Columbia Care and Cresco Labs Announce $2 Billion Merger Agreement

A proposed $2 billion merger between cannabis multistate operators Columbia Care and Cresco Labs has been called off, according to a statement by the two companies released Monday.

Chicago-based Cresco Labs announced in March 2022 that it had reached an agreement to acquire New York-headquartered Columbia Care in an all-stock deal valued at approximately $2 billion. In February, the two companies unveiled a revised plan designed to give companies more time to sell assets in some markets to comply with regulatory requirements.

With both companies already among the largest vertically integrated cannabis companies in the United States, the proposed deal between the two companies would have created the largest marijuana company in the country. But on Monday, the two companies announced they had mutually agreed to back out of the deal, citing the regulatory and business climate facing the regulated cannabis industry. Neither company will incur any penalties or fees related to the mutual agreement to terminate the merger.

“Given the evolving landscape in the cannabis industry, we believe the decision to complete the proposed transaction is in the long-term interests of Cresco Labs and our shareholders,” Charles Bachtell, CEO and co-founder of Cresco Labs said in a company statement.

Bachtell added that this is a “difficult economic time” for the cannabis industry as a whole, and that Cresco will refocus on its core business, including a “rapid restructuring of low-margin businesses.”

The cannabis industry faces challenges

CNBC reported Monday that the deal began to fall through when the companies failed to divest assets needed for regulatory approval by June 30. Under state licensing laws, the companies were required to relinquish assets in some markets where both companies did business.

In addition to the regulatory issues facing Columbia Care and Cresco Labs, the cannabis industry as a whole is being hampered by the continued illegality of marijuana at the federal level. In some of the first states to legalize marijuana, sales of regulated cannabis have declined as markets mature while a entrenched underground industry continues to thrive.

Additionally, Congress’ failure to pass the Secure and Fair Enforcement (SAFE) Banking Act, a bill that would allow federally legal cannabis companies access to traditional financial services, has led to a sharp drop in investment in the industry. Federal regulations are also impacting the ability of regulated cannabis companies to perform key business functions, as illustrated last week when Mastercard warned banks and payment processors to no longer allow direct debit transactions for the purchase of cannabis products.

According to CNBC, Cresco Labs has a market cap of approximately $700 million, compared to approximately $2 billion at the time the deal was announced, while Columbia Care’s market value is approximately $200 million. In addition to canceling the merger, the two companies also noted that a November 2022 agreement to sell certain of Cresco and Columbia Care’s assets in New York, Illinois and Massachusetts to a company owned and controlled by Sean “Diddy” Combs , dismissed. valid from July 28, 2023.

Abolition of the merger “The best way forward”

Nicholas Vita, Columbia Care’s CEO and co-founder, said scrapping the proposed deal was the best option for both companies.

“After careful consideration, we are confident that together we have made the decision to continue as separate, standalone companies. This is the best way forward for Columbia Care employees, customers and shareholders. We are grateful for the collaboration and partnership with the Cresco team throughout this extensive process,” said Vita. “Over the past 16 months we have reviewed every aspect of our business, remained decisive and made significant changes that have significantly improved our operations – positioning us with significant strategic and operational strength at this turning point in the Company’s history.

Lucas C. McCann, Ph.D., co-founder and chief scientific officer of cannabis regulation and compliance consulting firm CannDelta, says that “the announcement of the failed merger between Cresco and Columbia Health represents an alarming trend in the cannabis industry.” country.” However, he adds that the news could lead to a better business environment for independent operators in the future.

“The bright spot in this situation could be the opportunities it opens up for smaller companies. The adage “Be Small, Keep it All” seems to continue to apply to emerging and mature cannabis markets like New York,” McCann said, where fees for large operators are high compared to those for micro-enterprises, “making it unaffordable.” it is expensive for large companies to be successful in these markets.”

“These high fees for large companies will pave the way for smaller players to make and continue to make a significant impact as the market matures,” he added in an email to High Times.