Halo Collective Inc. (OTCQB:HCANF) Q4 2021 Earnings Conference Call April 4, 2022 4:15 PM ET
Company Participants
Katharyn Field – President
Kiran Sidhu – Co-Founder and Chief Executive Officer
Philip Van Den Berg – Co-Founder and Chief Financial Officer
Conference Call Participants
Operator
Ladies and gentlemen thank you for standing by, and welcome to the Halo Collective Fourth Quarter and Full Year 2021 Conference Call. At this time, all lines have been placed on mute to prevent any background noise. [Operator Instructions] Thank you.
Katie Field, President and Director, you may begin your conference.
Katharyn Field
Thank you. Good afternoon. My name is Katie Field. I’m the president of Halo Collective, and I will be your conference moderator. At this time, I would like to officially welcome everyone to the Halo Collective earnings call for 2021. All lines have been placed on mute to prevent any background noise and after the speakers’ remarks, we will be answering questions that have been submitted to us. In addition to myself, your speakers on today’s call will be Kiran Sidhu, Co-Founder and CEO of Halo Collective and Philip Van Den Berg, Chief Financial Officer of Halo Collective.
Before we begin, I would like to remind listeners that certain statements made during this conference call presentation may constitute forward-looking information and forward-looking statements within the meaning of applicable securities laws. These statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Halo collective and its subsidiary entities or the industry in which it operates to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
When used in this conference call presentation, such statements use words such as may, will, expect, believe, plan, and other similar terminology and include, among others, statements regarding expected operating results, future growth, anticipated capital expenditures, corporate strategy, and proposed acquisitions. These statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date hereof.
Important factors that could cause Halo’s actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, changes in the consumer market for cannabis products, changes in the expected outcomes of the proposed changes to Halo’s operations, delays and obtaining required licenses or approvals necessary for the build out of Oregon operations, the proposed spin out of Halo Tek Inc., delays or unforeseen costs incurred in connection with construction, the ability of competitors to scale operations in Northern California, delays or unforeseen difficulties in connection with the cultivation and harvest Halo’s raw material, changes in general economic, business and political conditions, including changes in the financial markets. These risk factors are discussed in detail under the heading Risk Factors in Halo’s Annual Information Form dated March 31, 2022, and Halo’s additional disclosure documents filed on SEDAR. New risk factors may arise from time to time and it is not possible for management to predict all of those risk factors or the extent to which any factor or combination of factors may cause actual results, performance or achievements, to be materially different from those contained in forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Although the forward-looking statements contained in this presentation are based upon what management believes to be reasonable assumptions, Halo cannot assure investors that actual results will be consistent with these forward looking statements. The company undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise other than as required under securities legislation.
So with all that being said, I will now turn the call over to Philip Van Den Berg, our Chief Financial Officer.
Philip Van Den Berg
Okay, thank you Katie. Okay, I’ll take you briefly through the highlights of the year and the four months, no three months. The Q4 revenues were $8.4 million. For the full year it was $36.2 million. They were respectively 63% and 67% increases. Excluding acquisitions our growth in Q4 was flat versus Q4 2020 and up 3.2% for the 12 months. And the sales in the last year 2021 were 32.2 million grams and 13 million grams for Q4. They were 381, actually that was 45% increases. The average mix price decreased with 63% and 65% respectively for the full year and three months, and that’s really because of a higher proportion of flower sales.
Q4 the gross profit was minus $1.3 million and in Q4 it was around $4.5 million profit for the year. Adjusted for impairments and biological assets, the adjusted gross profit for the Q4 was $800,000 and full year it was $7.3 million profit. The gross margin reported in Q4 was minus 16.1% and it was plus 12.3% for the year and adjusted for impairments and biological assets the gross margin was 9.6% in Q4, and 20.1% for the year.
We sold 6.4 million grams of flower. We sold 1.3 million grams of pre-rolls. We sold 16.5 million grams of trim and fresh frozen. We sold 7.3 million grams of oil and extracts, and we sold 1 million grams of edibles in 2021.
