Halo Collective Inc. (“Halo” or the “Company”) (NEO: HALO) (OTCQX: HCANF) (Germany: A9KN) today entered into definitive agreements to acquire Food Concepts LLC, the master tenant of an approximately 55,000 square foot indoor cannabis cultivation, processing, and wholesaling facility in Portland, Oregon operated under the Pistil Point name (the “FC Acquisiton”), and the related licenses issued by the Oregon Liquor Control Commission (“OLCC”) and other operating assets owned by the entities doing business as Pistil Point (the “Pistil Point Acquisition”)). The FC Acquisition is expected to close within the next week upon the filing of articles of merger filed with the OregonSecretary of State. The Pistil Point Acquisition is subject to approval by the OLCC and is expected to close in early 2022. When fully complete, this transaction is expected to make Halo one of the largest indoor growers in Oregon, adding to the Company’s current 11 acres of owned and contracted outdoor and greenhouse cultivation.
CEO and Founder of Halo Collective, Kiran Sidhu, commented, “Halo was founded in Oregon, and we believe this is the market of the future as the potential Federal legalization comes to fruition with no cultivation taxes, light local taxation, abundant labor, and water and power at lower rates than most other states. We believe the acquisition of Pistil Point will accelerate the trajectory of our market leadership in Oregon as we establish a large campus in Portland. We now have a triple play in Oregon, with indoor, greenhouse, and outdoor cannabis cultivation, and plan to continue building our capacity to be one of the larger indoor growers in the state.”
Highlights of the Pistil Point Transaction
- Extends Halo’s overall leadership in Oregon by adding a revenue and cash-generating subsidiary.
- Builds a large distribution hub that reaches 70% of the state’s population within an hour’s drive.
- Brings indoor flower production to enable higher price points, increased margins, and year-round flower production.
- Provides opportunity to expand indoor flowering production from 200 to 500 lights (a 250% production increase).
- Enables Halo to move a significant portion of finished goods assembly to Portland to facilitate just-in-time production, increasing bulk capacity in Medford and reducing inventory days on hand overall.
- Gives Halo the ability to open Oregon’s largest wholesale cash-and-carry showroom, carrying products from approximately 30 farms and 12 leading brands representing over 100 unique SKUs.
- Brings a capable management team to undertake this expansion plan under the visionary leadership of Sid Gupta.
Pistil Point’s production facility currently sells high-quality indoor cultivated flower and trim at an average price of $1,865/lb (outdoor price $1,094/lb1). From April to June 2021, Pistil Point reported approximate and unaudited revenues of $889,000 and EBITDA of $255,000.2 These three months reflect upward momentum. Management expects to substantially outpace 2020 unaudited total revenues of approximately $1.373 million before the execution of plans to build out the facility to maximize production. Halo will continue to grow the outstanding strains at the facility that have tested as high as 30% TCH and established Pistil Point as one of Oregon’s premium flower producers.
Over the course of the next year, Halo plans to embark on a significant expansion of the new facility’s production, processing, and distribution operations. The facility currently generates approximately $300,000 of revenue and $100,000 of free cash flow per month since April, 2021 and the expansion is expected to increase these metrics by up to 250% within a year period.
In addition, Halo plans to establish a new central distribution hub by consolidating its current distribution centers in Medford and Eugene, Oregon, into the new facility in Portland, which is within a 60-mile radius of 70% of the state’s population4. This move will significantly reduce delivery time to the majority of dispensaries in the state. Halo intends to relocate its final assembly processes from Medford to Portland to expand the Company’s overall production capacity at least two-fold as Halo’s market share in Oregon continues to grow. The Company expects production in Portland to enable more white label and custom manufacturing business with Halo’s dispensary partners thereby increasing potential sales within the state.
Along with upgrading the production and processing facilities and moving distribution to Portland. Halo intends to open Oregon’s first wholesale business-to-business, cash and carry showrooms for bulk and finished goods, which will stock all 12 brands that Halo currently distributes in the state and a large assortment of white label products including but not limited to Flower (flower, pre-rolls, and canagars), Concentrates (shatters, resins, hash, and hash rosins), Vape Pens (cannabis-derived, flavored, live resin, and hash rosin) and Consumables (gummies, syrups, and tinctures), Topicals, and Beverages (including brands acquired in the Halo’s previously announced licensing arrangement with -Elegance Brands, Inc.).
“With Halo’s acquisition of certain Pistil assets, we now enter the very attractive indoor flower and pre-roll markets in Oregon, which in the flower segment has the highest price point, is the fastest growing, and carries the highest margins,” said Dustin Jessop, Halo’s CRO and Winberry’s Founder. “We plan to greatly expand this capacity from 200 to 500 flowering lights. This acquisition will increase our number-one wholesale footprint in Oregon, giving us the same-day delivery capability to a vast majority of the market. We plan to double our overall production capabilities as well as establish Oregon’s first cash and carry showroom. Once the first showroom is completed, we plan to do the same in Eugene, Bend, and Medford. We welcome Sid to the Halo family and look forward to working with him.”
