Halo Collective Inc. (“Halo” or the “Company”) (NEO: HALO) (OTCQB: HCANF) (Germany: A9KN) today announced its financial and operational results for the fourth quarter (“Q4 2021”) and full year ended December 31, 2021 (“FYE 2021”).
Fourth Quarter 2021 Financial Highlights:
- Revenue of $8.4 million, up $3.2 million, or 63%, compared to $5.1 million in Q4 2020.
- Sales of nearly 13 million grams of cannabis products principally to dispensaries in Oregon and California, a 345% year-over-year increase compared to Q4 2020.
- Adjusted gross margin1 was $0.8 million, or 9.6% gross margin, compared to $0.5 million, or 10.5% gross margin, in Q4 2020.
- Adjusted EBITDA1 loss of $7.1 million compared to a loss of $3.7 million in Q4 2020.
Full Year 2021 Financial Highlights:
- Revenue of $36.2 million, up $14.5 million, or 67%, compared to $21.6 million in 2020.
- Sales of over 32 million grams of cannabis products principally to dispensaries in Oregon and California, a 381% year-over-year increase compared to 2020.
- Adjusted gross profit1 was $7.3 million, or 20.1% gross margin, compared to gross profit of $5.2 million, or 24.0% gross margin, in 2020.
- Adjusted EBITDA1 loss of $23.6 million compared to a loss of $6.9 million in 2020.
“Halo’s team is actively building significant shareholder value, even while the operating conditions remain difficult in the California and Oregon markets and pressuring our near-term financial performance,” said CEO Kiran Sidhu. “In our growing wholesale businesses, volumes are trending upward due to higher sales velocity and expanded market penetration, offsetting much of the downward pressure on prices and positioning us well for when pricing stabilizes. In our retail business, we’ve opened our first Budega™ dispensary in North Hollywood, California, and are seeing solid preliminary results in the first weeks of operation. Meanwhile, we have taken the necessary steps to rationalize the business to accelerate our path to profitability.”
Added Sidhu, “What’s less apparent in the financials is the significant value that we are creating through our incubation efforts within our collective of assets. Take Akanda Corp. as an example. In 2020 we purchased two disparate international cannabis assets, Bophelo Bioscience & Wellness and CanMart and, after completing a reorganization of these assets and putting in place a team, strategy and structure, Halo is now the largest shareholder in this rapidly scaling international medical cannabis company with a stake worth over $100 million based on Akanda’s current market capitalization. We are now assessing other opportunities with respect to Halo’s investments in cannabis businesses ancillary to our West Coast operations, including our investments in CBD and functional beverages, two of the fastest-growing categories in the consumer space that can be widely distributed.”
1 See “Non-IFRS Financial Matters” below for more information regarding the non-IFRS financial measures referred to herein.Incubation Strategy Outlook
In fiscal 2022, Halo is planning to execute a strategy of incubating promising companies within the cannabis industry and the broader wellness space. Akanda Corp. (“Akanda”) is the most advanced in its execution but there are other initiatives at earlier stages underway with the Company’s interests in software, California cultivation, and CBD and functional beverages, that collectively the Company expects will enhance its financial strength.
- International Cannabis: On November 4, 2021, Halo sold its stake in Bophelo Bioscience & Wellness Pty. Ltd. (“Bophelo”), a Lesotho-based cultivation and processing campus located in the world’s first Special Economic Zone (SEZ) containing a cannabis cultivation operation, and CanMart Ltd. (“CanMart”), a UK-based fully approved pharmaceutical importer, and distributor that supplies pharmacies and clinics within the UK, to Akanda for 13,123,212 common shares of Akanda and a secured convertible debenture in favor of Halo in the principal amount of $6.6 million. As of December 31, 2021, Halo’s financial statements recorded a long-term investment of $10.5 million for its investment in Akanda. Akanda subsequently went public on The Nasdaq Capital Market on March 14, 2022, through an underwritten public offering of four million common shares at a public offering price of $4.00per share. Halo currently holds 12,674,957 shares of Akanda, which, based on a closing price for Akanda shares of $7.94 on March 31, 2022, values Halo’s stake in Akanda at approximately $101 million.
- Software: Halo has acquired a range of software development assets, including CannPOS, Cannalift, CannaFeels, and a discrete sublingual dosing technology, Accudab. The Company intends to reorganize these entities (including their intellectual property and patent applications) into a subsidiary called Halo Tek Inc. (“Halo Tek”) and to complete the distribution of the shares of Halo Tek Inc. to shareholders on record at a date to be determined.