Turning to the operations, ANM. ANM revenues were 2.4% which was a year-on-year minus 41% decline Q-on-Q, and minus 35% and for the full year it was minus 10%, basically showing that Oregon was a tough market in 2021 and in particular in the second half. Sales were 5 million grams, which was plus 6.6% in terms of volume, and prices declined worth 15.6% year-on-year. Sales were 0.9 million grams for the three months, which was a volume decline of 36% year-on-year and prices were down 8%. ANM reported a gross loss of $652,000 for the three months and a gross profit of $254,000 for the year. And adjusted for biological assets and impairments, the adjusted gross profits for ANM was $83,000 and $1.8 million for the year.
Coastal Harvest revenues were in Q4 were 1 million. For the full year they were $2.2 million. Coastal Harvest sold 2.1 million grams for the year. There was no activity in 2020 really, and 340,000 grams were sold in the three months. The gross loss for the three months was 50,000 and for the year it was 318,000. And then adjusted it was a loss of $1,600 and gross loss for the year of $269,000.
Mendo’s revenues were $3 million for quarter and for the full year they were $9.9 million. Sales were 14.3 million grams for the year and versus 1.8 million grams in 2020, so a big increase. For the three months sales were 7.3 million grams. The growth loss was 737,000 for three months, and there was a gross growth of 854,000 pounds full year and adjusted for impairments the gross profit was 91,000 for the three months and 1.7 million for the year.
That was Mendo. Then Winberry revenues were $3 million for the quarter and for the year they were $9.9 million. Winberry sold 11 million grams of flower and oil and 4.4 million grams in Q4. And there was — Winberry was consummated [ph] in 2020. The gross loss for the three months was 523,000 and there was a gross growth of 3.4 million for the year and then adjusted for impairments, the gross profit was 10,000 and then for the year it was 3.9 million.
Turning to operating expenditure, OpEx for the three months was $11 million, $3.9 was non-cash and taking away acquisitions in 2021 the like for like OpEx was actually $7.6 million. OpEx for the 12 months was $43.2 million which was a 92% increase. Of this $50 million was non-cash and like for like. OpEx for the 12 months was actually $30 million and there was an increase of 35%.
Total operating expenditure for Akanda was $3.6 million and Akanda was the consolidated in November. Acquisitions they added in total $3.4 million to operating expenditures in Q4 and they added $30 million for the year. The deconsolidation of Akanda and the decline in production overheads, they are expected to reduce our costs going forward with at least $3.3 million on a forward basis.
EBITDA. There was an EBITDA loss of $12.3 million and adjustments for impairments and biological assets it was — profit was $70.1 million, for the year it was minus $38.7 million and adjusted for impairments it was $23.6 million.
Cash flow. The net loss in Q4 was $66.5 million and $96.9 million for the year. That includes impairments of $60 million. Non-cash items were $66.7 million and $69 million for the year. Working capital was plus $2.9 million in Q4 and was a release of working capital $7.6 million for the year. Total cash used for operations was $7 million and $35 million for the year. Cash raised from finance was $1.4 million and $33 million for the year. Total cash flow was $6.7 million of cash outflow minus $1.8 million, so an outflow of $1.8 million for the year, and then the cash burn per month based on the Q4 numbers was $2.3 million per month.
Balance sheet. At the end of the year, the company had $1.8 billion in cash which is pretty much where we are today. Debt was $18.9 million. Net debt $17.1 million and the net debt to equity ratio was 26% so a pretty healthy balance sheet. And then in terms of debt, we had short-term debt of $9.7 million, which was really the move of the year, the 2019 convertible from long-term to short-term, and that in the end was actually restructured. And then there were also $6.9 million of our loans. And on long-term convertible there is still $1.3 million, which is convertible with Hight Tide and other loans were $1.1 million.
