• Third Quarter 2021 Gross Revenues Increased 10.4% Sequentially to $17.9 Million
• Seventh Consecutive Quarter of Positive Adjusted EBITDA(1)

Harborside Inc. ("Harborside" or the "Company") (CSE: HBOR) (OTCQX: HBORF), a California-focused, vertically integrated cannabis enterprise, today reported its financial results for the third quarter ending September 30, 2021 ("Q3 2021"). The unaudited condensed interim consolidated financial statements for Q3 2021 and corresponding management's discussion and analysis (collectively the "Q3 Filings") are available for download from the Company's investor website, investharborside.com, and on the Company's SEDAR profile. Unless otherwise indicated, all dollar amounts in this press release are denominated in U.S. currency.

Management Commentary

"While bulk prices declined across the state of California in the third quarter, we continued to make improvements to our business, including the expansion of our wholesale presence throughout California through the integration of Sublime into our operations. I'm pleased that we continue to deliver positive adjusted EBITDA(1) as we relentlessly focus on our customers and work on improving capital efficiency throughout the business," said Matt Hawkins, Chairman and Interim CEO of Harborside.

Mr. Hawkins added, "I'd like to thank our team for their ongoing dedication to achieving our business goals while working tirelessly behind the scenes to push our recently announced business combination with Urbn Leaf and Loudpack towards the finish line." As announced earlier today, the Company has entered into definitive agreements to acquire UL Holdings Inc. ("Urbn Leaf"), a top California cannabis retailer with a dominant position in Southern California and LPF JV Corporation ("Loudpack"), a leading manufacturer, cultivator and distributor of award-winning cannabis brands in California. On completion of the acquisitions, subject to shareholder and regulatory approval, Harborside is expected to be renamed StateHouse Holdings ("StateHouse") and to trade under a new symbol (CSE: STHZ).(2) 

Management believes that StateHouse will be the largest and most developed cannabis platform in the state of California with superior retail, brands, processing, manufacturing, distribution and cultivation. Management believes that StateHouse will have the highest estimated annual revenue and brand market share among its current publicly-listed California peers(5), providing the Company with a strong platform for growth as a consolidator of California's cannabis industry. Through the first nine months of 2021, Harborside, on a pro-forma basis including Sublimation Inc. ("Sublime") for the entire period, had gross revenue of $57.8 million(4), while Urbn Leaf and Loudpack had revenue of $45.9 million and $61.4 million, respectively.(4) Therefore, on a pro forma basis, management estimates that StateHouse would have generated gross revenue of approximately $165 million for the same period.(4) Ed Schmults, the current CEO of Urbn Leaf, is expected to be appointed as CEO of StateHouse upon completion of the Urbn Leaf transaction and will be joining the Board of Directors of Statehouse. Marc Ravner, the current CEO of Loudpack, is expected to be appointed as President of StateHouse upon completion of the Loudpack transaction and will be joining the Board of Directors of StateHouse.

Q3 2021 Operational Highlights

• Total gross revenue was $17.9 million, 10.4% higher sequentially than the previous quarter
• Adjusted EBITDA(1) was $1.5 million, 28.2% higher sequentially than the previous quarter
• Completed the acquisition of Sublime, which included "Fuzzies", California's award-winning infused pre-roll brand, for $43.8 million
• Appointed Matt Hawkins as Interim CEO and Ahmer Iqbal as COO of Harborside
• Completed the acquisition of Accucanna LLC ("Accucanna"), the Desert Hot Springs retail dispensary license holder, and the real property related to the Desert Hot Springs dispensary
• Announced a strategic research agreement with Utah State University

Subsequent Events

• Announced plans to install an onsite renewable energy microgrid at the Company's cultivation and production facility in Salinas, California (the "Production Campus")
• Announced a retail partnership with the premium brand RNBW
• Announced the resignation of MNP LLP and appointment of Armanino LLP as auditor
• Announced entering into definitive agreements to acquire Urbn Leaf and Loudpack
• Announced the signing of a non-binding term sheet with Pelorus Equity Partners for proposed Roll Up Financing of $77.3 million
• Announced a private placement of up to $10 million of SVS priced at C$0.79 per SVS.

