Investing in Africa Cannabis with Halo Labs (OTCBB: AGEEF)
My African Weed Connection Could Make You Rich
That’s what the African cannabis market could be worth in just three years.
But what makes this particularly interesting is that only three countries in Africa have legalized the medical use of cannabis: South Africa, Zimbabwe, and Lesotho.
The latter, by the way — Lesotho — is actually the only country in the region that allows for the legal cultivation of cannabis. And given its superior growing conditions and attractive labor costs, a number of multinational cannabis companies are now setting up shop in this small country that sits in a location completely surrounded by South Africa.
Now, the Lesotho government has been very aggressive over the past two years in creating an attractive business climate for cannabis producers — which is a good thing, because this is allowing the cannabis industry to serve as a sort of economic lifeline to a country that’s one of the poorest in the world, ranking 159 out of 189 on the UN Human Development Index.
Moreover, nearly 25% of the Lesotho population is infected with HIV, it has a massive unemployment problem, and public services are hard to come by.
But by making Lesotho the African hub for the production of low-cost cannabis, which can then be shipped to North America and Europe, cannabis could end up being the plant that saved this nation. Better yet, it could empower it.
According to the UN, 70% of all the cannabis consumed in South Africa is grown in Lesotho. This actually makes cannabis the third largest source of revenue in Lesotho.
But pretty soon, it could be the number one largest source of revenue, thanks to interest from some of the biggest cannabis players in the world, including Aphria, Inc. (NYSE: APHA), Canopy Growth Corporation (NYSE: CGC), and Supreme Cannabis (TSX: FIRE).
Another cannabis player that’s connected to the Lesotho market is Halo Labs (OTC: AGEEF).
Halo isn’t nearly as big as the other three I just mentioned, but in terms of growth, if you’re looking to get some exposure to the Lesotho market, Halo is arguably the best way to do it.
A Sweetheart Deal
Halo Labs is a U.S.-based cannabis extraction company that develops and manufactures cannabis oils and concentrates.
It has exposure in multiple states in the U.S., but it's also about to get a footprint in Lesotho through the acquisition of a Lesotho-based cannabis company called Bophelo Bioscience.
Now, Bophelo may not be a household name to many, but it runs a very lucrative operation in Lesotho. It’s actually the holder of the largest license issued in that country to produce cannabis products, which is valid for the next 10 years.
Bophelo also has more than 200 hectares (this is a massive land package), its site is one of the few in the region with the necessary amenities to operate a large-scale operation, and it enjoys a very favorable tax rate.
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Of course, Halo Labs already has a thriving business in the U.S., too, with operations in Oregon, Nevada, and California. And those three locations delivered some very nice results for the first half of 2019. Here are the details:
Revenues for the six-month period ended June 30, 2019 were $18,270,515 (six-month period ended June 30, 2018: $4,262,444), a 329% increase year over year, explained by first-time contributions from Coastal Harvest LLC (“Coastal Harvest”) in California and HLO Ventures (NV), LLC (“HLO”) in Nevada, as well as an 11.8% increase in revenues at ANM Inc. (“ANM”) in Oregon.
ANM revenues were $5,692,558 for the six-month period ended June 30, 2019 (six-month period ended June 30, 2018: $5,092,810); HLO generated revenues of $1,331,583; and Coastal Harvest $11,246,374, respectively.
ANM achieved a gross margin of 11.8%, Coastal Harvest achieved a gross margin of 30.7%, and HLO achieved a gross margin of -1.8% in the six-month period ended June 30, 2019, respectively. The aggregate total gross margin was 20.2%.
Coastal Harvest achieved EBITDA of $2,687,354, offsetting the operating losses at ANM of $(1,383,689) and at HLO of $(727,182), as well as the $33,378 of expenses at Ireland (the Company’s licensed expansion in Cathedral City). The total contribution to EBITDA from operations was $544,337.
In the six-month period ended June 30, 2019, the facility in Coastal Harvest sold 742,906 grams of distillate and 320,314 grams of live resin. Distillate sold at an average price of $7.08 per gram and live resin at $11.29 per gram.
In the six-month period ended June 30, 2019, the facility in Nevada sold 47,476 grams of distillate at an average price of $28.74 per gram.
In the six-month period ended June 30, 2019, the use of cash for operations was $9,232,040, and for capital expenditures was $1,272,989, respectively.
Another thing that bodes well for Halo is that it has plenty of cash heading into 2020. This cannot be said for a lot of other cannabis operators that have just been pounded this year.
This isn’t to say Halo’s stock hasn’t also taken it on the chin in 2019. But again, in terms of growth potential, there are few cannabis players with exposure to Lesotho that come close.
Bottom line: For cannabis investors looking for a very nice bargain, Halo is a solid choice.
To a new way of life and a new generation of wealth...
@JeffSiegel on Twitter
Jeff is the founder and managing editor of Green Chip Stocks, a private investment community that capitalizes on opportunities in alternative energy, organic food markets, legal cannabis, and socially responsible investing. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.
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