Lessons from the U.S.: With Legalization Here Origin House Eyes Opportunities in Canadian Cannabis

Published: October 31, 2018

Author: Afzal Hasan

For those that don’t know tell us more about Origin House and its role in the cannabis industry.

Origin House is a North American cannabis consumer products company focused on building a leading distribution business in California, the world’s largest regulated cannabis market. By building a world-class logistics platform and supporting contract manufacturing assets, we intend to support the growth of new and established cannabis brands. We believe that California, home to some of the world’s most discerning consumers and a nexus of information and trends, will be the point of inception for the global cannabis brands of the future. Aligned with this, Origin House has begun to expand its infrastructure into other jurisdictions, starting with Canada, to support the global expansion of our brand partners.

From your talk at the Cannabis Capital Conference it seems Origin House is more focused on investing (or acquiring) brands in the US for time being, why is that?

Our initial business model included providing upfront capital to licensed cannabis businesses in exchange for a royalty on their revenues, in addition to other flexible investment structures. This experience revealed a huge opportunity around development of global cannabis brands in California. As I’ve mentioned above, we capitalized on this unique opportunity and decided to shift gears and focus on building a leading manufacturing and distribution business in California, the world’s largest regulated cannabis market.

As a major distributor of third party cannabis products in California, Origin House is in a unique position in this open and vibrant market. This is why we are currently focused on investing in the U.S., and specifically California. We currently bring 50+ brands to more than 400 retailers in California.

Do you foresee obstacles/restrictions for Canadian LPs when it comes to marketing cannabis as a consumer good?

A legal, recreational adult-use market is a huge opportunity for LPs and other companies operating in Canada to create and shape the industry in a responsible manner. However, despite legalization in Canada, regulations that accompany the Cannabis Act place significant obstacles to companies looking to educate and engage consumers regarding cannabis. Most traditional forms of advertising, marketing and branding used for consumer products are not permitted for cannabis products. Unlike other consumer product goods, brands have not been established in the cannabis sector. The limitations on using traditional marketing channels will severely restrict the ability of Canadian cannabis companies to create brands that hold consumer loyalty over time. That in turn will likely reduce conversion of consumers from the black market to the legal industry.

You recently acquired two companies related to distribution (AltaSupply and RVR), how strategic were those acquisitions? Are the distribution models for cannabis (or cannabis brands) different from one jurisdiction to another, whether it be state to state, or Canada to the US?

We identified early on that distributors would be critical gatekeepers and growth catalysts in California’s regulated cannabis marketplace. Individually, Alta Supply and RVR were two of the industry’s leading distribution companies. With the closing of the Alta Supply and RVR acquisitions, and the recently announced merger of these two distribution leaders in California under the Origin House umbrella, we are well positioned to become the pre-eminent third party distributor in the state.

Since California’s transition into a full adult-use market on January 1, 2018, RVR and Alta Supply have consistently broken monthly revenue records and the acquisitions ensured that these revenues were added to Origin House’s top line, putting us in a position to exit the last quarter of 2018 with a revenue run rate comparable to the largest public North American cannabis companies. These acquisitions have also been key to the platform we are building in California: home of origin for global cannabis brands of the future (hence our recent rebranding from CannaRoyalty to Origin House). The merger of RVR with Alta Supply creates a major cross-state distributor in the California market with an ability to accelerate the growth of brands. We are confident that this integration will enable us to offer one of the most attractive product portfolios in the industry.

The distribution models in different jurisdictions vary drastically. While California has mandated use of licensed distributors, other states have gone in the opposite direction and prohibited companies from acting as distributors. In Canada, it appears that provincial governments will generally act as the distributor, buying from private manufacturers and selling to either private or government retail.

Do you foresee Canadians laws with respect to marketing cannabis becoming more flexible as time goes on and other consumer goods (edibles, topicals, etc.) enter the market?

Yes. Based on our experience as an investor and participant in mature cannabis markets, consumer uptake is slow and black-market activity will thrive if the rules are too restrictive.

Getting the private sector involved in Canada’s cannabis retail marketplace will be an important step in diminishing the role of the black market. Ontario has already taken the first step in the right direction with its recent announcement to open the market to private retailers and we are hopeful that other provinces will follow its lead.

Can you speak to your recent activities specific to the Canadian market?

Absolutely. In Canada, our focus has been on branded products and know-how around manufacturing and distribution of branded products. Having operated across several jurisdictions in the U.S., we have experience in bringing products to consumers in markets with numerous compliance and regulatory challenges.

In early 2018, we announced the launch our subsidiary, Trichome Financial Corp., a Canada-based specialty financing company focused on providing tailored credit-based capital solutions to the Canadian and international cannabis industry. Last month, Trichome closed its first private placement, with gross proceeds of C$15 million.

Also, we recently made one of our largest announcements in the Canadian cannabis market with the acquisition of 180 Smoke. 180 Smoke is one of the most prominent Canadian vape retailers and given that over 80% of their nicotine vape consumers are also potential cannabis users, this crossover gives our cannabis consumer brand partners access to a rapidly-growing, repeat, online and retail customer base in Canada. Furthermore, 420 Wellness Inc., a subsidiary of 180 Smoke was recently approved for its first cannabis dispensary location in the City of Calgary and has applied for two additional cannabis dispensary licenses in Alberta and is actively negotiating for additional locations nationally. We see cannabis potential in 180 Smoke’s existing 26 bricks & mortar locations across Canada and with their retail strengths and experienced team on board, we are confident to rapidly expand our cannabis retail footprint.

Afzal Hasan is the President and General Counsel of Origin House