Mr. Kiran Sidhu reports
HALO AND GREEN MATTER PURCHASE BAR X RANCH TO ESTABLISH THE LARGEST CANNABIS GROW IN THE NORTHERN CALIFORNIA AND SOUTHERN OREGON
Halo Labs Inc.'s wholly owned subsidiary PSG Coastal Holdings LLC, together with Green Matter Holding Inc. (GMH), founded a real estate holding company on Aug. 18, 2020, each with 50-per-cent ownership. The newly created company, Lake County Natural Health LLC (LCNH), completed the purchase of the Bar X Ranch in Lake county, California, from an unrelated party.
Halo's partner, GMH, is the parent company of Humboldt Standard, a Humboldt-based, sustainable company, currently cultivating 24 acres of licensed outdoor cannabis in northern California, manufacturing concentrates in Oakland and distributing award-winning strains throughout the California market.
Encompassing 1,600 acres (647 hectares), the Bar X Ranch boasts clean air quality and abundant natural resources, in particular water, arable flat land and good soil. The property address is 20333 South State Highway 29, Middletown, Lake county, Calif. It includes two houses, two barns and ample power for the intended grow operations. Prior to the purchase, LCNH determined that the farm has the capacity to grow up to 80 acres (32 hectares) of cannabis. When Bar X Ranch is fully operational, it will be the largest cannabis cultivation operation in the region (1).
LCNH plans to immediately commence the buildout of Bar X Ranch, with a target outdoor grow of at least 60 acres (24 hectares), employing sustainable and organic practices, and with future plans for up to 10 acres (four hectares) of greenhouses. Early activation approval from Lake county has already been initiated and is expected over the next 90 days.
LCNH is planning for two full grow cycles per calendar year starting in early 2021. With planting in March and June, it can expect harvests in late May/early June and late September/early October. For both harvests, the company intends to plant GMH's genetics, mainly derived from tissue cultures, as well as additional genetics owned by Halo and other Halo-licensed partners (that is, OG DNA Genetics and Zkittlez).
With a planned size of 60 acres (24 hectares) LCNH estimates an annual harvest of up to 240,000 pounds (108,862 kilograms) of dried and cured cannabis at up to 4,000 pounds per acre (4,483 kilograms per 10,000 square metres). The current average wholesale price of outdoor cannabis in the United States is $835 per pound ($1,837 per kilogram) (2). LCNH anticipates that the cannabis grown at the Bar X Ranch should be sold at even higher prices, given the historical sale prices of GMH cannabis and GMH's affiliations with Connected Cannabis.
Kiran Sidhu, co-founder and chief executive officer of Halo, explained the value of the purchase:
"We are a company where the think-big genome is in our DNA. The LCNH partnership with GMH at the Bar X Ranch represents another evolutionary step in our history. When added to Halo's cultivation portfolio that includes a planned large indoor grow in Ukiah, Calif., in partnership with Zkittlez (UVI), the company will no longer be tied to third party cannabis cultivators in California. The Bar X Ranch partnership plays an important role in achieving Halo's strategy of verticalization in California. Halo is partnering with GMH, one of the most highly respected and profitable growers in California. GMH's state-of-the-art cultivation skill set will add significant value to Halo's other cultivation operations at East Evans Creek in Oregon, UVI in California and Bophelo in Lesotho."
Jedediah Morris, co-founder of Green Matter, praised the partnership with Halo.
He said Halo's ability to quickly arrange both mortgages (up to $7.1-million) for LCNH, combined with its strengths in regulatory, compliance and finance, complement GMH's strengths as experienced California cannabis cultivators. GMH is well versed in the local area and the growing conditions in Lake county, California. GMH comes to the table with a proprietary library of cannabis genetics, including award-winning, market-tested strains. We are looking forward to growing and distributing cannabis in partnership with Halo at an even larger scale. Bar X Ranch is three times the size of our current portfolio of California cultivation sites.
