Chicago-based cannabis giant Cresco Labs announced that it will acquire rival Columbia Care in a $2 billion all-stock transaction, making it the largest cannabis company in the US. Market and attract investment in advance of federal cannabis reform.
“It’s the definition of a transformational deal when you have two industry leaders really coming together that find opportunities for these complementary synergies in business footprint, business focus and expertise,” said Charlie Bachtel, CEO and founder of Cresco Labs at Cheddar. Told the news. ,
Columbia Care in terms of the acquisition price of Cresco Labs is at a nearly 16 percent premium compared to Tuesday’s market close. If the acquisition closes, Columbia Care shareholders will own approximately 35 percent of Cresco Labs.
A ‘Perfectly Friendly’ Couple
According to a release, the combined company will have over 130 retail stores in 18 markets, giving it the second largest retail footprint in the industry. Columbia Care and Cresco Labs, independently, top the market in Colorado, Illinois, Pennsylvania, and Virginia. They claim the top three by market share in four other states, including New York and New Jersey, where sales are projected to begin within months. According to the announcement, the combined company will have access to 55 percent of the US population and more than 70 percent of the addressable cannabis market.
Jefferies analysts called the acquisition “entirely favorable” in a note published Wednesday, remarking that Cresco’s main drawbacks were missing states in its footprint, while Columbia Care “established an excellent geographic footprint.” , but it lacked any scale to overlay it.”
“The combined company will have a better margin profile than most of the major states, industry-leading brands and wholesalers in these states,” the note said.
Jefferies analysts also noted that margins within the combined companies should improve following the transaction, resulting in increased scale across states and cost savings in states where operations overlap, among other things.
However, in some cases, that operational overlap may require disinvestment. For example, in New York, Columbia Care and Cresco Labs each have one in 10 medical cannabis licenses. But Bachtel saw examples of overlap as assets and opportunities.
“The states where we have overlap are also the most sought-after valuable licenses, so there’s a huge market to acquire these licenses, which we may need to segment,” Bachtel said.
Columbia Care’s second adult-use cannabis dispensary in the Chicagoland area. (Photo: Business Wire via AP)
Acquisition ‘arms race’
According to financial advisory firm Viridian Capital Advisors, M&A is expected to accelerate in advance of federal policy reform in the US
The firm wrote, “We expect the trend to continue and even smaller ones to scale up in an arms race with other large operators to excite investors and attract any institutional investment.” Looking to acquire established players.” a report.
Bachtel said the cannabis industry faces challenges as a result of being federally illegal, such as the lack of access to traditional institutional capital and what many U.S. investors provide a “born accelerator” for M&A.
“…with federal reform, the size of this unlock in the catalyst is dramatic,” he said. “You want to be a leader in the space before that happens because you want to put yourself in a position to help shape it, but also be recognized as one, if not the most investable company, when That access is granted.”
There has been little progress on cannabis reform in the US since President Joe Biden took office in 2021, despite campaign promises that he would support limited reforms such as medical cannabis legalization and cannabis redistribution. And the clock is ticking for a unified Democratic Congress to make progress on legalization ahead of the midterm election. According to Marijuana Moment, Senate Majority Leader Chuck Schumer (DN.Y.) indicated that he and fellow Senators Cory Booker (DN.J.) and Ron Wyden (D-Ore.) filed their Cannabis Administration and Acts in April. do. But the broad, equity-focused legalization bill could be a tough sell, especially in the Senate. The Safe and Fair Enforcement (SAFE) Banking Act, which seeks to open access to banking services for cannabis companies, has broad bipartisan support but faces opposition from leaders such as Schumer because it lacks equity provisions.
In its report, Viridian noted that interest in M&A may intensify due to the perception that banking reform “now looks more and more impossible this year.”
Cresco Labs announces Columbia Care acquisition along with fourth quarter earnings report. Cresco reported lower than expected revenue of $218 million, a 34 percent jump year-over-year. On a call with analysts after the report, Chief Financial Officer Dennis Ollis attributed the miss to “unique and unexpected market events,” such as a drop in the wholesale cannabis price in California.
Shares of Cresco Labs and Columbia Care, listed on the Canadian Securities Exchange, fell during trading. Cresco Labs closed the day down 7.4 percent, and shares of Columbia Care were down 2.3 percent.