Safe Harbor Financial Services announced late Friday that it lost $1.78 million in the first quarter and might consider settling a lawsuit that could cost it several million more.
The Denver cannabis company, which is owned 24% by Partner Colorado Credit Union ($639.8 million in assets, 35,263 members), showed the net loss in its 10-Q quarterly report to the SEC, which was about double the $827,199 loss a year earlier.
Partner Colorado founded the precursor to Safe Harbor as a CUSO in 2015, and spun it off into a private company in September 2022 for $185 million. A month later, Safe Harbor announced it had bought a Denver-area fintech called Abaca for $9 million in cash and $21 million in stock to be paid out over three years.
The former owners said they have not been paid in full, in part because Safe Harbor amended the terms of the purchase a year after its completion.
Denver District Court Judge Jill D. Dorancy ruled April 18 that Safe Harbor did not have any legal authority to amend the deal after the fact, and Safe Harbor was subject to breach of contract claims. She denied Safe Harbor's motion to dismiss, and set a trial date for Aug. 10-11.
The $10.7 million at stake includes $3 million that Safe Harbor has already escrowed with the court over part of the cash payments. Safe Harbor said it might have to pay as much as another $7.8 million over other disputed payments.
"An adverse resolution could have a material adverse effect on the company's financial position, results of operations, or cash flows," the company's first-quarter report said.
Safe Harbor had $5.9 million in cash and cash equivalents on March 31, down 13% from Dec. 31.
"The company intends to continue defending its positions vigorously," the 10Q said. "In addition, the company may evaluate the possibility of a negotiated resolution of the dispute."
However, it sais the company's ability to fund payments under a settlement might be "materially constrained" by terms of other agreements.
"Litigation is inherently uncertain, and there can be no assurance that any negotiated resolution will be reached or that the terms of any such resolution are favorable to the company," it said.
CEO Terry Mendez sent comments May 13 to CU Times saying the Denver company has a plan to handle any potential legal damages and to keep the stock listed on Nasdaq, which is under threat in part because it has been trading below Nasdaq's $1.00 minimum threshold for 50 trading days. It closed Monday at $0.48, up from $0.44 on May 14.
Nasdaq told Safe Harbor April 22 that it has until Oct. 19 to regain compliance.
The falling stock price also made the comparison of this year's first quarter net income look worse than the first quarter of 2025.
In 2025's first quarter, the stock fell by $4.71 over the three months, or $21.2 million in value. That boosted net income by $1.1 million by reducing liabilities related to warrants, which cost the company only if the stock reaches certain exercise prices, which became less likely with the stock price falling sharply.
In this year's first quarter, the stock fell by $0.23, losing only $1 million. The non-cash boost was only $16,599 from lower warrant liabilities. And there's little juice left to squeeze out of that lemon: "As of March 31, 2026, all outstanding warrants were out of the money."
Other big factors in its first-quarter income included the following:
- A $316,576 non-cash gain as the company clawed back money that had been set aside for credit losses. More than half of the clawbacks came from last fall's debt extinguishment, and the rest as an iffy loan that was reclassified as less iffy. Credit expenses were zero for 2025's first quarter.
- A $129,072 increase (+12%) in overhead.
- A $108,206 drop (-96%) drop in interest expenses from its debt extinguishment last September.
- Compensation and employee benefits rose by $288,177 (+21%), while professional services fell by $353,725 (-24%). One factor was higher pay for Terry Mendez, who had been working as a contractor before he was hired as CEO in early 2025.
Mendez earned $1.2 million as CEO for all of 2025, consisting of $326,967 in salary, a $360,000 bonus and $373,569 in stock awards, according to its 10-K filed April 15.
In a news release Monday, Mendez said the results showed the benefits of last fall's renegotiation with Partner Colorado that resulted in Safe Harbor receiving a higher share of revenue from loans it handles from the credit union. Overall revenue for the quarter was $2.0 million, up 2.2% from a year earlier, including a 55% gain in loan program income.
"Our first quarter results reflect meaningful progress across the core drivers of our business," Mendez said.
"We enter the remainder of 2026 with a stronger balance sheet, a broader platform and a more favorable regulatory backdrop than at any point in our history," Mendez said.
The company has facilitated more than $35 billion in cannabis-related transactions across 41 states and territories, and has successfully navigated more than 25 state and federal regulatory examinations, Mendez said.
"Our ambition is to be the financial platform that cannabis and hemp operators reach for first, and the compliance backbone that financial institutions entering this market rely on," he said. "The remainder of 2026 is about disciplined execution against that ambition, and the foundation we now have in place gives us a clear path to pursue it."
Contact Jim DuPlessis at Jim.DuPlessis@arc-network.com.
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