Origin House Announces Financial Results for the Fourth Quarter and Fiscal Year Ended December 31, 2018
- On April 1, 2019, the Company entered into a definitive agreement to be acquired by Cresco Labs for $1.1 billion, creating a North American cannabis powerhouse.
- Record Q4 revenue of $7.9 million; + 19% vs. Q3 2018 and +638% vs. Q4 2017, driven by distribution revenues and product sales across all cannabis product categories.
- Acquired Kaya Manufacturing, Alta Supply, RVR Distribution, FloraCal Farms and 180 Smoke in 2018 to create a footprint today comprised of 6 licenses, 8 facilities and over 350 employees in California and Canada, with pro-forma revenue of $37.4 million. Pro-forma revenue reached $48.7 million with the acquisition of 180 Smoke in Q1 2019.
- Integrated two of the largest and most important distributors in California – RVR Distribution and Alta Supply – now operating as a statewide network under the Continuum banner with more than 50 brand relationships and over 1,000 SKUs in more than 500 dispensaries and greater than 60% penetration1 in licensed dispensaries in California.
- The Company’s Brand Accelerator Program initiated in Q4 2018 and other strategic brand partnerships have added dynamic brands to the platform including King’s Garden, Henry’s Original, Utopia Cannabis, Pacific Remedy, Kurvana, Humboldt’s Finest, Viola Brands and Papa’s Herb.
- Exited the year with a cash position of $69.2 million as of December 31, 2018.
OTTAWA, April 29, 2019 /CNW/ – CannaRoyalty Corp. d/b/a Origin House (CSE: OH) (OTCQX: ORHOF) (“Origin House” or the “Company”), a leading North American cannabis products and brands company, announced today the Company’s financial results for the three months and year ended December 31, 2018. All figures are reported in Canadian dollars ($), unless otherwise indicated. Origin House’s financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”).
During 2018, Origin House delivered demonstrable value creation for shareholders through organic execution, judicious acquisitions and the crystallization of value embedded in non-core assets. Throughout the year, we continued to aggressively build our platform of brands and distribution capability focused in California, and this culminated in reaching a definitive agreement to be acquired by Cresco Labs for $1.1 billion on April 1, 2019.
Marc Lustig, CEO of Origin House
This partnership is just the beginning of our journey together. The combined entity will be a U.S. distribution powerhouse, with a growing portfolio of over 50 brands on the shelves of over 725 dispensaries across 11 states. In the coming months we will work side-by-side with the Cresco team to accelerate recognition and sales for our combined brand portfolios across the U.S., and in the process, continue to build substantial shareholder value.
Afzal Hasan, President and General Counsel of Origin House added, “We are very pleased with the performance our team generated in 2018. We spent the past 12 months successfully implementing our strategy to build a platform of premium brands by creating the top distribution and brand support platform in California. Our team executed and successfully integrated five acquisitions during the year, while adding several key experiential brands to our Brand Accelerator and distribution platform. In March 2019, with the integration of our two distribution companies under the Continuum banner, Origin House now controls one of the top state-wide distribution networks in California. With 2018’s regulatory growing pains behind us and a recent commitment on the part of the government to redouble its efforts to quash the still-thriving illegal cannabis market in the state, Origin House is off to a running start in early 2019. Our pipeline of potential brand partners is more robust than at any point in our recent history and our ability to leverage a fully integrated network, positions us to win California while generating strong performance for our brand partners as well as for shareholders.”
1. Based on the percentage of licensed cannabis micro-businesses and storefronts serviced over the past 9 months.
Financial Highlights – Q4 and Year Ended – 2018
The following are the major financial highlights of Origin House’s operating results for the year ended December 31, 2018, compared to the year ended December 31, 2017:
- Revenues were $18.7 million as compared to $3.1 million, an increase of 507%;
- Gross margin, excluding fair value items, was $1.5 million as compared $0.9 million, an increase of 67%;
- Pro-forma revenues were $37.4 million as of December 31, 2018 and were $48.7 million with the acquisition of 180 Smoke on February 19, 2019;
- Operating expenses were $36.2 million as compared to $13.3 million, an increase of 173%;
- Adjusted EBITDA profit of $3.4 million as compared to adjusted EBIDTA profit of $4.1 million; and
- Repurchased 975,900 of the Company’s common shares, at a weighed average price of $6.13 per share and a total cost of $6.0 million.
The following are the major financial highlights of Origin House’s operating results for the three months ended December 31, 2018, compared to the three months ended December 31, 2017:
- Revenues were $7.9 million as compared to $1.1 million, an increase of 638%;
- Gross margin, excluding fair value items, was $0.2 million as compared $0.1 million, an increase of 87%;
- Operating expenses were $15.4 million as compared to $4.6 million, an increase of 233%; and
- Adjusted EBITDA loss of $1.9 million as compared to adjusted EBIDTA profit of $7.9 million.
