Harborside Inc. Reports First Quarter 2021 Financial Results

First Quarter 2021 Gross Revenues of $13.0 Million

Q1 2021 Adjusted EBITDA grows to $1.0 Million From an Adjusted EBITDA of $0.3 Million in Q1 2020⁽¹⁾

Company Reaffirms Full Year 2021 Standalone Guidance of Gross Revenues Between $68-72 Million and Adjusted EBITDA Margin Between 15-17% ^(1)(2)(3)(4)

OAKLAND, Calif. and TORONTO, May 31, 2021 /CNW/ – Harborside Inc. (“Harborside” or the “Company”) (CSE: HBOR) (OTCQX: HBORF), a California-focused, vertically integrated cannabis enterprise, today reported its financial results for the first quarter ending March 31, 2021 (“Q1 2021”). The audited consolidated financial statements for Q1 2021 and corresponding management’s discussion and analysis (collectively the “Q1 Filings”) are available for download from the Company’s investor website, investharborside.com, and on the Company’s SEDAR profile. Unless otherwise indicated, all dollar amounts in this press release are in U.S. dollars.

Management Commentary

“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.”

Mr. Hawkins concluded, “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.”⁽²⁾

Q1 2021 Operational Highlights

• Closed upsized private placement for gross proceeds of approximately C$35.1 million
• Secured a $12 million revolving credit facility
• Completed a $5 million strategic investment in Loudpack, a premier California cannabis company
• Recognized for exceptional curbside pickup and delivery services
• Announced resolution in San Jose Wellness 280E case
• Announced plaintiff’s voluntary dismissal of class action suit without prejudice

Subsequent Events

• Commenced adult-use sales at San Leandro dispensary
• Appointed Travis Higginbotham Jr. as Vice President of Production
• Drew down approximately $11.4 million against the revolving credit facility on May 28, 2021, in anticipation of consummating the purchase of the production facility in Salinas, California.

Q1 2021 Financial Summary

Revenues

During Q1 2021, Harborside generated total net revenues of approximately $12.4 million. This represented a 9.0% year-over-year decrease when compared to the approximately $13.7 million of net revenues reported in the 3-month period ending March 31, 2020 (“Q1 2020”).

The Company’s retail operations generated net revenues of approximately $10.0 million for Q1 2021, an approximately 2.0% decrease as compared to the approximately $10.2 million realized in Q1 2020, with gross margins improving from 51.3% to 55.0% on a year-over-year basis. 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. Across Harborside’s retail stores in California, the Company’s branded products represented 5 of the top 10 selling SKUs in Q1 2021.

Harborside’s wholesale operations reported net revenues of approximately $2.4 million for Q1 2021, representing a year-over-year decrease of approximately 31.0% as compared to the approximately $3.5 million in net revenues reported for Q1 2020. The year-over-year decrease in net wholesale revenues was primarily due 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.

Gross Profits

The Company’s retail operations generated gross profits of approximately $5.5 million in Q1 2021, compared to approximately $5.2 million in Q1 2020. The year over year increase in retail gross profits was due primarily to the continued focus on sales of in-house brands, more effective supply chain management and the reduction of operating costs across the Company. As a result of these ongoing efforts, retail gross margins⁽¹⁾ improved from 51.3% in Q1 2020 to 55.0% in Q1 2021.

The Company’s wholesale operations generated gross profits of approximately $0.3 million in Q1 2021, compared to approximately $(0.2) million in Q1 2020. As compared to net wholesale revenues, wholesale gross margins⁽¹⁾ before adjustments for biological assets increased from (5.2)% in Q1 2020 to 13.0% in Q1 2021. This was primarily due to more effective supply chain management and the ongoing focus on reducing operating costs across the Company.

Q1 2021 combined gross profit before adjustments for biological assets was approximately $5.8 million, an approximately 15.6% year-over-year increase as compared to the approximately $5.0 million reported in Q1 2020. On a year-over-year basis, combined gross margins⁽¹⁾ before adjustments for biological assets increased from 36.8% in Q1 2020 to 46.8% in Q1 2021.

Operating Expenses

Total operating expenses for Q1 2021 were approximately $7.8 million, including approximately $1.9 million in one time, non-recurring costs. Excluding one-time costs, operating expenses were approximately $5.9 million, an approximately 4.3% year-over-year decrease when compared to approximately $6.2 million of costs incurred in Q1 2020. The one time costs incurred in Q1 2021 included: general and administrative expenses of approximately $0.3 million  related to the search for a new Chief Executive Officer, professional fees of approximately $0.2 million related to operational improvement consulting, and approximately $1.3 million in expenses associated with warrants issued in the private placement offering.

During Q1 2021, the Company also recorded income tax expense of approximately $1.1 million, compared to approximately $1.4 million in Q1 2020, based on estimated federal income taxes payable at each period-end.

Operating loss for Q1 2021 was approximately $3.2 million, compared to an operating income of approximately $0.4 million for Q1 2020. Net loss and comprehensive loss was approximately $2.9 million in Q1 2021, compared to a net loss and comprehensive loss of approximately $2.4 million in Q1 2020, an approximately 21.9% decline on a year-over-year basis.

Adjusted EBITDA for Q1 2021 was approximately $0.9 million or 7.7% of net revenues, compared to Adjusted EBITDA of approximately $0.3 million or 2.6% of net revenues for Q1 2020.⁽¹⁾ The year-over-year increases were driven largely by improved product margins combined with operating efficiencies realized across the Company.⁽¹⁾ See “Non-IFRS Financial Measures, Reconciliation, and Discussion”.

Liquidity and Cash Balance ⁽³⁾

As of March 31, 2021, Harborside had total current assets of approximately $40.0 million, including approximately $30.6 million of available cash, as compared to current assets of approximately $20 million, including approximately $10.5 million in available cash as of March 31, 2020. 

During the first quarter of 2021, 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 US$12.0 million pursuant to a senior secured revolving credit facility due March 19, 2023. On May 28, 2021, the Company drew down approximately $11.4 million on the revolving credit facility in anticipation of consummating the purchase of the cultivation/production facility in Salinas.

Full Year 2021 Expectations^(2)(3)(4)

In January 2021, the Company announced that for full year of 2021, it expects standalone gross revenues of between $68.0 to $72.0 million.⁽²⁾ 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.⁽²⁾ In addition, the Company expects an Adjusted EBITDA in the range of 15% to 17% of net revenues for 2021.⁽¹⁾⁽²⁾ 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.⁽¹⁾⁽²⁾

All figures reported above with respect to the 2021 fiscal year are financial outlooks, are based on several assumptions and are subject to a number of risks and uncertainties. Accordingly, investors are cautioned not to place undue reliance on the foregoing information. Actual results may differ materially. See “Cautionary Note Regarding Forward-Looking Information”.

For the latest news, activities, and media coverage, please visit the Harborside corporate website at http://www.investharborside.com or connect with us on LinkedIn, Facebook, and Twitter.

Conference Call Information 

Harborside will host a conference call Tuesday, June 1, 2021, to discuss the Q1 2021 results. Matt Hawkins, Chairman, and Tom DiGiovanni, Chief Financial Officer will host the call starting at 1:00 p.m. Eastern time. A question and answer session will follow management’s presentation.