It’s difficult to stand out from your competitors in a quickly growing and changing industry like cannabis. With massive players like Halo Labs (NEO:HALO) (OTC:AGEEF), Aurora Cannabis (TSX:ACB) (NYSE:ACB), Cronos Group (TSX:CRON) (NASDAQ:CRON), growing so quickly, how does one decide who to trust with their capital? Regulations change drastically over short time periods. It is imperative that firms be able to capture increasing demand while staying flexible to handle uncertainty. The expertise that can make the difference might not be those with the most growing experience but those who have the best strategic business backgrounds. In a field crowded with thoroughbreds, the talent of the jockey can make all the difference.
Halo Labs (NEO:HALO) (OTC:AGEEF) was founded in Oregon in 2016 and has since expanded operations to Nevada and California. The management team not only boasts experience in cannabis production but also a wide variety of sales, marketing, and leadership roles.
CEO Kiran Sidhu is the former Chairman and CEO of the electronic money firm Transact Network before the company sold to Bancorp. He was also the CFO of On Stage Entertainment and worked in strategic and M&A consulting earlier in his career. The COO, Andreas Met, is a former Senior Merchant for Walmart and former Head of Sales & Marketing for Golden Leaf. The Chief Revenue Officer David Orr was formerly a Senior Sales Director for PepsiCo and former Marketing Director for Pepsi and Johnson & Johnson. Chairman G. Scott Paterson is also Chairman of the Canadian Venture Stock Exchange and Vice Chairman of the Toronto Stock Exchange.
The wealth of experience among the senior leadership team shows in how Halo has tried to differentiate itself through product positioning. The company has focused its product lineup on oils, extracts, and other cannabis derivatives. As cannabis production rapidly grows in legalized markets, the margins for leaf products have already started to compress. By working to innovate in derivative products, Halo competes for more profitable consumers looking for premium products. They already account for around 20% of the wholesale market for concentrates in Oregon.
In 2019, Halo launched their new premium line of DabTabs. These ceramic tabs contain premeasured doses of concentrates, oils, waxes, and other derivatives. Later in the year they also launched the Shatterizer. This vaporizer device is designed to work specifically with the DabTabs “Dablets”. The convenience of having premeasured dosing in a proprietary platform makes this product line very competitive in the high-end consumer market. In a recent interview seen below, Canopy Growth founder Bruce Linton recently praised the company for its thoughtful market positioning and innovation in an interview on Midas Letter. He highlighted the benefit of having a platform like the DabTabs and the Shatterizer to maintain sales more effectively over time. Having a platform creates more consistent repeat sales, which cuts down on customer acquisition costs as the market grows.
This type of strategic planning is an advantage of having leadership with a background in multiple business arenas. Having the best product is important to gain market share, but how a product lineup is positioned and marketed is a better predictor of long-term growth and success. The fastest horse won’t win the race if the jockey has no strategy.
From an investment standpoint, the company is a bargain compared to most of its peers. Though its growth for the coming year is strong due to the company moving into the California market, it currently trades at half the Enterprise Value/Sales ratio of its competitors. It’s possible that cannabis investors are undervaluing the company due to the leadership backgrounds in non-cannabis fields. Hopefully, investors aren’t hamstringing their own opportunity by treating the company’s best asset as a liability. Halo Labs could be the dark horse to keep an eye on.
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