Halo Collective Inc. (“Halo” or the “Company”) (NEO: HALO) (OTCQB: HCANF) (Germany: A9KN) today announced that it is strategically expanding into the functional beverage market with a proposed stock-based acquisition of private company operating as H2C Beverages (“H2C”) and the entering into of a distribution and manufacturing agreement (the “Distribution Agreement”) with Elegance Brands Inc. (“Elegance”). Pursuant to the terms of the Distribution Agreement, Elegance has agreed to purchase $30 million of Halo’s H2C and Hushrooms™ branded products during the 24-month period following the launch of the products (the “Launch Period”) and to distribute these products to retail outlets in respective legal states across the United States.

Kiran Sidhu, Halo’s Chief Executive Officer, commented, “Nootropic nutraceuticals is a relatively new health category that we believe is poised for robust growth. Our strategic acquisition of H2C Beverages will bolster Halo’s growth opportunities, even as the recreational cannabis industry faces over-supply issues in our California and Oregon markets. Elegance Brands is the perfect partner to manage and distribute H2C and our functional mushroom brand Hushrooms to mainstream consumers.”

Added Raj Beri, Elegance’s CEO and Founder, “Elegance has successfully established a distribution network with a potential reach to tens of thousands of outlets nationwide that uniquely positions for the significant growth expected in the beverages and functional mushroom markets. We believe that Halo’s innovative line of products will be strong sellers alongside our portfolio of brands all built around innovation, and we are excited to offer them to our expanding distribution customers.”

Acquisition of H2C Beverages

Halo has signed a definitive agreement to acquire 1285826 B.C. Ltd. (dba H2C Beverages), a company focused on cannabinoids and non-psychotropic mushroom functional beverages (the “H2C Acquisition”). The H2C Acquisition is expected to provide Halo with a toehold in one of the fastest growing sectors of the cannabidiol market, estimated to account for $16 billion in U.S. sales by 2025, according to Brightfield Research1, as well as to directly participate in rising consumer consciousness toward the health benefits of consuming small doses of cannabinoids and functional mushroom extracts paired with adaptogens. H2C’s product portfolio includes a line of premium flavored waters that are nano emulsified to maximize absorption and other plant-based beverages infused with cannabinoids, functional mushroom extracts with fulvic and humic minerals from the Rocky Mountains.

In consideration for all the issued and outstanding shares of H2C, Halo has agreed to issue 7,538,462 common shares in the capital of Halo (“Common Shares”). Closing of the H2C Acquisition is subject to the satisfaction of customary closing conditions, including, among others, the approval of the Neo Exchange Inc. (the “NEO”). The Company expects the H2C Acquisition to close in January 2022. Halo has also agreed to issue 603,077 Common Shares to an arm’s length finder in connection with the H2C Acquisition.

Distribution and Manufacturing Agreement with Elegance Brands

Halo has also expanded its collaborative relationship with Elegance by entering into the Distribution Agreement to propel the national distribution of beverages, capsules, and topical supplements under H2C and Halo’s functional mushroom brand, Hushrooms. This new category of functional supplements, nootropic nutraceuticals, will be marketed under three subcategories: active, relax and focus.

Under the Distribution Agreement, Elegance has agreed to purchase $30 million of H2C and Hushrooms branded products during the 24-month Launch Period and to distribute these products to retail outlets in respective legal states across the United States. Elegance shall purchase the products at a price of up to 130% of manufactured costs (including all direct costs, both third party and internal) incurred by the Company. All prices are exclusive of applicable taxes, including without limitation, sales, excise, use and property taxes, which shall be paid by Elegance. The Distribution Agreement is expected to deliver up to $9 million of profit (before tax) during the 24-month Launch Period.

During the period from the effective date of the Distribution Agreement until the Launch Period, which is expected to last up to six months, Elegance will provide certain consulting services to Halo including with respect to the development of branding, marketing, and manufacturing best practices, product development, and sales strategies through to launch. Pursuant to the Distribution Agreement, Halo has agreed to issue $2.5 million of Common Shares (the “Elegance Shares”) to Elegance in consideration for the consulting services to be provided by Elegance in connection with the branding, development, manufacturing, and distribution of the H2C and Hushrooms product lines. The Elegance Shares will be issuable in four equal monthly tranches of $625,000 per tranche. The number of Elegance Shares to be issuable under each tranche will be equal to the quotient of $625,000 (converted into Canadian dollars using the prevailing Bank of Canada exchange rate), divided by the greater of: (i) the volume weighted average price of the Common Shares on the NEO (or such other exchange on which the Common Shares are principally traded) for the twenty (20) trading days prior to the issuance of such Elegance Shares; and (ii) the minimum price permitted by the NEO. The issuance of such Elegance Shares is subject to, among other things, the approval of the NEO.