Origin House (CSE:OH) released its year-end results on Monday. With $7.9 million in sales, it was a 19% increase from Q3 and 638% better than it did a year ago. However, after fair value adjustments and cost of sales, Origin House was left with barely anything left over to cover its operating expenses. And with operating expenses more than tripling from the previous year, The Company netted a much bigger operating loss of $15.4 million, compared to a loss of just $4.5 million in the prior year.
The largest increase in operating expenses came from general and administrative costs, which were up $4.5 million, more than double last year’s tally. Sales and marketing expenses were also up by $4.4 million. The saving grace for Origin House that helped bring down its overall loss was non-operating items, including gains and losses that helped offset some costs and added back more than $8 million to the bottom line. The problem is that there is a lot of noise below the operating income figure that can swing in either direction, making it a bit misleading to look at those numbers.
Future could look much different for Origin House
Ultimately, Origin had strong sales growth this quarter but low margins and rising costs negated the improvement in the top line. In the end, it’s not going to matter a whole lot as The Company was recently acquired by U.S. cannabis giant Cresco Labs Inc (CSE:CL), meaning that how The Company is managed could look a whole lot different in the years to come.
Origin House was a key acquisition for Cresco Labs to help it gain a strategic position in California. Currently, The Company has a strong network in California with three distribution facilities in the State serving more than 300 hundred retailers. And with the recent acquisition of 180 Smoke in Canada, it has two dozen vape stores under its belt north of the border as well.
It’s a great opportunity for the two companies to come together and achieve something even bigger going forward.
This partnership is just the beginning of our journey together. The combined entity will be a U.S. distribution powerhouse, with a growing portfolio of over 50 brands on the shelves of over 725 dispensaries across 11 states. In the coming months we will work side-by-side with the Cresco team to accelerate recognition and sales for our combined brand portfolios across the U.S., and in the process, continue to build substantial shareholder value
– Marc Lustig, CEO of Origin House
The challenge for Cresco Labs is going to be finding synergy between the two companies to ensure that they don’t end up burning through cash while accumulating losses along the way. With very slim margins, Origin House is going to need to find a way to get more of its sales to trickle through its cost of sales and fair value adjustments. Otherwise, Cresco Labs may just end up supporting a losing operation. Long term, the two could prove to be a dominant force in California, but in order to be sustainable, profitability cannot be put on the back burner.