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The Vertically-Integrated Cannabis Co. that You Need to Know About

Dave Jackson Dave Jackson, Stockhouse
0 Comments| December 7, 2020

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Few companies in the North American cannabis space can boast the sheer bounty of product offerings, blue-chip management experience, and extraordinary shareholder value that this established Medford Oregon-based Company can.

Halo Canna (NEO: HALO, OTCQX: AGEEF, GERMANY: A9KN, Forum) is an established industry leader with a proven track record in cannabis extraction, utilizing proprietary science-based techniques in developing and manufacturing innovative cannabis oils and concentrates products.

In this informative vodcast, Stockhouse Media’s Dave Jackson was joined by company CEO Kiran Sidhu to talk about how Halo is truly on the vanguard of modern cannabis extraction technique and cannabinoid isolation, leading-edge technology, and its unique business model featuring a positive operating cash flow and strong growth metrics.

SH: To start off, can you update our investor audience and your Halo Canna shareholders on any new company developments, especially in the wake of COVID-19?

KS: So regarding COVID-19 it's been, to most people, both a blessing and a curse. As I sit here in Vegas spending a week with our team and facilities, it's hit us hard. But again, Nevada has not been a large market for us, and we mitigated the risk in January. The Governor, has just announced shutting everything down as of last night, therefore there's less of a tourist trade and delivery of cannabis, so again is more fragmented. Nevada has been hit substantially by that, regardless to say, people who've had let's call it more “local focus”. Dispensaries have continued to maintain success in Oregon…it's been a boom for us and in California…it's been a boom for us in the sense that in both markets we've seen consumption go up year over year, month over month.

And we've capitalized on that in our overseas operations particularly in Bophelo. We continue to grow and we continue to prepare for export as we get our GACP certification into Europe and into the UK. However, we've had some interesting logistical issues in terms of getting people over there and just this morning there's a shortage of steel in in South Africa where LASU is landlocked. So therefore completing fencing and, you know, stuff like that has been quite challenging. However, we're still on track there and overall our numbers have improved. They haven't diminished with COVID.

SH: You’ve described your operation as vertically-integrated and on the vanguard of modern cannabis extraction techniques, possessing proprietary trade secrets and leading-edge technology that is setting the standard in a new and booming industry. How is Halo currently positioning itself to become a market leader and what does the road to profitability look like?

KS: Okay, so we already are very close to net income profitability and we have actual positive operating cash flow and therefore by definition, positive EBITDA. And we turn that to our sort of hard work one quarter prior to when we thought we would. So Q3, we reported that was really the turning point for us. And we see momentum continuing in Q4 regarding cannabis isolation, and remember the three founders of the company, myself, Philip prior who was a partner at Goldman Sachs and Andreas, who was at Walmart before as a senior category manager and their largest category packaged soap and detergent. The three of us were founders of a company called Golden Leaf which was one of the first, if not the first, cannabis company to go public in the United States.

And there, we started there by being one of the first people to take extracted product and actually put it in a cart to smoke. Obviously now that has evolved into just a distillate product, which is now evolving into liquid live resin with diamonds in cartridge formats to vape instead of dab, which is the next evolution, but what we see honestly, as the next evolution and what I'm really excited about right now is not so much CBD, but I'm really excited about combinations of THC with CBN and CBG. And we look forward to doing ratios now of using specific what I call CBI isolates other than CBD to sort of leapfrog the market in the markets we serve. And what we're seeing is with the CBN, the CBN-THC formulation is a potent sleep agent and a CBGS-THC combination is really an enhancer of the cascade effect with THC. So there were actually, I think being a little bit more cutting edge than other people.

SH: The Company has just posted record Q3 2020 financial results and true positive operating cash flow. Please talk about the impressive numbers and how you did it, especially given the market difficulties many cannabis companies are experiencing right now.

KS: Well, we continue to grow our business in California. We're not a large player in California, but we're quickly catching up. I would say we're top 20 per BDS. But what we've really done is we've really started to dominate in different segments in Oregon. So we've really put that vertical plan together in Oregon. And, you know, a lot of people say, well, Oregon's a small market (it's a fifth the size of California) but it's still a very, very large market. I think Oregon has really been sort of the driver of those results in California's coming on strong. Once the international business starts to kick in towards, I'd say right now, and to Q1 of next year, then we'll be firing on all cylinders. The medical marijuana market is starting to boom overseas in the UK and in the EU and our base in Lesotho gives us a sustainable competitive advantage over others.

