Bruce Campbell on Top Stock to Play the Emerging US Cannabis Industry: Halo Labs Inc (NEO:HALO)
Bruce Campbell, B.COMM, CFA, CAIA, the founder of StoneCastle Investment Management Inc. and the portfolio manager of the StoneCastle Cannabis Growth Fund (CNSX:CGOC) joins James West to discuss his expertise in the cannabis space and current attractive investment opportunities. Mr. Campbell recently highlighted Halo Labs Inc (NEO:HALO) (OTCMKTS:AGEEF) (FRA:A9KN) in The Globe and Mail as a cannabis oils producer with a “potential high-growth story that is very much under the radar”. The Toronto-based company, which launched in Oregon in 2016, has expanded into Nevada and California and has recently struck a deal to buy Bophelo Bioscience – a medical cannabis producer in the African nation of Lesotho. Lesotho provides Halo Labs with the ability to grow great cannabis and service the 60 million market of South Africa while planning to provide Europe with extracts produced at a low cost with EU GMP standards. The StoneCastle Cannabis Growth Fund Portfolio Manager also highlights Halo Labs’ expertise in extraction and different extraction solutions. Plus, the company’s innovative product design, with their Dab Tabs and Shatterizer product catalogue, which could “revolutionize the business to a certain degree”.
James West: All right. Bruce Campbell joins me now, portfolio manager of StoneCastle Cannabis Growth Fund. Bruce, welcome.
Bruce Campbell: Yeah, thanks for having me on the show.
James West: You bet. So Bruce, let’s start with an overview: you’ve obviously moved heavily into the cannabis sector. You’ve got some favourite names out there, but what is it in the cannabis space that you’re most attracted to now in terms of company configuration?
Bruce Campbell: I mean, there’s a few areas that we like. Obviously, the extraction area, we think, continues to be fairly big with the fact that now we’re going to see these concentrate markets open up. You know, they’re talking sort of December, but more likely January of next year when those open up. And there’s going to be so many different products that need extraction, so we think that space is going to be fairly big.
And then in the US, we continue to think that there’s opportunities there both from a branding perspective, from a multi-state-operator perspective, and then on the ancillary services. And then looking at Europe and South and Central America I really take a look at those and think that they’re probably three years behind where we are in Canada, and so we think there’s opportunity there as we start to really get into medical and then probably down the road, recreational markets there in those markets.
James West: Sure. I’m looking at your, your top ten investments. So it seems to me, if I was to just look at this Top Ten list from a 50,000-foot view, I see like two patterns in here. I see that you’re very attracted to people who are focused on extraction rather than cultivation in some cases, and then you’re also focused on the US multi-state-operator model. Would that be an accurate sort of takeaway?
Bruce Campbell: Yeah, I mean, those are the two areas that we think have the most immediate opportunity, and then obviously Europe goes beyond that. There’s not a lot of investible opportunities for Europe yet, but so you know, most of it is what we’re looking at in Canada because we’re looking, again, for cash flow. And you look at the Canadian extractors and Neptune, Valens and MediPharm, and they’re the ones that are generating cash flow.
And then down in the US, obviously the multi-state operators, especially if they’re in limited license states, then they have an opportunity here to really build and gain real estate before we see some type of legislation change that happens are anyone’s guess. But you know, I would imagine in the next five years you see some type of legislation change, and then it’s legal.
James West: Right. I read about in the Globe and Mail, you talked about a company called Halo; Halo Labs, down in California, who’s in Oregon, California and Nevada, and as a result of that, I went in to some research and discovered that they have this, quite a diverse product line of extracts, and then they’ve got this new thing called Dab Tabs with a shatterizer, which I’ve never seen anything like it before. But Halo is not on your Top Ten list. Is that just because it’s kind of new for you?
Bruce Campbell: It’s new, and it hasn’t been as liquid until late, so we have it actually split up into a couple of different holdings. So we own some of the common stock, but we also own the convertible debenture, as well. So it shows up as two different positions. So if you combine those, it would probably show up in the Top Ten, but as individuals, they don’t.
James West: I see. And what was it particularly about Halo that attracted you?
Bruce Campbell: So they have, again going back into extractions, kind of the expertise there. They have some expertise in extraction, and they have a number of different extraction solutions, so they’re not just CO2 or ethane or butane, but they provide a number of different solutions. Plus, they’ve been innovative in their product design, so the Dab Tabs, and now they’re actually trying to introduce a product which will be a Dab Tab vape type of product which could, again, sort of revolutionize the business to a certain degree.
