Statehouse M&A Strategy Paying Off As Revenues Rise

The West Coast consolidator will look to minimize exposure to the "volatile" bulk cannabis market and focus on operating as a consumer packaged-goods business.

StateHouse Holdings Inc. (CSE: STHZ) (OTCQX: STHZF) slumped in early trading Friday despite posting positive results as the cannabis consolidator shores up its investments and focus on its consumer packaged-goods business. The West Coast vertically-integrated holdings company — formerly known as Harborside — announced its financial results for the second quarter ending June 30, 2022.

StateHouse’s second quarter revenues totaled $34.6 million, a 125% gain versus $15.4 million in the same period last year; and $17.2 million sequentially. The company said that the increase reflected the acquisitions of Urbn Leaf and Loudpack.

The company recorded a net loss of $13.5 million versus $10.5 million in the previous quarter, according to SEDAR filings. Earnings went for a loss of five cents a share versus a gain of three cents a share in the same period last year.

“The second quarter was a landmark period for StateHouse, as we completed the acquisition of Loudpack to create a leading, fully integrated California cannabis company,” said CEO Ed Schmults. “We then launched the first phase of a major integration initiative, which was completed before the end of the quarter and resulted in significant annual cost savings.”

StateHouse said that it’ll look to minimize exposure to the “volatile” bulk cannabis market and rather focus on operating as a consumer packaged goods business with production, processing, brands and retail stores. Along with the continuing reduction of costs, the company said it expects to become “scalable, controlled, profitable and more predictable cannabis business.”

Gross profit before adjustments for biological assets was $14.7 million, a 110% gain versus $7.0 million in gross profit in the second quarter last year.

Consolidated gross margins during the second quarter were 42.6% of revenues, versus 45.6% of revenues in the same period last year, with the gross margin reduction primarily due to the year over year selling price declines on bulk cannabis in the California market and the addition of manufacturing revenues which typically operate on lower margins. Margins were partially offset by greater sales of in-house manufactured products at company-owned retail stores.

StateHouse announced in July that it had figured out a payment plan with the Internal Revenue Service to resolve and reduce federal tax obligations, resulting in a one-time non-cash gain of approximately $16.1 million. The company said it continues to negotiate with the IRS over additional back taxes.

The company completed its transition into a common technology platform for its California retail stores, e-commerce and home delivery.

“One-time costs related to closing the Loudpack acquisition impacted profitability in Q2 2022, but with the integration activities underway, we exited the quarter in a much stronger competitive position,” Schmults said. “While California cannabis market conditions are currently challenging, particularly in wholesale, we are continuing to aggressively reduce costs and optimize operations, developing new consumer packaged cannabis products and expecting to generate material positive EBITDA in 2023.”

Adam Jackson

Adam Jackson covers the cannabis industry for The Green Market Report. He previously covered the Missouri statehouse for The Columbia Missourian and freelanced for The Missouri Independent. He most recently covered retail, restaurants, and other consumer companies for Bloomberg Business News. You can find him on Twitter @adam_sjackson and email him at adam.jackson@crain.com.


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