HCANF - Halo Revenue Declines On Oregon California Market Issues
Halo Collective Inc. (NEO: HALO) (OTCQB: HCANF) announced its financial results for the first quarter ending March 31, 2022, as revenue declined 23% to $7.6 million versus revenue of $9.9 million for the same time period in 2021. Halo said that sales were impacted by a significant downturn in both the California and Oregon markets. The company also said that the flower category, which is a leading indicator, sharply declined, with sales falling by 23% in California and 26% in Oregon year over year. Halo also reported a net loss of $13 million in the quarter, which increased over last year’s net loss of $9 million.
“Marked to market the company’s estimated unrealized gain before taxes at March 31, 2021 , on Halo’s investment in Akanda was approximately $74.6 million ,” said Kiran Sidhu , CEO, and Director. “We expect that if the intended acquisition and subsequent spin out of PhytoCann SA is completed, it will also create substantial value by delivering meaningful revenue and operating profit contribution.”
Oregon Issues
The company noted the numerous issues within the Oregon market and is attempting to address them while the state tries to rectify the situation. Halo said it decreased distribution of its products to Oregon dispensaries from 478 on December 31, 2021 , to 464 on March 31 st , 2022. the company also noted that bad debts have been reduced, and accounts receivable days have decreased. It plans on further reductions planned of production overheads and “right-sizing” of the business for current revenue and future projections. It has also reduced outdoor cultivation operations both in scope and cost for the 2022 growing season to decrease working capital expenditure and improve cash flow.
Halo said in a statement that in March 2022 , the Oregon legislature signed HB4016, a moratorium that inactivates all marijuana license applications received after January 1, 2022 , until March 31, 2024 . Additionally, it allows the Oregon Liquor and Cannabis Commission to refuse to issue any new marijuana licenses until further notice. Halo anticipates this favorable policy change will decrease saturation and lead to rising wholesale cannabis prices over time. The net effect of this bill is expected to result in an increase in product profitability in the State of Oregon .
California
As of April 2022 , Halo discontinued operations at Coastal Harvest and consolidated with Outer Galactic Chocolates/Mendocino Distribution and Transportation LLC, which will reduce overheads and increase profitability in the second quarter 2022. The company anticipates Governor Newsom’s tax proposal- which would eliminate cultivation tax starting July 2022 – if passed, would further increase profitability and growth of the California business segment.
“Halo’s California wholesale business segment is EBITDA positive and scaling. We expect to re-achieve positive EBITDA contribution from the Oregon wholesale business segment in the latter half of 2022,” added Joshua Haddox , Chief Operating Officer.
“The Company’s California dispensary business segment officially opened in Q1 and is growing quickly. After a six-month ramp-up period per dispensary, we expect the Los Angeles dispensaries in North Hollywood , Westwood , and Hollywood to contribute positive EBITDA,” commented Beau McKeon , Senior Vice President of Retail Operations.
Looking Ahead
“In 2022, we intend to develop, grow, and ultimately monetize assets by incubating promising cannabis related businesses while remaining laser-focused on optimizing West coast cannabis operations. The planned spinout of Halo Tek Inc. is expected to result in a distribution to all Halo shareholders. The intended acquisition of Phytocann is expected to add significant revenue and EBITDA to the Company in late 2022,” said Katie Field , President, and Director. The company remains a going concern according to its filing.