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Earnings Transcript for HCANF - Q3 Fiscal Year 2021

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Halo Collective Third Quarter Earnings Conference Call. [Operator Instructions]
Katie Field, President of Halo Collective, you may begin your conference. :
Katharyn Field: Thank you, Josh. Good afternoon. My name is Katie Field, and I am the President of Halo Collective and will be your conference moderator. At this time, I would like to welcome everyone to the Halo Collective Q3 2021 Earnings Conference Call. [Operator Instructions] Your speakers on today's call will be Kiranjit Sidhu, Co-Founder and CEO of Halo Collective; and Philip van den Berg, Chief Financial Officer of Halo Collective.
Before we begin, I would like to remind listeners that certain statements made during this conference call presentation may constitute forward-looking information and forward-looking statements within the meaning of applicable securities laws. These statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Halo Collective and its subsidiary entities or the industry in which it operates to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this conference call presentation, such statements use words such as may, will, expect, believe, plan and other similar terminology and include, among others, statements regarding expected operating results, future growth, anticipated capital expenditures, corporate strategy and proposed acquisitions. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date hereof. :
Important factors that could cause Halo's actual results and financial condition to differ materially from those indicated in the forward-looking statements, include, among others, changes in the consumer market for cannabis products, changes in the expected outcome of the proposed changes to Halo's operations, delays in obtaining required licenses or approvals necessary for the build-out of Oregon and California operations, the proposed spin out with Halo Tek, Inc. or the proposed reorganization with the Akanda Corp., delays or unforeseen costs incurred in connection with construction, the ability of competitors to scale operations in Northern California, delays or unforeseen difficulties in connection with the cultivation and harvest of Halo's raw materials, change in general economic business and political conditions, including changes in the financial markets. :
These risk factors are discussed in detail under the heading Risk Factors in Halo's annual information form dated March 31, 2021, and Halo's additional disclosure documents filed on SEDAR. A New risk factors may arise from time to time, and it is not possible for management to predict all of those risk factors or the extent to which any factor or combination thereof may cause actual results performance or achievements to be materially different from those contained in forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. :
Although the forward-looking statements contained in this presentation are based upon what management believes to be reasonable assumptions, Halo cannot assure its investors that actual results will be consistent with these forward-looking statements. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required under securities legislation. :
I will now turn the call over to our Chief Financial Officer, Philip van den Berg. :
Philippus Johannes van den Berg: Okay. Katie, thank you. I'll briefly discuss the Q3 and 9-month results for 2021. Q3 revenues were $8.7 million, a 28% increase versus third quarter in 2020. The volumes actually increased dramatically with 620% to 9.2 million grams. And excluding acquisitions, growth was 9.3%.
The reported gross profit in Q3 was $1.6 million and adjusted for biological assets and inventory impairments of $570,000. The gross profit was $2.3 million. The reported gross margin was 18.8%, and the adjusted gross margin was 26.5%. I think we could say that Halo performed well in a difficult market. And then if we take Q2 and Q3, the market was down in Oregon 15%, and we went down 6%. We declined 6%. :
In California, the market declined 18%, and we actually advanced by 59%. So we did well in a difficult market, and I think it points that we gained market share. And in particular, our flower and pre-rolls business did very well. Sales of all categories did well, with the exception of edibles. It's a small portion of the total, but edibles did not increase. Everything else increased substantially. :
Turning to the operations. ANM, Q3 revenues declined with 6% Q-on-Q, minus 4.9% to $3.7 million. However, volumes increased with 93% to 1.7 million grams and in particular, flower and pre-rolls did very well or also an edible shortest decline. The reported gross profit was $193,000, and then adjusted for impairments and for the -- for East Evans Creek's biological assets, the gross profit was $780,000 and the gross margin on that basis was 20.9%. And what we see is that gross margins are only improving trend based on the fact that we are reducing our production overheads. :
Coastal Harvest. Coastal Harvest has been out of action for some time but has been revamped. In Q3, our revenues were $704,000. And so -- for the 9 months and Q-on-Q, there was a 126% increase in sales, really reflecting the fact that we have set it up again. Volumes increased 11%. Prices declined with 12%. The gross profit was 41% -- sorry, $41,000. Gross margin was 5.8%. That's too low, gross margin really should be at least 20%. So we're looking in closely again at the production overheads to get those down and operation and financial working on this as we speak. :
In their mix, live resin did well, and distillate sales went down somewhat. :
Mendo. Mendo was the kind of the captive buyer from Coastal Harvest. Revenues were $3.1 million, a 42% increase and sales were 5.2 million grams. The gross profit was $629,000 with a gross margin of 20.4%. That is pretty much in line with what the gross margin should be, although, again, we are looking at reducing production overheads. :
