What happened
Shares of cannabis company Origin House (ORHOF), formerly known as CannaRoyalty, rose 31.7% in March, according to data from S&P Global Market Intelligence. For context, the S&P 500 returned 1.9% last month.
In April, the stock has climbed 4.1% through Friday, about double the broader market's gain over this period.
Origin House is a Canada-based distributor and provider of brand support services that's been focused on the massive California cannabis market.
Image source: Getty Images.
So what
March
Origin House stock entered March with solid momentum, powered by investor enthusiasm about the company's prospects in the burgeoning legal cannabis market. There were also several specific catalysts that boosted the stock last month:
- On March 13, shares popped 5.4%, which we can attribute to the company's announcement the day before that it launched Continuum, a "wholly owned California-based distribution platform, formed through the operational integration of RVR Distribution and Alta Supply."
- On March 22, the stock jumped 7.5%, following Origin House's announcement the day before that its California subsidiaries Kaya and FloraCal received annual cannabis operating licenses from the state of California. These are the first of the company's five licensed facilities in the Golden State to transition from temporary to annual licensure.
- On March 29, shares leaped 5.7%, after the company announced the day before that it would be converting 33.7 million Canadian dollars of debt into common stock. The upshot here is that this will lighten the company's debt load, though it will be dilutive to shareholders.
Data by YCharts.
April
April started with a bang in the cannabis space: On April 1, Origin House and Cresco Labs (CRLBF 2.49%), a Chicago-based cannabis company, announced that Cresco was acquiring Origin House in what the companies tout as "the largest public company acquisition in the history of the U.S. cannabis industry." The combined entity will be "one of the largest vertically integrated multi-state cannabis operators in the United States," according to the press release.
Origin House shareholders will receive 0.8428 shares of Cresco Labs for each share of Origin House they own. The transaction values Origin House at approximately 1.1 billion Canadian dollars, or CA$12.68 per share (about $9.50).
On April 1, shares of Origin House closed down 3.2%, while shares of Cresco jumped 4.6%. These initial reactions make sense when one considers that the roughly $9.50 per share that Origin House investors are slated to receive represents only about a 5% premium over the stock's closing price of $9.04 on March 29, the last trading day before the deal was announced. Cresco Labs shareholders apparently liked that their company is poised to gain a more powerful position in the fast-growing U.S. cannabis market without having to pay a big premium for Origin House.
Both companies' share price movements on April 1 were small in the scheme of things. Both stocks have been big winners in 2019, with each nearly doubling through April 5.
Data by YCharts. S&P 500's total return, which includes dividends, is 16% over the period shown.
Now what
The press release outlined what the combined company will look like upon completion of the transaction, and receipt of Cresco's license in Michigan and the closing of its pending acquisition in Florida:
Cresco Labs will have operations in 11 states, 23 facilities, more than 1.5 million square feet of cultivation, and licenses to operate up to 51 retail dispensaries. Cresco Labs brands will be sold in over 725 dispensaries across the United States.
