Halo Signs Deal to Acquire Winberry Farms

This news release constitutes a “designated news release” for the purposes of the Company’s prospectus supplement dated September 16, 2020 to its short form base shelf prospectus dated September 2, 2020.

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All figures in USD unless otherwise noted

TORONTO, Nov. 18, 2020 /CNW/ – Halo Labs Inc. (“Halo” or the “Company“) (NEO: HALO) (OTC: AGEEF) (Germany: A9KN)  has entered into a definitive agreement effective November 18, 2020 (the “Debt Purchase Agreement“) with Halo Winberry Holdings, LLC (“Halo Winberry“), Evolution Trustees Limited, sole trustee of SP1 Credit Fund (“Seller”), Herban Industries OR LLC, (“Herban OR” or “Winberry“), and Herban Industries, Inc., (“Herban Delaware“) to purchase certain secured debt of Herban OR owed to the Seller currently totaling approximately $18,440,000 of principal and accrued interest (the “Purchased Debt“), which is in default. 

For more information on Winberry Farms: https://youtu.be/pcXSPpCjeXY (CNW Group/Halo Labs Inc.)

Upon completion of the acquisition of the Purchased Debt, Halo Winberry, a wholly-owned subsidiary of the Company, will become the senior secured creditor of Herban OR.  Pursuant to the Debt Purchase Agreement, Halo will issue 169,916,339 common shares of the Company (“Halo Shares“) to the Seller in exchange for the Purchased Debt.  Immediately following closing of the Debt Purchase Agreement, Halo Winberry, a wholly-owned subsidiary of the Company, will enter into an asset purchase agreement pursuant to which it will acquire certain assets of Herban OR (collectively the “Winberry Assets“) in exchange for the cancellation of a portion of the Purchased Debt.  While the balance of the Purchased Debt will remain outstanding, Halo does not anticipate receiving any further payment or recovery on account of the Purchased Debt other than the Winberry Assets.  The Winberry Assets include, but are not limited to, a turnkey outdoor Tier 2 cannabis production (cultivation) facility; an operational cannabis wholesaler in Eugene, Oregon; the Winberry Farms trademark; and six delivery vehicles.  Completion of the acquisition of the Winberry Assets is subject to approval by the Oregon Liquor Control Commission (“OLCC“).

Oregon Pro Forma Combined Historical Numbers1

Unaudited financial results of Halo’s Oregon subsidiary ANM, Inc. (“ANM“) and the Winberry Assets for the nine months ended September 30, 20202 for selected income statement items on a Pro Forma combined basis are set forth below, and include revenue of $20.9 million, a gross profit margin of 41%, and an operating profit margin of 16% after the consideration of certain anticipated synergies.3

For the 9 Months Ending September 30, 2020
ANM, Inc.Winberry
Assets
CombinedCombined
(Adjusted)3
Revenue$12,040,833$8,864,016$20,904,849$20,904,849
COGS$7,727,776$5,462,057$13,189,833$12,303,431
Gross Profit$4,313,057$3,401,959$7,715,016$8,601,418
Gross Margin36%38%37%41%
Operating Expenses$3,219,510$2,397,310$5,616,820$5,173,619
Operating Income$1 ,093,547$1,004,649$2,098,196$3,427,798
Operating Margin9%11%10%16%

Picking up another acre of cultivation to add to the existing 6 acres Halo already owns and/or manages in Oregon, further solidifies the Company’s supply chain and increases its variety of cannabis strains.  Furthermore, the potential to use Winberry’s existing warehouse located in Eugene,  Oregon for distribution of Halo’s products is expected to result in additional cost savings.  In addition, the Winberry team’s long-standing relationships with Oregon cultivators should provide Halo with additional opportunities to acquire biomass.

