Halo Collective Inc. (“Halo” or the “Company”) (NEO: HALO) (OTCQB: HCANF) (Germany: A9KN) today announces its financial and operational results for the three and six months ended June 30, 2022 (“Q2 2022”).
- Revenue of $6.9 million, net of inter-company eliminations, down 24.8% compared to $9.1 million in Q2 2021. Revenue was impacted by a significant downturn in both the California and Oregon markets.
- Total sales were 2.0 million grams, a 59.4% decrease compared to 5.0 million grams in Q2 2021. Flower sales decreased by 6.2% to 1.1 million grams compared to 1.2 million grams in Q2 2021, sales of pre-rolls increased by 11.5% to 257,245 grams compared to 230,655 grams in Q2 2021, no trim and fresh frozen sales, oils and extract sales decreased by 68.3% to 597,088 grams compared to 1.9 million grams in Q2 2021, and edibles sales decreased by 88.8% to 24,820 grams compared to 221,134 grams in Q2 2021.
- The Company reported a gross profit of $2.1 million, or 31.9% gross margin, compared to gross profit of $2.2 million, or 24.1% gross margin, in Q2 2021.
- Adjusted EBITDA loss of $4.1 million compared to an Adjusted EBITDA loss of $4.4 million in Q2 2021.
- The Company repaid $7.7 million in debt financing and raised $8.0 million from convertible debentures.
- As of June 30, 2022, the Company had unrestricted cash available in the amount of $1.6 million.
- In California, Halo has decided not to build out Ukiah Ventures and has sold the land associated with it. The sale of the land closed on June 30, 2022, resulting in a reduction of debt of $1.53 million, yielding net proceeds of approximately $588,000 including a seller note secured against the property for $400,000.
- Halo received regulatory approval to open three Budega brand retail dispensaries in Los Angeles, California. The first location opened in North Hollywood on March 14, 2022, followed by a store in Westwood, which opened on May 27, 2022. Halo plans to open its flagship store in Hollywood in the latter half of 2022. These stores will increase distribution and market awareness of Halo’s proprietary brands and products in California.
On April 28, 2022, Halo Tek Inc. (“Halo Tek”), a wholly-owned subsidiary of the Company, filed a preliminary long form prospectus with the securities regulatory authorities in each of the provinces and territories of Canada, other than Québec, for the purpose of qualifying the distribution of all of the issued and outstanding common shares in the capital of Halo Tek held by Halo as a return of capital. As previously announced, on April 1, 2021, the Company intends to pursue a spin-off of certain of its software, device and intellectual property assets into Halo Tek. The spin-off of Halo Tek is expected to be completed by year end.
“The important work of defining the next phase of Halo’s evolution is well underway, as we leverage our strong positioning on the West Coast to effectively execute our vertically integrated, seed-to-sale strategy,” commented Katie Field, Executive Chairman and Chief Executive Officer. “We are sharpening Halo’s strategic focus, operating smarter, and have transitioned leadership to a new team who will carry out the refreshed plan. The goal is to leverage our existing assets with a focus on near-term payback, which has led us to take numerous actions across the Company to improve operations and shed non-productive assets.”
“During the quarter, we ramped up efforts in our brand sales business, specifically Hush and Budega which are resonating with West Coast consumers and continued the retail rollout in Los Angeles where we opened the second of three planned dispensaries. Meanwhile, we de-emphasized other areas such as bulk wholesale flower and trim sales which generated good revenue but yielded lower profitability. And, we have made the decision to walk away from other parts of the plan altogether such as the Ukiah Ventures buildout and Canadian retail.”
“Our efforts to do more with less are already paying off. In the second quarter, we maintained steady gross margins despite the downward pressure on wholesale pricing and volumes across our markets. We have also made progress reducing Halo’s indebtedness through debt paydowns.”
Concluded Ms. Field, “Importantly, we are transforming the Company into a focused West Coast operator amidst market conditions in California and Oregon that continue to be very challenging, but longer-term, are expected to be fertile grounds for significant growth and profitability for well-positioned companies such as Halo. I am highly confident that Halo is on the right path as a leader in these attractive markets. The initiatives we are undertaking, including those in the second quarter, will strengthen the Company and ultimately enhance shareholder value.”
Q2 2022 revenues were $6.9 million, net of inter-company eliminations, compared to $9.1 million Q2 2021, a 24.8% decrease. In Q2 2022, Oregon generated $3.8 million in revenue compared to Q2 2021 revenue of $7.5 million. In Q2 2022, the California wholesale business generated revenues of $2.1 million compared to $1.6 million in Q2 2021, an 32.1% increase. The first Budega retail location in North Hollywood, which opened in March 2022, added revenues of $289,307 in Q2 2022. Kushbar was consolidated in July of 2021 and added revenues of $687,986 in Q2 2022.
Total Q2 2022 sales were 2.0 million grams compared to sales of 5.0 million grams in Q2 2021, a 59.4% decrease. Between Q2 2022 and Q2 2021 Flower sales decreased by 6.2%, sales of pre-rolls increased by 11.5%, oils and extract sales decreased by 68.3% and edibles sales decreased by 88.8%.
The Company reported a gross profit of $2.1 million, or 31.9% gross margin, compared to gross profit of $2.2 million, or 24.1% gross margin, in Q2 2021. For Q2 2022, Oregon generated $1.4 million in gross profit with a 37.4% gross margin, compared to Q2 2021 gross profit of $2.1 million with a 27.6% gross margin.
Liquidity and Cash Balance
As of June 30, 2022, the Company had available cash in the amount of $1.6 million. On March 16, 2022, the Company entered into an additional financing agreement of C$65.0 million with Global Tech Opportunities 6 in the form of convertible debentures.
Complete results are reported in the Company’s consolidated financial statements for the three and six months ended June 30, 2022, and associated management’s discussion and analysis (the “Q2 2022 MD&A”).