Halo Collective Reports Third Quarter 2021 Financial Results
/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/
-- Halo reports 28% year-over-year revenue growth
All figures in USD unless stated otherwise
TORONTO, Nov. 15, 2021 /CNW/ - Halo Collective Inc. ("Halo" or the "Company") (NEO: HALO) (OTCQB: HCANF) (Germany: A9KN) today announced its financial and operational results for three months ended September 30, 2021 ("Q3 2021").
Third Quarter 2021 Financial Highlights:
"The difficult conditions in our California and Oregon markets are having a short-term impact on our financial results but not on our determination to make the Company profitable and boost shareholder value," said CEO Kiran Sidhu. "We are actively executing a four-pronged strategy consisting of growing our wholesale business in California and Oregon, launching California retail in Los Angeles, streamlining costs and monetizing equity positions in Akanda, Triangle Canna and HaloTek. Even with the strong headwinds in both California and Oregon, we believe that we have a path to profitability in 2022."
On November 4, 2021, Halo completed its previously announced transaction with Akanda Corp. ("Akanda") as part of its international re-organization efforts. This significantly reduces Halo's overheads provides Halo with a $6.6 million secured convertible debenture and an approximate 68% equity position in Akanda. On November 10, 2021, the Company announced the planned $75 million Reg A+ financing (the "Triangle Financing") by Triangle Canna Corp. ("Triangle Canna"). Halo maintains a 44% equity stake in Triangle Canna, which is being valued at $165 million prior to the completion of Triangle Financing. The Triangle Financing has been qualified by the U.S Securities Exchange Commission and is expected to launch prior to December 2021. There can be no certainty as to the timing or success of the Triangle Financing. The Company also expects Elegance Brands, Inc. ("Elegance") to be listed on a major North American exchange by March 2022, which would provide additional liquidity to monetize Halo's shareholding position in Elegance. "We believe Halo is currently trading at a significant discount, by spinning off non-core assets, shareholders are expected to benefit from this unlocked value."
Mr. Sidhu continued, "The Oregon and California markets have seen a significant decline in gross sales over the last two quarters, mainly attributed to competition for consumer discretionary funds from other industries as the effects of COVID restrictions ease and oversupply of cannabis putting pressure on pricing which has declined significantly. According to BDSA, California was down 18% from April through September, while Oregon saw a smaller decline of 15%. Halo, on the other hand, bucked the industry trend seeing an increase in gross sales of 59% in California and a small decrease of 7% in Oregon over the same period. Our share gains in both states position us well to be one of the leaders in a consolidated market as marginal and undercapitalized competitors fail and market conditions improve in 2022."
"Operationally, we are pulling multiple levers to drive growth and improved profitability within our core markets. We are revamping and intend to launch over 50 new products over the next six months, including pre-rolls, gummies, vapes, beverages, and HushroomsTM, a non-cannabis functional mushroom product. This includes leveraging the Simply Sweet platform to expand and upgrade all of our edibles offerings across multiple high-demand emerging product categories such as vegan, plant-based, natural, and low sugar. In beverages, we are developing a microdosed concept and plan to leverage our relationship with Elegance for mainstream distribution in stores of CBD and functional mushroom drinks. Our balance sheet remains strong."
Philip Van Den Berg, CFO, continued, "We are tracking toward slightly higher sequential revenue growth in the fourth quarter and withdraw our guidance for the year ending on December 31, 2021. We are using this market downturn as an opportunity to accelerate our plan to reduce costs significantly. We have identified approximately $6.7 million of anticipated quarterly cost savings ($26.8 million annually) that we are implementing, including a reduction in corporate and production overheads, the separation of Akanda, and the reduction of external professional fees. Additionally, the working capital should release as we turn inventory more quickly as East Evans Creek delivers cannabis to the Oregon sales force that has been harvested and fully paid up except for trimming, distribution, and commissions. We could achieve profitability in the first half of 2022 and expect to reduce our losses in the fourth quarter of 2021."
California Market Update
While the largest legal market in the U.S., California's market conditions have recently softened and experienced a significant decline in gross legal sales from calendar Q2 to Q3 of 2021. The decline has been attributed to competition for consumer discretionary spending from other industries as the effects of COVID restrictions ease as well as a large glut in the supply chain of cannabis. California retail sales were down 18% from April 1 to September 30 in 2021, resulting from price reductions and quantity concessions.2
However, Halo believes that conditions in the state will improve within a year based on similar downturns in Oregon, Washington, and Colorado. The Company expects there will be attrition in flower supply in the legal California market over the next 12 months that could lead to many existing farms exiting the market, not unlike Oregon, where some of the marginal suppliers have closed. In 2022, new California state regulations prevent stacked cultivation licenses on contiguous property starting in January, meaning new applicants may only obtain four cultivation licenses per parcel totaling 40,000 square feet.3 In addition, the state is requiring all provisional licenses to convert to annual licenses by the middle of 2022, which may reduce the supply of licenses, and the California Environmental Quality Act( "CEQA") review is expected to be a critical material factor in conversion which will be difficult for many operators to obtain.
