Harborside HBORF Stock Forecast & Analysis

Harborside, HBORF stock, is one of those cannabis stocks I always keep my eye on because I believe this cannabis company will do well over the years.  For that reason, I wanted to build up the HBORF stock Forecast & Analysis.  Harborside is well positioned with where they are in the biggest market in the country: California (They also have a presence with one dispensary in Oregon).  Harborside has the #3 count of dispensaries at 15.  And, the branding is on point placing them in the #3 spot with pre-rolls.  Long term, I see HBORF stock driving upward.

HBORF stock share consolidation

A few key considerations with HBORF stock up front.  First, they are doing a reverse split.  It is a 6:1 reverse split which this will drive the stock price upward by a multiple of 6x seeing that there will be 1/6th the number of shares.

The consolidation is included in the HBORF stock forecast that I have here seeing that this will happen shortly and will be permanent.  There are currently 252,399,409 shares outstanding and there will be only 42,066,568 shares forthcoming.

In a straight line, linear world, this would mean a share price moving from $0.29 to $1.74.  My initial analysis has HBORF stock moving up from $6.54 to $37.49.

I think the $1.74 is a little on the low side to shoot for.  But, this also means that there is not too much downside risk as cannabis stocks are still continuously selling.

We remain on hold until some form of banking occurs for cannabis federal legalization and ten the bigger players can step in and start grabbing the growth that cannabis companies offer.

California Cannabis Just Got Less Expensive

In case you have not heard, California Governor Gavin Newsom just signed authorization to stop taxing cannabis producers on their level.  This would mean there could be some savings passed on to consumers.  Those savings will mean a higher consumption rate as there will be more money spent on cannabis instead of it not pushing through to the state’s coffers.

Hopefully this means we will see California cannabis stocks moving upward… for now, at least.

The authorization is only for three years’ time.  It is likely that this will get extended.  But, California companies need assurances that this is not lingering in the background and that it is something that always be there.

Harborside and M&A Activity

I have said this many times and I continually maintain this as my investment thesis: There will be lots and lots more consolidation in cannabis companies.

For now, there are not many big players in California.  Therefore, a company that is sitting at #3 in size and sales would be an ideal match for a larger outside player; I could easily see Harborside being picked up by another.

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Harborside Financial Data

Here is the latest information from the Harborside Financial data.

Harborside Gross Profits

  • Harborside Revenue

At this point, coming in about $17.5M, Harborside is on track to print $70M for the year.  However, with all of the continued operations and expansions, analysts are expecting Harborside to print $185M (An, an additional $250M in 2023). If Harborside can actually get revenue up to that level, this will add significantly to the bottom line.  Resources will be utilized at a far greater rate.  This will mean costs per unit will decline and, margins will improve.

At the above projections, if Harborside can hit $185M, if they simultaneously hit 50% gross margins that adds up to $92.5M in gross profits versus the current $25M.  That extra profit trickles downward to the bottom line.  This would be the beginning of the pathway to profitability for Harborside.

The only problem with this is that I have not found the clear path that analysts have used to getting up to $185M for the year.  If Harborside did get to that level, the potential is significant.

Harborside Operating Profits

  • Harborside Operating Costs

Should the $185M print, operating profits would also significantly improve.  For now, operating efficiencies, or operating margins, are at the upper limits hitting approximately 60%, there is room for growing into these costs.  As you can see in the charts, operating costs have been increasing but, this is from combing operations and expanding their dispensaries.  If Harborside were to increase its revenues up to $185M it would do so on a non-linear basis; costs would move higher but at a lesser rate.

The obvious first goal would be to get to positive operating profitability.  The increase in product volume alone would likely get Harborside to a point where this is achievable.

Then, it is a matter of getting operating costs to a level that is far more competitive for a company this size, likely approximately 30% of revenue.  From there, Harborside will be able to grow into a more mature foundation and get operating costs at levels that are competitive with the broader market.

Harborside EBITDA & Net Profits

  • Harborside EBITDA

I expect that EBITDA/Revenue will easily be moving to profitability by the end of this year.  Scaling up will be what it takes to getting there.  For the HBROF stock forecast, I used a softer 17.5% EBTIDA/Revenue for this year.  Then, I scaled that upward over the next four years.

Given Harborside’s ranking in size and sales, it may be that they can capitalize on that and get to bigger numbers and, I am allowing for that with my analysis below.

Harborside Cash On Hand

  • Harborside Cash On Hand

Harborside is in the process of closing a deal that will bring in working capital after the close of the deal with Urbn Leaf & LoudPack.  This will enable the larger, combined company to fund operations moving forward.

But, cash-to-debt ratio remains low and, if possible, Harborside would do well to raise additional funds.  This is a company that wants to expand and become a dominant player throughout California.  Being able to maintain a solid cash base will help in that pursuit.

And, as I always say, perhaps a far larger, and profitable, bigger partner with M&A activity, acquiring the California company and getting some of the east coast bigger players into the biggest market in the country.

