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

 In News 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.


Revenue by Type

Cost of Sales by Revenue Type

Gross Margin by Revenue Type

Gross Margin by Type

Operating Expenses

Non-IFRS Financial Measures

The Company has provided unaudited financial information in this press release. EBITDA and Adjusted EBITDA are non-IFRS measures and do not have standardized definitions under IFRS. The Company has provided the non-IFRS measures, which are not calculated or presented in accordance with IFRS, as supplemental information and in addition to the measures that are calculated and presented in accordance with IFRS. These supplemental non-IFRS 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 measures should not be considered superior to, as a substitute to, and should only be considered in conjunction with, the IFRS financial measures presented herein.

Adjusted EBITDA

About Origin House

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 California brand development platform is operated out of six 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 in Canada 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.

For further inquiries, please contact:

Jonathan Ross, CFA
LodeRock Advisors Inc.

Priyam Chakraborty
Senior Communications Manager, Origin House

Disclaimer Regarding Financial Information

The financial information presented in this news release is based on unaudited management prepared financial statements for the three and nine months ended September 30, 2019. Accordingly, such financial information may be subject to change. All financial information contained in this news release is qualified in its entirety with reference to the Company’s unaudited financial statements for the third quarter ended September 30, 2019, which will be filed on SEDAR (www.sedar.com) by November 29, 2019. While the Company does not expect there to be any material changes to the financial information presented in this news release, to the extent that it is inconsistent with the information contained in the Company’s unaudited financial statements for the second quarter ended September 30, 2019, the financial information contained in this news release shall be deemed to be modified or superseded by the Company’s unaudited financial statements. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation for purposes of applicable securities laws. Further, the reader should refer to the additional disclosures in the Company’s audited financial statements for the year ended December 31, 2018, previously filed on SEDAR.

Forward Looking Statements
Statements in this news release that are forward-looking statements are subject to various risks and uncertainties concerning the specific factors disclosed here and elsewhere in Origin House’s periodic filings with Canadian securities regulators. When used in this news release, words such as “will, could, plan, estimate, expect, intend, may, potential, believe, should,” and similar expressions, are forward- looking statements.
Forward-looking statements may include, without limitation, statements relating to the expected impact to the Company’s future revenues, margins, cashflow and/or profitability from its brand optimization measures, the redesign of its sales and operations process, and/or the reduction in its operating costs, the expected growth or performance of Origin House and/or Cresco Labs upon completion of the Arrangement, the availability of opportunity and capital to Origin House and Cresco Labs upon completion of the Arrangement, the terms of the Arrangement (including the timing, conditions and closing thereof), the timing of the Meeting, the timing of receipt of the final order in respect of the Arrangement, the timing, receipt and nature of shareholder, court and regulatory approval for the Arrangement, the Company’s ability to complete the Arrangement, the timing of filing of the Company’s unaudited financial statements for the third quarter ended September 30, 2019, unaudited financial statements for the third quarter ended September 30, 2019, the Company’s timing and process for expansion in Canada and globally, new opportunities, future growth other statements.
Although the Company has attempted to identify important factors that could cause actual results, performance or achievements to differ materially from those contained in the forward-looking statements, there can be other factors that cause results, performance or achievements not to be as anticipated, estimated or intended, including, but not limited to: dependence on obtaining regulatory approvals; investing in target companies or projects that are engaged in activities currently considered illegal under US federal law; changes in laws; limited operating history; reliance on management; requirements for additional financing; competition; hindering market growth and state adoption due to inconsistent public opinion and perception of the medical-use and adult-use marijuana industry and; regulatory or political change.
There can be no assurance that such information will prove to be accurate or that management’s expectations or estimates of future developments, circumstances or results will materialize. As a result of these risks and uncertainties, the results or events predicted in these forward-looking statements may differ materially from actual results or events.
Accordingly, readers should not place undue reliance on forward-looking statements. The forward-looking statements in this news release are made as of the date of this release. The Company disclaims any intention or obligation to update or revise such information, except as required by applicable law, and the Company does not assume any liability for disclosure relating to any other company mentioned herein.