Mr. Kiran Sidhu reports

HALO COLLECTIVE REPORTS THIRD QUARTER 2021 FINANCIAL RESULTS

Halo Collective Inc. has released its financial and operational results for the three months ended Sept. 30, 2021. All figures are in U.S. dollars unless stated otherwise.

Third quarter 2021 financial highlights:

• Revenue of $8.7-million, up $1.9-million, or 28.0 per cent, compared with $6.8-million in Q3 2020, including the sale of over 9.2 million grams of cannabis products principally to dispensaries in Oregon and California, a 620-per-cent year-over-year increase.
• Organic revenue growth was 9 per cent (1) despite a significant downturn in both the California and Oregon markets.
• Adjusted gross profit (1) was $2.3-million, or 26.5-per-cent gross margin, compared with $2.4-million, or 35.7-per-cent gross margin, in Q3 2020.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) of ($4.5-million) compared with $500,000 in Q3 2020 and ($4.4-million) from second quarter 2021.

"The difficult conditions in our California and Oregon markets are having a short-term impact on our financial results but not on our determination to make the company profitable and boost shareholder value," said chief executive officer Kiran Sidhu. "We are actively executing a four-pronged strategy consisting of growing our wholesale business in California and Oregon, launching California retail in Los Angeles, streamlining costs and monetizing equity positions in Akanda, Triangle Canna and HaloTek. Even with the strong headwinds in both California and Oregon, we believe that we have a path to profitability in 2022."

On Nov. 4, 2021, Halo completed its previously announced transaction with Akanda Corp. as part of its international reorganization efforts. This significantly reduces Halo's overheads provides Halo with a $6.6-million secured convertible debenture and an approximate 68-per-cent equity position in Akanda. On Nov. 10, 2021, the company announced the planned $75-million Reg A plus financing by Triangle Canna Corp. Halo maintains a 44-per-cent equity stake in Triangle Canna, which is being valued at $165-million prior to the completion of the Triangle financing. The Triangle financing has been qualified by the U.S. Securities Exchange Commission and is expected to launch prior to December, 2021. There can be no certainty as to the timing or success of the Triangle financing. The company also expects Elegance Brands Inc. to be listed on a major North American exchange by March, 2022, which would provide additional liquidity to monetize Halo's shareholding position in Elegance.

"We believe Halo is currently trading at a significant discount, by spinning off non-core assets, shareholders are expected to benefit from this unlocked value."

Mr. Sidhu continued: "The Oregon and California markets have seen a significant decline in gross sales over the last two quarters, mainly attributed to competition for consumer discretionary funds from other industries as the effects of COVID restrictions ease and oversupply of cannabis putting pressure on pricing, which has declined significantly. According to BDSA, California was down 18 per cent from April through September while Oregon saw a smaller decline of 15 per cent. Halo, on the other hand, bucked the industry trend, seeing an increase in gross sales of 59 per cent in California and a small decrease of 7 per cent in Oregon over the same period. Our share gains in both states position us well to be one of the leaders in a consolidated market as marginal and undercapitalized competitors fail and market conditions improve in 2022.

"Operationally, we are pulling multiple levers to drive growth and improved profitability within our core markets. We are revamping and intend to launch over 50 new products over the next six months, including prerolls, gummies, vapes, beverages and Hushrooms, a non-cannabis functional mushroom product. This includes leveraging the Simply Sweet platform to expand and upgrade all of our edibles offerings across multiple high-demand emerging product categories such as vegan, plant based, natural and low sugar. In beverages, we are developing a microdosed concept and plan to leverage our relationship with Elegance for mainstream distribution in stores of [cannabidiol] and functional mushroom drinks. Our balance sheet remains strong."

Philip Van Den Berg, chief financial officer, continued: "We are tracking toward slightly higher sequential revenue growth in the fourth quarter and withdraw our guidance for the year ending on Dec. 31, 2021. We are using this market downturn as an opportunity to accelerate our plan to reduce costs significantly. We have identified approximately $6.7-million of anticipated quarterly cost savings ($26.8-million annually) that we are implementing, including a reduction in corporate and production overheads, the separation of Akanda, and the reduction of external professional fees. Additionally, the working capital should release as we turn inventory more quickly as East Evans Creek delivers cannabis to the Oregon sales force that has been harvested and fully paid up except for trimming, distribution and commissions. We could achieve profitability in the first half of 2022 and expect to reduce our losses in the fourth quarter of 2021."

California market update

While the largest legal market in the United States, California's market conditions have recently softened and experienced a significant decline in gross legal sales from calendar second quarter to third quarter of 2021. The decline has been attributed to competition for consumer discretionary spending from other industries as the effects of COVID restrictions ease, as well as a large glut in the supply chain of cannabis. California retail sales were down 18 per cent from April 1 to Sept. 30 in 2021, resulting from price reductions and quantity concessions (2).

However, Halo believes that conditions in the state will improve within a year based on similar downturns in Oregon, Washington and Colorado. The company expects there will be attrition in flower supply in the legal California market over the next 12 months that could lead to many existing farms exiting the market, not unlike Oregon, where some of the marginal suppliers have closed. In 2022, new California state regulations prevent stacked cultivation licences on contiguous property starting in January, meaning new applicants may only obtain four cultivation licences per parcel totalling 40,000 square feet (3). In addition, the state is requiring all provisional licences to convert to annual licences by the middle of 2022, which may reduce the supply of licences, and the California Environmental Quality Act (CEQA) review is expected to be a critical material factor in conversion, which will be difficult for many operators to obtain.

Currently, there are 8,466 cultivation licences in California, of which 2,401 are annual (4). These licences will be grandfathered into the prior state program, which did not set canopy limits per parcel. Starting in July, 2022, the 6,065 temporary provisional licences must have their CEQA plans approved by the local government and California Department of Cannabis Control to convert to annual and be grandfathered into their legacy canopy footprint under prior state regulations. Any extension of provisional licensing will be challenging to come by.

