Halo Labs Inc. (OTCQX:AGEEF) Q2 2020 Earnings Conference Call August 19, 2020 4:15 PM ET
Katharyn Field – President
Kiran Sidhu – Chief Executive Officer
Philip Van Den Berg – Chief Financial Officer
Ladies and gentlemen, thank you for standing by, and welcome to Halo Labs Q2 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation if time permits there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator instructions]
I would now like to hand the conference call over to Katharyn Field, President of Halo Labs. Thank you. Please go ahead.
Good afternoon everyone, and thank you for joining us. My name is Katie Field and I’m the President of Halo Labs. And I will be your conference moderator. At this time, I would like to welcome everyone officially and again let you know that yours line has been placed on mute. Basically how this will go is we will have speaker remarks both from Kiran Sidhu, our Chief Executive Officer; and Philip Van Den Berg, Chief Financial Officer and after both have given their remarks and presentation, there will be a question-and-answer session and you will able to submit questions.
Before we get started, though, I would like to remind the 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 Labs 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, belief, plan and other similar terminology and include among other 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 speak only as of the date here of. 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 economic and financial conditions, the ongoing impact of COVID-19, strategic actions, including acquisitions and dispositions and Halo’s success in integrating acquired businesses. These risk factors are discussed in detail under the heading Risk Factors in Halo’s annual information form dated April 16, 2020, 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 on 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 can not assure investors that actual results will be consistent with these forward-looking statement. 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.
I will now turn the call over to Kiran Sidhu and Philip Van Den Berg who will, first Kiran and then Philip will be presenting the financial results for Q2. Thank you.
Good evening, good afternoon, and good morning to everyone, depending on where you are in the world. My name is Kiran Sidhu. I am the Co-Founder, a Director and the CEO of Halo Labs. And what I’d like to do is change the way we’ve been doing these calls and focus more on overall strategy, where we’ve been and where we’re headed before we get into results.
It’s been a very challenging time for us, which started with the vape crisis and is continuing with COVID. And COVID, I would say, has been a personal journey, definitely for myself and Andreas who both have knock on wood recovered from bouts with COVID. And so, I have a lot of sympathy and empathy for people who’ve suffered through this and what we’re all suffering through, basically as humans with this pandemic. But the vape crisis and COVID has caused us to basically reshape the business. It was actually pivot or perish. And the first thing the vape crisis taught us was not to be solely dependent on our oil and concentrate business.
So over the past three quarters, we have been aggressively diversifying our product offerings to include flowers, pre-rolls and edibles. The second thing it taught us was that, given market conditions to limit our scope. And what I mean by that is our geographic scope. So, as on a North America basis, we’re pretty much focused on Oregon and California. That being said, we have excellent assets in Nevada. Nevada suffered a little bit more from COVID, where California shrunk a little bit, and Oregon’s actually booming. So, we’ve diversified our product offering into flowers, pre-rolls and edibles. Edibles are with the COVID crisis, what I can say in general, and specifically in Oregon and California have been taking off. So we’re really focusing, broadening our line there. The other thing I’m happy to report is a concentrate in oil demand has returned to normal levels in California and Oregon, in Oregon it’s actually growing, which has allowed us to turn back on coastal harvest, which was active in 2019 until about July or August of last year.
Now with our super filtration in place and our B2B wholesale distillate business growing again, you should see some positive impacts from coastal harvest, which has essentially been sidelined since Q3 of last year and Q3 of this year. The other thing it’s forced us to do, particularly in California is verticalize. As dispensaries have been hit by riots, had been hit by a delivery only business versus being able to bring in clients, which has vacillated back and forth in California. We thought to ourselves to verticalize there. So in California, I’m happy to announce that as I’m speaking, a press release is going out on the closure of UDI. So we have our first indoor cultivation facility in our system that we’re going to begin actively building. And, we’re doing that, which another press release is just going out with Terphogz.