Currently, there are 8,466 Cultivation Licenses in California, of which 2,401 of them are "Annual."4 These licenses will be grandfathered into the prior state program, which did not set canopy limits per parcel. Starting in July 2022, the 6,065 temporary "Provisional" licenses must have their CEQA plans approved by the local government and California Department of Cannabis Control to convert to annual and be grandfathered into their legacy canopy footprint under prior state regulations. Any extension of provisional licensing will be challenging to come by.
California Retail Rollout Update
Halo's Los Angeles retail rollout is an important step in its vertical integration "Seed to Sale" strategy in the state. The Westwood store is expected to open in December 2021, followed by the Hollywood store in January 2022 and the North Hollywood store by June of 2022. Opening under the Company's new retail brand Budega™, these stores are expected to increase distribution of Hush, FlowerShop* and our own Budega™ branded products in California, and after an approximate six-month ramp up period, should contribute net revenue and gross profit.
Third Quarter 2021 Financial Results
Revenues in Q3 2021 were $8.7 million compared to $6.8 million in Q3 2020, a 28.0% increase. Total sales were 9,241,224 grams (Q3 2020: 1,283,087 grams), a 620% increase. Organic revenue growth was 9%.1
Revenue growth was mixed across the Company's subsidiaries which include ANM Inc. ("ANM"), the owner of the Company's facility in Oregon; Mendo Distribution and Transportation LLC ("MDT"), the owner of the facility in Ukiah; Coastal Harvest LLC ("Coastal Harvest"), Halo's extraction facility in California; Halo Winberry Holdings, LLC ("Halo Winberry"), which operates a one-acre grow outside of Eugene, Oregon; and Halo Kushbar Retail Inc., the operator of three retail cannabis stores in the province of Alberta. ANM reported revenues of $3.7 million, a 6.0% decrease over Q3 2020. MDT reported revenues of $3.1 million, a 41.5% increase over Q3 2020. Coastal Harvest reported revenues of $0.7 million, a 1.8% decrease compared to Q3 2020. Halo Winberry and Halo Kushbar Retail reported revenues of $3.1 million and $0.5 million, respectively. Halo Winberry's and Halo Kushbar Retail's results were not included in the three months ended September 30, 2020.
The Company reported a gross profit of $1.6 million (Q3 2020: gross profit of $1.6 million), with a reported gross margin of 18.8% (Q3 2020: 67.1%). Adjusted for the loss on biological assets, gross profit was $2.3 million (Q3 2020: $2.5 million), with an adjusted gross margin of 26.5% (Q3 2020: 35.7%).
Liquidity and Cash Balance
As of September 30, 2021, Halo had available cash in the amount of $8.0 million and approximately $523,000 in restricted cash. During the quarter, a total of 806,651 common shares in the capital of Halo ("Common Shares") were issued in connection to the at-the-market public offering for gross proceeds of $4.1 million (C$5.1 million).
In Q3 2021, ANM, the owner of the Company's facility in Oregon, sold 1,725,936 grams of shatter, cartridge oil, live resin, tinctures and gummies, flower, and pre-rolls (Q3 2020: 895,840 grams), a 92.7% increase. Sales of oil and extracts were 311,066 grams (Q3 2020: 346,236 grams), a 10.2% decrease. The wholesale price of oils, extracts and edibles increased by 4.6% to $7.14 per gram (Q3 2020: $7.48 per gram). Flower sales in Q3 2021 were 730,579 grams (Q3 2020: 224,687 grams), a 225.2% increase. The wholesale price of flower decreased by 24.5% to $0.85 per gram (Q3 2020: $1.13 per gram). Pre-roll sales were 605,757 grams (Q3 2020: 178,572 grams), a 239.2% increase. The wholesale price of pre-rolls increased by 49.7% to $0.77 per gram (Q3 2020: $1.54 per gram).
In Q3 2021, MDT, the owner of the facility in Ukiah, sold 5,203,541 grams of distillate, live resin, gummies, and pre-rolls (Q3 2020: 180,304).
