Where the Cresco-Columbia Care Merger Stands on Deadline Day

Heading into the June 30 deadline for Cresco Labs to complete its roughly $2-billion acquisition of fellow cannabis multistate operator Columbia Care, outsiders speculated whether the deal would once again get extended or go bust. The potential for the transaction to close without further delay remained elusive without the necessary divestitures completed for regulatory approval.

But none of these scenarios played out Friday, more than 15 months since the M&A agreement involving two of the world’s largest publicly traded cannabis companies was first announced in March 2022.

RELATED: Cresco Labs Targets $2B Acquisition of Columbia Care 

Instead, Chicago-based Cresco and New York-based Columbia Care announced June 30 that they are “working amicably with respect to the next steps in relation to the transaction and will provide further updates in the near future.” No deal was struck or terminated. No extension was announced. And no executive commentary was provided.

However, one key indicator that the companies remain on the same page is that they both posted the exact same press release on their websites. 

This limited update comes four months after the original agreement was mutually extended in February 2023 with the June 30 deadline to close. The extension was spurred by the companies needing additional time to finalize divestiture agreements and to obtain the regulatory approvals necessary for closure. But without meeting the deadline, the agreement is now up in the air.

The divestitures of certain assets in state markets where the companies have overlapping footprints, such as New York, are key to the blockbuster deal becoming a reality: Many states have licensing caps for how many dispensaries or how much canopy space one company can legally operate, or other regulatory restrictions.

One of the more publicized divestitures between the two companies was a $185-million agreement announced in November 2022 with Sean “Diddy” Combs, where an entity owned and controlled by the American rapper would acquire certain vertically integrated assets owned by Cresco and Columbia Care in New York, Illinois and Massachusetts.

But Cresco and Columbia Care haven’t made a big splash about the details of other divestitures since. Columbia Care CEO Nicholas Vita told listeners during a May 15 earnings call that the two companies have continued to move forward on the divesture front.

Fluctuating regulations in New York have left stakeholders trying to figure out what direction the state will eventually decide to move in with regard to existing medical operators, Vita said.  Columbia Care and Cresco continue to have conversations about all other key markets, including states like California, Florida, Ohio, Pennsylvania and elsewhere.

“What I can say is they’re great assets; there has been demand from a variety of different pockets. We continue to move forward,” Vita said May 15. “But these processes are always very unpredictable. And so, it’s hard to handicap what a timeline will look like and what an outcome will look like in the absence of definitive agreements.”

When a listener on the earnings call asked Vita about making strategic decisions that would benefit Columbia Care should the merger fail and the company remain independent, Vita said Columbia Care is sticking to its process in place and working closely with Cresco to move the transaction forward with the asset sales and divestures that are required for regulatory approval.

“There’s nothing that changes that,” he said. “[By June 30], the transaction … either gets extended by mutual consent, which requires both parties, or it doesn’t. Right now, we have all of our efforts that need to be focused on the Cresco transaction focused on the Cresco transaction.”

On a parallel path, Columbia Care has made the commitment to Cresco to take steps that the company believes will drive value, not only for Columbia Care stakeholders, but also for Cresco stakeholders at the point and time when the transaction consummates, Vita said.

“So, everything we’re doing right now, whether it’s the asset sales, improvements to our cost structure, reorganization of the way we actually function, is what I would describe as a very important outcrop of a very deliberate process that has taken place over the past 12 months,” he said. “But we never stopped focusing on our own business, and I think what we used this unusual period of time to really think about is, how do we position the assets of Columbia Care for the greatest success possible, for the greatest profitability possible? And that’s what you’re seeing.”

Vita clarified that while Columbia Care is working in collaboration with Cresco—the company cannot act unilaterally based on the terms of the agreement—he and his fellow leaders would not consider or follow through with any decision unless they thought it was in the best interest of not only Columbia Care stakeholders but also Cresco’s on a combined basis.

Cresco Labs CEO Charlie Bachtell also spoke about the collaborative effort during a May 24 earnings call with his company’s stakeholders and investors.

“While we do not have an update on the timing related to the outstanding divestiture transactions, we continue to work with Columbia Care to find a path forward that makes both strategic and financial sense,” he said. “We must come out of any transaction a stronger company than we would be as a standalone company.”

Later on the call, a listener asked Bachtell to provide additional color on the strategic versus financial sense of the transaction.

Bachtell said while there are several factors both inside and outside Cresco’s control as it relates to the transaction, the divestitures and the resulting proceeds are a big component the companies’ ability to get the combined debt leverage ratio in the right spot prior to closing.

“As the divestitures remain open and before we’re able to complete those, that’s a big driver of whether or not the deal can proceed with a structure that allows us to achieve goals that we set out at the beginning,” he said. “So, it really does come back to as these divestitures remain to be closed, they’re a big driver of whether or not we can make the deal make sense. And we’ll continue to update the public as we have more definitive information on those divestitures."

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