We’re also looking at other cultivation assets in California, as you know, we have now manufacturing an oil capacity with UDI. We have cannabis processing capacity, with UDI and we have a large campus now in the Emerald triangle, in the heart of the Emerald triangle in Ukiah. And that’s going to really help us because physically our distance between our Oregon headquarters and our Ukiah headquarters as the crow flies is a couple of hundred miles. The other thing we’re planning to do is get into the dispensary business in California. We really can’t do this in Oregon. We’re just too large and it would alienate some of our larger customers at Oregon, but in California while we’re still smaller, say a top 20 player in the B2B dispensary sales business.
We’re finalizing our plans to we’re looking probably now at, I don’t know, close to 15 to 20 dispensaries that are for sale in California. And we’re looking to open our flagship dispensary in Los Angeles. Hopefully by the end of this year and we’re planning to commence build out at that new dispensary in Q3.
So again, to recap what I’m saying about North America, we have California, we have Oregon. In Nevada, we have licenses, one that we’ve fully paid for that we’re waiting to transfer, which is a manufacturing license and a cultivation license that we have optionality on. In Nevada we’re also looking at pursuing joint venture opportunities or outright sale of those licenses. We’re leaning more towards joint venture opportunities at this point. Like we’ve successfully done with TerpHogz now in California and in Oregon, like we’ve successfully done with OGE DNA in Oregon and in Lesotho, we’re looking for a joint venture partner of that status also in Nevada.
Turning away from North America and yes, we are actively looking to enter Canada, through the acquisition of KushBar from High Tide and those development permits. But when we look at Canada, we’re looking at doing it front-to-back as opposed to back-to-front, because in Canada, it seems that the dispensary players Fire & Flower, High Tide and others are performing relatively better than their manufacturing and cultivating peers.
A big focus for us now and it seems to be a big focus that you as shareholders who are listening are driving us towards is international. We need to put a lot more effort into our international business. And right now, honestly, it’s tough.
Just South Africa air space we were hoping this Sunday when the President of South Africa announced Phase II, that he would actually open-up the air space to commercial travel. It’s my understanding that he did not. So, we’re agreeing — we’re looking now at bordering countries of South Africa in order to fly people in and out of Lesotho as we need them, and then transport them overland into South Africa and then into Lesotho. For those of you who don’t know, Lesotho is landlocked, and all port of entry and exit come through South Africa. So when South Africa says that their airspace is blocked, it blocks Lesotho’s airspace, as well as because Lesotho does not have many flights, if any from other jurisdictions other than South Africa, I believe they don’t have many or any for that matter.
So, there’s a much more emphasis on Bophelo and international. Bophelo is really simple to us. We’re cultivating there, we continue to grow. Now we have a large order from Medcan in Malta, and effectively we need to do two things there. We need to secure funding with that order in hand, Louisa is now our chairperson, the closing behind us. Louisa’s having an aggressive go is getting that funding done over there. Then we need to get our GACP certification, which we I — personally and Andreas are working on every week. We hope to have that within let’s say 8 to 12 weeks and then we’re off to the races selling product from Bophelo.
Canmart a lot of you have asked is really critical to us because again, as I say, we narrow our scope to Oregon, California and potentially Nevada in the United States, and then Canada, through the dispensary acquisition and then reversing back-in systematically into listing our products and selling them off to other dispensary’s obviously we’ll have a good relationship with High Tide after this acquisition of KushBar.
So that will be, I would say in the medium-term, something that we’re also looking at the same way we have to focus ourselves in our international pursuits. We have Lesotho, we have the , arguably it’s the large — one of largest licensed grows in the world, if not the largest, we have to execute on that grow. You’re not going to be seeing us buying other international grows abroad Lesotho will be our base. And then we need to export, we need to export into Europe and UK having Canmart is critical in that path — pathway and then also looking at the UK at the EU continent is critical. That initial order with Medcan, we hope to get other orders within our system as well, but that’s a large enough order for us to fulfil over the next let’s say through the end of 2021.
