Mar 23, 2022

Cresco Labs to buy Columbia Care in US$2B cannabis deal

Cresco to buy Columbia Care for US$2B; Aurora to purchase TerraPharma in $38M deal


Security Not Found

The stock symbol {{StockChart.Ric}} does not exist

See Full Stock Page »

Cresco Labs Inc. plans to buy Columbia Care Inc. for about US$2 billion in one of the largest cannabis industry mergers yet.

The deal will combine Cresco’s well-recognized marijuana brands with New York-based Columbia Care’s retail footprint to create the largest U.S. multistate operator by revenue, Cresco Chief Executive Officer Charles Bachtell said in an interview.

Bachtell, who will lead the combined company, said the transaction will expand Cresco’s presence to 17 states, plus the District of Columbia, up from 10 states. It will also give Chicago-based Cresco the top market share in Illinois, Pennsylvania, Colorado and Virginia.

“This is how you turn brands like High Supply, Cresco and FloraCal into Miller High Life, Coca-Cola and Johnnie Walker Blue Label,” Bachtell said. 

Cresco’s quest to win name recognition for three of its top marijuana brands will be bolstered by the deal, which will allow the company to sell products to 70 per cent of the current potential market, he added.

Columbia Care investors will receive 0.5579 of a subordinate voting share in Cresco for each of their shares, making the deal worth about US$2 billion enterprise value based on Tuesday’s closing price. That’s a premium of about 16 per cent for Columbia Care shareholders, and gives them around 35 per cent of Cresco’s stock.

The deal, referred to as “Project Jet” by Cresco, has been in the works for around three months.

The transaction will give Cresco the largest annual revenue in the cannabis industry, at around US$1.4 billion, the companies said. The size of the deal also exceeds one of the biggest recent combinations: Trulieve Cannabis Corp.’s CUS$2.1 billion (US$1.7 billion) acquisition of Harvest Health & Recreation in 2021.

It will diversify Cresco’s business, which currently derives more than 80 per cent of its revenue from just three states. Columbia Care, an early player in medical marijuana markets, will bring a strong presence in states such as Colorado where Cresco didn’t previously sell. 

“They’re a strong contribution to the retail footprint; right now we’re at 50 and they’re at 83 retail stores,” Bachtell said.

Analysts echoed the sentiment. “We see the combination creating a clear industry leader,” Jefferies analyst Owen Bennett wrote in a research note on Wednesday. 

The merger comes as the cannabis industry struggles with the continuing federal prohibition on marijuana and the lack of access to traditional banking, fueling consolidation. Multistate operators are vying against each other for advantages in size and scale, while navigating varied regulations in each jurisdiction and the ban on interstate transport of cannabis.

Cresco’s acquisition is expected to position the company well in New Jersey and New York, where recreational sales are beginning this year. Virginia is also expected to be a large future market for the combined company, according to Bachtell.

The deal looks likely to create the third-largest U.S. multistate operator by market value. The top two will probably remain Curaleaf Holdings Inc. and Green Thumb Industries Inc., according to data compiled by Bloomberg.

Columbia Care last week reported a preliminary net loss of US$147 million on US$460 million in revenue for the year ended Dec. 31, with revenue growth of 156 per cent year-over-year.

Cresco shares fell as much as 6.7 per cent in Canada on Wednesday. Columbia Care’s Canadian shares rose as much as 6.9 per cent before erasing their gains. The deal also helped spark a broader move higher in marijuana stocks.

Cresco’s financial advisers on the deal were Stoic Advisory Inc. and Solidum Capital Advisors. Bennett Jones LLP and Paul Hastings LLP acted as the company’s legal advisers. Columbia Care’s financial adviser was Canaccord Genuity, and Stikeman Elliott LLP and Foley Hoag LLP served as its legal advisers.