Republished from Crain Chicago by John Pletz.
The $2 billion purchase of Columbia Care gives Cresco access to new markets and cements Chicago’s place at the center of the legal-marijuana industry.
Cresco Labs (OTC: CRLBF) is buying New York-based Columbia Care (OTC: CCHWF) in a $2 billion deal that will make it the largest marijuana company in the U.S.
The all-stock purchase would give Cresco a presence in new recreational-marijuana markets, such as New Jersey and Virginia.
It’s the largest merger in the marijuana business since Trulieve, based in Quincy, Fla., bought Harvest Health & Recreation for $2.1 billion last year. The deal is the biggest involving a Chicago-based marijuana company since Grassroots was bought by Curaleaf, headquartered in Wakefield, Mass., for $715 million in 2020.
The acquisition reinforces Chicago’s place at the center of the legal marijuana industry. Cresco is one of three large publicly traded cannabis companies headquartered in Chicago, along with Green Thumb Industries and Verano Holdings.
Cresco had $1 billion in sales last year, and Columbia Care had about $460 million. The combined companies would nominally be larger than Curaleaf, which had $1.2 billion in revenue. Cresco has 50 dispensaries and 21 cultivation facilities in 10 states. Columbia Care has 99 dispensaries and 32 cultivation facilities in 18 states. The combined companies have about 6,100 employees.
The deal puts Cresco in the 10 fastest-growing U.S. markets, including access to New Jersey, which is expected to begin recreational sales soon and become a $2 billion-a-year market, approaching the size of the Illinois market. The combined company will be the largest in Illinois, Pennsylvania, Colorado, and Virginia.
“The combination is highly complementary and provides unmatched scale, depth, diversification, and long-term growth,” Cresco CEO Charlie Bachtell said in a news release. “On a pro-forma basis, the combined company will be the largest cannabis company by revenue, the number one wholesaler of branded cannabis products, and the largest nationwide retail footprint outside of Florida.”
Getting a foothold in New Jersey will allow Cresco to remain in step with the largest multi-state cannabis companies, most of which have a presence in New Jersey. Acquiring Columbia Care also would provide Cresco an entry into Virginia, which will allow recreational sales. But Cresco and Columbia Care have overlapping operations in several states, including Illinois, where they might be forced to divest some operations. Cresco already has the maximum 10 dispensaries allowed by Illinois law, and Columbia Care has two dispensaries.
Both operate in the New York market, which also has approved recreational cannabis sales but has created limits on allowing “vertically integrated” companies that can grow and sell marijuana. Companies which already had medical marijuana licenses, such as Cresco and Columbia Care, were allowed to remain vertically integrated under the law. But it’s unclear whether regulators will allow two grandfathered entities to combine.
Florida, which only allows sales of medical marijuana, also doesn’t allow a company to own more than one license.
The deal would dramatically increase Cresco’s retail base. It’s the largest wholesale cannabis provider, getting roughly half its revenue from selling marijuana to retailers. After the Columbia Care acquisition, it would get two-thirds of revenue from retail.
Cresco said the deal provides a 16% premium to Columbia Care shareholders. Cresco, whose shares closed Tuesday at $6.53, has a market capitalization of about $2.5 billion. Columbia Care is valued at about $1 billion. The transaction is expected to close by the end of the year.
“We believe the acquisition may have considerable risk to close, given the significant footprint overlap and Cresco Labs having a spotty track record with three terminated acquisitions,” analyst Andrew Partheniou at Stifel GMP wrote in a note to clients.
Marijuana stocks have taken a beating in the past year, getting pummeled as hopes evaporated for federal marijuana legalization before inflation worries and the war in Ukraine tanked the broader market.
Before their deal was announced, shares of Cresco and Columbia Care were down by half over the past year.
Columbia Care is the largest of several recent acquisitions by Cresco. It bought Laurel Harvest Labs and Bay, which added dispensary and cultivation operations in Pennsylvania. Cresco also said it would expand in Massachusetts with the acquisition of Cultivate for as much as $158 million if certain targets are met.