The one thing I’d like to favorably report is a Canmart is now live. So when we started the deal with Canmart, they were not live. They were licensed and ready to go. They are importing product and they are selling product to pharmacists — pharmacies, who then deliver them to patients. We also are looking at some serious executive role changes to have more of an emphasis on international and when we close Canmart over the next few weeks, we’ll have a good base in the UK, we have a great base now in Lesotho with Bophelo. So we’re feeling very bullish on the international business and looking for significant contribution in 2021.
So in terms of what I would call the three strategic focuses in the short-term for the company is to close Canmart and G-Eazy deal, which is called Feel Better. So we have a high end product line to compliment Hush and the Terphogz, what I call professional product line that will be developing and securing institutional and bank funding for the Bophelo expansion, as well as GACP certification and then consolidating and growing market share in Oregon and in California, looking to expand ourselves now that our manufacturing, our indoors check the box, looking at outdoor greenhouse cultivation in California, probably in a joint venture, and then also looking at acquiring more dispensaries within California to verticalize.
Now I’m going to turn it over to Philip. A lot of people have been concerned about dilution, dilution, dilution, but they don’t understand the concept of acquiring things to be accretive. Some shareholders have also mentioned to me that they feel that, myself and Philip and Andreas from time-to-time taking his salary and shares as dilutive. In my opinion, that aligns us with the shareholders and as a shareholder, not as a Director and as an officer speaking in my capacity as a shareholder, I believe that the current market cap of around $70 million Canadian does not even adequately reflect the value of Bophelo and the potential there, least of all Oregon, California, potentially Canada, the UK and other assets we have. But now, I’m going to turn it over to Philip, and then Philip will delve into the results, and also talk a little bit about this whole concept of dilution and how we view it as many of you have concerns about it.
Philip Van Den Berg
Okay. Thank you, Kiran. Before I do my presentation, let me just go into the subject that you just touched upon, the dilution. So the way we look at it as follows. In this year 2020, we have issued in relation to acquisitions. We issued 183 million shares and we break down our portfolio in three components: One is IP assets, and they would be like, what happened in Q1 and Q2, they that would be, Nasalbinoid, Cannalift. They are platforms that are going to enhance other businesses. That represents 31% of the portfolio.
Then we have developing assets, that is for example is Bophelo. Bophelo represents 35% of the shares that have been issued so far in 2020. The developing assets are so far in Bophelo, we have capitalized all costs until we are going to harvest. So once we get in close to harvesting or putting the plants in the ground and then develop it, then it will no longer be developing assets, it becomes a cash generating assets. Right now, we put it there.
And then we have the revenue or cash generating assets. And that would include for instance, MDT would also be Kristen and Black, and knowhow. And so, and while we close it UVI will be included there too. That represents 34% of all of the shares have had issues so far this year. So it’s been kind of broadly, evenly down, about a third in IT, about a third in development and about a third in cash generating assets.
Now, I’d like to take the shares issued right now, which is 542 million shares. And I look at to the shares issued in relation to the acquisitions that we did so far in 2020, including what we have announced at subsequent events. Then I got 283 million in shares and basically the shares before acquisitions that number would be 360 million.
Now, at the current share price, which is $0.12 Canadian, kind of the pre-acquisition value of the company is $31 million. At the current share price, the value of acquisition is actually $60 million but the capital investment for those was $32 million plus a total capitalization of the company is US$48 million. So like the 48 minus the 31 or 32 gets you to the 16 depth acquisitions are valued at, but actually the capital investments in those acquisitions is double depth. So that is another, there’s does not only there in the valuation of the acquisitions or of the current operations, but we think that it’s the acquisitions.
To give you some backgrounds, the value of IP right now of that portfolio is $9 million, developing assets are in this Bophelo we acquired as a fair market value of $6.2 million. And for the cash generating assets, MDT 5 million Ukiah, 7.6 million and Kristen and Black, 4.3 million and that’s what explains to the how we get to the 32 million, which right now is valued at 60 million. So acquisitions are undervalued. That’s one thing.