The capital structure. The company had at the end of the period had 24.1 million shares outstanding. 6 million shares were issued for private placements at the value of $31 million, 7.2 million shares were issued for acquisitions at a value of $54 million and the share capital at the end of the year was $232 million, with net assets of $66 million. And as I have mentioned before, included in there is our impairments, acquisitions done in 2019 and 2020 and 2021 of $60 million.
In terms of intangible assets in that number were $40 million [indiscernible] impairments were $12.7 million, and then acquisitions that hadn’t closed, but were written off were $7.4 million and that is basically the two retail assets. They told us to write them off, but haven’t even closed yet. So that is in — that’s actually, you will find that in the financials and deposits so there was a figure of $7.4 million.
Then in our capital structure, right now we have at the end of the year we had Akanda, which was deconsolidated in November, and at the end of the year, that invest is now a long-term investment for the company and that was valued at $11 million. If I take today’s IPO price and where it is focused trading – where it is focused trading, that stake is worth more than $100 million. Then in our capital structure, we have a facility with an with a debt provider of $14 million, another one with the same group of 50 million. And then we still have a note with Akanda, which is worth about $6 million. So the company has a lot of resources to fall back on.
Very briefly, acquisitions. In Q1 2021 we did Winberry, the two retail assets as the year comes out actually then also their management companies, Crimson & Black and POI. All those excluding Winberry, they were actually written off. That’s what the over thrown policy do. Nature’s Best was closed, and also a number of companies 1307296 that had to do with elegance. The first one Nature’s Best was also — was pretty much written down. And elegance and there will not be a 7 [ph] million of shares of elegance they are moving it down the balance sheet.
In Q3 we closed Hight Five and we also closed Foot Concepts as part of a deal with Pistil Point. Pistil Point itself has not closed yet, but Food Concepts has, and then William’s Wonder, there is no close yet but was also done in Q3 and then in Q4 we only did one acquisition which was simply fit.
And that pretty much concludes my presentation. Thank you.
Question-and-Answer Session
A – Katharyn Field
Thank you, Philip. Now we have time to — we actually a 12 questions. Some of them have a couple of them first, but what we’ll do is, I’ll go through that, read the question and then direct it to the appropriate member of management. All right. So the first question actually Kiran is for you and some folks were wondering about your health just in terms of the way when you’re speaking it sounds like your voice is different. So would you be able to comment on this?
Kiran Sidhu
No, sure. I have had some dental work done, and my voice will be different for the next two to three months and then it will return to normal, but I’m feeling fine and fit.
Katharyn Field
Okay. All right, this next question is regarding essentially it’s about Akanda and why the value is not reflected yet? And so Phillip, you had touched on this a little bit in terms of what we’re expecting, but can you just solidify the answer? What is our explanation why the economic value is not reflected yet in Halo?
Kiran Sidhu
Okay, the IPO of Akanda happened literally just a few weeks ago, not two weeks ago, but that’s price of $4. Our stake, when we — when we basically, so we ended up with the shares, and we have to be below 50%, we had to sell some shares, we sold those at $1. So therefore, our position is valued at $1 and not $4 at the let’s say at the year end, because their IPO happened thereafter. So comes Q1, then we will do a mark-to-market and then, yes, like the IPO price was $4, but right now the price is closer to I think it’s about $8 and that would valued stake in Q1 at more than $100 million. But because we sold shares at $1 that was the latest, that was the last transaction price, we had to value it at that price, and therefore the stake was $11 million.
Katharyn Field
Kiran, this next question is for you. One thing that we mentioned, maybe in the press release or during one of the interviews recently is, along the lines of the sale of Akanda and how that all came to fruition. And you mentioned that Halo would consider selling any business if it makes sense for the shareholders. The question here is how will we determine whether that in fact makes any business sense for the shareholders?
