As one of the first cannabis operators in the United States, Harborside has several years of experience navigating the rules and regulations of the American cannabis industry. According to Berman, the company’s understanding of the regulatory landscape is one of the many ways Harborside has differentiated itself from the competition as it works to secure licenses in the American cannabis market.
Harborside operated as a medical cannabis non-profit for 12 years, which has provided the company with a unique understanding of the regulations limiting the industry. According to Berman, taxation, banking and the prominence of the black market are the major factors hindering the growth of the current industry; however, the laws are slowly beginning to change.
The current regulatory climate in the United States has been forcing all cannabis-related businesses to operate using cash only, but recently proposed legislation has the potential to enable banking access for these businesses moving forward. Harborside is currently in active litigation with the US tax board over internal revenue code 280e, which prevents ordinary business deductions for cannabis companies.
Below is a transcript of our interview with Harborside CEO Andrew Berman. It has been edited for clarity and brevity.
Investing News Network: Please tell us your name and your role within your company.
Harborside CEO Andrew Berman: My name is Andrew Berman. I’m the CEO of Harborside and I’m very proud to say that Harborside just recently listed on the Canadian Securities Exchange (CSE) under the ticker symbol HBOR.
INN: Could you please tell us about Harborside and some of your recent developments?
AB: Harborside is one of the longest-running cannabis companies in the United States. We were actually one of the first cannabis operators in the country. The City of Oakland, California was the first city in the United States to issue retail cannabis licenses and we had one of those first six licenses. So we’re really differentiated by the fact that we’ve been doing this a very, very long time and we right now have a nice strong footprint in Northern California. We’re very California focused, which is because it’s a large, fantastic market. Northern California itself is going to be a US$2 billion industry over the next few years, and we’re vertically integrated, meaning we have cultivation, we have a retail footprint and we also have a suite of brands that we feed our biomass into and put them onto our shelves as well.
INN: Could you tell us about your recent listing on the CSE and how it affects your growth strategy?
AB: We’re very proud to be listed on the Canadian Securities Exchange. Canada has been just great helping American companies with access to capital markets. We listed about nine days ago now, and it’s an important part for our growth strategy.
Remember that Harborside, for 12 years, operated as a medical cannabis non-profit by law in the state of California. When we moved over to a fully regulated for-profit industry on January 1, 2018, we needed to transform the business, and that included traditional things like our capital market strategy. When you’re bringing in new investors, you want those investors to be able to have a return on their investment and a liquidity path. Listing on the CSE allows us to do that. It also allows us to have some growth opportunities to continue to expand our vertical integration strategy. We have finished building out some of the cultivation, building out our house of brands, acquiring and building more retail locations, which is happening as we speak.
INN: Could you tell us about the California cannabis market and how you stand out amongst competitors?
AB: The California cannabis market is a fantastic, robust, big market. Unquestionably, it is the largest cannabis market on the planet. Most of the analysts would say it is the size of Canada and it is also the size of Massachusetts, Illinois, Ohio, Michigan and Pennsylvania combined. Everybody wants to be in California, which makes it a good place to be already. That’s a differentiator for us. We’ve helped shape the regulations in California, and it’s a complicated regulatory scheme in the state. You need to have a local license. If you’re going to operate anywhere in the value chain, you need to have licenses at every step of the way.
So we have 41 licenses that allow us to cultivate, process, harvest, distribute, sell and deliver cannabis. These are all the things that the California market requires, things that Harborside has been able to accomplish over its time.
INN: What are your retail expansion plans for 2019 and 2020?
AB: We’ve got a wonderful retail footprint right now. We’re currently operating in five retail locations in two states. We have two stores up in Oregon and three wonderful stores in Northern California. We’re also in construction right now with partners on two more stores in California. There’s one being built in Desert Hot Springs. That’s right on the other side of the interstate when you come out of the Palm Springs Airport. There are about 80,000 cars that go across that intersection every day. We’re very excited about that location and it’s going to have a drive-through. It is going to be one of two drive-throughs in the state.
We’re also under construction right now in San Leandro, California, another wonderful large city in between San Jose and Oakland. Of course, we have other expansion plans underway. We are actively looking at other locations in San Francisco and in Southern California, too. Again, that CSE listing and the access to capital markets it provides us is allowing us to do that kind of growth.
INN: Which catalysts in the cannabis sector would be most beneficial for Harborside?
AB: Harborside is not unique when it comes to the major issues that are hurting and hampering the industry. Those issues really come down to taxation, banking and the black market. The taxes in the United States and the taxes in California are pretty tough. A US$10 pre-roll joint costs you about US$13.50 when you walk it out the door. That’s a healthy tax burden for an average person. Then you’ve got the taxes at the federal level. The Internal Revenue Code, the US Internal Revenue Code, doesn’t allow ordinary business deductions that other legal operating businesses are allowed to take. You’re effectively taxed on your gross margin, that’s Internal Revenue Code 280e, a big challenge for this industry.
The other part is banking, obviously. Banking is forcing this industry still to be operating as a cash business. I don’t know if you have heard, but 33 US state attorney generals asked Congress to fix this. Twenty governors from the states have also asked Congress to fix this. An all-cash business is just not safe and it’s taking things away from legitimate and legal businesses and plaguing the industry through the growth of the black market as a result and that’s a challenge.
These challenges around taxation and banking and a very robust powerful black market are hurting the entire industry. That’s not unique to Harborside, but what I can say is that Harborside has been doing this a very, very long time and we have been on the front lines for many of these things. We have taken the US government to trial on civil forfeiture, and won, by the way. We are actively in litigation with the US tax board over 280e. These are challenges that all of us must rise up to help fix and legitimize this business to bring it back to where it should be.
This interview is sponsored by Harborside (CSE:HBOR). This interview provides information which was sourced by the Investing News Network (INN) and approved by Harborside in order to help investors learn more about the company. Harborside is a client of INN. The company’s campaign fees pay for INN to create and update this interview.
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