TORONTO–(BUSINESS WIRE)–Halo Labs Inc. (“Halo” or the “Company“) (NEO: HALO; OTCQX: AGEEF, Germany: A9KN) is pleased to announce that it has entered into a definitive agreement dated effective August 5, 2020 (the “Share Exchange Agreement”) with Ukiah Ventures Inc. (“Ukiah”), the shareholders of Ukiah (the “Ukiah Shareholders”), the holder of the outstanding warrants of Ukiah (the “Warrantholder”), and Origins-Cali, Inc. (“Origins”), pursuant to which the Company will acquire all the issued and outstanding shares of Ukiah (the “Ukiah Shares”) in exchange for securities of the Company (the “Transaction”). Prior to the Transaction, the Company holds a 14.7% equity stake in Ukiah as a result of the Company’s initial investment in Ukiah in December 2019.

Ukiah services licensed cannabis processors and distributors that currently focus on the procurement of biomass from farms located primarily in the northern California region, and distribution to manufacturers and processors throughout California. Ukiah allows licensed operators to provide a conduit for cannabis to flow from cultivators to manufacturers and distributors. Located in Ukiah, California, Ukiah Ventures Inc. owns a scalable facility of approximately 30,000 square feet located on 6.3 acres with industrial zoning, strategically located off Highway 101 and is easily accessible by the large number of licensed farms in the surrounding area. Ukiah also offers value added services for to California cultivators, including trimming, curing, drying, freezing/storing services. Long-standing relationships with the farming communities in its area of operation allows Ukiah to identify profitable opportunities to acquire biomass and procurement at competitive prices.

Beyond the ability to acquire supply agreements with Emerald Triangle cultivators, the Company intends to swiftly exercise the option held by Ukiah to acquire a 100% interest in licensed operator Origins. With all necessary licenses in hand, cultivation, processing, and distribution, Halo intends to put up a 576 light grow, leveraging its relationship with a top-tier cultivator in a planned indoor facility, thus guaranteeing a continuous supply chain of high quality cannabis for the lucrative and growing California market. Halo’s President, Katie Field, summarizes the benefits of the strategic acquisition: “The acquisition of Ukiah, with its current and competitive relationships serving some of the Emerald Triangle’s finest flower producers, and execution of our planned, large indoor grow in a joint venture with a respected, leading grower and seed bank, we believe these milestones will increase Halo’s access to the best raw materials in California. By bolstering our vertical supply chain in this market we anticipate a sizeable upside in forecasted revenue.”

With the real estate also being included in the transaction, Halo will now own Ukiah’s 6.3-acre property, that includes an approximate 30,000 square-foot, industrial-zoned warehouse. With thirty foot high ceilings enabling future expansion through stacking, the current layout includes approximately 2,000 sq. ft. of office and distribution space, with the remaining 28,000 sq. ft. available for planned cultivation, processing, or manufacturing. Formerly a recycling plant, the strategically-located property off Highway 101 provides easy access to the large number of licensed farms in the surrounding area, farms that generate the biomass supply for Northern California.

Maintaining Ukiah’s processing relationships, and collaborating on new growth with Indoor in Phase II

Ukiah’s Phase I business model currently offers value-added services for local cultivators, including trimming, curing, drying, freezing and storage. Long-standing relationships with the local farming communities that utilize the facility for processing and drying will continue, as Halo intends to use some portion of the space — not allocated for a proposed indoor grow — for this business. These relationships will also maintain Halo’s ability to identify arbitrage opportunities when acquiring biomass, procuring any required supply at competitive prices.

