Cresco merger renegotiated after $400 million drop in value
Cresco Labs, the Chicago-based multistate operator who filed over 30 facility applications in the state of Missouri, has renegotiated the terms of their merger with Origin House.
As the continued slide of publicly traded cannabis stock prices have helped to drag down the original value. In April, Cresco’s planned purchase of Origin House was valued at over $820 million. Now 7 months later, with the closing date set for this month, the value is approximately $446 million including nearly $30 million in Origin House equity financing.
With adjustments the revised deal is now expected to close in mid-January.
The terms of the renegotiated deal have little effect on overall value, the loss comes in the form of the stock value for purchase which has fallen nearly 50% since the original agreement was made.
“This is a transformational deal, which will significantly accelerate Cresco Labs’ growth in California, while providing a launchpad for the combined company to develop and distribute best in class brands across the country,” said Charlie Bachtell, CEO and Co-founder of Cresco Labs. “We are very pleased that our groups were able to mutually develop elegant solutions enabling this very important transaction to progress toward closing. Origin House has successfully built the premier cannabis distribution platform (Continuum) in one of the largest cannabis markets in the world. Distribution in California is of utmost importance and a material position in the California market is a requirement for a cannabis industry leader. In addition, Origin House’s cultivation assets, FloraCal Farms and Cub City, are world-class and not only give Cresco Labs access to ultra-premium indoor cannabis for the California market, with quality and yields per square foot rarely seen in this industry, but bring access to a leadership team and cultivation system that will materially increase yields and quality standards across the rest of Cresco Labs’ national footprint.”
Mr. Bachtell continued, “Cresco Labs has cultivated a successful track record of disciplined execution and diligent stewardship of our shareholders’ capital. We recently launched a new advertising campaign in California which marks the beginning of the growth our combined company can generate in the state. The addition of Origin House will accelerate Cresco Labs’ California entry and aids our long-term plan to be successful in the two middle verticals in the value chain – distribution and branded products – a position which we expect will enable us to generate superior margins and returns on capital for our shareholders. We look forward to closing in January 2020 and working with Marc and the team at Origin House to create the strongest vertically integrated cannabis company in California and the most important cannabis company in the U.S.”
Marc Lustig, Chairman and CEO of Origin House added, “Having had an opportunity to re-engage and collaborate with the Cresco Labs team since the expiry of the Hart-Scott-Rodino Antitrust Improvements Act waiting period in October, we are even more excited about the opportunities available to the combined company both in California and beyond. The strategic footprint that Cresco Labs has built across the U.S., backed by a portfolio of the country’s top consumer brands, is a perfect match for Origin House’s distribution leadership in one of the most dynamic cannabis markets in the world – California. This deal represents an opportunity for Origin House to accelerate its growth and margin profile by gaining access to Cresco Labs’ leading portfolio of brands, joining what I believe is the most innovative U.S. multi-state operator in existence today, to build value for our California brand partners, our combined customer bases and for our shareholders.”
Mr. Lustig added, “The equity market environment has changed meaningfully since we first announced this proposed transaction. While this has presented challenges, it will also present opportunities for companies with quality assets and brands to quickly gain market share and build long-term shareholder value. The Financing announced in connection with this transaction will provide additional capital that the combined company expects to be in a position to use to prudently accelerate growth as opportunities continue to arise. Origin House continues to leverage its statewide brand support and distribution platform, while Cresco Labs has built a footprint that covers over 70% of the available U.S. customer base, backed by a portfolio of leading in-house brands and one of the best teams in the business. We believe that continuing with the Arrangement on the amended terms is in the best interest of Origin House and all of its shareholders.”
The Board of Directors of Origin House unanimously recommended the approval of the amended transaction as amended.