Leading Oregon Market Share on a Combined Pro Forma Basis

According to BDS Analytics (“BDSA“), total retail sales throughout Oregon in the first 9 months of 2020 was estimated at $824 million with the top company accounting for $23.6 million (2.8%) of total revenue.4  On a combined basis over the same period, the Halo and Winberry brands are estimated to have generated approximately $41.8 million (5.1%) in retail sales, a 177% increase over the current top brand in Oregon.5   Currently, there are only approximately 121 out of approximately 660 dispensaries in Oregon carrying both Winberry and ANM products.   Therefore, the  Company believes that there is considerable growth potential for both the Halo and Winberry sales teams.

Winberry Highlights

  • Winberry’s Tropical Trainwreck is the highest grossing cartridge SKU of all time in Oregon.6
  • Winberry is the 4th all-time cartridge brand in the Oregon market per BDSA with over $22 million in sales since its inception in 2016.6
  • Winberry has 4 of the Top 10 all-time, best selling products in the vape cartridge category.6
  • Current distribution operation reaches more than 500 Oregon dispensaries7 with almost $8.9 million in wholesale revenue through September 2020. 8
  • Expected year over year revenue growth of 30% from 2019 to 2020. 8
  • Winberry is in the Top 5 for infused pre-rolls in the Oregon market.9
  • Winberry Infused Pre-rolls are 3 of the Top 10 best selling SKUs in Oregon.9
  • Winberry Sweet Leaf 10-pack pre-rolls are the #2 best selling SKU in Oregon.10

Background on Winberry

In 2016, Winberry was one of the first nine companies in Oregon, and the second in Lane County, to receive a Recreational Marijuana Producer License.  Sitting on 10 acres total, Winberry’s cultivation site is comprised of 1 acre of licensed cultivation;  a 1,800 sq. ft. drying facility; a 1,000 sq. ft. cloning facility; and a 1,600 sq. ft. greenhouse. The farm is located 30 miles southeast of Eugene, Oregon and is named after Winberry Creek, a water source that flows through the property and naturally nourishes its fields.  Winberry uses quality genetics and cultivates a variety of sun grown flower strains that supply the materials necessary to make its premium products.

The outdoor farm began operations with a Tier 1 license, but has since expanded to a Tier 2 license as of June 2017. Then later in 2017, Winberry obtained its wholesale license, which allowed the company to launch its first cannabis vape cartridge line.  In 2018, Winberry continued to grow across the state of Oregon  establishing its own in-house sales and distribution teams.   Winberry currently operates its wholesale business from a 2,500 sq. ft. warehouse, located in Eugene, Oregon.  This site houses its pre-roll production, and serves as a hub for its distribution business.  

What started as single line of distillate cartridges for vape pens has now grown to a full suite of Winberry products that includes multiple varieties of award-winning THC and CBD cartridges, infused pre-rolls, as well as cold-pressed, full-spectrum oil cartridges, and gummies.   Leafly named Winberry’s ‘Tropical Trainwreck’ one-gram cartridge the ‘Fastest-Trending Cannabis Product for Oregon’ in 2017, and the same product won the award for ‘Best Distillate Cartridge’ in the 2018 Dope Cup in Oregon.

Transaction Details

Pursuant to the terms of the Debt Purchase Agreement:

