CCORF - Cresco Labs Buys Stake in California Market with Origin House Deal
Cresco Labs (CSE:CL,OTCQX:CRLBF) acquires an upgrade to California market play thanks to acquisition deal for Origin House (CSE:OH,OTCQX:ORHOF).
On Monday (April 1), Cresco Labs confirmed an all-share deal approximately worth C$1.1 billion for Origin House shares, representing a price of C$12.38 per share. Origin closed on Friday (March 29) at a price of C$12.05.
Thanks to this acquisition, Cresco is gaining a more mature entry to the California market based on the established distribution channels created by Origin House.
“It’s an incredible platform for Cresco in California and the distribution infrastructure will provide a valuable framework to leverage as we scale our platforms in other states,” Charlie Bachtell, CEO of Cresco Labs, said in a press release.
Origin House’s distribution network allows it to provide over 50 cannabis brands of product to over 500 dispensaries in the state, Cresco Labs said in its announcement.
Marc Lustig, Chairman and CEO of Origin House, said the acquisition deal will “supercharge” the growth of the company and will give an entry to additional states.
“Cresco shares Origin House’s resolute focus on the customer as the catalyst for all brand and business development efforts,” he said.
The executive confirmed this is not the first opportunity Origin House has had at being acquired.
Charles Taerk, president and CEO of Faircourt Asset Management, told the Investing News Network he praised the deal saying it will create the “most dominant” multi-state operator (MSO) in California.
“They’re really focussing on the higher-end, higher margin part of the business, which is the extracts and the product formulation the edibles and distribution,” Taerk said.
The executive said MSOs have been turning to the California market for the latest in business expansions, with recent acquisitions from Green Thumb Industries (CSE:GTII,OTCQX:GTBIF) and Harvest Health & Recreation (CSE:HARV,OTCQX:HRVSF) confirming his theory.
The California market has not seen “major footholds” from one MSO directly, according to Taerk. These acquisitions represent the start of creating a market share in the space.
“[MSOs] have all said the same thing, ‘if we went to California we would not use our own brands, we would be moving in with a strategic partner who knows California,’” he said.
Taerk also acts as the sub-advisor to the Ninepoint Alternative Health Fund. The executive said Origin House has long held a top 10 holding position for the fund.
Stock market reacts to new acquisition deal
The market didn’t react so favorably to the deal for Origin House. However, Cresco shares rallied after an initial dip during the trading session.
Cresco finished the day with a 3.99 percent increase, resulting in a closing price of C$15.65.
Origin House took a bigger hit with its stock closing at a price of C$11.65 per share,which is a 3.32 percent decrease.
“I think Canadian investors by and large misunderstand what companies like Origin House and others are doing because they don’t put a lot of money or capital into cultivation,” Taerk said.
Russell Stanley, analyst with Beacon Securities, initided his coverage of Cresco last Friday by slapping the stock with a ‘buy’ rating. The analyst indicated a one-year price target of C$22 to shareholders.
In his note, he praised the company for its reputation and Cresco’s focus “on branded products and distribution entrenches it firmly in the most lucrative and defensible points of the cannabis supply chain,” according to a Globe and Mail report.
In March, Matt Bottomley, analyst with Canaccord Genuity (TSX:CF,OTC Pink:CCORF), gave Origin House a C$12 price target and indicated a ‘buy’ position on the stock.
The Cresco deal has the full backing of Origin House’s executive team and board of directors, which is indicative of its preference; in January, a grouping of approximately 26 percent of its investors agreed to vote on acquisitions based only on what the executive team decided.
At the time, Lustig said this was done to protect the company from “opportunistic bids.”
Origin House secured a unique relationship with one of the burgeoning sectors in the Canadian marijuana space, retail.
The company confirmed its subsidiary, Trichome Financial, extended a revolving credit facility and term loan of C$2 million to the operators of one of the stores debuting with the launch of the Ontario retail market.
Trichome has grown its connections and business interests so much the company is planning a spin-off and a separate public listing.
“With the core of the company’s infrastructure in place and the ability to leverage Origin House’s significant US market knowledge, [Trichome] believes that it is uniquely positioned to capitalize on credit market opportunities in the US market,” Trichome announced in February.
It remains unclear whether Trichome will continue its public listing pursuit now with the Cresco Labs acquisition offer at hand. Representatives of the company did not return a request for comment.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.