Number two is that would only correct the current situation. Now, when we look at the IP platform for instance, Cannalift, Outer Galactic, Nasalbinoid, Accu-Dab, et cetera. They don’t do anything right now, but we acquired them as software and e-commerce platforms to enhance the current businesses that we have. So they will add to other companies, and just to make them more dilutive they represent that 14%, all of that represent just 14% increase. So if we can get a return on that investments in total of 9 million or 14% or more becomes non-dilutive and that shouldn’t be hard task all the time.
MDT is a cash generating assets that’s just an example. MDT when we acquired it only adds 5% share show at the time it was diluted, but now MDT generated revenue of 423,000 in Q1, MDT generated 1.1 million revenue in Q2. So it’s really growing very fast and its margins are improving and we kept them low purposely because we were using MDT for now as a platform for other products to come in so we get discount. That will start to disappear. MDT gets scaled up and MDT is going to work with UVI in California. And therefore we should expect that margins at MDT will continue to improve as we have already seen between Q2 and Q1. And also knowing that although it’s only 5% of shares and up share capital in fact we already 60% of revenue. So once you get this one right, it’s all very quickly show how under value it is.
Bophelo added 50% to the shares that had to be issued in total, but Bophelo once it harvests the value of just that one harvest the cash flow that we will be more than actually the capital that we invested in Bophelo, which was 6.2 million at fair value. We’re talking about more than 7 million and we have a harvest next year, and that will be just one harvest and Bophelo is not expected to do one harvest. So once we get Bophelo out of the developing stage, I mean, we get into the growing maturing and harvesting phase we’re going to get a lot of cash flow out of Bophelo, which is really not a discomfort at all in the valuation or what we paid for.
So I think we’ve got a really cheap acquisition here with a lot of potential to make the entire company cash flow positive. And those are just a few examples of how it shows, how acquisitions that we’ve done are not appreciated by the market or are not valued the way they should be. That’s no, in the end, the market will figure it out and we should expect it to be corrected. I guess just that’s so far on, just to deal with the dilution. It’s also, it’s the cost before the benefits, like we’ve done all the work. Like we started in Q3, Q4, 2019 issued all these shares four acquisitions that came through in Q4, Q1 and Q2 and we’re kind of, we’re getting there like and then we still have a High Tide, FlowerShop, Canmart at the close, but then we were kind of — we were getting there with what we have communicated so far to the markets. And all those costs have been taken. And very little to nothing has been discounted, it’s actually in the valuation. So as we start performing with these assets, we would expect that will enhance the valuation of the company and they become basically become accretive and value enhancing for Halo as a company.
So that’s about dilution. So we think it will be dealt with after dilution the operations will catch-up and they will add to the dilution. That’s the premise.
Then turning to the presentation of the results. We had a lot of change between let’s say, the first half of this year and what happened in 2019. And that really started Q3, Q4 2019. So we believe that right now to reflect what’s going on with the company is the growth compression is easier or better with or gives more insights in comparison with Q1 than it does with Q2 2019. But we probably saw the numbers anyway, so you can see it for yourselves.
Anyway, I just turning to revenues. Our Q2 revenues were $5.2 million versus 4.5 in Q1 18% increase and that up thanks to good progress at ANM, Oregon and also the contribution of MDT, which wasn’t — which wasn’t there 2019. That’s one example. But it showed a really good improvement from Q2 to Q1. And then the, to give you some more insight in the developments of Q2 to Q1 in terms of sales revenue has constructed, volumes were 1.1 million grams in Q2 versus 1.45 million grams in Q1 so it was a decline. Now why is that because in Q1 we sold 813,000 grams of flower and we already did 270,000 grams in Q2. And there’s nothing wrong with that. That is said that now we still have from our own grow, we still have offers to sell, which we did. But basically it’s a cyclical business when you have an outdoor business is cyclical. And that’s really what you see here in these results.
