Halo Collective Reports First Quarter 2022 Financial Results; Book Value Per Share of $1.65 ($2.12 CAD)

All figures in USD unless stated otherwise

TORONTO, May 17, 2022 /PRNewswire/ - Halo Collective Inc. ("Halo" or the "Company") (NEO: HALO) (OTCQB: HCANF) (Germany: A9KN) today announced its financial and operational results for three months ended March 31, 2022 ("Q1 2022"). Halo's book value- booking investments at actual adjust costs basis after impairments per IFRS guidelines- is $80.7 million. These actual results validate that the Company's fundamental shift in strategy to incubate and spin out cannabis related companies is expected to create significant value for shareholders.

"Marked to market the Company's estimated unrealized gain before taxes at March 31, 2021, on Halo's investment in Akanda was approximately $74.6 million,1" said Kiran Sidhu, CEO, and Director. "We expect that if the intended acquisition and subsequent spin out of PhytoCann SA ("PhytoCann") is completed, it will also create substantial value by delivering meaningful revenue and operating profit contribution.2"

• Akanda Corp. ("Akanda"), Halo's first incubated company, completed its initial public offering and the listing of its common shares (the "Akanda Shares") on NASDAQ in March 2022.
• Halo's consolidated Q1 2022 revenue of $7.6 million declined $2.4 million, or 23.9%, compared to revenue of $9.9 million in Q1 2021. Revenue was impacted by a significant downturn in both the California and Oregon markets. The flower category, which is a leading indicator, sharply declined, with sales falling by 23% in California and 26% in Oregon year over year.3 Adjusted gross profit4 was $1.4 million, or 18.7% gross margin, compared to $2.2 million, or 22.1% gross margin, in Q1 2021.
• Halo's California Wholesale business segment posted positive EBITDA in Q1 2022.
• As of March 31, 2022, the Company had a book value of $80.7 million ($1.65 book value per share).

"In 2022, we intend to develop, grow, and ultimately monetize assets by incubating promising cannabis related businesses while remaining laser focused on optimizing West coast cannabis operations. The planned spinout of Halo Tek Inc. is expected to result in a distribution to all Halo shareholders. The intended acquisition of Phytocann is expected to add significant revenue and EBITDA to the Company in late 2022," said Katie Field, President, and Director.

"Halo's California wholesale business segment is EBITDA positive and scaling. We expect to re-achieve positive EBITDA contribution from the Oregon wholesale business segment in the latter half of 2022," added Joshua Haddox, Chief Operating Officer.

"The Company's California dispensary business segment officially opened in Q1 and is growing quickly. After a six-month ramp-up period per dispensary, we expect the Los Angeles dispensaries in North Hollywood, Westwood, and Hollywood to contribute positive EBITDA," commented Beau McKeon, Senior Vice President of Retail Operations.

• Akanda successfully listed the Akanda Shares on the Nasdaq Capital Market on March 15, 2022, under the ticker symbol "AKAN ."As of March 31, 2022, the Company held a total of 12,674,957 common shares of Akanda, and based on Akanda's listed stock price per NASDAQ of $7.94 per share on March 31, 20225, the Company had an estimated unrealized gain from Halo's Akanda investment of $74.6 million.
• Halo Tek Inc. ("Halo Tek"), a wholly owned subsidiary of Halo, filed a preliminary long form prospectus with the securities regulatory authorities in each of the provinces and territories of Canada, other than Québec, for the purpose of qualifying the distribution by Halo to holders of Halo's common shares ("Halo Shares") of all of the issued and outstanding common shares in the capital of Halo Tek (the "Halo Tek Shares") as a return of capital (the "Distribution"). Prior to the Distribution, Halo intends to reorganize its technology assets so that Halo Tek is the owner of all the outstanding shares of Halo DispensaryTrack Software Inc., Halo AccuDab Holdings Inc., Halo Cannalift Delivery Inc., Nasalbinoid Natural Devices Corp., 1265292 B.C. Ltd. (d/b/a Cannafeels), and 1275111 B.C. Ltd.
• Halo signed a letter of intent and entered into exclusive negotiations to acquire Phytocann, one of Europe's leading wellness CBD companies. Upon closing the acquisition of PhytoCann, PhytoCann is expected to add substantial net revenue and EBITDA and an impressive CBD-based product lineup to Halo.
• The Company also expects its holding in Elegance Brands, Inc., now known as Sway Energy Corporation ("Sway"), to be listed on a major North American exchange in 2022. Halo holds 9,333,333 shares in Sway, and the listing would allow Halo to monetize the position. The Company further holds 5,000,000 Sway warrants exercisable at a price of $0.75 per Sway share.

