Cresco Labs, the Illinois-based cannabis producer, will acquire New York-based Columbia Care for $2 billion in an all-stock transaction.
If the deal is completed, Cresco will become one of the country’s largest cannabis producers and retailers with over 100 dispensaries across 18 states.
“We couldn’t be more excited,” says Charlie Bachtell, CEO of Cresco. “It’s a unique opportunity to create industry leadership; it’s a very important time with some sort of federal regulatory reform, we think, on the horizon.”
Marijuana is still illegal on the federal level but 37 states have some sort of regulated market, with 18 allowing adult-use sales. Last year, legal sales totaled $26 billion in the U.S. and by 2030 the legal market will grow to around $65 billion, according to Cowen.
Nicholas Vita, the co-founder and CEO of Columbia Care, will join Cresco’s board but Bachtell is expected to lead the company.
Reuters first reported late Tuesday that the two companies were nearing an agreement.
The deal will have hurdles, including divesting a number of dispensaries and a few licenses in states where the two companies overlap, like Arizona, Florida, Illinois Massachusetts, New York, and Ohio. New York, where medical marijuana is legal and the state’s adult-use market is in the process of launching, is projected to be a $4.2 billion market within five years. “It’s a great opportunity where we do have overlap—they are incredibly valuable states that that people want to be in, so there’s a good market for divestment,” says Bachtell.
Columbia Care will expand Cresco’s presence to states like long-standing cannabis markets like California and Colorado, as well as states like New Jersey and Virginia, which have both passed adult-use but haven’t launched sales yet. “We have the material markets of today, but [Columbia Care] has the markets of tomorrow,” Bachtell says.
Under the terms of the deal, Cresco will acquire all the issued and outstanding Columbia Care shares. Columbia Care shareholders will receive 0.5579 of a Cresco Labs share for each Columbia Care share, which represents a 16% premium based on the closing price Columbia Care and 19% premium of Cresco Labs shares. Columbia Care shareholders will hold approximately 35% of Cresco Labs.
“Since our founding, our mission has been to deliver the best outcome for our stakeholders,” Vita said in a statement. “In an evolving industry, the opportunities to better achieve our mission through consolidation led us to this historic moment.”
Both companies are publicly listed in Canada due to the U.S. federal ban on cannabis. Columbia Care and Cresco have seen their stock prices crater 50% over the last year, but they are not alone—the entire industry has had difficulty keeping stock prices up as the U.S. government has not made meaningful progress in cannabis reform during the Biden administration.
The combined company will have the second-largest retail footprint in the industry after Trulieve. (Cresco has 49 dispensaries and Columbia has 99.)
The new company will also diversify the number of states in which the bulk of Cresco’s revenue comes from. Right now, 80% of its revenue is derived from Illinois, Pennsylvania and Massachusetts. If the deal closes, those states will only make up 50% of the company’s revenue, with states like Colorado and Florida and New Jersey climbing up the list.
“We focus on cannabis like the consumer packaged good that it is, and having access to 70% of the addressable market is how we turn our brand portfolio into the Miller High Life, Coca-Cola and Johnnie Walker Blue Label of cannabis,” says Bachtell.