Q3 2021 Financial Results and Highlights(4)

Q3 2021 Financial Summary

Gross Revenues

During Q3 2021, Harborside generated retail revenue of $9.2 million, wholesale revenue of $2.8 million and manufacturing revenue of $5.9 million, for total gross revenue of $17.9 million, as compared to $11.0 million, $5.2 million and $nil, respectively, for total gross revenue of $16.2 million in the quarter ended June 30, 2021 ("Q2 2021"). On a quarter over quarter basis, retail revenues declined by $1.8 million as consumers reacted to the end of government assistance programs and also began to travel more extensively as COVID-related restrictions subsided throughout the United States. Although the average crop weight per harvest improved during Q3 2021, wholesale revenues declined by $2.4 million on a quarter over quarter basis as wholesale pricing for bulk products declined in California and the Salinas Production Campus revamped its grow schedules to prepare for the start of a perpetual harvest cycle beginning in Q4 2021. The Production Campus also experienced a supply chain related disruption to its substrate (grow medium) materials, which caused a shortage of flowering plants during the quarter.

In Q3 2021, the Company began reporting manufacturing revenues from the acquisition of Sublime, which totaled $5.9 million during the quarter.

As compared to retail revenue of $10.7 million, wholesale revenue of $8.9 million and total gross revenue of $19.6 million achieved during the three months ended September 30, 2020 ("Q3 2020"), revenues for the quarter were generally lower than Q3 2020 as the entire California market adjusted to the reduction of COVID-19 restrictions and the corresponding changes to consumer behavior.

Gross Profits

The Company's retail operations generated gross profits of $5.4 million in Q3 2021, compared to $6.2 million in Q2 2021.  The quarter over quarter retail gross profit decreased by $0.8 million due to lower sales volume during the quarter, while retail gross margin(1) increased from 56.5% in Q2 2021 to 58.9% in Q3 2021 due to improved supplier pricing and less discounting at the point of sale.

As compared to the $5.4 million in gross profit achieved during Q3 2020, retail gross profits were comparable on a year over year basis. As a result of the ongoing efforts at cost reduction and less discounting, retail gross margins(1) improved from 50.1% in Q3 2020 to 58.9% in Q3 2021.

After adjustments for biological assets, the Company's wholesale operations generated gross profits of $(0.7) million in Q3 2021, compared to $3.3 million in Q3 2020, with the year over year decrease being primarily due to lower wholesale prices combined with less available flower from the Production Campus as the harvest schedule was adjusted in preparation for a perpetual harvest cycle beginning in Q4 2021.

Q3 2021 combined gross profit, after adjustments for biological assets, was approximately $6.8 million, a $1.8 million year-over-year decrease as compared to the $8.6 million reported in Q3 2020. The year over year decrease was primarily due to lower wholesale prices and less available flower from the Production Campus.

Operating Expenses

Total operating expenses for Q3 2021 were $11.1 million, compared to $7.8 million in Q3 2020. The year-to-year increase in total operating expenses is primarily due to an increase in general and administrative expenses of $2.4 million, to $6.5 million as compared to $4.1 million in the comparative period in 2020, and an increase in M&A related professional fees of $1.2 million as compared to $nil in Q3 2020, primarily due to an increased level of M&A related activities in the current quarter, as well as the acquisitions of Sublime and Accucanna.

During Q3 2021, the Company also recorded income tax expense of $1.8 million, compared to $1.8 million in Q3 2020, based on estimated federal income taxes payable at each period end. The Company also realized a one-time gain of approximately $5.3 million in the quarter due to the adjustment of the estimate for uncertain tax liabilities related to Internal Revenue Code section 280E.

Operating income (loss) for Q3 2021 was $(4.3) million, compared to an operating income of $0.7 million for Q3 2020. The decrease was primarily due to an increase in general and administrative expenses along with an increase in M&A related professional fees, primarily related to an increased level of M&A activities in the current quarter as well as the acquisitions of Sublime and Accucanna.

Net income attributable to Harborside was $2.7 million in Q3 2021, compared to a net (loss) attributable to Harborside of $(2.4) million in Q3 2020, a 213% increase on a year-over-year basis.  The increase in net income attributable to Harborside is primarily the result of a one-time gain of approximately $5.3 million in the quarter due to the adjustment of the estimate for uncertain tax liabilities related to Internal Revenue Code section 280E, along with fair value gains in other current assets, derivative liabilities and preferred shares.

Adjusted EBITDA for Q3 2021 was $1.4 million or 8.2% of net revenues, compared to Adjusted EBITDA of $4.5 million or 24.3% of net revenues for Q3 2020.(1) The year-over-year decrease was driven largely by the reduced wholesale prices for bulk cannabis in the quarter, combined with less available flower from the Production Campus.  See "Non-IFRS Financial Measures, Reconciliation, and Discussion".

Liquidity and Cash Balance(4) 

As of September 30, 2021, Harborside had total current assets of approximately $34.7 million, including approximately $14.2 million of cash, as compared to current assets of approximately $21.2 million, including approximately $13.3 million in available cash as of September 30, 2020.