Chicago-based cannabis company Cresco Labs will acquire fellow legal marijuana powerhouse Columbia Care in a deal valued at $2 billion that was
Under the deal, Cresco will acquire all the issued and outstanding shares of New York-based Columbia Care. Columbia Care investors will receive 0.5579 shares of Cresco Labs for each share held, reflecting a premium of about 16 percent over Cresco’s closing price on Tuesday.
Together, the companies have operations in 18 states. However, their operations overlap in several states including New York, which may lead to required divestitures in several markets to receive regulatory approval.
If the deal is completed, the combined company would likely have one of the largest retail footprints in the cannabis industry, second only to Trulieve. The company will be headed by Cresco CEO Charlie Bachtell, with Columbia Care CEO Nicholas Vita joining the board of Cresco Labs.
The acquisition comes as cannabis policy reform continues to take hold across the country, with 37 states allowing medical cannabis and 18 with legal recreational pot. The national market for legal cannabis is expected to hit $75 billion by 2030,
“We couldn’t be more excited,” Bachtell
The transaction puts a value of about $1.07 billion on Columbia Care’s equity. The terms of the deal will give Columbia Care investors an approximately 35 percent stake in Cresco Labs.
“Since our founding, our mission has been to deliver the best outcome for our stakeholders,” Vita said in a statement. “In an evolving industry, the opportunities to better achieve our mission through consolidation led us to this historic moment.”
Cresco Labs Acquisition: Some Assets May Have To Go
Regulatory issues may require the combined corporation to sell off dispensaries or licenses in areas where the two companies’ operations overlap. In addition to New York, where regulators are currently drafting rules to govern recreational marijuana commerce, Cresco could divest assets in Illinois, Ohio, Massachusetts, and Florida. It would using proceeds from the transactions to pay off debt, chief financial officer Dennis Olis said on a call with analysts
“It’s a great opportunity where we do have overlap—they are incredibly valuable states that people want to be in, so there’s a good market for divestment,” Bachtell said.
“The success of this merger will depend largely upon Charlie’s ability to execute and integrate at scale while monetizing the redundant assets,” Todd Harrison, founder of cannabis investment firm CB1 Capital,
The deal will expand Cresco’s holdings in states with mature cannabis markets including California and Colorado. The acquisition also includes Columbia Care’s medical marijuana assets in New Jersey and Virginia, two states with recreational marijuana laws on the books and in the process of being implemented.
“We have the material markets of today, but [Columbia Care] has the markets of tomorrow,” Bachtell said.
The acquisition will also give Cresco a more diversified base of revenue. Currently, the company earns 80 percent of its revenue in only three states, Illinois, Pennsylvania and Massachusetts. With Columbia Care’s assets, those states will produce only about half of the combined company’s revenue, with Colorado, New Jersey and Florida becoming more significant contributors.
“They’re a strong contribution to the retail footprint; right now we’re at 50 and they’re at 83 retail stores,” Bachtell
“We focus on cannabis like the consumer packaged good that it is, and having access to 70 percent of the addressable market is how we turn our brand portfolio into the Miller High Life, Coca-Cola and Johnnie Walker Blue Label of cannabis,” he added.
Cannabis industry investment experts appeared to receive news of the deal between Cresco Labs and Columbia favorably, with Jefferies analyst Owen Bennett writing on Wednesday that “We see the combination creating a clear industry leader.”