Now extract sales or volume it’s actually increased. The extracts increased with 25% quarter-over-quarter. So that was good. If you take all that together then you have a price mix that actually improves why nothing happened really price was in extracts in Q2 over Q1, an increase of 7%. Nothing happened with flower that’s $1.07. But we had an under strong improvements in pricing of 57% in Q1 — Q2 over Q1. Why because we sold less flower. And it’s really it’s a mix effect.
So, as you sell less with something that has a lower price, and the other one grows, then your mixed price starts to move up and that’s really why they show you a 57% increase in quarter-over-quarter pricing. I hope that makes it clear that it’s the revenue development is a mix of volume and price, because we have so many different things and also in different markets. It’s always there’s a mixed effect, both in volume and in pricing.
Now turning to ANM. Our ANM increased its revenues to with 46% to 4 million so that was a strong improvement, a whole year decline, actually, although we had a very strong approval to revenues volumes declined to 33%. Why because of what I’ve just told you, is because in ANM we have the flower sales, and flower sales declined with 65%. So the price that ANM approved that the volumes declined overall via 46% increase in revenue.
And then gross margin for ANM, the gross margin was 29.8% and it excludes the loss of biological assets the gross margin was 32.1% and that compares with a 23.8% in Q1, 2020. So there was an improvement and that actually compares very well with Q2, 2019 when it was 3.5%. But basically you can see the ANM is on improving trend quarter-after-quarter. The improvement in the gross margin between Q2 and Q1 amongst other things what mainly reflects a shift to higher margin products in the total mix.
Then HLO, our HLO runoff. Our volumes declined 98% between Q2 and Q1 and that’s it for for Halo. There is still some overheads and it’s a runoff. Our coastal harvest, coastal harvest had no activity in Q2, but as Kiran mentioned, as we ramped up to start the [indiscernible] program again in Q3, and that’s one of the reasons that I’ll get to later is that, we have to keep a basic infrastructure in place for coastal harvest that of course help to accelerate the obviously your EBITDA when you have no revenues that has to be because we have to be ready to gear up again.
And on MDT, MDT proved to be very good in Q2. Its generated revenues of $1.1 million versus $423,000 in Q1, that’s 166% improvements Q-over-Q, gross margin improved, but they were way below what we think they should be for reasons I mentioned, which are basically we gave discounts, which we’ll do no longer and we’re scaling up the mix. So the gross margin of MDT is expected to improve from here as it already did from Q2 to Q1. A little bit of detail, MDT sold 120,000 grams of products versus 37,000 grams in Q1, so a strong improvement. The price that has sold that was $10.09 versus $10.38 in Q1. There was a small decline in live Russian prices but the main effect really was that within the mix, itself distillate and live resin. Live resin grew faster than distillate that has an impact on the overall mix. Once UVI added to the mix, I think we will have a very strong presence in California.
Our operating expenses, they showed a very good improvements. OpEx in Q1 was $4.99 million versus $7.2 million in Q1 2020. So a very strong improvement. A lot of that I’ve talked about it in the past and we always mentioned it in the MD&A. There’s a high component of non-cash elements in OpEx. So when you adjust for that the OpEx was actually $3.7 million in Q1, sorry in Q2 and it was also $3.7 million in Q1. Our Q1 OpEx includes a reversal in G&A of $286,000 at ANM, we wrote about that in MD&A in Q1, which was a reversal. So once you adjust for that and actually operating expenses an underlying basis showed in Q2 was down versus Q1. So, the trend is good there.
The big components were always professional and corporate. Professional declined to $1.4 million from $3.5 million. And that’s really reflecting the M&A activity came down, because we’ve done a lot of it. So, not so much in Q2 versus Q1 and that helped. Then investor relations, they were $1.3 million in Q1 2020, and they were flattish like $9,000 in Q2. And our share-based compensation, which is a non-cash item, but it’s included cash, which was on $131,000 in Q1 versus $705,000 in Q2.
