Harborside Archives - Green Market Report

Debra BorchardtJuly 29, 2022
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StateHouse Holdings Inc. (CSE: STHZ) (OTCQX: STHZF) reported that it reached a Partial Payment Installment Agreement with the Internal Revenue Service related to the federal tax returns of its wholly-owned subsidiary Patients Mutual Assistance Collective Corporation for the 2007 to 2012 fiscal years and the 2020 fiscal year. Formerly known as Harborside and one of the earliest medical marijuana dispensaries to exist, the company had waged a fight about cannabis company taxation. The plan was met with investor cheers as the stock jumped 18% on the news of the resolution.

Unfortunately, StateHouse lost that battle. Back in February of 2021, the United States Tax Court ruled in favor of the Commissioner of Internal Revenue. The company said it owed approximately $22.1 million in federal taxes. StateHouse said it has reached an agreement for the payments to pay its tax bill through the payment of approximately $5.8 million, to be made through $50,000 per-month payments over an expected period of 116 months, beginning in August 2022. StateHouse has said all along that it set aside tax money in case the judgment went against them and had roughly $21.6 million as of March 31, 2022.

The company said in a statement, “Given that the Provision is significantly higher than the anticipated repayments under the Agreement, the Company expects to record a positive non-cash accounting adjustment of approximately $15.8 million to reverse previous accruals in its financial results relating to the Provision. It is anticipated that the adjustment will be reflected in the Company’s financial results for the second quarter ended June 30, 2022.”

“This is a landmark agreement for our Company,” said Ed Schmults, StateHouse Chief Executive Officer. “By resolving this longstanding 280E obligation, and more recent federal tax obligations, in a satisfactory manner, StateHouse has demonstrated its leadership in the U.S. cannabis sector. This result provides significant clarity for investors on an issue of critical importance and puts StateHouse in a much stronger competitive position. It is an important step on our path to building a flagship California cannabis company.”

“We are grateful to the IRS for working with us to resolve this issue,” Mr. Schmults continued. “The federal tax burden on legal cannabis businesses is highly punitive and very difficult to navigate while trying to achieve profitability. The Agreement demonstrates that we can successfully manage the challenging taxation issues arising from the IRS 280E Tax Code, until there is reform at the federal level. We believe the case for this reform is very strong, as it would create tax fairness for legal cannabis businesses and significantly weaken the illicit market, which would result in stronger tax collections for the federal government over the long term.”

In addition, the Agreement allows the company said it will recategorize the majority of the related liability as a non-current liability, materially reducing the short-term obligations on its balance sheet.


StaffMay 27, 2022
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Harborside Inc. (CSE: HBOR) (OTCQX: HBORF) delivered its interim financial statements for the first quarter ending March 31. Harborside said that year over year net revenues increased 38.8% to $17.2 million, including one month contribution from Urbn Leaf and no contribution from Loudpack. The company also reported a net loss in the quarter of $10.4 million versus last year’s net loss of $2.9 million. 

Even though the company is considered a “going concern”, management said in its filing that it believes there is sufficient capital to meet the company’s business obligations for at least the next twelve months, after considering expected cash flows and the company’s cash position at period-end. the company had $10.9 million in cash at the end of the quarter.

In November, Harborside announced it would be renamed StateHouse Holdings. The company said that it expected to trade the new company on the Canadian Securities Exchange under a new symbol (CSE: STHZ) and the deal is expected to close in the first half of 2022. The name change is expected to happen in June.

Board of Directors Appointment

Harborside also announced that Felicia Snyder has joined the board of directors of the company, effective immediately. An entrepreneur, corporate strategist, seasoned cannabis executive and brand builder, Ms. Snyder is currently Founder and co-CEO of Arcana, an experiential hospitality brand. She was a founding executive at Tokyo Smoke, one of Canada’s most recognized cannabis brands and a leading Canadian cannabis retailer, where she helped to scale the business through its merger with Doja Cannabis and eventual sale to Canopy Growth Corporation.


Debra BorchardtApril 11, 2022
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Pelorus Equity Group completed the second and final tranche of its previously announced $77.3M non-dilutive real estate debt financing with Harborside Inc. (CSE: HBOR) (OTCQX: HBORF). The initial funding included three individual loans to Harborside, Urbn Leaf Holdings Inc., and Loudpack JV Corporation with a second tranche made available upon the final closing of the three-way merger.  The proceeds were used primarily to retire certain existing loans and provide additional working capital.

