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Targeting 500bp gross margin improvements at both the wholesale and retail levels
OAKLAND, Calif. and TORONTO, May 31, 2022 /CNW/ – Harborside Inc. (“Harborside” or the “Company”) (CSE: HBOR) (OTCQX: HBORF), a California-focused, vertically integrated cannabis enterprise, today provided details of the integration of its operations with those of the three companies acquired by the Company since the third quarter of last year. On July 2, 2021, the Company acquired Sublimation Inc. (“Sublime”), which was followed by the acquisition of UL Holdings Inc. (“Urbn Leaf”) on March 1, 2022 and LPF JV Corporation (“Loudpack”) on April 4, 2022 (together, the “Acquisitions”). All amounts in this press release are expressed in U.S. dollars.
The integration of the Acquisitions with Harborside is well underway and the Company expects to complete the first phase of the process by the end of June 2022. Management anticipates that these measures will generate approximately $10.3 million(1)(2) of annualized cost savings. Below is a summary of important initiatives that have already been completed or are currently being finalized:
- In January 2022, the Company moved Urbn Leaf’s manufacturing and distribution operations to Loudpack’s state-of-the art facility in Greenfield, California. As a result, the Company discontinued operations in Urbn Leaf’s manufacturing and distribution facilities in February 2022, thereby generating in excess of $800,000 of estimated annualized cost savings.
- In April 2022, Harborside consolidated the management of its cultivation operations at Greenfield with the management of its cultivation operations in its facility in Salinas, California. As a result, the Company was able to eliminate redundancies and generate annualized cost savings of approximately $600,000. An additional annual reduction of approximately $260,000 was identified by incorporating Salinas’ nutrient formula at the Greenfield facility.
- Effective this week, the Company expects to complete the closure of the Sublime production facility in Oakland, with the sale of such facility expected to be completed later in June 2022. Cost savings related to headcount reductions are expected to total approximately $2.4 million(1)(2) per year, and the Company contemplates additional annual savings from rent reduction and license elimination. The anticipated sale of the Sublime production facility is expected to result in proceeds of approximately $200,000(1)(2). In conjunction with the closure and sale, the Company expects to recognize a non-cash impairment charge against its property, plant and equipment, intangible assets and goodwill related to the facility.
- Harborside has significantly reduced its overall senior management complement, reflecting its one-company status. A number of executive-level managers have left the Company in 2022, resulting in a reduction of approximately $1.2 million of annual payroll costs.
- Harborside is currently in the final stages of implementing significant changes to its corporate, manufacturing, wholesale sales and retail store operations. By the end of June 2022, the Company expects to generate a further $5 million(1)(2) in annual cost reductions, attributable primarily to operational efficiencies and process improvement. One-time costs associated with these changes are expected to total approximately $500,000(1)(2).
The Company is already benefiting from the utilization of best-in-class processes and procedures from across the four companies. For example, cultivation yields in April 2022 were 2.5 times higher than those experienced in April 2021, based on improvements in all areas of cultivation. May 2022 yields are tracking at similar levels, and the Company expects this trend to be sustainable. Retail store operations are also benefiting from cross-company knowledge and enhanced market information. Harborside expects its retail gross margins to increase to more than 60% by year-end 2022(1)(2).
We are making outstanding progress to date in putting these four companies together. The annualized cost savings of $10.3 million achieved to date will substantially strengthen our financial performance, and we are pleased to be realizing the synergies so quickly.
Ed Schmults, Chief Executive Officer of Harborside
As we prepare to change the name of the Company to StateHouse Holdings Inc. in the coming weeks, we expect to begin the second phase of integration, which will be focused on continued cost reductions and gross margin enhancement.
By year-end 2022, the Company anticipates gross margins to expand to a level approximately 500 basis points higher than historical Harborside margins, in both the retail and wholesale businesses. This assumption is based on the cost savings and operational enhancements enacted to date and further such reductions over the balance of the year.
As previously announced, the Company’s estimated pro forma 2021 sales, which include the full-year sales for Harborside, Sublime, Urbn Leaf and Loudpack, would have totaled approximately $190 million(3). This figure excludes bulk sales, which Loudpack has discontinued since completion of the Acquisitions. With scale in revenue having already been achieved and integration expected to yield strong margin improvements, management believes that the Company is positioned to deliver strong, sustainable returns to shareholders(1)(2).
The Company will host a conference call today for analysts and investors, during which it will review the ongoing progress of Harborside’s business integration:
Conference Call Date: May 31, 2022
Time: 11:00am ET
North American toll-free dial-in number: 1-888-664-6392
International dial-in number: 416-764-8659
A telephonic replay of the conference call will also be available through June 14, 2022.
North American toll-free replay number: 1-888-390-0541
International replay number: 416-764-8677
Replay entry code: 193421#
Harborside, a vertically integrated enterprise with cannabis licenses covering retail, major brands, distribution, cultivation, nursery and manufacturing, is one of the oldest and most respected cannabis companies in California. Founded in 2006, Harborside was awarded one of the first six medical cannabis licenses granted in the United States. Today, the Company operates 14 dispensaries covering Northern and Southern California and one in Oregon, distribution facilities in San Jose and Los Angeles, California and integrated cultivation/production facilities in Salinas and Greenfield, California. Harborside is a publicly listed company, currently trading on the Canadian Securities Exchange (“CSE”) under the ticker symbol “HBOR” and the OTCQX under the ticker symbol “HBORF”. The Company continues to play an instrumental role in making cannabis safe and accessible to a broad and diverse community of California and Oregon consumers.
1 This is forward-looking information and based on a number of assumptions. See “Cautionary Note Regarding Forward-Looking Information”.
2 These targets, and the related assumptions, involve known and unknown risks and uncertainties that may cause actual results to differ materially. While Harborside believes there is a reasonable basis for these targets, such targets may not be met. These targets represent forward-looking information. Actual results may vary and differ materially from the targets. See “Cautionary Note Regarding Forward-Looking Information” and “Assumptions” below.
3 Certain financial information included in this press release is neither audited nor reviewed. Where possible, the information has been constructed by management from available audited or audit reviewed financial statements. Where no audited or audit reviewed information has been available, additional management accounting information has been utilized to construct financial information. Financial statements have not been prepared in accordance with the same standards. Harborside and Loudpack prepare their financial statements in accordance with International Financial Reporting Standards. Urbn Leaf prepares their financial statements in accordance with Generally Accepted Accounting Principles (GAAP) in the United States. Sublime for the period prior to acquisition by Harborside on July 2, 2021 prepared their financial statements in accordance with Generally Accepted Accounting Principles (GAAP) in the United States. Readers are cautioned not to place undue reliance on such information.
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