Two Busted Deals From Cresco Labs, Sol Global

The bear market for the cannabis industry is leading to the unwinding of deals that had great promise. Cannabis companies are no longer willing to write big checks with fingers crossed that the market will just continue to boom. Two of these deals were terminated after great fanfare.

Cresco Labs

Cresco Labs (CSE:CL) (OTCQX:CRLBF)  said it was ending its plan to acquire Florida-based VidaCann Ltd. which was originally announced on March 18, 2019. It was valued at $120 million when it was first announced.

“We recognize that responsibly allocating our shareholders’ capital is fundamental to long-term success. While it sometimes means making tough decisions, we are committed to executing on a superior capital agenda, responsibly accelerating the top and bottom-line, executing thoughtful and accretive M&A transactions, and generating efficiencies as we scale,” said Cresco Labs CEO and Co-founder Charlie Bachtell. “With the flexibility to continue to leverage non-dilutive funding options like sale-lease-back agreements, we are well-positioned to continue executing on our strategy to build the most important, enduring company in U.S. cannabis.”

In March, VidaCann was said to have plans to have 20 operating dispensaries by the end of 2019 and licenses for up to 30 in the state. It was to be Cresco’s entry into the lucrative market and another state to plant the Cresco Flag.

Separately, the company also announced the signing of a binding agreement for the sale-and-leaseback of two properties in Ohio and Michigan, for total additional funding of approximately $38 million.

Mr. Bachtell continued, “With these two announcements, we have effectively strengthened our balance sheet to the tune of nearly $158 million between new non-dilutive funding and the elimination of a significant near-term cash outlay earmarked for the Transaction. The team and operations at VidaCann are phenomenal, but with a focus on managing our cost of capital, and ensuring the most efficient and highest return on invested capital, the ability to deploy resources to other, existing, Cresco markets that are widely considered some of the top markets in the US, like Illinois, Pennsylvania, California and Nevada, has to take priority.  We believe it’s in the best interest of our shareholders to re-allocate resources to these existing higher return opportunities with a view to looking for a more capital efficient way to enter the Florida market over the longer term.”

Cresco Labs stock was up slightly by four cents to lately trade at $5.79, down from its 52-week high of $40.63.

SOL Global

SOL Global Investments Corp.’s (CSE: SOL) (OTCPK: SOLCF) said it decided against its deal with MCP Wellness to that was agreed to on April 23, 2019. SOL was to buy MCP Wellness for $35 million in cash and S$115 million in equity consideration in CannCure.

MCP is the Merida Capital Partners affiliate that owns the rights to own three Michigan cultivation licenses, a processing license, 9 licensed and operating dispensaries and 6 additional dispensary licenses, giving it the largest retail footprint in the state of Michigan.

According to the statement, both MCP and SOL Global said that “current market conditions do not support a transaction of this size, and both parties and their respective shareholders are better served focusing capital and resources on building out their respective businesses.” SOL Global said it will remain focused on the scale-up of its rapidly expanding Florida operations via One Plant Florida, and MCP said it will focus on opening additional dispensaries and launching a cultivation facility in Michigan.

While the acquisition is off, MCP Wellness may use Northern Emeralds (which SOL Global has proposed to buy)  to provide cultivation and processing standard operating procedures to MCP for a to be agreed upon royalty. The statement said that the $12.5 million advanced by SOL Global to MCP Wellness will be repaid in full over the next 12 months in monthly installments and 2 balloon payments at the 6 and 12 month time frames. In addition to that, CannCure, which is SOL Global’s portfolio company,  will have the option to acquire certain assets from MCP Wellness, convert any amounts due into stock in the Michigan operator, or complete the originally contemplated transaction on substantially similar terms.

Debra Borchardt

Debra BorchardtDebra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


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