Harborside’s Merger

Harborside had previously announced the completion of its acquisition of LPF JV Corporation, a leading manufacturer, cultivator, and distributor of award-winning cannabis brands in California. The acquisition of Loudpack follows Harborside’s acquisition of UL Holdings Inc. (“Urbn Leaf”) completed on March 1, 2022 and Harborside’s acquisition of Sublimation Inc. (“Sublime”) completed on July 2, 2021. Following the completion of the acquisitions, the Company plans to be renamed StateHouse Holdings Inc. The second tranche of the Rollup Financing was funded upon completion of the StateHouse Holdings Transaction.
“Pelorus has been a tremendous financial partner as we worked to reach this important milestone,” said Ed Schmults, CEO and a director of Harborside. “Their ability to provide access to customized financing, as well as considerable sector knowledge and a deep network of experts is unparalleled. Their solutions proved to us why so many of the top players in the industry are turning to them for cannabis finance solutions.”

“At such a pivotal time in the cannabis market’s evolution, we are proud to bring our strategic partners customized lending solutions to meet their goals,” said Dan Leimel, CEO of Pelorus Equity Group and Manager of the Pelorus Fund. “We were incredibly pleased to complete this funding with Harborside, Urbn Leaf and Loudpack to support their initiatives to transform the California market landscape, and we look forward to a strong partnership with them as they grow.”

Loudpack cannabis

Financing Rates

The Rollup Financing contains a nominal interest rate of 10.25%, along with specified origination, closing, and other transaction fees, and will be secured by certain real estate assets and cannabis licenses of Harborside, Urbn Leaf, and Loudpack. The Rollup Financing is subject to debt-service ratio requirements, interest reserves, certain cross-corporate guarantees and defaults, subordination agreements and inter-creditor agreements, along with a general corporate guarantee from Harborside.

Mr. Leimel added, “Our ability to structure funding solutions on complex transactions sets Pelorus apart in the cannabis lending sector. As the industry grows and more of the top cannabis players are in need of funding to support their M&A and expansion plans, we are ready to bring our asset-based lending solutions to those looking to quickly scale their operations in some of the world’s most exciting cannabis markets.”

 


StaffFebruary 11, 2022
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Cannabis lending group Pelorus Equity Group closed on its previously announced $77.3 million non-dilutive real estate debt financing with Harborside Inc. (CSE: HBOR) (OTCQX: HBORF).  The initial funding of $45.35 million, the first of two planned tranches, includes three individual loans to Harborside, Urbn Leaf Holdings Inc., and Loudpack JV Corporation. The company said the proceeds will be used primarily to retire certain existing loans and provide additional working capital.

“We are extremely proud to be an important partner during this transformational event in the California market,” said Dan Leimel, CEO of Pelorus Equity Group, and manager of the Pelorus Fund. “The impact of the StateHouse Holdings transaction will be hugely beneficial towards the overall development of the legal cannabis space within the state of California. By partnering with leading companies in the space we have expanded the lending options available for cannabis operators and become the preferred partner for some of the largest players in the industry with our flexible capital and solutions for complex transactions.”

The money will clearly go towards Harborside’s acquisition of Urbn Leaf, and Loudpack. Once that is completed Harborside is expected to be renamed StateHouse Holdings.

“We are pleased to welcome Pelorus as our financial partner as we combine operations with Loudpack and Urbn Leaf to create StateHouse Holdings, a new market leader in California,” said Matt Hawkins, Chairman and interim CEO of Harborside Inc. “Pelorus’s willingness and ability to work with us to customize the financing was critical in enabling us to ideally structure our transactions, illustrating why they are the go-to player in cannabis finance.”

“The growth that Pelorus has seen over the past two years has been incredible, and seeing this loan, the first in our new lower cost stabilized lending program, come to fruition is a great day for us,” said Travis Goad, managing partner of Pelorus Equity Group. “We expect this new program will be a best-in-class option for operators and look forward to driving the progression of the market by collaborating with companies to develop effective and price sensitive solutions.”

Pelorus said that the second tranche of the Rollup Financing will be funded upon completion of the StateHouse Holdings Transaction and at a time of StateHouse Holdings choosing. The Rollup Financing contains a nominal interest rate of 10.25%, along with specified origination, closing and other transaction fees, and will be secured by certain real estate assets and cannabis licenses of Harborside, Urbn Leaf and Loudpack.


