Halo Collective HCANF Stock – Do or Die? What is the potential?

Halo Collective HCANF stock is easily the one stock that I get asked the most questions about.  In fact, the number of inquiries about this particular stock far outpaces any other stock inquiry.  Truthfully, of there 350 different cannabis companies that I look at, including the Complete List of Top 100 Cannabis Companies, Halo is nothing extraordinary.  What is really happening is that a lot of people have gotten caught up in the hype of this stock.  But, again, there is nothing extraordinary about this particular company that would merit that kind of attention.

Owed to the hype, and the fact that so many individuals have gotten caught up in this company, a lot of people are experiencing a tremendous amount of anxiety over this because they may have invested in this stock at levels far higher than where the stock is today.  I am getting all kinds of questions as to where I believe the stock will be in just a short period of time such as: Do I think Halo Collective Stock HCANF will be at $0.10 by the end of August?

For now, Halo Collective is one of many cannabis companies that are just about to break even with EBITDA profitability.  This is one of the main milestones that need to be achieved.  I keep my analysis fairly simple at some level because these cannabis companies are still moving forward.  Only after some time and more sophistication would it be necessary to start looking more deeply into the numbers and ratio comparisons.

Losing sight

I think far too many people have lost sight of the big picture with Halo Collective and where the potential of this stock lay.  Because of that, I wanted to break down where I think Halo Collect could be in a far bigger timeframe.

But, after spending some +30 years in the markets I can assure you, I understand anxiety.  While I believe that Halo Collective HCANF stock has significant upside potential, I can certainly appreciate how someone who acquired HCANF stock at $0.50 per share is quite restless.

I am a value investor and am looking at holding positions for some 2.5, 5, 10, or as far out as 25 years timeframe.  I have no concern whatsoever with where the stock is going to be in four weeks.  There is a tremendous amount of growth potential for Halo Collective HCANF stock and I am focusing entirely on that, not a quick move in and out.  Given that, I believe that Halo Collective HCANF has the ability to move upwards significantly over many years.  While that may not suit everyone’s immediate needs I hope they can appreciate that as a long-term investment, Halo Collective stock HCANF will pay off.

Halo Collective HCANF Stock Chart

Recently, management has been engaged in raising capital ATM.  The stock has been pushed much lower because of this dropping 50% in some two months time:

Halo Collective HCANF Stock
Halo Collective HCANF Stock

HCANF Stock is certainly not at its ultimate nadir; HCANF stock nearly hit $0.02 per share about 9 months ago.  That move lower was rescued with a collective move upwards in all cannabis stocks.

Halo Collective HCANF Stock Projections

We know full well where Halo Management expects for revenues this year as well as profitability.  Expectations are for $70M in revenue with break-even EBITDA profits.  So far, Halo Collective is likely exceeding the revenue levels for this year.

It is important to understand how EBITDA will play into Halo Collective’s future or for that matter any cannabis company.  Cannabis companies are collectively getting to the point where they are achieving EBITDA profitability.  What does that mean and, what to do about that?  I answer that in this primer on How to Get Started In Cannabis Investing, but, I will get more involved with this here.

What is EBITDA profitability?

Knowing what EBITDA profitability is is an important thing when learning how to get started in cannabis investing.  EBITDA stands for Earnings Before Interest, Taxation, Depreciation & Amortization.

There are three basic areas you want to look at when you want to analyze a company: Revenues, cost of goods, operating costs.  These three areas of a financial statement will show you the core aspect of the business.  But, there are two areas within Total Operating Costs: SG&A and D&A.  SG&A stands for Sales, General, & Administrative whereas D&A stands for Depreciation & Amortization.  If you want to know the true ‘core’ of a business operation you need to look at just the SG&A aspect.

The reason for this is simple: A company will have revenues and a company will have costs.  If a company can get to a level where its margins are below the selling price, i.e., operating costs and cost of goods are below the selling price of the product then all a firm would need to do is ramp up production to pay for outlying costs and financing costs.

So, we look towards EBITDA profitability to understand where a company is when looking towards its potential.  If a company can produce products with a solid gross margin and simultaneously keep operating costs in check then this firm can ramp up production and marginal profits, those profits for each additional unit sold will trickle down to the bottom line.