SH: Can you also walk us through the recent deal to acquire Oregon-based Winberry Farms – one of the first recreational cannabis farms to be licensed by the State of Oregon. Sounds exciting!

KS: Yeah, it's a really exciting combination because we at Halo in Oregon have been specialists in what I call the lower shelf products. So our hush products (our value products) has consistently been the number three brand in oil and concentrates in Oregon. Now, when we combine that with Winberry, with our efforts in flower and we look at it on a pro forma basis, I can definitively say that no other cannabis company in the state of Oregon sells more products to dispensary's than the Halo combination with Winberry. And we're aggressively looking at other consolidation within Oregon to increase our, our share position. The other thing we've done in Oregon, as you said, with Winberry now picking up their tier to grow is it's called an Oregon and looking behind me at our large farm.

We probably have, if not the largest, definitely one of the largest single site grows in Oregon. And now with Winberry, we've added more capacity and we're looking to even add more capacity on the farm side. Another important alliance, is that we partnered with a premium cannabis genetics brand named DNA Genetics -- who's Canopy's partner in Canada. We brought them into Oregon where they're our exclusive partner. Additionally, we've brought in the Zkittlez and Terphogz genetics into Oregon, again, as our exclusive partner. And this is the first year we've grown, what I call high-end California, exotic genetics. And we'll be selling those as well in Oregon. And there are other pirate parties let's say from California, which is really the leader when it comes to cannabis, genetics that we're in discussions with in Oregon. When Winberry puts us in that number one position, it gives us both let's call it “a complete plethora” of product. So we are everything from flower to live resin, edibles and everything in between, making us completely vertically integrated. So in terms of how do I say it being attractive to larger MSOs – (Multi-State Operator) that want to enter Oregon? We definitely are the ticket right now.

SH: The Company is nicely cashed up, thinking big, and has been on a bit of a buying spree recently. What can you tell us about Halo’s recent California land purchase with the objective to become the largest growers in Northern California and Southern Oregon?

KS: Well, actually Bar-X is the largest plan grow in North of San Francisco and south of Portland. There isn't a larger grow at 60 acres on early activation. With our first crop going in the ground in March, that will be the largest grow that we, that is sort of, there may be other ones in the works, but according to the BCC and the LLCC and public records, it's the largest plant grow. The beauty of that is, our partners are Green Matter. Jed and Joe, from Green Matter, have been growing for 15 years and they collectively own 20% of Connected. And when you look at Connected Genetics in particular, Alien Labs, you look at Cookies and you look at the Jungle Boys and you even look at our partners, Terphogz, you're talking the top of the top. So we are their partner. There, they already grow 20 acres. They are, you know, at the top of the food chain in California and this grow in and of itself conservatively at $750 a pound for a bud, which today is selling for $1500 is a $200 million project annually with EBITDA of over 120 million and half of today's market rates. It actually is an inflection point within the company.

SH: On November 10th, you also acquired U-K cannabis distributor Canmart – a key component of your international growth plan. What were your forward-thinking plans entering into the U-K market that’s still only legalized for medical use?

KS: So when we look at everything outside of North America, it is all medical use, but that medical use is under the inc CB, right? So it is under the UN and it's, it's a trade system. And what we did two years ago, when we entered Lesotho was we entered with the strategy of growing in Lesotho and genetically going from seed to sale. The difference is, is we brought in genetics through DNA Genetics in Europe. So we brought in very good genetics, again, terpenes genetics through Europe. So we brought in the best of breed genetics. We've taken that genetics and over two years adapted it to that climate. And now we have what I, what I would say is low cost production, in Lesotho, but we have, you know, high quality genetics, award-winning genetics. And now we take that product GACP. We bring it into our partners in Malta, where they make cannabis based medicinal products, which are then will become CGMP.