Debra BorchardtDecember 7, 2021
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Wholesale cannabis prices have fallen this year and the impact was felt by several companies and in particular – those in California. Cannabis Benchmarks data shows that California’s Spot prices have been on a freefall since June. Cannabis Benchmarks said that prices have dropped by as much as 30% this year. Plus, as outdoor harvests have ended that product is hitting dispensary shelves, which could cause prices to go even lower. 

Leafly’s Cannabis Harvest Report said that in the 11 legal adult-use US states, cannabis supports 13,042 licensed farms that annually harvest 2,278 metric tons of marijuana or more than 5 million pounds of weed. The wholesale cannabis crop brings in $6.2 billion annually, ranking it as the fifth most valuable crop in the United States. Only corn, soybeans, hay, and wheat bring in more money to American farmers. The report also stated that legal cannabis is the single most valuable agricultural crop in Alaska, Colorado, Massachusetts, Nevada, and Oregon, but remains completely uncounted and ignored by state agriculture officials. 

Alex Feldman General Manager, Insights & Marketing Services at LeafLink said, “California prices are still depressed as of early December due to a number of factors. Growing conditions were more favorable this year compared to last, new entrants came into the market anticipating a post-pandemic recovery, and there is continued downward pressure from the black market.” 

Too Much Marijuana

Although demand for freshly-harvested material could help steady price initially, as has been the case in some previous years, the rumblings in California have suggested that an early harvest price bump may not be in the cards this year due to inventory hangover from 2020 and this summer’s light-deprivation crops swamping the market.

Jonathan Rubin, Founder and CEO of Cannabis Benchmarks said that in addition to California, Oregon and Colorado were also seeing a significant drop in wholesale flower prices. “For the West Coast states, there was a significant amount of inventory that remained unsold deep into this year from a big outdoor harvest in 2020. In California, it seems that 2020 and 2021’s harvests were similarly robust. Additionally, cultivators that had spent previous years getting through the state’s stringent licensing process came online and started producing this year, including larger light deprivation operations outside of northern California, and generated a surge of supply beginning this summer, which caused prices to start to fall ahead of the autumn crop.”

In addition to California, Rubin said that in Oregon it seems that growers took record-breaking demand during the first summer of the Covid pandemic as a signal to ramp up production. “Even before the fall harvest, from roughly January through August this year, indoor and light deprivation growers were bringing in harvests that were a good bit larger than in 2020. Regarding the fall outdoor harvest this year, recent data from Oregon shows that outdoor growers have harvested about 55% more wet weight than they did in 2020, a huge increase in output,” he added. With regards to Colorado Rubin said that cultivators also ramped up production in 2020. “Data from the state MED shows that licensed growers in Colorado produced 40% more flower in 2020 than was purchased by adult-use consumers and medical patients, leaving a large inventory overhang,” said Rubin.

Low Prices Hurting Companies

Cannabis companies began to inform investors about the impact of the low prices during the last earnings season. Some were pretty upfront about the situation, while others just dropped hints. 

TPCO also known as The Parent Company (OTC: GRAMF) was one of the companies to deliver sobering news to investors. It reported that sales in the third quarter dropped by 26.7 % from the second-quarter revenue of approximately $54.2 million and blamed the decline on a decrease in bulk wholesale flower and bulk wholesale oil prices during the third quarter.  Wholesale revenue fell to $26.9 million versus $42.3 million in the second quarter and this was attributed to the decrease in whole flower pricing during the quarter. TPCO said that the charge was based on the softening of the California cannabis market. The company also insisted that the challenges it faced were not unique and that the entire California market was experiencing these issues, however, few other companies announced taking a $570 million charge during the quarter. 

Similarly, Harborside (OTC: HBORF) said it was withdrawing its previous revenue guidance for 2021. A variety of reasons were given including a decline in wholesale pricing for bulk products in the California market and the beginning of a commoditization decrease in wholesale revenues as a result of a decline in wholesale pricing for bulk products in the California market. Harborside also said that the California retail market was experiencing a softening in consumer demand. Operationally, the company said it implemented a change in its harvest procedures which delayed flower production in the third quarter of 2021 to allow for the adoption of a perpetual harvest schedule beginning in the fourth quarter. 

