Harborside Inc. (OTCQX:HBORF) (CSE:HBOR) 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., 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.
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.
Integration Highlights
Initiatives that have been completed or are currently being finalized:
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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.
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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.
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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 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. 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.
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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.
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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 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.
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.
"We are making outstanding progress to date in putting these four companies together," stated Ed Schmults, CEO of Harborside. "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. 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.
Photo: Courtesy of Tim Foster on Unsplash
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