StateHouse Holdings Inc. Reports Second Quarter 2022 Financial Results and Provides Additional Business Updates
Company expects to be EBITDA positive in 2023
SAN DIEGO and TORONTO, Aug. 25, 2022 /PRNewswire/ – StateHouse Holdings Inc. (“StateHouse” or the “Company”) (CSE: STHZ) (OTCQX: STHZF), a California-focused, vertically integrated cannabis enterprise, today announced its financial results for the three and six months ended June 30, 2022 (“Q2 2022” and “YTD 2022”, respectively), and provided additional business updates. The unaudited condensed interim consolidated financial statements for Q2 2022 and corresponding management’s discussion and analysis are available for download from the Company’s investor website, statehouseholdings.com, and on the Company’s SEDAR profile. Unless otherwise indicated, all dollar amounts in this press release are denominated in U.S. currency.
“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 Ed Schmults, Chief Executive Officer. “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. 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.
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 EBITDA¹ in 2023
Ed Schmults, Chief Executive Officer
- On July 25, 2022, the Company officially changed its name from Harborside Inc. (“Harborside”) to StateHouse Holdings Inc. to honor its pioneering history and reflect its future direction in California’s cannabis sector. The Company’s subordinate voting shares were also reclassified as common shares on this date;
- On July 28, 2022, the Company announced that it reached a Partial Payment Installment Agreement with the Internal Revenue Service (“IRS”) to resolve and reduce legacy federal tax obligations related to the Internal Revenue Code Section 280E, resulting in a one-time non-cash gain of approximately $16.1 million. The Company continues to negotiate with the IRS over additional tax repayments; and,
- On August 15, 2022, StateHouse completed the transition to a common technology platform for its California retail stores, e-commerce and home delivery.
StateHouse has established a leading integrated cannabis platform that, when fully optimized, will minimize exposure to the volatile bulk cannabis market and allow the Company to operate as a focused, integrated CPG business with proprietary production, processing, brands and retail stores. In conjunction with the continuing reduction of costs, the Company expects to emerge with a scalable, controlled, profitable and more predictable cannabis business².
By the end of Q2 2022, StateHouse was well underway with initial integration measures that are expected to generate approximately $10.3 million of annualized cost savings. ²,³ As a result of this first phase of integration, StateHouse is now operating with a greatly reduced cost base. Following the initial integration measures, the Company has initiated additional cost reductions which are expected to result in a further $8-10 million in annualized savings.²,³
Improvements were also completed across the Company’s operations. In cultivation, the Company has converted to a perpetual harvest program, with crop yields at the Salinas facility up 78% from last year through the first half of 2022, while also winning seven awards for quality, including three awards at the Emerald Cup and four medals at the California State Fair, including two golds and two silvers. At the Greenfield Campus, the adoption of best practices has led to enhanced efficiencies and improved gross profits. At retail, despite competitive pressures related to sales discounting, gross margins have held steady as the Company moves further towards its goal of in-house branded products representing 40% of total retail sales. On the administrative side, the Company is introducing a new ERP system for cultivation, rationalizing external relationships and suppliers and progressing on the consolidation of its finance and accounting systems into one common platform. With new management and a highly motivated team, StateHouse is revitalizing existing customer accounts and aggressively pursuing new ones.
As a result of the significant synergies and cost savings either achieved to date and financial forecasts of the Company, management expects StateHouse to generate materially positive Adjusted EBITDA¹ in 2023.
Management is also exploring the potential sale of various non-core assets, which is expected to generate approximately $5-8 million of non-dilutive capital,³ to strengthen its balance sheet and fund its growth objectives.²
Ahmer Iqbal, Chief Operating Officer, is leaving the Company effective September 30, 2022 to pursue other opportunities. StateHouse’s management team and Board of Directors thank Mr. Iqbal for his contributions to the Company and wish him the best in his future endeavours. Mr. Iqbal’s duties will be assumed by other members of the management team upon his departure.
¹This is a non-IFRS reporting measure. For a reconciliation of this to the nearest IFRS measure, see “Use of Non-IFRS Measures” and “Non-IFRS Measures” in the Company’s management discussion and analysis for the period ended June 30, 2022. See “Non-IFRS Measures, Reconciliation and Discussion”.
²This is forward-looking information and based on a number of assumptions. See “Cautionary Note Regarding Forward-Looking Information” below.
³These targets, and the related assumptions, involve known and unknown risks and uncertainties that may cause actual results to differ materially. While StateHouse 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.
StateHouse, 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, its predecessor company Harborside was awarded one of the first six medical cannabis licenses granted in the United States. Today, the Company operates 13 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. StateHouse is a publicly listed company, currently trading on the Canadian Securities Exchange (“CSE”) under the ticker symbol “STHZ” and the OTCQX under the ticker symbol “STHZF”. 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.
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