Kiran Sidhu
From my perspective, selling off the business would only make sense for shareholders if such business after 280 [ph] e-taxes, which are the punitive taxes was all subject to in the U.S. marijuana industry if those proceeds are at least equal to or higher than the book basis of our assets. People have said, distribute the Akanda shares under securities laws, that’s not possible. Another way maybe to do it, which we’re looking at, we’re looking at multiple ways, but one way to start giving shareholders a kind of value is maybe to put the shares in some sort of closed, closed bond or some other mechanism or sell the shares, which we’re not interested in doing, and were locked up for nine months, nine months and then half at 12 months. So we would look at somehow returning some of that value to shareholders, but Akanda based on our meetings with Page [ph], my conversations with Louisa [ph] is just setting on a path. And I think that they have a chance to be a dominant player in Europe with everything they have lined up.
Katharyn Field
Okay, great. This next question is about the recent announcement of the convertible note financing and whether or not it will cause dilution. Retail shareholders were hoping that Akanda’s IPO could trigger a turnaround for the stock price and they are concerned that the conversion of the note could mitigate that effect. So what are your thoughts on this? And does essentially management recognize that continuing to dilute is not a good strategy?
Kiran Sidhu
Who is that for?
Katharyn Field
That’s for you, Kiran, I’m sorry.
Kiran Sidhu
So I think our pace of acquisitions are slowing down and where possible, now that we have some credibility or I’d say a considerable amount of credibility with potential acquisitions, I think that one of the strategies we would like to deploy is substantially less shares, and more leverage secured by the assets we buy. Because besides small little tuck-in investments here and there, some of the assets we’re looking at are in many ways substantially larger in value than us. So by way of example, if we find an asset, and this is just an example, worth $100 million, I would love to be able to pay $10 million in stock and $90 million in debt secured solely by the assets we buy sort of a leveraged buyout technique. So that’s what we’re looking at if we go forward with large investments.
The other thing we have is, we have a couple of facilities at hand prices in our two core markets Oregon and California are coming down substantially and continue to come down, so we haven’t pulled the trigger on anything major yet, because it’s like catching a falling knife as prices continue to compress. One area we’re not seeing price compression right now or as much price compression is in retail. So our focus is dispensaries, dispensaries, dispensaries, and for the first time, I can say that we’re open to also acquisitions in Oregon, if they make sense of dispensaries.
Katharyn Field
Yes, okay. So this next question was for me, but I think we can all chime in on it, it was just what is our take on business strategy for 2022?
So to kind of piggyback on what Kiran was just touching on there, we’re definitely focused on continuing to verticalize, particularly in California, but where it makes sense to do so in Oregon as well. In California we’re laser like focused on now that we have one of the stores open, opening the next two stores. In addition, because of market conditions, there are some attractive tuck-in store acquisitions. And we think that that because the retail prices are less sensitive to market conditions than wholesale, this is going to be a great way to just secure revenue and improve our margins, so that’s part of the strategy.
But in addition, and this is something that we touched on in our earnings press release, that selectively incubating assets that are either non-plant touching or standalone, is a great way of creating value with Akanda. And we have a couple of those that are in the works, one, which is quite far along and so Philip, maybe you would like to talk a little bit about how we’re executing this incubation strategy with Halo Tek.
Philip Van Den Berg
Sure. So what happened is, we bought assets, basically six companies with a total value of around $20 million. Those companies we are going to put together in one new company called Halo Tek and that company is basically returned to shareholders as a return of capital. So where we have 20 million, we know what that represents in the book value of the total. So we can actually then calculate how many shares falls off Hello, that involves, then we issue shares in Halo Tek so you have a share exchange ratio. And every investor in Halo Collective will end up with shares in Halo tech, as a distribution of capital. And those shares are going to be listed and we’re literally in the middle of signing off everything like we have had separate orders for the companies in Halo tech. Halo Tek itself is happy about I ttake a shot has had an audit.
So the company is now exists, and that company is going to be listed. And so we have nearly completed and prospectives which hopefully will actually complete this week to basically to get those shares listed on the on the CSE, that’s, that’s in progress. So this is different than let’s say Akanda, where Akanda is an outside company where we’ve entered in assets. In this case, it’s actually, it’s called an outside company it is halo effect is owned by Halo Collective and distributed to shareholders as a return on capital. And that is, let’s say the prospectus was imminent and then it takes for the regulator the exchange takes about two months to allow this to happen. So I would expect that in two months time, Hello Tekch has its own listing.
