Origin House to Buy California Cultivation Facility for $7.025 Million

Origin House to Acquire Cub City – Craft Cannabis Production Facility and Operational Team – to Expand Brand Accelerator Program
  • Origin House has experienced strong demand for bespoke, exotic cannabis production capacity and related expertise, from both current and potential brand partners.
  • The facility and experienced production team have cultivated product for some of the top craft flower brands inCalifornia, along with one of the state’s prominent pre-roll brands.
  • Purchase price of US$7.025 million gives Origin House an experienced team, a 24,600 square foot facility with annual production capacity of up to 1,400 kg of ultra-premium flower, as well as proprietary production techniques.

OTTAWA, Dec. 4, 2018 /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, today announced that the Company has signed a binding term sheet to purchase and acquire certain business assets of California-based cannabis cultivator, Cub City LLC (“Cub City”) for total consideration of US$7,025,000 (the “Acquisition”).

This Acquisition was a logical next step for Origin House, led by the needs of our brand partners as we execute on our brand support and acceleration strategy. Access to bespoke third-party cultivation is critical for new flower brands that want an authentic brand promise from seed to consumption. The existing alternative for brands is to use undifferentiated and mass produced biomass available on the market.

Afzal Hasan, President and General Counsel of Origin House


“Cub City was co-founded by a team that included our partners Drew and Karen Duval of FloraCal. The facility and team have produced flower for some of the top packaged flower brands in California, as well as a prominent pre-roll brand. Furthermore, being just minutes away from our current Santa Rosa facility provides natural efficiencies and synergies. We are excited to continue growing our infrastructure and team to unlock further opportunities for growth that we have been cultivating with brand partners in California.”

Strategic Rationale

  • Attractive Valuation: Origin House will pay US$7.025 million to acquire a state-of-the-art craft cultivation facility (the “Facility”) with annual production capacity of up to 1,400 kg of ultra-premium flower, implying a purchase price of US$5 per gram of funded capacity.
  • Expands Brand Acceleration Platform: Both current and potential brand partners have highlighted desire for bespoke exotic cannabis cultivation. The Acquisition further expands Origin House’s brand support and acceleration platform and will allow the Company to close pipeline opportunities with promising brands in California.
  • Experienced Team: Cub City’s experienced team will join Origin House, under the supervision of Origin House employees Drew and Karen Duval. This team will leverage its expertise and Cub City’s proprietary production techniques into an ultra-premium flower and pre-roll offering for the Company’s current and prospective brand partners.
  • Strategic Location: The Facility is strategically located in close proximity to FloraCal’s 62,000 sq. ft. facility. The additional 24,600 sq. ft. cultivation capacity will be focussed on third party cultivation.

Transaction Summary

Construction Loan Facility

  • Under current Cub City management, the Facility is undergoing construction with an estimated completion date of March 31, 2019. Upon the completion of construction, the Facility will be composed of a two-storey building with 11,000 sq. ft of cultivation space, and 7,400 sq. ft of distribution, processing and packaging space in addition to 6,200 sq. ft of office space, storage and common area.
  • Within 30 days, Origin House will provide a construction loan facility (the “Loan”) to Cub City in an amount of up to USD$1,700,000. Funds advanced under the Loan will bear simple interest at 12% per annum and mature two years from the date of the first advance. The Loan proceeds will be used for construction and equipment for the Facility.
  • The Loan will be secured by a first-ranking security interest on all present and future assets of Cub City and guaranteed by each of the members of Cub City on certain conditions.


  • The closing date for the Acquisition is projected to be March 31, 2019 (the “Closing Date”), when construction of the Facility is scheduled to be completed.
  • Some of the key assets, among others, to be purchased in the Acquisition include:
    • Cub City’s 20-year lease of the 24,600 sq. ft Facility; and
    • A 5-year local permit to cultivate, process, package and distribute cannabis. On Closing, Origin House will also have access to two state licenses: (a) a cannabis Type 11 Distribution License; and (b) a Small Indoor Cultivation license that may be used for future operations.
  • The total purchase price (the “Purchase Price”) for the Acquisition assets shall be $7,025,000 payable as follows:
    • Forgiveness of the principal and interest accrued under the Loan (the “Loan Balance”);
    • $3,525,000 less the Loan Balance, in immediately available funds on Closing Date;
    • $3,500,000 on the one-year anniversary of the Closing Date (“Holdback Disbursement Date”). Cub City will have the option to receive the second payment in cash, shares of Origin House, or a combination of both but not less than 50% in shares.

Related Party Transaction

Pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”), the acquisition of Drew and Karen Duval’s membership interests in Cub City constitutes a “related party transaction” as both Drew and Karen are senior officers of the Company. Accordingly, their interests were declared to the board of directors of the Company and the board has considered and approved the Acquisition. At the time the Acquisition was agreed to, the fair market value of the consideration payable by the Company was less than 25% of the market capitalization of the Company. As a result, the Company is relying on the exemptions from the minority shareholder and valuation requirements of MI 61-101 pursuant to Sections 5.5(a) and 5.7(a) of MI 61-101.

About Origin House

Origin House is a growing cannabis products and brands company operating across key markets in the U.S. and Canada, with a strategic focus on becoming a preeminent global house of cannabis brands. The Company’s foundation is in California, the world’s largest regulated cannabis market, where it delivers over 130 branded cannabis products 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. The Company 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 Canadian Securities Exchange (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.

Original Press Release

Published by NCV Newswire
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