Halo Enters Into Binding LOI To Acquire Canmart Limited (UK) Licensed UK Importer and Distributor of Medical Cannabis Products

Halo Labs Inc. (“Halo” or the “Company”) (NEO: HALO, OTCQX: AGEEF, Germany: A9KN) is pleased to announce that it has entered into a binding Letter of Intent (the “LOI”) to acquire all of the common shares of Canmart Limited (“Canmart”) in the United Kingdom (“UK”). This is Halo’s first planned international acquisition of an importer and distributor of licensed medicinal cannabis products.

The Company aims to acquire, partner and apply for further national licenses within Europe and other territories to give Halo direct market access for its products made from medical cannabis grown at the Company’s 205-hectare Bophelo cannabis cultivation zone (“Bophelo”) in Mafeteng, Lesotho. Via Canmart, which is approved for import into the UK, Halo anticipates commencing exports to the UK towards the second half of 2020, subject to regulatory approvals.

The total transaction size of the Canmart acquisition is anticipated to be C$6 million, payable in Halo common shares and at a deemed price of C$0.35 per share which is based on the 30-day VWAP as of December 23, 2019 (“the Consideration”). Consideration will be paid as Canmart achieves critical business milestones. Halo’s acquisition of Canmart is expected to sign and close within the next seventy-five days. Completion of the Acquisition is subject to, among other things, the satisfaction or waiver of any conditions’ precedent to the consummation of the Acquisition (including the receipt of any requisite regulatory and stock exchange approvals).

Commenting on the transaction, CEO and Co-Founder of Halo Kiran Sidhu said, The UK is one of the world’s largest individual cannabis markets. Our goal is to become a major player in the UK in the coming years. With the quality and cost of medical cannabis we are growing in Lesotho, the acquisition of Canmart will put us in prime position to grow our business as cannabis-based medicinal treatments become more mainstream across Great Britain.”

Darran Quinn, Founding Director of Canmartadded,“The UK Medicinal Cannabis market is poised for major growth. Working with Halo provides Canmart a sustainable competitive advantage in the both short and long term. Halo’s management team combined with the Company’s focused seed to sale international strategy will provide great value for us now that we will be Halo shareholders.”

Highlights

  • Halo to acquire 100% of Canmart Limited
    • Canmart is one of the UK’s few late stage applicants for a Controlled Drugs License to import and distribute licensed Cannabis-Based Products for Medicinal use (“CBPMs”)
    • Canmart operates a licensed 25,000 square foot third party logistics warehouse in the southeast of England
  • Although Medical cannabis legalized in the UK since November 2018, sizeable growth anticipated, particularly for imported products
    • The UK imports 100% of its CBPMs for domestic use
    • Estimated 1.4 million British citizens currently directly purchase CBPMs to treat chronic health conditions from unregulated channels
    • Substantial growth potential for CBPMs through the National Health Service (“NHS”), as improved medical guidelines are adopted, and the market becomes better regulated
  • Canmart already holds wholesale distribution and special licenses, issued by the MHRA
    • It also has applied for a Controlled Drugs License from the Home Office, to import and distribute licensed CBPMs
    • The Home Office is the government department responsible for the enforcement of cannabis legislation in the UK and has recently completed an initial site visit to Canmart’s warehouse facility to assess its suitability and security arrangements

Halo intends to commence export of CBPMs to the UK in 2020 from Bophelo, subject to approval from the Medicines and Healthcare products Regulatory Agency (“MHRA”) and any other necessary regulatory approvals.

Canmart pivotal transaction to scaffold Halo’s international export strategy
Halo’s ultimate ambition is to build “Seed to Sale” networks within Europe, and other territories, to supply medical cannabis and CBMPs, grown and manufactured at the Company’s 205-hectare Bophelo cannabis cultivation zone in Lesotho.

Halo is working to ensure that all cannabis grown at Bophelo adheres to Current Good Manufacturing Practices (“CGMP”) and that the Company will be able to secure the necessary certification to allow it to export its CBMPs to the UK. The Company believes the specific strains of cannabis it is currently growing (and plans to grow) at Bophelo have superior genetics grown in a pristine environment. This combination of genetics and environment enables Bophelo to produce high quality, terpene rich cannabis both high in THC and CBD.

The UK is one of the largest national cannabis markets in the world and permits the import of CBPMs from non-European Union countries. Although the UK is one of the world’s leading exporters of cannabis plants for medicine and scientific research, it imports 100% of its CBPMs for domestic use. As such, the UK presents Halo with a significant opportunity to commence its export strategy from Bophelo. Completion of the Canmart Acquisition will be the first step in achieving this goal.

The UK medicinal cannabis market poised for growth and Halo to have early-mover advantage
The UK medical cannabis market presents a substantial early-mover advantage to Halo. Although medical cannabis was legalized in the UK on November 1, 2018, the country has been slow to develop a fitting infrastructure to support the high level of domestic demand for CBPMs.

According to Prohibition Partners, a leading market research group for the international cannabis market, there are approximately 7.3 million people in the UK who buy CBD products each year from online retailers and high-street stores. Further the country has 4.7 million recreational cannabis users and 1.4 million people who use CBPMs to treat chronic health conditions. Those using CBPMs in this way are currently purchase them through unregulated channels.

Despite having such a deep-rooted cannabis demand and culture, in the first year after legalization, only a small number of prescriptions of CBPMs were made in England. Of these less than 15% were issued on the NHS, with the remainder being issued through private specialist clinics.

As reform of the UK cannabis legislation has received broad support in 2019, Halo is confident that these developments herald a meaningful shift and that now is the optimum time for the Company to enter the British market. Significant developments include:

  • In March 2019 the Health & Social Care Committee (“HSCC”) set up a new panel to examine how effectively the November 2018 regulations were working in practice
  • Private medical cannabis received its first referral from the NHS in March 2019
  • In May 2019 the National Institute for Health Research (“NIHR”) issued two calls for research proposals on CBPMs across a range of conditions where the evidence is most compelling
  • The National Institute for Health and Care Excellence (“NICE”) published further guidelines on all CBPMs in November 2019
  • The NIHR recently announced it would fund the UK’s first medical cannabis registry, with the aim of recruiting 20,000 patients by 2021

Founding director of Canmart David Dean commented on the opportune moment, “The combination of Halo and Canmart is perfectly timed to take full advantage of the huge untapped potential of the British medical cannabis market. Since medical cannabis was first legalized just over a year ago, the regulatory environment has evolved to become more supportive of CBPMs. Led by strong patient demand, there is increased official focus on developing a properly regulated sales market.

Thanks to Halo’s established pedigree in growing high-quality medical cannabis and the massive potential cost efficiencies of harvesting in Lesotho, we now have the potential to build a dominant position in the British medical cannabis market.”

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