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Origin House Achieves Record Quarterly Revenue of $22.8 million for the Third Quarter of 2019

Press Release

Announces Receipt of Interim Order in connection with the Amendment to the Arrangement with Cresco Labs Inc. (“Cresco Labs”) – Shareholder Meeting to take place on December 31, 2019

  • Revenue growth of 7% vs. Q2-2019 (up 244% vs. Q3-18) while preparing for integration with Cresco Labs and completing HSR Review process.
  • Continued gross margin expansion (+400bps sequentially in Q3) as optimized brand portfolio continues to scale and ultra-premium flower sales increase, supported by a 3x capacity increase.
  • Introduced Cresco Labs products through Continuum and drove rapid penetration over a period of four months, positioning Cresco Labs as one of Origin House’s top distributed brands.

Ottawa, Canada – November 27, 2019 – CannaRoyalty Corp. d/b/a Origin House (CSE: OH) (OTCQX: ORHOF) (“Origin House” or the “Company”), a North American cannabis products and brands company today announced its financial results for the three and nine-month periods ended September 30, 2019. 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”).

For a more comprehensive overview of the Corporate and Financial highlights presented in this press release, please refer to Origin House’s Management Discussion and Analysis of the Financial Condition and Results of Operations for the three and nine-month periods ended September 30, 2019, and the Company’s Condensed Interim Consolidated Financial Statements for the three and nine-month periods ended September 30, 2019, which will be filed on SEDAR by November 29, 2019.

Corporate Highlights for the third quarter ended September 30, 2019

  • Increased cannabis cultivation capacity approximately threefold. This continued expansion drove additional revenues and improved margins through the sale of ultra-premium flower.
  • Streamlined brand portfolio to focus on category winners including the onboarding of more Cresco products to leverage the planned California marketing launch by Cresco in Q4-2019.
  • Redesigned the sales and operations process in California to better align with an increasingly mature market in California, which is expected to ultimately lead to better margins.
  • Took measures to reduce operating costs by approximately $1.2 million from the second quarter of 2019, preparing for the integration with Cresco Labs and paving the path towards profitability.
  • Received an additional tranche of $15 million in debt financing from Opaskwayak Cree Nation to fund the construction and expansion of the Company’s cannabis production facilities in Sonoma County and for general corporate purposes.
  • Closed the sale of its interest in Alternative Medical Enterprises LLC for proceeds of approximately $8 million (USD $6 million), resulting in an approximate return on investment of 156%.

Corporate Highlights subsequent to the quarter ended September 30, 2019

  • On November 26, 2019, announced the closing of a non-brokered financing, where the Company issued approximately 9,800,000 common shares of Origin House (“Common Shares“) at a price of C$4.08 per Common Share for aggregate net proceeds of approximately C$39,600,000.
  • The Company and Cresco Labs signed an amendment to the Arrangement Agreement (the “Amendment”) that provided for certain changes to its covenants and agreements.
  • The Company’s subsidiary Trichome Financial Corp. (“Trichome”) and 22 Capital Corp. completed a reverse takeover. On October 10, 2019, Trichome began trading on the TSXV.
  • The Company achieved full integration with the California Cannabis Track-and-Trace system at each of its six licensed facilities in the state.
  • The Company’s distribution arm, Continuum, entered into an agreement to become the exclusive distributor of Cannabiniers™, producer of Two Roots™, Creative Waters™, and Baskin™ cannabis-infused products in California.

Financial Highlights for the third quarter ended September 30, 2019

The following are the major financial highlights of Origin House’s operating results for the three months ended September 30, 2019, compared to the three months ended September 30, 2018:

  • revenues were $22.8 million as compared to $6.6 million, an increase of 244%;
  • gross margin was $5.7 million as compared to $0.3 million, an increase of 1796%;
  • operating expenses were $19.8 million as compared to $10.1 million, an increase of 97%;
  • net loss of $25.6 million as compared to net loss of $7.5 million, a decrease of 242%;
  • net loss per basic and diluted share of $0.34 as compared to net loss per share of $0.12, a decrease of 183%; and
  • adjusted EBITDA loss of $12.1 million as compared to adjusted EBITDA loss of $2.1 million, a decrease of 470%.