The following is a summary of key balance sheet totals as at December 31, 2018, compared to December 31, 2017:
- Cash was $69.2 million as compared to $4.5 million an increase of 1430%;
- Total assets of $230.7 million as compared to $46.1 million, an increase of 400%;
- Current assets of $86.0 million as compared to $7.9 million, an increase of 982%;
- Current liabilities of $26.2 million as compared to $2.1 million, an increase of 1126%; and
- Long-term debt financing of $16.0 million as compared to $2.3 million, an increase of 610%.
Corporate Highlights Subsequent to the Quarter ended December 31, 2018
For a more comprehensive overview of these recent developments, please refer to Origin House’s Management’s Discussion and Analysis of the Financial Condition and Results of Operations for Three Months and Year Ended December 31, 2018.
- On March 31, 2019, Origin House and Cresco Labs Inc. (“Cresco Labs”) entered into a definitive agreement (the “Sale Agreement”) under which Cresco Labs will acquire all the issued and outstanding shares of Origin House (the “Origin House Shares”) (the “Transaction”). Under the terms of the Sale Agreement, holders of common shares of Origin House will receive 0.8428 subordinate voting shares of Cresco Labs (the “Cresco Labs Shares”) for each Origin House Share. The Transaction represents total consideration of approximately $1.1 billion on a fully-diluted basis. The transaction is expected to close in June 2019.
- On March 26, 2019, Resolve Digital Health Inc. (“Resolve”) announced that it was approved by Health Canada for a Medical Device License for cannabis use. As at December 31, 2018, Origin House held 14,176,738 shares, representing 25.6% issued and outstanding shares of Resolve.
- On March 5, 2019, the Company entered into an agreement with Mendocino-based cannabis producer, Henry’s Original (“Henry’s”), whereby the Company will be the exclusive distributor of Henry’s Original products in California. In addition, the Company provided a convertible bridge loan of US$2.5 million to Henry’s for expansion, including construction and operation of additional cultivation sites for the 2019 growing season.
- On February 25, 2019, the Company elected to exercise its rights under the indenture dated July 12, 2018,governing the Company’s 8% unsecured convertible debentures due July 12, 2021 to convert the principal amount of the outstanding Debentures to common shares of the Company.
- On February 19, 2019, the Company completed the acquisition of 180 Smoke and its affiliates (“180 Smoke”), an online and retail Canadian vape operator. The Company expects the acquisition to result in a retail revenue stream and footprint within Canada. Pro forma revenue for 180 Smoke is $11.3 million.
- On February 14, 2019, a 69% owned Origin House subsidiary, Trichome Financial Corp. (“Trichome”), announced the commencement of a non-brokered private placement of subscription receipts in connection with its proposed reverse take-over of 22 Capital Corp. Trichome intends to use the proceeds of the financing to fund Trichome’s growing pipeline of cannabis sector credit opportunities and for general corporate purposes.
- On February 13, 2019, the Company signed a memorandum of understanding (“MOU”) to commence exclusive distribution of Kurvana products across Northern California. As part of the MOU, the parties have also agreed to explore the transition of distribution in Southern California, subject to fulfilment of mutually acceptable conditions. In addition, Origin House has agreed to provide strategic financing of up to US$10 million to Kurvana under a promissory note.
- On February 4, 2019, the Company provided strategic financing of US$704,000 to Humboldt’s Finest Farms (“Humboldt”), an alliance of heritage cannabis farms representing Humboldt County. The funds were advanced towards the forward purchase of Humboldt’s Finest cannabis and cannabis products at a discount to wholesale prices.
- On January 30, 2019, the Company provided additional strategic financing of US$750,000 and signed an exclusive distribution agreement with Utopia Cannabis (“Utopia”), a California-based cannabis brand.
- On January 28, 2019, the Company’s wholly-owned subsidiary RVR entered an exclusive agreement with Viola Brands (“Viola”), an ultra premium flower, pre-rolls, extract and vapes company, for the state of California. RVR will be the exclusive distributor of all Viola products in California. The Company will also manufacture Viola’s products, either in house or through third-party manufacturers.
- On January 15, 2019, the Company signed a binding term sheet with Alternative Medical Enterprises LLC (“AltMed”) to convert the Company’s 3.5% royalty interest (the “MÜV Royalty”) on the sale of AltMed’s MÜV branded products (“MÜV”) to AltMed equity. In converting its MÜV Royalty to AltMed equity, the Company received 125 equity units in AltMed as well as cash consideration. This transaction increased the Company’s equity stake in AltMed to 5.1%.
