Origin House (CNSX:OH) CEO on Record-Breaking Combination with Cresco Labs Inc (CNSX:CL)

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Origin House (CNSX:OH) (OTCMKTS:ORHOF) (FRA:CY4) CEO Marc Lustig discusses the company’s acquisition by Cresco Labs Inc (CNSX:CL) (OTCMKTS:CRLBF). The deal marks the largest-ever purchase of a public company in the US cannabis space. Lustig notes that the all-stock transaction secures much-needed expansion for Origin House and access to the all-important California market for Cresco. He believes Cresco is the perfect partner for Origin House because both companies share the same philosophy on branding. Collectively, Origin House and Cresco have the largest distribution footprint in the United States. Lustig believes the combined entity has the potential to become the most valuable cannabis company in the industry. Together, Origin House and Cresco have a market cap of $5 billion and Lustig is thrilled with how he combined entity stacks up against leading Canadian LPs.

Transcript:

Narrator: Origin House is a California-based cannabis products and brands company operating across the US and Canada. Origin House’s brand development platform is operated out of five licensed facilities located across California, and provides distribution, manufacturing, cultivation and marketing services for its brand partners.

The company is developing infrastructure to support the proliferation of its brands internationally, including through its acquisition of Canadian retailer, 180 Smoke.

Origin House’s shares trade on the Canadian Securities Exchange under the symbol OH.

James West:   I’m joined now by Marc Lustig, who is the CEO and founder of Origin House, which trades on the CSE under the symbol OH. Marc, welcome back.

Marc Lustig:  Thanks for having me.

James West:   Marc, you originally founded CannaRoyalty Corp. as a company that was deploying capital into various opportunities in Canada initially and then the United States, and you morphed this story so many times that even though I talk to you on a regular basis in the context of this show, I always have to refresh my memory of what the company is today, because you keep making these moves.

Now today, you’ve announced this combination with Cresco Labs, who’s going to acquire you in an all-stock transaction?

Marc Lustig:  That’s correct.

James West:   And it was at a 30 percent premium to market of the 30-day VWAP, you were saying?

Marc Lustig:  25 percent.

James West:   25 percent. So basically, a win for everybody involved?

Marc Lustig:  Everyone should be very happy; probably most importantly, they should be happy from this day forward, because of the combination of those two companies.

James West:   Sure. Okay, now, what is the compelling logic to combine the two companies?

Marc Lustig:  It really, first and foremost, has to do with strategy and management philosophy. So you know, to answer your first question, I built, with a great team around me, a company that became Origin House, which was the largest distributor of branded products for the California market. And then we bought 180 Smoke as a way to give our shareholders and ourselves access to the Canadian market in a lot more different way than the Canadian licensed producer has gotten that footprint.

And so, we were very careful and very disciplined to stay focused on distribution and manufacturing of brands. Now every company wants to be in the brands game, but lucky for us, we were there early – in California, which is a real market where we’ve been there, and we’ve spoken about this quite a bit – you have real competition, and you have customers who are sophisticated and they compete on things like quality and price and durability and access to those products.

And so it was a great breeding ground for the company that we built. And the next part of our strategy was going to be, how do we expand into other states? Because we had built what we thought was a very solid platform in California, and we had been looking at our expansion plans into other states, and that’s when we met with Cresco. And to us, Cresco has built this phenomenal network of licenses and vertically integrated operations in key states, including Ohio and Pennsylvania and Illinois and Michigan and Florida and Arizona. So we had always wrestled with this idea of how we expand, and we met the perfect partner who shares our philosophy regarding the importance of branded products and distribution.

James West:   So you’ve known Cresco management for quite some time, then.

Marc Lustig:  A couple of quarters.

James West:   A couple of quarters. Interesting. Does this change anything in terms of, Cresco was primarily involved in the medical side, originally, if I’m not mistake. So now it has evolved into a multi-state operator. So is the acquisition of Origin House by Cresco an incremental step in a – or part of the execution of a larger strategy? Or is kind of like an achieved long-term goal of theirs where now they can sit back, rest on their laurels a bit and grow organically?

Marc Lustig:  I would say that is comes back to the importance of California. So they had excellent assets, or have excellent assets, in a wide variety of very important states, including Massachusetts, which is a rec market. So even though Illinois is a medical market, that’s where they started, that’s where they’re from – the company is headquartered in Chicago – they did start to branch out into recreational markets like Michigan and Massachusetts.

