CannaRoyalty (CNSX:OH) (OTCMKTS:ORHOF) Surging On Cresco Labs Deal and Record Revenues

Origin House (CNSX:OH) (OTCMKTS:ORHOF) formerly CannaRoyalty has recovered from a harrowing plunge that saw the stock shed more than 50% in market value in the second half of the year. The stock has since bounced back from all-time lows as investors continue to react to another quarter of record revenues.

CannaRoyalty Price Analysis

The bounce-back has also coincided with reports that Cresco Labs is closing on a deal that will see it acquire Origin House in an all-stock deal. Revenue growth at the back of the takeover news has continued to bolster CannaRoyalty sentiments, in the market depicted by strong price action activity.

Likewise, the stock has bottomed out from the $2.80 level in what appears to be a materialization of a bull trend. After the recent bounce back, the stock faces immediate resistance at the $4 level. A rally followed by a close above the critical resistance level should reaffirm the emerging uptrend setting the stage for the stock to continue powering high.

Failure to take out the $4 a share level could leave Origin House susceptible to further drops in continuation of the long-term downtrend.

About CannaRoyalty

Origin House formerly CannaRoyalty casts its self as a cannabis brand and distribution company. The company is engaged in the cultivation processing and distribution of cannabis in the U.S and Canada. The company currently operates six licensed facilities in California in addition to providing distribution manufacturing and marketing services to brand partners.

Cresco Labs Merger

CannaRoyalty market sentiments have inched higher in recent weeks, having emerged it is an acquisition target for Chicago based marijuana operator Cresco Labs. The merger is close to completion as part of a deal valued close to $823 million.

Cresco Labs is acquiring Origin House as part of an effort to strengthen its footprint in California, a major market for cannabis. Origin House has already established a robust footprint in the state with more than 50 brands and 500 plus dispensaries that allow it to be a key player on medicinal cannabis

A merger of the two companies will result in a combined company with licenses for up to 51 retail locations. The combined company will also boast of 1.5 million square feet of cultivation across 11 states in the U.S.

Amidst the acquisition drive, Origin House has continued to fire on all angles as it continues to work on its core business. A 244% increase in revenues in the third quarter that came in at $22.8 million underscores a company in a phase of robust growth.

Revenue Growth & Margin Expansion

During the quarter, CannaRoyalty also continued to register continued gross margin expansion thanks to the optimized brand portfolio at the back of triple capacity increase. Origin House also continued to streamline its brand portfolio with a view of focusing on category winners including onboarding of Cresco products

In a bid to accelerate sales growth, Origin House has redesigned its sales and operations process in California. The restructuring seeks to align the company’s sales operations to take advantage of strong cannabis demand as the market continues to mature.

Even as CannaRoyalty continues to explore ways of accelerating sales growth, it also continues to restructure its operating costs in a bid to shore the bottom line. The company has already reduced its operating costs by $1.2 million ahead of the integration with Cresco labs.

Cost cuts have also coincided with the raising of additional capital through a secondary listing. In November, the company closed a $30 million non-brokered financing. The balance sheet also received a boost on the company receiving an additional $15 million debt financing from Opaskwayak Creek Nation poised to fund the construction and expansion of a key cannabis production facility in Sonoma County.

“We have substantial room to continue expanding revenue and margins over time, driven by a threefold increase in ultra-premium flower capacity at our FloraCal and Cub City facilities, the streamlining of vendor relationships to focus on category winners, and a steady increase in capacity utilization at our facilities in California,” said Chairman Marc Lustig.

Bottom Line

The formation of a medium-term ascending trend line could signal bears are increasingly exiting their positions after running the stock lower since May. Improving fundamentals depicted by revenue growth ahead of the Cresco Labs merger are some of the developments that continue to support a break out from current lows.

CannaRoyalty looks set to continue powering higher as it appears to be trading at a discount relative to its long-term prospects, especially on merging with Cresco Labs.

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Disclosure: We have no position in CannaRoyalty and have not been compensated for this article.