  • Halo Winberry will acquire the Purchased Debt totaling approximately $18.4 million of principal and accrued interest and the associated security interest in the assets of Winberry, in exchange for 169,916,339 Halo Shares. The security interests include blanket liens on all of the assets of Winberry, evidenced by UCC-1 financing statements on file with the Oregon Secretary of State. Completion of the acquisition of the Purchased Debt is subject to the satisfaction or waiver of any conditions precedent in the Debt Purchase Agreement, including the receipt of the approval of the Neo Exchange Inc. and is expected to close in December 2020.
  • In connection with the Debt Purchase Agreement, the Company will also enter into an escrow agreement (an “Escrow Agreement“) with Odyssey Trust Company and the Seller pursuant to which 12,916,339 of the Halo Shares issued at closing will be held in escrow for eighteen months to satisfy any indemnification obligations of the Seller, as well as any purchase price adjustments pursuant to the terms of the Debt Purchase Agreement.
  • From and after the acquisition of the Purchased Debt, Halo will provide operational services to Winberry to assist with the day-to-day operations of its production facility and distribution facility, and Halo will also purchase and distribute Winberry’s inventory, all pursuant to a services agreement, offtake agreement and IP licensing agreement.
  • Immediately following the acquisition of the Purchased Debt, Halo Winberry, a wholly-owned subsidiary of the Company, will enter into an asset purchase agreement pursuant to which it will acquire the Winberry Assets in exchange for the cancellation of a portion of the Purchased Debt. While the balance of the Purchased Debt will remain outstanding, Halo does not anticipate receiving any further payment or recovery on account of the Purchased Debt other than the Winberry Assets. Completion of the acquisition of the Winberry Assets is subject to the satisfaction or waiver of any conditions precedent in the Debt Purchase Agreement, including the receipt of the approval of the Neo Exchange, as well as the satisfaction or waiver of any conditions precedent to the consummation of such acquisition (including the receipt of the approval of the OLCC) and is expected to close within six to twelve months.

About Halo Labs

Halo is a leading, vertically-integrated cannabis company that cultivates, extracts, manufactures and distributes quality cannabis flower, oils, and concentrates, and has sold approximately six million grams of oils and concentrates since inception. Halo continues to scale efficiently, partnering with trustworthy leaders in the industry, who value their operational expertise in bringing top-tier products to market. Current growth includes expansion in key markets in the United States, United Kingdom and Africa, with planned geographic expansion into Canadian markets. With a consumer-centric focus, Halo markets value-driven, branded, and private-label products across multiple product categories. The Company also has acquired a range software development assets, such as the technology platforms CannPOS, Cannalift, and more recently signed a deal to acquire CannaFeels. Halo also owns the inhalation technology, Accudab. 

Halo is led by a strong, diverse and innovative management team, with deep industry knowledge and blue-chip experience. The Company is currently operating in the United States in California, Oregon, and Nevada. Internationally, the Company is currently cultivating cannabis at Bophelo Bioscience & Wellness (Pty) Ltd, in Lesotho and has acquired CBPM importation and distribution licensing in the United Kingdom via cannabis supplier, Canmart. 

For further information regarding Halo, see Halo’s disclosure documents on SEDAR at www.sedar.com

About Winberry

Founded in 2015 and based in Eugene, Oregon, Winberry Farms is a premium brand for distillate oil holding a Tier 2 Production License and a Wholesale License. Winberry represents an attractive brand and distribution platform in Oregon with over 75%+ dispensary penetration, a growing product line and operational strength in raw material sourcing, manufacturing and processing operations.

For more information about Winberry, please visit www.winberryfarms.com

Cautionary Note Regarding Forward-Looking Information and Statements
This press release contains certain “forward-looking information” within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only Halo’s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of Halo’s control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or may contain statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “will continue”, “will occur” or “will be achieved”. The forward-looking information and forward-looking statements contained herein include, but are not limited to, statements regarding the Company’s acquisition of the Purchased Debt and the Winberry Assets, the achievement of certain synergies and the production and distribution of the Company and Winberry’s products in Oregon.

By identifying such information and statements in this manner, Halo is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from those expressed or implied by such information and statements. In addition, in connection with the forward-looking information and forward-looking statements contained in this press release, Halo has made certain assumptions. Although Halo believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements. Among others, the key factors that could cause actual results to differ materially from those projected in the forward-looking information and statements are the following: unexpected delays in receiving the approval of the Neo Exchange Inc. or the OLCC; the inability of Halo’s management to successfully integrate the operations of Winberry with the Company; unexpected costs or delays in the completion of the Company’s proposed dispensaries and other operation; negative results experienced by the Company as a result of general economic conditions or the ongoing COVID-19 pandemic; delays in the ability of the Company to obtain certain regulatory approvals; unforeseen delays or costs in the completion of the Company’s construction projects; adverse changes to demand for cannabis products; ongoing projects by competitors that may impact the relative size of the Company’s growing operation; adverse changes in applicable laws; adverse changes in the application or enforcement of current laws, including those related to taxation; increasing costs of compliance with extensive government regulation; changes in general economic, business and political conditions, including changes in the financial markets; risks related to licensing, including the ability to obtain the requisite licenses or renew existing licenses for the Company’s proposed operations; dependence upon third-party service providers, skilled-labor and other key inputs; and the other risks disclosed in the Company’s annual information form dated April 16, 2020 and available on the Company’s profile at www.sedar.com. Should one or more of these risks, uncertainties or other factors materialize, or should assumptions underlying the forward-looking information or statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.