Halo is in the process of developing the largest cannabis grow on the African continent to supply the burgeoning United Kingdom, European Union and Asian markets with Bophelo. The company anticipates Bar X Ranch will play a similar role in the California market. Halo believes that LCNH will supply continuous, consistent, diverse and ample quantities of flower, prerolls and concentrates to a growing list of dispensary clients, as well as the dispensaries that Halo intends to operate.
The purchase price of $6-million and closing costs were financed as follows:
A down payment made by LCNH of $500,000, which was contributed evenly between Halo and GMH as 50/50 partners;
A first mortgage of $2.1-million from a real estate fund; the general terms of this loan include interest only at an annual rate of 8.75 per cent, a 36-month term and a first deed of trust as collateral;
A second mortgage of up to $5-million, of which $4.55-million has already been financed and closed, from a syndication of lenders; the general terms of this second mortgage include interest only at an annual rate of 15 per cent (half paid monthly and half paid at maturity), a 24-month term with two six-month extensions and a second deed of trust as collateral; additionally, the lending syndicate shall be due, at maturity of the second mortgage, a success fee equivalent to the amount borrowed under the second mortgage, subject to the successful approval and receipt by LCNH of a minimum of 100 licences issued by the California Bureau of Cannabis Control;
$1.05-million of the proceeds from the second mortgage is expected to be used as additional working capital to begin preconstruction work, such as licensing, permitting and infrastructure.
One of the lenders in the lending syndicate is the same lender under Halo's second amended and restated promissory note announced on Aug. 26, 2020. The syndicate lender has contributed $2-million in respect of the funds loaned under the second mortgage. Halo has agreed that the syndicate lender may, up to Dec. 31, 2020, require Halo to purchase all or a portion of the contributed amount (including all rights and benefits as lender under the second mortgage) and that the purchase price shall be equal to the applicable amount of the contributed amount and financed through proceeds from the second A&R promissory note.
The second mortgage constitutes a related-party transaction within the meaning of Multilateral Instrument 61-101 (Protection of Minority Security Holders in Special Transactions) as an independent director of Halo is a member of the lending syndicate and has contributed $50,000 in respect of the funds loaned under the second mortgage. The second mortgage is exempt from the formal valuation and minority shareholder approval requirements of MI 61-101 pursuant to Section 5.5(a) and Section 5.7(1)(a) as the fair market value of the participation by the director of the company is not more than 25 per cent of the company's market capitalization. The company did not file a material change report in respect of the related-party transaction at least 21 days prior to the closing of the second mortgage, which the company deems reasonable in the circumstances so that LCNH can avail itself of the proceeds of the second mortgage in an expeditious manner.
About Halo Labs 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 six million grams of oils and concentrates, since inception. Halo continues to scale efficiently, partnering with trustworthy leaders in the industry, who value its operational expertise in bringing top-tier products to market. Current growth includes expansion in key markets in the United States and Africa, with planned geographic expansion into United Kingdom and Canadian markets. With a consumer-centric focus, Halo markets value-driven, branded and private label products across multiple product categories. The company also has acquired a range software development assets, such as the technology platforms CannPOS and Cannalift, and more recently signed a deal to acquire CannaFeels. Halo also owns the inhalation technology Acudab.
Halo is led by a strong, diverse and innovative management team, with deep industry knowledge and blue-chip experience. The company is currently operating in the United States in California, Oregon and Nevada. Internationally, the company is currently cultivating cannabis at Bophelo Bioscience & Wellness Pty. Ltd. in Lesotho under a 200-hectare licence and is planning importation and distribution of cannabis-based products for medical use into the United Kingdom through Canmart.
(1) Based on Halo's and GMH's analysis of publicly available information, including information from, but not limited to, the Multiple Listing Service, the California Bureau of Cannabis Control (BCC) and the Oregon Liquor Control Commission licence data.
(2) Based on the U.S. Cannabis Spot Index as of the week ending Sept. 18, 2020, provided by the Cannabis Benchmarks website.
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