1. California’s going to crank up
Origin House is technically a Canadian company, since it’s based in Ottawa. But the company’s primary operations are in California, where Origin House is the leading distributor of cannabis products. That’s important, because California happens to have the largest marijuana market in the world.
Although California’s legal recreational marijuana market opened for business in January 2018, it got off to a bumpy start. Tax rates were too high. Red tape hindered progress. Fewer dispensaries and retail locations opened than should have to adequately support the state’s cannabis market.
California politicians know they’ve got a big problem. Gov. Gavin Newsom wants to beef up enforcement to go after the state’s black market for pot. California legislators are considering reducing cannabis excise taxes and suspending the cultivation tax for three years.
My view is that there’s nowhere to go but up after California’s dismal handling of the recreational marijuana market launch. I think the state will end up making some needed changes because it’s losing out on tax revenue. As it does, there will be more legal cannabis growers and more dispensaries licensed. And that will enable Origin House’s sales to rapidly increase.
2. A sizable northern opportunity
California is rightly the top priority for Origin House. However, the company has a sizable opportunity in its home country of Canada.
While Origin House is a distributor of cannabis products, it also has steadily rolled out more of its own cannabis brands. For now, those brands are sold only in California. That’s likely to change in the not-too-distant future, though, thanks to the company’s acquisition of 180 Smoke.
180 Smoke operates 23 retail vape stores in Canada with more on the way. Origin House thinks that 180 Smoke’s locations could be a great springboard for the retail cannabis market. 180 Smoke has already obtained two permits in to open retail cannabis stores in Alberta. The acquisition should pave the way for Origin House to launch its cannabis brands that have been successful in California in Canada.
3. Other irons in the fire
Origin House was originally named CannaRoyalty, which reflected the company’s initial focus on cannabis royalty streaming deals. While the company’s business model has changed, Origin House continues to benefit from its previous deals.
One example is the recent conversion of a 3.5% royalty interest in Alternative Medical Enterprises (AltMed) into an equity position. This move raised Origin House’s equity stake in AltMed to 5.1%. AltMed has medical marijuana operations in Arizona and Florida. The company plans to open 14 additional dispensaries in Florida, which could have total medical marijuana sales of around $1.7 billion by 2022.
Origin House’s subsidiary, Trichome Financial, continues to make financing deals in the Canadian cannabis industry. Trichome is also preparing to go public by a reverse takeover of 22 Capital, which trades on the TSX Venture Exchange. It’s also exploring ways to potentially expand into the U.S. market.
Beyond March: a huge wild card
All three of the previously discussed factors make Origin House a stock worth buying in March, in my view. There’s also a wild card that could be huge for the company — the possibility of relaxing federal marijuana laws in the United States.
I think Origin House’s valuation is more attractive than most Canadian marijuana stocks because its focus on the U.S. market, where marijuana remains illegal at the federal level, makes some investors skittish. The company’s U.S. operations also prevent it from listing on one of the major U.S. stock exchanges.
However, political support is growing in the U.S. for changing federal laws so that they recognize the decisions by individual states regarding marijuana legalization. I suspect it’s a matter of when and not if such changes are made.
But it wouldn’t take legislation going into effect to serve as a catalyst for Origin House. Just the whisper that change could really be on the way would be enough to light a fire beneath the stock. I wouldn’t be surprised if the whispers pick up volume over the next 12 to 18 months. Origin House is a hot marijuana stock that just might get even hotter.
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