The initial phase of Halo's retail rollout is almost complete. As of May 16, 2022, Halo has opened its North Hollywood dispensary under the Budega™ brand. The Company's flagship Westwood dispensary is expected to open by May 27, 2022. The Hollywood location is planned to open by the end of June 2022. After a six-month ramp-up period per store, collectively, dispensaries are expected to contribute $27 million of net revenue and $4 million of operating profit contribution annually.6 The Company is in discussions with numerous other dispensary acquisition targets, but there is no assurance that any transaction will be completed.

California

In Q1 2022, the California wholesale business segment reported revenue of $2.0 million, gross margin of 20.1%, and Adjusted EBITDA7 of $0.1 million. These promising results resulted from:

• Expansion of California's product line to 77 SKUs, including product categories gaining market share.
• Increased distribution from 142 dispensaries on December 31st, 2021, to 163 on March 31 st, 2022. Bad debts have been reduced, and accounts receivable days have decreased.
• Overhauled social media platforms and added brand ambassadors to increase retail sell through and demand at the consumer level.
• Increased white label business reducing fixed overhead costs and contributing to positive net income
• As of April 2022, discontinued operations at Coastal Harvest and consolidated to Outer Galactic Chocolates/Mendocino Distribution and Transportation LLC, which will reduce overheads and increase profitability in Q2 2022.

The Company anticipates Governor Newsom's tax proposal- which would eliminate cultivation tax starting July 2022- if passed, would further increase profitability and growth of the California business segment.

Oregon

Consolidated Oregon wholesale revenue was $4.9 million with a gross profit of $0.7 million, representing a 13.8% gross margin. Notable operating highlights from this quarter include:

• Increased Oregon's product lineup to 422 SKUs targeting growing market categories by March 31st, 2022.
• Decreased distribution of our products to Oregon dispensaries from 478 on December 31, 2021, to 464 on March 31st, 2022; bad debts have been reduced, and accounts receivable days have decreased.
• Further reductions planned of production overheads and "right sizing" of the business for current revenue and future projections.
• Reduction in outdoor cultivation operations both in scope and cost for the 2022 growing season to decrease working capital expenditure and improve cash flow.

In March 2022, the Oregon legislature signed HB4016, a moratorium that inactivates all marijuana license applications received after January 1, 2022, until March 31, 2024. Additionally, it allows the Oregon Liquor and Cannabis Commission to refuse to issue any new marijuana licenses until further notice. Halo anticipates this favorable policy change will decrease saturation and lead to rising wholesale cannabis prices over time. The net effect of this bill is expected to result in an increase in product profitability in the State of Oregon.

Halo Kushbar Retail Inc. ("Kushbar") reported $0.6 million in dispensary revenue and a gross margin of 32.2%. Combined, the three Kushbar stores had $1,678 in adjusted EBITDA8. As Halo assumes management of the Kushbar locations, the Company expects this segment to contribute to profitability. Management has devised a roadmap to improve the three Alberta stores and increase margin.

• Brand: Management intends to rebrand the stores from Kushbar to Budega. While the stores are aesthetically pleasing, the Company believes that the Budega brand promise -- superior quality product, community-centricity, and sunset vibes – will resonate well with Canadian consumers. To achieve this, each store will be refreshed by the end of 2022 with mini makeovers that will reflect that of Budega's U.S. operating retail outlets.
• Performance: To drive sales performance, the Company plans to methodically assess and rationalize the product assortment to ensure the store stocks the highest velocity items. SKUs held in inventory past 30 days must be sold through and replaced with products that our consumer base desires most.
• Experience: The Company intends to implement proprietary operational systems to shift the focus of frontline employees from "clerking" to ensuring customers leave with every need filled and expectations exceeded. In both U.S. and Canadian operations, we will continue to be laser focused on ensuring each guest interaction is thoughtful and complete. Upon exit, the consumer should not have to stop at any other dispensary for cannabis products.
• Loyalty: Halo believes the current Kushbar loyalty program can be improved by applying the successful Budega approach. By implementing the Budega loyalty program, the Company anticipates Kushbar stores will experience improved sell through, overall guest experience leading to more frequent purchases, larger basket size, and higher average ticket size.

Halo corporate overheads were $10.6 million in Q1 2022 compared to $10.9 million in Q4 2021, a 3% decrease. The Company expects more significant reductions through 2022. These reductions include, but are not limited to:

• Professional and legal fees are expected to decline as Halo Tek spins out, the pace of smaller acquisitions declines, and more professional and legal services have been brought in house.
• Executive salaries are expected to be paid in cash by Q3 2022, reducing aggregate costs by 50%.
• General and administrative costs are expected to decline as travel costs abate.