Halo Winberry was acquired early in the year or late last year. Halo Winberry added $3.1 million to Q3 revenues, and it peaked in Q2 because Q-on-Q, it was a 12% decline. We're actually doing well right now. Sales were 2 million grams. The gross profit was $1.1 million with a gross margin of 36% and adjusted for impairments, the gross margin were 39%, and that's really where it should be. :
Operating expenses, they were $11.9 million. The major ones like G&A, $2.8 million; salaries, $3.7 million; professional, $2.9 million; and marketing, $1.3 million. And when you look at the breakdown in Akanda, which is Kenmark and Bophelo, they added or they explained $2.4 million of the operating expenses. In there is like $0.9 million for G&A, $0.9 million for salaries and $0.6 million for professional fees. And then also acquisitions added $1.8 million to operating expenses. :
Kiran will go through this later, but we did an analysis, and we looked at our operating expenses. They are too high, and we believe that we can reduce them by some $6.7 million on a quarterly basis. Reductions in G&A professional and salaries are projected to $3.7 million. G&A is a $1.8 million reduction; Akanda, $0.9 million; impairments, $0.9 million; salaries, $2.4 million reduction, which is Akanda, 0.9 million; and overheads in Halo, $1.5 million; professional is $1.9 million reduction, of which Akanda is $0.6 million or fineries of $0.9 million in closing fees; M&A, legal is coming down as we don't do as much M&A anymore. That is a saving of $300,000, and we also save about $50,000 in consultants there. :
Also, we look at the production overheads at A&M and at East Evans Creek, and we see an immediate $600,000 production overhead reduction. Then as Akanda, at some point, leaves, let's say, the consolidated numbers, $2.4 million of total expenses from Akanda will disappear. :
What we budget now for OpEx is basically G&A, $1 million; salaries of $1.3 million and professional, $1 million, once we implement the reductions that I have discussed and will be discussed further. :
Then going to EBITDA. EBITDA was a loss of $10.3 million. And adjusted for cash -- for noncash items of $4.5 million, the loss was $6 million. :
Turning to the operations. Although A&M showed a negative EBITDA of about $700,000, adjusted for biological assets and impairment, A&M was just above breakeven. Winberry actually is quite profitable. It's at about $0.5 million. There was an impairment of $200,000, and it's adjusted EBITDA is 700,000. So together, A&M and Winberry, they are Oregon. So together, they are profitable. So Oregon is profitable. :
Coastal Harvest, EBITDA was $247,000. There was an impairment and adjusted for that, the loss of $74,000 for the quarter. And in NDP, we actually made an EBITDA loss of $0.4 million. At the same time, we have an impairment of $0.6 million, and adjusted EBITDA was $0.2 million. It shows you that California is actually also profitable, be it slightly on corporate, and that's where we are really looking to cut. That was a loss of $5.5 million, and that really explains to a large extent the kind of the cash burn of $6 million. :
Cash flow. The net loss was $10 million; impairments in corps were $0.6 million; noncash items from the cash flow statement were $3.5 million, and that resulted in the cash burn for the 3 months of $6 million. Including financing, the cash inflow in Q3 was $2 million. That was $4.8 million in the 9 months. :
Then to get that cash flow or down is, as I explained, Akanda explains $2.4 million. [ $1.6 million ] is the consolidated -- there was a G&A impairment of $1 million, which really is accounts receivable. We impaired $973,000 there. Then we have overhead reductions of $2.8 million, which is in G&A, professional salaries, and we have production overhead reductions of $600,000. That would give you a positive balance, if you add all that up to the cash burn of $6 million of about $800,000. Then you add the working capital increase of $3.5 million, and that's why you will still have a negative burn. So therefore, the thing to look at is working capital. For example, and that's one of the questions, like our inventory increased with $4.5 million. If it hasn't, then we will not have the cash burn. :
Balance sheet. We have -- at the end of September, we had $8.5 million in cash. Right now, including financial that can mean, we are -- today, we are at about $3.75 million. We have debt of $12.3 million. The net debt is $3.8 million, and we have a very solid balance sheet. Our net debt to equity is 3%. :
Our debt includes short-term $12.3 million, which includes a $9.5 million convertible that is due in April next year. Long term, $6.1 million, which includes a convertible of $1.2 million that we basically acquired when we did high time. :
Then the capital structure. The company has shareholders' equity of $222 million at the end of September. And it had 28.7 million shares post consolidation. And net assets after the accumulated losses, net assets were $123 million. 6 million shares were issued for private placements in a total of $31 million for the 9 months and $11.8 million for Q3. And then 7.2 million shares were issued for acquisitions at a total value of $47.8 million year-to-date. :
Briefly acquisitions in Q3. In Q3, we closed High Tide, which is now Halo KushBar. Retail. we also closed Food Concepts, which is part of an indoor grow in Oregon in Portland. And also, we closed Williams Wonder, which is another grow in Oregon. So those 3 were closed in Q3. We're still waiting for the closing of the operating dispensaries in L.A.:
That concludes my presentation. So back to Katie. :
Katharyn Field: Thank you, Philip. Before we get -- before we dive into the question and answers, Kiran will be presenting a corporate shareholder update as context.
