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Origin House Delivers Sizzling Revenue Growth Thanks to Its California Cannabis Brands and a Key Canadian Acquisition

Keith Speights, The Motley Fool

This year has been a busy one so far for Origin House (NASDAQOTH: ORHOF). It's also been a very good year thus far for shareholders, as Origin House stock has soared. One reason for the company's sizzling year-to-date stock performance was the strong fourth-quarter revenue growth announced in April. 

Origin House reported its results for the first quarter of 2019 before the market opened on Wednesday. The cannabis brands and distribution company yet again delivered impressive sales growth. Here are the highlights from Origin House's first-quarter update.

Marijuana leaves on top of and next to $100 bills

Image source: Getty Images.

Origin House results: The raw numbers

Metric 

Q1 2019 

Q1 2018 

Year-Over-Year Change

Revenue

CA$11.2 million CA$0.6 million

1,635%

Net income (loss) from continuing operations

(CA$17.1 million) (CA$4.6 million)

N/A

Earnings (loss) per share (EPS)

(CA$0.25) (CA$0.10)

N/A

Data source: Origin House. N/A = Not Applicable. All numbers in Canadian dollars.

What happened with Origin House this quarter?

The number that really catches the eye with Origin House's first-quarter performance is the 1,635% increase in revenue over the prior-year period. However, that huge jump was due largely to a paltry revenue total in the first quarter of 2018.

What's definitely impressive, though, is that Origin House delivered quarter-over-quarter revenue growth of 41%. The company's acquisition of Canadian vape retailer 180 Smoke helped fuel that growth. Origin House reported revenue for its Canadian operations of nearly CA$1.6 million in the first quarter, compared to no revenue in the fourth quarter.

This acquisition closed in late February. If 180 Smoke had been part of Origin House at the beginning of the year, Origin House would have posted total revenue for the first quarter of CA$13.1 million and a slightly higher net loss of CA$17.7 million.

The biggest factor behind the company's strong sequential revenue growth, however, was its California operations. Origin House reported California product sales of more than CA$9.2 million, compared to only CA$84,773 in the prior-year period. In addition, the company's California operations had interest and other income in the first quarter of 2019 totaling CA$54,434. 

But while revenue soared, Origin House's spending skyrocketed even more. The company reported significant increases in sales and marketing, research and product development, and general and administrative expenses. As a result, Origin House posted a much wider loss than it did in either the prior-year period or the previous quarter.

The most important news for Origin House came after the end of the first quarter. In April, U.S.-based cannabis operator Cresco Labs (NASDAQOTH: CRLBF) announced plans to acquire Origin House for around CA$1.1 billion.

What management had to say

Origin House CEO Marc Lustig said:

This was a milestone quarter for Origin House, as the team drove solid organic growth within our Californian distribution and brands platform and completed meaningful strategic merger and acquisition-based initiatives including the addition of 180 Smoke in Canada. Moving forward through the balance of the year, we are confident that, once completed, the combination of Cresco Labs' scale and Origin House's Californiawide distribution footprint will further accelerate growth and build significant value for the shareholders of both companies.

Looking forward

An important shareholder meeting is scheduled for June 11, 2019. Origin House shareholders will vote on whether or not to accept the pending acquisition offer by Cresco Labs. Two-thirds of Origin House shares must be voted in favor of the deal for it to go through.

Assuming the acquisition is finalized, Origin House shareholders will own close to 20% of Cresco Labs. The two companies state that the combined entity will be "a North American cannabis powerhouse." Whether or not you agree with that description, Cresco Labs will become an even bigger player in the fast-growing U.S. cannabis market with Origin House rolled into its operations.

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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.