Rounding out the 2020 M&A season, Columbia Care closed its acquisition of Project Cannabis—a vertically integrated business based in California. The transaction comprises $52.5 million in Columbia Care stock and another $16.5 million that’s expected to come from the sale of Project Cannabis’s real estate assets.
Jonathan Storper, an attorney who represented Project Cannabis in the deal, says that the California side of this transaction is indicative of not only the strength of that state’s cannabis market but the sway it holds for larger operators. While Columbia Care listed a San Diego dispensary and a manufacturing facility among its U.S. portfolio, the Project Cannabis close is a significant step into the California landscape.
“National organizations are looking to expand and roll up throughout the United States and get efficiencies of scale,” he says. “And I think to the extent that folks don't already have a foothold in California, they realize it's really necessary.”
Project Cannabis, as a business, includes four dispensaries and a 36,000-sq.-ft. cultivation facility. Plus, the company’s wholesale distribution network is plugged into more than 100 dispensaries across the state. From the jump, Project Cannabis will integrate Columbia Care’s medically-focused and new adult use product lines into its offerings in California.
It’s an example of a smaller company positioning itself in a way that’s attractive to larger multi-state operators like Columbia Care. There’s a footprint on the ground already—and room to expand.
“I think, fundamentally, [Project Cannabis] created a very, very nice, vertically integrated company and a well-known brand,” Storper says. “They focused on the fundamentals of creating a well run company and brand, both in terms of growing a well heeled crop and creating well respected brands and locating in geographic markets that are advantageous—throughout Los Angeles and San Francisco. Staying attuned to the fundamentals of creating a cannabis company, I think that’s what really led to their success—as well as having the right kind of management and personnel who can achieve that.”
The deal was somewhat complex, in that both sides needed to work with multiple local jurisdictions and the state’s varied regulatory agencies to move forward and transfer the licenses. The state of California is consolidating the cannabis oversight duties of its three agencies currently working in the space (the Bureau of Cannabis Control, the Department of Food and Agriculture and the Department of Public Health). But, for now, it’s bit of a juggling act.
And yet—the power of the California market cannot be understated.
In fact, time is of the essence on this point.
When the state implemented its Prop. 64 legislation (known as the Medicinal and Adult-Use Cannabis Regulation and Safety Act, or MAUCRSA), policymakers opened a five-year window for smaller businesses to get up and running before any larger businesses are allowed in. Those “Type 5” licenses begin at 22,000 square feet of indoor cultivation space. (Nonetheless, many larger cannabis companies have “stacked” smaller licenses on top of one another, effectively creating footprints otherwise outside the scope of the state’s current licensing regime).
All that being said, the competitive landscape is only going to get hotter in California.
“The name of the game is to grow your brand,” Storper says, “and create efficiencies of scale—by either organically creating these vertically integrated companies or rolling them up in the way that Columbia Care is doing.”