Kiranjit Sidhu: Okay. Thanks, Katie. So for those of you who have a screen, what -- the way we sort of view Halo Collective is it has 3 components to it, plus our core component. Our core component is our operations in California and in Oregon. To the left of those of you who have a copy of the presentation, we have Triangle, which consists of the land, which we own 50% of, which is Lake County Natural Health and Bar X, which is the operating entity under Triangle.
We currently have a 44% equity position, and we have approximately right now, I would say alone of this number should be correct at about $2 million and an offtake agreement for flower. Strategically, when we saw the market start to collapse towards the end of I'd say, by early Q3. We decided at that point as the market was in a swim to defer growing at Triangle to next year or 2022 season. We just launched our -- we haven't launched it yet, but it's been declared effective by the SEC. Our offering at Triangle, which is a Reg A+ offering, for up to $75 million in equity and USD 165 million pre-money valuation. We hope to be launching that within the next 4 weeks, and we'll press when that is announced. And based on that, I think depending on how much funds come in, we will implement something at Triangle next year because it is our view. :
If you read our press release that given the amount of temporary licenses, be headaches with the sequels and the wood in the market, we'll see what we saw in Oregon a couple of years ago, which is a complete sort of what we call rubber band effect, where in this year where prices are very much suppressed next year, they'll rise as supply comes out of the market due to both regulatory change and just hardcore Adam Smith economics. :
In the middle, we have Halo Tek, which are non 280 E assets, which we are spinning out through a return of capital to shareholders. This should be completed by Q1 of next year. And this, as we said in previous terms, would create about in turns today would create about, I would say, 2 to 3 -- maybe $0.20 to $0.50 worth of value in today's terms. And we're looking -- and this also allows these assets not to be encumbered by ourselves, which are which are a 280E tax payer in the United States. :
Akanda is really, in many ways, the jewel in our crown. Our equity position currently is 68%. We -- it's our view that inevitably, we will have to lower our equity position, which is expressed here in order to effectuate the senior exchange listing in particular, in the United States. Currently, no plant touching U.S. MSO has listed, has had a senior exchange listing in the United States nor are we eligible any of us for these listings. I think that we would not -- it's our view that we need to make sure that Akanda is unconsolidated when we go for -- if they attempt to do something like this. And right now, we're in a high equity position. So when people ask about selling shares of Akanda, we would look to sell down a portion of our shares. But in turn, we have $6.6 million of repayment of loans that we can convert. So our target is to remain at 49.9%. :
And I've seen a lot of criticisms saying, well, why don't you own 100%. But to be quite honest, given the tax status of 280E and the new tax regulations, it would be -- Akanda would be incredibly burdened by us from a tax perspective as we're -- as we basically pay taxes on gross profit. And on its own, it is, I think, a lot more valuable is our strong view, given recent -- 1 or 2 recent flotations on U.S. senior exchanges. So it is the view, the strong view of the company and the Board that having 49% of a company that potentially could be worth hundreds of millions of dollars is more significant or more important than having a dangling subsidiary of a U.S. MSO having international assets that would be incredibly less valuable under us just due to tax positioning. :
Okay? So going to this path to cash flow, Katie, you built this slide and you can explain to people how this works. :
Katharyn Field: Sure. What I will do is I will give the overarching message here, but this is based on the analysis that Philip did. So the idea here is you heard Philip speak to it when he was giving his presentation. But there is this idea that the actual loss in terms of net profit this quarter was comprised of 2 components
So Philip, do you want to add on to that? :
Philippus Johannes van den Berg: Yes. It's the -- let me just one second.