Halo Winberry sold 2,083,180 grams of oil and extracts, shatter, live resin, edibles, flower, pre-rolls, and trim. Prices ranged from $9.69 per gram for oils and extracts, $4.44 for edibles, $4.22 for pre-rolls, to $0.23 per gram for trim.
Simply Sweet Gummy Acquisition Completed
Halo also today announced that, further to its press release dated November 4, 2021, the Company has completed the acquisition of all of the issued and outstanding shares of Simply Sweet Gummy Ltd. ("Simply Sweet"), a health-conscious, low-sugar cannabis infused alternative confectionery company based in Vancouver, British Columbia. In consideration for all of the issued and outstanding shares of Simply Sweet, which holds assets and formulations (including $1 million in cash), the Company issued 2,700,000 Common Shares to the previous shareholder of Simply Sweet. The Company has also issued 202,500 Common Shares to an arm's-length finder.
Earnings Conference Call
Halo will host a live webinar at 4:15 p.m. Eastern Time on Tuesday, November 16, 2021, to discuss its results. To access the webinar, visit http://www.directeventreg.com/registration/event/4972706. The webinar will also be available on a telephonic replay after the event until November 23, 2021. To access the replay, dial 1-(800) 585-8367 (toll free) or (416) 621-4642 (international) and enter conference ID: 4972706.
As described previously, the Company is withdrawing 2021 financial guidance primarily due to:
The Company plans to give 2022 guidance on or before releasing annual financial results on April 15, 2022.
Complete results are reported in the Company's consolidated financial statements for the three months ended September 30, 2021, and associated management's discussion and analysis (the "Q3 2021 MD&A").
About Halo Collective Inc.
Halo is a leading, vertically integrated cannabis company that cultivates, extracts, manufactures, and distributes quality cannabis flower, oils, and concentrates and has sold approximately eleven million grams of oils and concentrates since inception. The Company continues to expand its business and scale efficiently, partnering with trustworthy leaders in the industry who value Halo's operational expertise in bringing top-tier products to market.
Halo currently operates in the United States in Oregon and California. The Company sells cannabis products principally to dispensaries in the U.S. under its brands Hush, Mojave, and Exhale, and under license agreements with Papa's Herb®, DNA Genetics, Terphogz, and FlowerShop*, a cannabis lifestyle and conceptual wellness brand that includes G-Eazy as a partner and key member.
As part of continued expansion and vertical integration in the U.S., Halo boasts several grow operations throughout Oregon and two planned in California. In Oregon, the Company has a combined 11 acres of owned and contracted outdoor and green house cultivation, including East Evans Creek, a six-acre grow site in Jackson County with four licenses owned and operated by Halo and two third-party licenses under contract to sell all of their product to Halo; Winberry Farms, a one-acre grow site located 30 miles outside of Eugene in Lane County with a license owned and operated by Halo; and William's Wonder Farms, a three-acre grow site in Applegate Valley, under contract to sell all of its product to Halo pending the closing of Halo's acquisition of its licenses and business assets. Halo has recently acquired Food Concepts LLC, a master tenant of a 55,000 square foot indoor cannabis cultivation, processing, and wholesaling facility in Portland, Oregon operated by the Pistil Point entities.
In California, the Company is building out Ukiah Ventures, a planned 30,000 square foot indoor cannabis grow and processing facility, which aims to include up to an additional five acres of industrial land to expand the site. Recently, Halo partnered with Green Matter in California to purchase the Farm in Lake County, developing up to 63 acres of cultivation, comprising one of the largest licensed single site grows in California. Halo also plans to expand its operations in California by opening three dispensaries under the Budega™ brand in North Hollywood, Hollywood, and Westwood.
In Canada, Halo acquired three KushBar retail cannabis stores located in Alberta as a first in its planned entry into the Canadian market, leveraging its Oregon and California brands. With the KushBar retail stores as a foundation, the Company plans to expand its foothold in Canada.
Halo has also acquired a range of software development assets, including CannPOS, Cannalift, and, more recently, CannaFeels. In addition, Halo owns the discrete sublingual dosing technology, Accudab. The Company intends to spin-off these assets and its intellectual property and patent applications into its subsidiary Halo Tek Inc. and expects to complete a distribution to shareholders on a record date to be determined by Halo.
