Cresco Labs to Acquire Columbia Care

Stephen Andrews
24 Mar 2022

Illinois-based cannabis operator Cresco Labs will acquire Manhattan-based Columbia Care in an all-stock transaction worth $2 billion, it was reported earlier this week. Cresco executives believe the combined business entity has the capacity to become a brand as significant as Coca-Cola or Johnnie Walker and that the deal would help the company dominate a market projected to surpass $45 billion in sales by 2026.

Cresco Labs currently operates in 10 states, including its maximum of 10 dispensaries and three cultivation facilities in native Illinois. The high-profile consolidation will expand Cresco's outreach in those states and add seven more states, plus Washington, D.C., under its domain. 

"This acquisition brings together two of the leading operators in the industry, pairing a leading footprint with proven operational, brand and competitive excellence," Charles Bachtell, CEO of Cresco Labs, said in a statement. "The combination is highly complementary and provides unmatched scale, depth, diversification and long-term growth."

Columbia Care shareholders will receive 0.5579 Cresco Labs shares per unit held. Based on Cresco's closing price on Tuesday (Mar 22), it represents a nearly 16% premium. According to Reuters, the deal values Columbia Care's equity at $1.07 billion. 

The combined entity will run operations in 18 states. However, with overlapping footprints in several regions like New York, Illinois, Ohio, Florida, Massachusetts and Arizona, some divestitures, such as for a number of dispensaries and a few licenses, appear to be necessary before the deal gets regulatory approvals. 

"The success of this merger will depend largely upon Charlie's (Cresco CEO) ability to execute and integrate at scale while monetizing the redundant assets," said Todd Harrison, founder of cannabis investment company CB1 Capital, a shareholder in Cresco.

Cresco Labs emerged as an early player in Illinois' highly regulated medical cannabis market. The company launched operations in 2013 and has grown into one of the most recognized cannabis companies nationwide, trading publicly on the Canadian stock market just as Columbia Care. 

Both Cresco and Columbia Care have seen their stocks plunge 50% over the last twelvemonth, a trend that has echoed down the entire sector as Biden's administration failed to deliver meaningful progress in cannabis reform. 

Cresco's move to overtake New York's Columbia Care follows a series of high-profile acquisitions affecting the cannabis market in Illinois. Adult use of cannabis was made legal in Illinois in early 2020. New licenses have been hard to obtain for the statewide industry as legal hurdles hamper the workflow of state regulators.

As many as 185 dispensary permits are currently stuck in legal limbo as newly licensed operators attempt to gain footholds in the state. State data shows that Illinois generated $387 million in marijuana tax revenue from recreational pot sales, almost $100 million more than tax collected from liquor sales. This sum is collected from 110 licensed stores that control the state's retail market.  

Two of those permits belong to Columbia Care, along with a cultivation license. Since Cresco already has a maximum of 10 licensed dispensaries, the company will have to sell some of its assets to comply with the law and to be able to finalize the acquisition. 

With Cresco having a total of 49 dispensaries and Columbia 99, the combined company will have a retail footprint in the industry second only to Trulieve.

Right now, the bulk of Cresco's revenue, or 80% of the total sales, comes from three states alone — Illinois, Pennsylvania, Massachusetts. A merger means that the profits from those three states will drop to 50%, allowing gains for states such as Colorado, New Jersey and Florida. 

Stephen Andrews