Katharyn Field: Yes. And just so everyone can see, what you see on the Y axis here is in millions of dollars. And what you're going to see is that if you look at the cash used in operations, which is the 1, 2, 3, 4 bar here, fourth from the last, you're going to see the best the cash used in operations in Q3. And if you look at each of the subsequent adjustments here, we actually get to cash positive by the time you take into consideration some overhead reductions that were identified, both by Philip and our SVP of Operations.
But anyway, Philip will go through it. :
Philippus Johannes van den Berg: Well, I think the slide is pretty self explanatory. I think the one thing you could say is that if you look at the total of the $6 million to make it easy is Akanda explains in total, and that's really in that is its corporate salaries, DNA, professional, those things add up to $2.4 million. And once Akanda is the consolidated, $2.4 million of that $6 million basically just disappears.
Then at our end, like to get to the $6 million, you get Halo itself. That saving is $3.7 million in total, which is the corporate salaries reduction is $1.5 million. A large component of that is actually cash. The largest component professional fees I explained when I did my presentation is a reduction of $1.3 million, and that's really to do with a loan book asset with M&A, closing costs, finer fees are typically shares, but they actually disappear out of the equation. And then you have legal of $300,000, and you have consultants of about $45,000, $46,000. So they go down. So that is a total of $1.3 million. So that makes your $3.7 million for Halo. :
And we don't actually really have to do anything for it. It's just by not doing acquisitions or deconsolidate Akanda. We also believe but we went through a real clean of the accounts receivable in order that those things are now pretty much behind us and the same with impairments, although you never know with pricing, there could still be inventory impairments going forward. But we're getting close to where we should be. :
And then also, one of the things is when you look at the gross margin, in there, you have your, call it, your contribution margin of each product based on the bills of material, and those prices have come down. That is not entirely reflected yet and that becomes a positive impact in Q4. So that will help. :
And then you have -- in there, you have your kind of -- it's almost like a fixed cost or production overheads, and we have a first go at it, and we found nearly $600,000 in cuts there. And there will be -- there's more to be done there. That of course, yes, actually in ANM and in East Evans Creek. :
I think that's just leave color on that on the chart. :
Katharyn Field: Yes. Agreed. Okay. So Kiran, back to you here to discuss our brands.
Kiranjit Sidhu: Okay. So what -- part of what our strategy is, is obviously to open retail. And the first is the, what is our Westwood store going to look like when it is opened? We're targeting a soft launch in the next couple of weeks with the hard launch to follow a few weeks later. So this store is well on its way. It is the closest store to Century City, and it is the closest store to the flats of Beverly Hills. So it's really well positioned. It's in a great location right on Santa Monica, just east of Beverly Glen. And we're looking forward to this one. And the North Hollywood store will soon follow -- excuse me, the Hollywood store in Franklin Village will soon follow, and then the North Hollywood store would follow after that.
Katharyn Field: So for all of you that are following along with the webcast or looking at the presentation, I believe that this is Slide -- this would be Slide 6 that we're on. But Kiran, would you like me to flip to the next slide, please?
Kiranjit Sidhu: Yes. So we're -- we've brought in a CMO, and part of what we've done to reduce costs, which Philip did mention, is we've brought in General Counsel with Julie Sue, and we brought in a CMO from another MSO. And now we are -- now we are revamping our hash line with more vibrant colors. We're adding more SKUs to the Hush line, and we're launching more SKUs aggressively. Our target over the next 6 months is to launch 50 products, either revamped or new in Oregon and California. And this gives the people who can view it a flavor of what is coming, which is a lot more vibrant and pops off the shelf than we have now.
Winberry Farms, which is really our upper end brand that sells at higher margins, we're also doing a revamp here, and we plan to launch this aggressively in California in Q1. :
Katharyn Field: Okay Great. Is there any -- that's the last slide here. Is there anything else that you'd like to comment on before we go to Q&A.
Kiranjit Sidhu: No, no. That's good.
Katharyn Field: All right. Great. Well, again, thank you all for being with us. We had Q&A submitted on our investor channels, so we've consolidated them and allocated them to each of us. So I will be moderating the questions and answers, and Kiran and Philip and myself will be responding.
All right. So this first kind of category is regarding the company in general strategy, that type of thing. So the first question, and this is for Kiran and for Philip, is what is Halo's business plan for the next year,3 years, 5 years, et cetera? What's on the horizon? And what are the time lines in current project milestones? :
Kiranjit Sidhu: So in the first year, looking forward, in terms of acquisitions and in terms of vision, terms of vision, we're really focused on California and Oregon. And we believe that the markets in both will recover next year and it's just a question of getting to next year's harvest. And what we're already seeing is a lot of what I would call blood on the streets and a lot of overtures for many different players at many different levels to do transactions. We're lining up, as you can tell by our announcement debt, we're trying to line up more debt to minimize equity impact but we have to balance that with the fact that a lot of the people who are talking to us really would like an equity ride.