Where is Halo Collective HCANF Stock with Margins & Costs?

This is an important part of where Halo Collective is at this moment.  Margins and costs will start to come into line and I expect to see continued metrics that make sense for the company.

Revenues, Cost of Goods, & Operating Efficiencies

As I mentioned, Halo Collective printed record revenues last quarter and they are set to repeat this.  Management expects that they will print $70M in revenues this year alone.  Then, there are expectations for even greater revenue gains.

For now, here is a look at revenues for Halo Collective stock HCANF:

 

It is important to figure these three images together.

Revenues

First, revenues will print an approximate $20M each quarter for the next three quarters in order to get to $70M.  Again, I expect this will get exceeded but, for now, this gives a potential investment a basis for comparison.

Cost of Goods

Next, we have cost of goods.  As revenues increase purchasing power increases and the utilization of labor and rent are factors of gross margins.  These metrics will improve as more product is pushed through the system.  I expect gross margins to start hitting about 30% – 35% over the next few quarters and may actually hit about 40%.

Operating Efficiencies

Then, with operating efficiencies, some of these costs are already set in stone and therefore will improve as more revenue pushes through the system.  For instance, Total Operating Costs were some $9M this quarter.  If revenues increased to $20M and operating costs moved up a mere 50%, this puts operating efficiencies at 75%.  Next year, expectations are for even more significant revenue increases and operating costs become minimized on a relative basis.  Should revenues hit $250M next year and operating costs can be contained as Halo Collective grows, operating efficiencies are likely to be driven down to 30% – 40% quickly.

Halo Collective Future Projections

Let’s do some simple math to figure out what Halo Collective could be sold in total.  There are multiple locations currently being developed.  But, simplifying things down to easy numbers would help to provide us with future projections.

There are some 575 acres of cultivation available.  Most of this comes from Bophelo which would account for about 495 acres of cultivation.  Bophelo is set to sell approximately 10,000 kilograms of cannabis for $3.00 per gram.  That is about $30M in revenue from this deal which will be delivered in part this year and then more next year.

But, you can put about 1,500 plants on an acre of land.  There are 495 growable acres at Bophelo.  With an average yield of 400 grams per plant, you are looking at approximately 295M grams of yield.  With the $3.00 sale price then it is possible that Halo can hit $900M in revenue from Bophelo alone.

Given the BarX yield of 60 acres of growable land you can expect some $350M of revenue being generated from BarX Ranch over the next several years.

There are other operations as well and this could generate significant revenues over the years.  On a pro forma basis, Windberry would generate some $55M in revenue and likely we will begin to see this in the next few quarters.  There is also the California indoor grow operation that will likely generate another additional $12m in revenue off of 6,000 lbs of yield.

Revenue Projections

The general consensus from analysts is that Halo Collective will hit some $100M in revenue for FY 2022.  It takes time for a company to build up its business.  My belief is that they will hit a bit more than that; I believe that Halo can hit about $150M given some of the projects they have working and rolling out.

Given a $150M revenue outlook for Halo Collective, and if they achieve their EBITDA growth rate for FY 2021, this would generate an approximate EPS of about $0.0085 per share.  When we consider the 2B in shares outstanding this would drive up the price potential to about $0.20 by year’s end.  This shows that there is still a lot of upside potential.

A basic outlook

Given the numbers above, if Halo Collective were to generate the above revenue of some $1.5B, and if Halo were to earn modest net earnings of 7.5% given its cost metrics I would expect that Halo could generate some $75M – $125 in net earnings.  There are some 2B in shares outstanding leaving an EPS of about $0.056 per share.  At a multiple of 40x – 80x this puts HCANF stock at $1.85 – $6.25 per share at some point in the future.

I am trying to keep a very broad outlook with Halo Collective.  They have a lot of future potentials that is far from realized.  But, it will take time to build up this business and it may take many years until the company’s full potential is realized at its current state.  At the same time, Halo Collective will expand into other areas along the way.  Nonetheless, this is a large potential considering the stock price is currently sitting at around $0.035 per share.  You are looking at a move of approximately 100x its current price.

That is a lot of potential for Halo Collective HCANF stock.

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