Halo will host a live webinar at 4:15 p.m. Eastern Time on Wednesday, May 18, 2022, to discuss its results. To access the webinar, visit https://conferencingportals.com/event/qzlwFzzt. The webinar will also be available on a telephonic replay after the event until May 25, 2022. To access the replay, dial 1-(800) 770-2030 (toll free) or (647) 362-9199 (international) and enter conference ID: 45805.

Please email all questions in advance to info@haloco.com.

Complete results are reported in the Company's condensed interim consolidated financial statements for the three months ended March 31, 2022, and associated management's discussion and analysis (the "Q1 2022 MD&A").

Halo is a multi-national incubation company with assets and operations centered in both THC and non-THC sectors. For the THC sector, Halo is focused on the West Coast of the United States where it has vertically integrated operations covering the entire value chain from seed to sale. Halo cultivates, extracts, manufactures, and distributes quality cannabis flower, pre-rolls, vape carts, edibles, and concentrates. Halo sells these products under a portfolio of brands including Hush™, Winberry Farms™, Williams Wonder Farms, its retail brand Budega™, and under license agreements with Papa's Herb®, DNA Genetics, and FlowerShop*. Halo has opened a dispensary in Los Angeles under the Budega™ brand in North Hollywood and plans to open two more in Hollywood, and Westwood in the second quarter of 2022. Halo also operates three Kushbar retail cannabis stores located in Alberta, Canada.

In the non-THC sector, Halo is expanding into health and wellness categories including CBD and functional supplements such as nootropic nutraceuticals and non-psychotropic mushrooms. Halo, through a series of acquisitions, has product offerings in the form of beverages (H2C Beverages), dissolvable strips (Dissolve Medical), capsules (Hushrooms™), and topical supplements (Hatshe) with proposed national distribution via a strategic agreement with SWAY Energy Corporation. Halo has entered a letter of intent to acquire Phytocann Holdings, one of Europe's leading wellness CBD consumer packaged goods companies with a portfolio of value and premium brands including Ivory, Harvest Laboratoires, Easy Weed, Kanolia, Herboristerie Alexandra, Buddies and Ghosty Buds.

As an incubator, Halo has successfully acquired and integrated a variety of companies which were subsequently reorganized to create Akanda Corp. (NASDAQ: AKAN), an international medical cannabis and wellness company, of which Halo currently owns approximately 44% of the common shares. Halo has also acquired a range of software development assets, including CannPOS, Cannalift, CannaFeels, and a discrete sublingual dosing technology, Accudab. Halo intends to reorganize these entities (including their intellectual property and patent applications) into a subsidiary called Halo Tek Inc., and to complete a distribution of the shares of Halo Tek Inc. to shareholders on record, at a date to be determined.

For further information regarding Halo, see Halo's disclosure documents on SEDAR at www.sedar.com.

Connect with Halo Collective: Email | Website | LinkedIn | Twitter | Instagram

Adjusted Gross Profit and Adjusted EBITDA 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 Adjusted Gross Profit as Gross Profit adjusted for fair value gains or losses on biological assets, and impairments included in cost of goods sold. Management defines Adjusted EBITDA as earnings (loss) before interest, tax, depreciation, and amortization, as adjusted for non-cash items. 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. We caution readers that Adjusted EBITDA should not be substituted for determining net loss as an indicator of operating results, or as a substitute for cash flows from operating and investing activities. For a reconciliation of Adjusted Gross Profit and Adjusted EBITDA, please refer to "Non-IFRS Measures" in the Q1 2022 MD&A, which is available on the Company's SEDAR profile at www.sedar.com.

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, the proposed acquisition of PhytoCann, 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 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.

This press release contains a financial outlook within the meaning of applicable Canadian securities laws. The financial outlook has been prepared to provide an outlook for annual net revenues and operating profit for the Company's three Budega dispensaries, following a ramp-up period of six-months per location and may not be appropriate for any other purpose. The financial outlook has been prepared based on several assumptions including the assumptions discussed under the heading "Cautionary Note Regarding Forward-Looking Information and Statements" above and assumptions with respect to market conditions, pricing, and demand. The actual results for any period will likely vary from the amounts set forth in these projections and such variations may be material. The Company and its management believe that the financial outlook has been prepared on a reasonable basis. However, because this information is highly subjective and subject to numerous risks, including the risks discussed under the heading "Cautionary Note Regarding Forward-Looking Information and Statements" above, it should not be relied on as necessarily indicative of future results.

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.

View original content to download multimedia:https://www.prnewswire.com/news-releases/halo-collective-reports-first-quarter-2022-financial-results-book-value-per-share-of-1-65-2-12-cad-301548650.html

SOURCE Halo Collective Inc.