Cresco Labs Inc. CEO Charlie Bachtell said his company’s $2 billion all-stock purchase of Columbia Care Inc. announced on Wednesday originated as a logical step for both acquisitive companies to bulk up quickly.
Cresco Labs
CL,
-6.10%
CRLBF,
-5.97%
has agreed to pay 0.5579 shares of its stock for each share of Columbia Care
CCHWF,
+1.92%.
The deal values Columbia Care at about a 16% premium over its closing price of $3.12 a share on Tuesday.
Columbia Care shareholders will hold approximately 35% of the pro forma Cresco Labs when the deal closes as expected in the fourth quarter.
The companies said the deal will create the largest multi-state operator in the U.S., measured by pro-forma revenue at more than $1.4 billion.
Shares of Cresco Labs are down 2% so far in 2022, compared to a drop of 19% by the AdvisorShares Pure U.S. Cannabis ETF
MSOS,
-0.34%.
Columbia Care stock is up 9.1% so far this year.
The tie-up came together “at a high level and quickly” as a logical combination between two consolidators in the industry that agreed that bigger is better nowadays in the cannabis space, Cresco CEO Bachtell said.
“For both companies it was a recognition that this was the right deal for both of us to do to secure industry leadership,” Bachtell said.
The combined company will have a market capitalization of roughly $4.5 billion, and 133 dispensaries, including 50 from Cresco Labs and 83 from Columbia Care.
The two companies will generate about $1.4 billion in combined revenue in 2022 based on their annualized fourth-quarter results.
Cresco Labs is already active in cannabis markets in many of the most populated U.S. states. Columbia Care has top market share in Colorado and a presence in Arizona and California, as well as inroad into the “states of tomorrow” such as New Jersey and Virginia that are in the process of legalizing cannabis for adult use.
Prior to the deal, Columbia Care had not publicly disclosed any plans to sell itself or to consider strategic alternatives. Bachtell described the genesis of the deal as more of a one-on-one process rather than a traditional auction with multiple bidders.
“We thought the timing was right, the opportunity was there, and we see a ton of synergies and mutual visions,” Bachtell said. “It fits really, really well.”
Cresco Labs is bulking up in anticipation of federal legalization in the U.S. which Bachtell predicts will happen in the future.
Prior to this deal, Cresco Labs had made 22 acquisitions with a combined value of $1.98 billion, according to FactSet data. Columbia Care has made seven acquisitions with a total value of $678 million.
