- Origin House, formerly called CannaRoyalty, signs “voting support agreements” with a quarter of shareholders to defend against potential hostile takeover bids.
- Company still considering “bona fide” bids.
- M&A activity on the rise among publicly traded U.S. companies.
Canadian-based, California operator Origin House is adopting a defensive position against “opportunistic paper bids” by U.S. multi-state operators.
After reportedly receiving expressions of interest from three Canadian Securities Exchange-listed U.S. cannabis firms in recent months, Origin House has signed “voting support agreements” with 26 per cent of its shareholders, who have agreed to support management against potential hostile takeovers, the company announced Monday.
“Our shareholders have a lot better chance of getting lift off of us executing [on our plans] from here versus [us being bought and] expecting a $5-billion company to double,” Origin House CEO Marc Lustig told Cannabis Professional.
Formerly called CannaRoyalty Corp., Origin House owns several manufacturing, branding and distribution companies in California, along with 180 Smoke, a vaporizer retail chain in Canada. It purposefully does not focus on cultivation assets, seeing more value in finished products and distribution, according to Mr. Lustig. Likewise, with the exception of 180 Smoke, it has chosen to focus heavily on California.
Citing confidentiality, Mr. Lustig would not name the three companies that he said approached Origin House in recent months, saying only that they were “public companies with assets in multiple states.”
Over the past year, a number of large U.S. cannabis firms have gone public in Canada, raising hundreds of millions of dollars. These include Curaleaf Holdings Inc., Acreage Holdings Inc., Green Thumb Industries Inc. and MedMen Enterprises Inc., several of whom are sporting billion dollar-plus valuations.
“This is a bit of a message to those groups. Like we’re not stupid guys, so don’t try to come in the back door, we’d prefer you’d come in the front door if that’s the direction you’re headed,” Mr. Lustig said.
He said he’d consider “bona fide” bids from companies, although he’s skeptical that any of the multi-state operators have enough cash on hand to make fulsome bids for Origin House, whose market cap is more than $400-million.
What would a “bona fide” bid, without a serious cash component, look like?
“The objective is making sure that our shareholders get a [good] valuation, plus paper in a company whose model and sustainability as a leading company in the sector is delivered, not a capital markets smoke show that has a massive valuation today but doesn't have the right assets or the right business model backing it up,” Mr. Lustig said.
Origin House’s defensive move has nothing to do with the recent headline grabbing announcement from Ohio-based Green Growth Brands Inc. that it intends to make a hostile bid for Canadian grower Aphria Inc., Mr. Lustig said. But Green Growth’s move is indicative of coming consolidation across the industry, he said.
In the last quarter of 2018, publicly traded U.S. firms began using their elevated and liquid stock as currency for shopping sprees, similar to what Canadian licensed producers have been doing over the past two years. In October, MedMen agreed to buy PharmaCann LLC in all-stock transaction valued at US$682-million and Ianthus Capital Holdings Inc. announced plans to merge with MPX Bioceutical Corp. in an all-stock deal valued at $835-million. In December, Acreage Holdings announced plans to buy edibles company Form Factory Inc. for US$160-million, all stock.
"The marketplace in 2019 is going to be very active,” Mr. Lustig said. “I think there’s going to be an absolute avalanche of M&A activity generally in the cannabis sector.”
Origin House shares climbed 11.29 per cent on Monday, closing at $7.69.