Harborside Inc. chairman Matthew Hawkins said the company plans to make additional acquisitions in California to expand its presence in the largest legal cannabis market in the United States
The company HBORF, -3.70% HBOR, -4.35% from Oakland, California, is merging with two companies in Southern California: the pharmacy operator Urbn Leaf and the cultivation specialist Loudpack, as announced on Monday.
“In this situation, the whole is much better than the sum of the parts because California is where the benchmark is going to win,” Hawkins told MarketWatch.
Harborside completed its $ 44 million acquisition of Sublime LLC, an Oakland-based cannabis maker, in July.
Harborside plans to combine Urbn Leaf, Loudpack and Sublime and then rename StateHouse to trade on the Canadian Securities Exchange under the ticker “STHZ”, with the shares also being available on the US over-the-counter market. The deals are expected to close in the first quarter of 2022.
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“We have a job to integrate four companies and that will be our primary focus,” said Hawkins. “And after the first quarter we will start looking. Our deal pipeline is full of opportunity, but we have to be smart when we pounce. “
Under the latest agreement, Ed Schmults, CEO of Urbn Leaf, will become CEO of StateHouse. However, Harborside will continue to control the company with three seats on the board of directors, with Hawkins remaining as chairman. Hawkins is also the founder and managing director of Cresco Capital Management LLC, which initially invested in Harborside in 2016. Hawkins joined the Harborside board of directors in 2018.
Urbn Leaf will combine its Southern California cannabis dispensaries with Harborside’s retail presence in Northern California, while Loudpack and Sublime will add to the company’s branded portfolio and cannabis cultivation stocks.
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With total sales of $ 215 million to $ 220 million, StateHouse plans to continue growing to compete in the fragmented California cannabis market, which is oversupplied and subject to competition from cheaper products from the illegal or legacy market.
Despite these obstacles, the California market offers rich advantages in some ways because of its size and fragmentation. The state’s legal cannabis business now includes 7,800 breeders, 1,000 dealers and 1,300 brands, with projected sales of $ 7.4 billion by 2025, according to the numbers in a presentation by Harborside.
Harborside positions itself as the state’s largest cannabis platform with retail stores, brands, processing, manufacturing, distribution and cultivation.
Other major players in California are Glass House Brands Inc.GLASF, -0.93% and Lowell Farms Inc. LOWLF, + 14.98% LOWL, + 12.90%.
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As part of the Urbn Leaf and Loudpack acquisitions, Harborside has signed a letter of intent with Pelorus Equity Group to complete a $ 77.3 million non-dilutive home loan financing.
Travis Goad, managing partner of Pelorus Equity Group, said the financing agreement with Harborside marks the largest single financing since the company was founded in 2010. The Laguna Hills, Calif.-Based specialty finance firm expects to have approximately $ 250 million in assets under management End of 2021.
Companies remain viable despite weak stock prices in the industry, he said.
“We see that the revenue from these assets is still growing and the markets are growing,” Goad said. “While stocks underperform, the underlying US cannabis companies are growing. We’ll take care of that. These assets really have value. Even in a more mature market like Colorado, it’s still growing around 20%. The price action in the public stock market doesn’t really reflect what you see in these local companies. “
Harborside’s shares fell 3.7% on Friday to 52 cents a share. The stock is down 67% so far in 2021, compared to a 24.9% YTD loss for the Cannabis ETF THCX, -4.46%.
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