Katharyn Field
That’s great. And I think another area just to elaborate on how we can see this potentially playing out this year, Halo has also acquired or flash developed assets that are non-plant touching CTG, non-plant touching consumer packaged goods. And by that I mean, some of the functional mushrooms, formulations for CBD or non-THC gummies, things of that nature, including manufacturing and distribution agreement with SWAY Energy Corporation. So, things of this nature, we’re realizing, again, they have a different supply chain different distribution, and potentially could under the right set of circumstances flourish potentially as a standalone.
So that’s an example of another area of the business we’re contemplating. And the only other one that I would say, although it’s a little too premature is, things still need to kind of clarify with local licensing. And in addition, in addition, the market in California and just clarification of how much capacity will be this year. But that’s something in theory that we might look at doing with Triangle Canna Corp. as well. So these are just examples of Kiran, I know, do you have any other examples that you would touch on?
Kiran Sidhu
No, not at this point.
Katharyn Field
Okay, great.
Kiran Sidhu
I mean, we’re looking at other opportunities and other geographical regions, like we did in Africa, in Europe, but it’s very preliminary. You know, Akanda gave us a lot of hope. And, you know, how do I say this, and tangibility that the whole incubation and spin-off strategy have some legs in it. So we’re going to run with that concurrent with operating our businesses in Oregon and California.
Katharyn Field
Yes, okay, great. So the next question would be, well, this is kind of another sort of somewhat related question, Kiran, for you. And the question is, when would potentially consider simply being a holding company for the economy shareholding or other standalone companies like Triangle, and stop any further day-to-day operations?
Kiran Sidhu
When we get good offers for our Oregon and California businesses? Right now, you know, it’s tough times. So I’m sure though, there are going to be people are poking around to buy low and then sell high. I think right now, we are at the downturn of our cycle and those people who survive the cycle will come out stronger, and loss of the marginal players are starting to already or have faded.
Katharyn Field
Yes. There is a question again I believe the shareholders or investors are thinking just in general, this whole incubation and what we’ve done with the conduct got them thinking a lot. And so this next question relates to it as well, which I will comment on, which is whether it makes sense to bring Triangle public, if the California cannabis market is so low. And I would say, we absolutely recognize that. And sort of in hindsight, we think it was a blessing in disguise, that Triangle didn’t start up this year, given what happens with prices in the California market, really across the west coast, but certainly California experienced precipitous price declines.
So I would say we’re absolutely mindful of that. And by no means, do we think that now is the time, but what we are, what we have learned is that there are potentially some encouraging trends. The speed is changing the regulatory licensing environment and requiring companies to either convert provisional to annual licenses or only be granted annual licenses like in California, which is a much, much higher bar takes more time, energy, money resources, and for cultivation and nearly always takes up sequel compliance, which is a pretty onerous process.
So further, it seems like the state is also moving towards limiting contiguous acres, meaning that large growth, large capacity unless they’ve already been in the pipeline, will not be in conformity in the future. But all this means is that we believe although, again, we’re just monitoring it for the moment that the supply chain could be restricted or not restricted per se, but not as open and going forward prices will come back and at that point, it may very well make sense to do with a season under our belt, potentially this year execute an IPO. So, again, these are very, this takes time, all of this takes time to do, but we agree that California, this is not the right time to do it. Certainly not this past year, and we’ll be monitoring it going forward.
Okay, next question Philip is for you. It’s more general about the losses for our annuals, and are reported in our annual filing. We reported losses for 2021. However, our output increased, how is that possible? It’s cannabis growing is not a good business? And what are your overall thoughts on the business segments, quantity increasing, but profitability going down?