Then, maybe, on the coastal harvesting there. Coastal harvest has an overhead base of showed in Q2 of $650,000 and in there is a number of about $350,000 in relation to a professional, which has to do with the contract that we had for super filtration to get that implemented, that will disappear. So there will be the cost, there will be overhead for coastal harvest. But we think it’s, we can reduce it, but it needs to be there to support when we start to business up again as we have just started doing.
Then in terms of EBITDA again showed a strong improvement Q-on-Q. The EBITDA it’s a loss deal was $3.96 million or versus $7.4 million in Q1 then, if you take the non-cash items out of it, then the EBITDA loss was $2.6 million in Q2 versus $5.8 million in Q1. Looking at the operations, ANM was EBITDA positive, is in runoff and we just have to make sure that the over has disappeared there.
Coastal harvested will have to happen that as it starts to generate revenues, that real object. And then we have corporate. Corporate was reduced from $5.7 million to a $2.68 million and adjusted for loan cash items. Mean, a lot of consultants were paid and corporate paid shares, the overheads for a $1.7 million down from $5.6 million. So corporate we’d be focusing on that has been reduced a lot too, so that about EBITDA. EBITDA basically has shown that it’s little loss, but it’s a live trend and it’s just getting better each quarter.
Cash flow. The cash flow use in operations was just over $1.1 million but first use and then that was a sequential improvement over a Q1 revenue $2.4 million in cash. The working capital developments within that, there was an increase in Q2 of 500,000 after a decline of $1.25 million in Q1 but for building up working capital against, actually have the using a little bit but having said that, we’re still a very healthy working capital balance that I’ll get to later. Proceeds from financial of 240,000 the available cash is $1.5 million. We have a credit facility of CAD 14 million. So the total funds available for the company to run its operations are just under US$12 million. The cash burn on is 347 in Q2, there was a 750,000 in Q1.
So that showed a big improvement and that could put us on like 31 month of forward funding for the company. I don’t say that, that the cash burn in Q2 is the cash going forward, but the trends on cash burn has been improving which is again positive.
Then very briefly on the balance sheets, net debt $6.7 million. The net debt-to-equity is 23% in Q1 it was 18% which is a pretty healthy balance sheet. Our working capital $6.95 million versus as we had assets, current assets of $16.2 million and liabilities of $9.3 million. And then, one word on the share capital structure that we issued in Q2 that we issued 187 million shares and the share capital increased with 19.6 million to 87.5 million share increases mostly the majority was from acquisitions in — I mentioned the number of 183, but in Q2 it was 308 million, but we’ve post until we have some more and then the rest is from private placements, a share based compensation for staff service or finder’s fees and some aversion of the debt.
And that concludes my presentation so far.
[Operator Instructions] So we have a couple of questions that we would like to take the last 15 minutes to answer. [Operator Instruction] Okay, so with that being said, Kiran, this question is regarding the $30 million off-take for Bophelo and whether there’s capability to fulfill this off-take, can you answer that question?
So, there is capability today to fulfill that off-take over seven year period. That being said, Medcan is expressed to us that they want that off take fulfilled given the demand they have in Europe over the next 2 to 2.5 years. In order to do that, as I said, we need to either deploy capital from Halo. As Philip says, we have about 14 million. I’d say about what he said about US$12 million, available to us at this point, and our cash burn is going down. So I think that given Louise’s background, she’s now our Chairman. And I’m happy to say that, we have the first black African woman as a Chairman of a publicly listed cannabis company to the best of my knowledge.
So, I think the GACP getting some funding in there, and then getting some people in there is all going to help towards execution. So right now we have product to ship, but we don’t have product over the next two years to fulfill that contract over the next seven we do, and we just need to grow into it. And historically, we’ve always been good at doing that. So it’s not something that I’m losing sleep over.
And then this next is sort of a follow up on Bophelo. Kiran, you talked about the bank. It says the bank department, but maybe its bank account. Not sure but for Bophelo a year ago, is this still in the works?
