uploads/2020/01/cresco-labs.jpeg

Why Origin House’s Acquisition Is Vital for Cresco Labs

By

Updated

On December 31, 2019, Origin House (OH) announced that its shareholders had approved Cresco Labs’ (CRLBF) acquisition plan. On April 1, 2019, both companies had entered into an acquisition agreement.

According to the agreement, CRLBF would acquire Origin House in an all-stock deal. For each Origin House common share, shareholders would receive 0.8428 subordinate voting shares of Cresco Labs. For one Class A share, they would receive 84.28 subordinate shares.

However, on November 13, both Cresco Labs and Origin House agreed to amend the agreement. According to the new deal, Origin House’s shareholders would receive 0.7031 shares of Cresco Labs for every common share, and 70.31 shares of Cresco Labs for every Class A share.

Article continues below advertisement

However, the agreement is subject to the approval of the court and regulatory authorities. In its press release, Origin House stated that it would apply to the Ontario Superior Court of Justice on January 6 for approval of the new agreement. After closing the deal, Origin House would be delisted from the Canadian Stock Exchange and the OTCQX exchange.

Why Origin House’s acquisition is vital for Cresco Labs

Currently, Cresco Labs operates in Arizona, Illinois, Massachusetts, New York, Nevada, Ohio, and Pennsylvania. Plus, Origin House operates six licensed facilities in California. It also delivers over 50 brands of cannabis products to 400 retailers in the state.

So, Origin House’s acquisition would give CRLBF an entry into one of the largest cannabis markets in the world, California. Cresco Labs CEO Charlie Bachtell expects Origin House’s distribution network to aid in building a strong distribution network in the state, which could improve its margins. CRLBF also hopes that Origin House’s strong distribution network could prompt other premier cannabis companies to partner with it for distribution.

Performance of the cannabis sector in 2019

The cannabis sector underperformed the broader equity market last year. During the year, the ETFMG Alternative Harvest ETF (MJ) lost 31.4% of its stock value, while the S&P 500 Index increased by 28.9%.

Cresco Labs’ stock lost 3.5% of its value in 2019. The weakness in the cannabis sector appears to have dragged the company’s stock down. The company reported strong sales in the second quarter. However, it missed analysts’ expectations in the third quarter.

Despite the fall, Cresco Labs had outperformed its peers and the cannabis ETFs. Charlotte’s Web Holdings (CWEB), Organigram Holdings (OGI), and MedMen Enterprises (MMNFF) lost 34.5%, 34.1%, and 81.8% of their stock values, respectively.

Despite the cannabis sector underperforming the broader equity market in 2019, I believe the cannabis sector could perform better this year. The introduction of Cannabis 2.0 products and more states legalizing cannabis could drive the sector.

For more, please read Did the Cannabis Sector Bottom Out in 2019? Please visit 420 Investor Daily for more cannabis-related news and updates.

Advertisement

More From Market Realist