Halo Labs (AGEEF) is a small cap multi-national cannabis company that I think is well positioned to turn profitable in the next year or two.
The stock, AGEEF, trades at a discount to its peers. Since most public cannabis companies lose money, Halo being no exception, it’s easiest to compare values by comparing Price to Sales. Halo’s market cap is $26 million. Revenues in Q2 2020 were $5,242,961 compared to $4,449,098 in Q1 2020, a 17.8% increase. At this rate they’re on track to be trading at 1x – 1.3x sales for the year. For reference: Aphria trades ~ 2.7x sales.
Several catalysts for explosive growth exist in the assets that Halo has been acquiring throughout the past several years.
- Halo has a 6 acre outdoor grow site in Oregon that they’re about to harvest. The wholesale value of that crop alone is roughly $6 million which should be realized in Q4 2020 or Q1 2021.
- Halo just started selling their Hush branded edibles in California, a significant opportunity for sales growth. I work for a multi-state cannabis testing lab and can confirm that THC infused gummies are the best selling edible product out currently.
- In the next few months several dispensaries in California that Halo acquired should be opening which will provide the company with a higher margin sales channel in the state and allow Halo to showcase its brands and products in what many consider to be the most important cannabis market in the world.
- Halo owns a very large grow site in Bophelo, a landlocked nation within South Africa. The company is currently working to get EU GACP certification so that it can sell that crop to licensed distributors in Malta and UK. Halo owns a distribution license in UK as well. The company could be a dominant player in the EU medical cannabis space. Halo already has a $30 million sales agreement with a Maltese company to purchase 10,000 kilos of cannabis flower at $3.00 per gram which is a great price for outdoor and greenhouse grown biomass. Halo expects to fulfill this contract in 2021.
- Halo recently announced its participation in a partnership to purchase a large grow operation in Northern California. This, combined with their existing grow operation in Ukiah, should position the company very well going in to 2021. Halo is rapidly growing in California while many of their competitors are failing due to financial mismanagement, fire and protest related damages, and COVID related disruptions. 2021 could easily bring Halo revenues of $20 million in California alone.
- One thing that doesn’t get enough attention is that Halo has a distillate superfiltration operation that can basically turn shit into gold. They can remediate pesticides from cannabis extracts: a huge market opportunity and having that activity in house can help control costs. They can also take old or unappealing extracts and turn them into edible or vape grade distillate.
A major criticism of the company is that they have made significant dilutive acquisitions – buying up assets with stock. While fair, I believe the downward effect on the stock has been excessive. In all cases Halo has gotten sellers to accept a higher value for the stock than it was currently trading at in open markets. The assets that Halo has acquired were mostly at attractive valuations. Consider that the price of their Bophelo grow site acquisition could be paid off in just 2 – 3 grow cycles.
Even if market sentiment for cannabis stocks doesn’t improve I believe AGEEF is undervalued. If they continue to trade around 1x Price to Sales then their market cap should grow to $35 million or $40 million by the end of 2021. Management is under significant shareholder pressure to stop making dilutive acquisitions and start focusing on profitability. If the company turns profitable in 2021 then investors should feel comfortable buying the stock based on EPS and share price should grow accordingly.
Is Halo Labs (AGEEF) a good investment?
Shares of Halo Labs (AGEEF) appear to be a very good investment option, the Money Midnight Indicator is expecting its price to increase considerably in the next several years. The majority of the metrics point to this investment being highly attractive.