So it's a fine balance. So I'd say in the next year, you're not going to see a lot of action from us outside of our core markets in California and Oregon. In Oregon, we need some more indoor grow. And I think we can expand that at food concepts or the pistol facility. We also could pick up a couple of more distributors with product lines that we could add. There are a couple of players that are over a mile in a month that would give us more share. And that is Oregon. :
In California, it's really dispensaries and getting our grows all 3, with Triangle, we have 2, which is outdoor and greenhouse and as well as indoor at UBI, and it's really an implementation game at this point with that. The other thing we're looking at with Hush rooms and some of the beverages, or what we call mainstream distribution. We have a strong partner, and we have their shares on our balance sheet in elegance. -- that with Sway is the drink of the Phoenix Suns and also the principal sponsor for the Miss USA pageant or the principal beverage sponsor. And they have a very good distribution. So if we can leverage that distribution and leverage the beverage technology and add some more SKUs, let's say, some more tech there. :
I think that we could build a little bit of a business there, and we're going to try that, I would say, in the medium term. In the longer term, say 5 years out, which is an eternity in cannabis I think by then, there'll be consolidation. And at this point, looking at some of the companies that I thought would be consolidators and their reported results who knows who the consolidator will be and who will rise. But definitely, the company in 3 to 5 years will look radically different than it looks today. :
Also with federal legalization, it is our view that Oregon is by far the best place for federal to be in a federally legalized world with interstate commerce given labor costs, given it's Tier 1 or the land that we're in and the cannabis we deliver at lower cost. California is still with sequels and cultivation taxes and all that good stuff is a perfect geographical climate for growing marijuana. :
That being said, it is definitely has its regulatory challenges that Oregon does not, but it all started in the Emerald Triangle and inevitably, our view is that will all end in the Emerald Triangle. And the Emerald Triangle, and we're really at our heart an Emerald Triangle company. Where we operate from is what is -- what oranges are to California and to Florida, what tobacco was to the Carolinas, marijuana is to the Emerald Triangle. :
Katharyn Field: Great. Okay. So I think that was a really -- that was a great answer, and it was holistic. So Philip, perhaps you can take this next question, which is regarding projections, targets, run rates and deadlines essentially with what we potentially were expecting or planning and the results in the variance. So can you comment just on essentially some of the drivers of the differences in actual results?
Philippus Johannes van den Berg: Yes. Well, in terms of the projections in the targets that we're operating in kind of in a difficult market environment. Now we've had to deal with COVID, which was not expected. And then we have the [indiscernible] from COVID, which resulted in Q3 actually in really difficult markets. And yes, also, when I look in our own product mix, there's a lot of, let's say, volatility of sales in the channels and that makes it actually difficult to project. I mean are there, like we had a $5 million grant [indiscernible] in Q3. Well, we look weaker. Will come again or not? So we have some of the sales are bumpy. Some of it is related to like really difficult markets.
And also, I think that I think Halo Tek is an example of that, where we took on a lot and we came to the conclusion that let's focus on the core business and not get deviated from Halo Tek like you could argue is I think it's a really interesting asset, but it's not core. So we basically by selling that for distributing that to investors we get far more focused and we get a much beater of how to move forward in our company. :
Then deadlines. I think it's related to the fact that we took on a lot and by actually restricting ourselves and could be much easy to actually to get to the deadline. I mean, once I come down and Halo Tek all over there, then we have the core assets really in Oregon and California. I think that projections, targets, debt last goal will become easier. :
Kiranjit Sidhu: So I think another way of looking at this is at the term some people have said is your projections are wildly off. And they are wildly off because Oregon and California have wildly crashed. I mean a 17% constriction from April to September. And if we look from May to October, it's probably north of 25% is in most businesses would destroy most companies in the business. We went from what we call the COVID bump to now what we're calling the COVID slump.