Halo intends to build out Phase II of the business model at Ukiah with a large indoor grow. While the option of leaving the newly-acquired space as a perfectly-situated, centralized cannabis processing facility remains, Halo’s plan for a large indoor grow with a top-tier grower and notable genetics will strengthen the seed-to-sale strategy. With cultivation and Type 11 distribution licenses in place, Halo plans to utilize the majority of the facility for a state-of-the-art, indoor cultivation and manufacturing operation, that saves costs on such expenses as transportation, while introducing new products to the market. With existing architectural drawings for 10,000 sq. ft. of canopy over six grow rooms, a nursery, and a storage room, the newly proposed indoor grow would expand the operation to eight individual rooms, adding an additional 3,000 – 4,000 sq. ft. When the proposed project, utilizing an estimated 18,000 sq. ft. of the total warehouse space, is stabilized, it is expected to generate about USD$23 million per year of revenue based on wholesale pricing on premium product of USD$3,000 per pound, and an expected yield of about 7,800 pounds per year. This new operation alone is expected to generate USD$5.4 million per year of operating profit . Indoor cultivation will command higher prices and profit margin while allowing for year around supply. Halo is planning to start the build-out by later this year, utilizing Halo’s working capital line. Product should be available for sale early next year.

According to Halo CEO, Kiran Sidhu: “We are now completing the seed-to-sale cycle. From nursery to dispensary, we now have an end-to-end framework, with relationships and products that we can continue to support, augment and improve, to serve the largest domestic market – California — with the products they love most.”

Beyond the grow, Halo is planning to acquire and implement a state-of-the-art, proprietary pre-roll system, that will strengthen the operating footprint, while satisfying consumer demand for the finest flower pre-roll products from Northern California. The combination of flower and pre-rolls accounts for approximately 60% of consumer demand in California, a demand Halo will now be more able to meet with the highest-quality, consistent supply.

Halo also plans to introduce jarring capabilities to make 1/8th jars, as well as to apply for a Type 7 license to increase the on-site production of concentrates and cannabis vape cartridges. From this new Ukiah hub, Halo can stock more on-hand inventory, expand existing distribution capabilities, and develop in-house logistics to meet both fluctuating and increasing demand. With Type 7 manufacturing abilities, Halo would look to add cold rooms and washers to make hash and rosinated hash products; add frozen connexes to store fresh-frozen material for live resin production; add a C1D1 room for blasting overflow from the Cathedral City operation, and vacuum decanters / ovens to manufacture live resin and shatter. Halo would also utilize its working capital line to build out these capabilities.

Transaction Details

Pursuant to the terms of the Share Exchange Agreement:

• The Company will acquire the remaining issued and outstanding 7,725,007 Ukiah Shares, and will therefore own 100% of the total outstanding 9,058,340 Ukiah Shares, in exchange for USD$6.8 million (the “Purchase Price”). The Purchase Price will be satisfied by issuing 71,881,607 common shares of Halo (the “Payment Shares”) at USD$0.0946 (CAD$0.1265) (the “Deemed Issuance Price”), the volume weighted average price of the common shares of the Company (the “Common Shares”) on the Aequitas NEO Exchange (the “NEO”) for the 20-day period preceding the signing of the Share Exchange Agreement.
• Through the acquisition of Ukiah Ventures Inc, a corporation based in British Columbia, the Company becomes the sole owner of its subsidiary, MHT US Blocker, Inc (“MHT”), a Delaware Corporation. In turn, MHT has the option to purchase the processing and distribution licenses held by Origins, the cannabis licensed entity in California. This option is exercisable for a period of 10 years and the purchase consideration is USD$10. The Company intends to exercise this option upon receiving regulatory approval to purchase the license over the coming weeks.
• MHT is the sole owner of MHT Ventures Holding Co., Inc, a Delaware corporation formed to serve as a single asset real estate holding company for the Ukiah property. The property has an estimated value of USD$3.5 million. There is an existing seller take-back note of around USD$1.5 million, maturing in July 2022. This results in an estimated equity value of USD$2.0 million. There is no other long-term debt associated with the Transaction.
• The Warrantholder will exchange its outstanding common share purchase warrants of Ukiah (the “Ukiah Warrants”) for replacement warrants of the Company as set out below, and the Ukiah Warrants so exchanged will be deemed immediately cancelled. In consideration for the exchange by the Warrantholder of each right to acquire one Ukiah Share under a Ukiah Warrant, the Warrantholder shall receive from the Company a warrant (each a “Replacement Warrant”) to acquire from the Company, a common share of Halo. The exercise price under each Replacement Warrant will be USD$0.1892 (CAD$0.253) (equal to two times the Deemed Issuance Price) and the expiration date for each Replacement Warrant will be the same date as the expiration date of such Ukiah Warrant.
• In connection with the Share Exchange Agreement, the Company will also enter into an escrow agreement (an “Escrow Agreement”) with Odyssey Trust Company and certain Ukiah Shareholders pursuant to which 20% of the Payment Shares will be held in escrow for twelve months subject to the terms of the Escrow Agreement.