Glass House Brands (OTC: GLASF) CEO Kyle Kazan said during its recent earnings announcement that the California wholesale market faced considerable pricing challenges, as a result of overproduction in the third quarter. “While we expect the weakness in pricing to persist in the near term, we have proven the strength of our efficient operating model and the ability of our team to navigate a rapidly changing industry,” he said. The company reported that wholesale biomass revenue fell 18% despite a more than doubling of unit volume sales as flower wholesale prices fell by 48%, negatively impacting revenue by $4.1 million. Glass House also said it no longer expects to achieve the 2021 and 2022 revenue and profitability targets it had previously announced. The company now expects fourth-quarter revenues to be flat to down slightly compared to the third quarter in 2021 revenues of $17.2M. Kazan seemed to take the challenge in stride saying, “In Q3, our revenue (and that of everyone else of size in our market), took a hit from the significant drop in California’s wholesale flower pricing, and we think the difficult pricing environment will stick around for a while. “

Columbia Care (OTC: CCHWF) opted to just drop hints saying during its earnings announcement that there were some “wholesale pricing dynamics in some markets, such as California and Pennsylvania, and competitive market share dynamics in Florida.” After reading the other company comments, Col-Care’s soft pedal is really downplaying the situation. 

Slowing Sales

Of course, no one wants to suggest that sales could be maturing in some states. Rubin also said Cannabis Benchmarks noted that the expanded production coincided with slowing sales after the initial pandemic boom in 2020. “Beginning this spring and summer, sales began to plateau and then began to decline in late summer, continuing into the autumn and early winter. So in contrast to 2020 when demand was spiking and sales were breaking records in many legal cannabis markets, that has slowed in the second half of 2021 and recent month’s sales in the states under discussion are down year-on-year.” That statement agrees with Harborside’s assessment. 

Higher Energy Prices

Not only are these companies facing slowing sales, too much inventory, and falling prices, but they are also getting squeezed by higher energy costs, Granted if you’re an outside grower in California, you likely encounter water pressures. The recent Consumer Price Index (CPI) for all items jumped 0.9% in October and there were notable increases in the energy and energy services (utilities) sectors. Energy prices rose 4.8% in October with gasoline up 6.1%, fuel oil up 12.3%, and electricity up 1.8% on the month.

Indoor growers rely heavily on electricity to run lights and massive HVAC systems. They are known to be energy hogs. Over the past 12 months, the CPI reports that overall energy prices have risen 30%, with energy commodities, gasoline, and fuel oil, up 49.6% and 59.1%, respectively. Energy services (utilities) are up 11.2% year-on-year. 

In Closing

The question will be who can weather this storm of low prices, high energy costs, and slowing demand in legal dispensaries? LeafLink’s Feldman noted, “We’ve seen wholesale bulk flower pricing declines through October in key states including Michigan, Oregon, Colorado, and Arizona, but are seeing the trend improve as early December average prices in three of the four states are increasing, with the exception of Colorado.” So there could be light at the end of the tunnel. 

However, some cannabis industry vultures say they are already circling to look for those smaller players who are in distress and don’t have the reserves to ride this out. The larger companies can cut costs in the challenging states while relying on sales in states where wholesale prices have stayed steady. These dynamics are just part of the overall portfolio in a larger company. The California-only companies will see the crushing need for diversification. 

Kazan concluded, “To us, that’s not all bad news — the best strategy for weathering commoditization is producing the highest quality product at the lowest cost, and that’s basically a description of Glass House Brands’ strategy. In other words, we’re ready. Price compression is expected in every evolving industry and it makes strong companies stronger, though it unfortunately also removes others from the playing field. We’ve been preparing for this for a long time, and we think these market conditions will see the best-in-class companies thrive.


Debra BorchardtNovember 30, 2021
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After the market closed on Monday, Harborside Inc.  (CSE: HBOR), (OTCQX: HBORF) announced it was buying California retailer UL Holdings Inc. also known as Urbn Leaf, and  LPF JV Corporation, better known as Loudpack. Loudpack is a manufacturer, cultivator and distributor of award-winning cannabis brands in California.  The newly combined company will be renamed StateHouse Holdings. The company said that it expects to trade the new company on the Canadian Securities Exchange under a new symbol (CSE: STHZ) and the deal is expected to close in the first half of 2022.

