Searching for Deep Value Opportunities after Key Cannabis Bill Passes House Vote (VFF, HCANF, HYFM, GRWG, CRLBF, TCNNF, CRON, MSOS)

Last Friday, we saw something momentous happen: The U.S. House of Representatives passed legislation that aims to take cannabis off the list of “controlled substances” at the federal level – in other words, the bill decriminalizes cannabis as a drug at the national level in the US. Naturally, it still has to pass through the Senate, but this is a big step with major implications for cannabis producing companies in the US.

The bill’s passage comes as a growing number of US states have already passed their own bills decriminalizing cannabis products.

The bill – known as H.R. 3617 – is generally referred to as the Marijuana Opportunity Reinvestment and Expungement Act, or the MORE Act. Similar legislation was passed in late 2020, but was never taken to the Senate for a vote given GOP control at that time. 

However, this time around, the Dems have control (at least, for the moment), which could suggest more promise at the next level.

According to the Washington Post, the White House has not yet issued a statement on whether President Biden supports the legislation, and a group of Senate Democrats, including Majority Leader Charles E. Schumer (N.Y.) and Sens. Cory Booker (N.J.) and Ron Wyden (Ore.), is expected to release draft marijuana legislation later this month.

This has helped to propel stocks in the space, including Village Farms International Inc. (Nasdaq:VFF), Hydrofarm Holdings Group Inc. (Nasdaq:HYFM), GrowGeneration Corp. (Nasdaq:GRWG), Cresco Labs Inc. (OTC US:CRLBF), Trulieve Cannabis Corp. (OTC US:TCNNF), Cronos Group Inc. (Nasdaq:CRON), and AdvisorShares Pure US Cannabis ETF (NYSEArca:MSOS).

However, one smaller and more speculative cannabis stock deserves special attention right now given its recent blowout financial performance update: Halo Collective Inc. (OTC US:HCANF).

HCANF bills itself as a leading, vertically integrated cannabis company focused on the West Coast of the United States that also operates other emerging businesses in CBD and non-psychotropic mushroom functional beverages.

In its cannabis operations, the Company cultivates, extracts, manufactures, and distributes quality cannabis flower, oils, and concentrates and has sold hundreds of millions of grams of cannabis in the form of flower, pre-rolls, vape carts, edibles, and concentrates since inception. The Company sells a portfolio of branded cannabis products including its proprietary Hush™, Winberry Farms™, Williams Wonder Farms, and Budega™ brands, and under license agreements with Papa’s Herb®, DNA Genetics, Terphogz, and FlowerShop.

Halo Collective Inc. (OTC US:HCANF) put out news on Friday covering its financial and operational results for Q4 and the full year of 2021, including Q4 revenues of $8.4 million, up 63% year over year. 

The company sold nearly 13 million grams of cannabis products during the quarter principally to dispensaries in Oregon and California, which represents a 345% year-over-year increase compared to Q4 2020. Its adjusted gross margin for the quarter was $0.8 million, or 9.6% gross margin, compared to $0.5 million, or 10.5% gross margin, in Q4 2020.

“Halo’s team is actively building significant shareholder value, even while the operating conditions remain difficult in the California and Oregon markets and pressuring our near-term financial performance,” said CEO Kiran Sidhu. “In our growing wholesale businesses, volumes are trending upward due to higher sales velocity and expanded market penetration, offsetting much of the downward pressure on prices and positioning us well for when pricing stabilizes. In our retail business, we’ve opened our first Budega™ dispensary in North Hollywood, California, and are seeing solid preliminary results in the first weeks of operation. Meanwhile, we have taken the necessary steps to rationalize the business to accelerate our path to profitability.”

Halo Collective Inc. (OTC US:HCANF) shares have been dropping over the past few months. However, support may be starting to come into place in the $0.25-0.30 zone as volume increases and a potential double-bottom formation comes into focus on the chart. 

Enthusiasm related to the passage of H.R. 3617 could be the type of catalyst to help a growing player in the space regain some momentum. The stock has been left behind relative to the rest of the cannabis space, but the company is seeing strong topline and volume growth in sales and could be a dark horse value play with strong potential ahead.