Mr. Kiran Sidhu reports

HALO ANNOUNCES CLOSING OF ACQUISITION OF OUTER GALACTIC CHOCOLATES, A TYPE N LICENSE HOLDER IN CALIFORNIA. PLANS CALIFORNIA EDIBLES LAUNCH BY SEPTEMBER.

Further to its press release dated Jan. 15, 2020, Halo Labs Inc. has closed its acquisition of Outer Galactic Chocolates LLC (OGC), holder of a Type N manufacturing licence in Mendocino county. The acquisition gives Halo a licence to produce infused and edible cannabis products adjacent to the Mendo Distribution and Transportation LLC (MDT) facility in Ukiah, Calif. A Type N licence permits manufacturers to conduct most cannabis production and related activities, including packaging and labelling; however, it does not allow for extraction. For extraction in California, Halo utilizes its Type 7-licensed facility in Cathedral City, Calif. In total, Halo now operates 44,000 square feet in Ukiah, with plans to annex additional licensed square footage in the coming future.

Halo Labs closed acquisition of Outer Galactic Chocolates

Transaction highlights:

• Ownership of Type N California licence, allowing for the production of infused and edible products, as well as the packaging of all related manufactured finished goods;
• Halo also plans to launch its Hush edible products gummies and elixirs in THC (tetrahydrocannabinol) and multiple THC/CBD (tetrahydrocannabinol/cannabidiol) formulations, and distribute the award-winning Outer Galactic Chocolate-branded chocolate edibles from the licensed Type N facility in Ukiah;
• Retained OGC founder Jeff Stewart as a subject matter expert and consultant on edibles and gourmet chocolate production and all IP (intellectual property) created from these projects;
• Acquiring the licence will reduce cost by eliminating monthly equipment and licence rental fee; in addition, licence includes long-term lease on licensed space, as well as walk-in freezer, tables, racks and other equipment necessary for edibles production.

According to BDS Analytics, edibles spending in the United States and Canada is forecasted to grow to more than $4.1-billion by 2022. In California, ingestibles generated $47-million in sales in May, 2020, which represents 7-per-cent growth from the prior month, and 8-per-cent year-over-year growth. In Oregon, May, 2020, sales reached $14-million, representing 12-per-cent growth from April, 2020, and stunning 59-per-cent year-over-year growth from May, 2019.

Halo believes variety in edibles selection is critical to capturing the interest and loyalty of consumers. As stated previously, Halo is in the process of launching one-, 10- and 20-piece gummy varieties, with multiple flavours before the end of Q3 2020. The gummies will be strain specific, broad spectrum, vegan and gluten-free and feature organic ingredients with no artificial flavours or colours. In addition to delivering value pricing, Halo also plans to utilize nano-emulsification for some product configurations, to quickly deliver the active ingredients for more rapid onset. The company intends to launch strain-specific formulations in sativa, indica and hybrid, manufacturing under the newly acquired licence, and roll out up to 36 different SKU (stock-keeping unit) configurations in California over the next six months. The initial launch plan will feature updated branding for Hush in six strain-specific flavours including marionberry, watermelon, pineapple, strawberry, peach and raspberry.

Jeff Stewart, a resident of Mendocino county and cannabis farmer since 1982, is leading the way, helping develop the formulations for the new Hush line of gummies. Since launching in 2017, OGC's colourful line of milk, dark and sugar-free chocolates has been recognized as best dark chocolate -- hybrid, and best chocolate -- truffle by Edibles Magazine. OGC also took home the prize for best chocolate at the Emerald Cup in 2017.

Currently, the total daily capacity at OGC is 1,125 bags or 11,250 gummies per day, assuming a 10-piece configuration with total monthly output estimated to be 213,750 units. The target average wholesale sale price is $7 per package, which if achieved, could increase California monthly revenues by $1.5-million from gummy sales alone in 2020.

In addition to vegan and nano-emulsified gummies, Mr. Stewart will build out all of Halo's California product development, including a full line of elixirs, chocolates and dissolvable tablets. Halo will retain the intellectual property for use in California and all jurisdictions. Excited about the collaboration with Halo, Mr. Stewart celebrates the increasing use of quality edibles among consumers who want the cannabis experience while saving their lungs: "It's great to offer the public a range of the healthiest edible options, crafted from the finest ingredients, with artisanal care. I look forward to working with Halo to reach more consumers and patients with high-quality and delicious cannabis edibles."

Kiran Sidhu, Halo chief executive officer and co-founder, commented: "Obtaining a Type N manufacturing licence in California for the production of infused and edible products is a step in increasing Halo's product offering in this high-growth category. As we develop new lines with the award-winning expertise at OGC, we will support the expanded distribution of OGC-branded chocolates to Southern California. We look forward to expanding all of our product offerings in California, one of the world's largest cannabis markets." Mr. Sidhu continues, "As with our DNA Genetics and TerpHogz partnerships, this acquisition of OGC and collaboration with its management allows us to add value to the Halo product portfolio by providing more high-quality and award-winning products to our dispensary partners."

Transaction details

On July 31, 2020, Halo acquired OGC in exchange for 1,981,825 Halo common shares, which implies a fair value price of $237,819 based on the closing price of the Halo shares on July 31, 2020. To effectuate the acquisition, OGC Merger Sub Inc., an indirect wholly owned subsidiary of Halo, merged with and into OGC. OGC remains the surviving entity and will be wholly owned by PSG Coastal Holdings LLC, an indirect wholly owned subsidiary of Halo. Upon closing, Halo issued 495,457 Halo shares (25 per cent of the total consideration) to OGC's owner, Mr. Stewart. The remainder of the Halo shares will be paid to Mr. Stewart in 12 equal instalments of 123,864 Halo shares, deliverable on the first day of each of the 12 months immediately following the closing. The Halo shares are subject to restrictions on transfer such that the number of Halo shares sold through any stock exchange may not exceed 10 per cent of the total daily trading volume of all Halo common shares for the preceding trading day.

About Halo Labs Inc.

Halo is a leading cannabis cultivation, manufacturing and distribution company that grows and extracts and processes quality cannabis flower, oils and concentrates, and has sold over five million grams of oils and concentrates since inception. Additionally, Halo has continued to evolve its business through delivering value with its products and now via verticalization in key markets in the United States and Africa with planned expansion into European and Canadian markets.

We seek Safe Harbor.