Cresco, Columbia Care Merger Up in Smoke

A $2 billion merger between Cresco Labs and Columbia Care is up in smoke a year after the companies announced the acquisition.

Had it gone through, the merger would have created the largest cannabis company in the United States.

The lack of banking reform at the federal level was to blame.

“In light of the evolving landscape in the cannabis industry, we believe the decision to terminate the planned transaction is in the long-term interest of Cresco Labs and our shareholders,” Cresco CEO Charles Bachtell said in a statement.

The terminated agreement was mutual, says the companies. Neither party will pay any penalties or cancellation fees.

Cresco, Columbia Care Merger Up in Smoke

Cresco Columbia Care Merger Up in Smoke

The plan for Chicago-based Cresco to buy New York-based Columbia Care went up in smoke this past week.

It began when both companies failed to divest enough assets for regulatory approvals by a June 30th deadline.

Cresco’s market cap is around $700 million, down from $2.7 billion in March 2022 when the companies first announced the merger. Columbia Care has a market cap of $200 million.

Along with the Cresco Columbia Care merger going up in smoke, the companies are also scrapping a $185 million deal with Sean “Diddy” Combs.

Government inaction is to blame. The Secure and Fair Enforcement Banking Act (SAFE Banking Act) is needed to help grow the industry.

SAFE Banking would give cannabis entrepreneurs access to loans and other banking services. It would also allow them to deduct operating expenses from their gross income.

Last year, Congress failed to pass banking reform for the seventh time (third time that year).

Cresco, Columbia Care Merger Up in Smoke

Cresco, Columbia Care Merger Up in Smoke

The Cresco, Columbia Care merger going up in smoke hardly surprises many analysts. The deadline to close the deal had already been delayed twice, with the most recent in June.

As mentioned, Cresco’s CEO blames the “evolving landscape” of the cannabis industry.

But “devolving” may have been a better word.

Columbia Care has already laid off 25% of its employees this year. And capital markets haven’t been friendly to cannabis in 2023.

In addition to high-interest rates, lack of reform in Washington, inflation from the central bank, wholesale cannabis price collapse, and low share prices – it’s cannabis carnage.

Having the Cresco, Columbia Care merger deal go up in smoke is another brick in the wall.

And the stock market is reflective of this.

Cresco Lab shares have fallen from $6.50 to $1.50. Over the same period, shares of Columbia Care fell from $3.10 to $0.40.

Of course, these stocks dropped after news spread that the Cresco, Columbia Care merger went up in smoke. Analysts expect both companies to recover.

What’s Next?

Cresco Columbia Care merger has gone up in smoke... what's next

Now that the Cresco Columbia Care merger has gone up in smoke… what’s next?

Cresco Labs will focus on “swift restructuring of low-margin operations, improving competitiveness and driving efficiencies in markets where we maintain leading market share, and scaling operations to prepare for growth catalysts in emerging markets,” the company said in a statement.

Columbia Care will continue its corporate restructuring plan, including closing the sale of a 36,000-square-foot cultivation facility in downtown Los Angeles.

“With the uncertainty of the past 16 months behind us, along with the enthusiasm and energy that accompanies moments of renewal, our team welcomes the next stage of Columbia Care’s growth and expansion,” Nicholas Vita, CEO of Columbia Care, said in a statement.