Philip Van Den Berg
Sure, I’ll take a few elements in there, like one is, if you go through with it is gross margin overheads and then it a lot of non-cash items. Our gross margins, they should improve and we’re working on that. And that has to do with well, first of all, some things disappearing, such as Akanda, which actually has no revenues. So just by taking it away, that costs disappear but no revenues disappeared. So that will improve the situation, but that’s just one example. But there are more of those.
And then prices continue to go down. At the same time, the prices trend is going down too. So in a way the contribution margin of the products that we produce and sell should actually not be affected. It is affected however, because of production overheads and that’s an area that we are looking at, to bring costs down further and actually improve our gross margin. And then we continue to look at overheads. Let’s say the corporate overheads. A lot has been done already. One example is that all executives are no longer paid in cash but in shares. So although you see a large number for overheads, like 50% of that is basically paid in shares, to consultants, to people who work in a company. So it’s not, it’s all for cash outflow. And then, and that’s just accounting, like, we did a lot of acquisitions like 15, or 16 or so.
And then you — it depends on like when you do those acquisitions. If you do that later in the year, and there are no revenues yet, then you have to have very strong assumptions. Otherwise, the other firm tells you, you have to pare them, basically mark them down. That’s what has happened with many of those acquisitions that we did. I’ll give you an example. Like we had to, in last year’s audit, we had to write down LKJ, which is the North Hollywood Dispensary. Well, that dispensary opened two weeks ago, and is doing really, really well. So we may have to write them down in terms of accounting. But in the end, they do come back with revenues and EBITDA once you’re up and running and that’s how they then start contributing and that will be — that is reflected in, I think in the market cap.
So yes, it is all in all, your running very hard in a way to standstill in this business and that’s what we that’s what we do. We’re continuously looking at opportunities. We’re continuously looking how to bring down costs, and how we can turn those into profitability. And although I know that the loss looks fairly vague, like it’s $60 million of non-cash, which is really just for impairments or acquisitions that we did. You take all that away and then we are pretty much on target. So yes, it is a core business.
Katharyn Field
Very well put, very insightful. Just to sort of follow up on that example, the example of the first dispensary that we acquired, this question is about the next dispensary that we will open. So I will answer that and also how is the business in North Hollywood doing?
So just touching on the first part of that question, which is which store will open next? We anticipate that the Westwood store will be open next one on Santa Monica Boulevard. This past week we actually passed local inspection which is encouraging. The state application has been submitted. Although it has not been fully approved yet, it’s still in process. And then the local government will have to complete their review of the equity share documents, because we are at a social equity license. But all in all, the progress has been great. And the store is essentially ready to go from a construction standpoint, just some finishing touches. So we are pretty confident that this store is going to open in Q2.
Other than that, though, the North Hollywood business is doing well. We — the first two weeks were more of a soft open while the team basically staffed and trained, and tweak the product mix and just made sure everything was in place. And we had two grand opening days on Friday and Saturday, this past week, and the store was just packed. And customers were coming in and filling up their baskets and hitting their maximum limits for the day in terms of what they could buy. And we’re very, very pleased to report that’s actually the best selling skews in the stores were the Budega branded products. So we’re very pleased with the success of North Hollywood thus far and we anticipate building on it. In fact, this whole month of April, we’ll be doing events on Friday and Saturdays. So we hope that everyone will come by and we’re open every day. And the staff has been great and the team has really done an excellent job. And we plan to continue building the momentum on the North Hollywood opening.
All right. The next question is, it is the last one regarding dispensary, so let me just tackle this one. Will the Canadian dispensaries be granted the gig as well? So our SVP of Retail is definitely considering doing this. We realize that these stores already have a brand and market, they operate under Kushbar. That being said, we’re extremely, extremely pleased with the rollout. As I was mentioning Budega branding and thus far, the local consumers have reacted well to it. So you know what the data represents is accessible from the cannabis at good value. And, you know, we think that that’s a great selling proposition wherever you go. We’re not, rushing to make that decision. But we’re certainly taking a look at rolling this brand out not just to Canadian dispensaries, but any other market, we choose to open source them.
