We’ve been expanding our look at US based cannabis companies recently, Ayr Strategies and Columbia Care as examples. We’re looking at more as well.

The Harborside Group ($HBOR) went public in January 2019, initially begun by American cannabis activist Steve DeAngelo. He moved to the role of ‘Chairman Emetrius’ when Harborside initially went public. As of Monday, the last of his ties with Harborside were severed.

I know nothing else at this point, might as well don the green visor (Blue lent me a few), and roll up the sleeves.

To the financials!

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• $13MM in cash. Same as the 3 previous quarters.
• Inventory at $3.5MM, the same as last three quarters. A/R? same. And A/P. Total assets? Yep. Total liabilities? Same.
• $70MM in Goodwill and Intangibles. Goodwill was initially $51MM, but was written down by $16MM in the first year of their current <public company> form.
• Revenue at ~=$14MM this quarter. Take a guess what the previous 3 quarters were? If you guessed ‘same’, you’re right.
• Hey now – 52% margin currently reported (excl. GoB voodoo). Previous quarter It was 47%, prior to that, 37%. Going in the right direction.
• They ascribe the increase due to product mix and pricing across both retail and wholesale. $HBOR may be a barometer for looking into the California landscape, and as direct comparative.
• And….$HBOR is pretty clear that they see manufactured product sales increasing relative to flower. Curious to me – I don’t recall seeing many others that declarative.
• Professional fees on that restatement cost them a million bucks. More fees to come as well, they have 2 ‘deals’ in the hopper. More below.
• Related parties is inelegant. There’s a myriad of companies involved, stemming from deals with outfits owned by the CEO, Chair, and various directors. There several mentions of immediate family members involved as well. Several of the deals aren’t vanilla. Red flag for me.
• Another red flag is the myriad of leases and Master Service Agreements (MSAs) that are nested in this thing. The complexity of them flows from both regulatory and what is being transacted in market. I count 9 distinct companies in here, all related parties.
• I’d price them, but really, the complexity of these is way out of scope for a company of this size. The mental image it provides is of a <very> large ball of tangled wire.
• Net loss of some $2.5MM reported this quarter. And, yep, it’s the same past three Q’s. So far, these guys don’t need accountants, the financials could simply be photocopied QoQ.
• Biggest event looks to be a restatement they had to make for most of 2019 – when the year end audit required 2 asset purchases to be accounted for as acquisitions. Lots of slop in S/E, and this is also where the goodwill/intangibles were raised (it wasn’t initially). Should have hired a better squint, or, perhaps they rolled the dice. Looks like a tax court made the decision for them in October 2019. This on top of previous tax decisions – more below.
• Ultimately, it looks pretty standard in the US space – NICs (and a previous ‘collective’) coming onboard aren’t seamless.
• And….there’s the boogeyman. Note 15 (Provisions). Seems that they’ve got a bill from the IRS for $50MM+ stemming from non-payment of the 280e Tax. More below.
• Subordinate Voting Shares (SVS) and Multiple Voting Shares (MVS) in equity, the latter at a 100:1 exchange ratio. With 230k MVS, there’s more SVS ready to be printed on conversion than exist in the current float of 21MM shares.

The more I look at this thing, the more one finds. None of it much positive.

The MD&A is a literal dump of information related to federal marijuana laws and their development over time (5 pages), as well as detail of both California and Oregon’s regulatory trajectory. The rest of the information is spread out and unorganized. Not atypical for this size of shop.

Regarding those related parties, I’ll step hard. Having a first run through, this thing looks pretty inbred. If I had seen anything here – I would have taken the time to price them out. I don’t. It also looks like a consultant’s playground in several respects.

Note 15 – is where $HBOR strenuously disagrees with the IRS’ determination of 280e applicability, the IRS is claiming some $50MM (if I’m reading it right) going back to 2016 across 3 distinct subsidiaries. They state the case is expected to be at least a year out from any determination.

Ok, I’m done with this.

A 4 dispensary shop with about 200k ft² of cultivation. Honestly, if a company is touting for cash and investors, one’d like to think they’d give an investor the skinny. They do break out wholesale/retail (25%/75%), and while there has been some flux in revenue numbers, it’s not material. Only thing notable is that wholesale has trended downwards, and that margin improvement has been very good.

All in all, it feels like a 4 store shop and a grow-op with a massive tax bill incoming, little cash for expansion, and tout two ‘deals’ to add more dispensaries (that are more convoluted in structuring than some I’ve seen done by the MSOs). And that’s all I see. It also says to me is that California – by way of being first to flip the switch to recreational – is not a simple market to enter nor operate within. At least at scale.

Harbourside folded its’ dispensary in Oregon on April 30th, yet in June was still putting out a list of their retail…..and ORE is still there:

This one is a hard pass to me. I could see them shining the place up and shopping it around, but their tax travails means a hard discount in the absence of some resolution. Sales are ok, but really, as a public company – this thing provides exposure to cannabis in a single and <very> competitive state. That’s aside from the related parties, and 7MM in long dated options (expiries through 2028).

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TheCannalysts typically eschew chasing the flavour of the day. Or a bauble that has been recently polished. But now that the US market has been on a roll due to the election (and optimism), there are now daily claims of ‘this one’ being the next Curaleaf or Trulieve. There are many. And most of them aren’t worth effort to look at. I mean, that’s what the Dive Bar project was all about: pointing out bullshit and popping pitch deck balloons.

Of the original 24 companies we first identified, there’s 6 remaining. The rest? Bankrupt or bought out. Or as in a couple of others, have reverted back to being an exchange listing waiting for the ‘next big thing’ that will need one. Despite mentioning taking another go at the Crawl this year (it would be the 4th), looking up who was even left from last year was depressing, and we’d be having to add others to replace those that are gone. I thought to myself: ‘how many times does one need to watch videos of car crashes’?

Now, Golden Leaf Holdings ($GLH) means a lot to me. Not as a company, but, they have some responsibility for TheCannalysts coming into existence.

Prior to TheCannalysts, I’d been writing on Reddit about finance and personal investing and the world of formal commerce from a view to investor education. A person reached out to me in late 2016. They held a good size position in $GLH at the time, and asked if I’d have a look at the financials. I did. And that was the start of the Dive Bar the following Xmas.

$GLH was one of the first ‘lower’ tier outfits I’d spent any time on. I couldn’t understand why retail investors would be excited about it in any respect. From their financials, I viewed the stock as likely carcinogenic. I wondered where and how people could come across this thing and think otherwise. And then I saw the paid advertising. The promotion. As is usual: the marketing was aggressive; vague in important detail; often disconnected from monetary reality; and, in my opinion…..very misleading.

I mention all of this, because I’d been asked by several people over the past month or so to have a look at $HBOR.

I’m not comparing $HBOR to $GLH in any respect – other than the marketing claims remind me of what is omitted in pitch decks. And in one other important way.

Harborside encourages folks to invest in them. They give folks an option to not only read about the reasons why, they can also buy weed online and shares at the same time. It’s a business with a decent revenue stream, and a hideous capital structure.

Hard pass.

All of the preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $HBOR