Halo recently completed the sale of certain of its non-U.S. operations to Akanda Corp., whose mission is to provide high-quality and ethically sourced medical cannabis products to patients worldwide. As an independent company, Akanda is seeking to deliver on this promise while driving positive change in wellness, empowering individuals in Lesotho, and uplifting the quality of the lives of employees and the local communities where it operates, all while limiting its carbon footprint. Akanda combines the scaled production capabilities of Bophelo Bioscience & Wellness Pty. Ltd., a Lesotho-based cultivation and processing campus located in the world's first Special Economic Zone (SEZ) containing a cannabis cultivation operation, with distribution and route-to-market efficiency of CanMart Ltd., UK-based fully approved pharmaceutical importer, and distributor that supplies pharmacies and clinics within the UK With a potential maximum licensed canopy area of 200 hectares (495 acres), Bophelo has scalability that is arguably unmatched in the world today. Following the sale, Halo is Akanda's largest shareholder.
For further information regarding Halo, see Halo's disclosure documents on SEDAR at www.sedar.com
Non-IFRS Financial Measures
Organic Revenue and Adjusted Gross Profit are non-IFRS financial measures that the Company uses to assess its operating performance and does not have any standardized meaning prescribed by IFRS. Management defines Organic Revenue as internal growth the Company generates from its operations, measured by same-store or comparable sales. Management defines Adjusted Gross Profit as Gross Profit adjusted for fair value gains or losses on biological assets, and impairments included in cost of goods sold. These non-IFRS measures are provided to assist management and investors in determining the Company's operating performance. The Company also believes that securities analysts, investors and other interested parties frequently use these non-IFRS measures in the evaluation of companies, many of which present similar metrics when reporting their results. As other companies may calculate these non-IFRS measures differently than the Company, these metrics may not be comparable to similarly titled measures reported by other companies. For a reconciliation of Adjusted Gross Profit please refer to "Non-IFRS Measures" in the Q3 2021 MD&A, which is available on the Company's SEDAR profile at www.sedar.com.
Cautionary Note Regarding Forward-Looking Information and Statements
This press release contains certain "forward-looking information" within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only Halo's beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of Halo's control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or may contain statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "will continue", "will occur" or "will be achieved". Forward-looking information may relate to anticipated events or results including, but not limited to the expected results of operations and changes to operating expenses currently expected by management, the number of stores to be added by the end of the year, management's plans regarding its portfolio of cannabis businesses, revenue outlook, the expected contribution from the Company's California dispensaries and the expected opening date thereof, the time and place for the Company's earnings call, the Company's expansion plans regarding Canada, the expected size and capabilities of the final facility planned at Ukiah Ventures, the size of Halo's planned cultivation facility in Northern California, and the ability of Bophelo and Canmart to serve the UK market and the proposed spin-off by Halo Tek Inc.
By identifying such information and statements in this manner, Halo is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from those expressed or implied by such information and statements. In addition, in connection with the forward-looking information and forward-looking statements contained in this press release, Halo has made certain assumptions. Although Halo believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements. Among others, the key factors that could cause actual results to differ materially from those projected in the forward-looking information and statements are the following: inability of management to successfully integrate the operations of acquired businesses, changes in the consumer market for cannabis products, changes in the expected outcomes of the proposed changes to Halo's operations, delays in obtaining required licenses or approvals necessary for the build-out of Oregon operations, dispensaries or Canadian operations, the proposed spin-out with Halo Tek Inc., delays or unforeseen costs incurred in connection with construction, the ability of competitors to scale operations in Northern California, delays or unforeseen difficulties in connection with the cultivation and harvest of Halo's raw material, changes in general economic, business and political conditions, including changes in the financial markets; and the other risks disclosed in the Company's annual information form dated March 31, 2021 and other disclosure documents available on the Company's profile at www.sedar.com. Should one or more of these risks, uncertainties or other factors materialize, or should assumptions underlying the forward-looking information or statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.
The forward-looking information and forward-looking statements contained in this press release are made as of the date of this press release, and Halo does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward-looking information and statements attributable to Halo or persons acting on its behalf is expressly qualified in its entirety by this notice.
Third Party Information
This press release includes market and industry data that has been obtained from third party sources, including industry publications. The Company believes that the industry data is accurate and that its estimates and assumptions are reasonable, but there is no assurance as to the accuracy or completeness of this data. Third party sources generally state that the information contained therein has been obtained from sources believed to be reliable, but there is no assurance as to the accuracy or completeness of included information. Although the data is believed to be reliable, the Company has not independently verified any of the data from third party sources referred to in this press release or ascertained the underlying economic assumptions relied upon by such sources
This press release shall not constitute an offer to sell or the solicitation of an offer to buy any of the securities described herein, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
SOURCE Halo Collective Inc.
Company Codes: NEO:HALO, Frankfurt:A9KN, OTC-QB:HCANF
© 2021 PR Newswire. All Rights Reserved.