Canaccord Upgrade A series of recent exclusive brand agreements has lowered the forecast risk associated with Origin House, the registered business name of CannaRoyalty Corp. (OH-CN), according to Canaccord Genuity analyst Matt Bottomley.
"Over the past month, Origin House has been busy adding to its growing list of strategic brand partners (most recently with an exclusive distribution agreement with Henry's Original) while the company continues to expand its reach throughout California," said the analyst. "We believe securing distribution into California's wide network of cannabis retailers will be critical to carving out meaningful market share in what is now the largest legal cannabis
market in the world. In addition to its existing reach into almost 500 dispensaries from 5 manufacturing/distribution hubs, we believe Origin House's growing list of exclusive partners will provide the company with valuable consumer insights into different brands and product categories as the market continues to develop. In addition, the company has also instituted a brand acceleration initiative where it provides capital to strategic partners to help them fund for growth in an increasingly competitive landscape where access to capital represents a significant bottleneck for many operators.
"Over the past five weeks, the company has signed exclusive California distribution agreements with Viola Brands, Utopia Cannabis, Humboldt's Finest, Kurvana (one of the largest brands in all of California to date) and Henry's Original. We believe the onboarding of theses brand partners provides moderate de-risking to our California estimates as Origin House continues to build out a presence in the state."
After "modestly" raised his 2019 and 2020 financial expectations for the Ottawa-based company, Mr. Bottomley raised his target to $12 from $10, maintaining a "speculative buy" rating. The average is $12.83.
"OH currently trades at 8.4 times its calendar 2020 EV/EBITDA, in line with the overall average of U.S. cannabis operators at 8.2 times," he said. "However, given the company's strong execution over the past few months and as potentially the leading California cannabis distributor, we believe a premium multiple is warranted at this time, and we would remain buyers of OH at current levels."