Could the DeAngelo brothers make a triumphant return to their old stomping grounds in Oakland, and potentially engineer a repurchase of the groundbreaking Harborside dispensary that made them famous?
Signs point to “maybe.”
Andrew DeAngelo
Steve and Andrew DeAngelo, the two primary founders of Harborside who ran the business for almost 15 years, explicitly refused to rule out a potential return to the company following news that it’s heading to a court-appointed receiver to settle $116 million in debts. The company, which is now known as StateHouse Holdings, may well end up on the auction block as a result, a fate met by several other high-profile cannabis companies already.
Steve DeAngelo
There’s already a precedent for such a buyback: Last year, an Oregon cannabis company founder repurchased his own business for pennies on the dollar at a receivership auction, after new owners also got in over their heads with debt.
“Harborside was our baby. It was something that we loved and something that we nurtured and something that we saw destroyed. And there’s nothing in the world that would make us happier than to be able to bring that baby back to life again. Now, do the circumstances exist? We don’t know,” Steve DeAngelo told Green Market Report.
“We’re certainly open to communications from all parties, and we’re heartened by the support that we’ve gotten by the community from people who really want us to return to Harborside and return it to what it was,” he added.
Too big, too fast
Harborside went public in 2019, and the DeAngelo brothers were forced out in 2020 by what they called a hostile takeover. What followed was an acquisition spree that the DeAngelos said was too much expansion too quickly. The new management purchased three companies in less than a year, beginning with Sublime in 2021 followed by Urbn Leaf and Loudpack in 2022, after which it rebranded to StateHouse Holdings Inc. (CSE: STHZ) (OTCQB: STHZF).
The takeover, which the brothers said was engineered by Entourage Effect Capital’s Matt Hawkins and associate Roger Jenkins, investors in Harborside, ushered in a completely different business approach, which was to expand fast through acquisitions.
That “rollup strategy,” the DeAngelos said, is ultimately what brought StateHouse to the brink, with debtor Pelorus Fund REIT now asking a court to appoint a receiver to force the business to pay back four loans that total more than $116 million.
“They were playing for an exit, and they were premature. There are no exits in the California market. None. Not even the biggest top-line revenue companies are having exits,” Steve DeAngelo said. “So they read the market wrong. These guys who are supposed to be pros, who are supposed to know what they were doing made exactly the wrong turn.”
The brothers said they remained shareholders of StateHouse and would occasionally try posing questions and offering advice to the board and executives, but they were ignored.
“We knew it was the wrong turn. We knew that in California it was going to be a grind, that you had to stay true to your values,” Steve DeAngelo said. “If we had remained in positions of influence at Harborside, we never would’ve allowed this ridiculous rollup strategy to be executed. It was the wrong move in California.”
The goal for the DeAngelos was small, slow, steady organic growth, instead of the “go-big-or-go-home” mentality they say that new ownership brought to the helm.
“They came in with a playbook that was about something much different than our playbook,” Andrew DeAngelo said.
‘Suit vs. roots’
The brothers agreed that the bottom-line corporate mentality of doing business in the current cannabis climate has proven unworkable, not just for StateHouse but for other similar companies that have also failed when trying to bring a more traditional business approach to the marijuana sector.
Hawkins, Jenkins and other new “suits,” as Andrew put it, simply didn’t understand the values of the relationships built by Harborside and its team during the years it was fighting the federal government in court, uncertain as to whether Drug Enforcement Administration agents would raid the shop and arrest everyone.
That was a reality from 2012 to 2016, when former U.S. Attorney Melinda Haag tried for four years to close Harborside via a civil asset forfeiture lawsuit – which ultimately failed. During that time, the dispensary and all of its employees lived with the constant threat of prosecution, the DeAngelos pointed out.
“There’s definitely a suits versus roots moment happening right now throughout the whole industry, not just in California,” Andrew DeAngelo said. “Years ago I was trying to get the roots and the suits to cooperate with each other… Man, it failed. I can’t even tell you. We have not been able to get the suits and the roots together, and I think it’s important to keep trying.”
When news broke earlier this month that Pelorus had filed suit in California after StateHouse quit making any effort to make its loan payments back in January, the brothers eventually posted a statement on social media, which garnered plenty of support from other longtime cannabis industry folks who called for them to gather investor support for a takeover of their own.
“Hopefully you can get the team together, buy the assets and smack them in the !@#!@#” wrote Todd Kleperis, the founder of distribution company Hardcar.
Andrew DeAngelo said the outpouring of support from various corners for a return by the brothers to Harborside has “made our hearts soar.”
“We don’t want the story to be a whole bunch of people lost their money with this. We want the story to be they finally figured it out and everybody got paid,” he said. “There’s a lot to learn, I think, in terms of restructuring. But judging from the statement Pelorus made, it seems like that’s what they would prefer to see happen. Then I guess the other option is liquidation.”
For now, it’s unclear exactly what will happen with StateHouse and its assets; that’s for the court and the receiver to decide. As of Oct. 7, there had been zero movement on the request by Pelorus, although the firm Receivership Specialists has been appointed, an executive with the company confirmed after Pelorus specifically requested the firm by name in its complaint.
“As shareholders, we have the right to petition the court to be heard. The court has some discretion in whether to hear from us or not. But as founders, I think it’s likely that we would be heard by the court. So we really need to see how the judge in this case is feeling,” Steve DeAngelo said.
He said the ironic twist is that a lot of the legacy cannabis actors in California have turned out to be better and more successful at the marijuana business than the supposed highly educated Ivy League MBAs.
“These were the guys who were going to come in, who were the business guys, who were going to professionalize everything, who were going to teach the hippies how to run it. Right? By their own measure, they have failed miserably,” Steve DeAngelo said.
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