The grub,cfg includes a fromiso= parameter.
Normally this is not used unless booting from a disk with grub2 on it.
1. Boot to grub2 USB diisk
2. Mount and run ISO

HTML Code:
# use the menu and theme from the ISO
menuentry "KALI 64-bit (using ISO file menu)" --unrestricted --class ubuntu {
	set iso_path=${ISO}
	loopback loop "${grubfm_file}"
	set root=(loop)
#assumes grub.cfg contains 'findiso=' parameter
	configfile /boot/grub/grub.cfg
Kali boots OK, but will not shutdown or restart - a hard power-off is required.

If I remove the findiso= parameter and create a partition on the USB drive containing the ISO file (start sector points to start of file)
then it boots OK and shuts down OK.