Paves the way for brand and product expansion into Canadian market

Ottawa, Canada – February 20, 2019 – CannaRoyalty Corp. d/b/a Origin House (CSE: OH) (OTCQX: ORHOF) announced today that it has completed the previously announced acquisition (the “Acquisition”) of 180 Smoke and its affiliates (“180 Smoke”).

Transaction Highlights

  • 180 Smoke’s established Canadian footprint, proven retail experience and expertise building high-margin consumables brands in a highly regulated, competitive market provides a unique go-to-market opportunity for Origin House’s portfolio of California tested cannabis brands.
  • Adds revenues from rapidly expanding nicotine vape, e-juice manufacturing and cannabis hardware business which generated $11.7 million in net revenue in 2018, up 50% from $7.8 million in 2017[1].
  • Accelerating growth profile. 180 Smoke has 23 operating Vape storefronts, with more under development. 180 Smoke plans to aggressively grow its online and wholesale channels, as well as its strategic manufacturing business.
  • The vast majority of 180 Smoke’s tier-1 Canadian brick and mortar locations are well-positioned to dispense cannabis products.
  • 180 Smoke has established key relationships with popular international Vape brands, as well as larger players entering the harm reduction space. 180 Smoke is one of the distributors of JUUL products in Canada and is also a national retail distributor to Imperial Tobacco Canada for its Vype ePod and ePen brands and glo Heat Not Burn (HNB) brand.
  • Over 80% of 180 Smoke’s Vape consumers are also potential cannabis users[2], creating a unique crossover opportunity that is expected to enable Origin House’s California tested brand partners access to a rapidly-growing, repeat, online and retail customer base.
  • 180 Smoke’s subsidiary, 420 Wellness Inc. currently has two development permits in place for cannabis storefronts under the brand ‘360 Cannabis’ in Calgary and Lethbridge, Alberta, with plans to open additional locations as approvals are received.

Commenting on the announcement, Afzal Hasan, President of Origin House, said, “The close of this Acquisition marks a major milestone in the Origin House story, and sets the foundation for a strategic, accretive expansion into the Canadian market, with plans to leverage 180 Smoke’s expertise in other global markets in the future. Given the lack of compelling products and brands on-offer for consumers in Canada, including those expected to come to market one year post-legalization, the market is ripe for disruption. We are confident that the combination of 180 Smoke’s proven ability to build a high-margin, branded consumables product portfolio in an extremely fragmented market, along with Origin House’s portfolio of consumer-led brands emanating from the most dynamic legal cannabis market in the world today, will translate into rapid growth as the Canadian market continues to evolve.”

“We are very pleased to become part of Origin House,” said Ashutosh Jha, President of 180 Smoke. “Collectively, we bring a constructive, innovative and prudent approach that makes us a valuable and loved partner to our customers, colleagues and the wider populus. Through additional capital, industry expertise and an established California distribution and brand blueprint, Origin House will accelerate 180 Smoke’s mission of harm reduction from combustibles, and 360 Cannabis’ focus of highlighting the harm reduction properties of cannabis. We look forward to utilizing this support to drive significant growth and profitability over the next two years, both on the Vape and cannabis sides of our business.”

Transaction Summary:

Purchase Price

The consideration for the Acquisition is comprised of:

(i) gross proceeds of $2.8 million paid in cash on closing and 3,294,453 Origin House common shares representing approximately $22.2 million as of the date that the Company and 180 Smoke entered into a term sheet in connection with the Acquisition using the 15-day volume weighted average price (“VWAP”) of the Origin House common shares on that date (the “Term Sheet Date”), such 3,294,453 Origin House common shares representing approximately $30.5 million as of closing share price on February 19, 2019;

(ii) up to an additional $15 million in common shares upon the successful achievement of certain milestones for the three calendar years from 2019 to 2021; and

(iii) a contingent purchase price adjustment providing for an additional 1,483,680 common shares of Origin House, payable if Origin House’s VWAP during the 3-month period from October 1, 2020 to December 31, 2020 is not at least $7.75 (being the price that is 15% above the 15-day VWAP of the Origin House common shares on the Term Sheet Date),  and 180 Smoke has achieved at least $25 million in exit rate revenues in 2019.

Milestone Payments

180 Smoke will be required to meet certain annual revenue targets for 2019 to 2021, in order for its vendors to receive a milestone payment for each of those years of up to $4.17 million.

Furthermore, an additional $2.5 million in Origin House common shares is payable to the vendors of 180 Smoke if it obtains an Indoor Standard Processing License in Canada to process cannabis by December 2020.

[1] Unaudited figures based on internal financial statements of 180 Smoke for the years ended December 31, 2018 and December 31, 2017.

[2] 180 Smoke Customer Survey.


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