Harborside Inc Commences Trading CNSX:HBOR, Steve DeAngelo as Chairman

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Harborside Inc (CSE:HBOR) CEO Andrew Berman joins James to discuss the evolution of how the company transformed into a publicly trading entity. Berman accredits the success of Harborside as a worldwide recognized company to its Chairman Emeritus, Steve DeAngelo. Steve DeAngelo is a renowned cannabis activist who has been at the forefront of marijuana legalization efforts for more than four decades. The Harborside CEO explains how the company has set the gold standard for retail operations in the Californian market, where patients and customers alike can trust and value the company’s retail experience. Harborside already have a large presence in Northern California and the Bay area which is of the largest cannabis market on the planet. Mr Berman also outline the future opportunities present for the company within the Californian market, where there are “485 cities and 70 percent of them haven’t even dealt with cannabis yet”.

Transcript

James West: My guest is Andrew Berman. He’s the CEO of Harborside, Inc., trading on the CSE under symbol HBOR. Andrew, welcome.

Andrew Berman: Thank you for having me, James. What a pleasure.

James West: Harborside is probably one of the best-known stories in the whole cannabis space in the State of California, and probably in the United States, thanks to its Chairman and founder, Steve DeAngelo.

Andrew Berman: Chairman Emeritus, yes.

James West: Chairman Emeritus, okay. And anyways, so I’ve known of Steve’s work, and I’ve had the pleasure of interviewing Steve in the past; I’m very familiar what all he’s contributed to the industry. So tell me how this all evolved to become a publicly traded company.

Andrew Berman: Well, it’s, and I agree with you: Steve’s done a tremendous amount for the industry, and he’s been fighting on the front lines for 40 years. How did we get to where we are? Well, a lot of this had to do with Steve. Steve and I have been talking since late 2016, we actually met each other. I was actually interested in doing some licensing work in one of the Bay Area counties; I had been a – my hobby, my personal hobby, is local government. I’ve been a mayor of a small California town; he was in that county, and everyone said, You ought to meet Andy. I had some cannabis stuff going on on the side over here, and he knows everybody in town, and he’s the mayor.

I meet Steve, and we talk, and for a lot of reasons, that whole project fell through, for all the right reasons. And he was doing a friends and family round, so I invested in the company and then spent time getting to know Steve.

Meanwhile California, on a macro level, California’s regs were changing then. This is a medical cannabis non-profit environment that is going to go full throttle into an adult-use regulated environment. And Steve knew, to his credit, that that wasn’t something he was, you know, had it in his heart to really be able to do. He’d been fighting on, he’d been an activist, he’d been fantastic in that other setting.

And so we talked very consciously, I spent, you know, 2017 getting to know each other. It was a family business; getting to know his partner and his brother and his, you know, his daughters all in the business, and made a very conscious decision: co-terminus, with the regs changing on January 1, ’18, for Andy to take over the business, Steve to move into the Chairman Emeritus role. He sold the first gram of legal cannabis in the State of California on January 1, ’18. Cut the ribbon, said Andy, here you go.

James West: [laughter] That’s great!

Andrew Berman: And since then, we’ve been, you know, just an exciting ride, as you know, right? California – great market.

James West: Well, I’ve been to Harborside’s location in Oakland, and I was really impressed with the level of service being shown to what were clearly a patient clientele.

Andrew Berman: Correct.

James West: And for me, that was one of the first places I had ever been that was actually a dispensary full of patients, not recreational users masquerading as patients, as is the case in some areas. But it was like, it was like a revelation. It was like, that, you know, that the idea of legitimizing what had been previously deemed a drug, and which has caused lots of hardship in people’s lives, could be so perfectly sort of integrated into society at a level that is very social and serving the community. And so for that, I’ve always held Steve and Harborside in very high regard.

Now, since then, the whole industry has now exploded. You’ve got dispensaries almost on every corner, 80 percent of which are not actually legal? And so, what is the competitive landscape like for an incumbent originator like Harborside?

Andrew Berman: Well, so just a couple of things. So, really appreciate those comments about the store and the experience. As you know, for many we set the gold standard, right, for what retail should look like. And for us, it has been about trust and choice and value for those customers, and still some patients that are coming in, right? A place that you could trust the product that’s being put on the shelf to be clean; lots of choice. We’ve always been purveyors of very fine cannabis, and want to keep that up. And value – we’re not always the cheapest game in town, but we always have some products that are value.

You’re absolutely right, though – the competitive landscape is tough, the legal market, right? Many people don’t understand that the California market, if you and I were sitting in 2017, and talking about what the industry was going to tell us about California in 2018, they were going to tell you that this market was just going to balloon, and it would be up 30, 35 percent. And what happened is, the market actually shrunk in 2018 a bit because of all the regulations, because of compliance, because of testing that was kicking in, getting your licenses.

The result of that has been the competitive landscape on the black market that you’re talking about. It has been nurtured, robust. The taxes are enormous. A $10 pre-rolled joint that you would have bought in December of 2017 costs you $13.50 now, right? Out the door. And so the biggest competitor, and this is not unique to Harborside, but you’ve actually, you know, spot on, James – it’s the black market, right? And it has, it has just gotten a great boost of energy in that.