- California Cultivation: Halo maintains a 44% equity stake in Triangle Canna Corp. (“Triangle Canna”), the holder of 271 provisional licenses from the California Department of Cannabis Control, the state regulator, and which has plans to develop up to 63 acres of cultivation in California in partnership with Halo’s investment partner Green Matter. On November 10, 2021, Halo announced the planned $75 million Regulation A+ financing by Triangle Canna, which is being valued at $165 million prior to the completion of the financing. The financing has been qualified by the U.S. Securities Exchange Commission and is expected to launch in 2022. There can be no certainty as to the timing or success of Triangle Canna’s proposed Regulation A+ financing.
- CBD and Functional Beverages: Halo is also expanding into other consumer health and wellness categories expected to experience rapid growth in consumer demand, including functional supplements such as nootropic nutraceuticals and CBD gummies. Through the recent acquisition of Simply Sweet, a health-conscious, low-sugar cannabis infused alternative confectionery, the Company has a portfolio of proprietary recipes and formulas to leverage for infused gummy and candy production. The recent acquisition of H2C Beverages, a company focused on cannabinoids and non-psychotropic mushroom functional beverages, and the national distribution and manufacturing agreement with SWAY Energy Corporation (“SWAY”)(formerly Elegance Brands Inc.), provides the Company with brands and a route to market to propel the national distribution of beverages, capsules, and topical supplements under H2C and Halo’s functional mushroom brand, Hushrooms™.
California Retail Rollout Update
Halo’s “Seed to Sale” strategy in California accelerated as the Company delivered on its Los Angeles retail rollout in early 2022. On March 18, 2022, Halo announced that the first Budega dispensary officially opened in the Arts District of North Hollywood, California. This is the first of three Budega stores planned to open in Los Angeles. Located at the northwest corner of Lankershim Boulevard and Hesby Avenue, the store offers a vast product assortment of nearly 1,000 SKUs, including many top-tier California brands. In addition, the Company plans to launch retail delivery, which is expected to increase top-line sales and help capture overall market share.
Management anticipates opening stores in Westwood and Hollywood during in the spring and summer of 2022. Opening under the Company’s new retail brand, Budega, these stores are expected to meaningfully contribute to net revenue and gross profit.Fourth Quarter 2021 Financial Results
Revenues in Q4 2021 were $8.4 million compared to $5.1 million in Q4 2020, a 63% increase. Total sales were 13.0 million grams (Q4 2020: 2.9 grams), a 345% increase.
Revenue growth was mixed across the Company’s subsidiaries which include ANM Inc. (“ANM”), the owner of the Company’s facility in Oregon; Mendo Distribution and Transportation LLC (“MDT”), the owner of the facility in Ukiah; Coastal Harvest LLC (“Coastal Harvest”), Halo’s extraction facility in California; Halo Winberry Holdings, LLC (“Halo Winberry”), which operates a one-acre grow outside of Eugene, Oregon; and Halo Kushbar Retail Inc., the operator of three retail cannabis stores in the Canadian province of Alberta. ANM reported revenues of $2.4 million, a 40.8% decrease over Q4 2020. MDT reported revenues of $3.0 million, a 104.4% increase over Q4 2020. Coastal Harvest reported revenues of $1.0 million, compared to a reversal of $0.1 million in Q4 2020. Halo Winberry and Halo Kushbar Retail, whose results were not included in Q4 2020, reported revenues of $2.5 million and $0.7 million, respectively.
The Company reported a gross loss of $1.3 million (Q4 2020: gross loss of $1.2 million). Adjusted for the loss on biological assets and impairments, gross profit was $0.8 million (Q4 2020: $0.5 million), with an adjusted gross margin of 9.6% (Q4 2020: 10.5%).1
The Company reported an Adjusted EBITDA loss of $7.1 million compared to a loss of $3.7 million in Q4 2020. 1
Liquidity and Cash Balance
As of December 31, 2021, Halo had available cash in the amount of $1.7 million and approximately $0.1 million in restricted cash.