James West: Sure. The Shatterizer/Dab Tab combo you’re referring to, I actually interviewed Kiran Sidhu, the CEO, in London last week, and that, combined with this move into Lesotho, which is something that when I see these – like, a lot of the companies move into Lesotho and I’m like, what’s with Lesotho? Why is everybody going into Lesotho? And then I also interviewed the Deputy Prime Minister of Lesotho last week and now I understand that oh, okay, Lesotho is basically this sort of elevated mountaintop kingdom that’s got the ability to grow great cannabis and service the 60 million market strong market of South Africa, which is significant. But they’re planning to service Europe from extracts produced in Lesotho at super low cost, because it’s a a low cost nation.
Bruce Campbell: Yeah, exactly. So I mean, that’s, you’ve seen a number of the different Canadian LPs all head over there, and you know, eventually, I think the African market is going to be big. You know, there’s going to be a competition there with the black market to begin with, much as there is in Canada, but eventually that gets regulated. But the European market if they can get GMP facilities set up so that then they can export into Germany, that would be the first place, and then sort of beyond that as we see country by country roll out medical or recreational programs, then there’s going to be a huge opportunity there.
And as you mentioned the cost of production is going to be very favourable, especially compared to indoor Canadian facilities.
James West: Right. Halo Labs has 120 million warrants overhanging the stock at $0.80. How much of that – how do you perceive that in terms of a barrier to the investment thesis for new investors coming in? Do you think that’s a manageable sort of overhang that is ultimately going to get chewed through because of the milestones the company will achieve?
Bruce Campbell: Yeah, that’s what we think. I mean, obviously investors have to be cognizant of that, and you know, as the stock probably approaches that level you will see some pressure on it, especially as it sort of pops over into the low 80s; there’ll probably be some pressure as people who have been sitting on the stock exercise their warrants and then sell the stock to probably exercise those warrants. But at some point in time, it will chew through that, and it will chew through it based on their business. If they can do all the guidance that they’ve suggested that they can, then at some point in time the market’s going to say okay, well, we’re willing to put a higher valuation in this fully diluted than what it’s worth now. And it will chew through those warrants and go to a higher level, which will of course also help the company, because they’ll have all this cash that comes in to accelerate their business without having to do a new equity financing. But it’s kind of built in from the previous financings.
James West: Sure. Let’s talk a bit about StoneCastle Cannabis Growth Fund, now. What kind of investor is it appropriate for, and how do they get involved?
Bruce Campbell: Yeah, so I mean, we took a long time to get it set up. When we set it up, we wanted to have to flexibility, kind of go anywhere with it, and so we worked quite extensively with the Securities Commission to get it set up. So that’s really what we’ve designed, and what our feel is, is that cannabis is going to be the fastest-growing sector, or one of the fastest-growing sectors, over the next decade in the world. And so we want to be able to take advantage of those anywhere.
So if you’re a growth investor and you want a piece of the cannabis market, it’s very difficult to try to pick individual names. For one, the sector’s extremely volatile; we talk about this now being the eighth wave that we’ve seen since we’ve been in the sector, and we started back in 2013, and those waves can be 50 percent down and over 100 percent up. So you know, you need professional management, in our opinion, and you need diversification, and so we add both of those.
And what we do is, we’re able to act a little bit quicker, so we think that we add a lot of value to a holding. If you had something like the HMMJ that can be a good base, and then we can add sort of some diversification there, being able to act a little quicker and get into opportunities that they can’t necessarily immediately act. And so we think that we’re a nice complement to them, and a portfolio should have a combination of sort of that passive approach and our active approach, as well.
James West: Okay, great. Bruce, that’s a fantastic first conversation with you; I’d like to do this again and again and again and again, so we’re going to leave it there for now and I’ll come back to you soon. We’ll do this again. Thanks for joining me.
**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**
Notice for Forward-Looking Information
Certain statements in this press release are forward-looking statements and are prospective in nature. Forward-looking statements are not based on historical facts, but rather on current expectations and projections about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Such forward-looking information includes that HALO Labs Inc will be a big, successful company in the cannabis sector; that cannabis use and sales will grow and HALO’s sales along with it; HALO’s intended acquisition of various foreign companies and expansion into the US market; that extraction is and will continue to be a fast growing and profitable sector of the cannabis industry; that HALO will reach $48M in revenues in 2019; HALO’s plans to produce concentrates and sell them in various locations throughout the world; that HALO could be granted licenses to expand; and that it will be able to carry out its business plans.