Yes, so, Louisa, so people don’t know Louisa’s background. I mean, she is a private equity. She runs a very large private equity fund in South Africa. She is very deeply rooted in the African let’s call it banking, institutional equity and private equity communities. She’s a bit effectively said to us what she needs to be able to undertake a fund raising exercise during these times. We’re providing her those things that we need, which is getting that GACP we’ve obtained an off-take, we’ve actually successfully produced product that is flawless and clean. And so she has not flawless but I mean, no mold, no pesticides, clean product. So, now given her background, I’m fairly confident if not highly confident, despite these challenging times, that she’s going to be able to raise that money, hopefully within the next three to five months.
And then this next one is still regarding Bophelo, do you have a build out plan? Or are you flexible to meet upcoming demand?
So, we have a very detailed build out plan. Andreas met our Co-Founder, COO and Director has been very active with it. We have an issue where we’ve made a deposit on a one hectare greenhouse. And that is sitting in, I believe Australia or someplace waiting to ship. We have alternate plans to do, California style hoops and we keep putting them up until that large greenhouse ships.
And we just keep growing that operation right now, as aggressively and as best we can. But to be quite honest, there have been challenges in the past and there’re challenges in the future just even with the physical movement of people and goods in and out of Lesotho at the point given the COVID pandemic.
True. So this next question is regarding Canmart and the timing and why it is overdue?
So Canmart and the timing, as I said is over the next few weeks. And again, to be frank, I mean, COVID has affected us and affected Canmart’s ability to close this deal. And, now everything is sort of on track. The agreements are pretty much finalized and, we’re actually working with them actively on our slack channels, and what have you operationally as well. So, inevitably, the vision is to be able to grow very high quality OG DNA genetics, and our standard style on cannabis in Lesotho at GACP standards, ship that into Europe, through Malta and Medcan. And then inevitably, when people transform it into CGMP medicines, move those into the UK, which would give us a substantial, competitive advantage over any and all competitors there. So, I mean, that’s the vision for 2021. So, yes, Canmart is a critical piece to us of that vision. And I think it’s one of the only few distributors in the UK of cannabis medicinal products that can say that, they’re active and effectively making sales to pharmacies.
And then, we have a couple for Philip, but before we get there, Kiran, there’s one more regarding the stock and the range that it’s been trading in, and whether it would make sense to consolidate the number of shares in order to get the share price higher in a more serious range. What are your thoughts about this?
We have no intention to reverse split or consolidate the stock. I mean, to be quite frank, people don’t invest in a company like Halo, when they can invest in a company like Apple or Facebook or a tech company, and maybe get a double in a year. People are looking at Halo to do it 5x to 10x as many what many investors have told me. And a lot of people, including me sort of view the stock at $0.10 is a call. So, if we execute the way we should execute, our multiple should rise up to the level of other MSOs. And if that does, if you just look at an apples-to-apples basis, so stocks should be trading around $0.20 to $0.25 today. And so, if we continue this positive trend that we’ve seen in Q3, I mean Q4 to Q1 to Q2 to Q3 to Q4, I think this stock can substantially appreciate.
Okay. Good. So, Philip these questions are regarding: First, when Halo will be cash flow neutral?
Philip Van Den Berg
Right. I think with everything that as we’re doing right now, I think it’s fair to say that in Q4, we should be cash flow and EBITDA positive.
Yes. ANM is already cash flow positive. MDT is improving rapidly. We are taking a closer look from standstill to actually growing again, we’re focused on corporate overhead and new acquisition so that start to ask to, then I think, yes, we should be cash flow positive and EBITDA neutral by Q4 this year. Or just, if you just think about it and that’s kind of for this year, but it’s for next year. One harvest of Bophelo makes the entire company cash flow positive.
Yes. Okay. Q4 of which year a variance about?
Philip Van Den Berg
Okay, great. And the follow-up question was when will Halo be break even, but I mean, you touched on EBITDA neutral there as well. So maybe this means a full investment, but anyways, is there anything that you’d like to add? The question was when will Halo be break even.
Philip Van Den Berg
So I think it will be breakeven by Q4.
Right. Why is there an impairment for every purchase? That’s something that they were asking about.