Harborside Total Equity

  • Harborside Total Equity

With the latest merger and addition, total equity saw a big move upward.  Equity, assets less liabilities, is what will drive future revenue and profit potential.  And, I expect we will see even higher total equity in the coming quarters with more activity on the horizon.

That total equity increase will translate into the revenue increases that are expected for Harborside this year and into the future.

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Harborside HBORF Stock Forecast

Harborside HBORF DCF

As I mentioned, I used the future share count for this analysis since the reverse split is going to happen shortly.

I also used a fairly aggressive increase in revenue for this year and next.  This comes from outside analysts who came up with these projections for revenue.

If Harborside were to hit the $250M level by the end of next year that would really position the company in a strong spot.  This will represent a massive increase in revenue and potentially profits.

Harborside is coming off of about $55M TTM revenue and with the expansions and mergers being done, they are expected to print $165M this year.  Then, $250M the year after.  Given this, margins are very likely to improve via economies of scale.

Yet, I did not push the EBIT number too hard in the upcoming two years so, there is a lot of potential for improvement there if the numbers start coming in better than expected.

Is Harborside HBORF Stock A Good Investment?

Harborside HBORF Stock Forecast & Analysis ChartAs I mentioned, I keep tabs on Harborside because it is a Californian cannabis company and it predominantly originated in the Bay Area where I am from.  So, perhaps I am slightly biased with this particular cannabis company.

But, the numbers speak for themselves.  Harborside is continually increasing revenue and consolidating operations with M&A activity.  And, while margins are not at the most optimal level right now, as Harborside hits bigger and bigger numbers for revenue, the financials will continuously improve.

And, now that California cannabis companies are in a better situation with the prohibitive tax, likely we will see sustained and continued growth in cannabis company revenues.  This will translate into upward moves for cannabis stocks.

Seeing that Harborside is sitting at the #3 spot with where they are, I could see them increase this position and grow even further.

Long term, Harborside has a lot of upside potential, and I believe HBORF stock is a cannabis stock that investors will do well with.

Harborside Financial Data

Harborside HBORF Stock Financial Statements

3 thoughts on “Harborside HBORF Stock Forecast & Analysis

    1. Sorry forgot t
      StateHouse Holdings Reaches Agreement With IRS To Resolve Legacy Federal Tax Obligations

      By Benzinga
      — 7:32 AM ET 07/29/22

      StateHouse Holdings Inc. (OTCQX:STHZF) (CSE:STHZ) has reached a partial payment installment agreement with the Internal Revenue Service related to the federal tax returns of its wholly-owned subsidiary Patients Mutual Assistance Collective Corporation (“PMACC”) for the 2007 to 2012 fiscal years and the 2020 fiscal year.
      At issue were federal taxes owed of approximately $22.1 million. Under the agreement, StateHouse is resolving this liability through the payment of approximately $5.8 million, to be made through $50,000 per-month payments over an expected period of 116 months, beginning in August 2022. The monthly payment amount is subject to IRS review every two years. With each review, the payments may adjust up or down depending on PMACC’s ability to pay at that time. The company does not anticipate that these biennial reviews will result in a material increase to the payment plan.
      The company has maintained a provision on its balance sheet related to the taxes owed. This provision was approximately $21.6 million as at March 31, 2022. Given that the provision is significantly higher than the anticipated repayments under the agreement, the company expects to record a positive non-cash accounting adjustment of approximately $15.8 million to reverse previous accruals in its financial results relating to the provision. It is anticipated that the adjustment will be reflected in the company’s financial results for the second quarter ended June 30, 2022.
      In addition, the agreement allows the company to recategorize the majority of the related liability as a non-current liability, materially reducing the short-term obligations on its balance sheet.
      “This is a landmark agreement for our company,” stated Ed Schmults, StateHouse CEO. “By resolving this longstanding 280E obligation, and more recent federal tax obligations, in a satisfactory manner, StateHouse has demonstrated its leadership in the U.S. cannabis sector. This result provides significant clarity for investors on an issue of critical importance, and puts StateHouse in a much stronger competitive position. It is an important step on our path to building a flagship California cannabis company.”
      The agreement primarily relates to PMACC’s allocation of certain expenses to cost of goods sold in certain of its corporate tax returns. PMACC, a wholly owned subsidiary of Harborside Inc. prior to Harborside’s name change to StateHouse, was among the first cannabis companies to challenge the federal tax rule against such allocations and the historic litigation was closely followed by the industry in the hope that the U.S. Tax Court would find in favor of the company and the resolution would pave the way for future tax relief for state licensed operators. On November 29, 2018, the Court disallowed these allocations, holding that they were instead deductions barred by the IRS 280E tax code.

      o add the article
       

    2. Hey Jeff…
      The last time I looked at StateHouse was prior to the announcement. This won’t shift my revenue projections because it does not have anything to do with that. But, the bill that they have to pay is minimal on a monthly basis compared to what it could have been. I will add this into the next update I do on them.

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