In Q4 2021, ANM, the owner of the Company’s facility in Oregon, sold 922,767 grams of shatter, cartridge oil, live resin, tinctures and gummies, flower, and pre-rolls (Q4 2020: 1,438,342 grams), a 35.8% decrease. Sales of oil and extracts were 280,674 grams (Q4 2020: 322,127 grams), a 12.9% decrease. The wholesale price of oils and extracts decreased by 11.4% to $6.45 per gram (Q4 2020: $7.29 per gram). Flower sales in Q4 2021 were 504,233 grams (Q4 2020: 831,986 grams), a 39.4% decrease. The wholesale price of flower decreased by 45.7% to $0.72 per gram (Q4 2020: $1.32 per gram). Pre-roll sales were 96,451 grams (Q4 2020: 161,187 grams), a 40.2% decrease. The wholesale price of pre-rolls increased by 4.0% to $1.85 per gram (Q4 2020: $1.78 per gram).
In Q4 2021, Halo Winberry sold 4,429,555 grams of flower, pre-rolls, oil and extracts, and edibles. Halo Winberry sold 995,118 grams of flower at a price of $0.76 per gram, 67,486 grams of pre-rolls at a price of $7.74 per gram, 582,268 grams of oils & extracts at a price of $2.29 per gram, and 60,683 grams of edibles at a price of $0.51 per gram.
In Q4 2021, the facility owner in Ukiah, MDT, sold 7,278,852 grams of distillate, live resin, gummies, and pre-rolls (Q4 2020: 1,474,621), a 394% increase. MDT sold 26,413 grams of flower at $9.77 per gram (Q4 2020: nil). Pre-roll sales were 7,819 grams (Q4 2020: 4,834 grams), a 61.7% increase, at a wholesale price of $5.16 per gram (Q4 2020 $8.44), a 22.4% increase. Sales of trim & fresh frozen were 6,930,106 grams (Q4 2020: 1,207,871), a 473.7% increase, at a wholesale price of $0.05 per gram (Q4 2020: $0.11), a 51.9% decrease. Sales of oil and extracts were 301,755 grams (Q4 2020: 190,874 grams), a 58.1% increase, at a wholesale price of $6.76 per gram (Q4 2020: $9.49), a 22.6% decrease. Sales of edibles were 12,759 grams (Q4 2020: 71,042), a 82.0% decrease, at a wholesale price per gram of $3.81 (Q4 2020: $0.91), a 319.7% increase.Full Year 2021 Financial Results
Revenues in FYE 2021 were $36.2 million compared to $21.6 million in Q4 2020, a 67% increase.
The Company sold 32.5 million grams of flower, pre-rolls, oils and extracts, trim and edibles, a 381.6% increase compared with 2020. ANM sold 5.0 million grams of flower, pre-rolls, trim and fresh frozen, oils and extracts and edibles during 2021, a 6.6% increase compared with 2020. Winberry sold 11.0 million grams of flower, pre-rolls, oils and extracts and edibles during 2021. Winberry was first consolidated into the Company’s financial reporting in the year 2021. MDT sold 14.3 million grams of flower, pre-rolls, trim, fresh frozen, oils and extracts and edibles, compared with 1.8 million grams sold during 2020.
Reported gross profits were $4.5 million, representing 12.4% gross margin in 2021, compared to $4.3 million, or 19.7% gross margin, in 2020. Adjusted for the gain or loss in the value of biological assets and impairments, gross profit was $7.3 million, or 20.1% gross margin, compared with adjusted gross profit of $5.2 million, or 24.0% gross margin in 2020.
Operating expenses were $43.1 million in 2021 compared to $23.5 million in 2020. Acquisitions added $12.5 million in operating expenses during 2021. For FYE 2021, total operating expenses for Bophelo and Canmart were $3.6 millioncompared to $0.6 million last year. Bophelo and CanMart were sold to Akanda in November of 2021 and going forward those costs are no longer incurred by Halo.
The Company reported an Adjusted EBITDA loss of $23.6 million compared to a loss of $6.9 million in 2020. 1
Net loss was $93.0 million for 2021, or $10.48 per share, compared with a net loss of $41.2 million, or $7.27 per share, in 2020.Earnings Conference Call and Financial Outlook
Halo will host a live webinar at 4:15 p.m. Eastern Time on Monday, April 4, 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 April 11, 2022. To access the replay, dial 1-(800) 770-2030 (toll free) or (647) 362-9199 (international) and enter conference ID: 45805. At this time we are not providing financial guidance given the uncertainty within the Oregon and California markets and the early stage of the Company’s incubation strategy.Additional Information
Complete results are reported in the Company’s consolidated financial statements for the three and 12 months ended December 31, 2021, and associated management’s discussion and analysis (the “Q4 2021 MD&A”) which are available on the Company’s profile on www.sedar.com.