- On January 15, 2019, CRHC Holdings Corp. (“CRHC”), a wholly owned subsidiary of the Company, completed the sale of 51% of its 10% equity interest in Bodhi Research Inc. (“Bodhi”) to Green Relief. Green Relief purchased 51% of all outstanding stock of Bodhi, which included the 51% of CRCH’s equity stake. As consideration for the sale, CRHC received $1.7 million in Green Relief common shares.
Results of Operations (Summary)
The following tables set forth consolidated statements of financial information for year ended December 31, 2018, and December 31, 2017. For further information regarding the Company’s financial results for these periods, please refer to the Company’s Management’s Discussion and Analysis for the periods ended December 31, 2018 and December 31, 2017 and the Company’s Financial Statements for the periods ended December 31, 2018 and December 31, 2017, published on Origin House’s issuer profile on SEDAR at www.sedar.com and the Company’s website at www.OriginHouse.com.
Non-IFRS Financial Measures
The Company has provided unaudited pro forma financial information, which assumes that closed mergers and acquisitions in 2018 are included in the Company’s financial results as of the beginning of fiscal 2018. EBITDA and Adjusted EBITDA are non-IFRS measures and do not have standardized definitions under IFRS. The Company has provided the non-IFRS financial measures, which are not calculated or presented in accordance with IFRS, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with IFRS. These supplemental non-IFRS financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-IFRS financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. These supplemental non-IFRS financial measures should not be considered superior to, as a substitute for or as an alternative to, and should only be considered in conjunction with, the IFRS financial measures presented herein.
¹EBITDA and Adjusted EBITDA are non-GAAP financial measures and accordingly they are not earnings measures recognized by IFRS and do not carry standard prescribed significance. Moreover, our method for calculating Adjusted EBITDA may differ from that used by other companies using the same designation. Accordingly, we caution readers that Adjusted EBITDA should not be substituted for determining net income (loss) as an indicator of operating results or as a substitute for cash flows from operating and investing activities.
Pro forma disclosure:
The following unaudited pro forma financial information has been prepared on the assumption that the Alta, Kaya, FloraCal, and RVR acquisitions all took effect on January 1, 2018:
Note 1: excluding fair value impacts from IAS 41 – Agriculture (Biological Assets) applicable to FloraCal prior to acquisition.
The following is a summary of pro forma revenues from the 2018 acquisitions, corporate, as well as the 2019 acquisition of 180 Smoke.
The Company’s authorized share capital is an unlimited number of common shares of which 60,263,768 were issued and outstanding as at December 31, 2018 (December 31, 2017 – 43,898,445 common shares). Also issued were 3,431,210 RSUs that have not been exercised as at December 31, 2018 including 2,551,839 that have vested (December 31, 2017 – 4,153,150 including 1,933,587 that had vested). As of December 31, 2018, there are share purchase warrants and broker warrants outstanding that can potentially be converted to 12,938 shares (December 31, 2017 – 4,112,712). The Company has issued 929,000 share options that have not been exercised as at December 31, 2018 including 420,125 that have vested (December 31, 2017 – 850,000 including 212,500 that had vested). The Company has convertible debt which can be converted into 3,034,080 common shares (December 31, 2017 – 750,000). The Company has issued 35,088 Class A Compressed Shares and 21,001 RPE shares which can each be converted into 100 common shares, or a total of 5,608,900 common shares (December 31, 2017 – nil). There are an additional 35,088 Class A Compressed Shares that can be issued upon meeting certain milestones and 49,000 RPE shares that may be issued over the next 24 months.
Origin House will host a conference call on, Monday, April 29, 2019, at 8:30 a.m. (Eastern Time) to discuss its fourth quarter and year ended 2018 financial results. The call will be chaired by Marc Lustig, Chief Executive Officer, Afzal Hasan, President and General Counsel and François Perrault, Chief Financial Officer.
Origin House is a growing cannabis brands and distribution company operating across key markets in the U.S. and Canada, with a strategic focus on becoming a preeminent global house of cannabis brands. Origin House’s foundation is in California, the world’s largest regulated cannabis market, where it delivers over 130 branded cannabis products from 50+ brands to the majority of licensed dispensaries. Origin House’s brand development platform is operated out of five licensed facilities located across California, and provides distribution, manufacturing, cultivation and marketing services for its brand partners. Origin House is actively developing infrastructure to support the proliferation of its brands internationally, initially through its acquisition of Canadian retailer 180 Smoke. Origin House’s shares trade on the CSE under the symbol “OH” and on the OTCQX under the symbol “ORHOF”. Origin House is the registered business name of CannaRoyalty Corp. For more information, visit www.originhouse.com.
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