Bottom Line
We’ve covered this merger in-depth at Grizzle and thought it was highly likely the deal ended up going through based on public and private comments from both management teams and the fact that the deal cleared all Department of Justice hurdles.
Though Origin House ended up having to renegotiate the terms that hurt previous investors, there was still significant money to be made in November for those who didn’t yet own the stock.
The market was so pessimistic on the chances this merger closed that at times there was a 50% difference between where Origin House was trading and where Cresco agreed to buy out the shares.
Any investor who bought Origin house on Nov. 13, when we published our article saying the deal was definitely going to close, would have made 30% on their money as of today.
This type of investing is called “merger arbitrage” and it can be very risky, but if done correctly with the right information backing up your views, it can also be very profitable.
Luckily for new investors, they ended up making some money plus are part owners of one of the largest and best positioned multi-state operators in America.
Historical Spread Between Origin House Stock Price and Cresco’s Offer
Source: SEDAR, Grizzle Estimates
The Deal Has Officially Closed
Cresco Labs (CSE: CL; OTCQX: CRLBF) confirmed today that its previously announced acquisition of Origin House has closed.
Following a series of negotiations, Origin House shareholders approved the amended deal terms at a special meeting held last month.
This included C$39 million in financing that has now been released from escrow and will be used to strengthen the newly formed company’s financial position.
Cresco, already one of the largest vertically integrated MSOs in the U.S., has become even bigger with the addition of Origin House’s cultivation, branding, and distribution assets.
The closure of the deal marks a key step in Cresco’s ambitious strategic plan to scale nationally over the next several years.
Under the terms of the agreement, Origin House shareholders received 0.7031 subordinate voting shares of Cresco for each Origin House share held. Origin House shares will cease trading on the Canadian Securities Exchange (CSE) as of the market close on Jan. 9.
Cresco CEO Charlie Bachtell said in a statement, “This is a transformational deal for Cresco and represents the culmination of the better part of a year’s work for both the Cresco and Origin House teams… In an industry that is in flux, Cresco is one of the most fundamentally sound and best-positioned multi-state operators in the U.S.”
Buyout Makes Cresco a Leading Wholesale Distributor in California
The purchase of Origin House significantly enhances Cresco’s distribution capabilities and accelerates its entry into the all-important California market.
It will now sell into more than 575 dispensaries that account for nearly two-thirds of all California storefront dispensaries.
It also adds a California-based cultivation operation to Cresco’s national footprint and will allow the company to further develop its own cannabis brands in the large, influential west coast market.
Origin House’s Continuum platform distributes 13 third-party cannabis brands including the popular Kings Garden products.
Industry Leading Indoor Cultivation to Expand Market Presence
The deal is expected to generate synergies with the help of Origin House’s ultra-premium indoor cultivation process that can help Cresco attain its goal of delivering market leading yield and quality metrics.
Among Origin House’s prized assets are a 92,000 square feet indoor cultivation and production facility that will enable Cresco to achieve brand equity and capture market share.
Origin House CEO Marc Lustig, who is expected to join Cresco’s board of directors, added, “Cresco’s focus on the middle two verticals of the value chain – brands and wholesale distribution – as the key to creating long-term shareholder value, is aligned with the philosophy we had at Origin House.”
In the end, the total price tag of the Cresco-Origin House deal was roughly half of the originally reported $1.1. billion, but still becomes one of the largest U.S. cannabis acquisitions since state-specific legalization for both recreational and medical usage.
Consistent with the pattern witnessed industry-wide since early 2019, the price of Cresco stock has been more than halved since peaking at $14.39 back in April but remains above its IPO price.
The company’s ability to successfully integrate Origin House to achieve synergies and grab market share could go a long way towards a share price recovery and future company growth.
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