The forward-looking information and forward-looking statements contained in this press release are made as of the date of this press release, and Halo does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward-looking information and statements attributable to Halo or persons acting on its behalf is expressly qualified in its entirety by this notice.

Pro Forma Information

This press release contains references to pro forma financial information, including with respect to pro forma revenues. Pro forma revenues include the revenue for the nine-month period ended September 30, 2020 for the Winberry Assets.  Pro forma financial information in this press release does not include anticipated costs and expenses to generate such revenue.  Completion of the proposed acquisitions of the Purchased Debt and the Winberry Assets is subject to, among other things, the satisfaction or waiver of any conditions precedent to the consummation of such acquisitions (including the receipt of any requisite regulatory and third-party approvals). The Company believes the pro forma results presented provide relevant and useful information for investors because they clarify the Company’s operating performance, make it easier to compare the Company’s results with those of other companies and allow investors to review performance in the same way as the Company’s management.  Since these measures are not calculated in accordance with IFRS, they should not be considered in isolation of, or as a substitute for, our reported results as indicators of the Company’s performance, and they may not be comparable to similarly named measurements from other companies.

Third Party Information

This press release includes market and industry data that has been obtained from third party sources, including BDSA and other industry publications. The Company believes that the industry data is accurate and that its estimates and assumptions are reasonable, but there is no assurance as to the accuracy or completeness of this data. Third party sources generally state that the information contained therein has been obtained from sources believed to be reliable, but there is no assurance as to the accuracy or completeness of included information. Although the data is believed to be reliable, the Company has not independently verified any of the data from third party sources referred to in this press release or ascertained the underlying economic assumptions relied upon by such sources.

_______________________________
1 Please see “Pro Forma Information” disclosure below
2 Figures in respect of ANM are derived from the Company’s condensed interim consolidated financials statements and Management Discussion & Analysis (“MD&A”) for the nine months ended September 30, 2020.  Figures in respect of the Winberry Assets are derived from the unaudited income statement for the 9 months ending September 30, 2020 and prepared by the management of Herban OR.  These results for both companies do not factor in any gains or losses associated with biological assets.
3 The anticipated synergies are based on expected savings  from the combination of the distribution networks of Halo and Winberry.  Halo management anticipates that the acquisition of the WInberry Assets may reduce the Company’s overall costs of goods sold and operating expenses in Oregon by approximately 10% and 5%, respectively.
4 Per BDSA data reporting the Top Brand Performance in Oregon for the 9 months ending September 30, 2020.
5 Based on the previously referenced pro forma revenue of each of ANM and the Winberry Assets for the 9 months ended September 30, 2020, multiplied by 2.0x based on standard industry retail markup. BDSA data reports revenues at the retail level.
6 Per BDSA revenue data comparing all cartridge sales to date in the Oregon market as of September 2020.
7 Based on Winberry internal customer list, supported by Leaf Link data as of September 2020. 
8 Based on the unaudited income statement prepared by the management of Herban OR for the year ended December 31, 2019 and the 9 months ending September 30, 2020.
9 Per BDSA revenue data comparing all infused pre-roll sales in the Oregon market for the four months ending September 2020.
10 Per BDSA revenue data comparing all pre-roll sales in the Oregon market through September 2020.

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