Chicago-based Cresco Labs Inc. (OTCQX: CRLBF) (CSE: CL) and Ottawa-based CannaRoyalty Corp. (d/b/a Origin House) (OTCQX: ORHOF) (CSE: OH) agreed on April 1 for Cresco Labs to buy all the shares of Origin House for C$12.68 each, a 5% premium over the previous day’s price, in a deal worth C$1.1 billion (US$836k) on a fully-diluted basis.
This is the largest public company acquisition in U.S. cannabis industry history. The combined firm will be one of the largest vertically-integrated multi-state cannabis operators in the US with a market cap of over $5 billion.
The deal looks smart as it combines a distributor with a producer, and did not require a large price premium. However, the market has been calm about it.
Shares are mostly unchanged in the 12 days since the deal. In the first days following it, Cresco shares rose 14% but have since settled to +2% from its pre-deal price, at $11.50 today. Origin House shares similarly rose 12% but have settled to $8.86, up 4%.
Origin House is a leading distributor in California, the largest cannabis market, with five facilities there, providing distribution, manufacturing, cultivation, and marketing to partners. It delivers over 130 products from 50+ cannabis brands to 500 dispensaries in California, for a nearly 60% market penetration. It is also expanding into Canada, recently buying Canadian retailer 180 Smoke. Its strategy is to buy into the most successful brands it distributes, eventually building its own national brands. It is the registered business name of CannaRoyalty Corp and has a website at www.originhouse.com.
Cresco Labs is a leading U.S. grower, processor, and retailer of cannabis. It has products in all major consumer segments: everyday cannabis, premium grade, medical and edibles. Its website is at www.crescolabs.com.
With this deal, plus Cresco’s pending acquisition in Florida and licensure in Michigan, Cresco will have operations in 11 states, 23 facilities, more than 1.5 million SF of cultivation, and licenses to operate up to 51 retail dispensaries. Its brands will be sold in over 725 dispensaries across the US, giving it the largest distribution footprint of any cannabis company in the US.
In terms of market cap, Cresco will jump ahead of Harvest Health, from roughly the number seven spot in the industry, to number six, with a market cap of about $5 billion.
The combined company will:
-accelerate Cresco Labs’ entry into the California market;
-enhance Cresco Labs’ capital markets presence;
-give Origin House shareholders 20% of Cresco, plus a 26% premium over their 30-day average price.
“(The deal) establishes Cresco Labs as the leading multi-state operator with one of the largest distribution platforms in California…said Cresco Labs CEO and Co-founder Charlie Bachtell. “…This significantly accelerates our efforts to build the first national house of brands…”
Marc Lustig, Chairman, and CEO of Origin House said, “…this transaction is directly aligned with our strategy to build…in California and… the rest of the U.S. market, and Canada. By partnering with one of the largest…U.S. multi-state operators… Origin House will offer its partners access to 10 additional states, with licenses…already in place.”
The deal has been unanimously approved by the Board of Directors of Cresco Labs and Origin House. It contains a termination fee of C$45 million to Origin House if canceled. It is subject to regulatory approvals and the approval of two-thirds of the votes cast by Origin House shareholders in a June 2019 meeting, as well as other conditions.
Source Cresco press release