Origin House Announces Record Quarterly Revenue of $21.4 million for the Second Quarter of 2019; Sequential Growth of 91% from Q1 2019

 In News Release

Ottawa, Canada – August 28, 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 six-month periods ended June 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 six months ended June 30, 2019and the Company’s Condensed Interim Consolidated Financial Statements for the three and six months ended June 30, 2019, which will be filed on SEDAR by August 29, 2019. 

Corporate Highlights for the second quarter ended June 30, 2019 

  • Entered into a definitive agreement to be acquired by Cresco Labs for approximately $1.1 billion, forming one of the largest vertically integrated multi-state cannabis operators in the U.S.; 
  • Closed the acquisition of Cub City LLC (“Cub City”), adding expertise in the production of bespoke, exotic cannabis and a team that has produced for some of the top craft flower brands in California; 
  • Doubled FloraCal’s cultivation capacity in Sonoma County, California. Cultivation of ultra-premium cannabis began in the newly expanded space in July 2019; 
  • Began to distribute Cresco-branded products through Continuum in June 2019. 

Corporate Highlights subsequent to the quarter ended June 30, 2019 

  • Entered into a binding term sheet agreement with Opaskwayak Cree Nation (“OCN”) for C$12 million in debt financing 
  • The Company’s subsidiary Trichome Financial (“Trichome”) and 22 Capital Corp. (“22 Capital”) announced the unanimous approval from their respective shareholders for their amalgamation that will result in a reverse take-over of 22 Capital by the shareholders of Trichome; and 
  • Closed the sale of its equity interest in Alternative Medical Enterprises LLC (“AltMed”) for proceeds of US$6.0 million. The divestment of AltMed marks the completion of a key step toward the closing of the Company’s Arrangement with Cresco Labs. 

Management Commentary 

Marc Lustig, Chairman and CEO of Origin House commented, “I am very proud of the entire Origin House team for generating another quarter of record revenue growth, leveraging the California brand support and distribution platform we built over the past several years, to deliver results for shareholders. It speaks to the strength and maturity of our organization that we were able to increase our share of shelf in California while preparing to integrate with Cresco Labs. To that end, in this quarter, we successfully executed on the sale of Alternative Medical Enterprises LLC generating a 156% return on investment, our distribution division Continuum entered into a distribution agreement with Cresco and began distributing Cresco branded products across California, and we have made substantial progress on post-closing groundwork.” 

Mr. Lustig continued, “In California, we have built a foundation that is capable of supporting a much larger business and expect to begin to drive significant operating leverage as we continue to grow revenue. With additional regulatory pressure on the illegal market in California, we expect 2020 to be a big year in the state. I am as confident as ever that the combination of Cresco Labs’ scale, expertise and brand portfolio with Origin House’s proven track record of leveraging our California-wide distribution footprint, is the best way for shareholders to participate in this growth. Together, we will be well-positioned to build a national, and one day, global house of brands.”   

Update on Acquisition by Cresco Labs 

As per the previously announced plan of arrangement pursuant to which Cresco Labs Inc. (“Cresco Labs”) will acquire all of the issued and outstanding shares of Origin House (the “Arrangement”). As recently disclosed, in connection with the antitrust review by the United States Department of Justice Antitrust Division (the “DOJ”) pursuant to the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the Company and Cresco Labs received requests for additional information (“Second Requests”) from the DOJ. Both companies are in active discussions with the DOJ regarding the Second Requests and are confident that the Arrangement will be completed as planned. 

Update on California Licensure 

The Company also announced that its California distribution division, Continuum, has received a provisional state distribution license for its West Sacramento location from the California Bureau of Cannabis Control.  This is the third such license issued to Continuum, and the ninth annual or provisional license received by an Origin House subsidiary. It also marks the completion of Origin House’s previously announced transition from temporary licensure to annual and provisional state licenses, which last a full year from issuance.

Financial Highlights for the second quarter ended June 30, 2019

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

  • Revenue was $21.4 million as compared to $3.5 million; 
  • Gross margin including gains on biological assets was $4.4 million as compared to $0.8 million; 
  • Operating expenses were $23.5 million as compared to $6.3 million; 
  • Loss from operations was $19.0 million as compared to $5.5 million; 
  • Net loss, driven by non-operating charges, was $34.9 million as compared to net income of $9.3 million; 
  • Adjusted EBITDA loss was $21.0 million as compared to Adjusted EBITDA income of $11.1 million.  

The following non-operating factors increased the Company’s Q2 net loss:

  • In connection with the Arrangement with Cresco Labs, $2.1 million in transaction costs were expensed as part of Selling, General and Administrative Expenses under Operating costs.   
  • Two non-cash, balance sheet adjustments arising out of the terms of the Arrangement with Cresco Labs (i.e. (i) the Sale of AltMed; (ii) the acceleration of the 180 Smoke acquisition contingent consideration) totaling $13.4 million were recorded as part of Other expenses.  

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

  • Cash and cash equivalents were $14.8 million as compared to $69.2 million; 
  • Total assets of $258.8 million as compared to $230.7 million; 
  • Current assets of $57.0 million as compared to $86.0 million; 
  • Current liabilities of $62.8 million as compared to $26.2 million; and
  • Long-term debt financing of nil as compared to $16.0 million. 

Results of Operations (Summary)          
The following tables set forth consolidated statements of financial information for the three and six-month periods ended June 30, 2019 and June 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 June 30, 2019 and June 30, 2018 and the Company’s Financial Statements for the periods ended June 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 August 29, 2019 

Liquidity

Revenue by Type

Cost of Sales by Revenue Type

Gross Profit by Revenue Type

Gross Margin by Type

Operating Expenses 

Non-IFRS Financial Measures

The Company has provided unaudited financial information. 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:

General
info@originhouse.com
1-844-556-5070

Investors
Jonathan Ross, CFA
LodeRock Advisors Inc.
jon.ross@loderockadvisors.com
416-283-0178

Media
Priyam Chakraborty
Senior Communications Manager, Origin House
pchakraborty@originhouse.com
647-232-9287

Disclaimer Regarding Financial Information

The financial information presented in this news release is based on unaudited management prepared financial statements for the three and six months ended June 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 second quarter ended June 30, 2019, which will be filed on SEDAR (www.sedar.com) by August 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 June 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 with respect to the satisfaction of conditions precedent to the closing of the Arrangement, the Company’s ability to complete the Arrangement, the future growth and viability of the California cannabis market, the expected growth and performance of Origin House and/or Cresco Labs upon completion of the Arrangement, the expected return to shareholders resulting in the combination of Origin House and Cresco Labs, the ability of Origin House and Cresco Labs to build a global house of brands, the expected completion date of construction to FloraCal and Cub City facilities, the expected capacities of the FloraCal and Cub City facilities upon construction completion, 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.