Ed Schmults, the current CEO of Urbn Leaf, is expected to be appointed as CEO of StateHouse upon completion of the Urbn Leaf Transaction and will be joining the Board of Directors of StateHouse. Marc Ravner, the current CEO of Loudpack, is expected to be appointed as President of StateHouse upon completion of the Loudpack Transaction and will be joining the Board of Directors of StateHouse. Matthew Hawkins, current Chairman and interim CEO of Harborside, will remain as Chairman of the Board of StateHouse.

“Since reconstituting the Company’s board of directors last year, our team embarked upon an ambitious mission to create a unique platform capable of consolidating California and driving significant growth through added scale. With these transactions, we are working to create a west coast cannabis powerhouse,” said Mr. Hawkins. “California is one of the world’s largest legal cannabis markets, with sales expected to reach $7.4 billion by 2025. StateHouse will have a unique ability to navigate the operating challenges in the state and capitalize on the combined potential of the businesses we are acquiring. We are building what we believe is the ideal platform to consolidate the California cannabis sector, positioning us for long-term growth in both market share and profitability. Ed Schmults, an experienced leader with a proven retail and cannabis track record, is the right person to lead StateHouse into the future.”

The company said in a statement that it believes that StateHouse will have the highest estimated annual revenue and brand market share among its current publicly-listed California cannabis companies. Through the first nine months of 2021, Harborside, on a pro-forma basis including revenue of Sublimation for the entire period, had gross revenue of $57.8 million, while Urbn Leaf and Loudpack had revenue of $45.9 million and $61.4 million, respectively. By that calculation, on a pro forma basis, management estimates that StateHouse would have generated gross revenue of approximately $165 million for the same period.

Forecast Is Pulled

In addition to announcing the big transaction, Harborside also delivered some sobering news to investors. The company said it was withdrawing its previous revenue guidance for 2021 and said it would revisit the forecast after the deal closes. A variety of reasons were given including a decline in wholesale pricing for bulk products in the California market and a decline in retail revenue which was primarily due to a decrease in retail store foot traffic.  Harborside said this was due to the California retail market experiencing a softening in consumer demand and the beginning of commoditization decrease in wholesale revenues as a result of a decline in wholesale pricing for bulk products in the California market. “Operationally, the company also implemented a change in its harvest procedures which delayed flower production in Q3 2021 to allow for the adoption of a perpetual harvest schedule beginning in Q4 2021. The Production Campus also experienced a temporary COVID-19 related supply chain issue with a growing medium (substrate material) which did not meet agreed-upon specifications and thereby caused a short-term reduction in harvest yields.”

Third Quarter Earnings

Harborside reported that total gross revenues were $17.9 million, 10.4% higher sequentially than the previous quarter. However, both retail and wholesale revenues fell sequentially and the difference was only made up through manufacturing revenues, which didn’t exist in the second quarter. The manufacturing revenues came as a result of the Sublime acquisition.

The net income grew to $2.7 million versus the second quarter’s $1.7 million. The increase in net income attributable to Harborside was primarily the result of a one-time gain of approximately $5.3 million in the quarter due to the adjustment of the estimate for uncertain tax liabilities related to Internal Revenue Code section 280E, along with fair value gains in other current assets, derivative liabilities and preferred shares.

Pelorus Lower Coast Financing

Along with the transaction, the company received $77.3 million in rollup debt financing with Pelorus Equity Group who is expected to provide non-dilutive capital, leveraging StateHouse’s significant real estate portfolio. “We’re excited to be able to fund such a significant rollup in the California market,” said Travis Goad, Managing Partner of Pelorus Equity Group. “We think the combined companies will be a formidable player on a go forward basis. This loan is one of our first in our new lower cost stabilized lending program.  We expect this stabilized lending program will continue to be the best-in-class financing option for cannabis operators with cash flowing assets, especially for complex transactions such as this. Pelorus is constantly innovating new financing solutions for the cannabis real estate market.”   