Philip Van Den Berg
Okay. It’s very much an accounting treatment. When we acquire something, sometimes you actually use a process called the depreciating replacements value approach. And really what you do there is you just try to value, everything that was being done to get the asset where it is, but it doesn’t really say anything about its potential. So if you have to hire a program, if you have to hire this stuff, whatever, and it gets you to a certain value, that cost is the value that under IFRS you have to use to value the acquisition. That may not actually be the price you pay, because we think that if we pay more than it is because we think more happened, but something has kind of come out of this. So therefore I would be in and there’s a difference.
Accounting tells you impair it and then as we see it progressing, then we kind of unimpair it, you start to add it back. It’s like we had the same issue with MDT, read it like the close acquisition we had in Q1. We have an impairment of some inventory. That’s just an accounting measure because the inventory is still there and we are alluded in the earnings call for Q1. We may actually use inventory in the super filtration program. And it will be reappraised so the impairment could be reappraised. So it’s just accounting nothing else.
Okay, great. So this last one Kiran, the audience is wondering about old partnerships, and if we have an update on them, such as Caliva or any of the others that you wanted to comment on?
Well, I think people have addressed three specifically, Caliva, I think remains a client of the company. I’d have to check with the salespeople in California. As we’ve mentioned before, we’ve substantially grown our sales force in California. I think Q1 or two salespeople now I think we’re up to six to eight in California. What else? Falcon? Falcon, now that we’re starting to sell bulk distillate given the fact that two out of three of their principals are shareholders of Halo, I think that’s helpful.
So as we have distillate coming off the lines now and coastal harvest again, I think that partnership will be reengaged. Just according we looked at BDS data and if you add up a flower and pre-roll data in California combine it looks like Falcon is probably the number one company in both of those categories. So maintaining that relationship with Jim Edlund and Ryan is pretty key.
The third thing is that a lot of people have been asking about CBD and greenie and other of our CBD ventures, we announced last year, as a result of our sort of narrowing of focus, we don’t have any initiative to go into CBD. That being said, I’m right now pressing the OG DNA guys for some of their high yielding cannabis CBD strains, because we have a unique position in Lesotho and the only other place in the world, I think you’re able to do this is Vermont ironically, where I can grow a cannabis plant that yields high in CBD, or we can and THC, and I can strip both. THC I sell through the INCB or UN protocols, off to Malta or other African nations, but the CBD is much more of a free market and that CBD product I can actually even sell into South Africa. So, I mean, there is still opportunity in CBD but for us to start meant — putting in CBD manufacturing CBD working with CBD websites is not something that we plan to do at this point. That being said, if we can grow plants and on the same stick as we call it or plant, we can extract high levels of CBD and just call it the C-type oils, as well as THC at some point, that would be that was that’s very attractive to us, in Bophelo or in Lesotho.
Great, well, it looks like we’re — we’ve already taken up the hour, but I did want to make sure that no one had further questions. So, if the host can chime in here, it didn’t look like anyone was in the queue. But it would be nice to confirm that before we concluded.
There are currently no questions over the phone.
Yes, I’d like to thank everyone for attending. We’re working diligently. We’re working diligent and hard. Right now despite the fact that, a couple of us have come down with COVID. We haven’t had sort of a material adverse change to the company as a result of it, nor do we anticipate it. And what we’ve done is actually sort of increase staff, as because we’re not the type of business where people can stay at home. I mean, we’re a cultivator. We have people out in the fields. We’re a manufacturer, we’re a distributor and we have direct sales into dispensaries and soon at dispensaries. So we’ve been very proactive there.
With us right now it’s just a question of focus and execution, we’ve narrowed our focus our results, Q4, Q1 and Q2 show our ability to continue to improve on an executional basis.
So, I thank you all for your continued support. And hopefully we can continue to deliver positive results as we have been doing over the last three quarters.
Ladies and gentlemen, this does conclude today’s conference call. Thank you for your participation. And you may now disconnect.