The following is a summary of key balance sheet items as at September 30, 2019, compared to December 31, 2018:

  • cash was $22.4 million as compared to $69.2 million, a decrease of 68%;
  • total assets of $274.1 million as compared to $230.7 million, an increase of 19%; and
  • total liabilities of $134.5 million as compared to $57.7 million, an increase of 133%.

Management Commentary

Marc Lustig, Chairman and CEO of Origin House commented, “I am very proud of our team’s performance during the first nine months of 2019, with revenue of $55.3 million up more than five-fold from the same period last year. Our growth during Q3 speaks to the strength of the organization, given the dedication of substantial resources to the Cresco Labs arrangement transaction and headwinds from the vape crisis, which impacted both our California and Canadian operations. Even more importantly, we drove continued gross margin improvement during the quarter. We have substantial room to continue expanding revenue and margins over time, driven by a threefold increase in ultra-premium flower capacity at our FloraCal and Cub City facilities, the streamlining of vendor relationships to focus on category winners, and a steady increase in capacity utilization at our facilities in California.”

Mr. Lustig continued, “Having had the opportunity to re-engage with the team at Cresco Labs following our successful navigation of the U.S. antitrust review process, I am even more confident today that this is the right move for Origin House. This transaction will bring Origin House shareholders an ownership stake in a top-tier national platform that will enable us to more efficiently execute our plans both in California and nationally. In the current capital markets environment, in particular, we expect to see even better opportunities for companies with solid balance sheets and quality assets and brands to build an irreplaceable position in this industry and set themselves up to drive sustainable long-term return on capital and performance for shareholders. The Origin House board of directors has unanimously determined that the transaction with Cresco Labs is in the best interests of the Company and fair to Origin House shareholders, and strongly recommend that shareholders vote for this transaction.”

Origin House obtains interim order in connection with the amendment to its plan of arrangement with Cresco Labs

Origin House today announced that the Company has obtained an interim order from the Ontario Superior Court of Justice (Commercial List) (the “Court“) in connection with the previously announced amendment to its statutory plan of arrangement (as amended, the “Arrangement”), pursuant to which Cresco Labs will acquire all of the issued and outstanding shares of Origin House, with each holder of a common share of Origin House receiving 0.7031 of a subordinate voting share of Cresco Labs and each holder of a class A compressed share of Origin House ultimately receiving 70.31 subordinate voting shares of Cresco Labs  (in each case, subject to adjustment in accordance with the Arrangement).

In connection with the Arrangement, Origin House has completed a non-brokered financing of approximately 9,800,000 common shares of Origin House at a price of $4.08 per common share for aggregate gross proceeds of approximately C$39,600,000.  Substantially all of the proceeds will be held in escrow pending closing of the Arrangement.

Receipt of the interim order authorizes Origin House to hold a second special meeting of shareholders (the “Meeting“) in respect of the Arrangement on December 31, 2019. The Arrangement is subject to the approval of at least 66⅔% of the votes cast by shareholders present in person or represented by proxy at the Meeting as well as the approval of at least a majority of the votes cast by Origin House’s minority shareholders present in person or represented by proxy at the Meeting. Assuming that the Arrangement is approved at the Meeting, Origin House is currently expected to return to Court on or about January 6, 2020 to seek a final order to implement the Arrangement. The closing of the Arrangement is subject to the satisfaction of certain other closing conditions customary in a transaction of this nature. Assuming that these conditions are satisfied, it is expected that the closing of the Arrangement will occur by the middle of January 2020.

Origin House has set November 25, 2019 as the record date for the determination of shareholders entitled to receive notice of and to vote at the Meeting.

Further details regarding the Arrangement and the procedures for shareholders to vote their Origin House shares will be included in the management information circular, the letter of transmittal and the related proxy materials in respect of the Meeting, which are expected to be mailed to Origin House shareholders at the start of December 2019 and will be made available on SEDAR at www.sedar.com, under the Company’s profile.

Results of Operations (Summary)

The following tables set forth consolidated statements of financial information for the three and nine-month periods ended September 30, 2019 and September 30, 2018. 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 September 30, 2019 and September 30, 2018 and the Company’s Financial Statements for the periods ended September 30, 2019, which will be published on Origin House’s issuer profile on SEDAR at www.sedar.com and the Company’s website at www.originhouse.com, by November 29, 2019.

Read More: https://originhouse.com/origin-house-achieves-record-quarterly-revenue-of-22-8-million-for-the-third-quarter-of-2019/

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