StateHouse Statistics

Following the combination, Statehouse said it would have the following:

  • 15 retail locations, representing the number two retail platform in California under one unified banner with further planned expansion;
  • Nine popular brands, including top-five ranked brands in the pre-roll (Fuzzies and Kingpen), edible (Smokiez) and value flower (Dime Bag) segments, representing the #3 ranked brand house in California
  • Manufacturing facilities with an annual capacity of more than $400 million in branded products revenue at full utilization, with capabilities to produce across all product formats offered by the Company
  • A state-wide distribution network for the Company’s branded products that reaches more than 780 active accounts, including approximately 75% of California dispensaries
  • 230,000 square feet of greenhouse cultivation space, with additional near-term expansion capacity of more than 100,000 square feet of canopy
  • 36,000 pounds of cultivation capacity with 22,000 pounds of additional near-term cultivation capacity

 


Debra BorchardtAugust 31, 2021
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After the close of the market on Monday, Harborside Inc.  (CSE: HBOR) (OTCQX: HBORF) reported its financial results for the second quarter ending June 30, 2021, as revenues were essentially flat year over year, but up sequentially. The revenue for the quarter was $16.19 million versus last year’s $16.14, but an improvement over the first quarter’s total revenue of $12.9 million. There are two analysts covering Harborside who had an average estimate for revenues of $12.4 million. 

Harborside delivered a net income attributable of $1.8 million in the second quarter versus a net (loss) of approximately $(1.7) million in 2020, an approximately 201% increase in net income on a year-over-year basis. The company attributed the year-over-year increase was due primarily to fair value gains related to other current assets which were recognized during the quarter.

“I’m thrilled with the strong sequential growth we drove in our second quarter while continuing to make solid improvements to our gross margins and profitability,” said Matt Hawkins, Chairman and Interim Chief Executive Officer (“CEO”) of Harborside. “We continue to build a robust business, supported by our high-quality cultivation, leading consumer brands, and best-in-class retail experience. Our continued focus on improvement has allowed us to become a leader in the California cannabis market and we expect our business to continue to advance as we begin to integrate the synergies afforded by the Sublime Acquisition that closed in July.”

Revenue Breakdown

Harborside noted that the retail gross revenue was $11.0 million and the wholesale gross revenue was $5.2 million, for total gross revenue of $16.2 million, as compared to retail gross revenue of $10.0 million, wholesale gross revenue of $2.9 million and total gross revenue of $12.9 million during the first quarter of 2021. The company said that on a quarter over quarter basis, retail revenues improved by approximately 9% as the Company adjusted its customer loyalty program from a points-based plan to a new model that rewards frequent buyers while relying less on cumulative discounting at the point of sale. Wholesale revenues increased as the Salinas production campus delivered improved harvest yields and flower quality in the second quarter, which allowed the company to bring more bulk products to market during the quarter.

Expenses Rise

The company noted that total operating expenses increased to approximately $9.0 million over last year’s $7.1 million. The year-to-year increase in total operating expenses was primarily due to an increase in general and administrative expenses of $0.9 million, to $5.4 million as compared to $4.5 million in the comparative period in 2020 and an increase in professional fees of $1.0 million, to $3.3 million as compared to $2.3 million in Q2 2020, which was primarily due to an increased level of legal and professional fees in the current quarter related to the Sublime Acquisition and the settlement of litigation. In July, Harborside completed its previously announced acquisition of Sublimation Inc., an award-winning cannabis manufacturing company located in Oakland, CA, for a total consideration of $43.8 million.

Harborside had total current assets of approximately $38.4 million, including approximately $26.9 million of available cash, as compared to current assets of approximately $21.9 million, including approximately $13.6 million in available cash as of June 30, 2020. During the first quarter, Harborside closed a brokered private placement for aggregate gross proceeds of approximately C$35.1 million and entered into a loan financing arrangement with a federally regulated commercial bank in the amount of $12.0 million pursuant to a senior secured revolving credit facility due March 19, 2023. On May 28, 2021, Harborside drew down approximately $11.4 million on the revolving credit facility in advance of purchasing the cultivation/production facility in Salinas on June 1, 2021.

Hawkins added, “As we move into the second half of the year, our focus remains on further scaling our reach through accretive M&A opportunities and building our leadership team, including our goal to bring in a new CEO, which together with our strong foundation will position Harborside for long-term growth


StaffJune 1, 2021
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Harborside Inc. (CSE: HBOR) (OTCQX: HBORF) reported its financial results for the first quarter ending March 31, 2021, after the market close on Monday. Harborside reported that its net revenues fell 9% to $12.4 million versus last year’s $13.7 million for the same time period. This missed the Yahoo Finance average analyst estimate for revenues of $13.65 million. The company blamed the decline on decreased store traffic due to COVID-19 restrictions, however, there were also declines in the wholesale business related to lower yields. The net losses for the quarter grew 21.9% to $2.9 million from last year’s $2.3 million. 