All right. So we’re basically through most of these questions. I guess the next question and one for each of you to fill up. What about the recovery of prices? And if prices have not dropped so precipitously, I think depending on the product segment, prices were down 25% or 30% or perhaps even more. What are your thoughts on what our results would have looked like? And if we do see a recovery, what would that mean, for us going forward?
Kiran Sidhu
Yes, prices have definitely reduced, have come down more than we thought and I think that we haven’t seen the end of that yet. I mean, we — as we know, like we looked at this kind of long-term charge for prices in different states some time ago. And that doesn’t really show yet that we’re at the bottom. We just keep working at bringing our costs down and also with the price of trim being down as well, that is the way to maintain your margins. But if prices hadn’t come down, then we would have been much more on target. But the reality is the prices continued to decline and they may well continue to decline. So all we can do is just bring our cost costs down. So that’s all I can say about it really.
Katharyn Field
Yes, no. And look, we have to be prepared for the worst and potentially, Oregon may be more prone to that in California with some of the attrition in the licenses, but even Oregon is making some potential changes in new licensing and something that we have to track. But it’s also as important and why we’ve decided it’s so important to get, because retail prices are less sensitive to market conditions and decline in prices are experienced more on the manufacture and cultivation side. So yes, and but still, it’s absolutely right. We should always look for ways to streamline and cut costs where possible.
Okay so this last question Kiran is for you. And so the question is, if all of the gate is open, if we continue spinning out sort of noncore assets that really are standalone or their values that are recognized outside of the company, given the example of the Akanda too and our shareholding in Akanda, when will the value in Halo be realized and sort of come to light? And what are your thoughts on all?
Kiran Sidhu
Well, financially, when we file our first quarter, the condensate will be mark-to-market pretty much right, Phillip, will there will there be any discount applied? I don’t think so.
Philip Van Den Berg
That will be like that, so at $90 million, like it was $11 million at the year end and that stake is worth more than $100 million. So, and when we do mark to markets, we will have a gain in our book value of $90 million.
Kiran Sidhu
Which makes us right now say we were trading at $20 million U.S., I mean, we’re trading at 80% discount to our book value pretty much. Right? And so those situations in my past history don’t last very long. Someone will come in and arbitrage it. So I don’t see that lasting very long, especially as the economy locked up comes loose. With Halo Tek, we’re reducing the number of shares, because we’re doing a share dividend. So we’re actually, I don’t know, [indiscernible] diluting anti-diluting. And so, using that share dividend technique may actually work well with other deals we have on the table. But effectively, you’re going to see a company, by the end of the year that has a growing operation in California, are recovering with — recovering operation in Oregon, and hopefully one to two more Akanda like holdings on our books. But yes, I mean, it’s going to be pretty obvious at Q1 that we’re trading at an 80% discount for book.
Katharyn Field
Great. Well, I don’t know if Philip or Kiran, that that’s the end of the questions, I don’t know if you have any more comments, anything else that you’d like to add to the presentation?
Kiran Sidhu
So people were asking about the convertible note financing with the top line number of $65 million. Our plans right now are only to draw $2.5 million per month to keep that solution down. People have thought that that they make more money or what have you when the stock is low. It’s actually a volatility instrument. So they make money when there’s more volatility in the stock and right now, given the stock they have, which is obviously under 9.9%. They’re keen to see the stock go up as well. It’s to no benefit to them for the stock to go down. And, we’re you know, what we’re trying to do again is this year be a little bit more conservative, execute on the dispensaries and implement our spin out, our spin out strategy with other clusters of assets and hopefully bring that book value substantially up.
Katharyn Field
All right. I’ll tell you, well I think that that’s it, and you can always feel free to reach out to us. Our contact information is on the investor relations page or contact us on one of our social media channels. And we look forward to hearing from you and thank you for joining us.
Kiran Sidhu
Okay, thank you.
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect.
Be the first to comment