California retail rollout update

Halo's Los Angeles retail rollout is an important step in its vertical integration seed to sale strategy in the state. The Westwood store is expected to open in December, 2021, followed by the Hollywood store in January, 2022, and the North Hollywood store by June of 2022. Opening under the company's new retail brand Budega, these stores are expected to increase distribution of Hush, FlowerShop* and the company's own Budega branded products in California, and after an approximate six-month ramp-up period, should contribute net revenue and gross profit.

Simply Sweet Gummy Ltd. acquisition completed

Halo also today announced that, further to its press release dated Nov. 4, 2021, the company has completed the acquisition of all of the issued and outstanding shares of Simply Sweet, a health-conscious, low-sugar cannabis infused alternative confectionery company based in Vancouver, B.C. In consideration for all of the issued and outstanding shares of Simply Sweet, which holds assets and formulations (including $1-million in cash), the company issued 2.7 million common shares to the previous shareholder of Simply Sweet. The company has also issued 202,500 common shares to an arm's-length finder.

Earnings conference call

Halo will host a live webinar at 4:15 p.m. Eastern Time on Nov. 16, 2021, to discuss its results. The webinar will also be available on a telephonic replay after the event until Nov. 23, 2021. To access the replay, dial 1-800-585-8367 (toll-free) or 416-621-4642 (international) and enter conference ID 4972706.

2021 guidance

As described previously, the company is withdrawing 2021 financial guidance primarily due to:

• Competition for consumer discretionary funds from other industries as the effects of COVID restrictions ease;
• Oversupply of cannabis in both California and Oregon;
• Leading to both decreased retail prices (deflation) and unit quantities purchased.

The company plans to give 2022 guidance on or before releasing annual financial results on April 15, 2022.

Additional information

Complete results are reported in the company's consolidated financial statements for the three months ended Sept. 30, 2021, and associated management's discussion and analysis.

About Halo Collective Inc.

Halo is a leading, vertically integrated cannabis company that cultivates, extracts, manufactures and distributes quality cannabis flower, oils and concentrates, and has sold approximately 11 million grams of oils and concentrates since inception. The company continues to expand its business and scale efficiently, partnering with trustworthy leaders in the industry which value Halo's operational expertise in bringing top-tier products to market.

Halo currently operates in the United States in Oregon and California. The company sells cannabis products principally to dispensaries in the United States under its brands Hush, Mojave and Exhale, and under licence agreements with Papa's Herb, DNA Genetics and Terphogz, and FlowerShop*, a cannabis lifestyle and conceptual wellness brand that includes G-Eazy as a partner and key member.

As part of continued expansion and vertical integration in the U.S., Halo boasts several grow operations throughout Oregon and two planned in California. In Oregon, the company has a combined 11 acres of owned and contracted outdoor and greenhouse cultivation, including East Evans Creek, a six-acre grow site in Jackson county with four licences owned and operated by Halo, and two third party licences under contract to sell all of their product to Halo; Winberry Farms, a one-acre grow site located 30 miles outside of Eugene in Lane county with a licence owned and operated by Halo; and William's Wonder Farms, a three-acre grow site in Applegate Valley, under contract to sell all of its product to Halo pending the closing of Halo's acquisition of its licences and business assets. Halo has recently acquired Food Concepts LLC, a master tenant of a 55,000-square-foot indoor cannabis cultivation, processing and wholesaling facility in Portland, Ore., operated by the Pistil Point entities.

In California, the company is building out Ukiah Ventures, a planned 30,000-square-foot indoor cannabis grow and processing facility, which aims to include up to an additional five acres of industrial land to expand the site. Recently, Halo partnered with Green Matter in California to purchase the Farm in Lake county, developing up to 63 acres of cultivation, comprising one of the largest licensed single site grows in California. Halo also plans to expand its operations in California by opening three dispensaries under the Budega brand in North Hollywood, Hollywood and Westwood.

In Canada, Halo acquired three KushBar retail cannabis stores located in Alberta as a first in its planned entry into the Canadian market, leveraging its Oregon and California brands. With the KushBar retail stores as a foundation, the company plans to expand its foothold in Canada.

Halo has also acquired a range of software development assets, including CannPOS, Cannalift and, more recently, CannaFeels. In addition, Halo owns the discrete sublingual dosing technology, Accudab. The company intends to spin off these assets and its intellectual property and patent applications into its subsidiary Halo Tek Inc., and expects to complete a distribution to shareholders on a record date to be determined by Halo.

Halo recently completed the sale of certain of its non-U.S. operations to Akanda, whose mission is to provide high-quality and ethically sourced medical cannabis products to patients worldwide. As an independent company, Akanda is seeking to deliver on this promise while driving positive change in wellness, empowering individuals in Lesoth, and uplifting the quality of the lives of employees and the local communities where it operates, all while limiting its carbon footprint. Akanda combines the scaled production capabilities of Bophelo Bioscience & Wellness Pty. Ltd., a Lesotho-based cultivation and processing campus located in the world's first special economic zone (SEZ) containing a cannabis cultivation operation, with distribution and route-to-market efficiency of CanMart Ltd., United Kingdom-based fully approved pharmaceutical importer and distributor that supplies pharmacies and clinics within the U.K. With a potential maximum licensed canopy area of 200 hectares (495 acres), Bophelo has scalability that is arguably unmatched in the world today. Following the sale, Halo is Akanda's largest shareholder.

(1) A non-international financial reporting standard measure.

(2) BDSA database.

(3) At the government website on cannabis.

(4) True North Consulting and California Department of Tax and Fee Administration.

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