Readers are cautioned to not place undue reliance on forward-looking information. Forward looking information is subject to a number of risks and uncertainties that may cause actual results or events to differ materially from those contemplated in the forward-looking information, and even if such actual results or events are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on HALO. Such risks and uncertainties include, among other things: that a regulatory approval that may be required for the intended acquisitions and subsequent sales are not obtained or are obtained subject to conditions that are not anticipated; growing competition for intended acquisitions in the cannabis industry; potential future competition in the markets HALO operates for sales; competitors may quickly enter the industry; general economic conditions in the US, Canada and globally; the inability to secure financing necessary to carry out its business plans; competition for, among other things, capital and skilled personnel; the possibility that government policies or laws may not permit legal cannabis sales or growth or that favorable laws in place may change; HALO not adequately protecting its intellectual property; interruption or failure of information technology systems; the cannabis market may not grow as expected; HALO’s technology may not achieve the expected results and its accomplishments may be limited; even if it is granted patents, it may not have success at licensing its technologies or sell its products at the rate expected; planned acquisitions and partnerships may not materialize because of inability to agree on terms with prospective partners or targets; HALO’s business plan also carries risk, including its ability to comply with all applicable governmental regulations in a highly regulated business; incubator risk investing in target companies or projects which have limited or no operating history and are engaged in activities currently considered illegal under US federal and foreign laws; and other regulatory risks relating to HALO’s business, financings and strategic acquisitions, including securities laws, trade rules, and foreign country regulation that is not the same as Canadian or US regulations.
PAID ADVERTISEMENT. This communication is a paid advertisement and is not a recommendation to buy or sell securities. James West, Global Financial Network Ltd. and Midas Letter Media Corp. and their owners, managers, employees, and assigns (collectively “the Company”) has been paid by the profiled company or a third party to disseminate this communication. In this case the Company has been paid by HALO $300,000 US dollars for a newsletter campaign and certain banner ads, and a budget of $450,000 is in place to place newsletters in social and other media. In addition, the Company owns 40,000 shares of HALO, and will benefit from its price appreciation. This compensation and our share ownership in HALO is a major conflict with our ability to be unbiased, more specifically:
This communication is for entertainment purposes only. Never invest purely based on our communication. Gains mentioned in our newsletter and on our website may be based on end-of- day or intraday data. We have been compensated by HALO to conduct investor awareness advertising and marketing for HALO. Therefore, this communication should be viewed as a commercial advertisement only. We have not investigated the background of the profiled company. The profiled company or its affiliates may liquidate shares of the profiled company at or near the time you receive this communication, which has the potential to hurt share prices. Frequently companies profiled in our newsletters experience a large increase in volume and share price during the course of investor awareness marketing, which often end as soon as the investor awareness marketing ceases. The investor awareness marketing may be as brief as one day, after which a large decrease in volume and share price is likely to occur.
We do not guarantee the timeliness, accuracy, or completeness of the information on our site or in our newsletters. The information in our communications and on our website is believed to be accurate and correct, but has not been independently verified and is not guaranteed to be correct. The information is collected from public and non-public sources but is not researched or verified in any way whatsoever to ensure the information is correct.
SHARE OWNERSHIP. The Company, which includes the owner and publisher of the Midas Letter may own shares and/or stock options of this featured company and therefore has an additional incentive to see the featured company’s stock perform well. The Company will not notify the market when it decides to buy or sell shares of this profiled company in the market. The Company may be buying and selling additional shares of the featured company for its own profit. This is why we stress that you conduct extensive due diligence as well as seek the advice of your financial advisor or a registered broker-dealer before investing in any securities.
NOT AN INVESTMENT ADVISOR. The Company and its affiliates are not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.
INDEMNIFICATION/RELEASE OF LIABILITY. By reading this communication, you agree to the terms of this disclaimer, including, but not limited to: releasing the Company, its affiliates, assigns and successors from any and all liability, damages, and injury from the information contained in this communication. You further warrant that you are solely responsible for any financial outcome that may come from your investment decisions.
RISK OF INVESTING. Investing is inherently risky. While a potential for rewards exists, by investing, you are putting yourself at risk. You must be aware of the risks and be willing to accept them in order to invest in any type of security. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell securities.