A C$1.1 billion cannabis deal announced Monday helped to spark a broad rally in the broader marijuana sector to start the second quarter, even if shares of Origin House fell Monday as news broke of its acquisition by Chicago-based Cresco Labs Inc.
The ETFMG Alternative Harvest exchange-traded fund MJ, +0.67% rose 0.4% in afternoon trade, with 22 of 34 components trading higher. The ETF had soared 46% in the first quarter, the largest quarterly gain since inception in December 2015.
The Horizons Marijuana Life Sciences Index HMMJ, +0.51% advanced 0.6%, after rocketing 50% in the first quarter.
In comparison, the S&P 500 index SPX, +1.08% advanced 0.9% Monday, after rising 13.1% in the first quarter, the best quarterly performance since the third quarter of 2009.
The U.S.-listed shares of Origin House, the registered business name for Canada-based CannaRoyalty Corp. ORHOF, -6.38% sank 5.2%, to pull back from Friday’s record close, after Cresco Labs CRLBF, -1.95% announced the deal before the start of regular trade on Monday. Cresco boasted that the deal, valued at an equivalent $825.9 million at current currency exchange rates, represented “the largest public company acquisition in the history of the U.S. cannabis industry.”
Under terms of the deal, Cresco will exchange 0.428 of its shares for each Origin House share outstanding. Based on Friday’s closing prices of the companies’ U.S.-listed shares, the exchange ratio would value Origin House’s stock at $9.48 each, a 4.9% premium.
Cresco’s stock slid 2.0% in afternoon trade.
“[The deal] establishes Cresco Labs as the leading multi-state operator with one of the largest distribution platforms in California, which is projected to be a $7.7 billion cannabis market in 2022 by Arcview Market Research/BDS Analytics,” said Cresco Chief Executive and Co-founder Charlie Bachtell. “Following the closing of this acquisition, Cresco brands will be in over 725 dispensaries across the country, giving us the largest and most strategic distribution footprint of any cannabis company in the United States.”
Origin House’s stock has nearly tripled (up 176%) over the past 12 months, while Cresco shares have run up 89% over the period.
Elsewhere, shares of Aphria Inc. APHA, +6.10% APHA, +5.62% gained 1.1%, after the company said its Aphria Deutschland GMBH subsidiary launched its first cannabidiol (CBD)-based nutraceutical, to be the first CBD-based cosmetics line for the German market.
Aphria said the CannRelief brand of products are being produced in the European Union, with the CBD oils being sold in both a 5% and 10% CBD concentration.
DionyMed Brands Inc.’s stock HMDEF, +5.52% fell rallied 4.9%, erasing earlier losses of as much as 7.8%. The company announced late Friday that its California delivery service Hometown Heart has terminated its relationship with customer-acquisition services company Eaze Technologies Inc. DionyMed said following a review of Eaze’s business practices, it couldn’t confirm that Eaze’s credit card payment-processing methodology met regulatory compliance requirements.
“Deliveries made through Eaze in San Francisco and Oakland were providing approximately $2.9 million in revenues per month to [DionyMed] at an approximate 8% EBITDA [earnings before interest, taxes, depreciation and amortization] margin,” analyst Bobby Burleson at Canaccord Genuity wrote in a research note. “In the short term, we see a drag on [DionyMed] results both in terms of revenues and EBITDA as the company invests to grow its internal ‘Chill’ branded [direct-to-consumer] delivery service.
Burleson “modestly” reduced his 2019 revenue and EBITDA estimates, while affirming his 2020 estimates.
“Longer term, Chill should enhance margins (Cali Chill EBITDA margins roughly 30%), as it replaces lost Eaze revenue,” Burleson wrote.
Among other more-active weed stocks, Aurora Cannabis Inc. ACB, +1.32% ACB, +0.74% rallied 1.1%, after soaring 83% in the first quarter, to lift its market capitalization to over $9 billion.
Shares of Cronos Group Inc. CRON, +0.82% CRON, +0.29% advanced 0.5%, Canopy Growth Corp. CGC, -1.42% WEED, -1.87% gave up 1.4%, CannTrust Holdings Inc. CTST, +4.25% TRST, +3.47% rose 2.1%, Hexo Corp. HEXO, +1.96% HEXO, +1.87% climbed 1.7%, Tilray Inc. TLRY, -3.90% shed 3.6% and Aleafia Health Inc. ALEF, +1.58% lost 2.1%.
MedMen Enterprises Inc.’s stock MMNFF, +0.00% slipped 0.3%, after rising 8.9% the first quarter. The company said before the open at it closed its acquisition of licensed cannabis retailer northern California-based Sugarleaf Trading Co., to give it 32 operational stores in 12 states.
