Despite the new lawsuit filed against New York for its handling of the adult-use cannabis rollout, Charles Bachtell remains optimistic about the state market’s potential and his company’s pending megadeal to acquire New York-based Columbia Care (OTCQX: CCHWF).
The CEO of Cresco Labs (OTCQX: CRLBF) discussed the company’s $2 billion all-stock agreement and the outlook for the New York market during the company’s fourth quarter earnings call on Thursday.
Bachtell said he believes that a plan is in place for the market to succeed, but legislative action is necessary to ensure viable opportunities for licensees.
And the onus is on licensees to work alongside regulators to establish an effective framework, he added.
Closing for the Columbia Care deal was delayed until summer to give the two more time to obtain certain regulatory approvals needed to close and complete required steps. But it’s also not being helped by the current market conditions.
Some factors are within their control, Bachtell noted, such as divesting assets, while others have been more challenging to manage. The deteriorating capital raising environment had reduced the number of potential buyers.
When it came to the required divestments, he said that the parties might have different obligations depending on the scenario, and the company would inform the public as soon as it had more information about the regulatory approval process.
Bachtell’s statements suggest that Cresco’s management is closely monitoring the developments in the New York cannabis market to try to position itself for success, as the companies currently operating in the medical market continue to lobby for a favorable regulatory structure.
While the delay in the Columbia Care transaction is complex and affected by moving situations, Bachtell remains optimistic that management will be able to close the deal to meet shareholders’ demands.
“We have got some great advancements there in recent weeks, and we are optimistic that we will be able to get that across the finish line,” he told investors on Thursday.
On the outside, one of the top reasons for concern relates to the asset sales program, according to Viridian Capital Advisors’ director of data analytics Frank Colombo.
“The Diddy deal closing is perhaps the most significant concern as it promises to fund $180 million of cash for debt paydown post-closing,” Colombo wrote. “The transaction was inked before New York released its rules which say that ROs can only have three adult dispensaries (Diddy would have four) and that they can only be medical for three years after the first adult sales in the market. Is it possible that the deal could break over this? The crash of equity prices has also reduced the likely proceeds from other planned asset sales in Ohio, Maryland, and Florida.”
“The net result is a combined company with more debt than initially planned at refinancing rates that continue to climb. Still, the deal has gone a long way down the tracks towards closing,” Colombo added.