But I would say their interest in Origin House focused around the state of California, and they wanted to be in California. They wanted Cresco brands to have access to the California market. So now we’re starting to get into the very specifics of why this transaction makes so much sense, you’ve got our branded products and our brand partners who want access to other states, that can now be achieved by our relationship with Cresco; and you have Cresco, which wanted their branded products in California, and that was one of the key states that they didn’t have access to.

And so that’s where the synergies are going to be coming from.

James West:   Right. That makes perfect sense. Great. So what are you going to do, now?

Marc Lustig:  I’m joining the Board of Cresco. I’m going to be on the senior management team, and you know, obviously we announced this transaction this morning; I’ve been asked all day about, you know, what I do now with my stock, and how do I look at this after how well the Origin House story has gone. And I honestly believe that my wealth creation and the shareholders of Origin House, the most exciting part of our transition happens right now. Like, I think there’s more upside from here than when we started this, you know, even though the stock went public at 2 and closed on Friday at 12. And this transaction is around that level. So I honestly believe that from here, we could become the most valuable cannabis company.

James West:   Interesting. So the consolidation impetus in the market generally, I mean, especially in the United States – there’s a lot of people who think, oh, well, there’s, you know, a limited interest in consolidation while there’s still this sort of ban on inter-state commerce in cannabis. But would you say that that is something that actually in the process of accelerating rather than seeming to be so sleepy and quiet?

Marc Lustig:  I mean, look, there’s so many things that you’re touching on that are probably worth your audience hearing. First of all, the reality is that you’ve had an investing public in the United States who didn’t have access to many names to invest in that gave them exposure to US cannabis assets, and that’s why you saw this massive flow of capital into Canada to invest in Canadian licensed producers, who were very smartly positioned. They started listing on US exchanges, and that was what got capital into those companies, and probably has a big part of the valuations of those companies.

Lo and behold, in the last six months, and that’s obviously Cresco became a public company in Q4, and so did Acreage, and so did CURA and Harvest and these types of names – all of a sudden, the US investor said, What am I doing? Why do I need to invest in a Canadian licensed producer when I’m comfortable investing into a home-grown, so to speak, US-based cannabis company?

And so you know, I think when you look at how much appetite there is in the US investing public for the cannabis sector, and at the same time you look at how few names there are to invest in, that would leave ourselves with Cresco, obviously, and the names that I mentioned – where have you ever seen demand for equity exposure into an exciting sector like cannabis, with this few names to invest in?

And so to answer the real question, it’s about scale. So I think that what we looked at on the Origin House side was, we built a really strong platform in California; how are we going to expand to give our shareholders access to a bigger market? And that’s where Cresco just fit perfectly.

James West:   Wow, wonderful. Cresco is – does it, I mean, is there any chance that Cresco will step into the international arena at some point, should legislation permit?

Marc Lustig:  I would say that that’s probably later in the plans. The reality is, when you have 11 states the size of what our combined companies have access to, the potential and opportunity is sitting right in front of you, so why would you waste one hour or one dollar not, you know, mining out the potential in the markets that you have built out?

James West:   Sure. Okay, so what is the, what does the whole package look like, now?

Marc Lustig:  The whole package is the largest US footprint of branded and distribution assets in the North American cannabis sector, that spans between 11 different US states including Michigan, Massachusetts, Ohio, Pennsylvania, Illinois, Arizona, Florida and now California. In addition to Canada; you remember that we made an acquisition of 180 Smoke, which was our way of playing the Canadian cannabis market, and I think it’s probably one of the brightest ways to play the Canadian cannabis market that I see, including what we’re starting to do on the cannabis side with 180.

And so you’re left with a footprint that spans the US and Canada, has now a combined market cap of 5 billion. If you compare that to a number of large Canadian licensed producers, who have market caps that are 3, 4, 5 X our valuation and only have access to Canada and may have a supply agreement to Germany, but are probably very excited to get into the US market, we like how that stacks up for our investors.

James West:   Sure, you bet. All right, Marc, let’s leave it there. Congratulations on the transaction, and we’ll look forward to following the development of Cresco going forward.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.