“Our Q1 results reflect the strength of our business as we demonstrated sustained profitability while we executed on the opportunity to scale up our cultivation activities, improve the breadth and depth of our product portfolio, and expand consumer access to our retail stores,” said Matt Hawkins, Chairman of Harborside. “Throughout the quarter, we continued to build Harborside’s management team with a focus on operational strength and deep industry experience which, together with our strong balance sheet, has positioned Harborside with both the resources and depth of talent to execute on our California focused growth strategy.”

Sublime Acquisition

Following the earnings announcement, Harborside said it was buying California-based Sublimation Inc. also known as Sublime for $43.8 million. The acquisition is expected to close in July 2021. Founded in 2016, Sublime is best known for its expansive line of high-potency, high-quality and affordable, Fuzzies branded pre-rolls, a leading brand of pre-rolls in the state of California, as well as vapes and roll-your-own flower kits.  Since 2019 Sublime has delivered a revenue CAGR of approximately 70% and ended 2020 with a 7.9% California pre-roll market share.

“This acquisition adds an iconic, award-winning California brand, with an exceptional product offering and consumer following, to our growing brand portfolio,” said Peter Bilodeau, Interim CEO of Harborside. “Harborside has been a customer of Sublime for many years and we know the quality of their products.  With the existing production capacity and soon to be completed upgrades at our Salinas cultivation facility, we are well-positioned to support the continued growth of the Sublime brands while expanding the reach of Harborside’s existing branded product portfolio in both the retail and wholesale markets, which we expect to ultimately drive increased profitability across our entire business. We’re very excited to continue to provide consumers with innovative, high-quality products while delivering strong value for our shareholders.  The company will issue new guidance in due course.”

Revenue Breakout

Harborside’s retail operations saw its net revenues drop 2% to approximately $10.0 million for the quarter. Gross margins improved from 51.3% to 55.0% on a year-over-year basis. The company said in a statement, “While retail revenue has been supported by improved in-store merchandising and a focus on selling more items that are produced in-house, it was hampered somewhat in Q1 2021 by decreased in-store foot traffic due to COVID-19 capacity restrictions in California, particularly in Alameda County.” On a positive note, Harborside’s retail stores branded products represented 5 of the top 10 selling SKUs in Q1 2021.

Harborside’s wholesale operations net revenues dropped 31% to $2.4 million for the quarter. The company attributed the decline to a lower-than-expected flower yield from Harborside’s cultivation/production facility in Salinas, California, which was caused by several factors, including a delay in completing the planned greenhouse capital improvements due to a COVID-19 related disruption in the supply chain for grow light fixtures; a weather event which damaged the roof over a portion of the flower canopy; and, a subsequent infestation of non-beneficial insects, which was addressed through implementing a more robust plan for how pests are managed. The aforementioned events affected harvests and limited the overall supply of sellable flower during the quarter.

Mr. Hawkins added, “With adult-use consumer sales officially underway at our San Leandro retail store, as well as a new, more conveniently located store expected to open in the second half of the year, and our strong pipeline of acquisition opportunities under review, we have built a strong foundation to accelerate our growth and drive strong value for our shareholders.”

Looking Ahead

In January 2021, Harborside announced that for the full year of 2021, it expects standalone gross revenues of between $68.0 to $72.0 million.  The anticipated increase in revenues for 2021 is expected to be derived from improved retail pricing combined with continued increases in both flower yields and processing efficiencies from the company’s wholesale operations.  In addition, the company said it expects an Adjusted EBITDA in the range of 15% to 17% of net revenues for 2021.  Management expects to attain this higher level of Adjusted EBITDA in 2021 through more efficient procurement of goods sold and stronger cost discipline on overhead spend.


Debra BorchardtApril 26, 2021
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6min90

Harborside Inc.  (OTCQX: HBORF)reported its financial results for the fourth quarter and full-year ending December 31, 2020. In the fourth quarter, Harborside delivered total gross revenues of approximately $13.1 million, which was a 12% increase versus 2019’s fourth-quarter revenues of $11.7 million. The company beat the average analyst estimates from Yahoo Finance which was for revenues of $12.4 million. The net loss per share was $0.14 for the fourth quarter, which was worse than the analyst estimate for a loss of $0.09 per share for the quarter. 

The operating loss in the quarter was approximately $5.4 million versus $43.6 million in 2019 for the same time period.  The net loss was approximately $5.4 million versus $45.0 million in 2019, an approximately 87.8% improvement on a year-over-year basis.

