A Commercial-Stage Opportunity in the Fastest-Growing Cannabis Segment

The cannabis industry is projected to reach more than $146 billion by 2025, according to Grand View Research, representing a 34.6 percent compound annual growth rate. While flower remains the best seller in many markets, oils and concentrates have become the fastest growing segments of the market. BDS Analytics recently found that flower’s market share fell ten percent while concentrates gained about six percent.

Halo Labs Inc. is a leading manufacturer of cannabis oils and concentrates that delivers over 100,000 grams per month and generated more than $10.3 million in revenue last year. After capturing a fifth of Oregon’s market, the company expanded into Nevada and California this year. Investors may want to take a closer look at this pre-public company given management’s proven track record and the significant growth opportunity ahead.

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Growing Demand for Oils & Concentrates

BDS Analytics found that cannabis flower market share fell from 54 percent to 44 percent of dispensary sales in Oregon over the past year. By comparison, concentrates rose from 21 percent to 27 percent of the market, and edibles rose from 11 percent to 16 percent of the market. Live resin and wax were the top-performing concentrates over the past year with gains of 200 percent and 300 percent, respectively.

These same trends are playing out in emerging recreational markets like California and Nevada. Prior to the legalization of recreational cannabis, California-based cannabis delivery company Eaze reported a 400 percent increase in oil cartridge purchases between 2015 and 2016 alone—totaling a quarter of the company’s total sales. Consumers are demanding stronger, healthier, and more discreet ways to consume cannabis.

It’s not just consumers that have been bullish on concentrates—businesses are starting to see the value as well. With wholesale flower prices on the decline across the U.S., more and more cultivators are turning to concentrates to generate higher yields on their grows. Concentrates have significantly higher and defensible profit margins due to the wide range of available products and unique formulations relative to flower products.

Investment Opportunities in the Space

There are hundreds of different investment opportunities in the cannabis industry, ranging from Canadian licensed producers to U.S. dispensary chains. Only a handful of these companies are generating tangible revenue and even fewer have defensible profit margins. Cannabis prices have moved lower as production ramps up across North America and the best opportunities are cultivators with a strong market share in high-margin concentrates.

Halo Labs has already captured one-fifth of Oregon’s wholesale cannabis concentrates market with over 2.5 million grams sold and $20 million in revenue since 2016. The company’s 12,000 sq. ft. facility and seven acres of outdoor canopy have made it an early market leader. In August, the company established an 8,000 sq. ft. processing facility near the Las Vegas Airport in Nevada, capable of a $45 million potential annual revenue run rate.

In October, the company plans to open its 9,400 sq. ft. licensed volatile and non-volatile processing facility in Cathedral City, California. The facility will be capable of producing 30,000 grams per day, which translates to a $90 million potential annual revenue run rate. Management also signed a letter of intent to establish a 15,000 sq. ft. manufacturing facility in Canada with a major licensed producer with a 50/50 profit split.

Halo Labs management team is well-equipped to bring these projects to life, with experience in both finance and the cannabis industry. In addition, it’s veteran board of independent directors and medical advisors helps ensure that it remains on the right track.

Looking Ahead

Halo Labs Inc. offers investors the opportunity to invest in an experienced operator within the highest margin segment of the cannabis industry—concentrates. With an experienced management team and existing track record of success, the company is well-positioned to leverage its 20 percent share of the Oregon wholesale concentrates business and become a leader in California and Nevada markets—both of which have multi-billion dollar potential.

Attractive Valuation

After successfully raising $27MM dollars the company is anticipates to be listed on the NEO stock exchange in Canada within the coming days. The last round of financing at C$0.40 valued the company at 0.7x 2019 sales while most of the US peers are trading at the 4-5x 2019 sales. We think this valuation gap will not persist for long as Halo as investors become aware of the company’s strong operating history and tremendous revenue growth in 2019.

For more information, sign up to receive a free IPO alert and download the company’s investor presentation.

Disclaimer

The above article is sponsored content. Emerging Growth LLC, which owns CannabisFN.com and CFN Media, has been hired to create awareness. Please follow the link below to view our full disclosure outlining our compensation:http://www.cannabisfn.com/legal-disclaimer/

About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.