Halo Collective Inc: Tiny, Battered U.S. Pot Stock Could Double

Halo Collective Stock Looks Bullish on Acquisitions & Expansions

With a market cap of $29.6 million, Halo Collective Inc (NEO:HALO, OTCMKTS:HCANF) is certainly one of the smaller U.S. pot stocks. And with a share price of $1.11 as of this writing, HCANF stock fits comfortably in the penny-stock territory.

Neither of those facts should hold investors back from taking a deep look at this under-the-radar U.S. pot stock.

Halo Collective is a leading vertically integrated cannabis company that cultivates, extracts, manufactures, and distributes cannabis flower, oils, and concentrates. (Source: “Halo Collective Reports Third Quarter 2021 Financial Results,” Halo Collective Inc, November 15, 2021.)

Since its inception in a small chicken coop in Oregon in 2015, the company has sold approximately 11 million grams of marijuana oils and concentrates.

In Oregon, the company has a combined 11 acres of owned and contracted outdoor and greenhouse cultivation.

In California, it’s building out a planned 30,000-square-foot indoor cannabis growing and processing facility. The company plans to add up to five acres of industrial land to that site.

Also in California, Halo Collective Inc recently partnered with Green Matter to purchase a farm in Lake County, developing up to 63 acres of cultivation capacity, making it one of the largest licensed single-site marijuana growers in California.

Halo Collective also plans to expand its operations in California by opening three dispensaries under the “Budega” brand.

Halo Collective Inc sells cannabis products principally to dispensaries in the U.S. under its brands “Hush,” “Mojave,” and “Exhale,” as well as under license agreements with other brands.

In Canada, Halo Collective acquired three “KushBar” dispensaries in the province of Alberta. This is the company’s first planned entry into the Canadian market. With the KushBar retail stores as its foundation, the company expects to expand its foothold in Canada.

Halo Collective recently sold some of its non-U.S. operations to Akanda Corp, a medical cannabis company with operations in the U.K., Lesotho, and South Africa. As part of Halo Collective Inc’s international reorganization efforts, this significantly reduces the company’s overhead and provides it with a $6.6-million secured convertible debenture and an approximate 68% equity position in Akanda.

Halo Collective Inc has also acquired a range of software development assets and has announced a number of new acquisitions of companies.

Recent Acquisitions Should Boost Value of HCANF Stock

In September 2021, Halo Collective closed on its acquisition of Food Concepts LLC for $8.2 million. Food Concepts is the master tenant of a 55,000-square-foot indoor cannabis cultivating, processing, and wholesaling facility in Portland, OR. (Source: “Halo Collective Acquires Pistil Point Indoor Facility,” Halo Collective Inc, September 13, 2021.)

In November 2021, Halo Collective entered a share-exchange agreement to acquire all of the issued and outstanding shares of Simply Sweet Gummy Ltd., a cannabis-infused confectionery company based in Vancouver, BC. (Source: “Halo Collective Enters Into Agreement to Acquire Simply Sweet Gummy,” Halo Collective Inc, November 4, 2021.)

The acquisition of Simply Sweet bolsters Halo Collective’s position in the rapidly growing marijuana edibles market and complements its strategy to introduce higher-margin proprietary products to the market. Simply Sweet has five proprietary formulations made from natural ingredients that are vegan, low-sugar, and free from sugar-alcohols.

On January 12, 2022, Halo Collective announced that it will be expanding into the beverage market through its acquisition of H2C Beverages, a company that focuses on cannabinoids and non-psychotropic mushroom beverages. (Source: “Halo Collective Expands Into Functional Beverages, Agrees to Acquire H2C Beverages and Establishes a $30M Distribution Agreement with Elegance Brands,” Halo Collective Inc, January 12, 2022.)

The acquisition of H2C Beverages gives Halo Collective a foothold in one of the fastest-growing sectors of the cannabidiol market, which is estimated to make $16.0 billion in U.S. sales by 2025.

As part of the H2C Beverages acquisition, Halo Collective Inc will have a distribution and manufacturing agreement with Elegance Brands Inc. Elegance Brands has agreed to purchase and distribute $30.0 million of Halo Collective’s “H2C” and “Hushrooms” branded products in the two-year period following the launch of the products.

Chart courtesy of StockCharts.com

Solid Q3 2021 Results

For the third quarter ended September 30, 2021, Halo announced that its revenue increased by 28% year-over-year to $8.7 million. (Source: Halo Collective Inc, November 15, 2021, op. cit.)

During the quarter, Halo Collective sold over 9.2 million grams of cannabis products, primarily to dispensaries in California and Oregon. That was a 620% increase over the same period in the previous year.

Halo Collective Inc’s adjusted gross profit in the third quarter of 2021 was $2.6 million, or 26.5% gross margin, versus $2.4 million, or 35.7% gross margin, in the third quarter of 2020.

The company had an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $4.5 million in the third quarter of 2021, compared to positive EBITDA of $500,000 in the third quarter of 2020 and an EBITDA loss of $4.4 million in the second quarter of 2021.

“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 Halo Collective Inc’s CEO, Kiran Sidhu. (Source: Ibid.)

“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.”

Halo Collective Inc’s management said the company is tracking toward slightly higher sequential revenue growth in the fourth quarter, but they’ve withdrawn their full-year guidance. Instead, the company is using the market downturn to accelerate its plan to reduce costs.

To that end, management has identified approximately $6.7 million of anticipated cost savings on a quarterly basis, or $26.8 million of savings on an annual basis.

Analyst Take

Of the many U.S. cannabis companies out there, Halo Collective Inc is one of the more interesting, smaller, fastest-growing, and versatile ones. The company has a strong presence in Oregon and California, and it recently made moves into Canada. Moreover, through acquisitions, Halo Collective has expanded its product portfolio and growing capacity.

And despite the tough economic and industry climate, the company reported solid Q3 2021 results and said it could be profitable in the first half of 2022.

All that bodes well for Halo Collective stock.