For the full year, 2020 gross revenues increased 29.4% to $63.4 million from approximately $49.0 million in 2019.  The net loss for fiscal year 2020 was $11.9 million versus 2019’s net loss of $49.4 million.

“2020 marked a turning point year for Harborside. Despite experiencing a pandemic, we worked hard to better serve our customers, improve and scale our cultivation operations,  increase the availability of our branded products and create a strong foundation for future growth,”  said Matt Hawkins, Chairman of Harborside. “The impact of our efforts is evident in our impressive full-year financial results, where we drove solid top-line revenue growth of 29% while actively managing our expenses and driving operating leverage throughout our business to expand our total gross margins to 47% and generate $7.4 million in Adjusted EBITDA in 2020.”

Mr. Hawkins added, “We have also ensured that Harborside has a strong balance sheet, successfully raising C$35.1 million and securing a $12 million revolving credit facility subsequent to year-end.  In addition, we have also started taking definitive action towards settling our preexisting 280E liabilities, which includes the recent 9th Circuit affirmation of the prior lower court ruling with respect to our appeal. We have already accounted for and reserved for these liabilities, and the ruling does not change the company’s plans to negotiate with the IRS.  We have both the resources and focus to execute on our California first growth strategy.”

During the fourth quarter, Harborside recorded an income tax expense of approximately $1.5 million, compared to approximately $0.7 million in 2019, based on estimated federal income taxes payable at each period-end.

Looking Ahead

In January 2021, Harborside had said that it expects standalone gross revenues of between $68.0 to $72.0 million in 2021. The company said that the anticipated increase in revenues for 2021 is expected to be derived from improved retail pricing along with continued increases in both flower yields and processing efficiencies from the company’s wholesale operations. In addition, the company said it expects an Adjusted EBITDA in the range of 15% to 17% of net revenues for 2021. Harborside said it expects to attain this higher level of Adjusted EBITDA in 2021 through more efficient procurement of goods sold and stronger cost discipline on overhead spend.

Harborside said that it plans to accomplish the following over the next year:
 expand its retail footprint throughout California;
 continue to increase the sell-through of in-house brands at Company-controlled retail stores;
 improve its cannabis production efficiencies and yields/manufacturing capabilities;
 expand the wholesale distribution of its branded consumer packaged goods throughout California;
 shift more of its wholesale sales from bulk cannabis products to branded packaged goods;
 increase the number of branded cannabis product offerings, including non-flower cannabis products; and
 create or acquire new California centric consumer brands.

Mr. Hawkins concluded, “We’re thrilled with the progress we have made and excited for the year ahead. With the initial cultivation upgrades at our Salinas production campus now complete, a recently strengthened balance sheet and a refreshed team of operators with deep industry experience at the helm, Harborside is well-positioned to accelerate our growth and continue to extend our leading position in the California cannabis market.”


StaffMarch 8, 2021
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2min60

California-based Harborside Inc. (OTC: HBORF) has completed a $5 million strategic investment in LPF JV, LLC otherwise known as Loudpack, through a 15%, secured convertible note due December 2022. Loudpack is a California-based cannabis company with a broad cultivation, manufacturing, processing, and distribution footprint. Loudpack’s brands include Kingpen, Loudpack, Dimebag, and Smokiez.

“We are focused on improving our profitability through implementing best-in-class, highly efficient production techniques, increasing the quality of our supply chain, and expanding our inhouse brands into manufactured products,” said Matthew Hawkins, Chairman of Harborside. “Through this capital investment, we have strengthened our partnership with Loudpack and will look to leverage their expertise as we explore opportunities to expand our cultivation, production, and distribution capabilities to improve the availability of our high-quality cannabis products for consumers across California.”

In addition to the funding, Harborside said it has engaged Loudpack to provide services aimed at identifying production efficiencies as well as improving harvest yields at the company’s cultivation facility located in Salinas, California. Loudpack will also be providing contract manufacturing services for a suite of Harborside branded products and Harborside will be increasing the availability of shelf space for Loudpack branded products at the company’s retail stores.

Marc Ravner, Chief Executive Officer at Loudpack, said, “As a pioneer and innovator with a strong reputation in the California cannabis market, Harborside’s capital investment is a great validation of the confidence they have in Loudpack’s team, technical production insight, and overall capabilities. We look forward to using the funds from this investment to scale our operations to better serve all of our customers across California.”


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