And the COVID slump was not expected by us in hindsight. And to add insult to injury, both Oregon and California geared up thinking that the growth would be continual. And in California, if you look at some of the articles, people think that it can be up to 20x oversupplied. All this being said, we're a really scrappy group of people. We've lived through this 3 seasons ago in Oregon that decimated the Oregon market, where we actually had negative gross profit margins. :
And what happens is those who can survive or weather the storm will have more success on the other end. And that's a really important concept, and a lot of people don't get it. And that is whatever is done is known as sunk cost. And so when we look at things, we cannot look with the lens on the past, but we have to look at what is going to happen in the future. :
Katharyn Field: Agreed. Now both of you said it very well. And there are just so many companies that are in the same markets where we are that are going through the exact same thing, if not at a larger scale. So well said, both Kiran and Philip.
All right. This next question that we have was regarding M&A and weather we're looking at specific companies to merge with? :
And Kiran had mentioned this earlier on the call, but we've been studying and following the consolidation in our industry, both nationally and regionally. And we are not currently in any 1 merger discussion with any 1 company, but get approached all the time because I think every operator understands that the market conditions are really starting to facilitate a need to not necessarily go big or go home, but get scale to increase their efficiency to continue operating. :
So we have been approached by private and public companies to sort of enter into these strategic discussions. But with that being said, we believe that we have to stay focused and execute on our seed-to-sale strategy for any of these discussions to go anywhere favorably speaking. And what I mean by that is open our retail in California and optimize our retail footprint. And then to what Karin was saying earlier, look at executing on the growth that we are planning in Oregon and California. :
So we think that by remaining focused on that strategy of seed to sale in both markets. It'll just put us in an even more favorable light and continue to attract the interest of companies that see potential to scale their business through consolidation potentially, but that this is further down the road. :
Okay. Great. Kiran, this question is for you specifically, and it's regarding what multistate operator do you admire or think of doing a sort of leading job in the industry today? :
Kiranjit Sidhu: In my mind, it's definitely Tyra, even though, let's say, right now, we're ahead of them in Oregon. They've executed quite well. Their stock is performed, I mean, relatively well. It's only down, I believe, 50% or 60% relative to the index, which is down 70% to 80%. And they're looking also abroad.
They're doing it differently than us, and I question how they're consolidating a German or a European entity and actually burdening it while we're actually trying to realize value with it. So -- but as a company, I definitely admire what they've done and I admire how they've operated in so many markets so well. :
The other thing which is interesting to point out, a lot of people have asked us thinking about our international assets. A lot of people have asked us, "Well, do we plan to liquidate Akanda? And all I have to say is that as an affiliate under U.S. reporting guidelines, it's not possible to liquidate. And also any underwriters would definitely lock us up for a considerable period of time. So the only liquidation of a condo we're doing is those pieces that we have to liquidate to remain under 50%, and we're currently around 65%, I believe. :
But that being said, then we have our convertible debt that will keep us will keep us sort of an time diluted as we convert it over time as a condo continues to raise money at higher valuation. :
Katharyn Field: Okay. All right. Philip, 1 question before we get into some other topics here regarding inventory levels, rising inventory levels and turnover. So -- and then specifically, how does increasing growth in Oregon makes sense if the sales aren't sort of commensurate with it and continue inventory levels? I think just the dynamics around that would be helpful for you to explain.
Philippus Johannes van den Berg: The inventory is particularly related to the flower, like to the raw materials, which we actually sell as a finished products. Looking at our days of inventory, like because the company actually grew through acquisition, such as Winberry, the days of inventory haven't really increased that much versus what we had before. So although we see inventories increasing, it's in line with what's happening in our business.
Having said that, we think that -- and that's what we also told sales and operations like we just had a harvest, and basically, we have working capital of about $14 million. So now we say, okay, sell that harvest. So basically, get the inventory down. So we're working on that, yes. But the numbers are now, although you see it increasing, they're not out of rack with what we've seen before. :
Kiranjit Sidhu: The other thing is that we want to use our balance sheet, and I'm going to use a pretty aggressive term as a weapon. And we are going to pound our competitors in Oregon. And we are going to go after the open-to-buy dollars and dispensaries, which are shrinking massively, some dispensaries by 50%. We're going to go after those dollars and be the early ones in at the most aggressive pricing, leveraging our scale and leveraging our inventory. So whatever we can sell, we're going to sell and we're going to sell it aggressively. We've been through this before, and prices are falling like a night and we're going to use that inventory very aggressively.
Katharyn Field: That should help with the turnover undoubtedly.
Kiranjit Sidhu: Definitely. What it will do is it will accelerate, let's call it, the rubber band effect in these markets. And I wish 3 years ago, we were more aggressive when Oregon collapsed. And this is something every market's gone through. Ryan's experienced it in Washington, Colorado's experienced it. But I don't think anyone has ever seen it on the scale of California, which is the largest cannabis market on the planet currently.