And then with Canmart, which is really critical, we begin distribution in the UK. And the reason we selectively pick the UK is Canmart is one of only a handful of fully licensed distributors for medicinal products. They have sold medicinal products to pharmacies and to clinics in the UK. The UK is undergoing NHS studies right now, where there could be NHS relief or NHS reimbursement or NHS, just coverage of a medicinal products. And then the other thing about the UK is the per capita consumption in the UK of cannabis, according to Prohibition Partners, and others is on par with California, which has one of the highest per capita, if not the highest per capita consumption. Wow. It's a question of the way we viewed the UK in the 1980s, medicinal cannabis started in the United States, really where it started in San Francisco with the AIDS epidemic, which thank God there isn't that in the UK, but it's the same thing where it started basically a snowball down a hill.

And so we've positioned ourselves in the UK to be one of the early entrance. And we have a complete now seed to sale strategy from Lesotho through, into Europe, we're in discussions with people in Australia, in discussions with people in Israel right now, groups in Israel. I think we're going to have a booming business and we've taken my partner Andreas and relocated him. He's moving abroad right now, actually moving to Lesotho and we've put some of our big guns right now, executive wise in the suit. The other thing is, if you keep in mind, our Chairman, she comes from the Lesotho, Louisa Mojela, and Louisa was the CNBC African business person of the year in 2015, she runs a $200 million plus fund private equity fund. And she is, you know, a very prestigious person there. So in terms of securing capital, we're highly confident that we can secure capital for the international play from domestic sources within Africa, or let's say local sources, local partners within Africa. Right now we're still negotiating term sheets on that. And we have a lot of runway internationally and there's a real good cross-fertilization between what we know or what our expertise is, is you said in, in cannabis and cannabinoid extraction in terms of making products. So there's what I call cross what we can, what we've learned in North America translates pretty much one-to-one in what we're doing in our seat to sales strategy from Africa into Europe, into the UK, into Israel and into Australia.

SH: And in July, Halo bought Bophelo Bioscience & Wellness – an African grow operation in Lesotho. This is an intriguing move. Can you explain to our investor audience its core benefits?

KS: we've been there in partnering with them for two years, and it's just, it's, you know, Africa, so it's taken a while to get going, but now we're rolling. Right now, we're deploying our first six hectors, which are under greenhouses. And those will be Cravo Greenhouses. We've put up out substantial infrastructure. I think we've spent close to probably over $3 million just in infrastructure alone. And the one thing that's interesting about the Bophelo license is with the additional, with the initial six hectares, which will turn into what we call header houses in the business, which will eventually be our nursery. We plan to do to up to 200 hectares outdoors. Now that is a huge number, but that is what our provisional licenses for. And that is one of not the largest, again, licenses, if not THE largest license in the world, it is one of the largest licenses in the world that's going to take years to roll into.

I mean, the entire UK demand is probably only 100 hectares of our current 200 hectares license. But for us, that is a long-term strategic play. And the one thing we decided to do there is not to go all the way to GMP and Africa initially, but to again, develop GACP product that can be exported and then turned into GMP medicines in other jurisdictions. And that strategically seems to be working. We have product ready to go in bags, that's fully licensed, fully tested and of similar quality to what we produce in North America, in Oregon and in California. Now it's a question of scaling it and hence, that's why we're moving Andreas to Lesotho.

SH: Value and opportunity are catchphrases that really get the attention of small cap investors? What can you tell them that makes Halo’s business model so intriguing and attractive?

KS: Well, let's just talk numbers. Our current Canadian market cap is $60 million right now. And our run rate just right now, annualized is about 60 million Canadian. So we're trading at one times revenue, and now put it, put us, compare us to any other company. How many of those have true operating profit? How many of those are growing at our rate? How many companies, our size have a $200 million project in California? How many have arguably the largest provisional license in the world and are actually growing product? Right? So we're not what I call a bunch of hot air we're tangibly, every quarter producing growth results. We're making great strategic acquisitions, like Winberry and Bophelo, and can market at very attractive valutations less than one times trailing revenue. So I think we're doing everything right. And I think the market's still, I think what's interesting is we're a sleeper company, people still don't know our story don't know about us, but when you line us up, even compared to the big boys lineup, our operating results, we're neck in neck, but we don't have their multiples. The other thing I have to emphasize in the markets we serve, we're very attractive in the sense that, you know, inevitably, you know, inevitably someone's going to recognize that value and be at the market or be it a larger player that value will be recognized. And I've seen this time and time before with other cannabis companies I've been involved with in the past.