Pursuant to Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (“MI 61-101”), the Transaction constitutes a “related party transaction” as Philip Van Den Berg, Chief Financial Officer of the Company, and Andrew Turman, a Director of the Company, are current shareholders of Ukiah and will receive 581,395 Payment Shares and 287,791 Payment Shares pursuant to the Transaction, respectively. The Company is relying on the exemptions from the valuation and minority shareholder approval requirements of MI 61‐101 contained in sections 5.5(a) and 5.7(1)(a) of MI 61‐101, as the fair market value of the Transaction does not exceed 25% of the market capitalization of the Company, as determined in accordance with MI 61‐101. The Transaction was approved unanimously by all non-interested directors of the Company

About Halo Labs

Halo is a leading cannabis cultivation, manufacturing, and distribution company that grows, extracts, and processes quality cannabis flower, oils, and concentrates. Halo sold over 5 million grams of oils and concentrates since inception and has continued to evolve its business through delivering value with its products. Via verticalization, Halo has expanded in key markets in the United States and Africa with planned expansion into European and Canadian markets. With a consumer-centric focus, Halo markets innovative, branded, and private label products across multiple product categories.

Recently, Halo has acquired one dispensary in Los Angeles, and has an agreements to acquire three KushBar branded dispensaries in Alberta Canada, as well as Canmart Limited which holds wholesale distribution and special licenses allowing the import and distribution of cannabis based products for medicinal use (CBPM’s) in the United Kingdom. Halo is led by a strong, diverse management team with deep industry knowledge and blue-chip experience. The Company is currently operating in the United States in California, Oregon, and Nevada, while having an international presence in Lesotho within a planned 200+ hectare cultivation zone via Bophelo as well as planned importation and distribution in the United Kingdom via Canmart.

For further information regarding Halo, see Halo’s disclosure documents on SEDAR at www.sedar.com.

Cautionary Note Regarding Forward-Looking Information and Statements

This press release contains certain “forward-looking information” within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only Halo’s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of Halo’s control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or may contain statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “will continue”, “will occur” or “will be achieved”. The forward-looking information and forward-looking statements contained herein include, but are not limited to, statements regarding the Company’s acquisition of remaining shares of Ukiah Ventures Inc and its planned development of the site.

By identifying such information and statements in this manner, Halo is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from those expressed or implied by such information and statements. In addition, in connection with the forward-looking information and forward-looking statements contained in this press release, Halo has made certain assumptions. Although Halo believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements. Among others, the key factors that could cause actual results to differ materially from those projected in the forward-looking information and statements are the following: unexpected costs or delays in the completion of the Company’s proposed dispensaries and other operation; negative results experienced by the Company as a result of general economic conditions or the ongoing COVID-19 pandemic; delays in the ability of the Company to obtain certain regulatory approvals; unforeseen delays or costs in the completion of the Company’s construction projects; adverse changes to demand for cannabis products; ongoing projects by competitors that may impact the relative size of the Company’s growing operation; adverse changes in applicable laws; adverse changes in the application or enforcement of current laws, including those related to taxation; increasing costs of compliance with extensive government regulation; changes in general economic, business and political conditions, including changes in the financial markets; risks related to licensing, including the ability to obtain the requisite licenses or renew existing licenses for the Company’s proposed operations; dependence upon third-party service providers, skilled-labor and other key inputs; and the other risks disclosed in the Company’s annual information form dated April 16, 2020 and available on the Company’s profile at www.sedar.com. Should one or more of these risks, uncertainties or other factors materialize, or should assumptions underlying the forward-looking information or statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.

The forward-looking information and forward-looking statements contained in this press release are made as of the date of this press release, and Halo does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward-looking information and statements attributable to Halo or persons acting on its behalf is expressly qualified in its entirety by this notice.