Origin House: CA$1.1B Takeover Will Create North American Cannabis Giant

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Origin House Agrees to Be Acquired by Cresco Labs

Origin House (OTCMKTS:ORHOF, CNSX:OH), also known as CannaRoyalty Corp, was one of the best cannabis stocks in March, and frankly has been one of the best-performing marijuana stocks of the last two years.

Since April 2017, the Origin House stock price has increased 300%. It is up 83.3% since the start of 2019 and went up 31.8% in March. There are plenty of reasons to believe that Wall Street will send ORHOF stock considerably higher.

In addition to announcing several new distribution agreements in California, two of its subsidiaries transitioning from temporary operating licenses to annual licenses, and a new financing deal with Ontario weed retailer Ganjika House, the company recently announced that it had entered into an agreement to be acquired by U.S. company Cresco Labs, Inc. (OTCMKTS:CRLBF, CNSX:CL) for approximately CA$1.1 billion.

This friendly acquisition, which is the largest-ever public company acquisition in the U.S. cannabis sector, will result in a combined entity with one of the largest vertically integrated multi-state operators in the country and one of the largest cannabis distributors.

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Origin House Overview

Origin House is the registered business name of CannaRoyalty Corp. The Ottawa, Ontario-based company is a private equity firm that specializes in acquisitions in the U.S. and Canada. But its strongest foothold is in California, the largest cannabis market in the world. (Source: “About Us,” Origin House, last accessed April 2, 2019.)

In California alone, it delivers over 130 cannabis products from more than 50 brands to the majority (500+) of licensed dispensaries. The company’s brand development platform operates out of five licensed facilities in the Golden State, where it provides distribution, manufacturing, cultivation, and marketing services for its brand partners.

Its product portfolio includes “Cheech’s Favourite Stash,” “Chong’s Choice,” “Ocean Gold,” and “Monterey Kush.”

Origin House Stock Information
Market Cap $589.4 million
Beta 2.38
52-Week Change 187.5%
52-Week High $9.27
52-Week Low $3.18
Shares Outstanding 55.2 million
Float 48.5 million
50-Day Moving Average $7.45
200-Day Moving Average $6.24

(Source: “Origin House (ORHOF),” Yahoo! Finance, last accessed April 3, 2019.)

In 2018, ORHOF stock was on a great trajectory before being snuffed out by the marketwide sell-off that began in October and worsened in December. Still, the stock advanced 43.1% in 2018, far better than the S&P 500’s 6.5% downward slide.

In 2019, Origin House stock benefited from the January effect and has continued to shine; it is up more than 80% since the start of the year. In fact, ORHOF stock hit a new record high of $9.27 on April 1; erasing all of its fourth-quarter losses.

Chart courtesy of StockCharts.com

Origin House Reports Record Q3 Revenue

On November 28, 2018, Origin House announced that third-quarter revenue soared 790% year-over-year to a record $6.6 million and soared 89% from the previous quarter. (Source: “Origin House Announces Sequential Revenue Growth of 89% for the Third Quarter 2018,” Origin House, November 28, 2018.)

The company reported a third-quarter net loss of $7.5 million ($0.12 per share) versus a 2017 third-quarter net loss of $3.3 million ($0.08 per share).

Origin House ended the third quarter with $75.3 million in cash and total assets of $220.2 million, compared to $4.5 million and $46.1 million as of December 31, 2017, respectively. Long-term debt was $28.2 million.

CEO Marc Lustig commented:

Last quarter, we stated that after a substantial period of building a foundation, Origin House was at the beginning of a multi-period, sustainable acceleration in revenue growth. Year-to-date, we generated record revenue, completed four transformational acquisitions and are well-capitalized to continue growing. We expect to continue delivering strong revenue growth throughout Q4, 2019 and beyond…

(Source: Ibid.)

U.S. Cannabis Company Cresco Labs, Inc. Is Acquiring Origin House

Part of that strong 2019 revenue growth will be fueled by its acquisition by Cresco Labs, Inc., a Chicago-based cannabis cultivator, processor, and retailer. (Source: “Cresco Labs to Acquire Origin House in Largest-Ever Public Company Acquisition in the U.S. Cannabis Sector,” Origin House, April 1, 2019.)

The CA$1.1-billion acquisition will create a North American marijuana conglomerate, poised to take full advantage of the legal recreational marijuana market in Canada and the expanding cannabis legalization in the U.S.

On the acquisition, Charlie Bachtell, Cresco Labs CEO and co-founder commented, “It establishes Cresco Labs as the leading multi-state operator with one of the largest distribution platforms in California.”

Bachtell went on to say that, following the closing of the acquisition, Cresco’s brands will be in over 725 dispensaries across the country, giving the company the “largest and most strategic distribution footprint of any cannabis company in the United States.” (Source: Ibid.)

Analyst Take

Even before its acquisition by Cresco Labs, Origin House had a stronghold in California’s lucrative recreational cannabis market. It is home to a large number of well-known brands available in the vast majority of the state’s licensed dispensaries.

Origin House also has an aggressive acquisition strategy and growing distribution partnerships on both sides of the border.

All of that would help significantly boost revenue. The Cresco Labs acquisition should supercharge its growth trajectory.