The next cash flow casualty: Harborside ousts CEO

It seems that Andy Berman wasn’t executing Harborside’s cost-cut and cash-generation plans fast enough, since he has been replaced as CEO only four days after our Executive Webcast with him.

This is another example of a cash-flow casualty. To avoid such a situation, executives need to articulate exactly how and when they will generate cash as the cannabis funding market tightens up.

During our webcast, Berman made it sound as if cash continued to burn in the third quarter. By ousting Berman, it seems Harborside’s board is more interested in positive cash generation, not merely slowing that burn.

Asked by Investor Intelligence about the second-quarter guidance – which was not mentioned in the news release about Berman’s departure – the company said it had “no comment.”

But they noted this change is not about the third quarter or second half of 2019 but, rather, ensuring long-term value creation. The words “speed,” “nimble” and “execution” kept popping up as criteria for the next CEO.

The implication is that the guidance of break-even EBITDA for 2019 is not fast enough for the board or the company’s stock on the Canadian Securities Exchange. HBOR shares are down 55% since the guidance was given on the second-quarter call.

The question now is what changes will we see as Harborside goes forward? Will we see an acceleration of Harborside’s existing California-focused plans or a change in the strategy itself?

The company will provide a deeper update on its upcoming earnings call, which is expected before Thanksgiving.

In a new CEO, Harborside is looking for someone who:

  • Has been a CEO before, preferably of a public company.
  • Is from the cannabis industry, has a “strong cannabis experience” – or at least retail experience – and who can hit the ground running.
  • Is a nimble executive who can execute and act quickly in the rapidly changing cannabis environment.

Berman’s background in wireless telecom perhaps wasn’t aligned with the need for rapid execution for Harborside.

Chair Peter Bilodeau will serve as interim CEO, effectively immediately, while the company conducts a search for Berman’s replacement.

The company’s representatives didn’t know if Bilodeau would be a contender for the permanent position, but his background in banking and consulting does not sound like he’s the target hire, either.

Harborside also announced new hires with what appears to be relevant experience:

  • Lisah Poore from cannabis vape company Dosist was tapped to be chief revenue officer. Her LinkedIn page lists her previous role as senior vice president of Sephora.
  • Mirelle Ducos was appointed head of human resources. She comes from Leiters, a compounding pharmacy where she held the same role.

The current Harborside story of profit improvement – via 500 bps of cost cuts, gross margin expansion via increased private label and revenue growth focused on California, the largest U.S. cannabis market – remains an interesting one with identifiable drivers for 2020 and beyond.

If, that is, it can be executed and funded.

We will see if the strategy remains the same through the management changes.

Mike Regan can be reached at miker@mjbizdaily.com.