In a coverage initiation on May 15, AltaCorp Capital analyst Kenric Tyghe called US cannabis operation Harborside (Harborside Stock Quote, Chart, News CSE:HBOR) a California dream boat with a freshly scrubbed deck.
Tyghe launched on HBOR with a “Speculative Buy” rating and one-year target of C$3.00, which at press time represented a projected 12-month return of 417 per cent.
Oakland-based Harborside was one of the first companies to open legal medical cannabis operations in California with its first dispensary opening in 2006 after securing one of the first six commercial cannabis licenses in the whole of the US.
Today, Harborside focuses on retail, bulk wholesale and branded wholesale channels and has five dispensaries and one of the better known brands in the California market.
Harborside’s four California stores are supported by Harborside Farms, which has a 210,000 sq. ft. production facility on 47 acres in the Salinas Valley. In Oregon, Harborside manages the Terpene Station in Eugene, Oregon, inherited through the reverse takeover with Lineage Grow Company.
In his report, Tyghe said that while technically a multi-state operator due to its business in Oregon, Harborside is essentially a vertically-integrated California business whose brands are increasingly well-positioned and gaining market share, most notably at its iconic Oakland store, which Tyghe pegs at annual revenues of about $30.0 million. (All figures in US dollars except where noted otherwise.)
“While there is a significant amount of cachet attached to both the brand and its stores, until very recently, the Company had done little to monetize its status in the market. The Company had left both revenue and gross margin dollars on the table and was burdened with an inflated legacy cost base. The recently revamped team moved quickly on the low-hanging cannabis to address mix and pricing opportunities, which combined with multiple productivity and cost reduction initiatives, support our margin outlook through 2025,” Tyghe wrote.
Last month, Harborside released preliminary full-year 2019 and Q1 2020 results which showed revenues up 16 per cent to $50.3 million in 2019, driven by a doubling in wholesale sales and retail growth of 5 per cent. HBOR estimated its revenue growth for the first quarter 2020 at 21.6 per cent to $14.4 million, with wholesale revenues up 47 per cent and retail up 12 per cent.
Tyghe estimates Harborside to be currently trading below its peer group average on an EV/2020 EBITDA multiple with HBOR at 8.0x versus the group average at 15.2x.
“While we are mindful of the continued material headline risk in both the broader cannabis space and in California specifically, with a combination of the cachet of the Harborside brand and its iconic Oakland store, dovetailing with what we believe is a step change in the team’s depth and execution, we believe Harborside represents an attractive absolute and relative opportunity in the space.” said Tyghe.
The analyst estimates Harborside’s 2020 revenue and adjusted EBITDA at $61 million and $6 million, respectively, and its 2021 revenue and EBITDA at $74 million and $11 million, respectively.
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