The cannabis industry in California is no stranger to financial turmoil. California StateHouse cannabis dispensary, formerly known as Harborside and once celebrated as the largest dispensary in the world, now faces an uncertain future. Its parent company, StateHouse Holdings, has defaulted on four loans and accumulated over $100 million in debt, possibly placing the company on the verge of receivership.
Financial Collapse?
Harborside was founded in Oakland in 2006 by Steve and Andrew DeAngelo. It quickly became one of the biggest dispensaries in the California medical marijuana industry and the world.
In 2022, Harborside’s changed from Harborside to StateHouse Holdings. According to a press release last week, StateHouse defaulted on four existing loans, with lending company Pelorus calling for the immediate appointment of a Receivership to assume control of all StateHouse assets and operations. According to a report from Viridian Capital Advisors StateHouse has over $120 million in debt, nearly equal to its total assets in the state.
Despite its dire financial situation, StateHouse reported a 10% year-over-year revenue increase to $27.8 million in the second quarter. Net income also rose to $200,000 from a $2.1 million loss the previous year. However, these positive numbers apparently have not been enough to stave off financial collapse.
Pelorus Fund Calls For Receivership
Pelorus Fund REIT, a private mortgage real estate investment trust and significant owner of debt issued to StateHouse, filed a complaint in a California court to place the company into receivership per a September 26th press release. CEO Dan Leimel Jr. believes that this move will better position StateHouse to produce and deliver high-quality products for its key constituents.
“As the largest lender to StateHouse, we recognize the inherent value in the Company’s operations, employees and assets,” said Dan Leimel Jr., Chief Executive Officer of Pelorus. “We believe that a court-appointed Receivership will better position StateHouse to more effectively produce and deliver high-quality product for the benefit of its key constituents. Importantly, this action is intended to protect StateHouse employees, customers, business partners and vendors, enabling the business to continue to operate across its production and distribution footprint.”
Pelorus is also urging the Superior Court of California to act swiftly in appointing a receiver to direct StateHouse.
“With those goals in mind, we are respectfully requesting the Court to move quickly in appointing a receiver so that StateHouse can be directed towards a cleaner, more efficient and appropriate structure moving forward.”
Not an Isolated Incident In the California Cannabis Industry
StateHouse isn’t the only cannabis company facing high debt problems. The retail chain MedMen, once valued at over a billion dollars, and the massive pot distributor HERBL, which we’ve seen over the years, have also faced financial collapse. These companies serve as a stark reminder of the volatility in the cannabis market.
Cannabis companies are often grappling with high debt levels relative to their market cap. Unlike businesses in other industries, cannabis firms can’t file for bankruptcy protection under federal law still due to the plant’s current illegal status at the federal level. This dramatically increases the uncertainty of how debt workouts proceed.
The story of Harborside and its parent company, StateHouse Holdings, is yet another cautionary tale for the cannabis industry. Despite dubbing themselves a pioneer and champion of cannabis reform, Harborside now faces financial collapse. This situation is another example of the challenges and volatility in the cannabis market.
