Harborside Cannabis Co To Buy Sublime For $43.8M As Its Revenue Dives 9% And Adjusted EBTIDA Improves

California-focused cannabis company Harborside Inc. HBOR HBORF entered into an agreement to buy an Oakland-based cannabis manufacturer Sublimation Inc. (“Sublime”) for $43.8 million.

Sublime, which launched in 2016, developed a popular line of high-potency and affordable Fuzzies branded pre-rolls, which grew to become “a leading brand” of pre-rolls in California. Since 2019, Sublime brought a revenue CAGR of around 70% and closed 2020 with a 7.9% pre-roll market share.

Deal Specifics

Under the deal, the total purchase price of $43.8 million will consist of around $38.5 million in multiple voting shares of the company, and $5.4 million in cash, of which $3.4 million will be used to repay Sublime’s current debt.

While both Harbordside’s and Sublime’s board of directors approved the acquisition, the transaction is still subject to other closing conditions including the approval of Sublime’s shareholders.

The transaction is projected to close in July.

"This acquisition adds an iconic, award-winning California brand, with an exceptional product offering and consumer following, to our growing brand portfolio," Peter Bilodeau, Interim CEO of Harborside stated. "Harborside has been a customer of Sublime for many years and we know the quality of their products.”

The acquisition puts Harborside in a sweet spot.

“With the existing production capacity and soon to be completed upgrades at our Salinas cultivation facility, we are well-positioned to support the continued growth of the Sublime brands while expanding the reach of Harborside's existing branded product portfolio in both the retail and wholesale markets, which we expect to ultimately drive increased profitability across our entire business,” Bilodeau added.

Deal Synergies

Combining Sublime’s brands and production capacities with Harborside’s premium cannabis cultivated at the company’s Salinas-based facility, Harborside projects that the deal will produce important benefits – such as improved gross profits and EBITDA.

In addition to both companies extending the reach of their branded products across California, Harborside expects to improve Sublime’s marketing performance that will result in better retail margins.

Harborside also plans to license the Fuzzies brand across other legal adult-use markets in the U.S.

Morgan Paxhia, co-founder and managing director of Poseidon, one of the longest-running cannabis dedicated investment funds said they are thrilled to see what the deal will bring to Sublime.

“We are excited about the opportunity to access a vertically integrated operation and see strong fundamental value unlocking in this transaction," Paxhia said. “This is the type of accretive M&A we like to see in cannabis. We see good potential for Harborside's stock as investors realize the growth and fundamental focus unfolding here." 

Habroside’s Q1 2021 Earnings

On the heels of Sublime’s acquisition, Harborside revealed its quarterly earnings with total net revenues of $12.4 million, down by 9% year-over-year from the first quarter of 2020.

Its adjusted EBITDA for the period amounted to $1 million, compared to an adjusted EBITDA of $300,000 in the same period of the prior year.

Net loss was around $2.9 million, versus a net loss of $2.4 million in the corresponding period of 2020.

Harborside also reaffirmed its full-year 2021 guidance of gross revenue between $68-$72 million and an adjusted EBITDA margin between 15%-17%.

During the first quarter, the company achieved several operational milestones such as the following:

1. Closing an upsized private placement for gross proceeds of around CA$35.1 million;
2. Securing a $12 million revolving credit facility;
3. Investing $5 million in a California-based cannabis company Loudpack.

Price Action

Harborside’s shares were trading 2.08% higher at $1.96 per share at the time of writing.

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