Last week, Halo Labs Inc. (OTCMKTS:AGEEF) became the latest cannabis extractor to experience a major bull impulse. The Oregon-based manufacturer of cannabis oils and concentrates is currently the beneficiary of a strong news cycle, which has parlayed into robust upside momentum on record volume to close the week.
The latest press releases to froth-up the bid were twofold.
On February 21nd, Halo Labs announced that OTC Markets Group Inc. approved the trading of Halo Labs’ shares on the OTCQB Venture Market. The company’s shares commenced trading under the symbol AGEEF the following day. This was a particularly important event since Halo resides on the NEO Exchange in Canada—the least acclaimed of the Canadian exchanges where many investors will not venture.
Also firing-up investors was a second material announcement that same day, which doubled as the company’s de facto coming out party. Halo Labs reported unaudited and approximated January revenue of US$2.4 million (C$3.1M)—a record total. This was achieved despite only utilizing 50% of its capacity in its Cathedral City, California extraction facility. In mid-October, Halo Labs announced an agreement with Falcon International Corp. to supply a minimum of 50,000 and up to 70,000 g/week of bulk cannabis distillate used for vaping at US$7.50 per gram for the California market. This partnership is expected to generate between US$1.6-$2.2 million in monthly revenue, with the contract operating indefinitely in rolling 6-month extensions. The company should be running at full capacity by quarter’s end (March 2019).
With Halo Labs already generating USD $2.4M monthly without the benefit of an additional $800,000-1.1M in California revenues due to partial ramp-up, the company’s $50M FY2019E revenue forecast is seemingly in play. If so, Halo trades at a low forward multiple of about 1.46X revenues (undiluted). Fully-diluted, that number jumps to approximately 2.84X revenues—although if the unusually large number of purchase warrants (131,942,824, average exercise price of $0.737) convert into common shares, approximately $97.2 million would flow into company coffers.
Overall, Halo’s growth story is more positive news for the cannabis extractors, who’ve been exceedingly strong so far in 2019. Both Valens Groworks and Heritage Cannabis have risen by triple-digits year-to-date, with AGEEF closing the gap. Collectively, this cannabis sub-sector is the beneficiary of continuously strong news flow, punctuated by MediPharm Labs $35 million private label cannabis oil sale agreement two weeks ago. The market is seemingly discovering that the extractors are relatively cheap, with upcoming Canadian edibles (Q4) and gross under-supply acting as ongoing catalysts for sustained business growth. Although Halo Labs services the U.S. market, it too plans to enter Canada sometime in 2020.
Among the best places to be in CDN cannabis this year are the oil/concentrate extractors. Valens Groworks $VGW and Heritage Cannabis $CANN $HERTF are leading the pack in 2019, each with dbl-digit gains. $HALO closing-in with good recent news flow. It's a good niche to be in ATM. pic.twitter.com/6O7TPv1L31
— Benjamin A. Smith (@BenjaminA_Smith) February 23, 2019
Should Halo Labs meet its FY2019E revenue target, it would represent growth of approximately 416.66% YoY from the $12M it generated in 2018. Not bad for a company which is still in deep penny stock territory—even at all-time highs. Investors with spec capital to spare may want to contemplate conducting a deeper due diligence of the company, which boasts a scholastically-decorated management team, MedMen Enterprises distribution, Harvest Health & Recreation connection via Falconbridge International, and a second-look-worthy top line investment thesis.
Halo Labs finished Friday’s session up $0.08 to $0.61 (↑15.09%).
Midas Letter will have further coverage as events warrant.
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