Origin House's Revenue Skyrockets as the California Cannabis Market Gains Momentum

Investors have become accustomed to Origin House (OTC: ORHOF) delivering sizzling revenue growth. In May, for example, the cannabis brands and distribution company reported a 41% quarter-over-quarter sales increase in the first quarter.

But has Origin House kept the impressive momentum going? The company answered with a resounding "yes" with its second-quarter results announced before the market opened on Wednesday. Here are the highlights from its latest quarterly update.

Welcome to California sign with a picture of a cannabis leaf

Image source: Getty Images.

Origin House results: The raw numbers

Metric  Q2 2019  Q2 2018  Change
Revenue CA$21.4 million CA$3.5 million 511.4%
Net income  (CA$34.9 million) CA$9.3 million N/A
Earnings (loss) per diluted share (EPS) (CA$0.47) CA$0.17 N/A

Data Source: Origin House. N/A = Not applicable. 

What happened with Origin House this quarter?

Most of Origin House's tremendous revenue growth in the second quarter stemmed from its California operations. Product sales in California soared 444% year over year to $16.9 million in Canadian dollars ($12.7 million). The company's Canadian operations kicked in another CA$4.1 million in sales, royalties, interest, and other income in the second quarter, compared with no revenue in the prior-year period. In total, Origin House delivered another impressive quarter-over-quarter revenue increase of 91%.

The company's bottom line didn't look as great, though. Origin House reported an operating loss in the second quarter of CA$19 million, resulting from a lower gross margin and significantly higher spending. It incurred CA$2.1 million in transaction costs related to its pending acquisition by Cresco Labs (OTC: CRLBF). Origin House also recorded two noncash adjustments totaling CA$13.4 million related to the agreement with Cresco.

During the second quarter, Origin House completed its acquisition of Cub City, a producer of craft cannabis flower brands in California. The company doubled its FloraCal subsidiary's cultivation capacity in Sonoma County, and it began to distribute Cresco's products in June.

Origin House ended the second quarter with no long-term debt, compared with CA$16 million at the end of 2018. Its cash and cash equivalents totaled CA$14.8 million as of June 30, 2019, versus CA$69.2 million as of Dec. 31, 2018.

What management had to say

CEO Marc Lustig said:

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.

Looking forward

The main thing for investors is the closing of the acquisition of Origin House by Cresco Labs, expected sometime in the fourth quarter of 2019. This deal will greatly increase Cresco's status as a major player in the U.S. cannabis industry. 

Looking a little farther into the future, Lustig said that "with additional regulatory pressure on the illegal market in California, we expect 2020 to be a big year in the state." The addition of Origin House's distribution and brands to Cresco's operations should enable the combined company to capitalize on the growth in the important California cannabis market.

Investing in marijuana stocks can be quite volatile. But if Origin House continues to demonstrate the kind of strong revenue growth that it did in the second quarter after it's acquired, Cresco Labs could become an even more attractive stock for investors seeking to profit from the cannabis boom.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Origin House. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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