And, as some of the folks from out of state are looking at California as well, because it is the largest cannabis market on the planet. Northern California alone, the Bay Area is going to be a $2 billion market, right? We have a great foothold there.

James West: Right.

Andrew Berman: But you know, you look at cities that are, West Hollywood: eight licenses, 350 applicants. You know. Another town in Northern California, you know, going to have two licenses: 75 applications. It’s just become such a competitive process like that, too. So it’s tough, taxes are tough, the black market is tough, banking remains tough for all the folks that are in the legal, compliant business.

James West: So then, what does the footprint of Harborside look like now throughout the State of California, and how do you plan to expand that footprint in terms of patients, locations, products?

Andrew Berman: Well, our footprint today – so when I took over the business, we had our two stores and a farm that was working its way through operations down in Monterrey County. Today we’ve got a footprint that includes five stores in two states, we have two stores partners that we have, and will be managing two more stores and controlling the supply chain and the shelf space, that are under construction that will open this year; so that will be seven stores.

We’ve expanded from the Harborside brand to include two more brands, including Key (phon) and Agris, and we’ve expanded our cultivation operation, so we have over 200,000 square feet of cultivation, greenhouse cultivation, and 40,000 square feet of outdoor cultivation.

So we’ve become this vertically integrated entity.  We’ve got one store, one of those stores of that seven footprint is opening up in Southern California, so beginning to look at Southern California. And that really is the strategy: we have enough cultivation capacity to feed the stores that we have now, and as we grow, include more retail. We have the ability to scale that up; we have the footprint on retail, and we love to think about controlling the life and flow of brands, not just our own, but supporting that ecosystem, because of the issues in the state, and because of some of the supply constraints. We are very, very happy to supply some of our biomass – we like that – to other partners whose products then come on our shelves.

We have always been about keeping this industry, creating this industry, nurturing this industry, and we’re going to continue to do that.

James West: Okay, so then, in terms of from an investor’s perspective, what is the outlook in terms of profit going out, say, 6, 12, 24, 36 months?

Andrew Berman: Well, I think this is a great opportunity, obviously, for investors. I just – you know, you look at a comparative basis, we did about $14 million USD on a system-wide pro forma basis in Q1; that’s about $18 million CAD. You compare that to some of the other large players, that’s roughly about a third the size of Trulieve’s revenue in that quarter; roughly half the size of MedMen’s. MedMen is valued at $1.5 billion, and we’re sitting here with a market cap of about $250 million. So we see a tremendous amount of upside in our stock and in our business.

Remember that everybody wants to be in California. It is a fantastic market; it is the largest market. As I said, the Bay Area itself is a big market. There are so many barriers to entry to get into that market; it is the licensing requirements, it is understanding the regulatory framework. It is not like any state but California, because it was putting the toothpaste back in the tube, regulating an industry that had been around for 22 years, it is a complicated structure.

We understand that. So there’s not only upside in the business itself, but there’s upside in a business that’s got a great foothold in the largest cannabis market, so we see tremendous upside. Just on the market side, and I know this a lot because of my own, you know, that local government background that I have: when the State was issuing its regs, it told the states, you know, if you don’t do something by a certain date, we’re going to control the process. So most cities in the State said, Nope, not going to happen – no cannabis here.

So you’ve got a state with 485 cities and 70 percent of them haven’t even dealt with cannabis yet. So to me, there’s tremendous opportunity in this state, and so having a foothold there, right, and I think it provides some long-term growth. We’ve been doing this a long time, we weathered a lot, and you know, Steve has weathered a lot, we’ve weathered a lot. We’re in this for the long haul.

James West: Sure. So 70 percent of the municipalities don’t have cannabis regulations?

Andrew Berman: Yeah, they don’t yet.

James West: Wow, that’s a tremendous opportunity.

Andrew Berman: That’s what I’m saying – it’s a tremendous opportunity in the state. If you look at, there were some, there were thousands of grows; there’s hundreds now, right? Because they have to go through the process. There were 1,500 or 2,000 cannabis retail stores in 2017; there’s 600 now, less than 600 now. So there’s tremendous opportunity, as more things come online, as the State figures out and gets the regs in place, as the different – remember, the regs have been phased in. First, get your licenses. Then, packaging and labeling and testing, right? And now, we’re going to switch over to the metric system, the track and trace system.

So people are trying to navigate all this stuff; we’ve been influential in creating some of the regs. It’s a comfortable place for us to be, in this great market.

James West: Well, sounds like Harborside’s got a really great future in front of it, Andrew. We’re going to come and visit you in California with a crew.

Andrew Berman: I would love this!

James West: And we’re going to have you back regularly, just because Harborside, if any organization in this industry, is deserving of coverage, it’s Harborside. Thank you very much for joining me today.

Andrew Berman: We would love people to come, right? Because it is hard to appreciate – I was talking to somebody while I was here this week, and they were just reflecting on the fact that they visited a lot of stores, and then suddenly you get to Harborside and they go ‘Wow – there’s something different here’. It’s a place to learn about cannabis, experience cannabis, talk about cannabis, buy cannabis. Would love you to come, thank you for that. Would love to come back, and really appreciate it.

James West: Thank you.

Andrew Berman: My best.

 

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.