Sid Gupta, Founder of Pistil Point, continued, “When I decided to focus on the East Coast recreational markets, Halo was the best choice to acquire our Oregon operations. Halo is a world-class organization and they have quickly established the largest footprint in Oregon. I am excited to be part of the Halo team. I look forward to working with Halo in Oregonand beyond.”
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| 1 | Based on data from BDSA (formerly BDS Analytics) |
| 2 | Calculated on a preliminary unaudited basis. See “Financial Outlook” and “Non-IFRS Measures”. |
| 3 | Calculated from Food Concepts, Decatur One LLC, Bradford Two LLC, and Bradford Three LLC consolidated financial statements as of December 31, 2020. These fiscal year-end statements were prepared on a preliminary unaudited basis. See “Financial Outlook”. |
| 4 | https://www.hoosierdata.in.gov/big_radius/radius.asp https://www.freemaptools.com/find-population.htm |
Transaction Details
Upon closing of the FC Acquisition, ANM Inc., Halo’s wholly-owned subsidiary (“ANM”), will become the 100% owner of Food Concepts LLC, the master tenant of the Pistil Point facility, and the owner of the operating equipment and related tangible assets which it leases to the operating entities. At the time of closing the Acquisition, Food Concepts will have $1.3 million of available cash on its balance sheet. The consideration payable by Halo for the acquisition of Food Concepts LLC is $8.2 million, payable in 258,156,500 Halo common shares, with the number of shares determined using the closing price of the Halo common shares on the Neo Exchange Inc. (the “Exchange”) as of July 16, 2021 (the “Halo Deemed Share Price”).
Upon closing of the Pistil Point Acquisition, ANM, or newly formed wholly-owned subsidiaries of ANM, will acquire the OLCC licenses and related operating assets from the three entities doing business as Pistil Point: Decatur One LLC, Bradford Two LLC, and Bradford Three LLC (the “Pistil Point Entities”), but excluding the Pistil Point brand. The consideration payable by Halo for the acquisition of the assets from the Pistil Point Entities is $4.0 million, payable in 125,930,000 Halo common shares (the “Pistil Point Consideration Shares”), with the number of shares determined using Halo Deemed Share Price. In addition, Halo has also agreed to assume certain liabilities of the Pistil Point Entities, not to exceed $370 thousand. $1.0 million of the purchase price, 31,482,500 Halo common shares, will be issued in escrow to be released to the selling parties upon achievement of production milestones following the completion of the facility improvements described above. And another $1.0 million of purchase price, 31,482,500 Halo common shares, will also be held in escrow and held for one year to serve as a source for any potential indemnification claims against the selling parties. The closing of the Pistil Point Acquisition is subject to the satisfaction or waiver of customary closing conditions, including receipt of OLCC approval. The closing is expected to occur in early 2022 after obtaining all regulatory approvals.
CANM and the Pistil Point Entities have also entered into a Services Agreement and an Offtake Agreement. Under these agreements, from and after the closing of the FC Acquisition, ANM will assist with the day-to-day operations of the Pistil Point entities and will purchase 100% of Pistil Point’s products manufactured at the facility. In the event the definitive agreement for the Pistil Point Acquisition terminates other than as a result of a breach by the selling parties and provided the Services Agreement and Offtake Agreement continue in full force and effect, the selling parties will be entitled to a break fee equivalent to the Pistil Point Consideration Shares.
Two arms-length finders are also entitled to payment in Halo common shares in connection with the closings of the transactions. The first is entitled to 7.5% of the purchase price under each of the two transactions, or approximately 28.8 million Halo common shares. Approximately 19.4 million of such Halo common shares will be issued to this finder in connection with the closing of the FC Acquisition; and approximately 9.4 million of such Halo common shares are issuable to this finder upon the closing of the Pistil Point Acquisition.
A second arms-length finder is entitled to approximately 3.15 million Halo common shares, 50% of which will be issued by Halo in addition to the purchase price payable under the transactions, and 50% of which will be deducted from the purchase price payable to the sellers. Approximately 0.63 millon of such Halo common shares will be issued to this finder in connection with the closing of the FC Acquisition; approximately 2.52 million of such Halo common shares are issuable to this finder in connection with the closing of the Pistil Point Acquisition.
All of the Halo common shares to be issued in consideration for the Pistil Point Acquisition and to be issued to finders will be subject to a statutory hold period of four months and a day. In addition, all of the Halo common shares issuable to the sellers in consideration for the Pistil Point Acquisisiton and 31,482,500 of the Halo common shares issuable to such sellers in consideration for the FC Acquisition will bear a restrictive legend restricting their transfer, which will be removed from 5 million of such Halo common shares each calendar month following the closing of the FC Acquisition.
