisition of Falcon International Corp., a vertically integrated California cannabis company that it describes as “a beachhead” for California operations. In March Harvest bought Verano Holdings for $850 million in a record-setting deal, and earlier this month expanded further on the East Coast with the acquisition of CannaPharmacy.

In the last six months, Harvest has expanded from operating in four states to a presence in 17 states and territories, pending the closure of these deals. Meanwhile, its revenues doubled to $47 million in 2018, with adjusted EBITDA up 72% to $10.3 million. However, the company has found that navigating the cannabis category’s regulatory landscape is proving challenging in some of its new markets.

Both Pennsylvania and Maryland are investigating Harvest for violations of rules governing cannabis licenses. In Pennsylvania, no entity is allowed more than five licenses—each of which is good for three locations—for a total of 15 shops. When it acquired CannaPharmacy, Harvest noted that it would hold seven Pennsylvania licenses following the deal, for a potential 21 storefronts. The company accomplished that by applying multiple times through interrelated firms with slightly different names.

Harvest’s statement caught the eye of the Pennsylvania Department of Health, which recently demanded “all records, documents, and correspondence” between Harvest, CannaPharmacy, and Pennsylvania subsidiaries. If the investigation finds malfeasance, Harvest stands to lose its permits to operate in the state, under the maximum penalty. It has until May 6 to submit the documents. Harvest didn’t respond to requests for comment.

In Maryland, license limits were recently bumped up from one to four per company. With the addition of Verano, Harvest’s total would be in excess of the limit. The state’s Medical Cannabis Commission is investigating “the proposed transfer.”

Harvest isn’t the only company in this situation—following a Boston Globe Spotlight report on licensing overreach, both Acreage Holdings and Sea Hunter Therapeutics have come under scrutiny from the Massachusetts Cannabis Control Commission for exceeding the state’s three license cap. The inquiries highlight the challenges of interstate expansion for cannabis companies under the patchwork of state-level laws that govern the industry.—Danny Sullivan

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