Katharyn Field: Sure. Okay. So we have a question here with submitted just in general about the company's marketing and branding and the fact that we started to focus on it more and basically our shareholders and folks that follow our company can tell that.
So I think Kiran touched on this when he was walking everyone through the corporate update with some of the brand and retail and product positioning. But essentially, we have been consulting with a very seasoned professional that not understands marketing and branding very well but understands cannabis very well. And with this expertise -- We have developed a concentrated marketing plan to support the launch of new products and as well as highlight the Bodega-branded retail stores that will also have a product line. :
So with all of these -- and I think the other thing that I would comment on there is that what we've done is differentiate and really tap into the true voice of Hush and Winberry. And with those products, just geared them more to be consumer-centric in terms of the segment of the market that we would like them to reach and that we know they do reach. So with those sort of insights in mind, we've been updating the branding, and we are in the process of launching new packaging and many new products in Oregon and California throughout Q4 and into Q1 of next year. :
The wholesale brand strategy as well includes 3 unique lines to support the consumer interest, Hush for the price value conscious, Winberry for the canicurius and a third brand that is actually in the works for Terpene-centric customer. :
Kiranjit Sidhu: Yes. Our marketing is headed by -- when we announced the person, someone that understands this business very, very well, has founded. It's been a founder of a very, very successful MSO, and we've given him cart launch to revamp everything and get us more brand-centric, and I'm happy with the results, and I think we'll be seeing those results starting to manifest itself early next year.
Katharyn Field: So the next question is regarding some of the subsidiaries, and this one in particular, Halo Tek. Philip, people are wondering about just a general update on Halo Tek, potential software demos? What is in the software suite? And how the applications will be integrated?
Philippus Johannes van den Berg: So over the late 2019 and in 2020, we acquired 6 companies, varying from software to hardware, but all related like ancillary to the cannabis industry, but not plant touching. And as I said before, like, of course, it became too much to development. We decided to spin a lot and to have its own management and distribute it to investors.
So what happens is basically, a Halo Collective purchased us the -- we actually purchases or report gives these assets to investors by repurchasing shares in Halo and then issuing shares at Halo Tek. Halo Tek [indiscernible] 12%. So basically, Halo, right now, we'll be buying back 0.2% of its share count. And then in exchange for that issue shares in Halo Tek. :
Then what we're doing is we have a new management, which is outside our own company that is going to manage Halo Tek. They actually also have a technology company, and we're looking to bring those 2 companies together. And then once we have distributed kind of our site -- or part of it, we are then looking to list on one of the Canadian exchanges so that we actually then for investments to create a liquidity event. There is no kind of stuck with something that you made of one. So there will be liquidity. :
And we do this at book value. So we acquired all these assets. And then including under fees, closing costs, anything to do with these assets is going to be put into a halo tact, which means that for has a current investor base. There is no negative impact on the spin-off of Halo Tek because it's happening at book value. where you may say that we have been doing diluted acquisitions. Now this is the one where we unwind one, and it's going to be non diluted impact is the opposite. So there will be elution. And this is -- we're working on the right line. We have the glass prospectus. We're looking at emergency documents with the other company. And yes, we are progressing, and we are here that all this will happen in Q1 of 2022. :
Katharyn Field: That's great. No, that's very helpful. And I think it clarifies exactly what we're doing there and the time line.
Philippus Johannes van den Berg: There's 1 additional comment here, and that is that questions about like does it actually exist I can tell you that when we had our audit last year, our audit firm wanted to see all these applications work. So I can tell you that they're all there and they all work. Otherwise, the older pads all of them. They're all there.
Katharyn Field: Okay. Great. All right. So the last couple of questions. There's one on Akanda, but Kiran, you answered it earlier just regarding our plans for Akanda. So regarding California, Kiran, there was a question regarding Ukiah, UVI and essentially, what is the plan with that space and the progress that we've made and what role we see it essentially playing over the next year?
Kiranjit Sidhu: So one thing we've sort of learned like with the dispensaries, bringing in ford and the team is that in theory, you can open 5 dispensaries concurrently, but practically, you have to sequence 3 over a 4- to 5-month period given the size of our company. Same thing with UVI, where we had to sort of focus our efforts on pistol. And once that gets rolling in Q1, we can get UVI rolling. That being said, we have a great group in bird construction management. It's done a lot of work for cookies and others who has done a full design of the facility. We know what the costs are, we're ready to pull the trigger, but we want to first get pistol done, get that dialed in, and then we'll move on to Ukiah.