SH: Can you discuss the long-term strategy for the company moving into 2021 and beyond, and what investors should be looking out for?

KS: in Oregon, right now, we, you know, we are not, we're too large of a service provider to dispensary's to get into the dispensary game. So we have no intention of doing that in Oregon. What we need to do in Oregon is right now, we have about with contracts, about 10 acres of biomass right now at the rate we are with Winberry and the rate we're growing, we need 30 acres. So we need to acquire more cultivation or partner with more cultivators. The beauty about Oregon is there's ample cultivation. The more we acquire, the more margin we'll capture, the larger we'll grow in Oregon in California, we have a lot of room to grow. So as we talked about, Bar X there there's 60 acres of grow that we're splitting with the Green Matter Group.

So we'll have 30 acres of grow, which is, which has massive outdoor grow at UVI, which we've acquired.At UVI there are six tax lots that we can make into 5 sites each an acre. This is a "CannaPark" where we can put up 3,000 indoor lights with Zkittlez. We're doing, we're building out right now, a large indoor grow with the Terphogz guys. Zkittlez is at predominantly an outdoor brand in California, but it's selling at $1800 a pound. So the indoor value of a Zkittlez brand today is North of two, $2000 to $2,500 a pound. So getting that indoor implemented is critical. And right now we're looking at some large greenhouse cultivation sites right now to try to pull the trigger on that. Again, we're lining up financing for all of this as well, and we get financing on a project by project specific basis. So we never burdened our company with debt. One thing about Halo is we don't have debt currently, other than subordinated debt due in 2022 of approximately $8 million US dollars.

So the other thing is that once we get, once we have that, we have our edibles kitchen established, we have manufacturing, established a distribution, we handle through an abyss inevitably. Now we're looking at more retail as well. We've had our first flagship site and know-how which we're putting hammer to nail, hopefully, you know, by December. And then we're looking to acquire more dispensaries in California, where again, say 20% of the mix would be our own products. So we capture more share that way. So in California, we're in Oregon where too large to really verticalize now in California, we can verticalize and have an end to end model again, which makes us very attractive to investors or larger players.

SH: Finally, Kiran, can you tell our audience a little bit about your corporate management team, along with the experience and innovative ideas they bring to the cannabis space?

KS: Well, as I said, I spoke about our two co-founders my two co-founders Philip who's been our CFO since the beginning, I mean, when he took, I remember when I was a seed investor in Golden Leaf and we took that public, I believe, it was 10 cent when we started and then I think the stock was about around $1.20 after nine to 12 months. Philip has a lot of experience after that. We've ended in a company where the stock was trading at 20 cents. It dipped to 10 cents, and again, I think when we exited the stock was well over $3. And so we've seen growth there in cannabis and in some of the other companies that we were associated with.

And so you have Philip, you have Andreas Met, and myself. Now you add Katie Field who put the first license together at Costa Farms. She's our president with an impressive education background of Stanford and Columbia. Costa was the first license holder in Florida, which has now Kira's license in Florida. Then Katie was head of business development at MariMed. So she brings sort of that East Coast experience to us, even though we're not in the East coast. And then recently we just hired Joshua Haddox from Moxie, which is, arguably, the largest oil and concentrate producer in the world. He was SVP of operations there. He's now our SVP of operations sees a lot of growth with Halo and Dustin Jessup who came to us from Winberry has over 15 years of experience in sales and marketing and has built a tremendous brand with Winberry, which is a profitable company doing 12 to 14 million annually in sales, but it had to stand alone because its parent deal med went bankrupt. So it has positive EBITDA of about 2 million annualized, 14 million that he's built and he's coming on board as our CRO. So I think we have a dynamite team and in terms of rounding out any management, I think we're good. I think our team has set and I think this team can take our growth from where we're at now. Let's say three to 4 million of sales a month, all the way up to 10 to 12 million easily of sales a month.

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FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.

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