Also, as some of you may or may not be aware, the indoor flower market has not suffered as much as the outdoor or greenhouse, but it has suffered -- And so there, you're not going to see as strong of a rubber-band effect, but you have not seen as strong in the drop. :
Katharyn Field: Right. Agreed. Fully agree with that. I think a natural sort of follow-up question is just, again, commenting on the supply and demand in California the oversupply. And also then what is our thought on whether Triangle makes sense. So Kiran, did you want to comment on that?
Kiranjit Sidhu: Yes. Triangle definitely didn't make sense this year. But in some fashion, it will make sense next year. Will it be all 65 acres? I don't know. I mean that will be literally a game time decision, and game time will start probably middle of next month as we have to order massive amounts of soil and other stuff.
Katharyn Field: Agreed.
Kiranjit Sidhu: And we're going to have to look at that hard. We're going to do something for sure. It's a question of how much we're going to do relative to buy versus grow. And right now in California, you can buy cheaper than you can grow. But that will change as we think next year, and we've outlined in our press release with very definitive detail at how we think that will change.
Katharyn Field: Yes. I agree with that. That update has -- goes into a lot of depth surrounding the progress that we've made to date and the Reg A that we're about to kick off to raise up to $75 million for this project. And again, it's all about thinking about the proper use of that capital, the timing of it. And so that Reg A will be kicking off. But again, we're we spent our time this year ensuring that all of our licensing is in place with the state and preparing some of the bulk contracts and that type of thing.
So we're in a good spot, and we're following the industry closely to make sure that we make a wise decision about how much capacity to invest in next year. So we basically run out of time, but I know that there were a couple of questions regarding the dispensaries, and I'm happy to give an update on those. :
The first question was regarding the opening date. So for the Westwood location and the Franklin location, those 2 are in the process of being cost construction process currently. So they both had permitted plans and are in the process of construction and Westwood is nearly finished. So essentially, the only thing holding up the store openings will be securing all of the cannabis licensing, which dealing with local and state governments, they have a lot of -- essentially a lot of applicants that are in the queue. And it's not so much and if it's a 1 -- So we are pushing forward on all fronts, but still expect to open Westwood in December, Franklin in January. :
And then North Hollywood, we have set a target open date for June 2022. And we will continue to keep you apprised. I think we did a retail update fairly recently. Once John Ford was fully on board, and we will continue to update everyone on the progress. :
The second question regarding the retail was just about how many dispensary stores were thinking of, and we've mentioned up to 10 stores in the state of California. And what I would say to this is we absolutely believe there is benefit in having some type of scale in terms of a retail footprint and 10 is an internal target that we have to identify opportunities that are retail opportunities in California, but that in and of itself is easier has been done in the sense that we're looking for a dispensary that isn't just in process, but one that is on the brink of opening are already open, one that maybe isn't the largest dispensary in the area, but one that we think with our exceptional retail management team, we can add value to. And then obviously, looking through the liabilities and making sure there aren't any liabilities we can't handle when we take on, whether that's backed up tests or whatever liabilities you might find when you're doing due diligence. :
So we have a very rigorous process to scrutinize any potential targets. And the 10 dispensaries, well, it would be an additional 7 by the time we open the first 3. That is an internal target, and we constantly look at retail deals. But again, this is also balanced to making sure that we're identifying good opportunities and not biting off more than we can chew as we really focus on executing the store openings. :
So that is what I would say. And I think that what we could -- what we potentially see is once the stores are open, our focus will shift more not to adding on additional stores that allow us some scale in California. :
So that really covers it. That really covers most of the questions that were submitted. Obviously, we encourage you all to continue interacting with us on all of our social media channels and we answer whatever questions we can as quickly as we can. And I didn't know if Kiran or Philip, you had additional comments before we wrap up here. :
Philippus Johannes van den Berg: No, all good.
Kiranjit Sidhu: No, all good. I mean Q4 is a transitory quarter, and Q1 is definitely -- we definitely are trying to be -- trying to target that. As you could see by the overheads provided that market conditions don't deteriorate further, we think that quarter, we're going to show significant progress. We're going to show some progress in Q4, but significant progress will be realized in Q1.
In terms of guidance, we've withdrawn guidance, but we plan to give guidance at our next -- prior to immediately prior or prior to our next conference call, which will be on or before April 15, 2022. :
Katharyn Field: All right. So Josh, do you want to wrap things up here?
Operator: Certainly. Thank you very much for participating in today's call. This does conclude the conference, and you may now disconnect.